Australian Securities & Investments Commission v Cash King Pty Ltd

Overcharging enforcement costs and expenses 1.7 Cash King, as part of the Lending Business, advanced funds to borrowers secured by a mortgage, usually a second mortgage, over the borrowers' property. Under the terms of the mortgage Cash King was entitled to charge borrowers for costs and expenses incurred by Cash King in relation to any default on the part of the borrower. 1.8 From October 2002 to about June 2004, when a borrower was in default, a range of enforcement tasks were undertaken by employees of Cash King who did not have legal qualifications ("Enforcement Tasks"). The Enforcement Tasks undertaken by Cash King employees were charged for in accordance with a memorandum provided to Cash King by an external solicitor which itemised various enforcement tasks and the corresponding fees that that solicitor charged his clients for undertaking those tasks, in circumstances where Cash King did not engage the external solicitor to undertake the Enforcement Tasks. 1.9 An assessment by an independent costs assessor, engaged by Cash King after ASIC raised concerns about the enforcement costs charged by Cash King, found that the amounts charged to borrowers for the Enforcement Tasks exceeded the actual costs to Cash King, being the internal salary and overhead costs to Cash King. 1.10 The independent costs assessor also found that there were some tasks undertaken by Cash King employees which could have been charged for as enforcement costs but were not, in fact, charged for at all.

Charging of brokerage fees where Cash King provided the loan and no third party brokerage services provided

1.11 Between 11 March 2002 and March 2003 Cash King, in the course of the Lending Business, regularly represented to borrowers that an amount was payable to Cash King for a "brokerage fee" when the loan was supplied by Cash King and no third party had brokered the loan for those borrowers.

Incorrectly treated borrowers as in default 1.12 It was Cash King's usual practice, in the course of the Lending Business, to withhold from the loan advance one month's interest in advance and accordingly the next interest payment was not due until a particular date in the second month after the loan was made. However, between 11 March 2002 and 30 June 2004 it also was Cash King's usual practice to treat borrowers as being in default if they did not make an interest payment on a particular date in the first month after the loan was made, and to charge borrowers a higher, default rate of interest and, where relevant, enforcement expenses. 1.13 Cash King and Mr Swart have agreed to resolve the Court Proceedings by: (a) Preparing and filing in conjunction with ASIC a Statement of Agreed Facts ("Statement of Agreed Facts"); (b) consenting to orders being made by the Federal Court; and (c) offering the undertakings set out in this document. ASIC has agreed to accept the undertakings as part of the overall resolution of the Court Proceedings.

Establishment fees 2.1 Subject to 2.12 below Cash King undertakes to pay refunds to borrowers (to the extent that Cash King has not already paid such refunds) of the amount by which Cash King increased the establishment fee originally sought by BMC in each transaction in which there was an establishment fee payable to BMC. For example, if, in its letter of offer sent to Cash King, BMC had sought an establishment fee of $1000, but Cash King in its letter of offer sent to the borrower had sought, as an establishment fee payable to BMC, the sum of $1500, then Cash King is to refund to that borrower the sum of $500. 2.2 Without limiting paragraph 2.1, but as part of that obligation, Cash King undertakes to pay to persons listed in column 1 of Annexure A to the Statement of Agreed Facts, (to the extent that Cash King has not already made such payments), within one month of receiving a request for a refund from those persons, a refund in an amount equal to the amount set out in column 3 of Annexure A less the amount set out in column 2 of Annexure A.

Enforcement expenses 2.3 Subject to 2.6 and 2.12 below Cash King undertakes to pay refunds to borrowers (to the extent that Cash King has not already paid such refunds) of the amount borrowers paid to Cash King by way of enforcement costs and expenses in excess of the enforcement costs and expenses actually incurred by Cash King. 2.4 Without limiting paragraph 2.3, but as part of that obligation, Cash King undertakes to pay refunds to borrowers (to the extent that Cash King has not already paid such refunds) of amounts charged by Cash King in relation to Enforcement Tasks carried out by Cash King employees to the extent that those amounts exceeded the salary and overhead costs attributable to the time taken by Cash King employees to complete the tasks. 2.5 Without limiting paragraph 2.3, but as part of that obligation, Cash King undertakes to, subject to paragraph 2.6 below, pay (to the extent that Cash King has not already paid) to the persons, listed in column 1 of Annexure B to the Statement of Agreed Facts, within one month of receiving a request for a refund from those persons, a refund in an amount equal to the amount set out in column 3 of Annexure B less the amount set out in column 4 of Annexure B. 2.6 Where a borrower is entitled to a refund of enforcement costs and expenses pursuant to paragraph 2.10 below, that borrower shall not be entitled to a refund pursuant to paragraphs 2.2 to 2.5 above in relation to the same enforcement costs and expenses. 2.7 Cash King undertakes that it will not, as a result of the matters leading to the offering of this Undertaking and the matters contained in the Undertaking, seek to claim, demand or receive any payment for any enforcement activities carried out by Cash King employees before 1 July 2004 unless such costs and expenses were the subject of a claim or demand made prior to 1 January 2005.

Brokerage fees 2.8 Subject to 2.12 below Cash King undertakes to pay refunds to borrowers (to the extent that Cash King has not already paid such refunds) of the brokerage fee paid to Cash King by borrowers where the finance was provided by Cash King and there was no third party broker. 2.9 Without limiting paragraph 2.8, but as part of that obligation, Cash King undertakes to pay (to the extent that Cash King has not already paid) to the persons listed in column 1 of Annexure D to the Statement of Agreed Facts, within one month of receiving a request for a refund from those persons, a refund in an amount set out in column 3 of Annexure D.

Amount to discharge credit facilities 2.10 Subject to 2.12 below Cash King undertakes to pay refunds to borrowers (to the extent that Cash King has not already paid such refunds) of all amounts paid to Cash King by borrowers which would not have been payable by them but for the assertion by Cash King that borrowers were in default by not paying the second interest payment under a credit facility with Cash King one month after the advance of the loan principal or the third interest payment two months after the advance of the loan principal and so on, notwithstanding that the first interest payment by them, due to be paid approximately one month after the advance of the loan principal, had been retained by Cash King out of the amount advanced under the credit facility. 2.11 Without limiting paragraph 2.10, but as part of that obligation, Cash King undertakes to pay (to the extent that Cash King has not already paid) to the persons listed in column 1 of Annexure E to the Statement of Agreed Facts, within one month of receiving a request for a refund from those persons, a refund in an amount equal to the amount set out in column 2 of Annexure E less the amount set out in column 3 of Annexure E.

Offset against amount outstanding 2.12 Subject to 2.17 through 2.21 below, where Cash King and a borrower entered into a loan agreement secured by a mortgage and the terms of this Undertaking require Cash King to make a refund payment to that borrower in relation to that loan agreement, Cash King shall be entitled to reduce the amount of any refund payment due to a borrower to the extent ("Offset Amount") that the amount paid to Cash King on the date that the mortgage was discharged was less than the amount actually due to Cash King pursuant to the terms of the loan agreement on that date.

Letter to affected borrowers 2.13 Cash King will within 21 days of the execution of this Enforceable Undertaking send by ordinary pre-paid post to the last address known to Cash King for each borrower entitled to a refund pursuant to paragraphs 2.1 to 2.11, including those borrowers listed in column 1 of Annexures A, B, D and E of the Statement of Agreed Facts, a letter: (a) in the form annexed at Annexure A to this Undertaking except in the circumstances set out in (b) and (c) below; or (b) in the form annexed at Annexure B to this Undertaking if Cash King intends to rely on paragraph 2.12 and paragraph 2.17 applies; or (c) in the form annexed at Annexure C to this undertaking where Cash King intends to rely on 2.11 below and paragraph 2.18 applies. 2.14 Cash King will, in the case of any of: (a) the letters sent in accordance with the undertaking given at 2.13 above that are returned to the First Defendant; and (b) the people referred to the undertaking given at 2.13 above who have not contacted Cash King within one month of the letters being sent in accordance with the undertaking given at 2.13 above update the addresses they have for these people by conducting the searches set out in 2.15 below within 14 days of, in the case of (a) above, the letter being returned or, in the case of (b) above, the period of one month from the sending of the letter expiring. 2.15 Unless they have already done so in the six months prior to the execution of these undertakings, Cash King will update the addresses for the people referred to in 2.13 above by conducting the following searches ("Searches"): (a) access Australia Post's "National Change of Address" database; (b) an Internet search of the Telstra White Pages On-Line at the domain name www.whitepages.com.au.; and (c) Commonwealth electoral roll searches in relation to each of those persons 2.16 If the Searches reveal a different address for any of the people referred to in 2.13 above, Cash King shall, within 7 days of becoming aware of the different address, send by ordinary pre-paid post to that different address a letter in the form annexed at Annexure A, B or C.

Referral of claims to an independent claims reviewer 2.17 If Cash King intends to rely on 2.12 above to reduce in part or entirely a refund payment otherwise due to a borrower pursuant to the terms of this Undertaking, it must, subject to 2.18 below, refer any request for review ("Claim") received from that borrower in response to the letter sent to that person pursuant to 2.13(b) above to the independent claims reviewer ("Reviewer") appointed in accordance with paragraphs 2.22 to 2.26 below within 14 days of receiving the Claim. 2.18 If the total amount of payments, including payments made towards interest, enforcement costs and expenses and other fees and charges, made by a borrower pursuant to their loan agreement with Cash King does not exceed the principal loaned by Cash King, then Cash King will not be obliged to refer any claims to the Reviewer prior to relying on 2.12 above. 2.19 Cash King will not be entitled to reduce any payment by the Offset Amount to the extent that the Reviewer is satisfied, having considered the Claim, any written material that Cash King submits to the Reviewer, and Cash King's files, that: (a) the Offset Amount is not, on the proper construction of the loan agreement, owed by the borrower; or (b) that Cash King has by its actions or conduct waived its right to, or released the borrower from any obligation to pay, the Offset Amount; or (c) that Cash King incorrectly charged the borrower any other fees or charges in relation to the loan agreement. 2.20 Cash King undertakes to make available to the Reviewer all of its files relating to the loan which is the subject of the Claim. 2.21 The Reviewer may make one of the following decisions only in relation to each Claim: (a) reject the Claim in full and uphold Cash King's right to reduce the payment due by the Offset Amount; (b) accept the Claim in full and refuse to allow Cash King to reduce the payment due by the Offset Amount; or (c) accept the Claim in part and allow Cash King to reduce the payment due by a part of the Offset Amount.

Appointment of independent claims reviewer 2.22 Within one month of the date that this Undertaking is accepted by ASIC, Cash King will appoint a Reviewer to conduct a review of claims made by the persons referred to in 2.13(b) above. 2.23 The Reviewer must be approved by ASIC before they are engaged to conduct this review. To enable ASIC to consider whether the proposed Reviewer should be engaged, Cash King must take all reasonable steps to ensure that as soon as reasonably practicable, and in any event within 14 days of the date of this undertaking, it provides to ASIC a curriculum vitae of the proposed Reviewer. 2.24 The terms of engagement of the Reviewer must include those set out in Annexure D. The terms of engagement may include additional terms but may not include any term that in any way contradicts or qualifies the terms set out in Annexure D. 2.25 All remuneration and costs associated with the Reviewer shall be borne by Cash King. 2.26 Cash King agrees to be bound by the decision of the Reviewer and to pay any refund payments due, following the decision of the Reviewer within 28 days of the date of the Reviewer's decision.

Reporting 2.27 Cash King will, upon execution of this Undertaking by Cash King and Mr Swart, provide to ASIC an affidavit sworn by Mr Swart setting out the details of how each refund payable under paragraphs 2.1, 2.3, 2.8 and 2.10 was calculated. 2.28 Cash King will maintain a payments register ("Register") containing the following information: (a) details of all borrowers who have contacted Cash King concerning a refund and the dates of those contacts; (b) details of all payments made to borrowers; (c) details of all payments to be paid but not yet paid to borrowers; and (d) details of all Claims referred to the Reviewer and the status of those Claims. 2.29 Cash King undertakes to provide ASIC within 6 months of the execution of this Undertaking, and each six months thereafter until the obligations set out in this Undertaking are discharged, a report signed by a director of Cash King containing the following information: (a) a copy of the Register; and (b) details of Cash King's compliance with the obligations set out in this Undertaking. 2.30 Cash King undertakes to produce to ASIC all files relating to any borrower entitled to a refund pursuant to paragraphs 2.1 to 2.11 within 7 days of receiving a written request from ASIC.

3. Undertakings by Mr Swart 3.1 Mr Swart undertakes to use his best endeavours to ensure that Cash King complies with its undertakings at paragraph 2 above. 3.2 Mr Swart undertakes not to be involved in Cash King, or any other company of which he is an officer, engaging in conduct of the kind described at paragraphs 1.6 to 1.12 above.

4. Acknowledgments 4.1 Cash King acknowledges that ASIC: (a) may issue a media release on execution of this undertaking referring to the terms of the undertaking and the concerns of ASIC which led to its execution; (b) may from time to time refer publicly to this undertaking; (c) will make a copy of the executed undertaking available on a Public Register. 4.2 Cash King acknowledges that this undertaking in no way derogates from the rights and remedies available to any person or entity arising from any conduct described in this undertaking, or conduct the subject of the Court Proceedings, except that Cash King reserves the right to submit that refunds to customers operate in mitigation of any loss or damage which customers may allege they have suffered. 4.3 Cash King acknowledges that ASIC's acceptance of this undertaking does not affect ASIC's power to investigate, conduct surveillance or pursue a criminal prosecution or its power to lay charges or seek a pecuniary civil order in relation to any or all of the conduct described in this undertaking or any contravention arising from future conduct. 4.4 Cash King acknowledges that the undertaking has no operative force until accepted by ASIC. 4.5 ASIC acknowledges that this investigation is now over, and it does not intend to take any further civil action based on the matters it is currently aware of. The common seal of Cash King Pty Limited ACN 086 718 407 was duly affixed to this undertaking on 6 September 2005 in accordance with its constitution in the presence of: …………………………………..…… Name: Title: Director ………………………………….…… Name: Title: Director EXECUTED by DANIEL SWART ) on …… June 2005 ) In the presence of: ) ……………………………………… Daniel Swart ……………………………………….. Witness name: Witness address:

ACCEPTED by the AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION pursuant to section 93AA of the ASIC Act by its duly authorised delegate:

We are writing to you to tell you about a court case in the Federal Court of Australia which affects you.

Settlement of Federal Court Proceedings On 18 May 2005 the Australian Securities and Investments Commission (ASIC) began court proceedings against Cash King Pty Ltd (Cash King) and a director of Cash King in the Federal Court of Australia. On 6 September 2005 Cash King consented to orders that it had engaged in a number of misleading and deceptive practices in its lending and finance broking business between March 2002 and June 2004. The court orders consented to by Cash King included that Cash King: · represented to some customers that an establishment fee payable to a lender was higher than that initially requested by the lender; · charged some customers enforcement costs and expenses that were higher than the costs and expenses actually incurred by Cash King; · charged some customers a brokerage fee when no brokerage services were provided to the customer by any third party; · represented to some customers that they were in default on their loans when they were not, and incorrectly charged these customers default interest and/or enforcement costs; · represented to some customers that Cash King had incurred legal fees when no solicitor had been engaged; and · advertised that there were no upfront fees when in fact Cash King's mortgage broking customers were required to pay non refundable fees prior to any loan application proceeding. As part of the resolution of this case Cash King also gave an enforceable undertaking to ASIC in which it agreed to make a payment to certain Cash King customers who were affected by these practices.

How this affects you Cash King's enforceable undertaking included an agreement that Cash King would make a payment to you of $## because *Cash King represented to you that you had to pay an establishment fee of $## when in fact the lender initially requested that you pay an establishment fee of $##/charged you enforcement costs and expenses that were $## higher than the enforcement costs and expenses Cash King incurred/charged you $## for a brokerage fee when no brokerage services were provided to you by any third party/represented that you were in default on your loan when you were not and incorrectly charged you $## default interest and/or enforcement costs. **According to our records we paid you $## on …/…/……and accordingly this finalises our obligations to you under the enforceable undertaking./ Please contact Janet on (02) 9630 4866 so that she can arrange to make this payment to you of $##. You may choose the option of a direct payment into your account or a cheque in the mail made out to your name, if so complete and return the attached refund form. Payments will be made after receipt of 100 points of identification and signed address or payment into account details have been received. If you would like further information about the Federal Court case you may wish to look at ASIC's website [insert ASIC website for Cash King matter] or consult with your solicitor. Yours faithfully Cash King

• include only those phrases which apply to this customer. ** include one of the following paragraphs only. Refund Acceptance Form I, #### of ##### hereby acknowledge receipt of Cash King's letter dated ##/#/####, and hereby direct Cash King to pay the amount of $## into the following account: Bank: __________________________ Name of Account: __________________________ BSB No: __________________________ Account No: __________________________ Account Type __________________________ OR Direct Cash King to post a cheque in the amount of $## to the following address:

Signed by: ### Date:##/##/#### Paid: Cheque posted, Cheque by Hand, Direct online payment Date Paid: ## /##/## Signed by: CASH KING PTY LIMITED Representative

We are writing to you to tell you about a court case in the Federal Court of Australia which affects you.

Settlement of Federal Court Proceedings On the 18 May 2005 the Australian Securities and Investments Commission (ASIC) began court proceedings against Cash King Pty Ltd (Cash King) and a director of Cash King in the Federal Court of Australia. On 6 September 2005 Cash King consented to orders that it had engaged in a number of misleading and deceptive practices in its lending and finance broking business between March 2002 and June 2004. The court orders consented to by Cash King included that Cash King: · represented to some customers that an establishment fee payable to a lender was higher than that initially requested by the lender; · charged some customers enforcement costs and expenses that were higher than the costs and expenses actually incurred by Cash King; · charged some customers a brokerage fee when no brokerage services were provided to the customer by any third party; · represented to some customers that they were in default on their loans when they were not, and incorrectly charged these customers default interest and/or enforcement costs; · represented to some customers that Cash King had incurred legal fees when no solicitor had been engaged; and · advertised that there were no upfront fees when in fact Cash King's mortgage broking customers were required to pay non refundable fees prior to any loan application proceeding. As part of the resolution of this case Cash King also gave an enforceable undertaking to ASIC in which it agreed to make a payment to certain Cash King customers who were affected by these practices.

How this affects you Cash King's enforceable undertaking included an agreement that Cash King would make a payment to you of $## because *Cash King represented to you that you had to pay an establishment fee of $## when in fact the lender initially requested that you pay an establishment fee of $##/charged you enforcement costs and expenses that were $## higher than the enforcement costs and expenses Cash King incurred/charged you $## for a brokerage fee when no brokerage services were provided to you by any third party/represented that you were in default on your loan when you were not and wrongly charged you $## default interest and/or enforcement costs. However, if the amount you paid to Cash King on the date Cash King discharged your mortgage was less than the amount actually due to Cash King under the terms of the loan, then Cash King is entitled to offset this amount against the payment due to you. According to our records when we discharged your mortgage you owed Cash King $##. Cash Kingonly recovered $##, leaving a shortfall of $##. Accordingly, unless you are of the view that the amount said to be owed by you to Cash King when the loan was discharged is incorrect (as discussed below) we are not required to pay you any money under the terms of the enforceable undertaking.

Complaints review If you are of the view that: 1. the amount that Cash King says you owed at discharge of your mortgage is incorrect; 2. Cash King released you from any obligation to pay any further money in relation to your loan; or 3. Cash King incorrectly charged you any other fees or charges in relation to your loan. you can write to Cash King at P O Box 4756 North Rocks NSW 2151 setting out those complaints or telephone (02) 9630 4866 and speak to Janet. If we do not agree with your complaint then we will send your complaint together with our response to an independent claims reviewer, approved by ASIC, for further assessment. If the claims reviewer agrees with your complaints, they have the power to require Cash King to pay some or all of the payment referred to above. If you would like further information about the Federal Court case you may wish to look at ASIC's website [insert ASIC website for Cash King matter] or consult with your solicitor. Yours faithfully Cash King *include only those phrases which apply to this customer.

We are writing to you to tell you about a court case in the Federal Court of Australia which affects you.

Settlement of Federal Court proceedings On 18 May 2005 the Australian Securities and Investments Commission (ASIC) began court proceedings against Cash King Pty Ltd (Cash King) and a director of Cash King in the Federal Court of Australia. On 6 September 2005 Cash King consented to orders that it had engaged in a number of misleading and deceptive practices in its lending and finance broking business between March 2002 and June 2004. The court orders consented to by Cash King included that Cash King: · represented to some customers that an establishment fee payable to a lender was higher than that initially requested by the lender; · charged some customers enforcement costs and expenses that were higher than the costs and expenses actually incurred by Cash King; · charged some customers a brokerage fee when no brokerage services were provided to the customer by any third party; · represented to some customers that they were in default of their loans when they were not, and incorrectly charged these customers default interest and/or enforcement costs; · represented to some customers that Cash King had incurred legal fees, when no solicitor had been engaged; and · advertised that there were no upfront fees when in fact Cash King's mortgage broking customers were required to pay non refundable fees prior to any loan application proceeding. As part of the resolution of this case Cash King also gave an enforceable undertaking to ASIC in which it agreed to make a payment to certain Cash King customers who were affected by these practices.

How this affects you Cash King's enforceable undertaking included an agreement that Cash King would make a payment to you of $## because *Cash King represented to you that you had to pay an establishment fee of $## when in fact the lender initially requested that you pay an establishment fee of $##/charged you enforcement costs and expenses that were $## higher than the enforcement costs and expenses Cash King incurred/charged you $## for a brokerage fee when no brokerage services were provided to you by any third party/represented that you were in default on your loan when you were not and wrongly charged you $## default interest and/or enforcement costs. However, the enforceable undertaking also allowed Cash King to offset any amount you still owed Cash King against this payment. According to our records we have been unable to recover all or part of our principal initially advanced to you. The amount which you owed Cash King on the discharge date was $##. Cash King recovered $## (amounting to a principal loss of $##). Accordingly, unless you are of the view that the amount said to be owed by you to Cash King on the above date is incorrect (as discussed below) we are not required to pay you any money under the terms of the enforceable undertaking. You will not be permitted access to the claims reviewer. If you are of the view that the amount said to be owed by you to Cash King when the loan was discharged is incorrect you can write to Cash King at P O Box 4756 North Rocks NSW 2151 setting out those complaints or telephone (02) 9630 4866 and speak to Janet. If you would like further information about the Federal Court case you may wish to look at ASIC's website [insert ASIC website for Cash King matter] or consult with your solicitor. Yours faithfully Cash King *include only those phrases which apply to this customer.

TERMS OF ENGAGEMENT OF COMPENSATION CLAIMS REVIEWER

On 6 September 2005 Cash King Pty Ltd ("Cash King") gave an enforceable undertaking ("Undertaking") to the Australian Securities and Investments Commission ("ASIC") which requires, amongst other things, Cash King to appoint an independent person ("Reviewer") to review claims ("Claims") lodged by former customers of Cash King.

Under the Enforceable Undertaking, Cash King is required to make payments to a number of customers with whom Cash King entered into loan agreements secured by mortgages over real property. However, if when the mortgage was discharged there was a shortfall between what the customer repaid Cash King and the amount properly due under the loan agreement ("Offset Amount") the Undertaking allows Cash King to offset the Offset Amount against the payment otherwise due under the Undertaking.

The Undertaking requires Cash King, if it intends to rely on an Offset Amount to not make a payment or reduce a payment due to a customer, to notify the customer and offer them an opportunity to lodge a Claim with the Reviewer objecting to Cash King relying on the Offset Amount on one of the following grounds:

3.1. the Offset Amount is not, on the proper construction of the loan agreement, owed by the borrower;

3.2. that Cash King has by its actions or conduct waived its right to, or released the borrower from any obligation to pay, the Offset Amount; or

3.3. that Cash King incorrectly charged the borrower any other fees or charges in relation to the loan agreement.

Under the Enforceable Undertaking, the compensation claims reviewer must be appointed by the Company before [6 November 2005].

Under the Enforceable Undertaking, the compensation claims reviewer must be approved by ASIC.

The Reviewer, having been approved having been approved by ASIC for the purposes of the Enforceable Undertaking, will conduct the following tasks under the Enforceable Undertaking:

6.1. within 28 days of receipt of a Claim from Cash King consider whether it is fair and appropriate for:

6.1.1. Cash King to pay the payment due under the Undertaking;

6.1.2. Cash King to pay part of the payment due under the Undertaking; or

6.1.3. Cash King not to pay any of the payment due under the Undertaking.

6.2. Within seven days of making a decision under clause 4.1, advise the Claimant in writing as to the decision of the Compensation Claims Reviewer and the reason for that decision.

7.1. the Reviewer, and the individuals who will assist the Reviewer, is independent of Cash King, and will at all material times be capable of exercising objective and impartial judgment;

7.2. the Reviewer's staff have not had a material business relationship with Cash King within the period of three years before the date the Enforceable Undertaking was accepted by ASIC;

7.3. the Reviewer or the Reviewer's staff have not have previously been a director or officer of Cash King or an employee, consultant or contractor in a position to exert a direct and significant interest over the engagement; and

7.4. the Reviewer will notify Cash King and ASIC immediately if the Reviewer or the Reviewer's staff are no longer capable of exercising objective and impartial judgment in relation to this engagement. This includes, but is not limited to, circumstances where the Reviewer or the Reviewer's staff:

7.4.1. begin to have a material business relationship with Cash King;

7.4.2. could directly or indirectly benefit from a financial interest in Cash King (where "financial interest" refers to an interest in any equity or other security, debenture, loan or other debt instrument of Cash King);

7.4.3. promote, or may be perceived to promote, Cash King's position or opinion to the point that objectivity and/or impartiality is/are compromised;

7.4.4. begin to have a close relationship with Cash King, its directors, officers or employees;

7.4.5. may be deterred from acting objectively and/or impartially by the conduct of Cash King, directors or officers of Cash King or employees in a position to exert direct and significant interest over the engagement; or

7.4.6. become aware of past or current circumstances the existence of which places the consultant in breach of any of the warranties contained in this Agreement.

BETWEEN: Australian Securities and Investments Commission

Background 1 On 18 May 2005, the plaintiff ('ASIC') commenced proceedings in this Court against the defendants under ss 12GD, 12GLA and 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) ('the ASIC Act'). On 6 September 2005, I made orders, by consent, declaring that the first defendant ('Cash King') had engaged in conduct in relation to financial services that was misleading or deceptive, or likely to mislead or deceive, in contravention of the ASIC Act and restraining Cash King from specified conduct. I indicated that I would provide written reasons for making these orders at a later date. These are my reasons.

The powers of the Court 2 Section 12GJ of the ASIC Act confers on this Court jurisdiction in any matter arising under Division 2 of Part 2 of the ASIC Act in respect of which a civil proceeding may be instituted under Subdivision G of Division 2. Subdivision G is concerned with enforcement and remedies. The power of this Court to grant an injunction in this context is provided by s 12GD(1) of the ASIC Act. Section 21 of the Federal Court of Australia Act 1976 (Cth) confers on this Court the power to make binding declarations of right in relation to matters in which it has original jurisdiction. 3 While the parties, all with the benefit of legal advice, consented to agreed orders including declarations that the ASIC Act had been contravened, a declaration, being a judicial act, ought not to be made merely on admissions or by consent, but only if the Court is satisfied by evidence: see BMI Ltd v Federated Clerks Union of Australia (1983) 51 ALR 401 per Keely and Beaumont JJ at 412. However, the evidence or material upon which a Court reaches the requisite state of satisfaction may include a statement of agreed facts: see Australian Securities and Investments Commission v Rich (No 2) (2003) 44 ACSR 682 per Bryson J at [2], [10]; Dean-Willcocks v Commissioner of Taxation (No 2) (2004) 49 ACSR 325 per Austin J at [27]-[28]; Australian Securities and Investments Commission v Rich (2004) 50 ACSR 500 per White J at [15]; and Australian Securities and Investments Commission v Edwards (2004) 51 ACSR 320 ('Edwards') per Barrett J at [3], [14].

The ASIC Act 4 It is appropriate to set out the relevant provisions of the ASIC Act and the Australian Securities and Investments Commission Regulations 2001 (Cth) ('the Regulations'). 5 Subdivision D of Division 2 of Part 2 of the ASIC Act concerns consumer protection in relation to financial services. Section 12DA, which is contained in Subdivision D, relevantly provides that: '12DA Misleading or deceptive conduct (1) A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. (1A) … (2) Nothing in sections 12DB to 12DN limits by implication the generality of subsection (1).' 6 Section 12DB relevantly states: '12DB False or misleading representations (1) A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services: (a) falsely represent that services are of a particular standard, quality, value or grade; or (b) … (c) … (d) … (e) make a false or misleading representation with respect to the price of services; or (f) … (g) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy. (2) … (3) …' 7 Section 12BAA defines a 'financial product' for the purposes of Division 2 of Part 2 of the ASIC Act. A credit facility (within the meaning of the Regulations) is a financial product: s 12BAA(7)(k). Regulation 2B(1)(a) provides that, for the purposes of s 12BAA(7)(k), the provision of credit for any period, with or without prior agreement between the credit provider and the debtor and whether or not both the credit and debit facilities are available, is a 'credit facility'. 8 Section 12BAB provides the definition of 'financial service'. Pursuant to s 12BAB(1)(b) a person provides a financial service if they 'deal in a financial product'. In this context, 'dealing' includes, among other things: (i) applying for or acquiring a financial product; (ii) issuing a financial product; (iii) varying a financial product; and (iv) disposing of a financial product. Further, arranging for a person to engage in such conduct is also dealing in a financial product, unless the actions concerned amount to providing financial product advice: s 12BAB(8). 9 Section 12BAB(1)(g) states that a person provides a financial service if they 'provide a service that is otherwise supplied in relation to a financial product'.

Consideration 10 The parties have filed a Statement of Agreed Facts from which I draw the following account of the facts relevant to these proceedings. 11 At all material times Cash King has engaged in the following business activities in trade or commerce: (a) arranging credit facilities for borrowers pursuant to which credit was provided by a third party to the borrower; and (b) providing credit facilities to borrowers pursuant to which credit was provided to the borrower. 12 Accordingly, I am satisfied that Cash King's business activities included arranging and providing financial products within the meaning of Division 2 of Part 2 of the ASIC Act: see s 12BAA(7)(k) of the ASIC Act and reg 2B(1)(a) of the Regulations. Further, in engaging in these activities Cash King was providing a service supplied in relation to a financial product. Consequently, Cash King was providing financial services within the meaning of s 12BAB(1)(b) of the ASIC Act as its conduct constituted dealing in a financial product: see ss 12BAB(7) and 12BAB(8) of the ASIC Act.

Increase of establishment fees 13 As noted above at [11], Cash King was involved both in arranging credit facilities for borrowers pursuant to which credit was provided by a third party, and providing credit facilities directly to borrowers. Cash King referred applications made by Cash King's customers for credit to be provided by third parties to Bleier Mortgage Corporation Pty Ltd ('BMC'). 14 BMC assessed such applications for credit to be provided by various lenders ('BMC Lenders'). One of the BMC Lenders was a firm of solicitors, RL Kremnizer & Co. When BMC was prepared to offer a credit facility to a Cash King customer on behalf of a BMC Lender, BMC would issue a credit facility approval letter on RL Kremnizer & Co letterhead on behalf of, or purportedly on behalf of, the BMC Lender. It was the practice of BMC to state in this letter that it was a term of the credit facility that an establishment fee, in a certain sum, was payable to BMC. 15 On receipt of the approval letter from BMC by way of email or facsimile, it was Cash King's practice to transfer the details onto Cash King's letterhead and to forward the letter to the relevant customers. 16 From about June 2002 to about November 2003, Cash King engaged in a practice whereby, in preparing the letter on Cash King's letterhead containing the details from the BMC approval letters, it would increase the amount of the establishment fee payable. Pursuant to an agreement between BMC and Cash King, Cash King was entitled to claim a payment from BMC of 65% of the difference between the establishment fee specified by BMC in its approval letter and the increased establishment fee specified by Cash King in its letter. 17 By these letters Cash King represented that BMC sought and required an establishment fee equal to, and no less than, the increased establishment fee specified. Cash King did not inform its customers of the increase in the establishment fee or the arrangement described in [16] above. 18 On the basis of this material I am satisfied that Cash King, in trade or commerce, engaged in conduct in relation to financial services that was misleading or deceptive, or likely to mislead of deceive, in contravention of s 12DA(1) of the ASIC Act. I am further satisfied that Cash King made representations in contravention of s 12DB(1)(e) of the ASIC Act.

Enforcement of costs or expenses 19 In providing financial services, as set out above at [11]-[12], Cash King provided credit facilities that were secured by mortgages over real property in relation to which Cash King entered into written agreements with the borrowers ('Secured Credit Facility Agreements'). The terms of these agreements were contained in a 'Letter of Offer' and a mortgage agreement. The terms included that the borrower agreed to pay all costs and expenses incurred by Cash King in consequence of, or on account of, any default by the borrower. 20 From about June 2002, whenever Cash King formed the view that a borrower was in default of the obligations created by the above agreement, Cash King undertook steps to enforce the terms of the agreement, including: (a) preparing and serving notices pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW); (b) preparing, filing with the Supreme Court of New South Wales and serving statements of claim seeking orders for possession; and (c) obtaining and entering of orders for default judgment, obtaining writs of possession and arranging for the enforcement of writs of possession. 21 From about October 2002 in respect of certain borrowers, it was Cash King's usual practice for these enforcement activities to be undertaken by employees of Cash King. The majority of these activities were carried out by one particular employee. None of the employees who undertook enforcement activities had legal qualifications. 22 At various times, Cash King advised certain borrowers of a payout figure for the mortgage, a figure which included an amount payable for 'enforcement costs'. The enforcement costs were calculated by Cash King by reference to a memorandum provided to it by an external solicitor which itemised various enforcement activities and set out how much that solicitor charged his clients for completing those activities. However, this was in circumstances where Cash King had not engaged any external solicitor and instead had undertaken enforcement activities as described above at [20]-[21]. In fact, the actual enforcement costs incurred were lower than those charged. Some of the borrowers paid the enforcement costs charged rather than those actually incurred. 23 On the basis of this material I am satisfied that by engaging in the above conduct in respect of enforcement costs or expenses Cash King contravened s 12DA(1) of the ASIC Act. In addition, I am satisfied that Cash King made false and misleading representations concerning the existence of a right or remedy in contravention of s 12DB(1)(g) of the ASIC Act.

Legal fees on establishment 24 In providing financial services, as set out above at [11]-[12], Cash King provided certain borrowers with secured credit facilities and entered into Secured Credit Facility Agreements with these borrowers: see [19] above. 25 At various times, prior to advancing moneys under each secured credit facility, Cash King sent to each of these borrowers a document entitled 'Cheque Directions' showing how the amount to be advanced would be distributed. The Cheque Directions refer to an amount for 'Caveatee's [sic] Legals' being payable to Cash King. In fact, Cash King did not incur any costs and expenses for services provided by legally qualified persons in preparing, executing and registering the mortgages, as to the extent that such activities were carried out they were done by Cash King employees, none of whom was legally qualified. Certain borrowers paid amounts said to be for 'Caveatee's [sic] Legals' to Cash King. 26 On the basis of this material, I am satisfied that Cash King engaged in conduct in relation to financial services in contravention of s 12DA(1) of the ASIC Act by representing that it had incurred legal fees when, in fact, it had not. Further, I am satisfied that Cash King made false and misleading representations concerning the existence of a right or remedy in contravention of s 12DB(1)(g) of the ASIC Act.

Charging of brokerage fees 27 As noted above at [11], in addition to arranging secured credit facilities for borrowers where credit was provided by a third party, Cash King itself directly provided credit facilities to some borrowers. The parties agreed that certain borrowers entered into Secured Credit Facility Agreements directly with Cash King: see [19] above. The 'Letter of Offer' sent to these borrowers, containing some of the terms of the relevant Secured Credit Facility Agreement, included a provision for the payment of a 'Brokerage Fee'. 28 However, as for these borrowers, Cash King itself was the provider of the credit, Cash King did not broker any arrangements between the borrowers and a third party; no third party provided any brokerage services in connection with the Brokerage Fees referred to in the 'Letter of Offer'. Nevertheless, these borrowers paid the Brokerage Fees to Cash King. 29 I am therefore satisfied that in charging brokerage fees in these circumstances Cash King engaged in conduct in relation to financial services in contravention of s 12DA(1) of the ASIC Act. In addition, I am satisfied that Cash King made false and misleading representations that services were of a particular standard, quality, value or grade in contravention of s 12DB(1)(a) and made false and misleading representations concerning the existence of a remedy or right in contravention of s 12DB(1)(g) of the ASIC Act.

Misrepresentation about default under credit facilities 30 Cash King entered into Secured Credit Facility Agreements with certain borrowers which provided that: (a) interest be paid monthly on a fixed day each month; (b) pursuant to clause 5 of the mortgage 'the first payment is to be made in the month after which the principal is advanced'; and (c) a lower rate of interest applied if the borrower made the monthly payment with seven days of the due date. 31 Despite the express provision in clause 5 of the mortgage agreement, Cash King withheld from the amount advanced to certain borrowers under each Secured Credit Facility Agreement an amount equal to at least one month's interest. Further, Cash King treated each of these borrowers as being in default of his or her obligation to make payments of interest under his or her Secured Credit Facility Agreement when he or she did not make a second payment on or before the date when the first interest payment was due, approximately one month after entering into the Secured Credit Facility Agreement; or a third payment on or before the date when the second interest payment was due, approximately two months after entering into the Secured Credit Facility Agreement; or a further payment within the relevant monthly interval or intervals. 32 In addition, when Cash King advised these borrowers of the amounts required to pay out the secured credit facility, the amount stated exceeded the correct amount as the former included interest payable at a higher rate. In fact these borrowers were not liable for a higher interest rate and/or costs and expenses purportedly incurred by Cash King consequent on the alleged default; they were not in default and therefore not liable to pay these costs and expenses. 33 On the basis of this material, I am satisfied that Cash King engaged in conduct in relation to financial services in contravention of s 12DA(1) of the ASIC Act. I am further satisfied that Cash King made false and misleading representations concerning the existence of a right or remedy in contravention of s 12DB(1)(g) of the ASIC Act.

Advertising 34 From about August 2002 until about July 2004, Cash King, in connection with the provision of financial services (see [11]-[12] above), published or caused to be published advertisements in newspapers circulated to the public stating in part either: (a) 'BAD CREDIT … No upfront fee's [sic]'; or (b) 'NEED CASH … No upfront fee's [sic]'. 35 In fact, the letters sent by Cash King approving the application for a credit facility provided for the payment of non-refundable valuation fees and deposits. It was Cash King's practice to offer to fund these payments in return for repayment out of the principal. Such offers were conditional, however, on the customer agreeing that the equivalent amount plus an additional charge of between $500 to $550 was a 'non-refund Application Fee to Cash King', and that 'should this loan not proceed for whatever reason we promise to immediately pay the non-refundable Application Fee'. 36 Therefore, I am satisfied that by the advertisements described in [34] above, Cash King engaged in conduct in contravention of s 12DA(1) of the ASIC Act. In addition, I am satisfied that in doing so Cash King made false and misleading representations with respect to the price of services in contravention of s 12DB(1)(g) of the ASIC Act.

Refund letters 37 On or about 6 May 2005, Cash King attempted to send letters to all those borrowers who were charged an increased establishment fee: see [13]-[18] above. The letters stated that ASIC had brought to Cash King's attention that the representation it made referred to at [17] above may have misled these borrowers. The letters also offered to 'settle the disputed amount' by offering a 'refund' to the borrowers of an amount equal to 65% of the amount to which the establishment fee required by BMC was increased; but only ifthe borrowers agreed to sign a deed of release. I am satisfied that at least some such letters were in fact sent to borrowers who had been charged an increased establishment fee. 38 It was and is ASIC's position that the misleading conduct set out in [13]-[18] above relates to the entirety of the difference between the establishment fee stated by BMC and the increased amount in the letter from Cash King to the borrower, not just to the 65% paid to Cash King by BMC. In addition, ASIC objected to the letter to these borrowers in this form as a refund, in their view, would not necessarily be an adequate remedy. 39 On the basis of this material, I am satisfied that by sending the letters in the form noted at [37] above Cash King engaged in conduct in relation to financial services in contravention of s 12DA(1) of the ASIC Act. I am further satisfied that Cash King made false and misleading representations concerning the existence of a right or remedy in contravention of s 12DB(1)(g) of the ASIC Act.

The enforceable undertaking 40 The consent orders that the parties submitted to the Court also provided for the Court to note the enforceable undertaking accepted by ASIC from the defendants as part of the resolution of these proceedings. Section 93AA(1) of the ASIC Act provides that ASIC may accept a written undertaking given by a person in connection with a matter in relation to which ASIC has a function or power under the ASIC Act. The ASIC Act confers on ASIC certain functions and powers under s 12A. In addition, s 13(6) of the ASIC Act, contained in Division 1 of Part 3 which concerns investigations, provides that ASIC may investigate suspected contravention of a provision of Division 2 of Part 2. 41 The present proceedings were commenced by ASIC following an investigation under the powers contained in s 13 of the ASIC Act. As such, I am satisfied that, prima facie, the undertaking is one which ASIC is empowered to accept and that it is appropriate for the Court to note the enforceable undertaking accepted by ASIC from the defendants: see Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd (2003) 198 ALR 417 per Mansfield J at [55]-[58]; Australian Securities and Investments Commission v Tower Australia Ltd [2003] FCA 660 per Sackville J at [10]-[11]; and Edwards per Barrett J at [15]-[16].

Conclusion 42 For the above reasons I was satisfied that the declarations sought by the parties were appropriate to make on the basis of the material before the Court. I was also satisfied that Cash King should be restrained from further such conduct in the form of the proposed orders. The Amended Originating Process and Statement of Claim should be otherwise dismissed. The parties have agreed to pay their own costs. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.

Associate: Dated: 12 October 2005 Counsel for the Plaintiff: Mr NJ Beaumont