Australian Securities and Investments Commission v Storm Financial Limited

Federal Court of Australia|2012-10-29|Before: Mr J, Reeves J

REASONS FOR RULING (Corrected from transcript) 1 These proceedings are regulatory proceedings commenced by the Australian Securities and Investments Commission (ASIC) against Bank of Queensland (BOQ) and Macquarie Bank Limited (MBL). ASIC seeks declarations and injunctions related to certain alleged contraventions of the Corporations Act 2001 (Cth) (the Act) by BOQ and MBL (collectively referred to in these reasons as the banks). In the course of the hearing of these proceedings, I have made a number of evidentiary rulings. These reasons relate to one of those rulings.

FACTUAL AND LEGAL CONTEXT 2 It is appropriate to begin with a brief essay of the factual and legal background to these proceedings. 3 Until early 2009, when it was placed in liquidation, Storm Financial Ltd (Storm) operated a number of offices throughout Queensland and other parts of Australia from which it delivered investment advice to its clients. During these proceedings those clients have come to be known as the Storm investors. ASIC contends that the model Storm used to provide this advice and the accompanying recommendations constituted a "managed investment scheme", as that expression is defined in s 9 of the Act, and that Storm was therefore required to register it as a scheme under Pt 5C.1 of the Act. If it did not do so, subject to various exclusions and defences contained in the Act, it contravened s 601ED(5) of the Act. ASIC therefore seeks, among other things, a declaration that Storm contravened s 601ED(5) of the Act. In addition, it seeks injunctions under s 1324(1) of the Act against the banks for being "directly or indirectly, knowingly concerned in, or party to, the contravention by" Storm of s 601ED(5) of the Act. 4 In the interests of the efficient conduct of the trial of these proceedings, a large amount of evidence has been tendered in the form of agreed statements of fact, that is, statements by witnesses that ASIC and BOQ agree represent those witnesses' testimony. In addition, a small number of witnesses have given oral testimony.

OBJECTION TO ABDY AGREED FACTS STATEMENT 5 BOQ objected to para 386 of the agreed statement of facts of Mrs Lorna Elizabeth Abdy and Mr Robert Cedric Abdy (the Abdys) which ASIC sought to tender in its case. That paragraph referred to an email chain dated 21 November 2008 passing between three employees of Storm - Ms Kimberley Moriconi, Ms Carey Fraser and Mr Simon Leavers. The particular part of the email chain to which objection was taken was the statement in the email from Ms Fraser to Mr Leavers that: "These clients have also been fantastic over the years and done all that we have told them". 6 The "clients" referred to in that statement were the Abdys. The Abdys had been clients of Storm since early 1998. Until 2005, Ms Bernardine Frawley had been their financial adviser at Storm. Thereafter, Ms Fraser became their financial adviser. She remained so as at the date of the email dated 21 November 2008. Both Ms Frawley and Ms Fraser worked in the Townsville office of Storm.

Contentions and relevant legislative provisions 7 Mr Crowe SC, for BOQ, submitted that Ms Fraser's statement in the 21 November 2008 email is hearsay which does not fall within the business records exception stated in s 69(2) of the Evidence Act 1995 (Cth) (Evidence Act). 8 Section 69(2) of the Evidence Act provides: The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made: (a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or (b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. 9 Also pertinent to this issue is s 69(5) of the Evidence Act, which provides: For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact). 10 The "asserted fact" in this instance was that over the years the Abdys had done all that Storm had told them to do. That fact is relevant to the day-to-day control that members of the alleged Storm scheme had over the operation of that scheme. Day-to-day control is raised as an issue by the s 9 definition of the expression "managed investment scheme" in para (a)(iii) of the Act. 11 Mr Crowe submitted that the business records hearsay exception in s 69(2) did not apply because it could not be inferred from the email of 21 November 2008 that Ms Fraser was a person who "had or might reasonably be supposed to have had personal knowledge of the asserted fact". 12 In the alternative, Mr Crowe submitted that, even if it could be inferred that Ms Fraser had the requisite personal knowledge during the period she was the Abdys' financial adviser, there was no basis upon which it could be inferred that she had any personal knowledge prior to that time, that is, in the years between 1998 and 2005. As to that period, Mr Crowe submitted that there was nothing in the email from which it could be inferred that Ms Fraser had gained that knowledge by reading the Storm files relating to the Abdys that had been kept by Ms Frawley. 13 Mr Cook, for ASIC, submitted that Ms Fraser could reasonably be supposed to have had the requisite personal knowledge during the period she was the Abdys' financial adviser and "over the years" before that. He submitted it could be inferred that she had gained that knowledge from a combination of what she personally saw, heard, or perceived while she was the Abdys' financial adviser and from the information it could be inferred she obtained from the Storm computerised record system maintained by Ms Frawley.

Consideration and ruling 14 In my view, there was a number of defects in Mr Crowe's line of reasoning. First, in determining whether Ms Fraser was a person who had, or might reasonably be supposed to have had, personal knowledge of the asserted fact, I did not consider I was limited to the contents of the email dated 21 November 2008. As well as that document, I considered I could draw inferences from other sources, including other evidence before me: see NT Power Generation Pty Ltd v Power & Water Authority [1999] FCA 1549 at [2] per Mansfield J and Australian Securities and Investments Commission v Rich (2005) 216 ALR 320; [2005] NSWSC 417 at [196] per Austin J. Thus, I considered I could readily infer that, from 2005, Ms Fraser was a person who might reasonably be supposed to have had personal knowledge of the strict manner in which the Abdys followed Storm's advice. I based that inference on what Ms Fraser was likely to have personally observed as the Abdys' financial adviser. 15 Secondly, as to the period before 2005, I considered that s 69(2)(b) of the Evidence Act extended the s 69(2) exception to allow the asserted fact to be based on information that Ms Fraser directly or indirectly obtained from Ms Frawley about the manner in which the Abdys followed Mrs Frawley's advice. During that pre-2005 period, I considered I could readily infer that Ms Frawley was similarly able to gain the requisite personal knowledge from her observations of the strict manner in which the Abdys followed the advice she gave them. Further, I considered I could infer from Ms Fraser's reference to "over the years" that she was referring to both her period as the Abdys' financial adviser and to Ms Frawley's period in that role. 16 Finally, I considered I could infer that Ms Fraser obtained the information about Ms Frawley's period as the Abdys' financial adviser from the records contained in Storm's computerised record system. I considered her reliance on this knowledge accorded with the conditions set in s 69(2)(b) of the Evidence Act. I was able to infer this from the following evidence that was before me. 17 Elsewhere in the Abdys' statement there was evidence of a series of written statements of financial advice that Storm gave to them. Approximately 12 such statements of advice were given to the Abdys before mid-2005 and approximately 15 were given after that time. The Abdys' statement disclosed that on most, if not every, occasion those advices were given, they were followed by the Abdys, and on most, if not every, such occasion, at least one of them signified that by initialling the written statement of advice. There was also evidence before me that Storm maintained a computerised record system of those advices and the steps taken in response to them in relation to each of its investor clients. That system ultimately came to be called Pro Phormula. 18 For these reasons, I considered that the business records hearsay exception in s 69(2) of the Evidence Act did apply to the statement in the email from Ms Fraser set out in para 386 of the Abdys' statement. Accordingly, I allowed it to be admitted into evidence as a part of that statement. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Ruling herein of the Honourable Justice Reeves.

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