FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Huntley Management Limited [2017] FCA 770

ORDERS

THE COURT DECLARES THAT:

1.    The Defendant (Huntley) contravened section 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) in that Huntley, in trade or commerce, in connection with the supply or possible supply of financial services or in connection with the promotion of the supply or use of financial services, made a false or misleading representation that Huntley's services had sponsorship, approval, performance characteristics or benefits by promoting and advertising on the website www.huntleygroup.com.au between 21 September 2010 to 7 October 2015, the following statement:

‘The Huntley Group holds an Australian Financial Services Licence and acts as responsible entity, custodian, trustee and/or manager for over 40 managed investment projects approved by the Australian Securities and Investments Commission’

and thereby represented that Huntley acted as responsible entity, custodian, trustee and/or manager for over 40 managed investment projects approved by ASIC in circumstances in which ASIC had not approved such investment projects but only registered the managed investment schemes which comprised the investment projects.

2.    Huntley contravened section 12DB(1)(e) of the ASIC Act in that Huntley, in trade or commerce, in connection with the supply or possible supply of financial services or in connection with the promotion or use of the supply of financial services, made a false or misleading representation that Huntley's services had sponsorship, approval, performance characteristics or benefits by advertising in the Australian Financial Review on 25 November 2014 and on 11 February 2015 the following statement

‘The Huntley Group holds an Australian Financial Services Licence and acts as responsible entity, custodian, trustee and/or manager for over 40 managed investment projects approved by the Australian Securities and Investments Commission’

and thereby represented that Huntley acted as responsible entity, custodian, trustee and/or manager for over 40 managed investment projects approved by ASIC in circumstances in which ASIC had not approved such investment projects but only registered the managed investment schemes which comprised the investment projects.

THE COURT ORDERS THAT:

3.    Pursuant to section 12GBA(1) of the ASIC Act, Huntley pay to the Commonwealth a civil pecuniary penalty in respect of the declared contraventions in the amount of $50,000.

4.    Pursuant to section 12GD(1) of the ASIC Act, Huntley be prohibited from the date of the order from making a representation to the effect that any of the investment projects in respect of which it acts as responsible entity, custodian, trustee and/or manager, are approved by ASIC.

5.    Pursuant to section 12GLA(l) of the ASIC Act, Huntley, for 4 weeks from the date of the order, places a notice on the homepage of website www.huntleygroup.com.au in the form set out under the heading ‘Notice on the Huntley Group Homepage’ which is Attachment A to the Originating Process.

6.    Pursuant to section 43 of the Federal Court of Australia Act 1976 Cth), Huntley pay ASIC's litigation costs in the amount of $15,000.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

PERRAM J:

1    The Plaintiff is the Australian Securities and Investments Commission (‘ASIC’). The Defendant (‘Huntley’) is one of the two members of the Huntley Group, the other member being Huntley Custodians Ltd. ASIC seeks the imposition of a civil penalty against Huntley for making false or misleading statements to the effect that its ‘projects’ were ‘approved’ by ASIC. The matter arises this way: Between 21 September 2010 and 21 September 2016, Huntley carried on business as the responsible entity of various managed investment schemes. The parties agreed that it did so by providing project management services in that capacity. At any one time in that period it was the responsible entity of between 11 and 22 such schemes. Over the whole period it was the responsible entity of over 40 schemes.

2    The facts giving rise to the present litigation centre around advertising publications by Huntley in which it suggested that its investment projects were ‘approved by the Australian Securities and Investments Commission’.

3    There were four such publications. The first two were on Huntley’s own website which it maintained with the domain name www.huntleygroup.com.au. From 21 September 2010 until 7 October 2015 (when they were taken down), two pages within that website contained the statement about which ASIC complains. One of these pages was entitled ‘Focus’ and was accessible in the familiar way by selecting it from a dropdown menu. This was the first publication. The evident intent of the ‘Focus’ page was to provide a description of Huntley’s business. A copy of the contents of that Focus page appears in the Appendix to these reasons. The critical part was its second paragraph and was in these terms:

‘The Huntley Group holds an Australian Financial Services Licence and acts as responsible entity, custodian, trustee and/or manager for over 40 managed investment projects approved by the Australian Securities and Investments Commission and regulated by the Corporations Act in this capacity. The Huntley Group represents over thousands of private investors.’

(emphasis added)

4    A similar passage appeared on the ‘Personnel’ page of the website although this time it formed part of the last paragraph on that page. This was the second publication. So far as the issues with which this case is concerned, the ‘Personnel’ page is not materially different to the ‘Focus’ page and there is no need to set it out.

5    The suggestion that ASIC had approved Huntley’s projects was taken down from its website on 7 October 2015. This occurred immediately after Huntley had received from ASIC two infringement notices dated 6 October 2015. One of these related to the website. It demanded the payment of a penalty of $10,200 in relation to the statements on the website on the basis that they had involved a contravention of s 12DB(1)(e) of the Australian Securities and Investments Commission Act 2001 (Cth) (‘the ASIC Act’). I return to s 12DB(1)(e), which is concerned with the making of false or misleading statements, below.

6    At the same time as ASIC issued an infringement notice in respect of the website, it also issued a second infringement notice which related to a newspaper advertisement which Huntley had placed in the print version of the Australian Financial Review (‘the AFR’) on 25 November 2014 and 11 February 2015. The two advertisements were identical. The advertisement of 25 November 2014 appeared on p 15 of the paper whilst that of 11 February 2015 appeared on p 17. These were the third and fourth publications. A copy of the advertisement appears in the Appendix to these reasons. It was 5x7 cms in size and contained, inter alia, this statement:

‘We hold an AFS Licence Number 229754 and act as responsible entity, custodian, trustee and/or manager for investment projects approved by ASIC.’

(emphasis added)

7    On 25 November 2014, the circulation of the AFR was 57,061 copies. On 11 February 2015, it was 58,023.

8    The infringement notice issued by ASIC in relation to the two newspaper advertisements also alleged, like the other notice had, infringements of s 12DB(1)(e) of the ASIC Act and sought the payment of an identical penalty (i.e. $10,200).

9    Huntley did not pay either notice within the required time of 28 days. Although Huntley was unaware of this, ASIC subsequently extended that 28 day period by a further 28 days. Huntley’s initial position in relation to the infringement notice was conveyed through its solicitor, Mr Jessup, by a letter sent to ASIC on 7 October 2015. Mr Jessup’s position was that the word ‘approved’ merely meant registered so that the statement was not false. Mr Jessup also suggested that ASIC should withdraw the notices.

10    At the end of the second 28 day period, Huntley’s view was that it was unable fully to consider whether it should pay the notices or not. This strikes me as unlikely. The issue was very short. There was no doubt that Huntley had said that its projects were ‘approved’ by ASIC and that, in the ordinary meaning of the word ‘approved’, this was not true. Mr Jessup had a different view I accept, but his opinion did not require any further information before it could be pursued.

11    In fact, as something of a postscript, Huntley did seek to pay both penalty notices on 22 March 2016 by tendering to ASIC the sum of $20,400. However, this payment was subsequently returned by ASIC to Huntley as having been paid too late.

12    It is now necessary to explain how the word ‘approved’ came to appear on Huntley’s website and in the AFR advertisements.

13    Huntley is not a large organisation. It operates from premises on Bligh Street in Sydney’s central business district. It employs three staff. Its operating profit after tax for the financial year ending 30 June 2015 was $243,293 and its total equity was $403,298. In the period between 21 September 2010 and 21 September 2016, two of its three staff members were:

    Mr John Knox, managing director; and

    Mr Bill Foxall, general manager and joint company secretary.

14    Also included in its senior management was Mr Antony Resnick who was a director in 2014 and 2015. It does not appear, however, that Mr Resnick was an employee. Huntley also had a board (‘the Board’) which, apart from Mr Knox, was made up of a number of non-executive directors. In addition to the Board, Huntley maintained a compliance committee.

15    In this comparatively modest structure, it was the general manager, Mr Bill Foxall, who at some point prior to 1 January 2010, first drafted the passage which later, on 21 September 2010, would appear on the ‘Focus’ and ‘Personnel’ pages of Huntley’s website. The parties before the Court agreed that before the statement was published on the website on 21 September 2010 it had been approved by the Board and also by Huntley’s external solicitor, Mr Jessup.

16    So far as the two advertisements are concerned, their origins may be discerned in events which took place in late November 2014. At around that time, a decision appears to have been made that Huntley should place an advertisement in the AFR promoting its services as a ‘responsible entity for hire’. It retained BRI Ferrier to draft this advertisement.

17    The parties agreed that the wording of the advertisement had been taken from Huntley’s website. As with the website itself, a draft of the advertisement was provided to Mr Jessup for his opinion. On 19 November 2014 at 7.54 am, Mr Knox emailed the proposed advertisement to Mr Jessup asking whether it was ‘in order’. At 7.56 am, Mr Jessup replied that the only thing he would add was Huntley’s AFSL licence number. This involved a tacit indication that the balance of the proposed advertisement was acceptable from a legal perspective. As already noted, the advertisement then appeared on 25 November 2014. Fairfax invoiced Huntley $2,569.38 for the advertisement.

18    The advertisement elicited some potential new business. At a directors’ meeting held on 5 December 2014 at Bligh Street, Mr Knox reported to the Board that ‘8 enquiries had been received resulting from a recent advertisement placed in the Australian Financial Review’. One of the directors present, Mr Resnick, noted the success of the advertisement. Following some further discussion, the Board agreed that ‘further advertising along similar lines should be undertaken as soon as possible’. The eight contacts did not result in any additional business, however.

19    The second advertisement was published on 11 February 2015. Huntley accepted that it should be seen as having been approved by each of Mr Knox, the Board and Mr Jessup. The yield from the second advertisement was this time only three inquiries and, as with the first advertisement, did not result in any new business.

20    The parties agreed that the conduct described above involved multiple contraventions of s 12DB(1)(e) of the ASIC Act. It provides:

‘12DB False or misleading representations

(1)     A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:

…

(e)     make a false or misleading representation that services have sponsorship, approval, performance characteristics, uses or benefits; or

…’

21    Section 12DB is contained in Subdivision D which is about ‘Consumer Protection’. This matters because s 12GBA in Subdivision G which is about “Enforcement and remedies’ provides:

‘12GBA Pecuniary penalties

(1)     If the Court is satisfied that a person:

(a)     has contravened a provision of Subdivision C, D or GC (other than section 12DA); or

(b)     has attempted to contravene such a provision; or

(c)     has aided, abetted, counselled or procured a person to contravene such a provision; or

(d)     has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision; or

(e)     has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or

(f)     has conspired with others to contravene such a provision;

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate.

(2)     In determining the appropriate pecuniary penalty, the Court must have regard to all relevant matters including:

(a)     the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b)     the circumstances in which the act or omission took place; and

(c)     whether the person has previously been found by the Court in proceedings under this Subdivision to have engaged in any similar conduct.

(3)     The pecuniary penalty payable under subsection (1) is not to exceed the number of penalty units worked out using the following table:

(4)     If conduct constitutes a contravention of 2 or more provisions referred to in paragraph (1)(a):

(a)     a proceeding may be instituted under this Act against a person in relation to the contravention of any one or more of the provisions; but

(b)     a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct.’

22    I am satisfied that each publication infringed s 12DB(1)(e). As to the formal requirements of the provision, it is accepted by both sides, with respect correctly, that the statements were made in trade and commerce and that they were also made in connection with the supply of financial services.

23    As to the matters of substance, there is no doubt, more importantly, that the statements were false. Huntley’s projects had not been approved by ASIC. It was true that the schemes were registered with ASIC but, despite Mr Jessup’s views to the contrary, I do not think that this is remotely what the word ‘approved’ conveys. Rather, it carries with it a notion of approbation. In the field of investment, Commonwealth approbation is a significant matter suggesting an augmented degree of reliability. This is what approval means as a matter of ordinary language and I have no doubt that this was what was conveyed to the kinds of persons who visit the websites of responsible entities or who read the AFR. In that class, the Full Court says that I should include persons who are not particularly well-informed or who are possibly of less than average intelligence: Annand & Thompson Pty Ltd v Trade Practices Commission [1979] FCA 36; (1979) 40 FLR 165 at 176. I do so.

24    It will be observed that in Huntley’s case s 12GBA(3) fixes the maximum penalty for each contravention at 10,000 penalty units. A penalty unit is currently set at $180: see Crimes Legislation Amendment (Penalty Unit) Act 2015 (Cth). However, between 28 December 2012 and 30 July 2015, the penalty unit was set at $170, and before 28 December 2012, at $110.

25    The maximum penalty at the time of both newspaper advertisements was therefore $1.7 million. In the case of the website, the maximum penalty has increased from $1.1 million (from 21 December 2010 until 28 December 2012), to $1.7 million (from 28 December 2012 until 30 July 2015) and finally to $1.8 million (from 30 July 2015 until the time the reference to ‘approved’ was removed from the website on 7 October 2015). The maximum penalties are relevant for determining the full range of sanctions available and for locating the impugned conduct on the scale of seriousness.

26    It seems to me that the website advertisements and the two newspaper advertisements are distinct from each other and should be treated as separate episodes of wrongdoing. It might be possible to consider the two newspaper advertisements as separate episodes of wrongdoing but the circumstances of the second advertisement’s creation and the fact of their identicality persuade me that it was but a continuation of the first advertisement. This does not mean that the maximum penalty is limited to that of a single contravention, but it does provide a guide as to the amount of wrongdoing involved: Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; (2010) 269 ALR 1 at 13 [41]-[42] per Middleton and Gordon JJ.

27    What penalties should be imposed? I am required by statute to take into account the nature of and extent of the acts in question, including: whether any loss has been suffered by reason of the conduct; the circumstances in which the conduct took place; and whether Huntley has previously been found by the Court to have engaged in any similar conduct: s 12GBA(2). Additionally, it has been held judicially that the following are also useful considerations in the present context: the size of the contravening entity; the deliberateness of the conduct and the period over which it extended including whether it was systematic or covert; whether it arose at the level of senior management; the adequacy or otherwise of the entity’s compliance culture; the degree of co-operation with ASIC; and, the entity’s financial position: see Australian Securities and Investments Commission v Superannuation Warehouse Australia Pty Ltd [2015] FCA 1167; (2015) 109 ACSR 199 (‘ASIC v Superannuation Warehouse’).

28    These considerations lead me to conclude that penalties rather towards the lower end of the spectrum are appropriate. The conduct was deliberate at least in the sense that the publications were intentional. But they did not take place with the intention to deceive. Indeed, the fact that both the website and the newspaper advertisements were vetted by Mr Jessup rather tends to show that deceit was not the intention. Mr Jessup was wrong to indicate that the advertisements were acceptable; he should have advised that the word ‘approved’ ought not be used. And, if he had, the present situation would not have arisen.

29    The parties joined in a submission that Huntley’s approach to compliance was deficient in two ways. First, its Compliance Manual – with which it fully complied – did not refer to complying with the ASIC Act (although it did refer to the Corporations Act 2001 (Cth)). Secondly, it did not consider ASIC Regulatory Guide 234 which stated that ASIC had a particular concern where advertisements claimed approval by it. The version provided to the Court of Regulatory Guide 234 (as Appendix 16) post-dates some of the conduct in question. I propose to assume this is an error and that there was a form of the guide in force at the relevant time. As will be seen, making that assumption has no dispositive effect on these reasons.

30    I do not think this issue should impact very much on the penalty. The Compliance Manual required that all marketing material be approved by two directors and that promotional material be approved by the Board. This occurred in both cases. The compliance arrangements were nevertheless deficient. Clause 2 of Huntley’s AFS licence required it to establish and maintain compliance measures that would ensure, as far as reasonably practical, that it complied with the financial services laws. ‘Financial Services Laws’ is defined in s 761A of the Corporations Act 2001 (Cth) to include a provision of Division 2 of Part 2 of that Act. Division 2 contains s 12DB of the ASIC Act.

31    This, Huntley’s Compliance Manual did not do because it did not refer to the ASIC Act. I do not consider, however, that this deficiency is causally connected to the occurrence of the two infringements. Huntley sought legal advice about the wording of the website and the advertisements and was told it was appropriate. I do not think anything different would have happened had the ASIC Act been referred to in the Compliance Manual. Mr Jessup’s erroneous advice did not emerge as a consequence of that omission and would still have occurred even in the absence of that omission (assuming, perhaps problematically, that an omission can be absent).

32    This is probably not so, however, in relation to ASIC Regulatory Guide 234 because it was explicitly concerned with the need to avoid any suggestion that ASIC had given its approval. But Huntley was not bound by its licence to comply with ASIC’s regulatory guides. It seems to me likely that if the Compliance Manual had been drawn with an eye on the regulatory guides then the difficulty which has arisen might have been averted. But I cannot say that it was wrong that the Compliance Manual did not refer to the guide.

33    Taking these two matters together, it does not seem to me that the state of Huntley’s culture of compliance is a matter which should affect the penalty one way or the other. If I thought that the contraventions derived from the identified compliance deficiencies then a different outcome might well be warranted. But the problem was not that Huntley did not seek to ascertain whether the publications were lawful. It did. The difficulty is that Mr Jessup answered the posed question incorrectly. Even if Huntley’s Compliance Manual had referred to the ASIC Act, it would not have led to a different outcome.

34    I take into account that Huntley is not a large business but has sufficient shareholders’ equity to be able to withstand a quite substantial penalty in excess of $400,000. I note the repeated statements in this Court that any penalty must be set at a level which ensures that it is not seen merely as a cost of doing business: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 at 265 [62]. In that regard, it is relevant to know that any penalty will not be able to be claimed as a deduction: Income Tax Assessment Act 1997 (Cth) s 26.5. The point of a penalty, I remind myself, is deterrence both of the Defendant and also of those pondering the fate of the Defendant.

35    The remarks above at [29] mean that it is likely that the Compliance Manual will need revision but it seems unlikely that the costs involved in doing so will be large.

36    It is necessary then to consider the harm done by the conduct. The AFR advertisements were published twice in a national newspaper with a circulation of around 50,000 per publication. Several contacts were elicited but, ultimately, no new business resulted. This may not mean that no-one was misled but it certainly means the AFR advertisements have caused no loss to anyone.

37    The position is less clear with the website. The misleading pages were visible for about five years between 21 September 2010 and 7 October 2015. Across the similar period, 21 September 2010 to 21 September 2016, Huntley managed around 40 schemes.

38    Huntley markets itself to investors, developers and promoters of managed investment schemes. It seems unlikely that any of Huntley’s developers and promoters could have been misled by the statement that the schemes being administered by it were approved by ASIC. Necessarily, they would have known that this was not so. The only real capacity for confusion would appear to exist in the case of investors. It is difficult to see what the extent of this might be, however, because the website is plainly not directed at soliciting investments. There was no evidence, unsurprisingly, that any investors were misled. The fact that it is not shown that any person has suffered loss does not always mean that no loss has been suffered. But in some cases it does and this case is one of those cases: see Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No. 2) [2011] FCA 382; (2011) 279 ALR 609 at 627 [77]-[80].

39    This is not at all to fail to acknowledge the significant impact which a statement that an entity is approved by ASIC is likely to have in the general investment market. ASIC is rightly concerned about that kind of practice. But in the circumstances of this case, it seems unlikely that anyone was actually misled and I am certainly satisfied that no loss was suffered.

40    The parties joined in a submission that the contraventions should be regarded as being at the higher end of seriousness because they involved senior management. I do not agree. There were only three staff who worked in the office of whom two were identified as being senior management. I accept that it cannot be said that Mr Foxall was an unimportant employee but I am not sure the sting which usually attaches to the suggestion that a plan was hatched at the top of an organisation has quite the same lash where there are only three employed people in the entire organisation. On the other hand, the erroneous nature of Mr Jessup’s advice is a mitigating consideration in this case.

41    There are some positive matters which should be acknowledged. Huntley has not engaged in this kind of conduct before. Further, it has proffered an apology for its conduct and indicated its regret which I accept. It also immediately desisted from the impugned conduct upon receipt of the two penalty notices and co-operated to a significant degree with ASIC by agreeing with it an appropriate penalty, consenting to the other orders now sought by ASIC and making sufficient admissions to make viable a statement of agreed facts. This co-operative stance has averted the public expense and delay of a trial. Huntley has also agreed to consult with ASIC in relation to its compliance procedures. Finally, it has agreed to pay $15,000 towards ASIC’s costs. For its part, ASIC has indicated it will not charge Huntley for the costs of its investigation.

42    On the other hand, Huntley could have averted the current process by paying the infringement notices on or shortly after 7 October 2016. As I have said, I do not find its explanation for its failure to do so especially compelling. I do take into account the fact that, far outside the time to do so, it did seek to pay the penalty notices.

43    It seems to me that an appropriate penalty having regard to all of these matters is $10,000 for each newspaper advertisement and $20,000 for the website. This makes for a total of $40,000 which is just under twice the penalties specified in the infringement notices. I would reserve for fuller consideration the issue of what the relationship is between this Court’s assessment of a penalty and the amount of a penalty appearing in a penalty notice. Obviously enough, ensuring that this Court’s penalty is generally larger will give persons receiving an infringement notice an incentive to pay it. There may be two objections to this practice, however. First, it may permit the authority imposing the penalty to set a floor under this Court’s penalty. Secondly, it is not necessarily clear that encouraging the payment of penalty notices is within the scope of this Court’s functions in imposing penalties. Whilst noting the size of the penalty notices, I have therefore decided that I will treat them as a neutral factor: cf ASIC v Superannuation Warehouse at 219 [94]-[96].

44    I pause, as required by decisions such as Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd [1997] FCA 450; (1997) 145 ALR 36 at 53, to consider whether overall the proposed penalty reflects an appropriate sentence for the totality of the conduct involved. I conclude that it does.

45    The parties agreed that the penalty should be $50,000. Although this is a little more than I would have imposed it is well within the appropriate range and I should therefore impose the agreed proposed penalty rather than the one at which I have arrived: see Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476 at 489 [47]-[48].

46    Huntley also consented to the making of a declaration that it had made a false or misleading representation. Given ASIC’s regulatory role it is now clear that such a declaration can be appropriate even if it otherwise appears pointless: Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No. 3) [2012] FCA 43; (2012) 213 FCR 380 at 441 [272]. Further, it is now also clear that such a declaration may be made by consent in civil penalty proceedings: Australian Competition and Consumer Commission v MSY Technology [2012] FCAFC 56; (2012) 201 FCR 378 at 387 [30]. This is a case for such a declaration. The parties concurred that an injunction should issue pursuant to s 12GD(1) of the ASIC Act requiring Huntley not to engage in similar conduct in the future. Given the agreement of the parties, it is appropriate that such relief should be granted. Finally, Huntley also consented to a corrective advertising order pursuant to s 12GLA of the ASIC Act. This was to consist of a notice posted on its website for four weeks in an agreed form drawing attention to the error. Given the parties agreement, such an order should be made.

47    I therefore make the orders agreed by the parties.

Associate:

Dated:    11 July 2017

APPENDIX

‘Focus’ page referred to in [3]:

‘AFR’ advertisement referred to in [6]: