Park Trent Properties Group Pty Ltd v Australian Securities and Investments Commission

Court of Appeal (NSW)|2016-10-11|Before: McColl JA, Gleeson JA, Leeming JA

42 Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273; [2004] HCA 14 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 Texts Cited: A Slater, "Unit Trusts: Law and Lore" (2006) 35 Australian Tax Review 185 Category: Principal judgment Parties: Park Trent Properties Group Pty Ltd (Appellant) Australian Securities and Investments Commission (Respondent) Representation: Counsel: M Oakes SC, E W Young (Appellant) E Cheeseman SC, T Prince (Respondent)

Solicitors: Christopher Adams Lawyers (Appellant) Australian Securities and Investments Commission (Respondent) File Number(s): 2015/355971 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2015] NSWSC 782 Date of Decision: 11 June 2015 Before: Sackville AJA File Number(s): 2014/331307

Judgment

McCOLL JA: I agree with Leeming JA's reasons and the orders his Honour proposes.
GLEESON JA: I agree with Leeming JA.
LEEMING JA: Following an expedited nine day trial, ASIC succeeded in obtaining declaratory and injunctive relief against Park Trent Properties Group Pty Ltd. His Honour delivered a very substantial judgment of 519 paragraphs over 171 pages: Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527. On the sixth day of the trial, Park Trent applied to amend its defence, so as to rely upon reg 7.1.29 of the Corporations Regulations 2001 (Cth). The application was refused, and reasons were given at the same time as the main judgment was delivered: Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 2) [2015] NSWSC 782.
Park Trent's appeal is confined to a challenge to the refusal of its application to amend. Although that decision was interlocutory, it was at least arguable that it was an interlocutory order which affected the final result, and therefore Park Trent's appeal lay as of right: see Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478; [2002] HCA 22 at [6]-[8].
Park Trent's notice of appeal identified three grounds. They were as follows: "1. The learned trial judge erred in not permitting the appellant to amend its defence in order to plead and rely upon r 7.1.29 of the Corporations Regulations 2001 (Cth). 2. The learned trial judge erred in not permitting the appellant to adduce evidence to support an argument that r 7.1.29 of the Corporations Regulations 2001 (Cth) meant that the appellant had not provided a financial service for the purpose of s 911A of the Corporations Act 2001 (Cth). 3. The learned trial judge erred in not considering the effect of r 7.1.29 of the Corporations Regulations 2001 (Cth) in relation to the question of whether or not the appellant had provided a financial service."
Park Trent accepted that, in this Court, it was necessary to show House v The King error, in order for its appeal from the discretionary decision of the primary judge to succeed. It also accepted that the primary judge had "accurately and succinctly set out the relevant legislative provisions and case law" applicable to its application to amend.

Grounds 2 and 3

Two of the grounds of appeal may be resolved immediately, and because doing so will simplify what needs to be said to deal with the remaining ground, it is convenient to take that course.
In relation to ground 2, Park Trent made it plain at trial that it did not seek to adduce any further evidence in support of its submissions based on reg 7.1.29, if leave to amend were granted. That was express in the solicitor's affidavit read in support ("Park Trent does not intend to seek to adduce any further evidence in relation to the amendment if allowed"), from which there was no departure when the application was argued.
Ground 2 reflected what appeared to be an acknowledgement from senior counsel appearing for Park Trent in this Court that additional evidence would be required in order to establish that the regulation was engaged. But there could be no error, let alone appellable error, in the primary judge not permitting Park Trent to adduce evidence when its application expressly disavowed any intention to do so.
Ground 3 likewise falls away. To the extent that the effect of reg 7.1.29 was relevant to contravention of the Corporations Act 2001 (Cth), or to the discretionary relief sought by ASIC, it was something which needed specific pleading: Uniform Civil Procedure Rules 2005 (NSW), r 14.14. Until that occurred, compliance, or substantial compliance, with the regulation was not an issue in the litigation. The matter was squarely raised by the primary judge in the course of argument: "I'll either allow you to amend your pleadings, or I won't. If I won't, you won't be running in this Court anyway, an issue as to whether the exemption applies. I've said that you may be able to rely upon evidence as to what you did with a notice for other purposes in the exercise of discretion, that would not be precluded, but … you would not be permitted without pleading to rely upon the exemption because that would not be an issue in the proceeding."
What is more, it was conceded on appeal, entirely properly, that additional factual findings would be required in order to determine the applicability of the regulation, and those factual findings would in turn involve further cross-examination by ASIC of witnesses who had, by that time in the trial, already completed their evidence.
There could be no error in not considering the effect of reg 7.1.29 in those circumstances. Accordingly, ground 3 stands and falls with the challenge in ground 1.

Overview of legislative regime

In order to address the parties' submissions, and determine whether any appellable error is disclosed in the reasons of the primary judge refusing leave to amend, it is necessary to say something of the operations of Park Trent and its related companies. However, given the confined nature of this appeal, it is unnecessary to descend into the detail in anything like that contained in the main judgment given by the primary judge.
Section 911A of the Corporations Act 2001 (Cth) imposes a (qualified) requirement for a person carrying on a financial services business to hold an Australian financial services licence. At no time did Park Trent hold such a licence. The issue at trial was whether or not Park Trent carried on a financial services business. An uncontroversial chain of definitions in s 761A meant that that issue depended on whether Park Trent had carried on a business of providing a "financial service". That in turn directs attention to, relevantly, s 766A(1)(a), which provides: "For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they: (a) provide financial product advice (see section 766B)".
"Financial product advice" is defined by s 766B. It will be sufficient for present purposes to note that s 766B(1) provides that: "For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence."
The definitions of "financial product" are somewhat complex. The definition is spread over Subdivisions B, C and D within Division 3 of Part 7.1 of the Corporations Act. Subdivision B is titled "The general definition", Subdivision C is entitled "Specific inclusions" and Subdivision D is entitled "Specific exclusions". Section 763A (within Subdivision B) contains a general definition, which relevantly speaks of a financial product being "a facility through which, or through the acquisition of which, a person ... makes a financial investment": s 763A(1)(a). Section 764A(1) (within Subdivision C) states that some 18 listed things are "financial products". Within that list, s 764A(1)(g) provides that "a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993" is a financial product. Finally, s 765A(1) (within Subdivision D) identifies a list of 26 things which are not financial products.
There is no occasion in this appeal to express a view as to how all aspects of this definition (of which the summary given in the previous paragraph does not come close to identifying all of the complexities) work. It suffices to focus upon the specific inclusion in s 764A(1)(g) of a "superannuation interest". Although Park Trent at one stage advanced a submission based on the general definition in s 763A, it did not dispute ASIC's written and oral submission that a "superannuation interest" was a financial product.
The Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) defined in s 10 a superannuation interest to mean "a beneficial interest in a superannuation entity". Lest it confuse, there is a measure of artificiality in the statutory language of "entity". This Act (like other taxation legislation) provides that an "entity" includes things that are not legal persons, such as a partnership and a trust. Some of the difficulties to which this drafting practice gives rise are mentioned by A Slater, "Unit Trusts: Law and Lore" (2006) 35 Australian Tax Review 185 at 186-188. A "superannuation entity" is defined to include a "regulated superannuation fund", which in substance amounts (by reason of s 19 of the SIS Act) to a superannuation fund whose trustee has elected to comply with the regime whose validity was approved in Attorney-General (Cth) v Breckler (1999) 197 CLR 83; [1999] HCA 28. It was not disputed that the self managed superannuation funds (SMSF) which were the subject of the declaratory and injunctive relief ordered by the primary judge were regulated superannuation funds.

Overview of Park Trent's business

The primary judge found that as at March 2015, the evidence suggested that a total of 868 separate clients of Park Trent or its related companies had purchased or agreed to purchase an investment property using an SMSF. The focus of ASIC's proceedings was upon efforts attributable to Park Trent to cause persons who were members of general superannuation funds to transfer their superannuation balances to the trustee of an SMSF, which could invest, in a leveraged way, in real property. Until relatively recently, the trustee of a complying superannuation fund was not permitted to borrow money. With effect from 7 July 2010, s 67A of the SIS Act permitted the trustee of an SMSF to borrow money to purchase a "single acquirable asset", which could include real property, so long as, inter alia, that asset was "held on trust so that the [regulated superannuation fund] trustee acquires a beneficial interest in the acquirable asset".
The primary judge summarised the business conducted by Park Trent as follows ([2015] NSWSC 1527 at [371]): "For present purposes, the key elements in the sales and marketing process were the Seminars, the home visits, the run meetings and completion of the purchase (including, if necessary, establishing an SMSF and arranging finance). At each stage prior to completion of the transaction, Park Trent provided information and marketing material that was designed to encourage clients to consider favourably purchasing property using their superannuation balances and, if necessary, to establish SMSFs to allow the purchase to proceed. The process was not aimed exclusively at clients who might wish to use an SMSF to purchase property, or who might be persuaded to establish an SMSF to do so. But clients within these categories formed an important part of the Park Trent's strategy for generating sales and revenue."
The primary judge found that the presentations at seminars emphasised the substantial returns achieved over a 10 year period from the purchase of an investment unit "off the plan" using funds borrowed by the trustee of the SMSF of up to 80% of the property's value. His Honour said at [373]: "The transcripts of Seminar presentations obtained by ASIC strongly suggest that presenters were by no means subtle in urging attendees to establish or use existing SMSFs to invest in property and make large tax free gains. The most telling transcripts are those recording Mr Cross's enthusiastic presentations in August and September 2014. Even after Park Trent had received the Compliance Manual and was supposedly paying close attention to it, the CEO of Park Trent was telling attendees at Seminars that they could set up an SMSF, roll over their existing balance into the SMSF and borrow funds through the SMSF to purchase an investment property. Mr Cross assured the attendees that Park Trent had the experts to look after the necessary procedures and thus allow them to take advantage of a 'wonderful opportunity'." Mr Ronald Cross was the Chief Executive Officer, and sole shareholder, of Park Trent.
The primary judge granted declaratory and injunctive relief, following a further hearing: Australian Securities & Investments Commission v Park Trent Properties Group Pty Ltd (No 4) [2015] NSWSC 1767. The declaration was as follows: "Declare pursuant to s 1101B(1) of the Corporations Act 2001 (Cth) (Corporations Act) that the defendant (Park Trent), throughout the period from March 2010 until the date of the trial, contravened s 911A(1) of the Corporations Act in that it carried on the business of providing financial services, namely financial product advice, by making recommendations or statements of opinion intended to influence persons (or which could reasonably be regarded as intended to have such an influence) in making a decision to acquire, vary or dispose of a superannuation interest within the meaning of the Superannuation Investment (Supervision) Act 1993 (Cth) (SIS Act), without holding an Australian Financial Services Licence (AFSL) covering the provision of the financial services, and did so by: (a) making recommendations and stating opinions to persons attending Seminars conducted or arranged by Park Trent that they should establish their own Self Managed Superannuation Fund (SMSF) (of which they would be members) in order to invest in real property, transfer the whole or part of their current superannuation balances to the newly established SMSF and invest in real property through their own SMSF; (b) making recommendations and stating opinions of the kind referred to in (a) to persons (clients) who attended home visits or run meetings conducted or arranged by Park Trent, such recommendations and statements of opinion being made by employees or persons contracted to Park Trent or employees or persons contracted to other companies within the Park Trent Group; (c) making recommendations and stating opinions referred to in (a) by presenting clients who attended run meetings conducted or arranged by Park Trent with Property Investment Analyses (PIAs) incorporating projections as to financial returns, prepared on the basis that the clients would establish or use SMSFs to invest in real property; and (d) facilitating the establishment of SMSFs by clients, the transfer of clients' superannuation accounts or balances to the newly established SMSFs and the completion of the purchase of investment properties through the SMSFs."
The principal injunction ordered was as follows: "2. Order pursuant to s 1101B(1) of the Corporations Act, that Park Trent be permanently restrained, by itself, its servants or agents or otherwise, from the following conduct: (a) making recommendations or stating opinions to persons attending Seminars or other meetings or presentations conducted or arranged by Park Trent that they should establish their own SMSF in order to invest in real property, transfer the whole or part of their current superannuation accounts or balances to the newly established SMSF or invest in real property through their own SMSF; (b) making recommendations or stating opinions as to the matters referred to in (a) to persons (clients) who attend or participate in home visits, run meetings or other meetings conducted or arranged by Park Trent, whether such recommendations are made or opinions are stated by employees or persons contracted to Park Trent or employees or persons contracted to other companies within the Park Trent Group; (c) making recommendations or stating opinions as to the matters referred to in (a) by presenting or making available to clients, whether at meetings or otherwise, PIAs or other similar documents incorporating projections as to financial returns achievable by investing in real property, when the projections are prepared on the basis that the clients will establish or use an SMSF to invest in real property; or (d) making recommendations or stating opinions as to the matters referred to in (a) by facilitating or otherwise assisting in the establishment of an SMSF by clients or the transfer of clients' superannuation accounts or balances to an SMSF; unless and until Park Trent obtains an AFSL within the meaning of s 911A(1) of the Corporations Act."

Regulation 7.1.29

The question raised on appeal was whether the relief ordered might have been framed more narrowly, had Park Trent been permitted to rely upon reg 7.1.29. It follows that, for the purposes of determining this appeal, it is sufficient to assume (in accordance with the unchallenged finding of the primary judge) that Park Trent conducted itself in the manner stated in the declaration, and ask whether reg 7.1.29 would apply to that conduct.
Section 766A(2)(b), to which s 766A(1) is subject, authorises the regulations to set out "the circumstances in which persons are taken to provide, or are taken not to provide, a financial service." Regulation 7.1.29 is one such regulation. By that means, a person whose conduct falls within reg 7.1.29 will be taken not to be providing a financial service and thereby fall outside the requirement to hold a licence.
Thus, if reg 7.1.29 applied to some or all of the conduct the subject of the declaratory and injunctive relief, to that extent the declaration and injunction would be based upon conduct in respect of which Park Trent was taken not to be providing a financial service.
Regulation 7.1.29 was introduced in substantially its current form in 2003. It relevantly provides as follows: "(1) For paragraph 766A(2)(b) of the Act, a person who provides an eligible service is taken not to provide a financial service if: (a) the person provides the eligible service in the course of conducting an exempt service; and (b) it is reasonably necessary to provide the eligible service in order to conduct the exempt service; and (c) the eligible service is provided as an integral part of the exempt service. (2) For this regulation, a person provides an eligible service if the person engages in conduct mentioned in paragraphs 766A(1)(a) to (f) of the Act. … (5) For this regulation, a person also provides an exempt service if: (a) the person provides advice in relation to the establishment, operation, structuring or valuation of a superannuation fund …; and (b) the person advised is, or is likely to become: (i) a trustee; or (ii) a director of a trustee; or (iii) …; (iv) a person who controls the management; of the superannuation fund; and (c) except for advice that is given for the sole purpose, and only to the extent reasonably necessary for the purpose, of ensuring compliance by the person advised with the SIS Act … [or] the SIS Regulations … the advice: (i) does not relate to the acquisition or disposal by the superannuation fund of specific financial products or classes of financial products; and (ii) does not include a recommendation that a person acquire or dispose of a superannuation product; and (iii) does not include a recommendation in relation to a person's existing holding in a superannuation product to modify an investment strategy or a contribution level; and (d) if the advice constitutes financial product advice provided to a retail client - the advice includes, or is accompanied by, a written statement that: (i) the person providing the advice is not licensed to provide financial product advice under the Act; and (ii) the client should consider taking advice from the holder of an Australian Financial Services Licence before making a decision on a financial product. (6) In this regulation: … self managed superannuation fund has the meaning given by section 17A of the SIS Act."
The amendment proposed by Park Trent on the sixth day of the trial turned upon a notice which, so it was said, Park Trent had begun to distribute in November 2014, shortly after ASIC had commenced proceedings against it. The notices varied slightly from time to time, but their text remained constant. One example is as follows:
The operation of reg 7.1.29 turned upon the person providing an "exempt service". The regulation provides four ways, in each of pars (3), (3A), (4) and (5), in which that may occur, but Park Trent relied only upon par (5).
The large majority of oral submissions when the appeal was heard was directed to the construction of subreg (5), and it will be necessary to return to the detail of it in due course. It is sufficient for present purposes to observe that by par (5)(d) there was a requirement for a written statement, in circumstances where "financial product advice" was provided to a "retail client". There was no dispute that at least part of Park Trent's business involved financial product advice to retail clients. Accordingly, in order to satisfy this element of the definition of providing an exempt service, it became necessary to consider the content of the notices, and the factual question whether they were given to Park Trent's clients.
The proposed amendment to the defence considered by the primary judge on 11 June 2015 relied upon reg 7.1.29 as a complete answer to the claim for the period after 26 November 2014. It particularised the way in which that regulation applied as follows: "(i) The defendant says that if, by the conduct of the defendant referred to in paragraph 33 of the Statement of Claim, the defendant has provided a financial service as alleged by the plaintiff, then that service is an 'eligible service' within the meaning of regulation 7.1.29(2). (ii) The defendant says that the service referred to in the preceding sentence is an 'exempt service' within the meaning of regulation 7.1.29(5) insofar as the defendant provided advice in relation to the establishment, operation, structuring or valuation of a superannuation fund. (iii) The advice provided by the defendant was typically provided to the persons identified in regulation 7.1.29(2) and was not advice of the kind referred to in regulation 7.1.29(3). (iv) Since November 2014, the defendant has provided a written statement to those provided with the advice referred to above and refers to paragraph 40 of the Affidavit of Jenae Johnson dated 25 March 2015. (v) The requirements of regulation 7.1.29(1) are satisfied because the financial service allegedly provided by the plaintiff and the 'exempt service' referred to above are one and the same service and are provided in respect of the same conduct (namely, the conduct of the defendant referred to in paragraph 33 of the Statement of Claim)."
There had already been evidence from a series of defence witnesses to the effect that notices in the form described above were distributed to any actual or potential customer of Park Trent from around November 2014.

Evidence in support of the amendment application

An affidavit in support of the application was sworn by the partner of the law firm with day to day conduct of the litigation. He said that he had understood that ASIC had relied on the Property Investment Analysis documents (PIAs), which were referred to in the statement of claim. However, he said: "Only during the hearing of this matter did it become apparent to me the significance that ASIC was attaching to the use by Park Trent of the Property Investment Analysis documents".
He then said: "In light of the above, further research was conducted after ASIC opened its case on 3 June into the relevant provisions of the Corporations Act and Corporations Regulations. During this research, further consideration was given to Corporations Regulation 7.1.29(5) which was introduced by Corporations Amendment Regulation 2003 (No 3)."
The partner then identified seven affidavits which had been served in the proceedings which were directed to the factual issue raised by reg 7.1.29(5)(d), and concluded by saying, as noted above, that Park Trent did not intend to seek to adduce any further evidence in relation to the amendment if allowed.
Given that the notice relied upon for the purposes of reg 7.1.29 had only been created shortly after ASIC's proceedings had commenced, conspicuous by its absence in the partner's affidavit was any explanation of (a) whether he had been involved in the drafting of the notice and (b) why, if so, and if the notice was said to satisfy reg 7.1.29, it had taken until the sixth day of the trial to plead this defence. The partner had been required to attend for cross-examination.
ASIC's originating process sought orders that notification of certain matters be given to Park Trent's clients. Counsel for Park Trent, by reference to that notice, said in answer to a question from the primary judge: "Hewitt: It was prompted by [the notice annexed to the originating process]. My instructing solicitor is Mr McGregor and he's given an affidavit, Ms Cheeseman's required him for cross-examination. My instructions are that after ASIC commenced proceedings seeking a notice, that he prepared the form of notice. … His Honour: Your instructions are, are they, that this notice did not involve anybody adverting to the existence of a regulation in the form of 7.1.29? Hewitt: Not at that time in relation to the derivation of this notice."
Following that exchange, senior counsel for ASIC stated that she did not require the partner for cross-examination. It was on that slightly informal, but efficient, basis that the application proceeded.

Reasons of the primary judge

The primary judge referred to the power in s 64 of the Civil Procedure Act 2005 (NSW) to grant leave to amend a document at any stage in the proceedings, and the considerations to which the exercise of that power was subject, including those in ss 56, 57 and 58. His Honour referred to the passage in the joint judgment of Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [98] refuting the proposition that a party can be permitted to raise any arguable case at any point in the proceedings, on payment of costs.
His Honour proceeded on the basis that Park Trent's failure to advert to reg 7.1.29 was an oversight, although he found it "difficult to understand" why it was not until the opening of ASIC's case that the significance of the PIAs was appreciated. His Honour stated that if the proposed amendment had raised only issues of law, he would have been inclined to grant leave to amend, notwithstanding the lateness of the application, on the basis that prejudice could adequately be addressed by costs. His Honour also said that, in those circumstances, it was unlikely that the hearing would be significantly lengthened or the resolution of the case would be delayed. However, his Honour was of the view that the proposed amendment would raise fresh factual issues that would need to be the subject of evidence. After referring to reg 7.1.29(5)(d), he stated at [38] that it was arguable that: "the Notice, although it does not precisely follow the language of reg 7.1.29(5)(d)(i) and 7.1.29(5)(d)(ii), nonetheless complies in substance with those sub-clauses. But subpar (5)(d) of reg 7.1.29 requires that, if the advice provided to a retail client constitutes financial produce advice, the advice is to include or be accompanied by a written statement complying with sub-clauses (i) and (ii). Unless that is done, the defendant cannot claim to comply with reg 7.1.29(5)(d) and thus cannot claim to provide an exempt service."
His Honour then dealt with the limitations of the evidence on which Park Trent had said it would rely, and also the fact that some of those deponents were not cross-examined, and others were cross-examined on a basis which was not focussed on the issue raised by par (5)(d). His Honour concluded at [43]: "It is important to appreciate that the affidavit evidence on which the defendant wishes to rely lacks specificity and varies in content. Mr Kutup's practices, for example, appear to differ from those of other representatives, at least insofar as their practices can be discerned from the affidavit evidence. In order to make findings as to whether the defendant complied with sub-par (5)(d), it would be necessary to examine the circumstances in which each of the deponents (and perhaps other witnesses) provided the Notice to potential clients and the relationship between the Notice and the financial product advice given in the particular case. Witnesses who have already been cross-examined would need to be recalled and others who have not been cross-examined might be required for cross-examination. As a matter of procedural fairness, ASIC would also have to be given an opportunity to determine whether the voluminous documentation sheds light on how the Notice was used in conducting the defendant's activities and whether ASIC wished to adduce further evidence on the issues raised by the defendant's amendment."
His Honour then identified additional factual matters that would likely be raised by reason of reg 7.1.29(1) and 7.1.29(5)(c). His Honour added that if the amendment were allowed, it was "virtually certain" that witnesses who had given evidence would be recalled for further cross-examination, leading to delays "in a case that was given an expedited hearing". His Honour observed that the two days which had been set aside for final submissions would have to be vacated and rescheduled.
His Honour also said at [47]: "I have also taken into account that the amendment application was not only made extremely late, but that the delay is wholly attributable to lack of thoroughness in the defendant's camp. As I have noted, it is not apparent why a belated appreciation of the significance of the PIAs prompted research that should have been undertaken at a much earlier stage of the proceedings. In any event, the significance of the PIAs (whatever it may be) should have been apparent from a reading of the statement of claim. These are matters which can and should be taken into account in determining the dictates of justice in the present case."
On that basis, his Honour concluded that the dictates of justice required that the application be refused.

Park Trent's submissions on appeal

On appeal, Park Trent submitted that no attention had been given to the possibility of costs orders directed to the legal practitioners then appearing for Park Trent. It was submitted that "[c]osts orders against the legal representatives responsible would have dealt with the issue of fault and costs arising from that fault". It submitted that the additional time would have amounted to "only a matter of weeks or months", that the witnesses were Park Trent's witnesses, none of whom were overseas, and that, in the circumstances of this case, "little weight could properly have been given to this factor" such that the "significant weight given to it by the trial judge was in error". By way of summary, Park Trent submitted: "In short, it is submitted that none of these matters, or all of them cumulatively, ought to have reasonably been made paramount or otherwise outweighed the paramountcy of justice in the case being done and seen to be done, and permitting Park Trent to run a defence which may well have demonstrated to the court that there was no utility in granting the primary discretionary relief sought by ASIC of permanent injunctive orders. Relevantly, there was no weighing process of these various factors, or the significance of each of them against each other in the particular case, demonstrated by the trial judge."
In its submissions in reply, Park Trent focussed upon the concluding words of the passage from House v The King (1936) 55 CLR 499 at 505, "if upon the facts it is unreasonable or plainly unjust, the appellate court may infer in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance." It submitted that this was such a case.
Further, Park Trent complained that because there had been "no attempt to quantify the delay that weighed so heavily upon the mind of the trial judge", the exercise of discretion had miscarried. By reference to the obligatory statutory considerations contained in the Civil Procedure Act 2005 (NSW), it was said that there was "nothing to inform the trial judge of the extent to which [delay] may or may not affect 'the dictates of justice'." It concluded this submission as follows: "Quantification of the delay is substantively important. It did not occur in this case. This is not 'merely' a matter of weight as suggested by ASIC; it goes to the fundamental issue of whether the exercise of the discretion rejecting Park Trent's application to amend its pleadings was 'unreasonable or plainly unjust' and whether accordingly 'there has been a failure to properly exercise the discretion'."
Park Trent also submitted that there was nothing in the reasons for judgment to indicate that there was a consideration of the "degree of injustice that would be suffered by the respective parties", insofar as Park Trent was to be regarded as a "party blameless for the lateness of the need to amend its case and the costs and delays which that would cause if allowed".
ASIC criticised the way in which passages from House v The King had been quoted, omitting the qualifying introductory words. It responded to each of the ways in which Park Trent had sought to invoke appellate review, in a manner which will emerge from the analysis which follows. In addition, ASIC by a notice of contention sought to affirm the decision of the primary judge, in the event that House v The King error was established, on two grounds: "1. The proposed defence is bad in substance because on the unchallenged findings of fact and law by the primary judge reg 7.1.29 could not as a matter of law apply to the financial product advice found to have been provided by the defendant. 2. The proposed defence is bad in substance because the written statement relied upon in the proposed defence does not comply with reg 7.1.29(5)(d) and accordingly, on the unchallenged findings of fact and law by the primary judge, reg 7.1.29 could not apply to the financial product advice found to have been provided by the defendant."
The oral submissions of both parties focussed on the construction of the regulation. Owing to the way in which the issue arose, the primary judge did not receive the benefit of detailed written and oral submissions on the question of construction, and refused the application without expressing a concluded view. Because of the way in which the question of construction arose before the primary judge, it is convenient to defer dealing with the submissions on the notice of contention.

No House v The King error has been established

Two things of present importance emerge from the reasons of Gummow ACJ, Kirby, Hayne and Heydon JJ in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; [2008] HCA 42. The first is the proposition accepted at [120] that: "when a court is invited to make a discretionary decision, to which many factors may be relevant, it is incumbent on parties who contend on appeal that attention was not given to particular matters to demonstrate that the primary judge's attention was drawn to those matters, at least unless they are fundamental and obvious."
The second is the explanation of the nature of the "orthodox approach to appellate intervention in relation to discretionary decisions" described at [137]-[138]. There it was pointed out that the expression "balancing exercise" is one to be employed with care, and that where (as in the present case) no statute mandates that particular weight be given to any one factor: "[T]he question of what weight the relevant factors should be given or what balance should be struck among them is for the person on whom the discretion is conferred, provided no error of law is made, no error of fact is made, all material considerations are taken into account and no irrelevant considerations are taken into account, subject to the possibility of appellate intervention if there is a plain injustice suggesting the existence of one of the four errors just described even though its nature may not be discoverable, or if there is present what has come to be known as 'Wednesbury unreasonableness'."
The same passage confirms that it is wrong to apply the words from House v The King in isolation, as if they were not qualified by an absence of reasons explaining how the decision was reached. Park Trent's selective statement of the principle upon which it relied has a tendency to dilute the test. The entire relevant passage from House v King, which was restated in the passage from Macedonian Orthodox Community Church St Ketka Inc v His Eminence Petar, was as follows: "It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." Of course, that is not the present case, where the reasons of the primary judge are elaborate.
I deal first with Park Trent's submissions based on costs, and then on delay.
In relation to costs, the primary judge expressly had regard to the possibility of an appropriate costs order for costs thrown away by reason of the late application to amend at [36]. It cannot be said that his Honour did not have regard to that matter at all.
To the extent that Park Trent focusses upon the failure by the primary judge to have regard to the possibility of an order that the practitioners acting for Park Trent pay the costs thrown away, the submission is doubly wrong. No such submission was advanced at first instance, which stands in the way of there being error in failing to address the issue. In any event, the only material difference between the order proposed by Park Trent on appeal, and the costs expressly considered by the primary judge in refusing the amendment, is that the burden would be shifted to practitioners appearing for Park Trent (or, possibly, their insurers). True it is that such an order would result in the avoidance by Park Trent of an obligation to pay costs. But it is plain that the exercise of discretion by the primary judge focussed upon the prejudice to ASIC, and the members of the public for whose benefit these enforcement proceedings had been brought, rather than the avoidance of detriment to Park Trent. ASIC is right to submit that "[w]hether the costs were paid by Park Trent or Park Trent's legal advisers was irrelevant to whether an order for costs would remedy the prejudice occasioned to ASIC by a grant of leave".
To the extent that Park Trent submits that the primary judge failed to take into account the fact that Park Trent was "blameless personally" for the defence not having been raised, the submission is ill-founded. His Honour did so. When (in light of the informal exchange at the commencement of submissions on the amendment application) the primary judge said that he considered it "appropriate to regard the failure to advert to reg 7.1.29 as an oversight", his Honour expressly considered the allocation of blame for the failure earlier to have regard to the regulation. In any event, the ordinary position is that a party is bound by the conduct of its case by its legal representatives: see Coulton v Holcombe (1986) 162 CLR 1 at 11.
In relation to delay, Park Trent's submissions proceed on the basis that all that matters is what it styles as the "quantification" of delay. That is, with respect, too simplistic.
The proceeding had been commenced in November 2014, with ASIC seeking interlocutory relief. On the first day of term, 2 February 2015, the parties acquiesced in an expedited course leading to a final hearing commencing on 7 April 2015, on the basis of which Park Trent continued to operate its business. For reasons which were not fully explored, that hearing was vacated and replaced by a seven day hearing commencing 3 June 2015. As it turned out, nine days were required to conduct the hearing. There are practical limits to the extent to which additional time can be made available in short order when a case runs over; those considerations were at the forefront of the reasons of the primary judge.
Equally importantly, the consequence of delay was the continuation of conduct which, according to ASIC, and as the primary judge found, was unlawful. This Court was not taken to evidence analysing how many new clients were advised in 2015. It was said from the Bar table that "we are not dealing with a situation where life savings were lost ... we're dealing with situations in which [we've] not got huge losses." That may be true, but it is not an end to the question of the prejudice occasioned by delay.
The conduct the subject of the relief ordered by the primary judge involved relatively large initial costs: the transaction costs of exiting a general superannuation fund, establishing an SMSF, obtaining finance and acquiring real property. The extent to which the real property acquired was a good or poor investment, compared to the returns which would have been obtained in the general superannuation fund, was entirely unexplored. There might be different answers to that question for an SMSF whose beneficiaries expected to work for another two or three decades, compared to an SMSF whose beneficiaries would seek a retirement income stream in the near future. Different investors have different appetites for risk, and have different approaches to diversification. None of this was explored. For my part, based on there having been 868 clients over a roughly five year period, it would not surprise me if there were tens or hundreds of thousands of dollars of actual transaction costs which would not have been incurred but for the continuation of Park Trent's business each month, as well as an unquantifiable possibility that the investment decisions turned out to be poor ones (I readily acknowledge the possibility that some or many of the investment decisions might alternatively turn out to have been good ones).
The foregoing is not an end to the analysis. It is to be recalled that there would be many persons who never became clients of Park Trent. Nevertheless, they may have read Park Trent's advertising material and participated in the seminars. Just because they did not become a client of Park Trent (or an associated company) does not mean that their decisions were unaffected by advice which should not have been given without an Australian financial services licence. Moreover, the fact that Park Trent was, throughout this period, permitted to continue to trade in the way in which it did, will have had consequences upon the activities of, and perhaps also the profitability of, its competitors.
For all of those reasons, it is upon analysis no easy thing to "quantify" the delay and, more importantly, the consequences of the delay which would have been occasioned by permitting the amendment.
In a case such as this, where a regulator is bringing proceedings in the public interest, it was not inappropriate to proceed on a relatively impressionistic basis. Indeed, it is difficult to see how any other approach could be applied. After all, statute requires a discretion to be exercised having regard to matters which are, to a large extent, inherently incommensurable. Hence it was sufficient for the primary judge to form the view that the amendment would occasion significant delay. There was no House v The King error in not analysing the position more precisely.
There is a final consideration relevant to this aspect of the case. For the reasons which follow, I am of the view that Park Trent is unable to avail itself of the regulation. That fact goes far to explain why it was that not until the sixth day of the trial was an attempt made to rely upon the regulation.

Park Trent's submissions on the notice of contention

Park Trent submitted that, subject to some factual matters, its conduct fell within reg 7.1.29(5) such that it thereby provided an exempt service and did not provide a financial service.
Park Trent submitted that, to the extent that it provided advice, it was in relation to the establishment of a superannuation fund, and that the persons who were advised were "likely to become" a director of the new trustee of the SMSF. That was because by reason of subss 17A(1) and (2) of the SIS Act, each member of the fund was required either to be a trustee, or a director of a corporate trustee, of the SMSF.
In its written submissions, Park Trent maintained that, for the purposes of (5)(c)(i), direct investments in real property were not "specific financial products or classes of financial products". In its oral submissions, it submitted that the subparagraph presupposed that a superannuation fund was already in existence, rather than the advice which, in large measure, was the subject of the proceedings.
In relation to (5)(c)(ii) and (iii), Park Trent submitted that the legislation proceeded on the basis that "advice" included both "recommendations" and "statements of opinion". However, the exclusions in subpars (ii) and (iii) were confined to "recommendations". It submitted that it would be open to find that the advice given by Park Trent was a statement of opinion which fell short of amounting to a recommendation, so that both of these subparagraphs were satisfied.
In relation to (5)(d), Park Trent submitted that there was at least substantial compliance with the paragraph.

Construction of reg 7.1.29(5)

There are four cumulative requirements in pars (a)-(d) of reg 7.1.29(5).
Each of the four paragraphs within subreg (5) operates in a different way (in what follows, I will pass over the exceptions contained within the paragraphs for simplicity and concision). 1. Paragraphs (a) and (c) address the character of the advice, with (a) requiring it to relate to specified matters, and (c) requiring it not to relate to or include other specified matters. 2. Paragraph (b) addresses the recipient of the advice. It insists that the recipient of the advice falls within, or is likely to fall within, the specified classes of persons. 3. Paragraph (d) requires that a document with certain information be distributed in the event that the advice is of a certain character and given to recipients of a certain class. That is to say, assuming that the advice is "financial product advice" and that the recipient is a "retail client", par (d) imposes the further requirement that the advice come with a written statement satisfying (i) and (ii).
Because the regulation is only satisfied if there is compliance with each of those four paragraphs, it is sufficient to address what I regard as the most straightforward element, which is par (b), directed to the recipient of the advice.
It is true that, as Park Trent submits, par (b) is satisfied according to the ordinary literal meaning of the words. That comes about because the person advised will, in order to comply with s 17A of the SIS Act, become in the near future either a trustee, or a director of a corporate trustee, of a newly established SMSF. But the ordinary literal meaning of the regulation is not necessarily its legal meaning: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [78]. It was with reference to that proposition that Gageler and Keane JJ said in Taylor v The Owners - Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 at [65]-[66] that: "Context sometimes favours an ungrammatical legal meaning. Ungrammatical legal meaning sometimes involves reading statutory text as containing implicit words. Implicit words are sometimes words of limitation. They are sometimes words of extension. But they are always words of explanation. … Context more often reveals statutory text to be capable of a range of potential meanings, some of which may be less immediately obvious or more awkward than others, but none of which is wholly ungrammatical or unnatural. The choice between alternative meanings then turns less on linguistic fit than on evaluation of the relative coherence of the alternatives with the identified statutory objects or policies." [Citations omitted.]
Park Trent's submissions were confined to the ordinary literal meaning of the text. That was "the beginning and end of the argument". One can understand why Park Trent might take that course, because there were a series of contextual and purposive submissions which pointed in the opposite direction, and there were none to which it could point in its favour.
However, the context of any statute must be considered, and it must be considered at the outset of the task of construction. Mason J stated in K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 315 that: "Problems of legal interpretation are not solved satisfactorily by ritual incantations which emphasize the clarity of meaning which words have when viewed in isolation, divorced from their context. The modern approach to interpretation insists that the context be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity might be thought to arise." [Citations omitted]
The joint judgment in Independent Commission Against Corruption v Cunneen (2015) 256 CLR 1; [2015] HCA 14 at [57] stated, by reference to that passage, that "it was and is essential" to look to context. The emphasis is mine. But the High Court has said as much in relation to the construction of statutes for at least three decades. McHugh, Gummow, Kirby and Hayne JJ said in Project Blue Sky at [69] that "the process of statutory construction must always begin by examining the context of the provision that is being construed." See also, and without intending to be exhaustive, CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (Brennan, Dawson, Toohey and Gummow JJ) and Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273; [2004] HCA 14 at [11] (McHugh ACJ, Gummow and Hayne JJ). It must surely by now be taken to be axiomatic that questions of statutory construction cannot be resolved merely by resort to the literal meaning of the statutory language.
The premise of submissions based on reg 7.1.29 is that Park Trent was providing advice. On that premise, the conduct identified in the declaratory and injunctive relief ordered by the primary judge meant that the person advised was advised in potentially three distinct capacities: 1. The first was in his or her capacity as a member of an existing general superannuation fund. 2. The second was in his or her capacity as a member of the (soon to be established) SMSF. 3. The third was in his or her capacity as a trustee, or a director of a corporate trustee, of that (soon to be established) SMSF.
The advice was received in his or her capacity as a member of an existing general superannuation fund. At the time of the advice, that was the only capacity possessed by the person.
There is another consideration which bears upon whether the advice is received by a person in his or her capacity as a member of an existing general superannuation fund. Although the focus of the submissions was on the decision to make a geared investment in real property through the mechanism of an SMSF, the investment decision had two aspects. A client of Park Trent received advice (a) to dispose of his or her interest in a general superannuation fund, and (b) to acquire an interest in an SMSF whose trustee owned real property. When it is appreciated that the advice amounted to both a disposition and an acquisition, and that the acquisition would ordinarily be dependent upon the disposition, the essentiality of the advice being received by the client in his or her capacity as a member of an existing general superannuation fund is apparent.
There is good reason to construe par (b) as containing an implicit requirement that the character of the advice received must correspond with the capacity of the person advised. That is to say, in order for the cumulative requirements of reg 7.1.29 to be satisfied in respect of certain advice being given to certain people, not merely must it be found that the recipient be a person who falls within the class of people specified by par (b), but the recipient must receive the advice in the capacity of someone who falls within the class of people specified by par (b). That follows not merely from considerations of seeking to give the words of the regulation a sensible purpose. It also follows from the structure of the regulation, which insists that the advice be of a particular character and be advice given to a particular class of recipients.
Something more may be said as to the purpose of reg 7.1.29. The Court is bound to prefer an interpretation which would best achieve its purpose or object: Acts Interpretation Act 1901 (Cth), s 15AA, read with s 13 of the Legislation Act 2003 (Cth). The purpose resides in the text and structure of the legislation, although it may be identified expressly or impliedly from the legislative text with appropriate reference to extrinsic materials: Lacey v Attorney-General of Queensland (2011) 242 CLR 573; [2011] HCA 10 at [44]. I have already noted that the structure imposes cumulative requirements relating to the nature of the advice and its recipient, which of itself confirms that there is a link between the two. There is also a common feature of the positions identified in each of (b)(i), (ii), (iii) and (iv): all are persons who control the assets owned by the trustee of the superannuation fund, and none is a person who enjoys beneficial ownership of those assets.
It is easy to see that there could be a sensible purpose in exempting particular sorts of advice that is received only by those with legal ownership or control of assets in a superannuation fund, as opposed to advice received by the beneficiaries of the fund. Advice about the mechanics of complying with accounting and reporting requirements might be an example. However, it is very difficult to conceive of any purpose which would exempt particular sorts of investment advice that is received by persons who are members of a superannuation fund but who are being advised to establish an SMSF. That is to say, if Park Trent's submission be correct, and it is sufficient to satisfy this element of reg 7.1.29(5) that a person be likely to become a trustee or director of a corporate trustee even if the person is being advised in his or her capacity as an investor, what sensible purpose could such an exemption from the ordinary licensing requirements achieve? I cannot readily think of any. Park Trent, whose submissions were confined to text, did not offer any.
I am strengthened in that conclusion by the explanatory statement accompanying the Corporations Amendment Regulations 2003 (No 3) 2003 (No 85), which included the following passage describing reg 7.1.29(5): "Superannuation is a financial product under section 764A(1)(g) of the Act and a financial service in relation to superannuation ordinarily requires licensing. Financial product advice (or a recommendation) that influences a client's investment or retirement planning decisions will have a significant impact upon that person's economic future. An example is a recommendation on which superannuation structure, vehicle or fund type the person advised should enter. In that light, advice a consumer receives in these circumstances should be subject to consumer protection offered by the FSR Act. Therefore, financial product advice on investment decisions cannot be given without licensing in circumstances such as: • a person becoming a member of a superannuation fund; • an existing member of the superannuation fund joining another subplan in that same fund; • a superannuation product changing from the growth phase to the pension phase; • transferring benefits between investment options; • making additional and voluntary contributions to a superannuation fund; and • deciding what financial products should be held by a superannuation fund. This provision will not provide an exemption for advice recommending a SMSF structure in isolation or as a preferred structure to other alternative investment vehicles. Under the FSR, recommending a person establish a SMSF structure is a superannuation investment decision as it is equivalent to recommending a person becomes a member of a SMSF. Further, when a person accepts a recommendation to establish a SMSF, that client will probably not consider seeking further advice from a licensed person on what other investment alternatives may be suitable in their circumstances." [Emphasis added.]
Park Trent's construction is squarely inconsistent with the explanation accompanying the regulation.
For those reasons, I conclude that par (b) has a narrower meaning than its literal meaning. In order for the paragraph to be satisfied, the recipient of the advice must be receiving the advice in his or her capacity as a trustee, or director of a trustee, or an employer sponsor, or a person who controls the management of a superannuation fund. It is not sufficient if the recipient happens also to be a trustee, or a director of the trustee, of the superannuation fund if the advice is given to the recipient for the purpose of influencing a decision to be made in his or her capacity as a member of a superannuation fund. Still less is it sufficient if the advice is given to a member of a superannuation fund for the purpose of influencing a decision to be made in his or her capacity as a member and it is likely that he or she will become a trustee or a director of the trustee of the superannuation fund in the near future.
That is sufficient to conclude that Park Trent's conduct did not fall within reg 7.1.29(5). It is not necessary to address the parties' submissions on the remaining paragraphs.

Orders

On Park Trent's appeal, I have concluded that there is no appellable error in the decision to refuse an amendment on the sixth day of the trial. On ASIC's notice of contention, I have also concluded that, had the amendment been granted, reg 7.1.29(5) would not apply to the advice which was the subject of the declaratory and injunctive relief ordered by the primary judge. It follows from the latter conclusion that even if Park Trent had been permitted to amend, there would have been no different outcome to the litigation, save that it would have taken longer and been more expensive.
I propose that the appeal be dismissed, with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 November 2016

Superannuation Investment (Supervision) Act 1993(Cth)

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Judgment (16 paragraphs)

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Legislation Cited (8)

Cases Cited (25)