Australian Securities & Investments Commission v Park Trent Properties Group Pty Ltd (No 4)

1. [1]

   SACKVILLE AJA: The Principal Judgment in this matter was delivered on 15 October 2015. [1] I did not make final orders in the Principal Judgment but invited the parties to make written submissions on the form of a declaration and restraining order proposed in the Judgment. [2]

2. [2]

   The parties have each provided written submissions. In addressing these submissions, I use the same abbreviations as in the Principal Judgment.

3. [3]

   The declaration proposed in the Principal Judgment (Proposed Declaration) is as follows:

4. [4]

   The restraining order proposed in the Principal Judgment (Proposed Restraining Order) is as follows:

The Proposed Declaration

1. [5]

   Neither ASIC nor Park Trent makes any submissions as to the form of the Proposed Declaration. A declaration in that form should therefore be made.

The Proposed Restraining Order

1. [6]

   Park Trent submits that the Proposed Restraining Order should not be made in the form suggested in the Principal Judgment. It suggests three substantive changes to the Proposed Restraining Orders.

2. [7]

   First, Park Trent submits that the following words should be added to the Proposed Restraining Order:

3. [8]

   Park Trent says that the additional words would ensure it is restrained from making recommendations or stating opinions on the specified matters only while it does not hold an AFSL issued under the Corporations Act. Park Trent submits that if it applies for and obtains an AFSL, it will be entitled to make recommendations or state opinions intended to influence decisions in relation to SMSFs, without contravening the Corporations Act. Park Trent also says that the statutory regime governing the conduct of financial services businesses may change so that the conduct found to have contravened s 911A(1) of the Corporations Act will no longer be unlawful. Park Trent argues that the Proposed Restraining Order should be drafted to accommodate both situations.

4. [9]

   Secondly, Park Trent submits that par (c) of the Proposed Restraining Order should be amended to include additional words as follows:

5. [10]

   Park Trent contends that a third party holder of an AFSL is entitled to make recommendations or express opinions on matters related to SMSFs and that the Proposed Restraining Order should not prevent Park Trent passing on any such recommendations or opinions. Park Trent submits that if Park Trent simply presents or makes available the recommendations or opinions stated by a duly licensed third party, it will not contravene s 911A(1) of the Corporations Act. It follows, so Park Trent argues, that the Proposed Restraining Order should not extend to such non-contravening conduct. The assumption underlying this submission appears to be that any recommendation or opinion conveyed to the client would be made or expressed solely by the third party and not by Park Trent.

6. [11]

   Thirdly, Park Trent submits that par (d) of the Proposed Restraining Order is unduly broad, in that it prohibits a wide range of conduct and is not limited to “unlicensed representations”. Park Trent illustrates the submission by positing a case where a client asks Park Trent for assistance in filling out a form required by the client’s personal accountant in order to establish an SMSF. In such a case, so it is argued, Park Trent is not making recommendations or expressing opinions about the desirability of establishing an SMSF, but is merely responding to a request for assistance.

7. [12]

   There is no evidence that Park Trent intends to apply for an AFSL or that, if it does apply, it is likely to be granted an AFSL. Nonetheless if Park Trent was to succeed in obtaining an AFSL, the conduct subject to the Proposed Restraining Order would not involve a contravention of s 911A(1) of the Corporations Act. In my view, the language of the Proposed Restraining Order should be modified to cover the possibility that Park Trent might apply for and be granted an AFSL.

8. [13]

   Park Trent has not identified any licence or authorisation, other than an AFSL, that would enable it to conduct a financial services business lawfully. In my opinion, it is not appropriate for the Proposed Restraining Order to accommodate the possibility that future legislation might remove the current prohibition currently contained in s 911A(1) of the Corporations Act. If the law changes, for example, to repeal the statutory prohibition on carrying on a financial services business without an AFSL, Park Trent can apply to the Court to rescind the Proposed Restraining Order. [3]

9. [14]

   Paragraph (c) of the Proposed Restraining Order restrains Park Trent from making recommendations or stating opinions by presenting or making available to clients PIAs or similar documents incorporating projections as to financial returns achievable by investing in real property through an SMSF. If Park Trent makes recommendations or states opinions as to the matters identified in par (a) of the Proposed Restraining Order by presenting or making available PIAs to clients, it is immaterial who prepares the PIAs. Even if the PIAs are prepared by a third party holding an AFSL, Park Trent itself is making the relevant recommendations or stating the relevant opinions. In short, Park Trent does not avoid the need to obtain an AFSL to conduct its business simply by ensuring that the PIAs, which have been integral to Park Trent’s marketing program, are prepared by a third party who holds an AFSL. [4]

10. [15]

    Paragraph (c) of the Proposed Restraining Order in its present form does not prevent Park Trent from doing no more than referring a client to the holder of an AFSL for advice as to whether the client should set up or use an SMSF in order to invest in real property. A referral without more would not involve Park Trent in making a recommendation or stating an opinion as to whether the client should establish an SMSF or use an SMSF to purchase an investment property. Nor does the Proposed Restraining Order prevent Park Trent from merely acting as a conduit to communicate a recommendation made or opinion stated by the holder of an AFSL in connection with the establishment or use of an SMSF, provided Park Trent’s actions do not involve making recommendations or stating opinions as to the matters identified in par (a) of the Proposed Restraining Order.

11. [16]

    It is well to point out, as the Principal Judgment makes clear, that Park Trent’s conduct over a long period has gone well beyond simply referring clients to a licensed adviser or merely acting as a conduit for advice prepared by a licensed adviser. I have found, for example, that Park Trent’s presentation of a PIA to a client, who can afford to purchase an investment property only by using his or her existing superannuation balance, effectively incorporates recommendations as to the merits of setting up an SMSF to purchase the property. [5] Unless Park Trent very substantially modifies its business practices, it is difficult to see how it can continue to present or make available PIAs to a client relating to the use or establishment of an SMSF to purchase real property without contravening both s 911A(1) of the Corporations Act and the Proposed Restraining Order.

12. [17]

    In my view no change should be made to par (c) of the Proposed Restraining Order.

13. [18]

    I think that there is some force in Park Trent’s contention that par (d) of the Proposed Restraining Order potentially could apply in situations where Park Trent is not carrying on a financial services business. The form of a restraining order made pursuant to s 1101B(1) of the Corporations Act should reflect the contravening conduct and should not extend beyond that conduct. The difficulty identified by Park Trent can be overcome by inserting into par (d) the same introductory words as appear in pars (b) and (c) of the Proposed Restraining Order, namely:

The Notification Orders

1. [19]

   ASIC submits that an order should be made in terms of Prayer 3 of the Originating Process filed on 10 November 2014. Prayer 3 seeks an order pursuant to s 1101B(1) of the Corporations Act that Park Trent:

2. [20]

   Schedule A to ASIC’s submissions sets out a form of notice containing 11 paragraphs. The proposed letter contains the terms of the declaration and restraining order made by the Court. It also includes the following paragraphs:

3. [21]

   Schedule B to ASIC’s submissions sets out the form of notice that it says that Park Trent should be required to place on its website, as follows: [6]

4. [22]

   ASIC submits that the Notification Orders should be made because they provide a means of ameliorating the impact of Park Trent’s contravening conduct, which has taken place over a lengthy period. Specifically, so ASIC argues, a notice given to former and current clients of Park Trent would alert them to the desirability of obtaining appropriate advice concerning the establishment or use of an SMSF to invest in real estate.

5. [23]

   ASIC contends that the Notification Orders would not present significant logistical problems for Park Trent, since it has maintained a comprehensive database recording details of clients who have set up SMSFs or have purchased properties through existing SMSFs. ASIC says that clients of Park Trent who receive timely advice from a licensed adviser may have an opportunity of mitigating any losses flowing from the transactions arranged by Park Trent or to avoid future losses.

6. [24]

   Park Trent submits that the Notification Orders proposed by ASIC are:

7. [25]

   Park Trent states that the Principal Judgment has had “a salutary effect” upon it. Park Trent’s written submissions record what is said to be its contrition coupled with its desire to continue to operate its business in a manner that complies with the law. Even so, it warns that clients may sustain financial loss if they are prompted to terminate their real estate investments prematurely, thereby depriving themselves of the opportunity to realise the benefits of their investments. Park Trent further contends that the Notification Orders will do little to ameliorate the effect of any recommendations made or opinions expressed by Park Trent in the past.

8. [26]

   Although ASIC’s Originating Process sought the Notification Orders, its final written submissions at the trial did not address whether any such orders should be made. The last paragraph of ASIC’s final written submissions noted that it might be appropriate to allow the parties to make further brief submissions on the form of any orders. However, ASIC did not foreshadow that it would ask for relief in the form of Prayer 3 of the Originating Process until it filed written submissions in response to the directions given in the Principal Judgment.

9. [27]

   In my view, there is likely to be little utility and some dangers in requiring Park Trent to send a letter to its clients as proposed by ASIC. I have not formed this view because I think the letter might cause clients (as Park Trent somewhat optimistically suggests) to forfeit gains from inevitable increases in the value of real estate. I have two quite different concerns.

10. [28]

    The first concern is that a letter indicating that clients or former clients of Park Trent would be well advised to seek legal or financial advice is bound to cause anxiety if not alarm to some recipients. This is particularly likely where the letter, in effect, has the imprimatur of the Supreme Court of New South Wales. Unless there is a clear advantage to be gained, the Court in my opinion should be cautious before requiring a letter to be sent to an entire class of people, most of whom would have no knowledge of the legal proceedings.

11. [29]

    The second and related concern is that ASIC did not adduce any evidence as to the practical benefit of sending the proposed letter. It is therefore not clear what a letter in this form is likely to achieve. For example, most of Park Trent’s clients agreed to purchase a property from a vendor unrelated to Park Trent and, in due course, completed the purchase. ASIC’s submissions do not explain what the benefits to the client of obtaining legal advice (at his or her expense) might be. Similarly, it is not clear why an entire class of investors, whose circumstances vary considerably, should be sent a letter advising them to consider obtaining financial advice. It is no doubt true that many relatively unsophisticated investors might benefit from independent financial advice. It is also true that some clients of Park Trent have been exposed to the risk of significant financial loss by following the recommendations made to them by Park Trent. Nonetheless, the evidence does not satisfy me that a substantial proportion of Park Trent’s clients or former clients are likely to improve their current position by being encouraged to seek general financial advice at their own expense.

12. [30]

    For these reasons I do not think that Park Trent should be ordered to send a letter to clients and former clients as proposed by ASIC.

13. [31]

    In my opinion, however, an order should be made requiring Park Trent to place a notice on its website informing clients and potential clients (and others who visit the website) that the Court has found Park Trent contravened the Corporations Act and has made a declaration and orders against it. An order requiring publication of a notice on its website appropriately recognises the seriousness of Park Trent’s contravention and the public interest in bringing Park Trent’s conduct to the attention of the community, including current or potential clients of Park Trent. The public interest extends to providing clients and potential clients with the means of ascertaining the constraints under which Park Trent must operate pursuant to the orders made by the Court.

14. [32]

    There is nothing to support Park Trent’s submissions that an order requiring publication of a notice on its website is designed to punish or humiliate it, without achieving any practical effect. The publication of a notice advances the public interest in the ways I have identified.

15. [33]

    Accordingly, I intend to direct Park Trent to post a notice on its website substantially in the form prepared by Park Trent, but with the references to a client letter removed. As it will be for ASIC to verify that the notice has been posted on Park Trent’s website, I do not think it is necessary to require an affidavit of compliance to be filed.

Costs

1. [34]

   Park Trent does not dispute that in view of the findings made in the Principal Judgment an order should be made that Park Trent pay ASIC’s costs of the proceedings.

Final Declaration and Orders

1. [35]

   For the reasons I have given, the following declaration and orders should be made: