FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Manito Pty Ltd
[2005] FCA 386

CORPORATIONS – Australian financial services licence – unlawful conduct of financial services business – contravention admitted by first and second defendants – whether third defendant knowingly concerned in contraventions – scope of third defendant’s knowledge of the essential facts constituting the contraventions

Corporations Act 2001 (Cth) ss 761A, 764A(1)(g), 766A(1)(a), 766B(1), 911A, 1101B, 1311(1), 1324, 1324(1), 1324(1)(e), 1317S(2)

Superannuation Industry (Supervision) Act 1993 (Cth) ss 10, 17A, 19

Briginshaw v Briginshaw (1938) 60 CLR 336 cited

Edwards v R (1992) 173 CLR 653 cited

Hamilton v Whitehead (1988) 166 CLR 121 cited

Kennedy v Sykes (1992) 24 ATR 546 cited

Natesan & Subramaniam v R (1996) 88 A Crim R 444 applied

Yorke v Lucas (1985) 158 CLR 661 applied

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v MANITO PTY LTD, STEVEN PRESTON and JAMES PAYNE

WAD 190 of 2004

NICHOLSON J

8 APRIL 2005

PERTH

THE COURT ORDERS THAT:

1.                  The application is dismissed.

2.                  The plaintiff pay the third defendant’s costs of the application.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The plaintiff brings an application in reliance on s 1101B and s 1324 of the Corporations Act 2001 (Cth) (‘the Corporations Act’).

2                     The application relates to unlawful carrying on of a financial services business by the defendants by broadcasting certain television advertisements in contravention of s 911A of the Act.  It was alleged that those advertisements contained recommendations intended to:

(i)                  influence persons to dispose of superannuation interests within the meaning of the Superannuation Industry (Supervision) 1993 (‘the SIS Act’); and

(ii)                influence persons to acquire an interest in a self-managed superannuation fund (‘SMSF’) within the meaning of the SIS Act or which could reasonably be regarded as being intended to have such an influence.

3                     The allegation against the first and second defendants was that they each carried on a financial services business by making recommendations intended to influence persons to dispose of superannuation interests within the meaning of the SIS Act without holding the licence.  It is conceded on behalf of the third defendant that the first and second defendants have admitted a breach of s 911A, that they have subsequently given undertakings by consent to the Court and that appropriate orders have been made in respect of them. 

relevant statutory provisions

4                     Relevantly, s 911A of the Corporations Act provides:

‘(1)      Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial serves.’

It is not contended that any of the remaining sub-sections of s 911A has any relevance to this application.

5                     A ‘financial services business’ is a business of providing financial services (s 761A of the Corporations Act) and a financial service includes the provision of financial product advice (s 766A(1)(a) of the Corporations Act).

6                     ‘Financial product advice’ means, relevantly, a recommendation that:

(a)           is intended to influence a person to make 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. 

(s 766b(1) of the Corporations Act).

7                     An SMSF is a particular financial product, namely, it is a superannuation interest within the meaning of the SIS Act (see s 761A definition of ‘superannuation product’ referring to s 764A(1)(g) of the Corporations Act).  A ‘superannuation interest’ is ‘a beneficial interest in a superannuation entity’ and a ‘superannuation entity’ includes ‘a regulated superannuation fund’:  s 10 of the SIS Act.  An SMSF is a regulated superannuation fund (see s 17A of the SIS Act) and as such is required to comply with s 19 of the SIS Act.

8                     Section 1311(1) of the Corporations Act provides:

‘1311(1)          A person who:

(a)               does an act or thing that the person is forbidden to do by or under a provision of this Act; or

(b)               does not do an act or thing that the person is required or directed to do by or under a provision of this Act; or

(c)               otherwise contravenes a provision of this Act;

is guilty of an offence by virtue of this subsection, unless that or another provision of this Act provides that the person:

(d)               is guilty of an offence; or

(e)               is not guilty of an offence.’

9                     Section 1324(1) relevantly provides:

‘1324

(1)        Where a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute:

(a)               …

(b)               …

(c)                …

(d)               …

(e)                being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

(f)                 …

the Court may, on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.’

The case of the plaintiff is that the third defendant was ‘knowingly concerned in’ the contravention by the first and second defendants of the Act. 

knowingly concerned

10                  In Yorke v Lucas (1985) 158 CLR 661 at 670, Mason ACJ, Wilson, Deane and Dawson JJ said ‘there can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention’.  There Honours further stated at 670:

‘In our view, the proper construction of par. (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.’

Brennan J (at 677) said ‘the requirement of knowledge under par (a) is no less stringent under par (c)’. 

11                  The plaintiff also relies upon the following passage from Natesan & Subramaniam v R (1996) 88 A Crim R 444 at 451 – 452 where Kennedy J (with whom Wallwork and Murray JJ agreed) said:

‘In Kennedy v Sykes (1992) 24 ATR 546 … Nathan J, having considered a number of relevant cases, said (at 551):

            “It is obvious that where a person plays an essential part in the venture of deception or to mislead, no matter how slight or momentary that part may be, and whether by action or inaction that person becomes ‘concerned in’ the venture.  I have already observed that phrase is preceded by an adverb ‘knowingly’.  In my view, and having had recourse to the authorities, this requires the Crown to establish that the person involved in the venture was aware of its misleading or deceptive character or objective.  It does not require proof that the actor be aware of all the mechanical details of the venture or the identity of all participants.  If he or she is aware of the general nature of the transaction, that the part played by him or her whether by positive act or omission will assist the misleading or deception then, in my view, the requirement of being knowingly concerned in is satisfied.”’

12                  That this is the proper approach was subsequently confirmed in later considerations by the High Court of Yorke v Lucas: Edwards v R (1992) 173 CLR 653 at 657 – 658, 661 and 662; and Hamilton v Whitehead (1988) 166 CLR 121 at 129 – 130.

13                  Therefore in the context of s 1324(1)(e) and s 911A(1) of the Corporations Act, what must be established against the third defendant is knowledge of the content and intention of the advertisements, and whether or not the first defendant was carrying on a financial services business without holding an Australian financial services licence.

case to answer

14                  The case which the plaintiff relies upon to establish that the third defendant had knowledge of the essential facts constituting the contravention and therefore was ‘knowingly concerned in’ the contravention follow from the affidavit and oral evidence of Mr Jonathon Taylor.  Mr Taylor is a sales executive with the television station, Channel 7 in Western Australia.  In the course of his employment he manages an advertising account with a business called ‘Superannuation Retrieval Services’.  Mr Taylor’s affidavit evidence was that on 9 January 2004 he forwarded to the third defendant a facsimile setting out the payment plan for advertising on Channel 7 from February to June 2004.  The exhibited copy of the facsimile concerned shows that it was sent to ‘Jim/Reno’.  The former is accepted as a reference to the third defendant and the latter is a reference to Mr Nazareno, accountant in the Superannuation Retrieval Services in which the third defendant was employed.  In his affidavit evidence Mr Taylor also stated that he understood that the third defendant was the manager of the business.  Further he stated that the third defendant had given him authority to book negotiated airtime for the business. 

15                  In cross-examination Mr Taylor said that the second defendant had been his point of contact for organising and production of advertisements until advertising by the first defendant ceased.  It was the third defendant who had contacted him to recommence the advertising.  He prepared a proposal on 19 December 2003 which was presented to the third defendant at a meeting in the third defendant’s office.  The meeting was held either very late in December 2003 or early in January 2004 and could quite possibly have been on 8 January 2004. 

16                  He testified that it was the third defendant who contacted him and asked him to book in the schedule of advertising.  He said this was a confirmation of the advertising proposal which he had put to the third defendant. 

17                  He further testified that at that time he understood the third defendant to be the manager of Superannuation Retrieval Services.  He based this knowledge on the contact with him by the third defendant and the fact that when he visited the third defendant’s office, the third defendant appeared to be in the position of control and management. 

18                  In cross-examination he also testified that during his negotiations with the third defendant the latter was possibly making notes on the proposal.  However, he (Mr Taylor) had not made notes. 

19                  As to the date on which he had received from the third defendant the confirmation placing the order for advertising, it had occurred prior to the dispatch of a payment schedule by facsimile on 9 January 2004. 

20                  He was sure that the confirmation of the advertising order had not been made by Mr Nazareno. 

21                  The plaintiff’s case also relies on the affidavit of Mr Christopher Wharton, Managing Director of Channel 7, and the affidavit of Mr Matthew Holgate, a lawyer employed by the plaintiff in its enforcement directorate. 

third defendant’s case

His affidavit

22                  The third defendant’s affidavit evidence was that he commenced employment with Superannuation Retrieval Services on 25 May 2003 by engagement to the first defendant.  The sole director and shareholder of that company was the second defendant.  The engagement was by way of oral arrangement.

23                  He deposed that during the course of his employment ‘[he] was not aware of the arrangements or had any responsibility for the wording of any advertisement placed with Channel 7’.  He stated that the advertising was put into place and arranged prior to the commencement of his employment.  He had noted that the wording for the advertisement with Channel 7 was changed in August 2003 but his evidence was he had had no involvement in the organisation or production of any advertising or invitations to the public.  He said that he played no role in making management decisions, never held any shares in Manito Pty Ltd and did not receive any bonus or participated in any distribution of the profit of that company. 

24                  In relation to the facsimile of 9 January 2004, the affidavit evidence from the third defendant was that prior to that facsimile he had never spoken to or had contact with Mr Taylor other than a casual greeting.  However, on or about 8 January 2004 he had been advised by the second defendant that advertising had stopped on Channel 7 and he wished to restart the same.  As the second defendant was unable to attend a meeting with Mr Taylor, he requested that the third defendant contact Mr Taylor and see if he could reduce the asking price for the advertising.  In his affidavit he said there was no discussion of any kind between himself and the second defendant as to the content of the advertisement nor was he given any responsibility or direction to change the content, the form or the wording of the advertising. 

25                  The third defendant’s affidavit continued by stating that the meeting between he and Mr Taylor occurred either the day of or the day before the facsimile was sent to himself and ‘Reno’.  The meeting took place at the first defendant’s place of business and took about 20 minutes.  He said the principal purpose of the meeting was to discuss the cost of advertising.  Present at the meeting were himself, Mr Taylor and Mr Nazareno.  He deposed that the meeting was fairly informal and that to the best of his recollection no notes were kept. 

26                  At the meeting he had indicated to Mr Taylor that the second defendant wished to resume the advertising but was concerned about the costs.  He had not been in a position at the meeting to confirm advertising as he regarded that as beyond his authority.  He simply took the response from Mr Taylor and reported back to the second defendant ‘who then handled the matter further with Jonathon Taylor.  [The third defendant] had no further involvement’. 

27                  He ceased his employment with the first defendant on or about 19 January 2004. 

28                  He also deposed that he had in his employment very little to do with the day-to-day provision, control of advertising or invitations to the public.  He worked as an employee.  He said that ‘Reno’ was the person who supervised and authorised expenditure.  He said that the occurrence referred to in the affidavit of Mr Taylor was ‘no more than a once off incident’ and ‘should be seen in the context of the association I had with [the second defendant]’.  He said he had no further communications on behalf of the first defendant with Channel 7 since that date. 

third defendant’s oral evidence

29                  In his oral evidence the third defendant testified that when he started working for Superannuation Retrieval Services he was charged with collating information from prospective customers or clients and passing that information onto Christianne Nurthern who was the office administrator.  His function was to collect data, the information relevant to the superannuation accounts, namely, personal details and information concerning existing superannuation.  He worked for Superannuation Retrieval Services for about 8 months between May 2003 and January 2004.  The second defendant was the person for whom he considered he was working.  Mr Nazareno was above him and was the firm’s accountant.  In addition, at a later date, Mr Harrower joined the staff and by January 2004 had become Chief Executive Officer.  The third defendant took his instructions from the second defendant, Mr Nazareno and Mr Harrower. 

30                  By January 2004, the business of Superannuation Retrieval Services had become too successful for him and he made his mind up to leave, which he did later that month. 

31                  When he first joined the business he was aware that advertisements were being used on Channel 7, as these were pointed out to him by the second defendant.  He recalled seeing the advertisement.  He agreed that the advertisements were saying things like, that there was a better way of managing superannuation through self-management.  In August 2003, a small change had been made to the wording of the advertisements and he was made aware of this by the second defendant, although he could not recall at the time of giving evidence what the change had been. 

32                  When Mr Harrower was engaged, the second defendant had taken a step back from the business.  Nevertheless, he stayed in charge and came in most mornings.  When the second defendant and Mr Harrower were away Mr Nazareno was in charge.  He regarded him as being the accountant and administration manager in charge of everyone when Mr Harrower was not there. 

33                  The circumstances in which he had come to meet with Mr Taylor were that the second defendant had a scheduled meeting with Mr Taylor which he was unable to keep.  He said the second defendant asked him if he could meet with Mr Taylor and ‘see if [he] can get the price knocked down’.  He agreed to do so as an employee.  The meeting had also been attended by Mr Nazareno.  The meeting had discussed the cost of advertising and the discussion had focussed on an endeavour to get the price down from $150 per advertisement to $100. 

34                  He recalled receiving the facsimile of confirmation from Mr Taylor addressed to ‘Jim/Reno’.  He did not recall communicating with Mr Taylor prior to that telling him to go ahead, although he did not deny that he may have done so.  However, he said the decision to go ahead with the advertisements was Mr Nazareno’s and not his because he did not have the authority to make such a decision. 

35                  In the course of later cross-examination the third defendant’s attention was directed to par 25 of his affidavit and to his statement there that he had no further involvement after the meeting.  Again, he said that while he did not remember phoning Mr Taylor to confirm the order, he could not deny it. 

further witness

36                  Ms Nurthern gave affidavit and oral evidence in which she confirmed she administered the office of Superannuation Retrieval Services.  She stated she could not recall the third defendant being involved or discussing any form of advertising or invitation to the public.  It was her recollection that he was not responsible for approving or giving authorisation either to the content of advertising or to expenditure in relation to advertising. 

37                  In cross-examination she confirmed that the third defendant’s role was as he had stated in his evidence and that he passed the details he collected onto her.  However, it also became apparent that she had no direct knowledge of the alleged instructions given by the second defendant to the third defendant to attend the meeting with Mr Taylor. 

38                  She testified that the second defendant always made the final decision on anything in the office, unless he was absent, in which case the decisions were made by Mr Nazareno. 

reasoning

standard of proof

39                  The plaintiff’s case against the third defendant is to be decided in accordance with the civil standard of proof having in mind Briginshaw v Briginshaw (1938) 60 CLR 336.  The critical question is whether the third defendant had knowledge of the essential facts constituting the contraventions by the first and second defendants. 

findings

40                  I make the following findings of fact concerning the knowledge of the third defendant from the evidence given in the application.

41                  I find that the third defendant had knowledge of the contents of the advertisements.  This is established by his evidence that he saw the advertisements on television and that the second defendant spoke to him concerning the advertisements and informed him of a change to them in August 2003.  Consequently I find that the third defendant was aware of the general nature of the advertising.  I further infer that he was therefore aware the purpose of the advertisements was to influence persons to acquire interests in a SMSF and dispose of superannuation interest not in such a fund.

42                  As to whether the third defendant by act or omission played a part in the relevant event, there is a conflict of interest between his affidavit evidence and that of Mr Taylor.  Mr Taylor’s evidence was unequivocal in its content and the manner in which it was given.  His evidence was to the effect that it was the third defendant who had placed the confirmation order for renewal of advertising with him.  In oral evidence the third defendant, while having no memory of the matter, could not deny that possibility.  Consequently the weight of evidence is in favour of a finding, which I now make, that the third defendant did, by telephone, provide the confirmation of the advertising order to Mr Taylor.  The fact that the third defendant was instructed by the second defendant to attend the meeting with Mr Taylor is of no legal significance.  Further, the fact that his attendance at the meeting was an incident outside his normal duties is not a factor which has any legal significance.  The fact that he participated by the act of placing the order of confirmation is an action ‘no matter how slight or momentary’ by which he became ‘concerned in’ the venture constituted by the acts of advertising.

43                  However, there is a third element which must be satisfied before the plaintiff can make out its case that the third defendant was ‘knowingly concerned in’ that contravention.  As expressed by Nathan J in Kenney v Sykes at 551 and accepted by the Full Court of the Supreme Court of Western Australia in Natesan & Subramaniam v R at 451 – 452, it is that the third defendant must be shown to have been aware of essential facts constituting the offence.  What has not been established is that the third defendant had any knowledge that the first defendant did not hold the requisite licence so that the placing of the advertisements in the circumstances was unlawful.  It has not been established that, when he authorised the placement of the advertisements, the third defendant was aware the first defendant was carrying on that aspect of its business without the requisite licence.  There is no evidence to enable that to be inferred.  Consequently, I cannot be satisfied the requisite knowledge of the third defendant has been made out.  It follows the application should be dismissed.

remedy

44                  In the event the requisite knowledge by the third defendant of the elements of the contravention had been established, I consider that the circumstances of his involvement in the offences of the first and second defendants are such that s 1317S(2) would have to be applied in his favour.  The third defendant has acted honestly.  He acted only in accordance with requirements placed on him in the course of employment.  He was called upon to become involved in a matter outside the usual course of his employment.  He had no understanding of the wider significance of the authority which he gave for advertisements.  There is no evidence he intends to undertake the activities for which the first defendant was not licensed.  In my opinion, where the only relief sought against him is injunctive, he ought fairly to be excused for the contravention, in the event it had been made out.

45                  For these reasons I consider the application should be dismissed.

Associate:

Dated:              8 April 2005