Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 2)

1. [1]

   SACKVILLE AJA: On 11 June 2015, the sixth day of the trial, Mr Hewitt sought leave on behalf of the defendant to amend the defence filed on 27 February 2015 (Defence). After hearing argument on the application, I refused leave and indicated that I would provide reasons for refusing leave later.

2. [2]

   I am also delivering a judgment today giving reasons for a ruling on evidence made on 4 June 2015, the second day of the hearing. In that judgment, I summarise the case pleaded by the plaintiff (ASIC) and the legislative scheme relevant to its case. [1] I do not repeat the summary here, but this judgment should be read together with the ruling on evidence.

Background

1. [3]

   ASIC commenced proceedings on 10 November 2014 seeking declaratory and injunctive relief against the defendant. ASIC’s statement of claim alleges that the defendant from and after 2010 has carried on a financial services business without an Australian financial services licence, in contravention of s 911A of the Corporations Act 2001 (Cth) (Corporations Act). In addition to final relief, ASIC sought interim orders restraining the defendant from carrying on a financial services business, pending determination of the proceedings.

2. [4]

   ASIC’s application for interim relief was originally listed for hearing on 2 February 2015. At that time Sackar J offered the parties, in lieu of the interlocutory hearing, an expedited hearing. Both parties accepted that proposal and the matter was listed for a four day final hearing, commencing on 7 April 2015. [2]

3. [5]

   The matter did not proceed on the scheduled date, apparently because certain interlocutory disputes about the production of documents had not been resolved. On 26 March 2015, Sackar J again set the matter down for final hearing, commencing on 3 June 2015. On this occasion the estimated duration was seven hearing days. His Honour directed that, subject to one exception, the defendant was not to be permitted to rely at trial on any affidavits served after 17 April 2015 except with the leave of the Court. The exception related to an earlier order [3] which permitted the defendant to file evidence in reply if ASIC intended to tender certain documents produced by the defendant in response to a notice to produce.

4. [6]

   The hearing commenced as scheduled on 3 June 2015. The case was opened and proceeded on the basis that the issues were defined by pleadings originally filed by the parties (that is, ASIC’s statement of claim and the Defence). However, Mr Hewitt advised ASIC and the Court on the fifth day of the trial (10 June 2015) that the defendant wished to seek leave to amend the Defence. As I have noted, the application to amend the Defence was heard on the sixth day of the trial. Ms Cheeseman SC, who appeared with Mr Prince for ASIC, opposed the grant of leave to amend.

5. [7]

   In substance, the proposed amendment seeks to rely on the exemption provided by reg 7.1.29 of the Corporations Regulations 2001 (Cth) (Corporations Regulations). Regulation 7.1.29, the relevant portions of which are set out below, [4] prescribes, inter alia, the circumstances in which a person is taken not to provide a financial service. A person who does not provide a financial service cannot carry on a financial services business and thus does not contravene s 911A of the Corporations Act if the business is carried on without a financial services licence.

6. [8]

   Mr Hewitt read an affidavit from his instructing solicitor, Mr McGregor, in support of the application for leave to amend. Mr McGregor was not cross-examined.

Regulation 7.1.29

1. [9]

   Regulation 7.1.29 of the Corporations Regulations was introduced by the Corporations Amendment Regulations 2003 (No 3) (Cth). [5] It had therefore been in force for approximately 12 years before the Defence was filed in the present proceedings.

2. [10]

   Regulation 7.1.29 relevantly provides as follows:

The Proposed Amendment

1. [11]

   The Defence essentially consists of a series of admissions and denials. It does not plead an affirmative case in opposition to ASIC’s claim for relief. In particular, it does not allege that the defendant’s activities were or are exempt from the licensing requirement imposed by s 911A of the Corporations Act.

2. [12]

   The defendant’s proposed amendment would insert a new paragraph in the Defence, as follows:

3. [13]

   It will be seen that the particulars to proposed par 36A refer to a written statement provided to potential investors. The particulars also refer to an affidavit of Ms Johnston, the defendant’s Chief Operations Officer. Paragraph 40 of Ms Johnston’s affidavit explains the reference to a written statement:

4. [14]

   The notice to which Ms Johnston (Notice) refers is in the following form:

5. [15]

   The evidence adduced by the defendant indicates that there have been slight variations in the form of the Notice from time to time after its introduction. However, the text of the Notice appears to have remained constant.

The Supporting Affidavit

1. [16]

   Mr McGregor acknowledges in his affidavit that ASIC’s statement of claim pleads that the defendant, as a matter of course, provided a document entitled “Property Investment Analysis” (PIA) to potential investors. However, Mr McGregor says that it only became apparent to him during the hearing that ASIC intended to place considerable weight on the defendant’s use of PIAs in order to prove that the defendant conducted a “financial services business”. This realisation prompted Mr McGregor to undertake “further research … after ASIC opened its case on 3 June into the relevant provisions of the Corporation Act and Corporations Regulations”. The further research led Mr McGregor to conclude that:

2. [17]

   Mr McGregor states that the defendant intends, if permitted, to rely on the Notice in order to show that the defendant provided a written statement to potential investors complying with reg 7.1.29(5)(d) of the Corporations Regulations . He also says that the defendant will rely on affidavit evidence already given by a number of the defendant’s representatives. According to Mr McGregor, that evidence indicates that from about November 2014 a copy of the Notice was given to potential investors.

3. [18]

   Mr McGregor identifies passages in seven affidavit upon which the defendant wishes to rely in order to show that it complied with reg 7.1.29(5)(d), at least from November 2014. One of the passages is para 40 of the affidavit of Ms Johnston reproduced above. [6] The passages in the other six affidavits are dealt with below.

4. [19]

   Mr Lini, a sales consultant contracted to the defendant, deposes that early in 2014, he was informed by senior managers that consultants could not give financial advice or make recommendations concerning superannuation. Prior to that meeting, Mr Lini would say to clients during the face to face run meetings, words to the effect that an SMSF is “an opportunity you can take on board”. After being given the instruction by senior managers, Mr Lini no longer used these words in his discussions with potential purchasers. Mr Lini also says that “in approximately the middle of 2014, we were given a document [the Notice] which we give to clients”.

5. [20]

   Two points should be made about Mr Lini’s evidence. First, he does not explain the circumstances or manner in which the Notice was given to potential investors. In particular, he does not identify the point in the process when he gave the Notice to potential clients. Secondly, Mr Lini is clearly incorrect in stating that he received copies of the Notice in mid-2014. It is common ground that the Notice was not provided to representatives until November 2014.

6. [21]

   Ms Wilson, an employee of the defendant since February 2014, says in her affidavit dated 26 March 2015 that she “participated in the training sessions recently provided to us by Park Trent’s lawyers”. She also says that:

7. [22]

   Mr Silver is self-employed, but has worked under contract with the defendant for nine years. Mr Silver deposes as follows:

8. [23]

   Mr Agarwal is a consultant with Cross Country Realty Victoria Pty Ltd (CCRV), a company associated with the defendant. He deposes that in December 2014 he attended by telephone link a compliance training session conducted by a solicitor. He says that he:

9. [24]

   Mr Perera, an employee of CCRV, deposes that it has not been his practice to raise the topic of SMSFs unless first asked about it by a potential client. If asked about SMSF, he says that his practice is to tell the client that he is not a qualified financial adviser and cannot provide advice about superannuation. He also says that he hands out the Notice to the client. He does not provide further details.

10. [25]

    Ms Parr, an employee of CCRV for five and a half years, deposes that in November 2014 she received a direction from head office in North Wollongong that the Notice was to be handed out to potential clients who were interested in purchasing a property through an SMSF. She says that she complied with the direction, but does not give further information as to her practice.

Reasoning

1. [26]

   Section 64(1) of the Civil Procedure Act 2005 (NSW) (Civil Procedure Act) empowers the court at any stage of the proceedings to grant leave to a party to amend any document in the proceedings. Section 64(2) of the Civil Procedure Act provides that:

2. [27]

   Section 58(1) of the Civil Procedure Act relevantly states that in deciding whether to make an order for an amendment of a document, the court must seek to act in accordance with the “dictates of justice”. Section 58(2) of the Civil Procedure Act provides as follows:

3. [28]

   Section 56(1) of the Civil Procedure Act states that:

4. [29]

   Section 57 of the Civil Procedure Act provides as follows:

5. [30]

   The decision of the High Court in Aon Risk Services Australia Ltd v Australian National University (Aon Risk Services v ANU) [10] establishes that the reference in s 56 of the Civil Procedure Act to “the real issues in the proceedings” is to issues raised, even if unclearly, at the time the application to amend is made. [11] The expression “real issues in the proceedings” does not extend to any fresh issues which a party seeks to advance, even if that party acts in good faith and the issues are arguable.

6. [31]

   The court’s discretion to permit amendments, conferred by s 64(1) of the Civil Procedure Act, is subject to the dictates of justice, as specified in s 58(2). This requires the court to have regard to the “overriding purpose” of the Civil Procedure Act stated in s 56(1) and the objects stated in s 57(1). The first of those objects is the “just determination of the proceedings”. However, as the joint judgment in Aon Risk Services v ANU pointed out in relation to rules of court drafted in similar terms, a just determination of the proceedings must be understood in the light of the purposes stated in the governing legislation: [12]

7. [32]

   I am prepared to accept that the proposed amendment, if permitted, might raise arguable issues. I also accept that it is no light matter to deprive a party of the opportunity to amend its pleadings to rely on an arguable contention. While the loss of that opportunity is an important consideration, it is necessary to determine what the “dictates of justice” require in the circumstances of the present case having regard to the directions given in s 58(2) of the Civil Procedure Act.

8. [33]

   Mr McGregor’s affidavit correctly acknowledges that ASIC’s statement of claim identifies the PIAs as an element in its case that the defendant carried on and continues to carry on a financial services business in contravention of s 911A of the Corporations Act. The statement of claim specifically alleges that during individual face to face meetings with potential investors conducted in the defendant’s offices (known as “run meetings”), the practice is for the defendant’s representatives to show the investor a PIA which:

9. [34]

   It is somewhat difficult to understand why it was not until Ms Cheeseman opened ASIC’s case that the defendant’s legal representatives apparently appreciated the significance of the PIAs to ASIC’s case. It is also difficult to understand why that appreciation alerted the defendant’s representatives to the need to undertake what Mr McGregor describes as “further research” into the relevant provisions of the Corporations Act and the Corporations Regulations. The defendant’s entitlement to rely on the exemption created by reg 7.1.29 of the Corporations Regulations cannot depend on whether or not it provides PIAs to potential investors.

10. [35]

    As I have noted, reg 7.1.29 of the Corporations Regulations was in force for some 12 years prior to the Defence being filed in the present proceedings. Mr McGregor does not expressly state that the defendant’s legal representatives were unaware of reg 7.1.29 before the Defence was filed or when the hearing commenced. However, ASIC did not suggest that the defendant had made a deliberate forensic decision not to rely on reg 7.1.29 and I do not approach the application for leave to amend on that basis. I consider it appropriate to regard the failure to advert to reg 7.1.29 as an oversight. This inference receives some support from the fact that the text of the Notice does not closely follow the language of reg 7.1.29(5)(d), The disparity suggests that at the time the defendant distributed copies of the Notice those advising it were unaware of reg 7.1.29(5)(d).

11. [36]

    If the proposed amendment raised only issues of law (as Mr Hewitt contended), I would be inclined to grant leave to the defendant to amend the Defence. I would be prepared to do so notwithstanding the lateness of the application and the failure of the defendant’s legal representatives to become aware of a regulation that had been in force for over a decade. If the amendment raised only questions of law, ASIC would be able to address any new issues in its final submissions. Any costs wasted by reason of the late application to amend could be addressed by making an appropriate costs order. In these circumstances it is unlikely that the hearing would be significantly lengthened or that the resolution of the case would be delayed.

12. [37]

    In my view, however, the proposed amendment raises not only legal issues, but fresh factual issues that would need to be the subject of evidence before the necessary findings could be made. This can be seen from the requirements of reg 7.1.29(5)(d).

13. [38]

    It is 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.

14. [39]

    As I have noted, the evidence adduced from the defendant’s representatives does not descend to the detailed circumstances in which they have provided the Notice to potential clients. The affidavit evidence [13] is general in character and, for the most part, does not address whether the Notice was given as part of the “financial product advice” or whether the advice was accompanied by the Notice. Not surprisingly, Ms Cheeseman did not pursue this issue with the witnesses in cross-examination since at that stage it had not been identified in the pleadings as a matter in dispute. Moreover, Ms Cheeseman elected not to cross-examine some of the deponents whose evidence Mr McGregor referred to in his affidavit, presumably because she regarded cross-examination as unnecessary.

15. [40]

    The evidence of Mr Kutup, who was cross-examined, illustrates the questions that are likely to arise. Mr Kutup, an employee of the defendant, gave evidence on the sixth day of the trial, after the application for leave to amend had been foreshadowed but not heard. In the course of his evidence the following exchange took place:

16. [41]

    In re-examination, Mr Kutup’s attention was directed to the Notice. He was asked what his practice had been since 26 November 2014 in relation to the Notice. He answered that the “document is actually in the packs that we take out to the in home”. He went on to explain that the Notice is in a pack of documents that is left with the client, and that includes company profiles and other information.

17. [42]

    It is far from clear that Mr Kutup’s practice, if accurately described, constitutes compliance with reg 7.1.29(5)(d) of the Corporations Regulations. Merely providing the Notice to a potential client at the initial home visit as part of a bundle that includes other documents may not satisfy the requirement that the financial product advice provided to the client include or be accompanied by a written statement containing the prescribed information. ASIC’s case is that financial product advice is often (if not always) given at the run meeting, which follows the home visit. Provision of the Notice at an earlier stage of the process, particularly if it is not specifically drawn to the attention of the potential investor, may well not comply with subpar (5)(d).

18. [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.

19. [44]

    The defendant’s reliance on reg 7.1.29 is likely to raise other factual issues. Regulation 7.1.29(5)(c) states, inter alia, that the person claiming to provide an exempt service must not give financial product advice that includes:

20. [45]

    Similarly, reg 7.1.29(1) is likely to present factual issues for determination that have not been explored in the evidence. Regulation 7.1.29(1) limits the exemption to a person who provides the “eligible service” [14] in the course of conducting an exempt service and to a case where the eligible service is “provided as an integral part of the exempt service”. These limitations potentially give rise to factual questions of considerable complexity. None has previously been an issue in the proceedings.

21. [46]

    If the proposed amendment was allowed, it is virtually certain that witnesses who have already given evidence would have to be recalled for further cross-examination. The opportunities that would have to be given to ASIC to consider whether it should adduce further evidence would necessarily involve delays in a case that was given an expedited hearing. Not only would the court have to find additional hearing time, but the days set aside for the hearing of final submissions [15] would have to be vacated and rescheduled. These considerations are relevant to each of the objects identified in s 57(1) of the Civil Procedure Act.

22. [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. [16]

23. [48]

    For these reasons, I concluded that the dictates of justice in the present case required that the defendant’s application to amend its Defence should be refused.

24. [49]

    I should add, for the avoidance of doubt, that this ruling does not prevent the defendant from relying on the Notice and the use by its representatives for other purposes within the scope of the pleadings. Evidence of these matters may be relevant, for example, on the exercise of the Court’s discretion with respect to relief or to the form of orders that might be made.