Factual findings
194Chapel Road sought the findings in MFI 93 by reference to the documents and events identified in MFI 94. The evidence as to those matters had to be considered in context, with the result that only few of the findings Chapel Road sought can be made. The following references to 'Findings' are references to what was sought in MFI 93, which did not include, it should be noted, a Finding 21.
195The first finding sought was that in the period 1997 to July 1999 Chapel Road's compliance with provisions of its license, in terms of the supervision and training of its authorised representatives, required improvement (Finding 1). That was not in issue and well made out on the evidence. That it had taken some steps to improve its level of compliance before ASIC became interested in Robyn and Stephen Cochrane's activities in 1999, was also established (Finding 2). At that point Chapel Road was clearly already aware of and seeking to address certain known, serious, ongoing breaches of its statutory and licensing obligations.
196Chapel Road had been granted a securities dealer licence in 1996. Until its licence was revoked in 2001 it carried on the business of a licensed securities dealer, employing staff and utilising the services of a changing number of proper authority holders. Its licence was subject to various conditions, including conditions specified by Regulation. As Mr Reynolds later found before its licence was revoked in 2001, Chapel Road was then still in breach of certain of those conditions, despite ongoing steps pursued to address its problems.
197Chapel Road had employed Mr Gadd in 1997 to help deal with its problems. He became its compliance manager some time in 1998. Mr Bahles was then its managing director. Mr Gadd's evidence was that it was his responsibility to ensure that Chapel Road's procedures properly reflected legislative requirements. Mr Gadd carried out audits on its authorised representatives in order to ensure that their business practices complied with regulatory requirements. He explained that given the company's rapid growth, he had a considerable workload, with which he had sought various assistance.
198A consultant Ms Giles was engaged in 1999 to assist in preparing a compliance manual for Chapel Road. A draft was provided to Mr Gadd in March 1999, which he continued to work on. In May he advised Mr Bahles in a memo as to the compliance audit schedule which he then proposed to undertake. He also explained the chronic understaffing he was labouring under, which had prevented him completing required audits on time beforehand.
199In August Mr Gadd engaged another consultant, THP Services, to conduct compliance audits on Chapel Road's representatives that year. Mr Gadd then selected representatives for that audit who he considered would be likely to be 'less vigilant' in relation to matters of compliance and less compliance oriented
200Mr Gadd audited a Mr Owen in April 1998 and May 2000 and Mr Stephen Cochrane, who was also one of Chapel Road's shareholders, in December 1999. A banning order was made by ASIC in relation to Mr Stephen Cochrane in January 2000 and Mr Owen in April 2000. Mr Owen later pleaded guilty to a number of offences under the Corporations Act 2001 (Cth). Another proper authority holder, Mr Cobb, was banned in November 1999. Chapel Road's supervision of these authority holders had plainly not been adequate to ensure their compliance.
201On Mr Bennett's evidence these three proper authority holders were each banned as the result of serious failings in their responsibilities to clients. Mr Bennett explained that Mr Owen's banning was the result of his involvement in the Wattle Group scheme, which he described to be a Ponzi scheme, into which other of Chapel Road's proper authority holders, including Mr Cobb, had also been recommending clients. The 1998 audit had revealed a number of compliance failures, which Mr Gadd was to work with Mr Owen to address. Mr Owen challenged the order before the AAT, but continued to work as a Chapel Road representative, until he lost that challenge.
202Robyn Cochrane came to Mr Gadd's attention when he saw an ASIC media release relating to the banning order made against her in November 1998. She had formerly been connected with two other licence holders, Financial Wisdom and ANZ, but not with Chapel Road. The release referred to both Stephen Cochrane and Chapel Road. Chapel Road had no prior notice of the investigation into Robyn Cochrane. It had never had any relationship with her, but she was known to Mr Bennett. His evidence was that he had known Robyn Cochrane since 1995 when they had worked together for another institution. He barely knew Stephen Cochrane before he became one of Chapel Road's authorised representatives. They were introduced by Robyn Cochrane.
203The release caused Mr Gadd to approach ASIC. He then went to Mr Cochrane's office at Toukley where he conducted a full audit. He noticed that Robyn Cochrane was operating a mobile telephone business next door. Mr Gadd received assurances from Mr Cochrane as to his mother's involvement in his business. Mr Gadd noted in his December report that to be that Mrs Cochrane was then assisting her son with client files, but that she did not speak to clients herself. Mr Gadd prepared a remedial action plan for matters he identified needed to be addressed, in order to improve Stephen Cochrane's compliance. For reasons seemingly associated with Mr Gadd's workload, that report was not sent to Mr Cochrane until April 1999. He responded in June.
204Mr Bennett's evidence was that he had since become aware that Stephen Cochrane had a criminal record. He had become a shareholder at a time when Chapel Road had offered its proper authority holders the opportunity to acquire shares. He agreed that Stephen Cochrane had allowed his mother to use his business as a front to conduct business on her own account, after she had been banned. He said that she was much more experienced than her son and that with the benefit of hindsight, Chapel Road should have investigated what Mr Gadd's report into the audit of his business had revealed, particularly given that it was known when he became a proper authority holder, that Stephen Cochrane was supposed to have been taking over Mrs Cochrane's clients.
205In June 1999, ASIC received complaints that Robyn Cochrane had continued advising clients, despite being banned. The resulting investigation finally led to Bergin J making orders in July 1999 preventing Robyn Cochrane accessing Stephen Cochrane's client files, requiring him to forward all of his client files to Chapel Road and restraining Stephen Cochrane from giving investment advice.
206ASIC advised Chapel Road of these orders by letter of 2 July, after Ms Redfern, ASIC's general counsel, spoke to Mr Gadd. ASIC provided Chapel Road with various evidence, affidavits and documents on 7 July, which it advised raised significant concerns as to Stephen Cochrane's conduct and asked Chapel Road to advise it of any action it intended to take.
207This evidence established that Chapel Road was then aware that ASIC considered that its compliance regarding authorised representatives required improvement (Finding 3(a)).
208On 9 July ASIC served a s 33 notice on Chapel Road, informing that it was conducting an investigation and requiring it to produce certain documents.
209On 14 July Mr Gadd wrote to ASIC informing it that Chapel Road it would cooperate in its investigation; that it had notified its insurer of the matter; had taken steps to suspend Mr Cochrane's proper authority; and had written to his clients.
210ASIC officials Ms Redfern, Mr Wroe, Ms Williams and Mr Gadea then met with Mr Bahles, Mr Gadd and Mr Pierson on 30 July to discuss ASIC's concerns about Stephen Cochrane and its own compliance with its licence conditions. ASIC advised Chapel Road by letter that day of the matters it wished to discuss and the prospect of enforcement action being pursued, which could result in the revocation or suspension of Chapel Road's licence. Those matters included Chapel Road's awareness of Robyn Cochrane's activities; what training it had given Stephen Cochrane; what compliance visits had been undertaken; the actions it had taken since becoming aware of the investigation; and various identified concerns as to Chapel Road's non-compliance with the terms of its own licence. They included initial training, resources and its complaints system.
211On Mr Gadd's evidence, one of the matters then discussed was ASIC's view that Regulation 7.3.02 required Chapel Road to ensure that its representatives were sufficiently trained in their duties "before acting as a representative." Another of ASIC's concerns was its complaints resolution system. His evidence was that at the time, he did not speak to representatives before they were appointed. That was plainly not in accordance with the requirements of the Regulation. The induction training course later developed was designed to address this. That training was to be undertaken before representatives started writing business. That system was not implemented.
212By letter of 2 August, ASIC recorded the actions which Chapel Road had then undertaken to pursue. They included advising all clients that Stephen Cochrane could no longer advise them and providing ASIC with a proposal for the appointment of an independent auditor to review all of his files. In an email of 2 August 1999, Ms Redfern observed to other ASIC officers that Chapel Road "will do anything we suggest". That assessment proved to be incorrect (Finding 3(b)).
213Mr Bahles wrote to ASIC on 4 August, advising of the steps being pursued, including the check of all files the subject of the Court's orders, as well as other files. Further information about what was being done was provided on 10 August.
214On 12 August, Mr Gadea wrote to Mr Bahles, noting his agreement on 30 July to the appointment of an independent accountant to conduct a review of Stephen Cochrane's client files and what the review was to establish, including in relation to investments made for clients and any "churning of investments". ASIC nominated three accountants, one of whom it required Chapel Road to select. It expected a report to be provided within a month of appointment.
215Chapel Road engaged one of those nominated, a Mr De Vries, to undertake an audit of Mr Cochrane's files, at a cost of some $70,000. He produced a preliminary report on some 125 client files on 13 September. He there reported that he had found the files in disarray and that he had attempted to reconstruct clients' investment portfolios from a commission list and confirmation of transactions with fund managers. This had revealed the existence of extra clients not recorded in either Chapel Road or Cochrane's lists. There were 41 clients identified as requiring further investigation. Mr De Vries also reported that he had difficulty in establishing whether there had been any churning. He advised that inconsistencies he had found could be explained either by incompleteness of files maintained, or misappropriation. He recommended direct contact with the clients to be the best way to proceed.
216As Chapel Road submitted, by this time it was not only on notice of ASIC's interest in Stephen Cochrane, but also that ASIC regarded its own compliance in relation to its authorised representatives to require improvement. It was certainly prepared to co-operate with ASIC in the investigation of what Robyn Cochrane and Stephen Cochrane had done and to improve its compliance regimes. That the evidence established that it would have cooperated with (any improvement) required or suggested by ASIC as Chapel Road submitted, was not, however, established (Finding 3(a)).
217To the contrary, on Mr Bennett's evidence even though three of its proper authority holders were banned; there being still a significant potential for fraud by proper authority holders; a conflict of interest having been identified in relation to Chapel Road's auditor, which had led to his resignation; and the ongoing problems it later sought to address before the hearing before Mr Reynolds, in his opinion Chapel Roads' compliance procedures had been adequate at all times.
218Consistent with this view, even what Mr Bahles had agreed with ASIC to do initially, by way of independent audit of Stephen Cochrane's files, was something which Chapel Road came later to have a different view about, to which I will return. Nor was it later prepared to participate in the complaints resolution process which ASIC proposed to Chapel Road and the other two licensees involved in the complaints which emerged in relation to Robyn Cochrane, after Chapel Road terminated Stephen Cochrane's proper authority in November.
219It was on 7 December that Ms Redfern wrote to Mr Bahles advising that ASIC had notified a number of former clients of Robyn Cochrane that they should make enquiries as to the existence and validity of any investments she had allegedly made for them, and that it had already interviewed and taken statements from a number of clients. Ms Redfern also advised that ASIC's role was not to determine licensees' liability, but that it would assist clients who believed that they had not been fairly or efficiently dealt with by the relevant licensee in relation to any claim which they made. A claims resolution process was also proposed, involving independent audit of the portfolios of claimants, noting the work already undertaken by Mr de Vries. Ms Redfern proposed a meeting with all three licences on 13 December, noting ASIC's concern about the adequacy of their respective supervision of Robyn and Stephen Cochrane.
220To this point Chapel Road was co-operating with ASIC (Finding 5). It had received advice from ASIC by letter of 24 September as to its concerns. Mr Bahles had responded by letter of 14 October 1999, accepting that they had a basis and explaining what would be done to address them. It had also notified its insurers, HIH, of potential claims (Finding 4).
221ASIC then sought to establish an agreed regime for the resolution of the Cochrane claims with the three licensees. It emerged that Chapel Road was not willing to incur the further costs which would be involved in what was proposed, nor to participate in that process (Finding 7).
222Mr Gadd and Mr Griffith attended another meeting with ASIC, its insurer's solicitors, Corrs and other licensees on 2 March 2000. Chapel Road refused to participate in what ASIC proposed and its representatives walked out of the meeting. Mr Gadd recalled Mr Griffith saying at this meeting that "I don't know why we are here. The vast majority of the claimants were affected by Robyn Cochrane and their claims relate to the other dealers." That was Chapel Road's attitude, which it pursued from that point despite Mr Gadd's report to the Board as to his concern about that approach, which he considered could lead to retribution from ASIC.
223On 14 March 2000, Ms Redfern advised the licensees of her concern about their handling of claims to date. In his evidence, Mr Gadd said that Chapel Road had dealt with all claims it received "in a prompt manner". That was not born out by the documents in evidence.
224It finally emerged that Robyn Cochrane had provided advice to certain of Stephen Cochrane's clients and that she had defrauded certain of her former clients. Eventually, some 34 claims came from people who had lost money as a result of Mrs Cochrane's fraud. Corrs' view was that Chapel Road might have responsibility for a number of these claims. ASIC was certainly made aware of Chapel Road's approach to its insurer and the views of its solicitor (Finding 6).
225As it finally emerged, Mr Griffith's assessment proved to be correct. Chapel Road came to have responsibility for only one of these claims. Beforehand, however, ASIC officers became concerned as to its approach to the investigation and resolution of the claims which were pursued against it by a number of the claimants under its complaints handling processes.
226Not surprisingly, one of the other consequences of what had happened in relation to Robyn and Stephen Cochrane was that ASIC pursued its investigation into Chapel Road's compliance with the conditions of its own licence and the applicable law, while the investigation and resolution of the claims which had emerged were pursued. How it dealt with those claims evidenced the operation of Chapel Road's complaint handling mechanism in practice. That was a matter of concern which ASIC had raised with Chapel Road in the July 1999 meeting.
227Chapel Road made no complaint about the pursuit of this part of ASIC's investigation. It was already aware beforehand from Mr Gadd's work that its compliance with certain of its obligations and licence conditions needed improvement. It had already taken various steps to address problems which he had earlier identified, some of them serious. Those steps had plainly not all been successful. One of its problems was the number of its authorised representatives, and another, the resources it had to ensure their compliance with the conditions which bound Chapel Road and them, as it was obliged to do.
228ASIC conducted its first formal surveillance of Chapel Road's operation in August and September 1999. Two reports emerged from ASIC's initial surveillance, neither of which were provided to Chapel Road. It made no complaint about that in these proceedings, accepting that the advice which it was given by ASIC by letter of 24 September 1999, reflected the results of that surveillance.
229As Chapel Road contended, thereby, it became aware that ASIC considered its compliance in relation to its authorised representatives required improvement (Finding 4).
230ASIC told Chapel Road that it had concluded that Chapel Road had not complied with certain identified laws and conditions of its licence. It was given until 30 October 1999 to address the concerns which ASIC identified in relation to compliance, training and resource issues, after which ASIC would decide whether it is "necessary or desirable" to take enforcement action'.
231Chapel Road was also advised that:
"Your compliance and training regime must be outlined in writing and set out in detail what compliance strategies you currently have. Your response should include what arrangements, steps and practices you intend to implement in respect to your future operations so as to ensure full and effective compliance with the Law and the Licence Conditions. The written response should also identify what Chapel Road will do, (including an immediate timetable) to rectify the breaches of the Law and Licence Conditions referred to in this letter.
In the event that the ASIC does not receive a satisfactory response to this letter within the time specified above, the ASIC will consider taking appropriate enforcement action. This may include proceeding to a hearing before an independent ASIC delegate which could result in the suspension or revocation of Chapel Road's licence."
232Mr Gadd's evidence was that it was then understood that ASIC regarded Chapel Road's failures to be serious and needing to be dealt with, with some speed. Despite this recognised urgency, its response was to advise ASIC that they would take some months to address. That, too, became a matter of concern to ASIC, about which it advised Chapel Road.
233Chapel Road sought to address its problems in various ways. It repeatedly provided information to ASIC as to the outcome of its ongoing actions (Finding 4). In some cases, what was provided gave rise to further concerns on ASIC's part, some of them serious, which were raised with Chapel Road and to which it then responded, albeit in ASIC's assessment inadequately. The eventual result of Chapel Road's approach to ASIC's concerns was that its licence was revoked.
234The evidence reveals that this occurred after the following events.
235Chapel Road engaged external consultants to assist it in addressing ASIC's concerns. It also reduced the number of its proper authority holders, which numbered about 100 when it first came to ASIC's attention, so that it could direct its resources to active financial planners. It also decided to appoint a business manager to assist in developing appropriate compliance procedures; to formalise an induction course for new representatives; and to establish a training and development team.
236Management committee minutes of 17 September record that a Robyn Cochrane client had commenced proceedings in relation to some $23,000 of missing funds and that the insurers would be notified of that claim and the De Vries' audit. It was proposed that action be taken when ASIC recommendations were received. Risk assessment of representatives was to be pursued, with the loss of advisers not doing business being noted as being "good as it reduces the compliance burden".
237Chapel Road wrote to Mr Cochrane about Ms Grieve's claims on 20 September, seeking information about applications naming him and Chapel Road, which it had not received and which had not been lodged with the fund managers.
238Mr Gadd also engaged Ms Giles on 30 September to assist in producing a compliance plan and a proper authority holder's procedure manual, to assist Chapel Road in 'comforting ASIC in respect of our compliance structure'. He instructed her that he then understood from ASIC's advice that:
"Chapel Road is in need of a comprehensive compliance plan, that codifies our system of compliance and the procedures to be followed in implementing that system. What is also required is a system of compliance plan review - to be undertaken on a periodic basis."
239Mr Gadd intended that the plan would deal with appointment and removal of authority holders, operational issues, training and professional development, a compliance manual and costing. He advised Ms Giles that Chapel Road had a timeframe of 30 October, given its need to respond to ASIC.
240On 14 October 1999, Mr Bahles responded to ASIC's September letter. Chapel Road did not dispute the deficiencies ASIC had identified in its surveillance, which he said had resulted from its growth since October 1996. He advised that as well as reducing the number of its representatives, Chapel Road proposed to outsource compliance visits to external experts; to fill a newly created position of business manager; to introduce an induction course for new appointees, to be provided by a registered training organisation; to publish a bi-monthly newsletter for authorised representatives, dealing with compliance issues; to establish a training and professional development committee; to formulate a plan for bi-monthly continuing professional development days; and to engage an external consultant to construct a comprehensive compliance plan. As it transpired, not all of these developments were ever put in place.
241In October Mr Redpath was appointed the Business Manager. Mr Gadd provided Mr Burgess with a first draft of Chapel Road's compliance plan on 9 November, advising that further work was being undertaken to meet ASIC's concerns and that he would provide further information on progress on 16 November. Mr Gadd's evidence was that he then expected to receive feedback from ASIC, in relation to the steps it was pursuing. On the evidence of the experts, this was a mistaken assumption. Had they been advising Chapel Road, they would have advised it to be proactive, putting a positive plan to ASIC, by which its concerns would have been addressed, including costings, timeframes and ongoing review mechanisms.
242Contrary to Chapel Road's case, it did receive further feedback as to ASIC's ongoing concerns about Chapel Road's approach, which the experts agreed that it sought to have addressed.
243On 17 December ASIC sought further information about what was proposed. Mr Gadd sought advice from Ms Giles, who advised amongst other things, that she considered ASIC was being "a little imposing" and "a little intrusive"; that she considered that the exchange of correspondence was not very productive; and that Chapel Road could consider seeking a commitment from ASIC as to "when enough information is enough".
244On 13 January Mr Bahles responded to ASIC's questions, providing a copy of the minutes of the Compliance and Training Committee which had met for the first time in December, which included an outline of the major findings of the audits conducted by the external provider, THP. They included findings in relation to responsibilities not completed by representatives who had been audited including, for example, of the four audits conducted, that in four cases there had been non full disclosure of commission; in three cases no research data kept in client file; and in two cases no copy of financial plan kept in file. Mr Bahles advised that the issues identified were being addressed "globally via education through the Chapel Road Bulletin and CPD Days and individually by studying of the compliance manual and compliance audits". That did not prove to be effective.
245On 17 January Corrs advised Chapel Road that it seemed likely that there might be a number of claims made against it in relation to Stephen Cochrane under s 817 of the Corporations Law.
246On 27 January ASIC advised that Chapel Road's response had raised a number of other serious concerns in relation to the outcome of the audits which had been conducted and the deficiencies identified in the training of various authorised representatives. Copies of the audits and other documents were sought, including the outcome of annual competency examinations conducted by Chapel Road in January. An explanation of why implementation of remedial action identified was to be delayed until July 2000, was also sought.
247In January Mr Bahles resigned as Chapel Road's managing director and Mr Bennett and Mr Gellet were appointed joint managing directors. Its auditor, Mr Hill, also resigned after ASIC conducted a s 19 examination, after concerns had arisen as to aspects of two annual audits he had conducted.
248Mr Bennett's evidence was that Mr Hill was not only Chapel Road's accountant and auditor, he was also one of Chapel Road's proper authority holders and a shareholder. In cross-examination, Mr Davies, who was later appointed to replace Mr Bahles, denied that Mr Hill's departure had to do with any conflict of interest. In his view there was no conflict. That was a view which Mr Bennett did not share. He considered that the conflict was plain and was the reason for Mr Hill's resignation, but it was not one which he had considered beforehand. On Mr Bennett's evidence, as a result there had been no independent compliance auditing conducted of Chapel Road.
249Thus, at a time when ASIC still had to determine whether enforcement action should be taken, Chapel Road was not only seeking to resolve serious issues in relation to its compliance with its obligations under the Corporations Law and its licence conditions, it was also still dealing with the claims which had emerged in relation to Stephen and Robyn Cochrane. ASIC was plainly concerned about its response to both matters, as well as about the impact which the change in its management would have on its approach to them.
250On 31 January ASIC and Chapel Road representatives met with representatives of the other two licensees, to discuss the terms of letters to be sent to clients of Stephen and Robyn Cochrane and the process to be pursued to deal with any resulting claims.
251On 2 February 2000, Mr Gadd replied to ASIC's 27 January concerns. He provided copies of a number of THP audit reports and provided various information, in order to allay ASIC's concerns, including in relation to what he advised about the detection of "a global lack of understanding regarding full disclosure" and how education, increased communication with representatives and further auditing sought to address this.
252Mr Gadd also advised of certain other developments following Mr Bahles' resignation and a resulting "mini restructure of the dealership", as well as new duties given to Mr Redpath, to follow up on audit outcomes. He advised that a further reduction in authorised representatives was in train, as well as further revision of the compliance manual. He also promised to provide further information as to the progress of various matters, advising that the proposed improvements were to be overseen by the compliance plan and the newly established Compliance & Training Committee. As it transpired, that committee did not meet again in 2000, as had been proposed.
253Mr Gadd's evidence was that he was then expecting to receive periodic feedback of the type Chapel Road had received in December and January from ASIC. He was keen to co-operate and to react constructively to this feedback and that Chapel Road would then have considered enforceable undertakings positively. The fact was, however, that it never itself proposed such undertakings to ASIC and the steps it was pursuing did not satisfy ASIC's concerns.
254In cross examination Mr Gadd said that he was then aware that Chapel Road was facing serious, ongoing concerns in relation to the matters ASIC had given notice of in September 1999 and knew that if they were not rectified, it potentially faced suspension or revocation of its licence. He was aware that ASIC was concerned, for example, with Chapel Road's advice that the vast majority of its proper authority holders had not complied with its own mandatory educational requirements and with what it considered to be a slow implementation of various remedial action Chapel Road had proposed.
255On 4 February, Mr Gadd spoke to Mr Burgess, who led ASIC's surveillance team, who advised him that ASIC would be making a decision about Chapel Road's licence that day and that the outcome "could be an enforceable undertaking". Board minutes of 4 February noted a report from Mr Gadd as to his understanding from Mr Burgess, that a decision from ASIC in relation to the outcome of its surveillance was imminent and that an enforceable undertaking could be the outcome. That was not what transpired.
256This evidence did not establish, as was Chapel Road's case, that ASIC, or the identified decision makers, Ms Redfern and Ms Layton, decided on 7 February that the appropriate regulatory response to Chapel Road would be that its licensee be subject to additional conditions by way of an enforceable undertaking or imposition of licence conditions. No such decision was made (Finding 11).
257As Chapel Road submitted, if a decision was made that additional conditions would be imposed, under s 837 of the Corporations Law, ASIC had an obligation to provide Chapel Road with the option of a hearing. The documents show that this was an obligation of which ASIC was conscious and took into account, in determining the course it would pursue.
258Mr Burgess and the other members of the surveillance team reported to Ms Layton and Ms Redfern in a 7 February memo, that the concerns which had been identified in the surveillance:
" ... appeared to have their origins in a largely non-compliant regime. There was a lack of resources addressed to the training and supervision of proper authority holders resulting in general deficiencies in that supervision and training which did occur. There were cases of proper authority holders clearly completely unaware of key responsibilities and obligations of investment advisers."
259Particular deficiencies in documentation and procedures were identified, including only one person, Mr Gadd, having responsibility for supervision of 76 proper authority holders, as well as other responsibilities. Deficiencies identified from a review of proper authority holder files were outlined. Reference was made to numerous fundamental compliance failings identified in the audit program which had been undertaken by an external body and the concerns which had led to the resignation of the auditor. The report also outlined the remedial action which Chapel Road was pursuing, including its intention to reduce the number of proper authority holders to 40, by the end of the month.
260The residual concerns there identified were Chapel Road's capacity to:
"... ensure that what in theory would appear an acceptable compliance regime becomes an ongoing reality ensuring adequate service and protection levels for their retail investor clients."
261Mr Burgess and Ms Williams recommended that appropriate options were for ASIC to accept an enforceable undertaking, or to impose further licence conditions. Two other cases where enforceable undertakings had been accepted were referred to and draft undertakings and conditions provided for discussion.
262The evidence did not establish that the surveillance team had the authority to decide what ASIC's regulatory response would be, or that any decision was then finally made by either Ms Layton or Ms Redfern. Instead, advice was sought from ASIC's National Compliance Unit.
263On 8 February, Mr Burgess wrote to Ms Exline Starr at the National Compliance Unit, asking for the compliance plan and compliance manual which Chapel Road had prepared with the assistance of Ms Giles to be examined and advice provided as to "any residual matters which you consider may be of relevance in ensuring the establishment of an effective compliance regime". She was also provided with copies of the correspondence which had been exchanged between ASIC and Chapel Road since September.
264The evidence did not establish that this advice was sought only for the purpose of the National Compliance Unit providing input into additional conditions to be imposed by ASIC either by enforceable undertakings or additional licence conditions (Finding 12). Such input was, however, certainly later sought on 10 March, when Mr Burgess sent Ms Donselaar draft enforceable undertakings to consider.
265On 9 February Mr Burgess advised Mr Gadd that ASIC sought further information. On 10 February Mr Gadd wrote to ASIC, informing that an organisational restructure was proposed as the result of an impending merger with a trustee company, which would assist in addressing resource issues, with three to four compliance officers then being engaged. This did not proceed.
266On 10 February, Mr Hudgeson, an ASIC investigator, notified Chapel Road of a claim which had been made by a Ms Grieve, as the result of advice given by Mrs Cochrane and asking to be kept informed as to its consideration of the matters raised.
267On 11 February Ms Redfern wrote to Mr Gadd about the 31 January meeting at which ASIC had submitted a draft letter, based on a draft prepared by Financial Wisdom, with comments made by ANZ and Chapel Road incorporated. Further changes to the draft were proposed and a proposed internal complaints procedure discussed. ASIC outlined its concern that many of Ms Cochrane's former clients were elderly and might not properly be able to advance their claims without assistance. ASIC advanced various suggestions as to how their complaints might be dealt with by the licensees. Advice was also given that 11 statements from complainants had been referred to other licensees and that statements were being prepared by 23 other claimants. ASIC asked to see the final version of any letters sent to clients, before they were sent and proposed another meeting in February.
268Board Minutes of 11 February noted a report from Mr Gadd as to further information provided to ASIC; advice received from Mr Owen that he anticipated being banned by ASIC; and advice given to HIH about claims which had been received from Cochrane clients.
269Board minutes of 18 February recorded:
"Cochrane/Grieves
The submission was presented. It was found that Cochrane had forged signatures on cheques drawn in her favour. Applications had been completed under Chapel Roads' name and not submitted to fund managers. The ASIC has prepared a letter (copy will be presented at next meeting) that can be sent to all Cochrane's clients but Tony reluctant to so with the possibility that further claims may arise. Tony and Jim still to investigate further."
270In cross-examination Mr Bennett denied that his primary concern, reflected in these minutes, was then to avoid liability for Chapel Road. That was somewhat difficult to credit, given his evidence that at the time its financial position was not strong; it had certain cash flow problems; the extent of Robyn Cochrane's fraud and its liability was not known; and identification of those who had been the victims of Robyn Cochrane's fraud was difficult. Minimising its liability was then plainly a matter of concern to Chapel Road, as was its obligation under its insurance policy, not to admit liability for any claim made upon it.
271Undoubtedly Chapel Road then had to deal with the claims which emerged, but it was certainly concerned about the extent of what it faced and acted in accordance with that concern. That explains why Mr Bennett said in his letter of 2 March to Mr Gadea, that Chapel Road did not consider Mrs Grieve to have a viable claim against it, even though it had received commissions in respect of her investments. Contrary to what he there claimed as to the problems in dealing with Mrs Grieve direct, later she was contacted and eventually her claim resolved.
272On 28 February Mr Hudgeson notified Chapel Road of a claim received from Mr Buick and on 1 March of a claim from Ms Cullinan.
273On 2 March Mr Bennett wrote to ASIC denying any liability for claims made by Ms Clutter, Ms Grieve, Mr Buick, and Ms Cullinan. That day Ms Redfern met with the licensees' representatives and Corrs. Chapel Road representatives walked out of that meeting, after advising that they would not participate in the process it had proposed or share in the cost of a joint auditor, but Corrs undertook to obtain instructions from the insurer, as to the claims which had been made on Chapel Road (Finding 7).
274The Board minutes of 3 March 2000 recorded concerns about Chapel Road's financial position and in relation to 'ASIC matters':
"ASIC Matters