Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd

Consideration 53 I will deal first with the part of ASIC's application that seeks an interlocutory injunction, in summary, to restrain the defendants from making any offers of cash payments (including cash rebates) to prospective retail clients in connection with the provision of an SOA, the switching of superannuation and/or the purchase of insurance products. 54 In its originating process, ASIC seeks (by way of final injunctive relief) an order pursuant to s 1101B(1) or 1324(1) of the Corporations Act that the defendants be restrained, whether by themselves, their servants, agents and employees or otherwise, from: (a) carrying on a business related to, concerning, or directed to financial products or financial services within the meaning of s 761A of the Corporations Act; (b) providing any of the following services: (i) providing financial product advice within the meaning of s 761A; (ii) dealing in financial products within the meaning of s 761A; (c) in any way holding themselves out as doing the things in (a) and (b) above. 55 It is apparent that the interlocutory injunction sought by ASIC as summarised above is expressed in terms that are different from the final relief sought. I do not think this is necessarily an obstacle to the grant of an interlocutory injunction. For example, I consider that it is open to the Court to grant an interlocutory injunction where the terms are different from the final relief sought, but where the interlocutory injunction is in aid of the final relief. 56 In the present case, the affidavit material raises substantial concerns about the quality of the advice provided by WRM's authorised representatives, which in turn raises serious concerns as to whether WRM is adequately supervising its representatives. The Know Compliance reports of June and July 2016 contain serious adverse conclusions as to the quality of the advice being given and the processes adopted. However, on the basis of the affidavit material presently before the Court, it is not clear that sufficient steps have been taken to address these matters. The changes described in Mr Longhi's affidavit are expressed in brief and high level terms with little or no underlying detail. Very little documentation has been provided to make good the proposition that the defendants have sufficiently reformed their operations. The changes that are described may or may not have achieved results, but it is very hard to tell on the basis of the current material. Certainly, Mr Kerr's analysis, undertaken during the period July to December 2016, suggests that the changes that have been made have not made much of a difference. Given the strength of the adverse conclusions reached by Know Compliance, and the seriousness of the matter, one might have expected the defendants to have commissioned a new, thorough, independent audit of their operations within months of the Know Compliance reports, and then again periodically, to ensure that the steps that had been taken were sufficient to reform their operations. But the material does not suggest that any such process has been adopted. 57 Moreover, the documents produced by the defendants at the hearing do not instil confidence. The WRM Compliance Manual is stated to be "as at 10 April 2017" but it is plain from a number of pages that the manual has not been properly updated and still does not address some matters raised by Know Compliance. For example, pages 42-43 of the Compliance Manual refer to provisions that were superseded some years ago. It is somewhat surprising, to say the least, given the history of ASIC's investigation, that the defendants have not taken all possible steps to put their 'house in order'. This does not instil confidence that the defendants appreciate the seriousness of the matters that have been raised by ASIC and have taken sufficient steps to address them. 58 In light of these matters, I consider there to be an appreciable risk that, if an interlocutory injunction is not granted, WRM will contravene ss 961L and 912A of the Corporations Act. 59 The defendants submit that there is a non sequitur between the interlocutory injunction sought by ASIC and the alleged contraventions. The defendants submit that there may be appropriate financial advice together with a cash rebate, and there may be inappropriate financial advice and no cash rebate. There is no necessary connection, they submit, between the provision of a cash rebate and inappropriate advice. Accordingly, they submit that there is no proper basis to grant the interlocutory injunction sought by ASIC. I do not accept this submission, for the following reasons. First, although ASIC has only sought an interlocutory injunction in cases where the provision of advice is coupled with the offer of a cash payment, it would have been open to ASIC to have sought a broader interlocutory injunction relating to the provision of advice more generally. The necessary nexus between the injunction and the alleged contravention may be provided by the broader form of injunction that ASIC could have sought. Secondly, I think there is, at least for present purposes, a logical connection between the injunction sought by ASIC and the alleged contraventions. The model adopted by the defendants as described above typically involves WRM paying to the Cash Applicant a substantial part of the upfront commission it (WRM) receives from the insurance company. It may be inferred, at least for present purposes, that the reason the insurance company is prepared to pay a large upfront commission (often several thousand dollars) is to cover the costs of WRM providing proper advice to clients. But if WRM typically parts with a substantial part of the upfront commission, it raises doubts as to whether it has sufficient resources to adopt proper processes and adequately supervise its authorised representatives. It is noteworthy that, notwithstanding the adverse Know Compliance reports, no steps appear to have been taken to address this aspect of the model adopted by the defendants. In these circumstances, I think there is an adequate nexus between the interlocutory injunction sought by ASIC and the contraventions alleged against WRM. 60 Another point raised by the defendants concerns alleged delay in conducting the investigation and commencing the proceeding. It is difficult to form a view about this. There was a substantial amount of material to be considered. In any event, if there has been some delay, I do not think the period of delay is great, and it has provided more time for the defendants to address the serious deficiencies in their processes observed by Know Compliance, and to carry out an audit or audits of their processes to ensure that the problems have been resolved. 61 Another factor to be considered is the impact that an interlocutory injunction would have on the defendants' business. The evidence indicates that in most cases: the Cash Applicant is attracted to the defendants' offering by the prospect of obtaining a loan or cash payment; the financial advice is to the effect that the Cash Applicant should change superannuation funds and take out new or substitute insurance; the Cash Applicant receives a cash rebate representing the substantial part of the upfront commission; and the Cash Applicant's superannuation balance is reduced by the advice fee paid to WRM and the insurance premium. It follows that the interlocutory injunction sought, expressed in terms of not offering a cash payment, would effectively prevent the defendants from carrying on business in accordance with their current model. It is true that the interlocutory injunction would not preclude the giving of financial advice in relation to superannuation and insurance products without the making of a cash offer. But that is not the way the defendants' business currently operates and would require some restructuring on the part of the defendants. Thus, I take into account that the interlocutory injunction sought may well stop the defendants carrying on a very substantial part of their business, which may well have serious financial implications for the defendants and impact upon their employees. 62 Another relevant factor is the absence of an undertaking as to damages. However, in circumstances where the legislature has expressly stated that an undertaking as to damages is not required, the absence of such an undertaking, while relevant, is to be accorded relatively little weight. 63 Finally, it is important to have regard to one of the purposes of the statutory power to grant an interim injunction, namely the protection of the public. In light of the matters discussed above, if there were to be contraventions of the relevant provisions of the legislation, this is likely to cause serious harm to members of the public who entrust their financial affairs to WRM. 64 Taking the above into account, I consider it appropriate to grant an interlocutory injunction, until the hearing and determination of the proceeding or further order, restraining WRM (whether by itself, its servants, agents or employees) from making any offers of cash payments (including cash rebates) to prospective retail clients in connection with the provision of an SOA, the switching of superannuation and/or the purchase of insurance products. As JECA and Yes FP act as agent for WRM in relation to these matters, and they are parties to the proceeding, it is appropriate for the interlocutory injunction to apply to them as well. 65 I turn then to the part of ASIC's application that seeks an interlocutory injunction, in summary, to restrain JECA from carrying on an unlicensed financial services business including by providing financial product advice in respect of superannuation and insurance products. 66 In seeking this interlocutory injunction, ASIC relies on the statements made by Customer Services Officers to Cash Applicants before they are passed on to a financial planner. ASIC's case in this respect proceeded on the basis that the Customer Services Officers were employed by JECA. (JECA does not hold an AFSL and it is not a corporate authorised representative of WRM.) It seems that the arrangements regarding Customer Services Officers have recently changed. As noted above, Mr Longhi indicated in his oral evidence that since 2 or 3 May 2017 Customer Services Officers have been engaged pursuant to an employment contract with Yes FP. However, it was not made clear whether previously-engaged Customer Services Officers are still employed by JECA or have been employed instead by Yes FP. I will proceed on the assumption that some Customer Services Officers are still employed by JECA. 67 The evidence described earlier, in particular [27] and [28] of Mr Longhi's affidavit and the sample email sent by Customer Services Officers to Cash Applicants set out in [104] of Mr Childs's first affidavit, suggest that there is an appreciable risk that Customer Services Officers will provide financial advice to Cash Applicants. At least on one view, the communications described in those parts of the evidence involve an implicit preliminary recommendation that it would be appropriate for the Cash Applicant to switch superannuation funds or take out new or substitute insurance. It may be inferred that communications in the future will be along the same lines as described in that evidence. In these circumstances, there is, at least on the present evidence, an appreciable risk that JECA will contravene ss 911A and 911B of the Corporations Act unless an interlocutory injunction is granted. (I note that, in Gore v Australian Securities and Investments Commission (2017) 341 ALR 189, the Full Court of this Court considered that provisions of the Criminal Code (Cth) (enacted as part of the Criminal Code Act 1995 (Cth)) have application to pecuniary penalty provisions which are capable of giving rise to a criminal offence.) 68 The other relevant factors can be dealt with relative briefly. In so far as this part of the injunction is concerned, it does not appear that the making of such an injunction will significantly impact on the defendants' business. It may be inferred that the defendants could, at least for the time being, make appropriate changes to their processes or structure to ensure that Customer Services Officers are not, even implicitly, giving financial planning advice. Again, an important consideration is the protection of the public. This strongly favours the grant of an interlocutory injunction as sought by ASIC. 69 Taking the above into account, in my view, it is appropriate to grant an interlocutory injunction, until the hearing and determination of the proceeding or further order, restraining JECA from carrying on an unlicensed financial services business including by providing financial product advice in respect of superannuation and insurance products. 70 I will hear from the parties on the precise form of the orders. I certify that the preceding seventy (70) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

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