Federal Court of Australia
Australian Securities and Investments Commission v Thorne [2021] FCA 209
ORDERS
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant | ||
AND: | JENAN OLSEM THORNE (ALSO KNOWN AS CENAN THORNE AND CENAN DIKMEN) Respondent | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Within 5 business days of the date of this order, the Respondent is to send a copy of the letter and ASIC media release attached to this order and marked “Annexure A” (together, the Letter) to each of the clients listed in the table attached to this order and marked “Annexure B” (the Clients).
2. In preparing and sending the Letter pursuant to order 1, the Respondent is to adopt the following protocol:
(a) where the Respondent has an email address for the Client, to send the Letter to the last known email address for the Client; and
(b) where the Respondent has a postal address for the Client, to send the Letter by registered post to the last address known to the Respondent; and
(c) where a Letter to a Client is returned to sender, whether sent by email or post, or where the Respondent has no email or postal address for a Client, the Respondent will, within 10 business days, conduct the following searches for that Client and re-send the Letter by registered post to any further address obtained as a result of the search:
(i) a search of Australia Post's "National Change of Address" database; and
(ii) an Internet search of the Telstra White Pages On-Line at the domain name www.whitepages.com.au.
3. Within 20 business days of the date of this order, the Respondent is to notify the Applicant in writing confirming whether she has complied with Orders 1 and 2 above and providing the Applicant with:
(a) a list of the names and addresses (whether email and/or postal address) of Clients to which the Respondent sent the Letter in accordance with Orders 1 and 2 above, including:
(i) where the Letter was sent to a Client by email pursuant to order 2(a) above, a copy of the email; and
(ii) where the Letter was sent to a Client by registered post pursuant to order 2(b) or 2(c) above, a copy of the Australia Post proof of posting and proof of receipt;
(b) a list of those Clients to which the Respondent was not able to send the Letter in accordance with Orders 1 and 2 above, including:
(i) where the Letter to a Client was unable to be sent to the last known email address for the Client, a copy of the email notification that the email could not be delivered; and
(ii) where the Letter to a Client was unable to be sent to the postal address for the Client, a copy of the Australia Post proof of posting and proof of non-delivery.
4. The Respondent is to pay the Applicants’ costs fixed in the amount of $16,529.78
5. The parties have liberty to apply on three business days’ notice in writing.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
NOTICE TO CLIENTS
On 13 February 2019, I entered into an enforceable undertaking with the Australian Securities and Investments Commission (ASIC) which prevents me from providing financial services for a period of three years.
You are receiving this letter because you are a client to whom I previously provided personal advice as an authorised representative of SMSF Advice Pty Ltd. Under the terms of the enforceable undertaking, I am required to provide you with certain information, which is noted below.
• My full name is Jenan Oslem Thorne. I am also known by the names Cenan Thorne and Cenan Dikmen.
• I was previously an authorised representative of SMSF Advice Pty Ltd. My authorised representative number was 456988.
• The Australian Financial Services Licence number of SMSF Advice Pty Ltd is 234664.
• The contact details of SMSF Advice Pty Ltd for dealing with any enquiries or complaints regarding my enforceable undertaking with ASIC and my conduct as an authorised representative is:
SMSF Advice Pty Ltd
National Manager, Advice Complaints
Level 16, 33 Alfred Street, Sydney, NSW, 2000
Email: information@smsfadvice.com.au or advicecomplaints@amp.com.au
• A copy of the ASIC media release dated 19 February 2019 about this enforceable undertaking and my conduct is attached.
Jenan Thorne
ASIC media releases are point-in-time statements. Please note the date of issue and use the internal search function on the site to check for other media releases on the same or related matters.
Tuesday 19 February 2019
19-034MR Court enforceable undertaking prevents Gold Coast accountant from providing financial services
ASIC has accepted a court enforceable undertaking (EU) from Gold Coast-based accountant, Jenan Oslem Thorne of Saber Superannuation Pty Ltd after it found she had failed to act in the best interests of her clients and had prioritised her own interests above their interests.
The undertaking prevents Mrs Thorne (also known as Cenan Thorne or Cenan Dikmen) from providing financial services for a period of three years effective from 13 February 2019.
ASIC decided to review Mrs Thorne's advice when it discovered, during its investigation into Park Trent Properties Group Pty Ltd, that she was receiving referrals in relation to establishing self-managed superannuation funds (SMSFs) from Park Trent.
ASIC reviewed advice provided by Mrs Thorne when she was a representative of SMSF Advice Pty Ltd, a wholly owned subsidiary of AMP Limited, and concluded that she had advised some of her clients to establish SMSFs without taking their circumstances into account.
ASIC found that Mrs Thorne hadn't properly considered her clients' existing superannuation arrangements or explored why they were interested in investing in direct residential property through an SMSF. When recommending SMSFs to some of her clients, she had inappropriately scoped advice by excluding insurance and retirement planning.
ASIC also found that Mrs Thorne did not adequately stress-test SMSF strategies and had recommended SMSFs to some of her clients despite inadequate evidence to suggest that the strategies would provide increased retirement benefits.
Furthermore, Mrs Thorne had recommended that her accountancy practice, Saber Accountants Pty Ltd, prepare the annual accounts and tax returns for the SMSF clients. This led ASIC to determine that Mrs Thorne recommended the services of a related party to create extra revenue for herself.
As part of the EU, Mrs Thorne has agreed to inform all her former personal advice clients about the EU and provide contact details of her former licensee, SMSF Advice Pty Ltd.
Former clients of Mrs Thorne who have enquiries or complaints regarding her advice or conduct should contact SMSF Advice Pty Ltd.
ASIC expects financial advisers to comply with their best interests duty and pay particular attention to how they scope their advice to clients. Prior to recommending SMSFs, advisers should critically probe why a client wants to set up an SMSF and what they hope to achieve. Advisers should also give adequate consideration to risk management and succession planning before setting up an SMSF for a client.
ASIC Commissioner Danielle Press said, 'Financial advisers have a legal obligation to provide advice that is in the best interests of their clients, not prioritise their own interests or simply implement client instructions. ASIC will continue to take action when advisers or AFS licensees don’t comply with the law.
'Consumers need to know that managing your own super is a major commitment that can be expensive and involve significant time and effort. SMSFs are not for everyone. Consumers should consider their personal circumstances carefully before deciding to establish an SMSF,' she said.
ASIC's Report 575 SMSFs: Improving the quality of advice and member experiences, includes some practical tips to assist advice providers in complying with their obligations in the context of SMSFs.
ASIC provides information on the MoneySmart website to help people choose the right
financial adviser for their needs.
Download the enforceable undertaking
Last updated: 19/02/2019 09:29
ANNEXURE B
LIST OF CLIENTS
1. E & R Mondaya Superannuation Fund
2. Hai & Lam Nguyen Tran Family Superannuation Fund
3. Furness Family Superannuation Fund
4. APS Superannuation Fund
5. J & D Superfund
6. Whalen & Taylor Superannuation Fund
7. Trixie Superannuation Fund
8. Dedaleli Superannuation Fund
9. Latulipe Superannuation Fund
10. Shalom Superannuation Fund
11. Isodale Superannuation Fund
12. As Prasad Superannuation Fund
13. GNP Superannuation Fund
14. Francisma Superannuation Fund
15. D & L Baring Superannuation Fund
16. TR and BA Faint Superannuation Fund
17. Graham & Miriam Jackson SMSF
18. Mair Superannuation Fund
19. James Superannuation Fund
20. Michalska Superannuation Fund
21. Mortgage Crusher Superannuation Fund
22. Ireneil Family Superannuation Fund
23. Jeremiah 29 Verse II Superannuation Fund
24. K & B Vongdara Superannuation Fund
25. M & L Quick Superannuation Fund
26. Raeburn Family Superannuation Fund
27. V & H Superannuation Fund
28. Beloved Superannuation Fund
29. Devenport Family Super Fund
30. Lalithan Superannuation Fund
31. Anita Harilela Superannuation Fund
32. Milvera Superfund
33. Lower Chittering Millionaires Club SMSF
34. DNA Superannuation Fund
35. Alvaro & Montgomery Superannuation Fund
36. Tupou Superannuation Fund
37. Nouveau Freedom Superannuation Fund
38. J & T Zollo SMSF
39. Osbourne SMSF
40. Haverfield SMSF
41. P & M Bestenbreur Superfund
42. J C Holdings Superannuation Fund
43. Young Superfund
44. Farrell & Wiiliams Superfund
45. Harvey Family Superfund
46. CLS and JS Superannuation Fund
47. T & D Giorgio Superfund
48. G & N French Superfund
49. Gribble McWilliam Super Fund
50. Kardi Superfund
51. Hayes Mark SMSF
52. Parker Family Superfund
53. Tupou Self Managed Superannuation Fund
54. LAP Superannuation Fund
55. Collpark SMSF
56. Vade Superannuation fund
57. CGR Superannuation fund
58. Steve & Tracy Parker Superannuation Fund
59. EBHOLTOR Superfund
60. R & R Superannuation Fund
61. GSLC Superfund
62. M & L Stirling Superannuation Fund
63. Doris Sultana clud SMSF
64. Indarra Family Finance SMSF
65. Trash Superannuation Fund
66. FLRA Superannuation Fund
67. Brett Family Superfund
68. SAAD Superfund
69. Holland Superfund
70. NUR Retirement Superfund
71. Connors Family Superfund
72. Frances Anna Hicks SMSF
73. Omar & Tasrina Superannuation Fund
74. Kusztor Superannuation Fund
75. Namanvy SMSF
76. Cilesia SMSF
77. Hangloyd Superfund
78. Correria SMSF
79. B & J Jessop Retirement SMSF
80. Baker & Bellety Superfund
81. Daniel & Sherri Henman SMSF
82. Dikson Sean SMSF
83. D'Sylva SMSF
84. Harjas Superannuation Fund
85. Murray Family SMSF
86. ESC Miller Superfund
87. Boon Family SMSF
88. BT Kennedy SMSF
89. Bloodworth and Heta SMSF
90. Rhind SMSF
91. Veneeta SMSF
92. Konnyvong Retirement SMSF
93. Super Dooper SMSF
94. Allan & Laura Cooper Superannuation Fund
95. Temelkov Superfund
96. Herrera SMSF
97. Sambo Superfund
98. Normeng SMSF
99. Boxbird SMSF
100. Sarjon SMSF
101. Albeem SMSF
102. E & G Howell SMSF
103. Briden SMSF
REASONS FOR JUDGMENT
COLLIER J:
1 Before the Court is an application filed on 17 November 2020 by the Australian Securities and Investments Commission (ASIC) pursuant to s 93AA(3) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Section 93AA materially provides:
Enforcement of undertakings
(1) ASIC may accept a written undertaking given by a person in connection with a matter in relation to which ASIC has a function or power under this Act.
(2) The person may withdraw or vary the undertaking at any time, but only with ASIC’s consent.
(3) If ASIC considers that the person who gave the undertaking has breached any of its terms, ASIC may apply to the Court for an order under subsection (4).
(4) If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders:
(a) an order directing the person to comply with that term of the undertaking;
(b) an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;
(c) any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;
(d) any other order that the Court considers appropriate.
2 In the application ASIC sought orders under s 93AA(4) of the ASIC Act, inter alia, requiring the respondent Ms Jenan Thorne to comply with the terms of an Enforceable Undertaking (EU) given by her to ASIC on 13 February 2019, and such other orders as the Court considered appropriate.
3 I understand that ASIC no longer presses the relief sought in para 3 of the application referable to activity on two identified websites, and in para 5 referable to related notification by Ms Thorne to ASIC. Otherwise, subject to the question of costs the subject of para 6 of the application, the parties have reached agreement as between themselves as to the relief sought in paras 1, 2, 4 and 7 of the application. To that extent the parties have each provided draft orders to the Court in substantially identical terms, except for an order as to costs.
4 In light of the agreement of the parties, they have asked the Court to make orders pursuant to s 93AA(4) of the ASIC Act. Before making orders pursuant to that section, the Court must be satisfied that a person who has given an undertaking within the meaning of that section has breached any of its terms, and that the order (or orders) sought are appropriate.
5 Before turning to the question of costs on which the parties are not agreed, it is appropriate to examine material background facts.
Background facts
6 At relevant times Ms Thorne was a director of two companies conducting businesses on the Gold Coast in Queensland. The companies were Saber Superannuation Pty Ltd and Saber Accountants Pty Ltd. The businesses in which the companies were engaged provided accounting, taxation and self-managed superannuation fund (SMSF) administration services.
7 Between 28 April 2014 and 12 December 2017, Ms Thorne was a representative of the Australian Financial Services licensee SMSF Advice Pty Ltd (SMSF Advice). She was authorised to provide financial product advice, as defined in s 766B of the Corporations Act 2001 (Cth) (Corporations Act), on behalf of SMSF Advice. During this period and under this authorisation, Ms Thorne provided personal financial advice to retail clients which recommended transfer of existing superannuation into SMSFs and the purchase of interests in property.
8 ASIC relied on affidavits of Ms Nicole Wren, in particular her affidavit sworn 12 December 2019. At material times Ms Wren was a Senior Investigator in the Serious Financial Crime Taskforce, Enforcement, in the Brisbane office of ASIC. Ms Wren deposed that, following a review of Ms Thorne’s client files, ASIC formed the view that Ms Thorne had contravened ss 961B, 961G and 961J of the Corporations Act in respect of advice given. These sections provide:
961B Provider must act in the best interests of the client
(1) The provider must act in the best interests of the client in relation to the advice.
(2) The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following:
(a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;
(b) identified:
(i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and
(ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances);
(c) where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;
(d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;
(e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:
(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and
(ii) assessed the information gathered in the investigation;
(f) based all judgements in advising the client on the client’s relevant circumstances;
(g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.
Note: The matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter (the client’s relevant circumstances). That subject matter and the client’s relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought.
Advice given by Australian ADIs—best interests duty satisfied if certain steps are taken
(3) If:
(a) the provider is:
(i) an agent or employee of an Australian ADI; or
(ii) otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and
(b) the subject matter of the advice sought by the client relates only to the following:
(i) a basic banking product;
(ii) a general insurance product;
(iii) consumer credit insurance;
(iv) a combination of any of those products;
the provider satisfies the duty in subsection (1) in relation to the advice given in relation to the basic banking product and the general insurance product if the provider takes the steps mentioned in paragraphs (2)(a), (b) and (c).
General insurance products—best interests duty satisfied if certain steps are taken
(4) To the extent that the subject matter of the advice sought by the client is a general insurance product, the provider satisfies the duty in subsection (1) if the provider takes the steps mentioned in paragraphs (2)(a), (b) and (c).
Regulations
(5) The regulations may prescribe:
(a) a step, in addition to or substitution for the steps mentioned in subsection (2), that the provider must, in prescribed circumstances, prove that the provider has taken, to satisfy the duty in subsection (1); or
(b) that the provider is not required, in prescribed circumstances, to prove that the provider has taken a step mentioned in subsection (2), to satisfy the duty in subsection (1); or
(c) circumstances in which the duty in subsection (1) does not apply.
…
961G Resulting advice must be appropriate to the client
The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client.
Note: A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A).
…
961J Conflict between client’s interests and those of provider, licensee, authorised representative or associates
(1) If the provider knows, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of:
(a) the provider; or
(b) an associate of the provider; or
(c) a financial services licensee of whom the provider is a representative; or
(d) an associate of a financial services licensee of whom the provider is a representative; or
(e) an authorised representative who has authorised the provider, under subsection 916B(3), to provide a specified financial service or financial services on behalf of a financial services licensee; or
(f) an associate of an authorised representative who has authorised the provider, under subsection 916B(3), to provide a specified financial service or financial services on behalf of a financial services licensee;
the provider must give priority to the client’s interests when giving the advice.
Note: A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A).
(2) If:
(a) the provider is:
(i) an agent or employee of an Australian ADI; or
(ii) otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and
(b) the subject matter of the advice sought by the client relates only to the following:
(i) a basic banking product;
(ii) a general insurance product;
(iii) consumer credit insurance;
(iv) a combination of any of those products;
subsection (1) does not apply to the extent that the advice relates to a basic banking product or a general insurance product or a combination of those 2 products.
(3) Subsection (1) does not apply to the extent that the subject matter of the advice sought by the client is a general insurance product.
9 On 13 February 2019 Ms Thorne entered into an EU with ASIC in which she admitted to the conduct identified by ASIC. In particular Ms Thorne admitted to ASIC that she had failed to:
act in the best interests of her clients (s 961B Corporations Act) in relation to 11 of those clients;
provide appropriate advice (s 961G Corporations Act) in relation to 7 of those clients;
prioritise the clients’ interests above that of her own (s 961J Corporations Act) in relation to 11 of those clients; and
provide Statements of Advice within the relevant time frame (s 946C Corporations Act) in relation to 9 of those clients.
10 Specifically, Ms Thorne admitted to ASIC that she:
did not undertake a professional assessment of the reasons why the clients wished to invest in direct property through superannuation;
where relevant, did not compare the benefits and risks associated with the clients maintaining their superannuation with existing providers, alternate fund providers and having superannuation subject to a SMSF;
failed to ascertain whether the clients intended to draw a pension from the SMSF once they reached retirement age, and if so, how they would achieve this with an illiquid asset such as an investment property;
recorded the client’s interest in establishing an SMSF for the purpose of purchasing direct property or investing their SMSF in direct property as the client’s goal or objective, and did not critically probe the reasons for the clients wanting to invest in direct residential property and what they hoped to achieve by doing so;
inappropriately scoped the advice to remove retirement planning and insurance produce recommendations;
classified all of the clients as growth investors, despite the manner in which this was determined being insufficient. Despite classifying the clients as growth investors, none of the clients were invested in accordance with the stipulated growth asset allocation;
failed to include an adequate cost comparison within the Statement of Advice;
failed to ascertain whether the clients had he time and expertise to manage their superannuation affairs correctly and did not discuss or implement a succession plan for the SMSFs;
did not consider how the clients would meet their loan obligations in circumstances where the loan terms would surpass their superannuation preservation age;
did not include any provisions for insurance premiums in the SMSF cashflows;
failed to undertake adequate stress testing of the proposed strategy including whether the strategy would remain viable if the client’s income educed or the property remained untenanted;
proceeded to provide her advice to roll over existing superannuation despite knowing the client had not sought external personal insurance advice;
provided advice regarding the levels of personal insurance cover the clients should hold, however these were generic amounts and not tailored to each client;
recommended a number of her clients commence a new SMSF despite having less than, or just over, $200,00 in superannuation assets, despite advising them that they needed at least $200,000 in superannuation for it to be viable; and
recommended a SMSF strategy that was more expensive with limited evidence to suggest that the strategy would provide an increased retirement benefit.
11 Further, Ms Thorne admitted to ASIC that she:
charged the clients for establishing the SMSF and the holding trust and recommended that Saber Accountants prepare the annual accounts and tax returns, such that Ms Thorne recommended the services of a related party to create extra revenue for herself in circumstances where the initial advice was not in the client’s best interests; and
failed to provide Statements of Advice to clients within the timeframe set out in s 946C of the Corporations Act.
12 Relevantly, para 3 of the EU was in the following terms:
3. Undertakings
3.1 Under s 93AA of the ASIC Act, Ms Thorne has offered, and ASIC has agreed to accept as an alternative to pursuing administrative action under the Corporations Act, the undertakings in paragraphs 3.2 to 3.8.
3.2 Ms Thorne undertakes not to do any of the following for a period of 3 years commencing from the Acceptance Date:
3.2.1 act or engage in any conduct as a Representative of a Financial Services Licensee;
3.2.2 provide Financial Services, whether on her own behalf or on behalf of another person who carries on a Financial Services Business, whether as an employee of that person or otherwise.
3.3 Ms Thorne undertakes to provide, within 28 days of the Acceptance Date, the following information in writing to each Client to whom she provided personal advice while authorised by the Licensee:
3.3.1 Her name and authorised representative number;
3.3.2 A copy of ASIC’s media release in relation to this Enforceable Undertaking;
3.3.3 The name of the Licensee and the Australian Financial Services Licence number allocated to the Licensee;
3.3.4 Contact details of the Licensee for dealing with enquiries and complaints regarding the Enforceable Undertaking or the conduct of Ms Thorne while a Representative of the Licensee.
3.4 Ms Thorne undertakes to notify ASIC in writing, within 35 days of the Acceptance Date, whether she has written to each Client as required by paragraph 3.3.
3.5 Ms Thorne undertakes to permanently refrain from doing any of the following if paragraph 3.6 is satisfied:
3.5.1 act or engage in any conduct as a Representative of a Financial Services Licensee; or
3.5.2 provide financial Services, whether on her own behalf or on behalf of another person who carries on a financial Services Business, whether as an employee of that person or otherwise.
3.6 This paragraph is satisfied if:
3.6.1 Ms Thorne fails to do the things she undertakes to do under paragraph 3.3; and
3.6.2 Ms Thorne fails to remedy the failure within 14 days of ASIC giving a written notice to Ms Thorne directing Ms Thorne to remedy the failure; and
3.6.3 after the expiration of that 14-day period, ASIC gives a written notice to Ms Thorne specifying that she has failed to remedy the failure.
3.7 Ms Thorne undertakes that she will pay the costs of her compliance with this Enforceable Undertaking.
3.8 Ms Thorne undertakes to provide all documents and information requested by ASIC from time to time for the purpose of assessing her compliance with the terms of this Enforceable Undertaking.
(“Acceptance Date” meant the date of acceptance of the EU by ASIC, being 13 February 2019.)
13 On 18 March 2019 Ms Thorne confirmed by email to ASIC that she had complied with her obligations under the EU. Ms Thorne identified a total of 103 clients.
14 On 12 June 2019 Ms Wren contacted Ms Thorne by telephone, and informed Ms Thorne that ASIC intended to issue a notice under s 19 of the ASIC Act requiring her to attend an examination regarding a suspected contravention of s 1308(2) of the Corporations Act. Section 1308 creates an offence in respect of the knowing making, or authorisation of the making, or omission, of a statement in a document required under or for the purposes of the Corporations Act, or lodged with or submitted to ASIC, where that document is materially false or misleading because of the statement (or omission). Ms Thorne attended an examination on 26 June 2019.
15 ASIC also conducted the following examinations under s 19 of the ASIC Act:
an examination on 5 July 2019 of Mr Robin Thorne, the husband of Ms Thorne; and
an examination on 1 August 2019 of Mr Takamori Kobayashi, an accountant employed by Ms Thorne.
16 Ms Wren gave uncontested evidence to the following effect:
At the examination of 26 June 2019, Ms Thorne produced the letter purportedly sent by her to clients in compliance with paragraph 3.3 of the EU. That letter was sent by post, and contained nothing more than the information listed at paragraphs 3.3.1, 3.3.2 and 3.3.4 of the EU. Importantly, the letter provided no context for clients to make sense of the information provided. For example, in relation to paragraph 3.3.4 of the EU, the letter included nothing more than the name, postal address and email address of the licensee. It did not state that these were the contact details for enquiries regarding the EU or the conduct of Ms Thorne whilst a representative of the licensee.
The letter stated the name “Cenan Dikmen”. This name was not used by Ms Thorne in any of Ms Thorne’s fact finds or statements of advice obtained by ASIC. Similarly, Ms Thorne used the name “Jenan Thorne” in professional correspondence, on the Chartered Accountants directory, the Saber Accountants website, and on her LinkedIn profile. None of the relevant ASIC registers included the name, “Dikmen”. The only evidence ASIC had obtained as to the use by Ms Thorne of the name “Cenan Dikmen” was as the director of two companies (incorporated in 2006 and 2007), neither of which were relevant to this matter.
The letter by Ms Thorne to her clients was required to include the ASIC media release. It did not do so. The letter (sent by post) to clients only included the 182 alphabetical characters and symbols of the URL to the ASIC website containing the media release.
ASIC officers contacted, by phone and/or by email, 30 of Ms Thorne’s 103 clients to determine whether those clients had received the notification required by paragraph 3.3 of the EU. Of those 30 clients, 21 clients reported that they had not received any notification, 5 clients reported that they did not know, and 4 clients reported that they had received notification.
Mr Kobayashi was tasked by Ms Thorne with sending letters to Ms Thorne’s clients complying with the EU. Ms Thorne directed Mr Kobayashi to use the name “Cenen Dikmen” in the letter, and to include only the URL address for the ASIC media release rather than the actual printed version of the media release. Mr Kobayashi was also directed by Ms Thorne to use the wife’s address if relevant clients were husband and wife and there was a different address for the wife, to use addresses from expired driver’s licences, and not to send the letter to certain clients or to those in dispute with Saber Accountants. Mr Kobayashi identified client file documents where Ms Thorne had given that direction by circling the wife’s addresses and expired licence addresses that he was to use. Mr Kobayashi’s evidence was that the letters were sent in envelopes without a return address.
17 In respect of this evidence, ASIC submitted in summary that:
the letter sent by Ms Thorne to clients purportedly in compliance with the EU provided information in a meaningless manner, such that the letter did not comply with the EU;
the use by Ms Thorne of an alias rendered the letter meaningless, and non-compliant with the EU;
that clients would have had to type the 182 alphabetical characters and symbols into a computer to find the ASIC media release meant that the information provided by Ms Thorne did not comply with the EU; and
in any event, the Court could safely conclude on the evidence that a substantial proportion of Ms Thorne’s 103 clients did not receive the required notification.
18 No submissions were made on Ms Thorne’s behalf concerning this evidence.
SHOULD THE COURT MAKE THE ORDERS SOUGHT?
19 In my view, in light of the evidence before the Court, it is clear that Ms Thorne did not comply with the EU, and that the power of the Court to make orders pursuant to s 93AA(4)(a) of the ASIC Act is enlivened.
20 The next question is whether it is appropriate for the Court to exercise its discretion to order Ms Thorne to comply with the terms of the EU which she has clearly breached.
21 As pointed out in one learned article, enforceable undertakings given to statutory regulators achieve very important goals such as the prevention of law-breaking behaviour, the protection of the public, and the requirement that alleged offenders undertake corrective action: M Nehme “Enforceable undertakings and the court system” (2008) Company and Securities Law Journal 147 at 155. A breach of such an undertaking is a matter that the Court views with the utmost seriousness: Weinberg J in Australian Competition and Consumer Commission v Alinta 2000 Ltd [2007] FCA 1362 at [3].
22 There is no suggestion that it was impossible for Ms Thorne to comply with the terms of the EU, such that the Court should not be prepared to make the orders sought (Australian Securities and Investments Commission v Empower Invest Pty Ltd [2010] NSWSC 1025 at [27]), or that an order in the terms now sought from the Court is premature (Empower at [39]).
23 Further, there is no evidence before me that Ms Thorne used her best endeavours to comply with the undertaking. Rather, such evidence as is before me suggests that Ms Thorne deliberately sought to avoid proper compliance with the terms of her EU by obfuscation in respect of such information as she provided to clients, and in respect of her apparent endeavours to prevent communications actually reaching clients.
24 In my view it is appropriate to make the orders sought pursuant to s 93AA(4).
COSTS
25 The parties have been unable to reach an agreement as to an appropriate costs order. As such, on 8 March 2021, I ordered the parties file and serve an outline of submissions (including draft orders), with respect to costs.
26 ASIC seeks an order that the respondent pay its costs, fixed in the amount of $16,529.78.
27 ASIC submitted that those costs:
included only ASIC’s disbursements prior to 30 November 2020;
did not include staff costs; and
did not include any disbursements incurred after 30 November 2020.
28 In support of this order, ASIC submitted, in summary:
it was necessary for ASIC to bring the present application to ensure compliance by Ms Thorne with the terms of the EU in light of her non-compliance;
this was particularly so in circumstances where Ms Thorne had falsely informed ASIC (including under oath at an examination) that she had notified her clients as required by the EU; and
paragraphs 3.5 and 3.6 of the EU ought not be interpreted as providing Ms Thorne with a “second chance” to remedy her breaches of the EU.
29 Ms Thorne submitted that there should be no order as to costs. This was because, in summary:
The Court has a wide and unfettered discretion to award costs which must be exercised having regard to the conduct of the parties and all relevant considerations. Accordingly, the ordinary rule that costs follow the event can be displaced where the circumstances justify a different order.
Upon consideration of the circumstances of the events leading up to, and the conduct of ASIC prior to the commencement of this proceeding, the respondent should not have to pay ASIC’s costs as sought, or at all.
An award of costs can be denied to a party that succeeds in a proceeding, where the proceeding was unnecessarily commenced.
These proceedings were unnecessarily brought because, had the respondent been given the opportunity, or been directed by a written formal notice under paragraph 3.6.2 of the EU to do so, she would have taken the necessary steps to remedy ASIC’s concerns regarding her compliance with the EU and this proceeding would, therefore, have been unnecessary. This is made clear from:
(a) the respondent’s dealings with ASIC in June 2019 and during her s 19 examination, where she queried whether it would satisfy ASIC’s concerns if she re-sent notices to clients by email, copying a member of ASIC; and
(b) her conduct following service of the application, in agreeing to the substantive relief sought by ASIC at the first opportunity.
ASIC could have avoided incurring the costs sought in this proceeding had it provided the respondent with an opportunity to remedy any failure prior to filing this application.
The general rule as to costs is not appropriate in this case because:
(a) there is no “successful” or “unsuccessful” party to the application;
(b) there has been no determination on the merits as to whether the respondent is in breach of the EU;
(c) nevertheless, the respondent has consented to orders as sought by ASIC to address ASIC’s concerns and to avoid the need for further litigation;
(d) the respondent has acted reasonably in her approach to the application and her dealing with ASIC regarding the EU; and
(e) in light of ASIC’s failure to issue a notice under paragraph 3.6.2 of the EU prior to the application being filed, or otherwise conversing with the respondent outlining its concerns, the respondent has had to incur legal costs of her own which she would not otherwise have incurred. Those costs are on top of the financial impact that the EU has had on her businesses.
30 Section 43(2) of the Federal Court of Australia Act 1976 (Cth) provides that, except as provided by any other Act, the award of costs is at the discretion of the Court or Judge.
31 As a general proposition, costs ordinarily follow the event: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, Northern Territory v Sangare (2019) 265 CLR 16; [2019] HCA 25. In the present case, although it is common ground between the parties that the Court ought make orders pursuant to s 93AA(4) of the ASIC Act, such orders are nonetheless made pursuant to ASIC’s application filed on 17 November 2020. To that extent, ASIC has been successful in its application and, in the absence of other factors, is prima facie entitled to its costs.
32 In respect of Ms Thorne’s costs submissions, I find as follows:
I am not persuaded that the conduct of ASIC in this proceeding was such as to disentitle it to costs. The tenor of Ms Thorne’s submissions was that ASIC ought to have approached her to remedy any breaches of the EU by her. I am not persuaded however, on the evidence before me, in particular the material provided by Mr Kobayashi to ASIC under s 19 examination, and in light of what appears to have been deliberate conduct by Ms Thorne to comply with the terms of the EU, that a conciliatory approach by ASIC in the terms submitted by Ms Thorne was either warranted, or would have been effective to result in her complying with the EU.
I am not persuaded that the proceedings were unnecessarily commenced in light of the clear facts of Ms Thorne’s failure to comply with the EU. There is undoubted public interest in ASIC, as the corporate regulator to whom Ms Thorne had given the EU, taking proper steps to enforce that EU in the event of non-compliance. Commencement of the current proceedings was a proper method of doing so.
That Ms Thorne may have, during her s 19 examination by ASIC, suggested means whereby she could properly comply with the EU was not, in circumstances of what appeared to be deliberately obfuscatory conduct on her part, a suggestion on which ASIC could reasonably rely.
Paragraph 3.6.2 of the EU did not provide Ms Thorne with a “second chance” in the circumstances. Ms Thorne’s conduct was more than a “failure to remedy a failure” within the terms of the paragraph – it was wholesale, deliberate breaching of the EU.
That Ms Thorne has acted reasonably in agreeing to the substantive orders proposed does not mean that ASIC should not be entitled to recover the costs it seeks. Indeed, had Ms Thorne opposed the substantive orders, and been unsuccessful in doing so, costs incurred by both her and ASIC would have potentially and significantly inflated.
33 Mr Tiplady for Ms Thorne submitted that her dealings with ASIC have come at great personal toll to her, both on financial and personal fronts. Such toll should not be ignored. However ultimately, and against the background facts which have culminated in the present proceedings, I do not consider Ms Thorne’s personal circumstances a reason to deprive ASIC of its legitimate costs.
34 Accordingly, I reject Ms Thorne’s submission that no order for costs ought be made.
35 Turning now to the quantum of costs sought, clause 4.1 of the Federal Court of Australia’s Costs Practice Note (GPN-COSTS) provides that the Court’s preference, wherever it is practicable and appropriate to do so, is for the making of a lump-sum costs order. During the hearing, Mr Tiplady for Ms Thorne submitted that, if I considered a costs order warranted, Ms Thorne took no issue with the quantum (transcript p 20 ll 38-43). I consider this concession appropriate in the face of the undisputed submissions of ASIC concerning the limited nature of the costs it has sought in this matter.
CONCLUSION
36 I am satisfied that the Court should exercise its discretion to make orders in the terms agreed by the parties pursuant to s 93AA(4) of the ASIC Act.
37 I am also satisfied that ASIC is entitled to its costs, fixed in the amount of $16,529.78.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Collier. |
