Federal Court of Australia

Australian Securities and Investments Commission v Gilliland [2022] FCA 1421

ORDERS

THE COURT ORDERS THAT:

1.    The decision of the Administrative Appeals Tribunal (Tribunal) of 5 August 2020 be set aside and the matter be remitted to the Tribunal to be heard and determined according to law.

2.    The Respondent pay the costs of the application, such costs to be taxed if not otherwise agreed.

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

REASONS FOR JUDGMENT

COLLIER J:

INTRODUCTION

1    Before the Court is an appeal from the whole of the decision of the Administrative Appeals Tribunal (Tribunal) in Gilliland and Australian Securities and Investments Commission [2020] AATA 2660 by the applicant, the Australian Securities and Investments Commission (ASIC). In that decision the Tribunal set aside a decision of ASIC to disqualify the respondent as an approved self-managed super fund auditor pursuant to s 130F (2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).

2    ASIC seeks review on the following questions of law:

1.    In concluding that the Respondent should not be disqualified as an auditor, did the Tribunal fail to take into account a relevant consideration, namely, general deterrence?

2.    In finding that the Respondent should not be disqualified as an auditor, did the Tribunal fail to provide procedural fairness to the Applicant?

3.    Alternatively, in finding that the Respondent should not be disqualified as an auditor, did the Tribunal constructively fail to exercise its jurisdiction under s 130F (2) of the SIS Act?

4.    Was the Tribunal’s finding that the Respondent did not manifest ignorance of the relevant rules regarding auditor independence unreasonable?

3    The applicant seeks the following orders:

1.    Set the Tribunal’s decision made on 5 August 2020 aside and remit the matter to the Tribunal to be heard and determined according to law.

2.    Such other order as the Court thinks appropriate.

3.    The Respondent pay the costs of the appeal.

4    The grounds on which the applicant relies are as follows:

1.    With respect to the first question of law, the Tribunal failed to take into account a relevant consideration in that:

(a)     section 130F of the SIS Act, properly construed, implicitly requires that the decision maker consider general deterrence as a relevant factor in deciding whether a person should be disqualified as an auditor; but

(b)     the Tribunal did not consider general deterrence in its decision.

2.     With respect to the second question of law, the Tribunal failed to provide procedural fairness in that the Tribunal failed to address clearly articulated submissions by the Applicant to the effect that:

(a)     specific and general deterrence required the making of the disqualification order; and

(b)     the Respondent was either unaware of the relevant rules regarding auditor independence, did not understand them, or ignored them.

3.     With respect to the third question of law, the Tribunal constructively failed to exercise its jurisdiction:

(a)    by failing to address the clearly articulated submissions by the Applicant to the effect that:

(i)     specific and general deterrence required the making of the disqualification order; and

(ii)     the Respondent was either unaware of the relevant rules regarding auditor independence, did not understand them, or ignored them;

(b)     further, or alternatively, by failing to consider the following matters:

(i)     whether paragraphs 290.104, 290.127, 290.144 in APES 110 Code of Ethics for Professional Accountants (APES 110) and their equivalents that applied to the Respondent’s audits in 2013, 2014 and 2015 were plain in their terms and were not capable of being misinterpreted in the manner found by the Tribunal at [30] of the decision; and

(ii)    that the Respondent had admitted in cross-examination that before the APES 110 was given legislative force in 2013, as a member of CPA Australia he knew that:

(A)     a member of an audit team must not have a direct financial interest in an audit entity or audit client;

(B)     he could not conduct an audit of an entity in which an immediate family member was a director or officer; and

(C)    in discharging his professional obligations, there was no safeguard that could be put in place to protect against the self-interest risk created by auditing an entity of which his spouse was a director or officer.

4.    With respect to the fourth question of law, the Tribunal’s conclusion at [30]     that the Respondent “did give consideration to the relevant rules but     misinterpreted them” was legally unreasonable in

(a)    paragraphs 290.104, 290.127, 290.144 in APES 110 Code of Ethics for Professional Accountants (APES 110) and their equivalents that applied to the Respondent’s audits in 2013, 2014 and 2015 are plain in their terms and are not capable of being misinterpreted in the manner found by the Tribunal;

(b)    the Respondent had admitted in cross-examination that before the APES 110 was given legislative force in 2013, as a member of CPA Australia he knew that:

(i)     a member of an audit team must not have a direct financial interest in an audit entity or audit client;

i.    a member of an audit team must not have a direct financial interest in an audit entity or audit client;

ii.     he could not conduct an audit of an entity in which an immediate family member was a director or officer; and

iii.    in discharging his professional obligations, there was no safeguard that could be put in place to protect against the self-    interest risk created by auditing an entity of which his spouse was a director or officer;

(c)    the Tribunal did not refer to this evidence before reaching the conclusion at [30] of the decision;

(d)    by reason of the matters in (a) to (c) above, the conclusion at [30] of the decision:

(i)     is not capable of being supported by the evidence; and

(ii)    is not based on any identifiable logic or reasoning.

(footnotes omitted)

BACKGROUND

5    The respondent, Mr Gilliland, has practiced as a registered tax agent since 1978. On 24 June 2013 Mr Gilliland was registered as an approved self-managed super fund (SMSF) auditor pursuant to section 128B of the SIS Act. Section 128B of the SIS Act provides that the Regulator must register an applicant as an approved SMSF auditor in circumstances where the applicant meets the necessary qualifications set out in s 128B (1) (a), and where the Regulator is satisfied under s 128B (1) (b) that the applicant is a fit and proper person capable of performing the duties required and unlikely to contravene the obligations imposed upon a SMSF auditor under Subdivision B.

6    Upon registration, the SIS Act requires approved SMSF auditors to continue to maintain and adhere to particular standards. Relevant to the applicant’s case, s 128F of the SIS Act sets out the professional obligations of approved SMSF auditors. That section provides:

An approved SMSF auditor must:

(a)    complete the continuing professional development requirements prescribed by the regulations; and

(b)    hold a current policy of professional indemnity insurance, of a level prescribed by the regulations, for claims that may be made against the auditor in connection with audits of self managed superannuation funds; and     

(c)    comply with:

(i)    any competency standards that the Regulator determines under section 128Q; and

(ii)    any auditing standards, made by the Auditing and Assurance Standards Board under section 336 of the Corporations Act 2001, that are applicable to the duties of an approved SMSF auditor under this Act; and

(iii)    any auditing and assurance standards, formulated by the Auditing and Assurance Standards Board under section 227B of the Australian Securities and investments Commission Act 2001, that are applicable to those duties; and

(d)    comply with the auditor independence requirements prescribed by the regulations.

(emphasis added)

7    Part 9A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations) outlines further requirements of an approved SMSF auditor. Regulation 9A.06 of the SIS Regulations provides that an approved SMSF auditor must adhere to the auditor independence standards set out in the Australian Professional Ethics Standards 110 Code of Ethics for Professional Accountants (APES 110).

8    The APES110 (as at the time of the breach) goes into quite some depth on independence, commencing at section 290. Those provisions of the APES110 material to the matter before me are as follows:

290.104     If a member of the Audit Team, a member of that individual’s Immediate Family, or a Firm has a Direct Financial Interest or a material Indirect Financial Interest in the Audit Client, the self-interest threat created would be so significant that no safeguards could reduce the threat to an Acceptable Level. Therefore, none of the following shall have a Direct Financial Interest or a material Indirect Financial Interest in the client: a member of the Audit Team; a member of that individual’s Immediate Family; or the Firm.

290.105     When a member of the Audit Team has a Close Family member who the Audit Team member knows has a Direct Financial Interest or a material Indirect Financial Interest in the Audit Client, a self-interest threat is created. The significance of the threat will depend on factors such as:

•    The nature of the relationship between the member of the Audit Team and the Close Family member; and

•    The materiality of the Financial Interest to the Close Family member.

The significance of the threat shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an Acceptable Level. Examples of such safeguards include:

•    The Close Family member disposing, as soon as practicable, of all of the Financial Interest or disposing of a sufficient portion of an Indirect Financial Interest so that the remaining interest is no longer material;

•    Having a Member review the work of the member of the Audit Team; or

•    Removing the individual from the Audit Team.

…

290.127     When an Immediate Family member of a member of the Audit Team is:

(a) A Director or Officer of the Audit Client; or

(b) An employee in a position to exert significant influence over the preparation of the client’s accounting records or the Financial Statements on which the Firm will express an Opinion,

or was in such a position during any period covered by the engagement or the Financial Statements, the threats to Independence can only be reduced to an Acceptable Level by removing the individual from the Audit Team. The closeness of the relationship is such that no other safeguards could reduce the threat to an Acceptable Level. Accordingly, no individual who has such a relationship shall be a member of the Audit Team.

…

290.144     If a partner or employee of the Firm serves as a Director or Officer of an Audit Client, the self-review and self-interest threats created would be so significant that no safeguards could reduce the threats to an Acceptable Level. Accordingly, no partner or employee shall serve as a Director or Officer of an Audit Client.13

AUST290.144.1 If a partner or employee of the Firm were to serve as an Officer (including management of an Administration) or as a Director of an Audit Client, or as an employee in a position to exert direct and significant influence over the subject matter of the Audit Engagement, the threats created would be so significant no safeguard could reduce the threats to an Acceptable Level. Consequently, if such an individual were to accept such a position the only course of action is for the Firm to refuse to perform, or to withdraw from, the Audit Engagement.

9    Clearly, these paragraphs of the APES110 prohibit, inter alia, an auditor and the auditor’s immediate family holding a direct financial interest or indirect financial interest in an audit client. Each of these paragraphs, excluding 290.105, expressly provide that in those circumstances there is nothing that a SMSH auditor can do to safeguard a threat to their independence aside from removing it altogether.

10    Notably, the APES110 defines an “immediate family” member as a spouse (or equivalent) or dependant. A “close family” member refers to a parent, child or sibling who is not an “immediate family” member. A reading of paragraph 290.105 makes it evident that in circumstances where a close family member holds a direct interest, it is possible to mitigate the threats to independence. Independence, for the purposes of the APES110, requires both a subjective independence of the mind, and an independence in appearance.

11    In the financial years 2013, 2014 and 2015, Mr Gilliland breached his duties as an independent SMSF auditor by auditing Fiscal Consultants Superannuation Fund (FCSF). It is not in dispute that Mr Gilliland, his wife and his daughter held the positions of both trustee and a member of the FCSF.

12    The breakdown of FCSF funds for the financial years 2013, 2014 and 2015 were as follows:

As at 30 June 2014:

(a) on behalf of the respondent, member funds of approximately $2,647.06;

(b) on behalf of the daughter, member funds of approximately $7,399.62;

(c) total member funds of approximately $10,046.68.

As at 30 June 2015:

(a) on behalf of the respondent, member funds of approximately $2,331.20;

(b) on behalf of the daughter, member funds of approximately $11,997.32;

(c) total member funds of approximately $14,328.52.

As at 30 June 2016:

(a) on behalf of the respondent, member funds of approximately $3,309.82

(b) on behalf of the daughter, member funds of approximately $14,721.92;

(c) total member funds of $18,031.74.

13    On 3 August 2016 Mr Gilliland resigned from his role as auditor after determining he could no longer mitigate the threats to his independence.

14    In or around December 2016 the Australian Taxation Office conducted a review of the audits prepared by Mr Gilliland and referred the information to ASIC on 26 February 2018 pursuant to s 128P of the SIS Act.

15    On 18 March 2018 ASIC informed Mr Gilliland that it was considering disqualifying or suspending him as a SMSF auditor given its concerns regarding his failure to comply with the independence obligations in the years ending 30 June 2014, 2015 and 2016. Mr Gilliland was invited to make submissions and did so on 16 April 2018.

16    On 15 August 2018 a delegate of ASIC disqualified Mr Gilliland pursuant to s 130F (2) of the SIS Act.

17    In September 2018 Mr Gilliland applied for reconsideration of that decision pursuant to s 344 of the SIS Act, and the disqualification decision was confirmed by a second delegate of ASIC on 20 September 2018.

18    On 15 October 2018 Mr Gilliland challenged the decision of the second delegate in the Tribunal. Mr Gilliland was successful and on 5 August 2020 the Tribunal set aside ASIC’s decision to disqualify Mr Gilliland.

19    On 1 September 2020 ASIC filed a notice of appeal from the decision of the Tribunal in this Court.

DECISION OF THE TRIBUNAL

20    The Tribunal found that Mr Gilliland had breached s 130F of the SIS Act because he had failed to comply with the independence requirements. The respondent accepts that these requirements were breached, and that in hindsight the threats could not be mitigated under the SIS Regulations.

21    However, in considering whether disqualification was appropriate, the Tribunal accepted that Mr Gilliland had attempted to comply with APES110 by reducing his financial interest to an immaterial amount, and withdrawing from decision making in the fund in an attempt to mitigate the threats to his independence. Materially, the Tribunal held:

26.     The applicant argues that when he took the course concerning APES 110 that he did, he held the opinion that by drawing down his financial interest in 2012/13 from almost $24,904.29 to $3703.91, he had reduced his interest to an immaterial amount in order to comply with the provisions of APES 110 paragraph 290.105 set out above. I accept that he held that opinion. He also withdrew from decision making in the fund.

27.     The applicant later formed the opinion that his initial conclusion was incorrect. As I have mentioned there is no evidence that was induced by the fact that some authority was taking an interest in his affairs

28.    I am satisfied that the applicant’s initial belief was incorrect. It was honestly but mistakenly held.

29.    The applicant should never have become an auditor of the fund.

30.    The respondent argues that the applicant either deliberately ignored the relevant rules concerning auditor independence or manifested ignorance of those rules. I am satisfied that he did neither. He did give consideration to the relevant rules but misinterpreted them.

22    The Tribunal then considered the extenuating family circumstances that the respondent submitted had affected his judgment during the course of the FCSF audits. In that respect, the Tribunal held as follows:

38.    These stressors are relevant. They do not excuse the applicant’s conduct but they assist in understanding it. The purpose of the rules is to protect the public and one factor that the Tribunal must consider is whether or not the aberrant conduct is likely to recur if he were to continue as an auditor. These stressful events were temporary matters even though they occurred over a significant period of time. They are not likely to recur.

39.    I accept that the applicant held a genuine but erroneous belief for a period of time that he was entitled to conduct the audits because he had reduced his interest to a minimal amount and had attempted to put himself at arm’s length from decision-making processes in the fund. I accept that he resigned as auditor when he appreciated his error even though he retrospectively sought to justify his erroneous approach.

40.    I also take into account that the FCSF was extraordinarily small, and that there is no evidence that the audit was in any fashion dishonest.

41.    The applicant has practised as a tax agent since 1978 and other than for his conduct in this matter has an unblemished record. I am satisfied that the applicant poses no risk to the public if he resumes his practice as an auditor. Nor would the integrity of the SMSF system be undermined in any way.

23    For these reasons the Tribunal set aside the decision to disqualify the respondent, although the respondent was held to have objectively breached the independence requirements. The Tribunal did not impose any conditions on the respondent in substitution of the disqualification.

KEY ISSUES BEFORE THE COURT

24    As is clear from each question of law and each of the grounds of the application, the key issues for determination by the Court in considering this application are:

    In relation to a decision whether to disqualify an SMSF auditor under the SIS Act, is the decision-maker required to take into account principles of general deterrence as a relevant factor?

    Was the issue of general deterrence before the Tribunal in making its decision in this case?

    Did the Tribunal take principles of general deterrence into consideration in this case, and if it did not, was the failure to take into account relevant principles material to its decision?

25    In summary, ASIC submitted that, as the decision-maker, it – and the Tribunal on review – was required to take into account general deterrence principles as a mandatory consideration, that it put this issue to the Tribunal, and that the Tribunal failed to take principles of general deterrence into account. In particular the applicant relied on the findings of O’Callaghan J in Australian Securities and Investment Commission v McCormack (2017) 160 ALD 155, 170; [2017] FCA 672 [47].

26    The respondent submitted, in summary:

    Although there is a protective implication throughout s 130F, the discretion in s 130F (2) is unconfined;

    The Court should find general deterrence a permissible consideration but not a mandatory consideration;

    The disqualification power may be enlivened under s 130F (2) (a) in circumstances where a SMSF auditor is not able to carry out their duties in accordance with their obligation due to a medical incapacity. In such circumstances general deterrence may properly be considered irrelevant;

    Although the Tribunal did not use the words “general deterrence” in its reasons, the Tribunal’s factual findings subsumed general deterrence, in particular at [41] of its reasons; and

    If the Tribunal overlooked the principle of general deterrence, the oversight was immaterial given the factual findings of the Tribunal, in comparison with the decision in McCormack.

27    It is well-settled that the failure of a decision-maker to take into account a relevant consideration in the making of an administrative decision entitles a party with sufficient standing to seek judicial review of that decision: Minister for Aboriginal Affairs v Peko-Wallsend (1986) 162 CLR 24 at 39. If general deterrence was a relevant consideration for the Tribunal to consider, if the Tribunal failed to take it into account, and, importantly, if that failure was material, the application currently before the Court must be allowed.

28    It is helpful to turn first to s 130F of the SIS Act, which relevantly provides:

Approved SMSF auditors – disqualification and suspension orders

Application of section

(1)    This section applies to the extent that the Regulator is ASIC.

Disqualification orders and suspension orders

(2)     The Regulator may make a written order disqualifying a person from being an approved SMSF auditor, or suspending a person's registration as an approved SMSF auditor, if:

(a)     the person has failed, whether within or outside Australia, to carry out or perform adequately and properly:

(i)     the duties of an auditor under this Act or the regulations; or

(ii)     any duties required by a law of the Commonwealth, a State or a Territory to be carried out or performed by an auditor; or

(iii)     any functions that an auditor is entitled to perform in relation to this Act or the regulations or the Financial Sector (Collection of Data) Act 2001 ; or

(b)     the person has failed to comply with a condition, or additional condition, imposed under section 128D on the person's registration as an approved SMSF auditor; or

(c)     the person has made a false declaration in:

(i)     an application for registration as an approved SMSF auditor; or

(ii)     a statement given to the Regulator under section 128G; or

(d)     the person is otherwise not a fit and proper person to be an approved SMSF auditor for the purposes of this Act.

29    Perhaps surprisingly, there is little authority specifically addressing the relevance of general deterrence as a factor for consideration in respect of disqualification of SMSF auditors pursuant to s 130F of the SIS Act. Of some assistance are Whittle and Australian Securities and Investments Commission [2018] AATA 1861, Australian Securities and Investment Commission v McCormack (2017) 160 ALD 155, 170; [2017] FCA 672, and Howarth and Australia Securities and Investments Commission (2008) 101 ALD 602; [2008] AATA 278.

30    In Whittle the Tribunal specifically considered whether, in making a disqualification order pursuant to s 130F of the SIS Act, the decision-maker was required to take into consideration the issue of deterrence. The Tribunal found that “deterrence” was a relevant consideration, further observing:

77.    Deterrence is a relevant consideration and may relate to the person concerned and to others engaged, or potentially engaged, in auditing SMSFs. That the breaches continued over nine and six years in the face of clear provisions is a very serious matter. The Tribunal finds that deterrence of other existing or future SMSF auditors requires that in this case disqualification is appropriate. It does not accept that imposing the conditions proposed would be sufficient to address this consideration or would otherwise serve a useful purpose. Ms Whittle now understands the independence requirements.

31    In McCormack the Court examined different legislation, namely the power of ASIC under s 920A (1) of the Corporations Act 2001 (Cth) to make a banning order. A banning order was relevantly defined by s 920B (1) of that Act as a written order that prohibits a person from providing any financial services or specified financial services in specified circumstances or capacities. Section 920B (2) relevantly provided that a banning order may prohibit the person against whom it was made from providing a financial service permanently or for a specified period, unless ASIC had reason to believe that the person was not of good fame or character.

32    While the legislation before the Court in McCormack was clearly different, there are analogies with the current legislative provisions. Similarities of consequence flow in respect of the decisions which can be made pursuant to s 130F of the SIS Act and s 920A of the Corporations Act, namely disqualification from acting.

33    In Australian Securities and Investment Commission v McCormack (2017) 160 ALD 155, 170; [2017] FCA 672 [47] in relation to banning orders under s 920A of the Corporations Act 2001 (Cth) O’Callaghan J said:

[47] Counsel for ASIC referred to the statement in Australian Securities and Investments Commission v Adler [2002] NSWSC 483 at 97–99 that general deterrence is “fundamental in determining whether to impose a disqualification order and if so for what period”: see also Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460; [2012] NSWCA 370 at [183], [243], [330]. The same principles apply under s 920A of the Act. Those propositions are obviously correct and counsel for Mr McCormack did not contend otherwise.

(emphasis added)

34    In turn, Santow J in Re HIH Insurance Ltd (In prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; 42 ACSR 80, at [56] noted that, in respect of disqualification orders, the objects of general deterrence were also sought to be achieved.

35    More recently in Howarth and Australian Securities and Investments Commission [2008] AATA 278, in considering the power to make a banning order, the Tribunal observed:

[180]     The weight of authority in the Federal and Supreme Courts to whose judgments we have referred seems to be to the effect that a disqualification order, and so a banning order, is made on the basis of what will protect the public. It is not made on the basis of what will punish the person concerned even though punishment or the imposition of a penalty may be the practical outcome of the making of an order. Deterrence is also a relevant concern. Deterrence may relate both to the person concerned and to others engaged or potentially engaged in the finance. If imposed, it is relevant in the case of the individual in that it protects the public from that person’s being involved in the industry. Whether imposed or not, the possibility that an order might be made is itself a deterrent both to an individual and to all of those engaged in that industry. As was said in Re Donald and Australian Securities and Investments Commission the tribunal said:

[116]     The imposition of a banning order against a dealers representative certainly achieves, in respect of at least one member of that profession, the second aspect of public protection for the period in respect of which it is imposed. That is, it ensures that the public can be certain that a particular person, who has been found to have breached a statutory standard applicable to him or her, is no longer entrusted with dealing in shares. At the same time, it informs both other dealers representatives and members of the general public that the behaviour is neither acceptable nor tolerated.

[117]    Whether it achieves the first aspect of public protection is more debateable. A period of prohibition may, rather like a retreat or a period of contemplation, lead a person to reflect upon his or her behaviour and to come to an understanding of why that behaviour has been regarded as inappropriate by others and, if it is necessary to do so, to take steps to improve his or her knowledge of what is an appropriate manner of behaviour. On the other hand, a period of prohibition may not result in such reflection or lead to a person’s coming to any

36    While s 130F of the SIS Act does not specifically mandate the issue of general deterrence as a factor requiring consideration by a decision-maker, I accept ASIC’s argument that, in view of the subject matter, scope and purpose of s 130F of the SIS Act, and the statutory scheme of the legislation, general deterrence is implicitly a relevant factor for the decision-maker to take into account. In particular I note the following:

    The object of the SIS Act as set out in s 3 of that Act is to make provision for the prudent management of certain funds and for their regulatory supervision.

    Section 4 of the SIS Act acknowledges the general responsibility of ASIC for protecting consumers from harm, market integrity, disclosure and record keeping.

    As I have already noted, s 128B of the SIS Act sets out circumstances where a regulator must grant an application for registration as an approved SMSF auditor, and in particular that the regulator is satisfied that the applicant is unlikely to contravene the obligations of an approved SMSF auditor under Subdivision B and is otherwise a fit and proper person to be an approved SMSF auditor.

    Section 130F (2) allows ASIC to make a disqualification order in circumstances including where a person has failed to carry out or perform adequately and properly the duties of an auditor under the SIS Act or the SIS regulations, or if the person has failed to comply with conditions on the person’s registration as an approved SMSF auditor.

    There are limitations on the power of ASIC to revoke a disqualification order so made, including s 130F (10) which prohibits it from revoking the order unless satisfied that the person concerned:

(a)    is likely to carry out and perform adequately and properly the duties of an approved SMSF auditor under this Act or the regulations; and

(b)    is otherwise a fit and proper person to be an approved SMSF auditor for the purposes of this Act.

37    I am satisfied that, in light of these provisions, and authorities examining analogous legislation, the decision-maker must consider how making a disqualification order would serve principles of specific and general deterrence, and that such factors cannot be ignored. I note the submission of Counsel for Mr Gilliland that general deterrence could be irrelevant in circumstances where a SMSF auditor was unable to carry out duties due to a medical incapacity. In such circumstances, however, I do not consider that general deterrence would be irrelevant, rather it would be a question of the weight to be attributed to that factor by the decision-maker.

38    Turning now to the Tribunal’s decision, it is clear that general deterrence was raised as an issue before the Tribunal, but not taken into consideration by it.

39    First, in ASIC’s statement of facts, issues and contentions before the Tribunal, ASIC relevantly stated:

5.12    In considering whether to exercise the discretion under s130F (2), deterrence is a relevant consideration and may relate to the person concerned and to others engaged, or potentially engaged, in auditing SMSFs. In the context of the present case, achieving such specific and general deterrence requires that a disqualification order be made. In this context, it must be observed that, for the reasons set out in the confirmed disqualification decision (extracted at paragraph 3.28 above) the conditions proposed by the applicant would not be sufficient to address this consideration and would not otherwise serve any useful purpose.

40    Second, at the Tribunal hearing, Counsel for ASIC specifically submitted that deterrence was a key issue for the decision-maker. In particular I note the following submission appearing from the transcript of proceedings before the Tribunal:

Now, in separately identifying the independence requirements as being a duty under the Act, and then in separately identifying a failure to observe those duties under the Act as being a basis for disqualification, the parliament has identified that the compliance with the independence obligations are so fundamental that they need to be strictly enforced. Now, in the case of Mr Samuel currently being discussed, the audit funds were small as well. I’m not sure, and I say, from the reasons as to whether there is any evidence as to whether the audit was properly carried out. However, in my submission, both of those facts are not relevant to this tribunal’s determination of the question.

The question before the tribunal is whether or not Mr Gilliland’s conduct in, firstly, breaching the Act and, secondly, in my submission – what will be my submission, his persistent denial of his obligations or lack of insight into those breaches, including on evidence that was given today, it’s my submission that this tribunal cannot be satisfied that the measures or the intent of the legislature in ensuring the safety of the superannuation system by having auditors understand their obligations and exercise them, can be met.

And of course the fact that someone gets caught breaching those obligations but didn’t happen to get the audit wrong is, in my submission, irrelevant. The relevant fact is that the independence obligations were breached and that the conduct of the applicant since that time has demonstrated a, in my submission, deficiency in either his understanding of the obligations under the Code or an unwillingness to be fully frank in relation to his insight of the deficiencies of his conduct. In my submission, they are concerns of a grave nature having regard to the fundamental nature of the independence requirements of the SMSF auditors under the Act.

41    Third, the decision of the Tribunal reflects no consideration of general deterrence principles. In particular I note the following observations of the Tribunal:

37.    In January 2016 the applicant’s spouse was diagnosed with serious operable cancer which was was [sic] addressed by surgery in February 2016. The applicant’s spouse was released from hospital in March 2016 and convalescent in the ensuing months. The applicant completed the third audit on 19 June 2016. [27]

38.    These stressors are relevant. They do not excuse the applicant’s conduct but they assist in understanding it. The purpose of the rules is to protect the public and one factor that the Tribunal must consider is whether or not the aberrant conduct is likely to recur if he were to continue as an auditor. These stressful events were temporary matters even though they occurred over a significant period of time. They are not likely to recur.

39.    I accept that the applicant held a genuine but erroneous belief for a period of time that he was entitled to conduct the audits because he had reduced his interest to a minimal amount and had attempted to put himself at arm’s length from decision-making processes in the fund. I accept that he resigned as auditor when he appreciated his error even though he retrospectively sought to justify his erroneous approach.

40.    I also take into account that the FCSF was extraordinarily small, and that there is no evidence that the audit was in any fashion dishonest.

41.    The applicant has practised as a tax agent since 1978 and other than for his conduct in this matter has an unblemished record. I am satisfied that the applicant poses no risk to the public if he resumes his practice as an auditor. Nor would the integrity of the SMSF system be undermined in any way.

42    The reasons of the Tribunal do not refer to “general deterrence” at all, either here or anywhere throughout the decision.

43    Section 43 (2B) of the Administrative Appeals Tribunal Act 1975 (Cth) provides:

(2B)     Where the Tribunal gives in writing the reasons for its decision, those reasons shall include its findings on material questions of fact and a reference to the evidence or other material on which those findings were based.

44    Although the Tribunal at [38] noted that the purpose of the legislation was to protect the public, its analysis omits any consideration of general deterrence principles, in contrast with the Tribunal’s extensive discussion of the state of mind of Mr Gilliland at relevant times and the likelihood of his posing a risk to the public should the decision of ASIC to disqualify him be set aside. Plainly, and perhaps not surprisingly, the Tribunal member appeared to have some sympathy for Mr Gilliland. However, that the Tribunal at [41] may have echoed the language of ASIC’s submissions concerning the integrity of the SMSF system does not mean that the Tribunal actively engaged with the principles of general deterrence in reaching its decision. I am satisfied that it did not.

45    In relation to failure of a decision-maker to take into account a relevant consideration, the High Court explained in Minister for Immigration and Border Protection v SZMTA [2019] HCA 3; (2019) 264 CLR 421, 445 [45]-[46] and more recently in MZAPC v Minister for Immigration and Border Protection [2021] HCA 17 at [2]-[4], that a breach of a condition in administrative decision-making will result in jurisdictional error if it involves:

…a realistic possibility that the decision in fact made could have been different had the breach of the condition not occurred. Existence or non-existence of a realistic possibility that the decision could have been different was explained to be a question of fact in respect of which the plaintiff in an application for judicial review of the decision on the ground of jurisdictional error bears the onus of proof.

(MZAPC at [2])

46    I am satisfied that the failure of the Tribunal to take into account principles of general deterrence in making its administrative decision was material within the meaning of those principles, such that there was a realistic possibility that a different outcome could have been reached by the Tribunal had it properly considered the matter.

CONCLUSION

47    In the circumstances, it is clear that the Tribunal erred in failing to take into account a relevant factor in deciding whether a person should be disqualified as an auditor, namely principles of general deterrence. In doing so, I am also satisfied that the Tribunal failed to take into account clearly articulated submissions by ASIC to that effect. Plainly, ASIC has substantiated grounds 1 and 2 of its application. In light of my decision it is unnecessary for me to make further findings on the remaining grounds and questions of law in this application.

48    I am satisfied that the decision of the Tribunal is legally flawed, and should be set aside. It is appropriate that the matter be remitted to the Tribunal, for determination according to law.

49    Costs follow the event.

Associate:

Dated:    30 November 2022