Federal Court of Australia

Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 3) [2022] FCA 84

ORDERS

THE COURT DECLARES THAT:

1.    In the period 1 November 2013 to 31 January 2014, the first defendant (RI) contravened s 961L of the Corporations Act 2001 (Cth) by failing to take reasonable steps to ensure that the second defendant (Mr Doyle) complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

(a)    RI did not have in place any adequate process to check whether or not advisers (relevantly, Mr Doyle) who were subject to RI’s program known as pre-vetting (the pre-vetting program) were circumventing the program by providing advice documents to clients without first submitting them for pre-vetting;

(b)    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List; and

(c)    there was a substantial risk that Mr Doyle was not complying with RI’s policies, in particular the Advice Vetting Standard; RI knew, or ought to have known, of that substantial risk; RI did not take any concrete steps to investigate whether Mr Doyle was circumventing pre-vetting.

2.    In the period 1 February 2014 to 14 November 2014, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

(a)    RI did not have in place any adequate process to check whether or not advisers (relevantly, Mr Doyle) who were subject to the pre-vetting program were circumventing the program by providing advice documents to clients without first submitting them for pre-vetting;

(b)    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List;

(c)    there was a substantial risk that Mr Doyle was not complying with RI’s policies, in particular the Advice Vetting Standard; RI knew, or at least ought to have known, of that substantial risk; RI did not take any concrete steps to investigate whether Mr Doyle was circumventing pre-vetting;

(d)    RI allowed a consultant paraplanner (referred to in the Court’s reasons for judgment on liability dated 2 August 2021 as “Ms B”) to have such substantive input into the preparation of advice documents of The Carrington Corporation Pty Ltd (Carrington) (which was Mr Doyle’s company) that RI undermined the purposes of its own compliance policies;

(e)    in the course of this period, it became (or should have become) apparent to RI that Mr Doyle was generating substantial inflows of funds into the OnePath group of companies (OnePath) (which was wholly owned by ANZ, as was RI at the relevant time) while he was still on pre-vetting and had submitted only a handful of advice documents for pre-vetting; RI did not take any concrete steps to investigate whether Mr Doyle was circumventing pre-vetting;

(f)    in or about August 2014, it became (or should have become) apparent to RI that Mr Doyle may have been recommending the Instreet Product (as defined in the Court’s reasons for judgment on liability dated 2 August 2021), which was not on RI’s Approved Product List, to his clients, in breach of RI’s policies; RI did not take steps to investigate whether Mr Doyle was recommending a product not on the Approved Product List.

3.    In the period 15 November 2014 to 3 March 2015, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

(a)    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List;

(b)    having regard to the extent of assistance provided by Ms B, Mr Doyle should not have been cleared from pre-vetting (on 25 August 2014 for two areas and on or about 14 November 2014 for the remaining areas) and should have remained on pre-vetting throughout this period;

(c)    by about August 2014, it had become (or should have become) apparent to RI that Mr Doyle may have been recommending the Instreet Product, which was not on RI’s Approved Product List, to his clients, in breach of RI’s policies; RI did not take steps to investigate whether Mr Doyle was recommending a product not on the Approved Product List;

(d)    on or about 9 February 2015, in the course of the First Advice Assurance Review (as referred to in the Court’s reasons for judgment on liability dated 2 August 2021), it became apparent to employees of ANZ Wealth (to which RI had outsourced its compliance function) that Mr Doyle had circumvented RI’s pre-vetting policy on several occasions; it was incumbent on RI (either itself or through ANZ Wealth) to take steps to investigate the extent to which Mr Doyle had circumvented pre-vetting and then to determine what, if any, further action was appropriate; RI did not take steps to do so.

4.    In the period 4 March 2015 to 18 June 2015, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

(a)    RI did not have in place any adequate process to check whether or not advisers (relevantly, Mr Doyle) who were subject to the pre-vetting program were circumventing the program by providing advice documents to clients without first submitting them for pre-vetting;

(b)    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List;

(c)    by about August 2014, it had become (or should have become) apparent to RI that Mr Doyle may have been recommending the Instreet Product, which was not on RI’s Approved Product List, to his clients, in breach of RI’s policies; RI did not take steps to investigate whether Mr Doyle was recommending a product not on the Approved Product List;

(d)    on or about 9 February 2015, in the course of the First Advice Assurance Review, it became apparent to employees of ANZ Wealth that Mr Doyle had circumvented RI’s pre-vetting policy on several occasions; it was incumbent on RI (either itself or through ANZ Wealth) to take steps to investigate the extent to which Mr Doyle had circumvented pre-vetting and then to determine what, if any, further action was appropriate; RI did not take steps to do so;

(e)    the outcome of the First Advice Assurance Review was an advice quality rating of 5, that is, the worst possible rating under the Advice Assurance Standard; taken in conjunction with other concerns about Mr Doyle, this outcome (and the report from the review) raised a concern that Mr Doyle may not be competent to provide advice to clients that complied with ss 961B, 961G, 961H and 961J (the Best Interests Obligations); in the circumstances, it was incumbent on RI to take prompt and practical action to address that issue (for example, suspending Mr Doyle from providing advice); however, RI did not take sufficient action during this period;

(f)    during the course of this period, an employee of RI raised further serious concerns about Mr Doyle with RI’s senior management; taken together with other concerns about Mr Doyle, this provided a further basis for concern that Mr Doyle may not be competent to provide advice to clients that complied with the Best Interests Obligations; it was incumbent on RI to take prompt and practical action to address that issue; however, RI did not take sufficient action during this period.

5.    In the period 19 June 2015 to 30 June 2016, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that RI engaged in the conduct described in paragraph 4 above also in relation to this period.

6.    In each of the periods referred to in paragraphs 1 to 5 above, RI contravened s 912A(1)(a) of the Corporations Act by failing to do all things necessary to ensure that financial services provided by Mr Doyle, which were covered by RI’s Australian Financial Services Licence, were provided efficiently, honestly and fairly.

THE COURT ORDERS THAT:

7.    RI pay a pecuniary penalty in respect of its contraventions of s 961L of the Corporations Act in the amount of $6,000,000.

8.    Mr Doyle pay a pecuniary penalty in respect of his contraventions of s 961Q of the Corporations Act in the amount of $80,000.

9.    Within 14 days, each party file and serve a written submission (of no more than two pages), and any evidence, on costs.

10.    Within a further 7 days, each party file and serve any responding written submission (of no more than two pages), and any responding evidence, on costs.

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

REASONS FOR JUDGMENT

MOSHINSKY J:

Introduction

1    These reasons deal with issues of penalty and other relief. They should be read together with the reasons for judgment in respect of liability: Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) [2021] FCA 877 (Judgment). I will adopt the abbreviations used in the Judgment.

2    In brief summary, in the Judgment, I concluded that the first defendant, RI, had contravened s 961L of the Corporations Act 2001 (Cth) in respect of each of five sub-periods identified in ASIC’s statement of claim, namely:

(a)    1 November 2013 to 31 January 2014;

(b)    1 February 2014 to 14 November 2014;

(c)    15 November 2014 to 3 March 2015;

(d)    4 March 2015 to 18 June 2015; and

(e)    19 June 2015 to 30 June 2016.

3    The “Relevant Period” for the purposes of ASIC’s case was the whole of these sub-periods, that is, from 1 November 2013 to 30 June 2016.

4    I also found, for each of those sub-periods, that RI failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly as required by s 912A(1)(a) of the Corporations Act.

5    Further, it followed from my conclusion that RI contravened s 961L that RI also contravened s 912A(1)(c) and (ca).

6    In relation to the second defendant, Mr Doyle, as noted in the Judgment at [5], on the second day of the hearing on liability, Mr Doyle made full admissions in relation to ASIC’s case against him and withdrew from the hearing. In brief outline, ASIC’s case against Mr Doyle was that he had contravened the Best Interests Obligations in recommending structured financial products known as Macquarie Flexi 100 Trust (referred to as the “Macquarie Product”) and Instreet Masti (referred to as the “Instreet Product”) to retail clients. On the fourth day of the hearing, 4 March 2021, Mr Doyle filed a second amended defence reflecting the fact that he had made full admissions. Subsequently, on 23 March 2021, I made a declaration that, on various occasions during the Relevant Period (as set out in the schedule to the order), Mr Doyle contravened s 961Q(1) of the Corporations Act in that he contravened the Best Interests Obligations. The issue of penalty in relation to Mr Doyle was not dealt with at that time, but was deferred until after the judgment on liability in ASIC’s case against RI had been handed down.

7    Following publication of the Judgment on 2 August 2021, a case management hearing was held and timetabling and procedural orders were made in relation to the issues of penalty and other relief. The parties subsequently filed affidavits and submissions.

8    Due to the current COVID-19 pandemic, the hearing of the issues of penalty and other relief was conducted by video-conference (using Microsoft Teams).

9    In relation to ASIC’s case against RI, ASIC relies on four affidavits of Glenn Childs, a Senior Manager in ASIC’s Financial Services Enforcement team, in addition to the evidence before the Court at the hearing on liability. Mr Childs’s affidavits are dated 1 October 2021, 2 December 2021, 26 January 2022 and 28 January 2022. Mr Childs was not cross-examined.

10    RI relies on two affidavits of Janet Whiting, a partner of Gilbert + Tobin, the solicitors acting for RI. The affidavits are dated 12 November 2021 and 31 January 2022. Ms Whiting was not cross-examined.

11    In relation to ASIC’s case against Mr Doyle, ASIC relies on the following evidence:

(a)    two expert reports of Mr Paul Green, filed during the liability hearing;

(b)    affidavits of eight clients of Mr Doyle; and

(c)    the affidavits of Mr Childs.

None of the above were required for cross-examination. In addition, ASIC relies on certain documents.

12    For the purposes of the present issues, Mr Doyle, through his counsel, accepted that I could proceed on the basis of all of the findings contained in the Judgment. Thus, even though Mr Doyle did not participate in that hearing beyond the second day, and the hearing was concerned with ASIC’s case against RI, Mr Doyle accepts and does not seek to challenge any of the findings in the Judgment.

13    Mr Doyle relies on two affidavits: an affidavit that he affirmed on 12 December 2021, and an affidavit of Liam Young, the solicitor acting for Mr Doyle, dated 26 January 2022. Mr Young was not cross-examined.

14    Mr Doyle was cross-examined during the hearing yesterday. There were some technical issues relating to the audio that slowed the progress of the cross-examination. However, I do not consider that these technical issues detracted in any substantial way from my ability to assess Mr Doyle’s evidence, or from Mr Doyle having a fair opportunity to give evidence in response to the matters that were put to him.

15    The issues to be determined can be summarised as follows:

(a)    In relation to the case as between ASIC and RI:

(i)    the form of declarations;

(ii)    the amount of any pecuniary penalty – this includes an issue regarding the number of contraventions;

(iii)    whether orders for a compliance program should be made and, if so, the form of such orders.

(b)    In relation to the case as between ASIC and Mr Doyle:

(i)    whether Mr Doyle should be excused from liability pursuant to s 1317S of the Corporations Act;

(ii)    if (i) is answered adversely to Mr Doyle, the amount of any pecuniary penalty – this also includes an issue regarding the number of contraventions.

16    I will refer to the applicable principles, and then address each of these issues in turn.

Applicable principles – pecuniary penalties

17    The applicable principles regarding the determination of pecuniary penalties are well established. I discussed these principles in Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd (No 2) (2018) 124 ACSR 351 at [153]-[157]. I set out the substance of these paragraphs below for ease of reference.

18    The principal purpose of a pecuniary penalty is to act as a personal and general deterrent: Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 (Adler) at [125]-[126]. The penalty should be no greater than is necessary to achieve that objective: Australian Securities Commission v Donovan (1998) 28 ACSR 583. The penalty should be fixed with a view to ensuring that the amount is not such as to be regarded by the offender or others as an acceptable cost of doing business. In Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249, the Full Court of this Court held, at [63], that “those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention”.

19    The size of the penalty is a matter of discretion: Adler at [126]. The process of fixing the quantum is not an exact science: Australian Securities and Investments Commission v GE Capital Finance Australia, in the matter of GE Capital Finance Australia [2014] FCA 701 (GE Capital) at [75]. All of the circumstances must be weighed: GE Capital at [75]. The approach that should be adopted is one of “instinctive synthesis”: Markarian v The Queen (2005) 228 CLR 357; GE Capital at [75]. Attention should be paid to the maximum penalty fixed by the statute so as to compare the worst possible case with the one before the court: GE Capital at [75].

20    Factors for consideration in determining an appropriate penalty are (Adler at [126]):

(a)    the seriousness of the conduct;

(b)    whether the conduct was dishonest;

(c)    whether further contraventions are likely;

(d)    the character of the defendant;

(e)    whether the defendant intended to deprive persons of funds;

(f)    the quantum of any losses;

(g)    whether the defendant has shown remorse;

(h)    the defendant’s conduct in the proceedings;

(i)    the capacity of the defendant to pay;

(j)    whether the penalty will prejudice the rehabilitation of the defendant; and

(k)    whether a disqualification order has been made that has significant consequences.

21    Further factors for consideration include (Trade Practices Commission v CSR Ltd [1991] ATPR 41-076; [1990] FCA 762):

(a)    the size of the contravening company;

(b)    the deliberateness of the contravention and the period over which it extended;

(c)    whether the contravention arose out of the conduct of senior management or at a lower level;

(d)    whether the contravenor has a corporate culture conducive to compliance as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and

(e)    whether the contravenor has shown a disposition to co-operate with the authorities responsible for the enforcement of the legislation in relation to the contravention.

22    The Court must also take into account the totality principle, which requires that the aggregate penalty be just and appropriate: Australian Securities and Investments Commission v Vines (2006) 58 ACSR 298 at [52].

23    In relation to the applicable principles for a pecuniary penalty, I refer also to: Australian Securities and Investments Commission v Financial Circle Pty Ltd (2018) 131 ACSR 484 at [177]-[182] per O’Callaghan J) Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147 (ASIC v Westpac) at [253]-[272] per Wigney J; Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) (2020) 377 ALR 55 (ASIC v AMP) at [156]-[160] per Lee J; Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 4) (2020) 148 ACSR 511 (ASIC v AGM Markets) at [38]-[51] per Beach J; Australian Securities and Investments Commission v Westpac Securities Administration Ltd, in the matter of Westpac Securities Administration Ltd [2021] FCA 1008 at [17]-[25] per O’Bryan J.

24    In relation to the “course of conduct principle”, the relevant principles were set out by Wigney J in ASIC v Westpac at [264]-[268] and [290]-[292]; see also ASIC v AGM Markets at [50] per Beach J.

25    The maximum penalty for a contravention by a corporation of s 961L of the Corporations Act is $1,000,000: s 1317G(1E)(b)(ii) and (1F)(b) of the Corporations Act.

26    The maximum penalty for a contravention by an individual of s 961Q(1) of the Corporations Act is $200,000: s 1317G(1E)(b)(iii) and (1F)(a) of the Corporations Act.

The case as between ASIC and RI

The form of declarations

27    There is an issue between ASIC and RI as to the form of declarations to reflect the conclusions reached by the Court in the Judgment. ASIC contends that ‘longer form’ declarations should be made, reflecting the substance of the matters set out in the “Consideration” section of the Judgment. RI contends that a shorter form of declarations is appropriate, along the lines sought by ASIC in its originating process. There is no issue that declarations are required to be made in relation to the contraventions of s 961L (which is a civil penalty provision): see s 1317E(1) and (2) of the Corporations Act.

28    In my view, it is preferable to adopt the ‘longer form’ approach proposed by ASIC, that is, to include in the declarations the substance of the factual matters giving rise to the contraventions. However, I consider it appropriate to make some adjustments to the wording proposed by ASIC to more closely reflect the key factual findings in the Judgment. Accordingly, I propose to make declarations as follows:

1.    In the period 1 November 2013 to 31 January 2014, the first defendant (RI) contravened s 961L of the Corporations Act 2001 (Cth) by failing to take reasonable steps to ensure that the second defendant (Mr Doyle) complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

a.    RI did not have in place any adequate process to check whether or not advisers (relevantly, Mr Doyle) who were subject to RI’s program known as pre-vetting (the pre-vetting program) were circumventing the program by providing advice documents to clients without first submitting them for pre-vetting;

b.    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List; and

c.    there was a substantial risk that Mr Doyle was not complying with RI’s policies, in particular the Advice Vetting Standard; RI knew, or ought to have known, of that substantial risk; RI did not take any concrete steps to investigate whether Mr Doyle was circumventing pre-vetting.

2.    In the period 1 February 2014 to 14 November 2014, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

a.    RI did not have in place any adequate process to check whether or not advisers (relevantly, Mr Doyle) who were subject to the pre-vetting program were circumventing the program by providing advice documents to clients without first submitting them for pre-vetting;

b.    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List;

c.    there was a substantial risk that Mr Doyle was not complying with RI’s policies, in particular the Advice Vetting Standard; RI knew, or at least ought to have known, of that substantial risk; RI did not take any concrete steps to investigate whether Mr Doyle was circumventing pre-vetting;

d.    RI allowed a consultant paraplanner (referred to in the Court’s reasons for judgment on liability dated 2 August 2021 as “Ms B”) to have such substantive input into the preparation of advice documents of The Carrington Corporation Pty Ltd (Carrington) (which was Mr Doyle’s company) that RI undermined the purposes of its own compliance policies;

e.    in the course of this period, it became (or should have become) apparent to RI that Mr Doyle was generating substantial inflows of funds into the OnePath group of companies (OnePath) (which was wholly owned by ANZ, as was RI at the relevant time) while he was still on pre-vetting and had submitted only a handful of advice documents for pre-vetting; RI did not take any concrete steps to investigate whether Mr Doyle was circumventing pre-vetting;

f.    in or about August 2014, it became (or should have become) apparent to RI that Mr Doyle may have been recommending the Instreet Product (as defined in the Court’s reasons for judgment on liability dated 2 August 2021), which was not on RI’s Approved Product List, to his clients, in breach of RI’s policies; RI did not take steps to investigate whether Mr Doyle was recommending a product not on the Approved Product List.

3.    In the period 15 November 2014 to 3 March 2015, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

a.    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List;

b.    having regard to the extent of assistance provided by Ms B, Mr Doyle should not have been cleared from pre-vetting (on 25 August 2014 for two areas and on or about 14 November 2014 for the remaining areas) and should have remained on pre-vetting throughout this period;

c.    by about August 2014, it had become (or should have become) apparent to RI that Mr Doyle may have been recommending the Instreet Product, which was not on RI’s Approved Product List, to his clients, in breach of RI’s policies; RI did not take steps to investigate whether Mr Doyle was recommending a product not on the Approved Product List;

d.    on or about 9 February 2015, in the course of the First Advice Assurance Review (as referred to in the Court’s reasons for judgment on liability dated 2 August 2021), it became apparent to employees of ANZ Wealth (to which RI had outsourced its compliance function) that Mr Doyle had circumvented RI’s pre-vetting policy on several occasions; it was incumbent on RI (either itself or through ANZ Wealth) to take steps to investigate the extent to which Mr Doyle had circumvented pre-vetting and then to determine what, if any, further action was appropriate; RI did not take steps to do so.

4.    In the period 4 March 2015 to 18 June 2015, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that:

a.    RI did not have in place any adequate process to check whether or not advisers (relevantly, Mr Doyle) who were subject to the pre-vetting program were circumventing the program by providing advice documents to clients without first submitting them for pre-vetting;

b.    RI did not have in place any adequate process to check whether advisers (relevantly, Mr Doyle) were recommending products that were not on RI’s Approved Product List or whether advisers were failing to adhere to any conditions attached to a specific approval of a product not on the Approved Product List;

c.    by about August 2014, it had become (or should have become) apparent to RI that Mr Doyle may have been recommending the Instreet Product, which was not on RI’s Approved Product List, to his clients, in breach of RI’s policies; RI did not take steps to investigate whether Mr Doyle was recommending a product not on the Approved Product List;

d.    on or about 9 February 2015, in the course of the First Advice Assurance Review, it became apparent to employees of ANZ Wealth that Mr Doyle had circumvented RI’s pre-vetting policy on several occasions; it was incumbent on RI (either itself or through ANZ Wealth) to take steps to investigate the extent to which Mr Doyle had circumvented pre-vetting and then to determine what, if any, further action was appropriate; RI did not take steps to do so;

e.    the outcome of the First Advice Assurance Review was an advice quality rating of 5, that is, the worst possible rating under the Advice Assurance Standard; taken in conjunction with other concerns about Mr Doyle, this outcome (and the report from the review) raised a concern that Mr Doyle may not be competent to provide advice to clients that complied with ss 961B, 961G, 961H and 961J (the Best Interests Obligations); in the circumstances, it was incumbent on RI to take prompt and practical action to address that issue (for example, suspending Mr Doyle from providing advice); however, RI did not take sufficient action during this period;

f.    during the course of this period, an employee of RI raised further serious concerns about Mr Doyle with RI’s senior management; taken together with other concerns about Mr Doyle, this provided a further basis for concern that Mr Doyle may not be competent to provide advice to clients that complied with the Best Interests Obligations; it was incumbent on RI to take prompt and practical action to address that issue; however, RI did not take sufficient action during this period.

5.    In the period 19 June 2015 to 30 June 2016, RI contravened s 961L of the Corporations Act by failing to take reasonable steps to ensure that Mr Doyle complied with each of ss 961B, 961G, 961H and 961J of the Corporations Act in that RI engaged in the conduct described in paragraph 4 above also in relation to this period.

6.    In each of the periods referred to in paragraphs 1 to 5 above, RI contravened s 912A(1)(a) of the Corporations Act by failing to do all things necessary to ensure that financial services provided by Mr Doyle, which were covered by RI’s Australian Financial Services Licence, were provided efficiently, honestly and fairly.

29    Insofar as s 912A(1)(c) and (ca) of the Corporations Act are concerned, as the conclusions regarding these provisions were merely consequential on the conclusions relating to s 961L, I do not consider it necessary to make additional declarations concerning those provisions.

The amount of any pecuniary penalty

30    As indicated earlier, there is an issue between the parties as to the number of contraventions. ASIC’s primary submission is that RI engaged in 20 contraventions of s 961L. This is based on there being one contravention of s 961L for each of the four Best Interests Obligations in each of the five sub-periods in which the Court found that RI had contravened s 961L by failing to take reasonable steps to ensure that Mr Doyle complied with the Best Interests Obligations. On the other hand, RI contends that, by reason of the case brought by ASIC against RI, the proper conclusion is that RI contravened s 961L in relation to each of ss 961B, 961G, 961H and 961J of the Corporations Act just once during the Relevant Period. Thus, RI contends, there were four contraventions.

31    RI’s submissions in support of its contention can be summarised as follows:

(a)    Section 961L is concerned with a “‘failure to perform’ norm”: see ASIC v AMP at [123]. More specifically, it is the failure to take reasonable steps to ensure compliance that is the relevant conduct for the purposes of each contravention.

(b)    As the Court held, “[a]s a matter of substance, ASIC’s case is that RI’s policies and processes were deficient assessing the matter at the relevant time”: Judgment at [410]. RI failed to correct those policies and processes during the Relevant Period, and by reason of that failure Mr Doyle was permitted to continue to provide advice to clients into the fifth period: Judgment at [488].

(c)    Necessarily, given that the Relevant Period spanned over two-and-a-half years, RI’s failure to correct its policies and processes gave rise to various issues in relation to Mr Doyle. As the Court noted, ASIC needed to (and did) have regard to the facts and circumstances as they changed over that period: Judgment at [414]. But that does not controvert that the substance of RI’s failure was unchanging. The step it had to take was to correct its policies and processes.

(d)    ASIC’s approach to calculating the number of contraventions is artificial. In relation to most of the contraventions of s 961L, there may be numerous failures that could be identified, numerous “reasonable steps” that could have been taken, and numerous temporal periods across which the contraventions persisted. ASIC dividing up a course of conduct into a series of severable temporal periods, whether for forensic reasons or otherwise, is not a sound basis for ascertaining the number of contraventions. Such an approach, whereby ASIC could increase the number of contraventions and concomitant penalty simply by pleading an ongoing failure as multiple contraventions over a series of severable temporal periods, is contrary to the purpose and structure of Div 2 of Pt 7.7A of the Corporations Act.

(e)    The Relevant Period was divided up as follows:

(i)    the first period (1 November 2013 to 31 January 2014) represented the period between the cut-off of the limitation period and prior to the engagement of Ms B as a paraplanner;

(ii)    the second period (1 February 2014 to 14 November 2014) began from the engagement of Ms B as a paraplanner and finished upon Mr Doyle obtaining full clearance from pre-vetting;

(iii)    the third period (15 November 2014 to 3 March 2015) represented a period during which Mr Doyle was not subject to the pre-vetting program, continuing through the period in which the First Advice Assurance Review was conducted and ending on the day the report of the First Advice Assurance Review was sent to Mr Doyle;

(iv)    the fourth period (4 March 2015 to 18 June 2015) represented a period starting on the day after the First Advice Assurance Review report was given to Mr Doyle, continuing through the period in which the Second Advice Assurance Review was conducted, and ending on the day the report of the Second Advice Assurance Review was sent to Mr Doyle; and

(v)    the fifth period (19 June 2015 to 30 June 2016) started on the day after the Second Advice Assurance Review report was given to Mr Doyle and continued until the termination of Mr Doyle’s authorised representative status took effect.

(f)    The five periods pleaded by ASIC involve more than simply “common features”. So much is apparent from ASIC’s pleadings. Paragraphs 78-82 of ASIC’s statement of claim demonstrate that the allegations said to give rise to the contraventions in each of the five time periods pleaded by ASIC are cumulative, as follows:

(i)    the first period relies on “the matters alleged at paragraphs 14-29, 31, 40, 42(c)-42(d) and 43-46 herein”;

(ii)    the second period relies on “the matters alleged at paragraphs 14-47 herein”;

(iii)    the third period relies on the “matters alleged at paragraphs 14-53 herein”;

(iv)    the fourth period relies on the “matters alleged at paragraphs 14-61 herein”; and

(v)    the fifth period relies on the “matters alleged at paragraphs 14-76 herein”.

(g)    The Court’s reasons on the contraventions (Judgment at [418]-[490]) follow this structure, by picking up findings from earlier time periods as being applicable to later time periods.

32    RI makes detailed submissions as to the Court’s findings as to each of the five sub-periods: see RI’s outline of submissions at paragraphs 13-17.

33    RI submits, in summary, that the “core risk” (which ultimately materialised) was that Mr Doyle was providing advice that was not in his clients’ best interests. RI submits that the Court’s findings in relation to each of the sub-periods is not reflective of discrete contraventions, but of a “core failure” continuing throughout the Relevant Period.

34    In my view, while it was convenient for the purposes of ASIC’s pleading and the conduct of the case to divide the Relevant Period into five sub-periods, it should not necessarily be assumed that these sub-periods are appropriate for the purposes of identifying the number of contraventions. This is because the sub-periods do not necessarily relate to significant changes in the factual circumstances or to significant changes in the quality of RI’s conduct as regards its obligations under s 961L.

35    However, I do not accept RI’s submission that the Relevant Period should be treated as a single period for these purposes, such that there were four contraventions of s 961L, one in respect of each of the Best Interests Obligations. This is because, in my view, there were distinct phases within the Relevant Period during which the facts and circumstances, and the quality of RI’s conduct (including acts and omissions), were materially and relevantly different. In my view, there were three distinct phases within the Relevant Period, which I consider to be as follows:

(a)    First, the period from 1 November 2013 to 14 November 2014, being a period of approximately one year. This sub-period commences at the beginning of the Relevant Period (while Mr Doyle was subject to the pre-vetting program) and ends on the day when Mr Doyle obtained clearance from pre-vetting for all practice areas.

(b)    Second, the period from 15 November 2014 to 22 June 2015, being a period of approximately 7 months. This sub-period commences on the day after Mr Doyle obtained clearance from pre-vetting for all practice areas, and ends on the day when RI gave Mr Doyle notice of termination (with 6 months’ notice).

(c)    Third, the period from 23 June 2015 to 30 June 2016, being a period of approximately one year. This period commences on the day after RI gave Mr Doyle notice of termination and concludes at the end of the Relevant Period (when Mr Doyle ceased to be an authorised representative of RI).

36    In my view, there was a qualitative difference in the facts and circumstances, and the nature of RI’s conduct, during each of these sub-periods. Further, I consider that during each of these three sub-periods, there was a distinct contravention of s 961L with respect to each of ss 961B, 961G, 961H and 961J, being each of the Best Interests Obligations. The identification of separate contraventions of s 961L in this way is consistent with the approach taken in ASIC v AGM Markets at [63] per Beach J and in ASIC v AMP at [139] per Lee J.

37    Accordingly, in my view, there were 12 contraventions of s 961L by RI during the Relevant Period.

38    I now turn to consideration of the appropriate pecuniary penalty for each contravention.

39    As noted above, the maximum penalty for each contravention is $1 million. Thus, the total maximum is $12 million for the 12 contraventions.

40    ASIC contends that the penalty should be $6 million. RI contends that a penalty in the range of $500,000 to $1 million is appropriate.

41    The facts and circumstances relating to each of the three sub-periods set out above are set out in detail in the Judgment (albeit arranged under headings based on ASIC’s five sub-periods). It is not necessary to set them out again. Nor is it necessary to set out my findings and conclusions regarding RI’s conduct.

42    While I consider RI’s conduct in all three sub-periods that I have identified to be very serious, I consider RI’s conduct in the second sub-period (namely, from 15 November 2014 to 22 June 2015) to be the most serious. By the time this sub-period commenced, Mr Doyle had already been an authorised representative of RI for a considerable period of time, and the issues discussed in the Judgment should have been evident and appropriate steps taken. Next, in terms of relative seriousness, is the third sub-period I have identified above (namely, from 23 June 2015 to 30 June 2016). By the time this period commenced, the issues relating to Mr Doyle were clearly evident to RI (as indicated by the giving of the notice of termination). While it is true that RI acted on those issues by giving the notice of termination, I consider that it did not take sufficient steps to address these issues, as discussed in the Judgment. I consider the first sub-period I have identified above (namely, from 1 November 2013 to 14 November 2014) to be less serious than the other two sub-periods, albeit still very serious. This is because Mr Doyle had not been an authorised representative of RI for as long, and so there had been less time for the problems to emerge and be identified.

43    I will now address some of the more general factors that are relevant in determining the appropriate penalty for each contravention.

44    RI is and was a substantial company, conducting a substantial financial advice business at all relevant times. Although it operated at a loss during each financial year in the Relevant Period, an indication of the size of its operations is provided by its commission and fee income, which was approximately $71 million in the financial year ended 30 September 2014, about $81 million in the financial year ended 30 September 2015, and about $73 million in the financial year ended 30 September 2016.

45    RI was at all relevant times a wholly-owned subsidiary of ANZ, which is and was a very large bank. Senior counsel for RI accepted that the size of the corporate group of which RI formed part may be relevant in determining the appropriate penalty for deterrence purposes.

46    It is relevant, in RI’s favour, that the contraventions did not involve dishonesty. Nor did they involve, in my view, any deliberate contravention of the relevant provisions.

47    The contraventions did involve, to some extent, the involvement of senior management, as indicated in the Judgment. However, generally, the problems were with RI’s policies and processes, and involved a failure to refer certain matters to senior management in circumstances where such matters should have been referred.

48    Although the material is not as detailed and specific as it could have been, the evidence establishes that RI has made substantial remediation (in the sense of compensation) to clients of Mr Doyle in connection with advice that he gave them. In particular, a table prepared by IOOF and provided to ASIC shows that compensation totalling approximately $6.4 million has been paid by RI to 412 clients of Mr Doyle. In the course of the hearing, both parties made submissions about this figure. RI submitted that it cannot be assumed that the whole of the $6.4 million is referable to the contraventions identified in the Judgment. ASIC submitted that it cannot be assumed that full compensation has been paid to those affected by the contraventions that have been found to have occurred. There is force in both of these submissions. For present purposes, it is sufficient to say that the figure of $6.4 million gives an indication of the impact of RI’s contraventions (that is, that they had a substantial impact). Further, I would infer that RI has substantially, if not wholly, remediated clients of Mr Doyle who were affected by RI’s contraventions.

49    I note that the fees earned by RI in relation to Mr Doyle’s practice were relatively modest, but I place little weight on this. Although the fees were modest, RI nevertheless had important and serious obligations under s 961L and the Best Interests Obligations in respect of Mr Doyle’s practice, which was a substantial practice.

50    I consider RI’s contraventions of s 961L with respect to each of the Best Interests Obligations during each of the three sub-periods I have identified, to be very serious and requiring a substantial penalty in the interests of specific and general deterrence. I accept ASIC’s submission that RI’s contraventions of s 961L were serious and sustained breaches of an important provision of the Corporations Act by a sophisticated and experienced licensee.

51    In the circumstances, I consider the appropriate penalties to be:

(a)    In respect of the first sub-period I have identified above: $250,000 for each of the four contraventions of s 961L, making a total of $1 million.

(b)    In respect of the second sub-period I have identified above: $750,000 for each of the four contraventions of s 961L, making a total of $3 million.

(c)    In respect of the third sub-period I have identified above: $500,000 for each of the four contraventions of s 961L, making a total of $2 million.

52    In formulating these penalties, I have had regard to the course of conduct principle. I consider that each of the three sub-periods that I have identified may be considered a single course of conduct. I have accommodated this in the process of arriving at the above figures.

53    Further, I have considered the totality principle, and do not consider that it requires any adjustment to the above figures. I consider that the total penalty for each sub-period, and the total penalty for the whole of the Relevant Period (that is, $6 million), to be appropriate.

54    I will therefore order RI to pay a pecuniary penalty of $6 million for the contraventions of s 961L.

Compliance program orders

55    In its outline of submissions, ASIC proposed a form of order that replicated the order sought in its originating process. This was not tied to the specific conduct that had been the subject of findings in the Judgment. During the lunch adjournment yesterday, ASIC provided a revised form of order, in the following terms:

1.    Pursuant to s 1101B(1) of the Corporations Act, RI shall, within 6 months of the date of these Orders, ensure that RI:

a.    has appropriate systems, policies and procedures in place in order to:

i.    check whether representatives of RI who are subject to RI’s advice vetting program (or any similar program) are circumventing, or have circumvented, that program by providing advice to clients in circumstances where the program did not permit them to do so;

ii.    check whether representatives of RI:

1.    are recommending, or have recommended, products that are not on RI’s Approved Product List without receiving permission to do so; or

2.    are failing, or have failed, to adhere to any conditions attached to a specific approval of a product that is not on RI’s Approved Product List; and

iii.    ensure that, where persons acting on behalf of RI have information showing that there is a risk that a representative of RI is engaging, or has engaged, in conduct of a kind referred to in paragraph 1.a above:

1.    those persons report that information to RI’s senior management; and

2.    RI’s senior management takes appropriate steps to address the relevant risk; and

b.    has in place, or has carried out, an appropriate program:

i.    to remediate clients affected by the contraventions by Doyle that are the subject of the Court’s declarations made on 23 March 2021 in this proceeding; and

ii.    to detect and remediate any other contraventions of ss 961B, 961G, 961H or 961J by Doyle that may have occurred during the Relevant Period.

2.    RI shall, within 9 months of the date of these Orders, provide ASIC with a written report of an independent expert confirming RI’s compliance with paragraph 1 above.

3.    The identity of the independent expert for the purposes of paragraph 1 of these Orders and the terms of his or her retainer are to be agreed between ASIC and RI or, failing agreement, determined by the Court. The costs of the independent expert are to be met by RI.

4.    The parties have liberty to apply concerning paragraphs 1 to 3 of these Orders.

56    Both sides made detailed submissions about whether such orders should be made. Having considered those submissions, I do not consider it necessary or appropriate to make such orders in the circumstances of this case. Insofar as paragraph 1(a) of the proposed orders is concerned, a considerable period of time has elapsed since the Relevant Period. Ownership of RI has changed. It is likely that RI’s policies have been revised considerably since the events that are the subject of the proceeding. I am not persuaded that such orders are needed or appropriate in the circumstances.

57    Insofar as paragraph 1(b) is concerned, as already discussed, substantial compensation has been paid by RI to clients of Mr Doyle. This has occurred as part of a process involving regular updates to ASIC. Although the evidence is not as specific or detailed as it could have been, I do not consider it necessary or appropriate to make an order in terms of paragraph 1(b). If there are clients of Mr Doyle who consider that they are entitled to compensation from RI, and who have not already been paid compensation, they can of course take this up with RI.

58    Accordingly, I do not propose to make orders for a compliance program or the other orders sought by ASIC as set out above.

59    In relation to costs, the parties sought the opportunity to file submissions following the resolution of the current issues.

ASIC’s case against Mr Doyle

Section 1317S

60    The first issue to be addressed is Mr Doyle’s application for relief from liability under s 1317S of the Corporations Act, which relevantly provides as follows:

1317S    Relief from liability for contravention of civil penalty provision

(1)    In this section:

eligible proceedings:

(a)    means proceedings for a contravention of a civil penalty provision (including proceedings under section 588M, 588W, 961M, 1317GA, 1317H, 1317HA or 1317HB); and

(b)    does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 588K, 1317H, 1317HA or 1317HB).

(2)    If:

(a)    eligible proceedings are brought against a person; and

(b)    in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:

(i)    the person has acted honestly; and

(ii)    having regard to all the circumstances of the case (including, where applicable, those connected with the an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention;

the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.

(3)    In determining under subsection (2) whether a person ought fairly to be excused for a contravention of section 588G, the matters to which regard is to be had include, but are not limited to:

(a)    any action the person took with a view to appointing an administrator of the company or Part 5.7 body; and

(b)    when that action was taken; and

(c)    the results of that action.

…

61    The applicable principles are set out in Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430 at [83]-[92] per Middleton J. There is no real issue between the parties as to the applicable principles.

62    There are three stages of analysis under s 1317S(2)(b): whether the person has acted honestly; whether the person ought fairly to be excused for the contravention; and the exercise of discretion.

63    In my view, it is unnecessary to address the first stage (honesty) because, in any event, I do not consider this to be a case where, having regard to all the circumstances of the case, the person ought fairly to be excused for the contraventions. This is because, in my view, the contraventions by Mr Doyle are serious and reflect what I consider to be a cavalier attitude to compliance with regulatory requirements and appropriate policies and processes. That Mr Doyle acted in this way emerges quite clearly from the findings in the Judgment. The evidence given by Mr Doyle in his affidavit and orally does not affect this characterisation of his conduct.

64    Accordingly, I do not propose to make an order under s 1317S.

Pecuniary penalty

65    There is an issue between the parties as to the number of contraventions. ASIC submits that there are 52 contraventions of s 961Q(1), calculated as follows. The Schedule attached to the 23 March 2021 declaration has two tables. In the first table, there are eight rows, but two of these rows refer to two instances of advice. Hence, there are ten instances of advice in this table. The second table has three rows. Although the second row has two lines, ASIC accepts this is just one instance of advice. Hence, the second table has three instances of advice. In total, there are 13 instances of advice. ASIC submits that each instance of advice constituted four contraventions of s 961Q, one in respect of each of ss 961B, 961G, 961H and 961J. Hence, ASIC contends that there were 52 contraventions of s 961Q(1).

66    Mr Doyle accepts ASIC’s analysis that there were 13 relevant instances of advice. However, he submits that there were only 13 contraventions of s 961Q(1), one in respect of each instance of advice. He submits that it is incorrect to treat each instance of advice as four contraventions, one in respect of each of ss 961B, 961G, 961H and 961J.

67    In my view, consistently with the approach taken above in relation to s 961L, it is appropriate in the circumstances of this case to treat each instance of advice as constituting four contraventions of s 961Q(1), one in respect of each of ss 961B, 961G, 961H and 961J. Each of those provisions has a different focus and content. Based on Mr Doyle’s admissions, each of those provisions was contravened. It is therefore open (and, in my view, appropriate) to treat each instance of advice as giving rise to four separate contraventions of s 961Q(1). I note also that this way of viewing the matter is consistent with the wording of the 23 March 2021 declaration. Accordingly, there were 52 contraventions of s 961Q(1).

68    The maximum penalty is $200,000 per contravention, that is, a total of $10.4 million.

69    ASIC contends that a penalty of $250,000 is appropriate. Mr Doyle contends that, subject to his submissions concerning s 1317S, a penalty of $50,000 is appropriate.

70    In relation to courses of conduct, I consider there to be two courses of conduct, one in relation to each of the tables in the Schedule to the 23 March 2021 declaration. The conduct referred to in each table was factually distinct.

71    In my view, the conduct alleged by ASIC against Mr Doyle, which he has admitted, was very serious. The conduct involved recommending products that were (admittedly) complex and difficult for unsophisticated investors to understand. Mr Doyle has admitted that he breached each of the Best Interests Obligations in giving the relevant advice to the eight clients that are the subject of the 23 March 2021 declaration.

72    In the circumstances of this case, where Mr Doyle is retired and is approximately 80 years of age, he is unlikely to practise again as a financial adviser. In these circumstances, specific deterrence is not a factor to which I need to have regard. This is common ground. However, general deterrence remains a relevant and important consideration.

73    In considering appropriate penalties, it is important to focus on the contraventions that are the subject of the declaration of 23 March 2021. ASIC’s case against Mr Doyle was confined to the instances of advice referred to in that declaration, which relate to eight clients of Mr Doyle. It is a much narrower case than ASIC’s case against RI.

74    I note that the benefit (by way of fees) that Mr Doyle derived from the advice to the eight clients was approximately $30,000.

75    Further, I note that Mr Doyle has effectively paid for the remediation (that is, compensation) that has been paid to those clients. The evidence is that RI deducted remediation amounts (exceeding the remediation payable to these eight clients) from moneys otherwise payable to Mr Doyle.

76    As noted above, on the second day of the hearing on liability, Mr Doyle made full admissions in relation to ASIC’s case against him. This reduced the number of issues that the Court needed to deal with, and can be taken to be an acceptance by Mr Doyle that his conduct contravened the Best Interests Obligations (notwithstanding some parts of Mr Doyle’s oral evidence during cross-examination that may appear to be to the contrary). I consider the making of these admissions to be a factor in Mr Doyle’s favour. However, the admissions were made rather late in the course of the litigation (on the second day of the liability hearing). I therefore give this factor only limited weight.

77    In the course of submissions, Mr Doyle’s counsel contended that Mr Doyle’s practice was otherwise conducted on a satisfactory basis. Counsel relied on Mr Doyle’s affidavit and oral evidence to this effect. I consider it difficult to accept this in light of the failings identified in the Judgment.

78    I do not consider that a distinction is to be made between the first and second sets of contraventions in terms of seriousness. I consider them to be equally serious.

79    Having regard to the facts and circumstances generally, and the above matters in particular, I consider an appropriate penalty to be a total of $80,000 for all of Mr Doyle’s contraventions of s 961Q.

80    In forming this view, I have had regard to the number of courses of conduct. I have also considered whether any adjustment should be made on account of the totality principle. I do not consider any adjustment to be required.

81    I note for completeness that the parties made submissions about what were contended to be comparable cases. I have had regard to those submissions. Ultimately, each case turns on its own facts. To the extent that the penalty I propose is less than that imposed on the individual defendant in Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (No 3) 150 ACSR 185 (being $240,000), I note that the contraventions in that case involved a greater number of clients, compared with the eight clients affected by the contraventions in the case against Mr Doyle.

82    Accordingly, I will make an order that Mr Doyle pay a pecuniary penalty of $80,000 in respect of the contraventions of s 961Q.

83    In relation to costs, I will give the parties an opportunity to file submissions on costs.

Associate:

Dated:    8 February 2022