Commissioner for Fair Trading, Department of Commerce v Armond Shoostovian

DECISION : In respect of each offence in Schedule 1 to this judgment there is a fine imposed of $1700. In respect of each offence in Schedule 2 to this judgment the defendant is discharged on condition that he enters into a good behaviour bond for a period of 2 years from today. The Defendant is to pay the Plaintiff's costs.

CATCHWORDS : Sentence for offences in breach of regulatory provisions concerned with finance broking - plea of guilty - sentences imposed.

Consumer Credit Administration Act 1995 - ss 4C(1), 4C(3)(c), (e), (f), (g), (i), (m), 4C(4), 4H(1), 41(1), 43(1)(b) LEGISLATION CITED : Credit (Finance Brokers) Act 1984 (now repealed) Crimes Act 1900 Crimes (Sentencing Procedure) Act 1999 - ss 3A, 9, 10(1)(b), 10(2)(b)

CASES CITED : Suleman v R [2009] NSWCCA 70 R v Elyard [2006] NSWCCA 43

PARTIES : Commissioner for Fair Trading, Department of Commerce v Armond Shoostovian

COUNSEL : R Francois - Plaintiff A Jamieson - Defendant

SOLICITORS : B Bourke - Plaintiff C Parisi - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

2008/12208 COMMISSIONER FOR FAIR TRADING, DEPARTMENT OF COMMERCE v Armond SHOOSTOVIAN

JUDGMENT 1 HIS HONOUR: The defendant has pleaded guilty to a number of offences against provisions of the Consumer Credit Administration Act 1995 (the Act). The prosecutor is the Commissioner for Fair Trading (the Commissioner) and the Minister for Fair Trading has consented to the prosecution being conducted in this Court; see s 43(1)(b) of the Act. I was informed that this was the first prosecution of its type and hence the proceedings were taken in this Court rather than the Local Court. The offences are all breaches of either ss 4C(1), 4C(4) or 4H(1) of the Act. The maximum penalty in relation to each offence is a fine of $5,500. 2 The offences occurred between 1 August 2004 to 1 March 2005 and 1 September 2005 to 1 March 2007. The misconduct comprises 140 charges affecting 83 different consumers. Particulars of the offences are set out in the Schedule to this judgment. Generally, the offences relate to failures by Save Finance Pty Limited (the Company), previously known as the Loan Enquiry Centre Pty Limited, to disclose prescribed matters to consumers and to keep records of its dealings. The defendant's liability for the offences arises in his capacity as the sole director and secretary of the Company. It is alleged that the defendant knowingly authorized or permitted the Company to contravene the Act; see s 41(1) of the Act. 3 The defendant became the sole office holder of the Company in 1998. The Company, which was engaged in finance broking, has a history of breaching legislation in relation to its broking agreements. Over a five-year period, the Office of Fair Trading ("Fair Trading") received a number of complaints against the Company from consumers specifically in the areas of disclosing commissions; drafting broking agreements that complied with the relevant laws; and providing copies of the agreements to consumers. 4 In 2004 Fair Trading notified the defendant that his broking agreements did not comply with the Credit (Finance Brokers) Act 1984 (now repealed). In March of that year Fair Trading sent the defendant the relevant legislation that was about to be enacted so that he would be aware of the new provisions and his obligations under them. The defendant gave an undertaking to ensure that his broking agreements would in future comply with the law. The offences, the subject of these proceedings, were in breach of that undertaking. 5 On 12 June 2008, pursuant to s 18 of the Act, the delegate for the Commissioner reprimanded the Company for engaging in unjust practices and ordered that the Company rectify the consequences of its unjust conduct by paying each of the consumers affected the commissions it charged for its broking services that were contrary to 4C(4) of the Act within 60 days from 12 June 2008 (the average commission paid by a consumer to the Company was $8,000). The Company failed to comply with this order. 6 Consequently on 25 October 2008 an order was made pursuant to s 19 of the Act that the Company was not to be involved in providing consumer credit or finance broking in any way until it had been notified that the Commissioner was satisfied that it had complied with the order of 12 June 2008. 7 On 4 December 2008 the Company was placed into liquidation. 8 The relevant offences are as follows:

4C Finance broking contract must be in writing and must be given to client (1) A finance broker must not engage in finance broking on behalf of a particular client unless: (a) the finance broker has first entered into a written finance broking contract with the client, and (b) that contract has been signed by the client, and (c) the contract contains the matters required by subsection (3), and (d) a copy of the contract has been given to the client. Maximum penalty: 50 penalty units. ………

(4) A finance broker must not demand, receive or accept any commission in respect of finance broking engaged in on behalf of a client if the finance broker has failed to comply with this section in relation to that finance broking. Maximum penalty: 50 penalty units. …………….

4H Finance broker to keep records (1) A finance broker must, before or immediately after entering into a transaction in the course of business as a finance broker, make, or cause to be made, a record containing full particulars of that transaction, including a copy of any relevant finance broking contract. Maximum penalty: 50 penalty units. 9 The prosecutor has acted on the basis that s 4C(1) contains a single offence so that, although there are instances where in respect of a particular client the defendant has breached more than one of the subsections, only one charge has been laid to reflect all of the breaches. The breaches in each case were a failure to specify the matters set out in s4C(3)(c), (e), (f), (g), (i) and (m). Section 4C(3) relevantly provides that the following matters are to be contained in the contract:

(c) if the consumer credit is intended to be repaid at regular intervals - the maximum periodic repayments the client is prepared to make in respect of the consumer credit (including the repayment of any credit application fee, credit establishment fee or other fee), and

(e) the maximum interest rate that will be payable in respect of the consumer credit, and

(f) the date by which the finance broker is to have secured the consumer credit for the client, and

(g) a statement, in the form prescribed by the regulations, that the finance broker's recommendations will be drawn from a range of potential lenders that does not necessarily include all lenders who offer consumer credit of the nature of the consumer credit sought, and

(i) if the finance broker is a company - the Australian Company Number (ACN) of the company, and

(m) if a financial or other benefit will be received from a person other than the client by the finance broker if consumer credit is ultimately provided to the client - a statement, in the terms prescribed by the regulations, as to the fact that the finance broker will receive a financial or other benefit and as to any other matters that may be prescribed, and 10 Of course the failure to state any one of these matters may not be as serious as the failure to state any other of the matters. For example a breach by the failure to state an ACN number specified in (i) above is unlikely to be a serious breach when compared with, for example, a breach to disclose a benefit to be received by the broker under (m). 11 The offences committed by the defendant should be considered in the context that these are not the only occasions when he has failed to comply with his obligations under the relevant legislation. This does not mean that the offences are aggravated by that fact or that the defendant is to be punished for his past misbehaviour. But he cannot have these offences considered as lapses in an otherwise blameless career as a finance broker. The offences come in the face of warnings by Fair Trading and undertakings by the defendant. 12 The offences are not technical breaches of regulatory offences. They are examples of deceptive conduct in which persons who were in need of finance were deprived of the full information they required to be able to determine whether or not to enter into loan agreements procured by the defendant. Of course they are not as serious as fraudulent activity found in offences under the Crimes Act. The offending conduct does not make the defendant liable to a prison sentence. 13 I should record my concern that the conduct of the defendant might have amounted to offences under the Crimes Act. For example, it seems to me that the defendant could have been investigated for obtaining a financial advantage by deception in some of these cases. There is little doubt that the defendant's conduct would have been dishonest for the purpose of any offence that he had committed. I feel hamstrung in properly punishing the defendant by the fact that he has been charged with offences under the Act for which he can only be fined, particularly having regard to what I know of his financial situation. I am limited in my ability to protect the public from future offending by the defendant. The defendant's offending in these matters has a complexion about it that is more than simply a failure to fulfil regulatory requirements. However, I make it clear that I am only punishing him for the offences under the Act. 14 The purpose of these offences is the protection of members of the public who are likely to be vulnerable because of a pressing need for finance. The Minister for Fair Trading stated the following in his speech introducing the legislation into the Parliament in April 2003:

The proposals in the bill are based on the recommendations of a National Competition Policy review of the Credit (Finance Brokers) Act 1984. The review found that consumers continue to experience some risks in their dealings with finance brokers, and that these risks justify continued regulation of the finance broking industry. The main risk faced by consumers of finance broking services are: lack of broker independence where commissions paid by lenders, which may result in consumers entering into overpriced credit arrangements; consumer loss where brokers commission is paid in advance and the credit is not subsequently obtained; the charging by brokers of excessive, undisclosed, commissions or other fees; unethical conduct whereby consumers are persuaded to borrow larger amounts than needed or to include fraudulent information in credit applications; and difficulty in obtaining redress where consumers have not been provided with a copy of their agreement with the broker.

Given these risks, the review concluded that the objectives of the Credit (Finance Brokers) Act remain valid. These objectives are: ensuring that consumers have sufficient information when dealing with finance brokers; reducing the cost of obtaining information from finance brokers and enforcing contracts against finance brokers; and protecting consumers from financial loss…………….. 15 The review to which the Minister referred considered that there was a benefit in retaining penalties for breaches of the legislation because it provided "a potential benefit to consumers and the economy by discouraging overcharging, misappropriation of monies and other unfair conduct by brokers". I would caution against the use of these offences where the conduct is truly criminal, as it appears on its face to be in some instances in the present case. For example I do not believe that breaches of the legislation should be to protect against "misappropriation of monies". The threat of criminal charges is obviously a greater deterrent than the regulatory charges under the Act. 16 Part 1A of the Act deals with the regulation of finance broking. It is the Part in which the offence provisions referred to above are found. Section 4A is as follows:

4A Object of Part The object of this Part is to provide for the regulation of persons who engage in finance broking so as to ensure that the clients of finance brokers: (a) are given adequate information before entering into finance broking contracts, and (b) are protected from unfair practices engaged in by finance brokers, and (c) have access to a redress mechanism when finance brokers breach the terms of the finance broking contract, engage in unjust conduct or charge excessive commission. 17 Clearly penalties imposed under the Act must have a deterrent effect on persons generally engaged in this type of business activity. In the present case they should also have a personal deterrent effect upon the defendant. As I understand the situation there is no requirement that a finance broker be licensed. Therefore there is apparently nothing to prevent the defendant from undertaking this business under a different company. There is no system of licence or registration so that a serial offender can simply be barred from carrying on this business if he or she is prepared to flout the requirements of the legislation and put members of the public at risk. 18 There is material before me that suggests that the defendant is such a person. There is evidence that he has in the past sought to frustrate Fair Trading by deliberately destroying documents. It may well be the case that this is what has happened here. Again I am not punishing him for that activity, but it cannot be, and was not, asserted on behalf of the defendant that he was simply disorganised in carrying out his business or negligent in overlooking the requirements imposed upon him by the legislation. 19 I know little about the defendant personally. He did not give evidence. He pleaded guilty and that had the utilitarian value that a hearing of about two weeks was not required. There is little to indicate remorse but I am prepared to accept that his pleas saved witnesses, they being ordinary citizens, the time and effort of giving evidence. He has no relevant criminal record but, as I have indicated, these are not isolated lapses. Generally he is of good character otherwise than in the carrying on of his brokering business and in relation to and associated with drink driving matters. I think that the defendant has two standards of integrity in relation to his commercial activities; one outside his business and another within it. 20 The offences resulted in the Company obtaining over $700,000. This does not necessarily represent a loss to the persons who were the subject of the agreements, even though the Company was not entitled to take a fee because of the failure to disclose information. The real harm to the defendant's clients may be in default under the mortgages he brokered. Nor was it all a benefit received personally by the defendant. It is difficult to discern what was the loss to individual members of the community of the defendant's misconduct or what his personal gain. 21 My concern, and I think that of the prosecutor, is that the defendant will offend again if, and when, he is able to do so. He has little, if any, ability to pay fines in view of his apparent financial situation although I do not know the full depth of it. Submissions made by counsel representing him suggest that he will again enter into the business of finance broking on his own behalf. Although it was submitted that there is less likelihood of re-offending because of proper legal advice, I doubt that will be the case. 22 The total of the applicable fines is $770,000. Of course questions of totality arise both in respect of fines relating to transactions with particular individuals where there is more than one charge and the overall totality of his breaches of the Act. 23 The prosecutor submitted that in respect of the breaches of ss 4C(1) and 4C(4) the penalty should be "not less than the average amount of commissions unlawfully obtained" by the Company. In relation to the s 4H(1) offences the prosecutor submitted that the Court should impose the maximum fine. I do not accept that it is appropriate to determine the fine by reference to the amount of commission obtained. It is a penalty provision not a form of restitution of the gains made as a result of conduct in breach of the provisions of the Act. 24 It does not seem to me that there is much assistance to be gained in considering the general purposes of punishment as stated in s 3A of the Crimes (Sentencing Procedure) Act or the aggravating and mitigating factors in s 21A. However, there was one submission by the prosecutor that cannot be sustained. It is said that the offences were committed in breach of a position of trust. I do not believe that there is a position of trust between the defendant and his client; see Suleman v R [2009] NSWCCA 70. Commercial relationships do not usually give rise to a position of trust. But in any event, if there is a position of trust, then all offences under the Act would contain that element so that it is an inherent characteristic of the offences: see R v Elyard [2006] NSWCCA 43. 25 I do not intend to consider each and every one of the charges to determine whether it is in the worst category. They are all generally within that category because each is part of a systematic refusal to comply with the legislation. The particular failure in any particular case is merely a matter of chance, as I have no doubt that the defendant never intended to comply with the provisions of the Act and any suggestion that he was endeavouring to do so was a charade. 26 I intend to take an unusual course but one that I believe will offer the best protection for the public. I intend to fine him for the offences which are breaches of ss 4C(1) and 4C(4). There are 108 such offences. I will dismiss the charges for breaches of s 4H(1) on condition that he enters into good behaviour bonds. There are 28 such offences. I am taking this course in the hope that the defendant may seek to avoid the costs and indignity of coming again before this Court to answer for his misconduct and with the knowledge that I have the power to impose upon him further substantial fines. Without making any threat those matters would warrant a fine close to, if not at, the maximum. 27 I have chosen to split the offences up as I have not because of any view that one is less serious than another but because it is convenient to do so. In the s 4C matters the non-disclosures are apparent, as is the amount of brokerage fee that he received to which he was not entitled. Because he failed to keep records in the other matters the extent of the deceptive conduct is unknown. Although on one view a discharge and bond is no punishment, it is unlikely that any fines I impose will be paid at any time soon. I think that there is a stigma in a bond to be of good behaviour that is not present in the payment of fines. After all fines are imposed for minor motor traffic offences. I hope the imposing of a bond might have some impact to control his misbehaviour. 28 In order to place the defendant on a bond I have to dismiss the charges under s 10 of the Crimes (Sentencing Procedure) Act. I cannot use s 9 of the Act because the offences do not carry a prison sentence. Section 10 is relevantly as follows:

10(1) Without proceeding to conviction, a court that finds a person guilty of an offence may make any one of the following orders: (a) an order directing that the relevant charge be dismissed, (b) an order discharging the person on condition that the person enter into a good behaviour bond for a term not exceeding 2 years, (c) an order discharging the person on condition that the person enter into an agreement to participate in an intervention program and to comply with any intervention plan arising out of the program. (2) An order referred to in subsection (1) (b) may be made if the court is satisfied: (a) that it is inexpedient to inflict any punishment (other than nominal punishment) on the person, or (b) that it is expedient to release the person on a good behaviour bond.

(3) In deciding whether to make an order referred to in subsection (1), the court is to have regard to the following factors: (a) the person's character, antecedents, age, health and mental condition, (b) the trivial nature of the offence, (c) the extenuating circumstances in which the offence was committed, (d) any other matter that the court thinks proper to consider. 29 I wish to make it clear that I am making an order under s 10(1)(b) because I am satisfied in accordance with s 10(2)(b) that it is expedient to release him on a bond. I am not taking into account that the offences are of a trivial nature, because they are not, or the extenuating circumstances in which the offences were committed, because there are none. I am taking this course because it appears to me to be proper to place the defendant under the supervision of this Court in relation to his conduct in this type of activity and it is the only chance, although a slim one, that he might be deterred from similar conduct in the future. Of course I understand that if he breaches the bonds I can but fine him, but that is the only power I presently have. 30 The defendant should understand that the bonds will not be subject to any condition other than to be of good behaviour. He should also understand that I am unlikely to call him up for breach of those bonds by any misconduct except for dishonesty offences or breaches of provisions regulating finance broking or other similar activity. However, it will be a matter of aggravation of any offence committed within the period of the bonds that he was on conditional liberty. The prosecutor will bring to my attention any breach of the bonds of which it becomes aware. The deferral of any punishment gives him the opportunity to re-establish himself from his current financial difficulties, whatever they be. 31 In relation to the fines, the inability of the defendant to pay, if there is one, cannot result in the imposition of fines that would not reflect the seriousness of the defendant's conduct, as I hold it to be, or that would not properly reflect general deterrence. The imposition of the fines must denounce his conduct. The fines imposed take into account that there are two charges arising from each of the transactions. I understand that offences under s 4C(1) are different in form from offences under s 4C(4) but they are connected. The offences in 4C(4) arose because of the offences committed under s 4C(1). I do not believe the seriousness of the conduct is necessarily reflected in the amount of fee obtained by the defendant. The fines take into account totality, in that this was a course of conduct over a period of time and that there are two offences arising from each instance of misconduct. The fine is, therefore, half of what it would have been had there been one offence. In other words there is a fine of $4,000 imposed for each instances of failing to disclose information. There is a discount of 15 per cent for the pleas of guilty. The total of the fines imposed is $183,600. 32 The period of each of the bonds is 2 years. In determining the appropriateness of this order I have taken into account both the pleas of guilty and the period since the charges were laid. 33 The behaviour of the defendant is such that it leads me to question whether the penalty provisions of the Act are sufficient by themselves to protect the public from such misconduct. It may be the case that with such serious offending consideration should be given to referring the matter to the police for determination of whether there are criminal charges that might be laid against the offender. I am aware that the control of people engaged in financial brokering was fairly recently reviewed and I understand that some form of licence was considered to be inappropriate. I wonder whether in light of the misconduct of the defendant such a stance should be reconsidered. 34 Orders: 1. In respect of each offence in Schedule 1 to this judgment there is a fine imposed of $1700.

2. In respect of each offence in Schedule 2 to this judgment the defendant is discharged on condition that he enters into a good behaviour bond for a period of 2 years from today. SCHEDULE 1

Amended Consumer Name Offences Summons Reference

1(a) George & Rita Arcon Breach of ss 4C(1) & 4C(4)

1(c) Annie & Kevin Ashikian Breach of ss 4C(1) & 4C(4)

1(d) Alexander & Margaret Bahrow Breach of ss 4C(1) & 4C(4)

1(e) Grahame & Robin Bartlett Breach of ss 4C(1) &4C(4)

1(k) Guy & Carolyn Burden Breach of ss 4C(1) & 4C(4)

1(n) Meagan & Bruce Davidson Breach of ss 4C(1) &4C(4)

1(p) Michael & Christine Edwards Breach of ss 4C(1) & 4C(4)

1(q) Christopher Fernandez Breach of ss 4C(1) & 4C(4)

1(r) Wayne Hill & Renee Shannon Breach of ss 4C(1) &4C(4)

1(s) Peter & Hazel Jolley Breach of ss 4C(1) & 4C(4)

1(ba) Christopher & Rowena Jackman Breach of ss 4C(1) &4C(4)

1(t) Robert & Christine Jordan Breach of ss 4C(1) & 4C(4)

1(w) Anthony & Tania McKenzie Breach of ss 4C(1) & 4C(4)

1(x) Jennifer & Thomas McRae Breach of ss 4C(1) & 4C(4)

1(y) Greg & Julie Mansfield Breach of ss 4C(1) & 4C(4)

Amended Consumer Name Offences Summons Reference

1(z) Ronald & Kym Masters Breach of ss 4C(1) & 4C(4)

1(ab) Stephen & Estelle Meyer Breach of ss 4C(1) & 4C(4)

1(ac) Nicole & Yuri Naranjo Breach of ss 4C(1) & 4C(4)

1(ad) Michael & Catherine Nealon Breach of ss 4C(1) & 4C(4)

1(ae) Tony & Suzanna Nedanovski Breach of ss 4C(1) & 4C(4)

1(af) Elizabeth Pascuzzo & Brian Breach of ss 4C(1) &4C(4) Grady & Letizia Prospero

1(ag) Karenne & Keith Pfieffer Breach of ss 4C(1) &4C(4)

1(ah) Bernard & Janet Plassan Breach of ss 4C(1) & 4C(4)

1(ak) Peter & Diana Short Breach of ss 4C(1) & 4C(4)

1(al) Peter & Diana Short Breach of ss 4C(1) & 4C(4)

1(am) Peter & Diana Short Breach of ss 4C(1) & 4C(4)

1(bb) Michael & Noelene Simpson Breach of ss 4C(1) & 4C(4)

1(an) Andrew & Maureen Singleton Breach of ss 4C(1) & 4C(4)

1(ao) Debra & John Smith Breach of ss 4C(1) & 4C(4)

1(ap) James & Vicki Smith Breach of ss 4C(1) & 4C(4)

1(ar) Raymond & Dorothy Stewart Breach of ss 4C(1) & 4C(4)

1(as) Yvonne & John Tsoukalis Breach of ss 4C(1) & 4C(4)

1(at) Yvonne & John Tsoukalis Breach of ss 4C(1) & 4C(4)

1(au) Tony Vanderwaarden & Breach of ss 4C(1) & 4C(4) Roslynne Bath

1(av) Graham & Lindy Webb Breach of ss 4C(1) & 4C(4)

Amended Consumer Name Offences Summons Reference

1(ax) George & Christina White Breach of ss 4C(1) & 4C(4)

1 (ay) Bernard & Annette Yen Breach of ss 4C(1) & 4C(4)

Amended Consumer Name Offence Summons Reference

1(cc)(15) Yvette Campbell & Ambrose Breach of s 4H(1) Scott

1(cc)(17) Gregory & Nicole Hubbard Breach of s 4H(1)

1(cc)(27) Michael Keane & Robyn Breach of s 4H(1) Harris

1(cc)(9) Angela Ryan & Trevor Weinert Breach of s 4H(1)

1(cc)(2) Varujan & Silvarte Tahmizian Breach of s 4H(1)

Amended Consumer Name Offences Summons Reference

1(cc)(7) Varujan & Silvarte Tahmizian Breach of s 4H(1)

1(bc) Darren Turner & Kaye Breach of s 4H(1) Thomson

1(cc)(21) Darrel & Michele Weyland Breach of s 4H(1)

Since judgment was delivered on 28 July 2009 the Court has been advised of two errors in the judgment. In paragraph 26 reference is made to 112 offences. It should be 108 offences. In paragraph 31 reference is made to a total fine imposed of $190,000. It should be $183,600. These corrections do not make any difference to the orders made. However, the judgment should be read with these corrections.

29/07/2009 - Edit errors - Paragraph(s) 26, 31 and new paragraph added

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