Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd

Supreme Court of NSW|2015-06-12|Before: Sackar J

Solicitors: Mark Pangbourne, solicitor for Australian Securities & Investments Commission (Plaintiff) HWL Ebsworth Lawyers (Defendant) File Number(s): 2014/331307

INTERLOCUTORY JUDGMENT

SACKVILLE AJA: On 11 June 2015, the sixth day of the trial, Mr Hewitt sought leave on behalf of the defendant to amend the defence filed on 27 February 2015 (Defence). After hearing argument on the application, I refused leave and indicated that I would provide reasons for refusing leave later.
I am also delivering a judgment today giving reasons for a ruling on evidence made on 4 June 2015, the second day of the hearing. In that judgment, I summarise the case pleaded by the plaintiff (ASIC) and the legislative scheme relevant to its case. [1] I do not repeat the summary here, but this judgment should be read together with the ruling on evidence.

Regulation 7.1.29

Regulation 7.1.29 of the Corporations Regulations was introduced by the Corporations Amendment Regulations 2003 (No 3) (Cth). [5] It had therefore been in force for approximately 12 years before the Defence was filed in the present proceedings.
Regulation 7.1.29 relevantly provides as follows: (1) For paragraph 766A(2)(b) of the Act, a person who provides an eligible service is taken not to provide a financial service if: (a) the person provides the eligible service in the course of conducting an exempt service; and (b) it is reasonably necessary to provide the eligible service in order to conduct the exempt service; and (c) the eligible service is provided as an integral part of the exempt service. (2) For this regulation, a person provides an eligible service if the person engages in conduct mentioned in paragraphs 766A(1)(a) to (f) of the Act. … (5) For this regulation, a person also provides an exempt service if: (a) the person provides advice in relation to the establishment, operation, structuring or valuation of a superannuation fund …; and (b) the person advised is, or is likely to become: (i) a trustee; or (ii) a director of a trustee; or (iii) …; (iv) a person who controls the management; of the superannuation fund; and (c) except for advice that is given for the sole purpose, and only to the extent reasonably necessary for the purpose, of ensuring compliance by the person advised with the SIS Act … [or] the SIS Regulations … the advice: (i) does not relate to the acquisition or disposal by the superannuation fund of specific financial products or classes of financial products; and (ii) does not include a recommendation that a person acquire or dispose of a superannuation product; and (iii) does not include a recommendation in relation to a person's existing holding in a superannuation product to modify an investment strategy or a contribution level; and (d) if the advice constitutes financial product advice provided to a retail client - the advice includes, or is accompanied by, a written statement that: (i) the person providing the advice is not licensed to provide financial product advice under the Act; and (ii) the client should consider taking advice from the holder of an Australian Financial Services Licence before making a decision on a financial product. (6) In this regulation: … self managed superannuation fund has the meaning given by section 17A of the SIS Act."

The Proposed Amendment

The Defence essentially consists of a series of admissions and denials. It does not plead an affirmative case in opposition to ASIC's claim for relief. In particular, it does not allege that the defendant's activities were or are exempt from the licensing requirement imposed by s 911A of the Corporations Act.
The defendant's proposed amendment would insert a new paragraph in the Defence, as follows: "36A Further, or in the alternative, if (which is denied) the defendant engaged in conduct mentioned in s 766A(1)(a) of the Corporations Act as alleged by the plaintiff in the Statement of Claim, the defendant did not provide a financial service for the purpose of s 766A(1) of the Corporations Act by reason of regulation 7.1.29 of the Corporations Regulations because the defendant provided an 'exempt service' within the meaning of regulation 7.1.29(5) of the Corporations Regulations. Particulars (i) The defendant says that if, by the conduct of the defendant referred to in paragraph 33 of the Statement of Claim, the defendant has provided a financial service as alleged by the plaintiff, then that service is an 'eligible service' within the meaning of regulation 7.1.29(2). (ii) The defendant says that the service referred to in the preceding sentence is an 'exempt service' within the meaning of regulation 7.1.29(5) insofar as the defendant provided advice in relation to the establishment, operation, structuring or valuation of a superannuation fund. (iii) The advice provided by the defendant was typically provided to the persons identified in regulation 7.1.29(2) and was not advice of the kind referred to in regulation 7.1.29(3). (iv) Since November 2014, the defendant has provided a written statement to those provided with the advice referred to above and refers to paragraph 40 of the Affidavit of Jenae Johnson dated 25 March 2015. (v) The requirements of regulation 7.1.29(1) are satisfied because the financial service allegedly provided by the plaintiff and the 'exempt service' referred to above are one and the same service and are provided in respect of the same conduct (namely, the conduct of the defendant referred to in paragraph 33 of the Statement of Claim)."
It will be seen that the particulars to proposed par 36A refer to a written statement provided to potential investors. The particulars also refer to an affidavit of Ms Johnston, the defendant's Chief Operations Officer. Paragraph 40 of Ms Johnston's affidavit explains the reference to a written statement: "[The defendant] has also undertaken the following additional changes to its operating procedures: (a) on about 26 November 2014, [the defendant] began providing a notice in the form of the document annexed hereto … to any actual or potential customer of [the defendant] at 'Home Visits' and 'Office Meetings' (where potential clients speak with [the defendant's] sales consultants at either their home or [the defendant's] offices to discuss the possible purchase of property) … and (b) on or about 27 November, [the defendant] ceased entering into any agreement with any person to charge that person any fee or any mark up on any fee charged by a third party in relation to: (i) the establishment of a SMSF; and (ii) the preparation of a statement of advice."
The notice to which Ms Johnston (Notice) refers is in the following form:
The evidence adduced by the defendant indicates that there have been slight variations in the form of the Notice from time to time after its introduction. However, the text of the Notice appears to have remained constant.

The Supporting Affidavit

Mr McGregor acknowledges in his affidavit that ASIC's statement of claim pleads that the defendant, as a matter of course, provided a document entitled "Property Investment Analysis" (PIA) to potential investors. However, Mr McGregor says that it only became apparent to him during the hearing that ASIC intended to place considerable weight on the defendant's use of PIAs in order to prove that the defendant conducted a "financial services business". This realisation prompted Mr McGregor to undertake "further research … after ASIC opened its case on 3 June into the relevant provisions of the Corporation Act and Corporations Regulations". The further research led Mr McGregor to conclude that: "[s]ignificant aspects of ASIC's pleaded case would appear to be caught by subregulation (5) [of reg 7.1.29] including the establishment of an SMSF and advice in relation to the operation of a superannuation fund (which it will be submitted would cover PIAs)."
Mr McGregor states that the defendant intends, if permitted, to rely on the Notice in order to show that the defendant provided a written statement to potential investors complying with reg 7.1.29(5)(d) of the Corporations Regulations . He also says that the defendant will rely on affidavit evidence already given by a number of the defendant's representatives. According to Mr McGregor, that evidence indicates that from about November 2014 a copy of the Notice was given to potential investors.
Mr McGregor identifies passages in seven affidavit upon which the defendant wishes to rely in order to show that it complied with reg 7.1.29(5)(d), at least from November 2014. One of the passages is para 40 of the affidavit of Ms Johnston reproduced above. [6] The passages in the other six affidavits are dealt with below.
Mr Lini, a sales consultant contracted to the defendant, deposes that early in 2014, he was informed by senior managers that consultants could not give financial advice or make recommendations concerning superannuation. Prior to that meeting, Mr Lini would say to clients during the face to face run meetings, words to the effect that an SMSF is "an opportunity you can take on board". After being given the instruction by senior managers, Mr Lini no longer used these words in his discussions with potential purchasers. Mr Lini also says that "in approximately the middle of 2014, we were given a document [the Notice] which we give to clients".
Two points should be made about Mr Lini's evidence. First, he does not explain the circumstances or manner in which the Notice was given to potential investors. In particular, he does not identify the point in the process when he gave the Notice to potential clients. Secondly, Mr Lini is clearly incorrect in stating that he received copies of the Notice in mid-2014. It is common ground that the Notice was not provided to representatives until November 2014.
Ms Wilson, an employee of the defendant since February 2014, says in her affidavit dated 26 March 2015 that she "participated in the training sessions recently provided to us by Park Trent's lawyers". She also says that: "[w]hen I now meet with client's [sic] I provide to them a note which confirms, among other things, that Park Trent are not licenced [sic]". Like Mr Lini, Ms Wilson does not identify when or in what circumstances she provided the Notice to potential clients.
Mr Silver is self-employed, but has worked under contract with the defendant for nine years. Mr Silver deposes as follows: "It is now my usual practice when meeting with clients not to mention SMSF's and I do not recommend to a client to use a SMSF to buy property. If a client asks me about SMSF's, it is my usual practice to say words to the effect of 'an SMSF can be used to purchase property'. Further, I hand out a document to clients headed 'Self Managed Superannuation Make sure you get the advice that's right for you'."
Mr Agarwal is a consultant with Cross Country Realty Victoria Pty Ltd (CCRV), a company associated with the defendant. He deposes that in December 2014 he attended by telephone link a compliance training session conducted by a solicitor. He says that he: "also received a direction (on a date that I cannot recall) from management at Park Trent requiring Property Consultants like myself to hand out a document on Park Trent letterhead if, during a Home Visit, it became apparent that the potential client was interested in purchasing a property with a SMSF. I complied with the direction." Mr Agarwal does not provide any further detail as to the manner in which he complied with the direction.
Mr Perera, an employee of CCRV, deposes that it has not been his practice to raise the topic of SMSFs unless first asked about it by a potential client. If asked about SMSF, he says that his practice is to tell the client that he is not a qualified financial adviser and cannot provide advice about superannuation. He also says that he hands out the Notice to the client. He does not provide further details.
Ms Parr, an employee of CCRV for five and a half years, deposes that in November 2014 she received a direction from head office in North Wollongong that the Notice was to be handed out to potential clients who were interested in purchasing a property through an SMSF. She says that she complied with the direction, but does not give further information as to her practice.

The Power to Amend

Section 64(1) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) empowers the court at any stage of the proceedings to grant leave to a party to amend any document in the proceedings. Section 64(2) of the Civil Procedure Act provides that: "Subject to section 58, all necessary amendments are to be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, correcting any defect or error in the proceedings and avoiding multiplicity of proceedings."
Section 58(1) of the Civil Procedure Act relevantly states that in deciding whether to make an order for an amendment of a document, the court must seek to act in accordance with the "dictates of justice". Section 58(2) of the Civil Procedure Act provides as follows: "For the purpose of determining what are the dictates of justice in a particular case, the court: (a) must have regard to the provisions of sections 56 and 57, and (b) may have regard to the following matters to the extent to which it considers them relevant: (i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56 (3), (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case."
Section 56(1) of the Civil Procedure Act states that: "[t]he overriding purpose of this Act and of rules of court in their application to civil proceedings is to facilitate the just, quick and cheap resolution of the real issues in the case". The court must seek to give effect to the overriding purpose when it exercises any power conferred by the Civil Procedure Act or the rules. [7] A party to civil proceedings is under a duty to assist the court to further the overriding purpose and to that effect, to comply with the court's orders and directions. [8] A solicitor or barrister representing a party must not, by his or her conduct, cause a party to civil proceedings to be put in breach of the duty imposed by s 56(3). [9]
Section 57 of the Civil Procedure Act provides as follows: "(1) For the purpose of furthering the overriding purpose referred to in section 56(1), proceedings in any court are to be managed having regard to the following objects: (a) the just determination of the proceedings, (b) the efficient disposal of the business of the court, (c) the efficient use of available judicial and administrative resources, (d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties. (2) This Act and any rules of court are to be so construed and applied, and the practice and procedure of the courts are to be so regulated, as best to ensure the attainment of the objects referred to in subsection (1)."

The Principles

The decision of the High Court in Aon Risk Services Australia Ltd v Australian National University (Aon Risk Services v ANU) [10] establishes that the reference in s 56 of the Civil Procedure Act to "the real issues in the proceedings" is to issues raised, even if unclearly, at the time the application to amend is made. [11] The expression "real issues in the proceedings" does not extend to any fresh issues which a party seeks to advance, even if that party acts in good faith and the issues are arguable.
The court's discretion to permit amendments, conferred by s 64(1) of the Civil Procedure Act, is subject to the dictates of justice, as specified in s 58(2). This requires the court to have regard to the "overriding purpose" of the Civil Procedure Act stated in s 56(1) and the objects stated in s 57(1). The first of those objects is the "just determination of the proceedings". However, as the joint judgment in Aon Risk Services v ANU pointed out in relation to rules of court drafted in similar terms, a just determination of the proceedings must be understood in the light of the purposes stated in the governing legislation: [12] "Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and costs are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs."

The Present Case

I am prepared to accept that the proposed amendment, if permitted, might raise arguable issues. I also accept that it is no light matter to deprive a party of the opportunity to amend its pleadings to rely on an arguable contention. While the loss of that opportunity is an important consideration, it is necessary to determine what the "dictates of justice" require in the circumstances of the present case having regard to the directions given in s 58(2) of the Civil Procedure Act.
Mr McGregor's affidavit correctly acknowledges that ASIC's statement of claim identifies the PIAs as an element in its case that the defendant carried on and continues to carry on a financial services business in contravention of s 911A of the Corporations Act. The statement of claim specifically alleges that during individual face to face meetings with potential investors conducted in the defendant's offices (known as "run meetings"), the practice is for the defendant's representatives to show the investor a PIA which: "on the basis of variable assumptions, sets out financial projections over a 10 year period, including capital growth, cash flow and tax implications, relating to the purchase of a particular investment property and shows the basis on which the potential Investor would be able to fund the purchase and continued ownership of that particular property"
It is somewhat difficult to understand why it was not until Ms Cheeseman opened ASIC's case that the defendant's legal representatives apparently appreciated the significance of the PIAs to ASIC's case. It is also difficult to understand why that appreciation alerted the defendant's representatives to the need to undertake what Mr McGregor describes as "further research" into the relevant provisions of the Corporations Act and the Corporations Regulations. The defendant's entitlement to rely on the exemption created by reg 7.1.29 of the Corporations Regulations cannot depend on whether or not it provides PIAs to potential investors.
As I have noted, reg 7.1.29 of the Corporations Regulations was in force for some 12 years prior to the Defence being filed in the present proceedings. Mr McGregor does not expressly state that the defendant's legal representatives were unaware of reg 7.1.29 before the Defence was filed or when the hearing commenced. However, ASIC did not suggest that the defendant had made a deliberate forensic decision not to rely on reg 7.1.29 and I do not approach the application for leave to amend on that basis. I consider it appropriate to regard the failure to advert to reg 7.1.29 as an oversight. This inference receives some support from the fact that the text of the Notice does not closely follow the language of reg 7.1.29(5)(d), The disparity suggests that at the time the defendant distributed copies of the Notice those advising it were unaware of reg 7.1.29(5)(d).
If the proposed amendment raised only issues of law (as Mr Hewitt contended), I would be inclined to grant leave to the defendant to amend the Defence. I would be prepared to do so notwithstanding the lateness of the application and the failure of the defendant's legal representatives to become aware of a regulation that had been in force for over a decade. If the amendment raised only questions of law, ASIC would be able to address any new issues in its final submissions. Any costs wasted by reason of the late application to amend could be addressed by making an appropriate costs order. In these circumstances it is unlikely that the hearing would be significantly lengthened or that the resolution of the case would be delayed.
In my view, however, the proposed amendment raises not only legal issues, but fresh factual issues that would need to be the subject of evidence before the necessary findings could be made. This can be seen from the requirements of reg 7.1.29(5)(d).
It is arguable that the Notice, although it does not precisely follow the language of reg 7.1.29(5)(d)(i) and 7.1.29(5)(d)(ii), nonetheless complies in substance with those sub-clauses. But subpar (5)(d) of reg 7.1.29 requires that, if the advice provided to a retail client constitutes financial produce advice, the advice is to include or be accompanied by a written statement complying with sub-clauses (i) and (ii). Unless that is done, the defendant cannot claim to comply with reg 7.1.29(5)(d) and thus cannot claim to provide an exempt service.
As I have noted, the evidence adduced from the defendant's representatives does not descend to the detailed circumstances in which they have provided the Notice to potential clients. The affidavit evidence [13] is general in character and, for the most part, does not address whether the Notice was given as part of the "financial product advice" or whether the advice was accompanied by the Notice. Not surprisingly, Ms Cheeseman did not pursue this issue with the witnesses in cross-examination since at that stage it had not been identified in the pleadings as a matter in dispute. Moreover, Ms Cheeseman elected not to cross-examine some of the deponents whose evidence Mr McGregor referred to in his affidavit, presumably because she regarded cross-examination as unnecessary.
The evidence of Mr Kutup, who was cross-examined, illustrates the questions that are likely to arise. Mr Kutup, an employee of the defendant, gave evidence on the sixth day of the trial, after the application for leave to amend had been foreshadowed but not heard. In the course of his evidence the following exchange took place: "HIS HONOUR Q. Mr Kutup, has it been at any time your practice when conducting the run meetings to provide the people you see with a written statement that says that you're not licensed to provide financial product advice under the Act? A. I don't-- Q. I'm not suggesting you're bound to, I'm just asking whether it's your practice. I'm talking about written advice? A. No."
In re-examination, Mr Kutup's attention was directed to the Notice. He was asked what his practice had been since 26 November 2014 in relation to the Notice. He answered that the "document is actually in the packs that we take out to the in home". He went on to explain that the Notice is in a pack of documents that is left with the client, and that includes company profiles and other information.
It is far from clear that Mr Kutup's practice, if accurately described, constitutes compliance with reg 7.1.29(5)(d) of the Corporations Regulations. Merely providing the Notice to a potential client at the initial home visit as part of a bundle that includes other documents may not satisfy the requirement that the financial product advice provided to the client include or be accompanied by a written statement containing the prescribed information. ASIC's case is that financial product advice is often (if not always) given at the run meeting, which follows the home visit. Provision of the Notice at an earlier stage of the process, particularly if it is not specifically drawn to the attention of the potential investor, may well not comply with subpar (5)(d).
It is important to appreciate that the affidavit evidence on which the defendant wishes to rely lacks specificity and varies in content. Mr Kutup's practices, for example, appear to differ from those of other representatives, at least insofar as their practices can be discerned from the affidavit evidence. In order to make findings as to whether the defendant complied with sub-par (5)(d), it would be necessary to examine the circumstances in which each of the deponents (and perhaps other witnesses) provided the Notice to potential clients and the relationship between the Notice and the financial product advice given in the particular case. Witnesses who have already been cross-examined would need to be recalled and others who have not been cross-examined might be required for cross-examination. As a matter of procedural fairness, ASIC would also have to be given an opportunity to determine whether the voluminous documentation sheds light on how the Notice was used in conducting the defendant's activities and whether ASIC wished to adduce further evidence on the issues raised by the defendant's amendment.
The defendant's reliance on reg 7.1.29 is likely to raise other factual issues. Regulation 7.1.29(5)(c) states, inter alia, that the person claiming to provide an exempt service must not give financial product advice that includes:

a recommendation that a person acquire or dispose of a superannuation product; or
a recommendation in relation to a person's existing holding in a superannuation product to modify an investment strategy. Each of these negative requirements necessitates the making of factual findings. While the factual questions bear some similarity to those presented by ASIC's claim for relief, they are by no means identical.

Similarly, reg 7.1.29(1) is likely to present factual issues for determination that have not been explored in the evidence. Regulation 7.1.29(1) limits the exemption to a person who provides the "eligible service" [14] in the course of conducting an exempt service and to a case where the eligible service is "provided as an integral part of the exempt service". These limitations potentially give rise to factual questions of considerable complexity. None has previously been an issue in the proceedings.
If the proposed amendment was allowed, it is virtually certain that witnesses who have already given evidence would have to be recalled for further cross-examination. The opportunities that would have to be given to ASIC to consider whether it should adduce further evidence would necessarily involve delays in a case that was given an expedited hearing. Not only would the court have to find additional hearing time, but the days set aside for the hearing of final submissions [15] would have to be vacated and rescheduled. These considerations are relevant to each of the objects identified in s 57(1) of the Civil Procedure Act.
I have also taken into account that the amendment application was not only made extremely late, but that the delay is wholly attributable to lack of thoroughness in the defendant's camp. As I have noted, it is not apparent why a belated appreciation of the significance of the PIAs prompted research that should have been undertaken at a much earlier stage of the proceedings. In any event, the significance of the PIAs (whatever it may be) should have been apparent from a reading of the statement of claim. These are matters which can and should be taken into account in determining the dictates of justice in the present case. [16]
For these reasons, I concluded that the dictates of justice in the present case required that the defendant's application to amend its Defence should be refused.
I should add, for the avoidance of doubt, that this ruling does not prevent the defendant from relying on the Notice and the use by its representatives for other purposes within the scope of the pleadings. Evidence of these matters may be relevant, for example, on the exercise of the Court's discretion with respect to relief or to the form of orders that might be made.

Endnotes

Australian Securities and Investments Commission v Park Trent Properties Pty Ltd (No 1) [2015] NSWSC 752 at [10]-[14].
See Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd [2015] NSWSC 342 at [4]-[5] (Sackar J).
Order 8, made on 2 April 2015.
See at [10] below.
Sch 1 [2]
At [13].
Civil Procedure Act, s 56(2).
Civil Procedure Act, s 56(3).
Civil Procedure Act, s 56(4).
[2009] HCA 27; 239 CLR 175.
[2009] HCA 27; 239 CLR 175 at [82] (Gummow, Hayne, Crennan, Kiefel and Bell JJ).
[2009] HCA 27; 239 CLR 175 at [98].
Summarised at [18]-[25] above.
This expression is defined by reg 7.1.29(2) to include conduct mentioned in s 766A(1)(a) of the Corporations Act. Section 766A(1)(a) provides that a person provides a financial service if he or she provides "financial produce advice" within s 766B.
The days that have been set aside are 19 and 22 June 2015.
Civil Procedure Act, ss 58(2)(b)(ii), 58(2)(b)(iii).

Amendments 09 July 2015 - As per [1] of the Interlocutory Judgment, the Date of Decision on the Coversheet should read "11 June 2015". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 July 2015

At a glance

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Cases Cited (3)