Australian Securities and Investments Commission v Thorne [2021] FCA 209 | Case summary

Background facts 6 At relevant times Ms Thorne was a director of two companies conducting businesses on the Gold Coast in Queensland. The companies were Saber Superannuation Pty Ltd and Saber Accountants Pty Ltd. The businesses in which the companies were engaged provided accounting, taxation and self-managed superannuation fund (SMSF) administration services. 7 Between 28 April 2014 and 12 December 2017, Ms Thorne was a representative of the Australian Financial Services licensee SMSF Advice Pty Ltd (SMSF Advice). She was authorised to provide financial product advice, as defined in s 766B of the Corporations Act 2001 (Cth) (Corporations Act), on behalf of SMSF Advice. During this period and under this authorisation, Ms Thorne provided personal financial advice to retail clients which recommended transfer of existing superannuation into SMSFs and the purchase of interests in property. 8 ASIC relied on affidavits of Ms Nicole Wren, in particular her affidavit sworn 12 December 2019. At material times Ms Wren was a Senior Investigator in the Serious Financial Crime Taskforce, Enforcement, in the Brisbane office of ASIC. Ms Wren deposed that, following a review of Ms Thorne's client files, ASIC formed the view that Ms Thorne had contravened ss 961B, 961G and 961J of the Corporations Act in respect of advice given. These sections provide: 961B Provider must act in the best interests of the client (1) The provider must act in the best interests of the client in relation to the advice. (2) The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following: (a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions; (b) identified: (i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and (ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client's relevant circumstances); (c) where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information; (d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice; (e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product: (i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and (ii) assessed the information gathered in the investigation; (f) based all judgements in advising the client on the client's relevant circumstances; (g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances. Note: The matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter (the client's relevant circumstances). That subject matter and the client's relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought. Advice given by Australian ADIs - best interests duty satisfied if certain steps are taken (3) If: (a) the provider is: (i) an agent or employee of an Australian ADI; or (ii) otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and (b) the subject matter of the advice sought by the client relates only to the following: (i) a basic banking product; (ii) a general insurance product; (iii) consumer credit insurance; (iv) a combination of any of those products; the provider satisfies the duty in subsection (1) in relation to the advice given in relation to the basic banking product and the general insurance product if the provider takes the steps mentioned in paragraphs (2)(a), (b) and (c). General insurance products - best interests duty satisfied if certain steps are taken (4) To the extent that the subject matter of the advice sought by the client is a general insurance product, the provider satisfies the duty in subsection (1) if the provider takes the steps mentioned in paragraphs (2)(a), (b) and (c). Regulations (5) The regulations may prescribe: (a) a step, in addition to or substitution for the steps mentioned in subsection (2), that the provider must, in prescribed circumstances, prove that the provider has taken, to satisfy the duty in subsection (1); or (b) that the provider is not required, in prescribed circumstances, to prove that the provider has taken a step mentioned in subsection (2), to satisfy the duty in subsection (1); or (c) circumstances in which the duty in subsection (1) does not apply. … 961G Resulting advice must be appropriate to the client The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client. Note: A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A). … 961J Conflict between client's interests and those of provider, licensee, authorised representative or associates (1) If the provider knows, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of: (a) the provider; or (b) an associate of the provider; or (c) a financial services licensee of whom the provider is a representative; or (d) an associate of a financial services licensee of whom the provider is a representative; or (e) an authorised representative who has authorised the provider, under subsection 916B(3), to provide a specified financial service or financial services on behalf of a financial services licensee; or (f) an associate of an authorised representative who has authorised the provider, under subsection 916B(3), to provide a specified financial service or financial services on behalf of a financial services licensee; the provider must give priority to the client's interests when giving the advice. Note: A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A). (2) If: (a) the provider is: (i) an agent or employee of an Australian ADI; or (ii) otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and (b) the subject matter of the advice sought by the client relates only to the following: (i) a basic banking product; (ii) a general insurance product; (iii) consumer credit insurance; (iv) a combination of any of those products; subsection (1) does not apply to the extent that the advice relates to a basic banking product or a general insurance product or a combination of those 2 products. (3) Subsection (1) does not apply to the extent that the subject matter of the advice sought by the client is a general insurance product. 9 On 13 February 2019 Ms Thorne entered into an EU with ASIC in which she admitted to the conduct identified by ASIC. In particular Ms Thorne admitted to ASIC that she had failed to: act in the best interests of her clients (s 961B Corporations Act) in relation to 11 of those clients; provide appropriate advice (s 961G Corporations Act) in relation to 7 of those clients; prioritise the clients' interests above that of her own (s 961J Corporations Act) in relation to 11 of those clients; and provide Statements of Advice within the relevant time frame (s 946C Corporations Act) in relation to 9 of those clients. 10 Specifically, Ms Thorne admitted to ASIC that she: did not undertake a professional assessment of the reasons why the clients wished to invest in direct property through superannuation; where relevant, did not compare the benefits and risks associated with the clients maintaining their superannuation with existing providers, alternate fund providers and having superannuation subject to a SMSF; failed to ascertain whether the clients intended to draw a pension from the SMSF once they reached retirement age, and if so, how they would achieve this with an illiquid asset such as an investment property; recorded the client's interest in establishing an SMSF for the purpose of purchasing direct property or investing their SMSF in direct property as the client's goal or objective, and did not critically probe the reasons for the clients wanting to invest in direct residential property and what they hoped to achieve by doing so; inappropriately scoped the advice to remove retirement planning and insurance produce recommendations; classified all of the clients as growth investors, despite the manner in which this was determined being insufficient. Despite classifying the clients as growth investors, none of the clients were invested in accordance with the stipulated growth asset allocation; failed to include an adequate cost comparison within the Statement of Advice; failed to ascertain whether the clients had he time and expertise to manage their superannuation affairs correctly and did not discuss or implement a succession plan for the SMSFs; did not consider how the clients would meet their loan obligations in circumstances where the loan terms would surpass their superannuation preservation age; did not include any provisions for insurance premiums in the SMSF cashflows; failed to undertake adequate stress testing of the proposed strategy including whether the strategy would remain viable if the client's income educed or the property remained untenanted; proceeded to provide her advice to roll over existing superannuation despite knowing the client had not sought external personal insurance advice; provided advice regarding the levels of personal insurance cover the clients should hold, however these were generic amounts and not tailored to each client; recommended a number of her clients commence a new SMSF despite having less than, or just over, $200,00 in superannuation assets, despite advising them that they needed at least $200,000 in superannuation for it to be viable; and recommended a SMSF strategy that was more expensive with limited evidence to suggest that the strategy would provide an increased retirement benefit. 11 Further, Ms Thorne admitted to ASIC that she: charged the clients for establishing the SMSF and the holding trust and recommended that Saber Accountants prepare the annual accounts and tax returns, such that Ms Thorne recommended the services of a related party to create extra revenue for herself in circumstances where the initial advice was not in the client's best interests; and failed to provide Statements of Advice to clients within the timeframe set out in s 946C of the Corporations Act. 12 Relevantly, para 3 of the EU was in the following terms: 3. Undertakings 3.1 Under s 93AA of the ASIC Act, Ms Thorne has offered, and ASIC has agreed to accept as an alternative to pursuing administrative action under the Corporations Act, the undertakings in paragraphs 3.2 to 3.8. 3.2 Ms Thorne undertakes not to do any of the following for a period of 3 years commencing from the Acceptance Date: 3.2.1 act or engage in any conduct as a Representative of a Financial Services Licensee; 3.2.2 provide Financial Services, whether on her own behalf or on behalf of another person who carries on a Financial Services Business, whether as an employee of that person or otherwise. 3.3 Ms Thorne undertakes to provide, within 28 days of the Acceptance Date, the following information in writing to each Client to whom she provided personal advice while authorised by the Licensee: 3.3.1 Her name and authorised representative number; 3.3.2 A copy of ASIC's media release in relation to this Enforceable Undertaking; 3.3.3 The name of the Licensee and the Australian Financial Services Licence number allocated to the Licensee; 3.3.4 Contact details of the Licensee for dealing with enquiries and complaints regarding the Enforceable Undertaking or the conduct of Ms Thorne while a Representative of the Licensee. 3.4 Ms Thorne undertakes to notify ASIC in writing, within 35 days of the Acceptance Date, whether she has written to each Client as required by paragraph 3.3. 3.5 Ms Thorne undertakes to permanently refrain from doing any of the following if paragraph 3.6 is satisfied: 3.5.1 act or engage in any conduct as a Representative of a Financial Services Licensee; or 3.5.2 provide financial Services, whether on her own behalf or on behalf of another person who carries on a financial Services Business, whether as an employee of that person or otherwise. 3.6 This paragraph is satisfied if: 3.6.1 Ms Thorne fails to do the things she undertakes to do under paragraph 3.3; and 3.6.2 Ms Thorne fails to remedy the failure within 14 days of ASIC giving a written notice to Ms Thorne directing Ms Thorne to remedy the failure; and 3.6.3 after the expiration of that 14-day period, ASIC gives a written notice to Ms Thorne specifying that she has failed to remedy the failure. 3.7 Ms Thorne undertakes that she will pay the costs of her compliance with this Enforceable Undertaking. 3.8 Ms Thorne undertakes to provide all documents and information requested by ASIC from time to time for the purpose of assessing her compliance with the terms of this Enforceable Undertaking. ("Acceptance Date" meant the date of acceptance of the EU by ASIC, being 13 February 2019.) 13 On 18 March 2019 Ms Thorne confirmed by email to ASIC that she had complied with her obligations under the EU. Ms Thorne identified a total of 103 clients. 14 On 12 June 2019 Ms Wren contacted Ms Thorne by telephone, and informed Ms Thorne that ASIC intended to issue a notice under s 19 of the ASIC Act requiring her to attend an examination regarding a suspected contravention of s 1308(2) of the Corporations Act. Section 1308 creates an offence in respect of the knowing making, or authorisation of the making, or omission, of a statement in a document required under or for the purposes of the Corporations Act, or lodged with or submitted to ASIC, where that document is materially false or misleading because of the statement (or omission). Ms Thorne attended an examination on 26 June 2019. 15 ASIC also conducted the following examinations under s 19 of the ASIC Act: an examination on 5 July 2019 of Mr Robin Thorne, the husband of Ms Thorne; and an examination on 1 August 2019 of Mr Takamori Kobayashi, an accountant employed by Ms Thorne. 16 Ms Wren gave uncontested evidence to the following effect: At the examination of 26 June 2019, Ms Thorne produced the letter purportedly sent by her to clients in compliance with paragraph 3.3 of the EU. That letter was sent by post, and contained nothing more than the information listed at paragraphs 3.3.1, 3.3.2 and 3.3.4 of the EU. Importantly, the letter provided no context for clients to make sense of the information provided. For example, in relation to paragraph 3.3.4 of the EU, the letter included nothing more than the name, postal address and email address of the licensee. It did not state that these were the contact details for enquiries regarding the EU or the conduct of Ms Thorne whilst a representative of the licensee. The letter stated the name "Cenan Dikmen". This name was not used by Ms Thorne in any of Ms Thorne's fact finds or statements of advice obtained by ASIC. Similarly, Ms Thorne used the name "Jenan Thorne" in professional correspondence, on the Chartered Accountants directory, the Saber Accountants website, and on her LinkedIn profile. None of the relevant ASIC registers included the name, "Dikmen". The only evidence ASIC had obtained as to the use by Ms Thorne of the name "Cenan Dikmen" was as the director of two companies (incorporated in 2006 and 2007), neither of which were relevant to this matter. The letter by Ms Thorne to her clients was required to include the ASIC media release. It did not do so. The letter (sent by post) to clients only included the 182 alphabetical characters and symbols of the URL to the ASIC website containing the media release. ASIC officers contacted, by phone and/or by email, 30 of Ms Thorne's 103 clients to determine whether those clients had received the notification required by paragraph 3.3 of the EU. Of those 30 clients, 21 clients reported that they had not received any notification, 5 clients reported that they did not know, and 4 clients reported that they had received notification. Mr Kobayashi was tasked by Ms Thorne with sending letters to Ms Thorne's clients complying with the EU. Ms Thorne directed Mr Kobayashi to use the name "Cenen Dikmen" in the letter, and to include only the URL address for the ASIC media release rather than the actual printed version of the media release. Mr Kobayashi was also directed by Ms Thorne to use the wife's address if relevant clients were husband and wife and there was a different address for the wife, to use addresses from expired driver's licences, and not to send the letter to certain clients or to those in dispute with Saber Accountants. Mr Kobayashi identified client file documents where Ms Thorne had given that direction by circling the wife's addresses and expired licence addresses that he was to use. Mr Kobayashi's evidence was that the letters were sent in envelopes without a return address. 17 In respect of this evidence, ASIC submitted in summary that: the letter sent by Ms Thorne to clients purportedly in compliance with the EU provided information in a meaningless manner, such that the letter did not comply with the EU; the use by Ms Thorne of an alias rendered the letter meaningless, and non-compliant with the EU; that clients would have had to type the 182 alphabetical characters and symbols into a computer to find the ASIC media release meant that the information provided by Ms Thorne did not comply with the EU; and in any event, the Court could safely conclude on the evidence that a substantial proportion of Ms Thorne's 103 clients did not receive the required notification. 18 No submissions were made on Ms Thorne's behalf concerning this evidence.

COSTS 25 The parties have been unable to reach an agreement as to an appropriate costs order. As such, on 8 March 2021, I ordered the parties file and serve an outline of submissions (including draft orders), with respect to costs. 26 ASIC seeks an order that the respondent pay its costs, fixed in the amount of $16,529.78. 27 ASIC submitted that those costs: included only ASIC's disbursements prior to 30 November 2020; did not include staff costs; and did not include any disbursements incurred after 30 November 2020. 28 In support of this order, ASIC submitted, in summary: it was necessary for ASIC to bring the present application to ensure compliance by Ms Thorne with the terms of the EU in light of her non-compliance; this was particularly so in circumstances where Ms Thorne had falsely informed ASIC (including under oath at an examination) that she had notified her clients as required by the EU; and paragraphs 3.5 and 3.6 of the EU ought not be interpreted as providing Ms Thorne with a "second chance" to remedy her breaches of the EU. 29 Ms Thorne submitted that there should be no order as to costs. This was because, in summary: The Court has a wide and unfettered discretion to award costs which must be exercised having regard to the conduct of the parties and all relevant considerations. Accordingly, the ordinary rule that costs follow the event can be displaced where the circumstances justify a different order. Upon consideration of the circumstances of the events leading up to, and the conduct of ASIC prior to the commencement of this proceeding, the respondent should not have to pay ASIC's costs as sought, or at all. An award of costs can be denied to a party that succeeds in a proceeding, where the proceeding was unnecessarily commenced. These proceedings were unnecessarily brought because, had the respondent been given the opportunity, or been directed by a written formal notice under paragraph 3.6.2 of the EU to do so, she would have taken the necessary steps to remedy ASIC's concerns regarding her compliance with the EU and this proceeding would, therefore, have been unnecessary. This is made clear from: (a) the respondent's dealings with ASIC in June 2019 and during her s 19 examination, where she queried whether it would satisfy ASIC's concerns if she re-sent notices to clients by email, copying a member of ASIC; and (b) her conduct following service of the application, in agreeing to the substantive relief sought by ASIC at the first opportunity. ASIC could have avoided incurring the costs sought in this proceeding had it provided the respondent with an opportunity to remedy any failure prior to filing this application. The general rule as to costs is not appropriate in this case because: (a) there is no "successful" or "unsuccessful" party to the application; (b) there has been no determination on the merits as to whether the respondent is in breach of the EU; (c) nevertheless, the respondent has consented to orders as sought by ASIC to address ASIC's concerns and to avoid the need for further litigation; (d) the respondent has acted reasonably in her approach to the application and her dealing with ASIC regarding the EU; and (e) in light of ASIC's failure to issue a notice under paragraph 3.6.2 of the EU prior to the application being filed, or otherwise conversing with the respondent outlining its concerns, the respondent has had to incur legal costs of her own which she would not otherwise have incurred. Those costs are on top of the financial impact that the EU has had on her businesses. 30 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides that, except as provided by any other Act, the award of costs is at the discretion of the Court or Judge. 31 As a general proposition, costs ordinarily follow the event: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, Northern Territory v Sangare (2019) 265 CLR 16; [2019] HCA 25. In the present case, although it is common ground between the parties that the Court ought make orders pursuant to s 93AA(4) of the ASIC Act, such orders are nonetheless made pursuant to ASIC's application filed on 17 November 2020. To that extent, ASIC has been successful in its application and, in the absence of other factors, is prima facie entitled to its costs. 32 In respect of Ms Thorne's costs submissions, I find as follows: I am not persuaded that the conduct of ASIC in this proceeding was such as to disentitle it to costs. The tenor of Ms Thorne's submissions was that ASIC ought to have approached her to remedy any breaches of the EU by her. I am not persuaded however, on the evidence before me, in particular the material provided by Mr Kobayashi to ASIC under s 19 examination, and in light of what appears to have been deliberate conduct by Ms Thorne to comply with the terms of the EU, that a conciliatory approach by ASIC in the terms submitted by Ms Thorne was either warranted, or would have been effective to result in her complying with the EU. I am not persuaded that the proceedings were unnecessarily commenced in light of the clear facts of Ms Thorne's failure to comply with the EU. There is undoubted public interest in ASIC, as the corporate regulator to whom Ms Thorne had given the EU, taking proper steps to enforce that EU in the event of non-compliance. Commencement of the current proceedings was a proper method of doing so. That Ms Thorne may have, during her s 19 examination by ASIC, suggested means whereby she could properly comply with the EU was not, in circumstances of what appeared to be deliberately obfuscatory conduct on her part, a suggestion on which ASIC could reasonably rely. Paragraph 3.6.2 of the EU did not provide Ms Thorne with a "second chance" in the circumstances. Ms Thorne's conduct was more than a "failure to remedy a failure" within the terms of the paragraph - it was wholesale, deliberate breaching of the EU. That Ms Thorne has acted reasonably in agreeing to the substantive orders proposed does not mean that ASIC should not be entitled to recover the costs it seeks. Indeed, had Ms Thorne opposed the substantive orders, and been unsuccessful in doing so, costs incurred by both her and ASIC would have potentially and significantly inflated. 33 Mr Tiplady for Ms Thorne submitted that her dealings with ASIC have come at great personal toll to her, both on financial and personal fronts. Such toll should not be ignored. However ultimately, and against the background facts which have culminated in the present proceedings, I do not consider Ms Thorne's personal circumstances a reason to deprive ASIC of its legitimate costs. 34 Accordingly, I reject Ms Thorne's submission that no order for costs ought be made. 35 Turning now to the quantum of costs sought, clause 4.1 of the Federal Court of Australia's Costs Practice Note (GPN-COSTS) provides that the Court's preference, wherever it is practicable and appropriate to do so, is for the making of a lump-sum costs order. During the hearing, Mr Tiplady for Ms Thorne submitted that, if I considered a costs order warranted, Ms Thorne took no issue with the quantum (transcript p 20 ll 38-43). I consider this concession appropriate in the face of the undisputed submissions of ASIC concerning the limited nature of the costs it has sought in this matter.

Australian Securities and Investments Commission v Thorne

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Judgment (6 paragraphs)

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Cases Cited (6)