FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v M101 Nominees Pty Ltd (in liq) (No 8) [2025] FCA 741

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to make any further submissions on relief within 21 days of the publication of these reasons, limited to 15 pages.

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

REASONS FOR JUDGMENT

BUTTON J:

1.    INTRODUCTION

1    ASIC seeks orders under s 1101B of the Corporations Act 2001 (Cth) (Corporations Act) effectively precluding James Mawhinney, the Second Defendant, from having any involvement in the offering or promotion of any financial product for a period of 20 years. ASIC seeks that relief on the basis of Mr Mawhinney’s alleged involvement in (or association with) a number of alleged contraventions of the Corporations Act and/or the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by companies in the Mayfair Group (defined below).

2    The contraventions alleged mostly concern the marketing of the M Core Fixed Income Notes (M Core Notes), issued by M101 Nominees Pty Ltd (M101 Nominees), the M+ Fixed Income Notes (M+ Notes), issued by M101 Holdings Pty Ltd (M101 Holdings), and the Australian Property Bonds. The Australian Property Bonds were to be issued by property holding trustee companies in the Mayfair Group (although only two or three such bonds were actually issued). ASIC alleged that misleading or deceptive conduct occurred in the marketing of those products.

3    The date ranges over which the marketing material regarding the M Core Notes and M+ Notes (together referred to as the M Notes) was issued varied, but the broad period in issue is between June 2019 and mid-April 2020. Allegations concerning the alleged failure to disclose that redemptions in the M Notes had been frozen focus on the period from 11 March 2020 to early April 2020. Allegations concerning the Australian Property Bonds focus on the period from 22 April 2020 to late June 2020.

4    ASIC also alleged that, between 2016 and “at least December 2017”, another company associated with Mr Mawhinney, IPO Capital Pty Ltd (IPO Capital), contravened s 911A of the Corporations Act on the basis that it required, but did not have, an Australian financial services licence (AFSL). As may be seen, this set of allegations has a different legal and temporal focus from the allegations concerning the M Notes and the Australian Property Bonds.

2.    BACKGROUND, WITNESSES AND THE REMITTER

5    The course of the litigation brought by ASIC against Mr Mawhinney and companies in the Mayfair Group is set out in more detail below (at paragraphs 248–262). The companies relevant to the issues in this proceeding, which I refer to as the Mayfair Group, are set out in the corporate structure chart at Annexure A to these reasons (which reproduces the chart prepared by ASIC). It serves, to put the proceeding in context, to record here that the present proceeding was commenced by ASIC on 10 August 2020. By orders made on 19 April 2021, a judge of this Court made final orders under s 1101B of the Corporations Act effectively precluding Mr Mawhinney from pursuing any business involving the soliciting of investments in financial products, including the M Notes and the Australian Property Bonds. Reasons were published: Australian Securities and Investments Commission v M101 Nominees Pty Ltd (No 3) [2021] FCA 354; (2021) 153 ACSR 230.

6    Mr Mawhinney appealed. On 15 September 2022, the Full Court of the Federal Court allowed Mr Mawhinney’s appeal, concluding that Mr Mawhinney had been denied procedural fairness. There had been a denial of procedural fairness because the primary judge concluded that contraventions of provisions of the Corporations Act had occurred, which contraventions provided the foundation for the exercise of the powers conferred by s 1101B of the Corporations Act against Mr Mawhinney, even though ASIC brought the case on the basis that it was not necessary for it to establish, and it did not allege, that there had been such contraventions: Mawhinney v Australian Securities and Investments Commission [2022] FCAFC 159; (2022) 294 FCR 375 (Mawhinney Full Court).

7    The Full Court’s orders, amongst other things, remitted the proceeding for hearing by a judge other than the primary judge on the basis of such further evidence and submissions as the parties wished to adduce and put respectively, and such further case management orders as the judge to whom the matter was remitted thought fit.

8    It was common ground that, as the proceeding was subject to a remitter (and not an order for an entirely new trial), evidence that had been adduced in the initial trial was still before the Court on the remitter, subject to any orders of the Court disturbing that position.

9    Following the Full Court’s orders allowing Mr Mawhinney’s appeal, ASIC pleaded, fulsomely, its case alleging contraventions of various provisions of the Corporations Act and the ASIC Act. The myriad alleged contraventions, and the plethora of marketing material on which ASIC’s case was based, account for the regrettable length of these reasons. I have summarised my findings with respect to ASIC’s misleading and deceptive conduct allegations in the table at Annexure C to these reasons. While accepting that the evidence in the initial trial was still (other than immaterial exceptions) before me on the trial of the remitter, ASIC essentially jettisoned reliance on the earlier evidence, and built its evidentiary case from the ground up. It tendered an extensive set of documents, called its lay witnesses (many of whom were cross-examined) and relied on fresh expert evidence.

10    I will introduce some aspects of that evidence.

2.1    Lay evidence

11    ASIC relied on the evidence of 12 lay investor witnesses. Those witnesses participated, either personally or through personal corporate or superannuation vehicles, in the investment products at issue in this proceeding. While I have not had much recourse to their evidence in determining the liability issues below, many of them suffered significant financial losses, illustrating the potential harm to which investors were exposed.

12    In its closing submissions, ASIC referred to, and annexed, summaries of the lay witnesses’ evidence, including aspects of their evidence in cross-examination. Mr Mawhinney accepted that ASIC’s summaries were fair summaries of their evidence. Accordingly, it is not necessary for me to resolve any factual disputes about their evidence, or burden these reasons with freshly crafted summaries. ASIC’s summaries of the investor evidence are reproduced as Annexure B to these reasons, with the investors’ full names replaced with their initials, footnotes omitted and investor Mr RR omitted (as his investment is addressed in Part 13 of these reasons).

2.2    Expert evidence

2.2.1    Mr Tracy

13    Mr Jason Tracy is a chartered accountant and registered liquidator. Mr Tracy was engaged by ASIC prior to the commencement of this proceeding and to provide expert evidence in the initial trial of this proceeding on matters including the nature and extent of any security protecting the M Core Notes. He prepared one expert report dated 12 June 2020 and two supplementary reports dated 12 August 2020 and 14 September 2020. These reports were annexed to an affidavit of Mr Tracy affirmed on 24 November 2020, which was read into evidence at the initial trial.

14    Mr Tracy was cross-examined — albeit on limited issues — at the initial trial. By an interlocutory application dated 25 September 2024, Mr Mawhinney sought orders recalling Mr Tracy for further cross-examination on the remitter. Mr Mawhinney submitted that because ASIC had been “permitted to run a very different case” on the remitter, he should not be bound by the forensic decisions made in the initial trial with respect to Mr Tracy’s cross-examination. He also submitted that Mr Tracy made significant concessions in the course of cross-examination in the related Mayfair proceeding (discussed in further detail from paragraph 248 below), which was undefended on liability but defended on penalty. Mr Mawhinney sought to recall Mr Tracy in the present proceeding to obtain those concessions in this proceeding.

15    For reasons given on the transcript, I determined that the application to recall Mr Tracy should be allowed, on a limited basis.

16    Mr Tracy was recalled on 8 November 2024, and was cross-examined on the limited basis permitted. ASIC did not rely on his evidence, having briefed Mr Meredith since the initial trial, although it referred to Mr Tracy’s evidence at two points in its written closing submissions (on the recoverability of the loan made by M101 Nominees to Eleuthera Group Pty Ltd (Eleuthera) and the defects in the security structure; both topics to which I return below).

2.2.2    Mr Meredith

17    Mr Greg Meredith is an experienced forensic accountant. ASIC tendered his report, dated 30 August 2024, along with a letter dated 18 October 2024, in which Mr Meredith made some corrections to his report. His evidence concerned (amongst other matters) how funds obtained from investors were applied, aspects of the M Core Notes security structure, the value of that security and reports provided to the security trustee, PAG Holdings (Australia) Pty Ltd (PAG or Security Trustee).

18    Mr Meredith was cross-examined by Mr Mawhinney’s counsel for the better part of one sitting day, principally in relation to his views on the nature and value of the M Core Notes security structure. I refer to Mr Meredith’s evidence below principally in relation to aspects of the security structure and the debt to equity swap.

2.2.3    Mr Quinn

19    Mr Mark Quinn is an expert property valuer called by ASIC. He prepared an expert report dated 16 August 2024 and a supplementary report dated 30 September 2024. Mr Quinn’s reports concerned the value of properties held by companies in the Mayfair Group. Mr Quinn was cross-examined on how his valuations were conducted (from the “kerbside”), certain of his valuation opinions, changes to the value of properties in the Mission Beach area and rental yields that might reasonably be expected. I refer to Mr Quinn’s evidence in relation to the value of the units held in the property holding trusts and the M101 Nominees business model below.

2.2.4    Mr Jahani

20    Mr Said Jahani was initially appointed, with a colleague, as provisional liquidator of M101 Nominees (the issuer of the M Core Notes) on 13 August 2020, and was then appointed liquidator (again with his colleague) on 29 January 2021. Mr Jahani provided a provisional report dated 24 September 2020 pursuant to directions of this Court (Court Report), a statutory report dated 29 April 2021 (Statutory Report) and a supplementary report dated 15 August 2024 (Jahani Report), the latter of which ASIC tendered on the remitter (over the objection of Mr Mawhinney). ASIC principally relied on Mr Jahani’s evidence regarding the solvency of M101 Nominees on the basis that that topic is relevant to relief under s 1101B of the Corporations Act (cf relying on his reports to establish contraventions).

21    Mr Jahani was cross-examined by Mr Mawhinney’s counsel at length (two full days). Mr Mawhinney has advanced serious criticisms of Mr Jahani, both in relation to his evidence and his conduct, effectively blaming Mr Jahani, and his Court Report in particular, for M101 Nominees being put into liquidation.

22    Mr Jahani’s evidence is addressed in more detail below, where it arises in relation to the issues for determination.

3.    A PRELIMINARY ISSUE: JONES V DUNKEL IN PENALTY PROCEEDINGS

23    The trial was conducted on the basis that Mr Mawhinney was entitled to the privilege against exposing himself to a penalty. Given that the trial was conducted on that basis, with ASIC’s concurrence, it is not necessary to scrutinise whether that be so where the “penalty” sought by ASIC comprises orders under s 1101B of the Corporations Act.

24    In commencing his oral closing submissions, counsel for Mr Mawhinney said that “it is not permissible, generally, to draw a Jones v Dunkel inference in a civil penalty proceeding” (referring to the principle derived from Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel)). Counsel cited Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd [2001] FCA 1800; (2001) 115 FCR 442 (Universal Music) at [33] (Hill J) in support. There, Hill J said (emphasis added):

Where the proceedings are criminal (and the present proceedings are not; they are proceedings, inter alia, for the recovery of a civil penalty) it might be thought that the failure of the accused to go into evidence should not lead to the drawing of Jones v Dunkel inferences. After all it is clear that a witness can not be compelled to give evidence which is likely to incriminate the witness or expose the witness to a penalty. However, even in criminal cases it has been held that the failure of the accused, who is in a position to deny, explain or answer the evidence adduced by the prosecution, to give evidence will permit the jury to draw inferences adverse to the accused more readily: see Azzopardi v The Queen (2001) 205 CLR 50; 179 ALR 349, affirming Weissensteiner v The Queen (1993) 178 CLR 217. A fortiori, therefore, the failure of a respondent to proceedings for recovery of a pecuniary penalty to give evidence on a matter relevant to an issue in the proceeding and deny, explain or answer the evidence adduced against the respondent will permit the Court more readily to draw the inferences to which the decision in Jones v Dunkel refers.

25    While the submission may have initially been framed in rather sweeping terms — or much is contained in the qualification, “generally” — Mr Mawhinney’s position was ultimately that no Jones v Dunkel adverse inference can be drawn against him unless the evidence adduced by ASIC is such that it calls for some evidence to explain, answer or deny that evidence.

26    To that extent, Mr Mawhinney’s submission is consistent with the way Hill J put it in Universal Music at [33]. The submission is also consistent with the observations of Beach J in Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098; (2020) 382 ALR 425 at [1678]–[1694], citing Weissensteiner v R (1993) 178 CLR 217 at 227, 229 (Mason CJ, Deane and Dawson JJ); Jones v Dunkel at 308 (Kitto J); Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63] (Heydon, Crennan and Bell JJ); and Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 41 ACSR 72 at [447] (Santow J).

27    For its part, and perhaps understanding the submission put by Mr Mawhinney to be more absolute than it turned out to be, ASIC pointed to a number of cases confirming that Jones v Dunkel inferences may be drawn in civil penalty proceedings: Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 504 at [652]–[661] (Adler v ASIC) (Giles JA, with whom Mason P and Beazley JA agreed); Adams v Director of the Fair Work Building Industry Inspectorate [2017] FCAFC 228; (2017) 258 FCR 257 at [147] (North, Dowsett and Rares JJ), citing Adler v ASIC; Master Wealth Control Pty Ltd v Australian Competition and Consumer Commission [2024] FCAFC 171; (2024) 306 FCR 462 at [38] (Sarah C Derrington, Halley and Shariff JJ); Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27; (2024) 419 ALR 30 at [276] (Productivity Partners) (Edelman J).

28    I accept that, as submitted by ASIC, a Jones v Dunkel inference may be available in civil penalty proceedings. However, it must always be borne in mind that Jones v Dunkel inferences do not operate at large to fill in gaps in a party’s case and overcome a want of proof. Rather, Jones v Dunkel allows an available inference to be “more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the [party against whom the inference would be drawn] and the evidence provides no sufficient explanation of his absence”: Jones v Dunkel at 308 (Kitto J); see also 312 (Menzies J) and 320–321 (Windeyer J).

29    ASIC invited the Court to draw Jones v Dunkel inferences in relation to numerous aspects of its case. As will emerge, as I step through the issues, they all either rise or fall on the evidence. In other words, in respect of the allegations on which ASIC has succeeded, its success has not rested on drawing a Jones v Dunkel inference against Mr Mawhinney. Similarly, in respect of allegations on which ASIC has failed, with the exception of the on-lending to family allegations, its failure has not rested on the failure to draw a Jones v Dunkel inference that it had invited.

4.    FACTS

30    The disputed issues largely concern characterisation and consequences, rather than facts. Nevertheless, the issues arising for determination fall to be decided in a particular factual context. That factual context is important in considering whether, and if so what, orders should be made under s 1101B of the Corporations Act.

4.1    The Mayfair Group business

31    The Mayfair Group described itself (in a corporate brochure) as a London-based, Australian-owned investment and corporate advisory group founded in 2009. It said it offered — amongst other services — “wealth management”, involving income-generating investments, pre-IPO opportunities, private equity services and more, for wholesale and high-net-worth investors. The brochure identified “Mayfair Platinum and IPO Wealth Pty Ltd” (IPO Wealth) as its best-known Australian operations, which were said to “provide access to a range of cash-investment alternatives typically only accessed by family offices, investment banks, stockbrokers and ultra-wealthy investors”. Prior to the launch of the M Notes products, the IPO Wealth Fund was one of the primary investment products being marketed by the Mayfair Group. Interactions between ASIC and Mr Mawhinney concerning the IPO Wealth Fund were raised by ASIC in this proceeding on the basis that those interactions are relevant to some of the issues concerning the M Notes (see paragraphs 240–243 below). One of the entities within the Mayfair Group is Mayfair Wealth Partners Pty Ltd (Mayfair Wealth). This entity traded as “Mayfair Platinum”, and changed its name to Australian Income Solutions Pty Ltd (Australian Income Solutions) on or about 14 June 2020.

32    By the time this brochure was issued, the Mayfair Group’s services were said to be offered as an authorised representative of an AFSL holder. However, earlier on, fixed term, fixed interest investment opportunities were offered by IPO Capital (also a member of the Mayfair Group). IPO Capital did not offer these investments under an AFSL. Whether it was required to operate under an AFSL is one of the issues arising in this proceeding. As detailed further below, IPO Capital’s pitch to investors was that it raised money from third parties (investors) which it used in making investments on its own account by way of providing debt finance to other companies, making equity investments and purchasing assets. This investment vehicle does not, on the evidence, appear to have any obvious connection with the project to redevelop the Mission Beach region and Dunk Island in Queensland, which were central to other Mayfair Group investment opportunities and attracted much focus in the trial on the remitter.

4.2    The main players: who’s who

33    In addition to Mr Mawhinney, there are a number of individuals who are mentioned in these reasons.

34    Brigette Panetta was Mr Mawhinney’s fiancée and held the roles of “Management Accountant” and “Finance Director” at the Mayfair Group. She was also a director of a number of companies associated with Mr Mawhinney: relevantly, Mayfair Group Pty Ltd, Sunseeker Holdings Pty Ltd (Sunseeker, the Third Defendant) and Jarrah Lodge Holdings Pty Ltd.

35    Devin O’Keefe was part of the Mayfair Group’s sales team, holding the roles of “Investor Relations Manager” and “Client Relationship Manager” of Australian Income Solutions.

36    Michael Divens was the Mayfair Group’s Chief Financial Officer.

37    John Anasis was the Mayfair Group’s “Family Office and Institutional Client Manager”. He was also the Managing Director of The Public Listing Co.

38    Kristiina Lumeste held the roles of “Marketing Manager” and “Group Marketing Manager” at the Mayfair Group.

39    Lhamo Johnson was also a member of the Mayfair Group’s marketing team, holding the role of “Senior Marketing Coordinator”.

40    Nora Fairbanks and Craig van Wegen were directors of PAG, the Security Trustee for the Mayfair Platinum Secured Notes Security Trust (relating to the M Core Notes issued by M101 Nominees).

41    Venn King was a solicitor at KHQ Lawyers, who was retained by the Mayfair Group.

4.3    Dunk Island and the Mission Beach area: Mr Mawhinney’s “tourism mecca” vision

42    Mr Mawhinney’s vision was for the Mayfair Group to acquire property in the Mission Beach area in tropical north Queensland, and revitalise that area, to turn it into a “tourism mecca”. While the origins of this vision are not clear, and Mr Mawhinney did not give evidence, it appears that the project — to turn the Mission Beach area into a “tourism mecca” — was active in earnest by mid-2019. At some point, that vision came to encompass acquiring and redeveloping Dunk Island, which is one of a group of islands off the coast of the Mission Beach area. The funds raised by the issue of the M Notes, and the funds that were hoped to be raised by the issue of the Australian Property Bonds, were to support the pursuit of this vision.

43    From August 2019, contracts were signed for the acquisition of a large number of properties in the Mission Beach region (including Mission Beach itself, South Mission Beach, Wongaling Beach and some other localities in the area). Many of these contracts were entered into by Mainland Property Holdings Pty Ltd (Mainland Property Holdings) as trustee for the Mission Beach Property Trust (MBPT), although there were other property holding companies and related trusts that ultimately acquired some property, or which were party to real estate contracts of sale that did not ultimately settle (including Mainland Property Holdings No 2 Pty Ltd (Mainland Property Holdings No 2) as trustee for the Mission Beach Property Trust No 2 (MBPT No 2), Mainland Property Holdings No 3 Pty Ltd (Mainland Property Holdings No 3) as trustee for the Mission Beach Property Trust No 3 (MBPT No 3), Mainland Property Holdings No 5 Pty Ltd as trustee for the Mission Beach Property Trust No 5 (MBPT No 5), Mainland Property Holdings No 8 Pty Ltd as trustee for the Mission Beach Property Trust No 8 (MBPT No 8), and Jarrah Lodge Holdings Pty Ltd (Jarrah Lodge) as trustee for the Jarrah Lodge Trust).

44    The frenetic pace of the Mayfair Group entities’ purchasing in the Mission Beach area was reflected in Mr Mawhinney’s reference (in a WhatsApp message on 16 August 2019) to going on a “shopping expedition at Mission Beach”. The effect of the real estate market in that area being fuelled by acquisitions by Mayfair Group entities is relevant to some issues in the proceeding, including the value of securities held in respect of the M Core Notes and the financial stability and viability of the Mayfair Group investment structure (principally in respect of M101 Nominees).

45    Dunk Island is located about four kilometres from the coast off Mission Beach. It was badly damaged by Cyclone Larry in 2006 and again by Cyclone Yasi in 2011. It was not rebuilt after Cyclone Yasi. Mayfair Asset Holdings Pty Ltd (Mayfair Asset Holdings) as trustee for the Mayfair Island Trust acquired the freehold to most of Dunk Island in September 2019 for $31.5 million. An email from PAG (the Security Trustee) in March 2020 recorded that (allowing for a deposit) the balance of $27.5 million was financed by a vendor loan with a repayment schedule that would have seen the last $3 million paid by September 2021.

46    While there was some infrastructure on the island (including a 900-metre airstrip, and a disused and damaged resort) in 2019–2020, the Mayfair Group’s plans included considering refurbishment and some upgrades, or a more costly alternative, which involved demolishing the existing resort and building a new one. The cost of the demolition and rebuilding option was estimated (at the concept stage) to be about $150 million.

47    Mr Mawhinney tendered a number of documents directed at establishing that the scheme (to use that word in a legally-neutral sense) being pursued by the Mayfair Group had sufficient income producing capacity such that M101 Nominees was not insolvent from the outset, and the fundraising through the M Notes should not be regarded as exposing investors to a high risk that the issuing entities would be unable to pay the interest due on time and/or repay investors’ principal. These documents were also directed at establishing that the plans for the revitalisation of the Mission Beach/Dunk Island region were not merely a pie-in-the-sky “vision” of Mr Mawhinney. Those documents included architects’ schematic plans and more detailed plans for proposed hotel and resort accommodation, promotional videos, as well as documents produced by LSV Hotels, a hospitality and hotel consultancy business.

48    I accept that these documents show that there was significant work being done to develop and present a considered and professionally supported vision for the region. However, and as those documents reveal, the cost of realising those plans — which were so extensive they also included construction of a new inland marina, and extending the airstrip on Dunk Island — was staggering. One document that assessed the economic impact on the region of the proposals put the cost of construction at $1.68 billion. Another document, being a “Masterplan” with related financials, put the capital expenditure at $1.18 billion. Plans for an area known as “Lugger Bay” included construction of the inland marina, a new golf course and built developments. It was estimated that planning and environmental approvals for Lugger Bay alone would take two to three years and cost $2–3 million. The Masterplan anticipated a mix of arrangements with third party operators and in-house operations, as well as leasing and sales.

49    It is clear, and Mr Mawhinney did not shy away from acknowledging, that the tourism mecca vision would take years and hundreds of millions of dollars to realise. The financial projections in evidence, such as they were, did not break down what portion of the overall costs were expected to be borne by third parties. There was no evidence of any cashflow analysis being prepared that showed how it was anticipated that the costs of paying interest to investors, and repaying principal to investors who did not want to roll over their investments, could be met while this vision was being realised. The cashflows that were in evidence are discussed from paragraphs 157 and 291 below. In answer to the question of how it was proposed to fund interest and redemptions due to investors while the vision was being realised, counsel for Mr Mawhinney answered: “Well, to a great extent, with new people coming in, with fresh debt replacing old debt”.

50    Mr Mawhinney also directed attention to two sources of revenue that were expected in the short to medium term: first, income from leasing properties in the Mission Beach area; and second, income from the redevelopment and re-opening of “The Spit” bar on Dunk Island, in advance of the broader revitalisation and redevelopment of Dunk Island.

51    As to leasing income, Mr Mawhinney tendered leases that had been entered into for some of the properties purchased in the Mission Beach area. An aide memoire prepared in respect of the leases confirms that leases were entered into for approximately 23 properties, with terms varying between two months (putting aside one said only to be “periodic”) to one year for non-commercial properties, and between two and five years for the four properties that were described in terms making it clear they were commercial premises (shops). The rent for the non-commercial properties varied from $0 (if the tenant did gardening), $1 (for a two-month lease) to $6,000 plus GST per month for one property, although most were in the $250–$550 per week range. The commercial premises’ rents ranged from $12,000 to $30,000 per annum, excluding GST ($230–$577 per week). Many of the properties acquired were vacant land, which obviously enough would have limited the capacity to obtain income by leasing them.

52    On ASIC’s calculations, if the rental yields based on leases actually entered into were all annualised (even though many of the leases were for less than a full calendar year), the total rental income would not exceed $473,546.52. Mr Mawhinney contended that gross rental yields of about $2 million could realistically have been achieved. I address that specific contention below.

53    While the leasing income actually secured would have provided some funds, even if annualised at its peak, the leasing income would not have provided any realistic source of income by which to meet either the expenses of pursuing the wider redevelopment vision, or meeting interest payments and redemptions due to investors. To put the leasing income in context, the operating expenses (excluding interest payments and redemptions) actually incurred by the Mayfair Group between January and March 2020, recorded in the Mayfair Group “Consolidated Cash Flow” spreadsheet set out at Appendix 21 to the Jahani Report, ranged from approximately $92,000 to over $950,000 per week.

54    Similarly, a document prepared to “pitch” to a third party lender (discussed further below at paragraph 289) recorded anticipated holding costs for the planned property portfolio at $4.06 million per annum against an anticipated gross rental yield for the entire portfolio of $3.21 million. Even on Mr Mawhinney’s vision, holding costs exceeded the rent-generating capacity of the planned portfolio.

55    The Mayfair Group “Consolidated Cash Flow” spreadsheet referred to above recorded weekly redemptions by investors in the “actual” portion of the cashflow, covering 28 January to 5 April 2020. The amount recorded in outflows for redemptions each week varied widely. In some weeks, the figure was $0, but in another week, it was $983,736, with the lowest weekly redemption figure (which was not $0) otherwise being $254,680. Monthly interest expenses in respect of the M Notes holders rose from $310,346 in the first week of February 2020 to $349,215 in the first week of March 2020, and rose again to $433,479 in the week from 30 March to 5 April 2020. I note that the redemptions and interest expenses recorded refer to “M1 Notes” and “M1 Distribution”, and that the M+ Notes were previously named “M1 Notes”. Accordingly, and on its face, these figures would appear to be referable to the M+ Notes even though the document purports to be a Group-wide cashflow, which suggests the figures presented related to the M Notes generally. This ambiguity was not explored in the evidence.

56    As to “The Spit”, that area of Dunk Island was owned by the local council. Mayfair Asset Holdings as trustee for the Mayfair Island Trust entered into a 30-year lease with the local council, which was signed on 9 March 2020, and commenced on the same day. An information memorandum for “The Spit Bar & Deck” was in evidence, dated March 2020. It contained drawings by Hunt Design (architects). Other activities in respect of Dunk Island included an expression of interest document issued by LSV Hotels for the management of the anticipated “brand new upscale” luxury hotel and beach club facilities on Dunk Island. This document included architectural drawings and mock ups of the beach club, villas and other facilities. Expressions of interest were stated to be due on 1 May 2020. On 29 April 2020, Mr Mawhinney received an email from LSV Hotels indicating that some well-known hotel operators were interested and wanted to present their submissions.

4.4    The M Notes

57    The M+ Notes and M Core Notes were two promissory note investment products offered, respectively, by two Mayfair Group companies: M101 Holdings and M101 Nominees. The legal structure by which the M Notes were issued included a Deed Poll for each form of notes. The Promissory Note Deed Poll for the M+ Notes (the M+ Notes Deed Poll) was executed by Mr Mawhinney and dated 22 June 2019. The Secured Promissory Note Deed Poll for the M Core Notes (the M Core Notes Deed Poll) was executed by Mr Mawhinney and dated 24 October 2019. As may be observed, the rolling out of the M Notes coincided with the program of real estate acquisition in the Mission Beach region and the development of plans for the revitalisation of that area.

58    The M+ Notes Deed Poll and the M Core Notes Deed Poll were in similar terms, save that the M Core Notes Deed Poll made reference to the notes being secured and to security being held by a security trustee pursuant to the terms of the Security Trust Deed. Both Deed Polls included, as schedules, an application form, a form to be completed by the issuer company upon acceptance of the application to subscribe for notes, a “Note Certificate” (to be completed with details including the amount invested, term and interest rate), and a “Withdrawal Notice” form.

59    The application form included in each instance a provision stating that the applicant agreed to be bound by the terms of the relevant Deed Poll and (in the case of the M Core Notes Deed Poll) the Security Trust Deed.

60    In each case, the Note Certificate described the investor as the holder of “redeemable promissory notes in the capital of the Company”. Each also contained a statement that:

For value received, the Company promises to pay to the Noteholder the amounts payable in accordance with, and otherwise comply with the obligations contained in, the [Promissory Note Deed Poll/Note Deed and the Security Trust Deed].

61    The Deed Poll for each of the M+ Notes and M Core Notes contained a term (cl 3.5) specifying the “[n]ature of Note obligation”, which stated that “[t]he Notes are debt obligations of the Company owing under [this Deed Poll/this deed]”. Each Deed Poll also provided for the calculation of interest, together with an obligation imposed on the relevant company to pay interest that had accrued, and otherwise to capitalise it and add it to the “Monies Owing”, which term was defined in each Deed Poll in terms that referred to “the amount owing by the Company to a Noteholder” pursuant to a note.

62    Provision was also made in each Deed Poll (cl 5.1(b)) for the notes to roll over for a period equal to the original term if a Withdrawal Notice had not been received by the required date. The provisions concerning early withdrawal included (cl 5.2(b)) an acknowledgement that the issuing company was under no obligation to agree to an early withdrawal request.

63    Each Deed Poll contained the following clause (cl 5.6) concerning “Payment Date extension”, with immaterial differences between the two versions. The clause is important as it relates to the Liquidity Prudency Policy (defined in paragraph 140 below), the invocation of which underlies components of ASIC’s allegations. The version in the M Core Notes Deed Poll was in the following terms (emphasis and underlining in original):

Payment Date extension

(a)    Extension - The Company may at any time, extend the Payment Date, if:

(i)    insufficient Liquidity - the Company, in its reasonable opinion, considers that it does not have sufficient Liquidity to fund the redemption;

(ii)    multiple - the Company has received multiple Withdrawal Notices in a short period which will have a negative impact on its Liquidity; or

(iii)    future - the Company considers that if the redemption is paid on the Payment Date, it may affect the Company’s Liquidity to pay future anticipated redemptions of other Noteholders’ Notes.

(b)    Timing - Any extension of the Payment Date will be made until the time that the Company considers that it has sufficient Liquidity to pay the Monies Owing on the redemption of the Noteholders’ Notes, and any other upcoming redemptions which the Company reasonably anticipates.

(c)    Part-payments - If the Company extends a Payment Date, the Company may, at its discretion, make part payments of the Monies Owing before the extended Payment Date.

(d)    Interest continues - Subject to clause 5.5(c), if the Payment Date is extended, then interest under clause 4 will continue to apply to the balance of the Monies Owing, calculated from the original Payment Date until such time as the Monies Owing are paid in full.

4.5    The marketing material by which the M Notes were promoted

64    The M Notes were marketed through a variety of channels. Some forms of marketing were specific to the product, but others promoted the Mayfair Group more generally. The relevant contents of each of the relevant marketing materials is set out in addressing the alleged contraventions. At this stage, it is sufficient to note that the relevant marketing materials were as follows:

(a)    the Mayfair Platinum website;

(b)    the Term Deposit Guide website;

(c)    the M Core Notes brochure;

(d)    the M+ Notes brochure;

(e)    the Mayfair Group corporate brochure;

(f)    newspaper advertisements;

(g)    email advertisements (referred to as “electronic direct mail” or EDMs); and

(h)    use of sponsored links in Google and Bing web search facilities.

65    Mr Mawhinney elected to go into evidence on some issues, one of which was the legal advice said to have been obtained in relation to the marketing material used to promote the M+ Notes, the M Core Notes and the Australian Property Bonds. I address the legal (and accounting) advice received below from paragraph 163.

4.6    The last quarter of calendar 2019: negative media, difficulty settling on acquisitions, obtaining external funding from Naplend

66    By mid-August 2019, Mr Mawhinney was starting to express concern about how the Mayfair Group sales team was going, as new investments were not being secured at the pace Mr Mawhinney expected. He expressed these concerns in WhatsApp messages. By mid-October 2019, concerns were intensifying. On 15 October 2019, Mr Mawhinney referred to needing to “pull out all stops” to get acquisitions settled “in a clean and timely manner”. Despite that close focus on securing incoming revenue from investors, numerous requests to extend settlement dates on real estate acquisitions (often attracting default rates of interest) were made through October and November 2019. Funds were so tight that settlements and deferrals were being juggled, sometimes on a daily basis, waiting for funds that might come in from new investors that day, in order to decide which property settlements to proceed with and which to defer.

67    On 27 November 2019, Mr Mawhinney informed the team that, while 29 properties had been settled by that time using “our own resources”, he was engaging with financiers to obtain external funding. Mr Mawhinney said the plan was to “draw down on the equity in the properties we currently hold unencumbered and roll this money into new settlements”. Around this time, settlement extensions continued to be requested into December 2019, with some properties requiring more than one extension. Media interest in the Mayfair Group business was evident in December 2019, with questions received from the Australian Financial Review (AFR). Mr Mawhinney described the AFR’s article as a “very low blow” and considered legal action. Mr Mawhinney also approved the provision of a response to The Guardian.

68    Mr Mawhinney’s WhatsApp messages through December 2019 referred to financial “pain”, needing “breathing space to weather this media and ASIC stuff”, and to his plans for promotional activities to “re-focus and re-balance the messaging in the media”. All the while, many property settlement dates were being deferred (although it appears that the acquisitions of some “small blocks” were being accelerated). Mr Mawhinney blamed negative media coverage for the investor pipeline dropping off and for some investors, who were almost over the line, pulling out. Mr Mawhinney engaged with media strategy advisers seeking advice to address negative media articles (particularly in the AFR).

69    In the context of this acute need for cash and negative media coverage, Mr Mawhinney engaged with Naplend Pty Ltd (Naplend) to obtain external funding. Naplend was also referred to as “Napla” in some documents.

70    By a Facility Agreement dated 20 December 2019, Naplend extended a facility with a “Commitment” amount of $8.268 million. The stated purpose of the facility was to enable the “release of equity” in respect of various properties acquired, and to assist with the acquisition of the balance of the properties listed in a schedule to the Naplend Facility Agreement. The term of the facility was four months, unless extended, with one two month extension available, at the lender’s discretion: cl 6.2. Interest was due at 2% per month (2.5% for any period after the stated “Termination Date”) with an additional 1% interest payable if the facility was in default: cl 8. The “Borrower” under the Naplend Facility Agreement was each of the property holding entities that were trustees of the various Mission Beach Property Trusts, as well as Jarrah Lodge: Sch 1. The “Guarantor” was Mayfair Group Pty Ltd and Mr Mawhinney personally: Sch 1. The Naplend Facility Agreement contained, as Sch 7, a list of the properties held by the relevant property holding entities, or for which deposits had been paid.

71    Schedule 8 specified the “Permitted PAG Security” that the Security Trustee could hold. That included only one mortgage over real property (Lot 999 Seaview Street, Mission Beach (the Seaview property)). Otherwise, all but one of the various real properties held were mortgaged to Naplend (excluding the Dunk Island titles, which were mortgaged to the vendor, Family Islands Group Pty Ltd (Family Islands Group)).

4.7    Variations to the Naplend Facility Agreement in January, February and May 2020

72    The Naplend Facility Agreement was formally amended on 21 January 2020, 7 February 2020 and 6 May 2020 (Third Amending Deed). The terms of the amending deeds were mostly relevant insofar as they altered the basis upon which the Borrower could make repayments and obtain releases of Naplend’s mortgages. That matter is principally an issue arising in connection with certain of the misrepresentation claims advanced by ASIC concerning the Australian Property Bonds, and is discussed further below, in addressing that part of the case.

73    There is, however, an issue that requires findings to be made. In substance, Mr Mawhinney contended that the repayment and mortgage release terms that were formalised by the Third Amending Deed from 6 May 2020, were in fact agreed in substance earlier such that, by 23 April 2020, Naplend had agreed that it would discharge mortgages over individual properties without insisting on the conditions set out in the Naplend Facility Agreement.

74    On 21 April 2020, Dentons (solicitors for Naplend) sent Mr Mawhinney and Mr King of KHQ Lawyers drafts, which were subject to client comment, of various documents including the Third Amending Deed.

75    On 23 April 2020, Mr Mawhinney emailed Naplend, referring to a prior discussion, saying that the release schedule would not work with the Mayfair Group’s incoming investors from the “Property Bond” (which I take to be a reference to the investors Mr Mawhinney was expecting would acquire the Australian Property Bonds investment product, which had just been launched). In his email, Mr Mawhinney proposed alternative release arrangements.

76    Naplend replied on 23 April 2020, observing that Mr Mawhinney’s proposal was a “marked difference” from what had been proposed, agreed and documented following an event of default. Naplend said that, nonetheless “we have created a paydown schedule that will allow for individual property releases”. The email contained a table specifying the purchase price, “Release LVR” and “Required Paydown” for properties in three groups (later amended to four groups with adjusted loan to value ratios (LVRs)). The email said that the arrangement would provide “$29.5M of property security to place”. However, the email also stated that a paydown of $2 million was required by 20 May 2020, and a further $5 million by 1 June 2020.

77    This proposal was not accepted by Mr Mawhinney, who replied saying that “the release is still too marginal for the short term inflows”. He specified revised LVRs for three categories of properties. Mr Mawhinney’s counter-offer was then rejected by Naplend, at which point Mr Mawhinney replied “Ok - please proceed”. The Third Amending Deed was then executed, dated 6 May 2020.

78    Email correspondence from 23 to 29 June 2020 (post-dating formalisation of the Third Amending Deed) shows Mr Mawhinney’s communications with Dentons and Naplend seeking a mortgage release in respect of 46 Sanctuary Crescent, which was said to be the property over which security was to be given to the investor in the first Australian Property Bond that was being issued. There was a letter from Dentons, following which Naplend set out a practical proposal for the steps by which mortgages could be released. In addition to expressing a preference for the process to be undertaken in “batches of properties every few days”, Naplend’s process was relatively straightforward: the Mayfair Group would identify the property (or properties) in respect of which a mortgage release was sought, Naplend would confirm the amount required to be transferred to Naplend for it to discharge the relevant mortgage(s), and Naplend would give instructions to Dentons to remove the mortgage(s) once the funds cleared, leaving the Mayfair Group (or more accurately, the specific property holding trustee company with title to the property) free to deal with the property and grant a mortgage to an investor in the Australian Property Bonds.

79    As far as the evidence goes, it does not show Naplend declining to release individual mortgages by relying on the condition in the Third Amending Deed that would have allowed Naplend to refuse a release if a default was continuing under the Facility Agreement. Rather, it was willing to release mortgages over two further properties in respect of which Australian Property Bonds were to be issued (7 Rise Crescent and 23 Sanctuary Crescent) although, for reasons that were never adequately explained, the mortgage over 7 Rise Crescent in favour of an investor, Mr PK, was never registered on title.

80    I find that, from 6 May 2020, entities in the Mayfair Group (relevantly to the Australian Property Bonds issues, Australian Income Solutions and the property holding trustee entities that were anticipated to be the issuers of the Australian Property Bonds) had reasonable grounds for considering that Naplend would be unlikely to invoke its right to refuse to release its first mortgages over specific properties on the basis that there was a continuing default under the Naplend Facility Agreement. Those entities had reasonable grounds for considering that mortgage releases could be obtained from Naplend over specific properties so as to make them available to be mortgaged to investors in the Australian Property Bonds.

81    However, I do not consider that such reasonable grounds existed prior to the execution of the Third Amending Deed on 6 May 2020. Having regard to the email correspondence through which those variations were negotiated, I find that, from the evening of 23 April 2020, Mr Mawhinney was aware that Naplend was prepared to enter into a further variation of the Facility Agreement, which would allow the relevant Mayfair Group entities to procure the release of Naplend’s mortgages over individual properties on the terms specified in Naplend’s email of 3.09pm on 23 April 2020. Nevertheless, Naplend did not give any indication that it would be willing to give effect to those varied release arrangements prior to their being formalised in documentation. Nor was there any evidence tendered of a mortgage release having been made before the Third Amending Deed was finalised on 6 May 2020. On that basis, I do not consider that any of the relevant Mayfair Group entities had reasonable grounds for being confident that Naplend would agree to release its first-ranking mortgage over any particular property prior to 6 May 2020.

4.8    The Security Trustee and the security structure

82    The security arrangements are relevant as the M Core Notes were promoted and issued as secured promissory notes. The Security Trustee was PAG. It was appointed pursuant to a Security Trust Deed dated 24 October 2019, between M101 Nominees (which was the issuer of the M Core Notes) and PAG. There was significant dispute between Mr Mawhinney and ASIC regarding the value of the interests secured in favour of M Core Notes holders through the security structure. On Mr Mawhinney’s case, the value fluctuated between 100% and 119% of the value of the funds of M Core Notes holders. ASIC’s expert, Mr Meredith, was of the view that the securities were insufficient both in monetary terms, and having regard to the various features of the security structure. The opinions of Mr Jahani also come into the frame of this dispute, as further set out below.

83    Under the terms of the Security Trust Deed, the Security Beneficiaries were the holders of the M Core Notes and PAG in its capacity as Security Trustee. The features of the security arrangements that were promoted in connection with the M Core Notes were that the security was “asset-backed”, “dollar-for-dollar”, first-ranking and over assets that were otherwise not encumbered. The promotional statements conveying these features are set out below (see paragraph 798 and following) in addressing the Security Representation.

84    The security interests actually granted in favour of PAG comprised:

(1)    A security interest in M101 Nominees’ bank account with ANZ pursuant to a Specific Security Deed Poll dated 24 October 2019. The terms on which this security interest was granted did not prevent M101 Nominees using the funds in its bank account for investment and capital management purposes across the Mayfair Group.

(2)    A security interest in the property of M101 Nominees, other than its account with the ANZ Bank, pursuant to a General Security Deed Poll dated 24 October 2019.

(3)    A security interest in the units held by Sunseeker in the property holding unit trusts. The trustees of those unit trusts were the Mayfair Group entities that held the title to real estate, although not all of the unit trusts held real property. Pursuant to a series of Deeds of Settlement, Sunseeker held the beneficial interest in the assets of each of the relevant property trusts and, in turn, PAG held a security interest in the units held by Sunseeker. PAG’s security interest was granted by a combination of Specific Security Deed Polls and Addition Deeds which brought those security interests within the “Security Property” covered by the Security Trust Deed.

(4)    A security interest in property held by the trustees of the property holding unit trusts, but excluding real estate held by the trustees, granted pursuant to a series of General Security Deed Polls and Accession Deeds.

(5)    A mortgage on one property, which was the Seaview property. While this mortgage was lodged on title on 3 January 2020, it only became first-ranking when Naplend’s mortgage was released on 13 January 2020.

85    The units held by Sunseeker over which a security interest was granted included units held by Sunseeker in the Mayfair Island Trust, which was the trust holding the Dunk Island interests.

86    It was common ground that another Mayfair Group company, Eleuthera undertook what might broadly be described as a treasury role in the Mayfair Group. Most of the funds received into M101 Nominees’ bank account from those investing in the M Core Notes were transferred to Eleuthera’s bank account. Eleuthera would then typically provide the funds needed to settle the purchases of real estate by the property holding trustee entities. While M101 Nominees’ bank account was within the security structure, Eleuthera’s bank account was not, and the funds held in M101 Nominees’ bank account was significantly lower than the value of the M Core Notes that had been issued. For example, Mr Meredith’s report identified that the highest balance of M101 Nominees’ bank account at any point was $5.996 million on 20 November 2019. Even at that peak, the balance was far below the face value of the M Core Notes on issue at that time, which stood at $15.733 million.

4.8.1    The loan by M101 Nominees to Eleuthera: whether a 10-year term, or advances were payable on 12-month terms

87    In addition to security over M101 Nominees’ bank account (from which money rapidly left, going to Eleuthera), the security structure included a security interest in other property of M101 Nominees. That property included a receivable, being the loan advanced by M101 Nominees to Eleuthera formalised by a Facility Agreement dated 18 October 2019, and was M101 Nominees’ only substantial asset. The loan was unsecured. Clause 2.1 of the Facility Agreement acknowledged that some advances had already been made by the time that agreement was executed and came into effect.

88    The parties were in dispute regarding whether Eleuthera was only obliged to repay sums advanced under the Facility Agreement at the end of 10 years (ASIC’s contention), or whether it was obliged to repay each advance within 12 months of the date of the advance (Mr Mawhinney’s contention). This issue is relevant to the question of whether M101 Nominees’ business model was fatally flawed from the outset (which was the view of Mr Jahani, the liquidator of M101 Nominees) and to the value of the security held by PAG within the security structure.

89    ASIC contended that the security interest granted in favour of PAG over M101 Nominees’ other property was “potentially worthless” insofar as it comprised the receivable from Eleuthera, and M101 Nominees did not have any other assets of value that would be covered by the General Security Deed. Mr Mawhinney contested whether the receivable from Eleuthera was of little value, as ASIC contended. I address this contest below from paragraph 93.

90    On the issue concerning the term of the Eleuthera loan, the relevant features of the Facility Agreement are as follows:

(1)    The Facility Agreement was between M101 Nominees as Lender, and Eleuthera.

(2)    The Commencement Date was defined as 18 October 2019. The Expiry Date was defined as “10 years with an option to extend”. The Term was defined as “10 years with an option to extend subject to the Expiry Date and subject to the Lender providing the Borrower with three (3) months written notice to extend the Term”.

(3)    The Facility Limit was $250 million.

(4)    The Interest Rate was 8.0% per annum, but the obligation to pay interest could be discharged through the issuing of share capital in Eleuthera, at Eleuthera’s discretion.

(5)    The terms concerning the facility and repayment were as follows (emphasis in original):

2     Facility

2.1     Facility Agreement

The Lender agrees, on the terms and subject to the conditions set out in this Agreement, that it has provided, and will provide, Advances to the Borrower by way of cash advances up to the Facility Limit for the Term.

2.2     Advances

(a)    Subject to the prior and continuing satisfaction of the Borrower’s obligations under this Agreement, the Lender shall, upon request by the Borrower, provide an Advance to the Borrower by way of cash advance on the Drawdown Date on the terms and subject to the conditions set out in this agreement.

(b)    The Borrower may only request an Advance under clause 2.2 where the amount requested will not result in the sum of all Advances (less any repayments) exceeding the Facility Limit.

2.3     Drawdown Terms

(a)     Unless otherwise agreed in writing the terms of each Advance shall be as follows:

(i)    Term – 12 months (being a Minimum Term)

(ii)     Interest rate – 8.0% p.a. calculated and paid monthly in arrears within 30 days of the end of each calendar month

2.4     Expiry

This Agreement ends on the Expiry Date as defined in clause 1.1 [10 years].

3     Repayment of Facility

3.1     Repayment

(a)     The Borrower must repay and finally discharge the Repayment Amount to the Lender by no later than the Expiry Date unless otherwise agreed in writing by the Lender and the Borrower.

(b)     Notwithstanding the Term, the Lender agrees that the Borrower may repay the whole or any part of the Amount Owing including the Interest accrued then outstanding at any time and from time to time provided:

3.2     Payments

(a)     All payments by the Borrower to the Lender under this Agreement must be made in Australian Dollars in freely and immediately available funds at such office or bank as may be notified to the Borrower from time to time by the Lender.

(b)     The parties acknowledge and agree that any payments made by the Borrower to the Lender pursuant to this Agreement will be applied firstly in payment of Interest and secondly in repayment of the Amount Owing outstanding at that time.

(6)    The term “Advances” was defined as follows (emphasis in original):

Advances means each amount provided for or, where the context requires, to be provided at any time pursuant to this Agreement by the Lender to, or at the direction of, the Borrower …

(7)    The term “Repayment Amount” was defined as “the Amount Owing plus Interest”, and Amount Owing was defined as “the sum of Advances made by the Lender to the Borrower, less the sum of any repayment of the Advances made by the Borrower to the Lender”.

(8)    Although appearing as if it were a defined term in cl 2.3(a)(i), the Facility Agreement contains no definition of “Minimum Term”.

91    The Facility Agreement is poorly drafted. It contemplated each Advance being made on “terms”, but cl 2.3(a)(i) does not sit happily with cl 3.1 on repayment. Nevertheless, doing my best to determine the parties’ objective intentions, the better view is that Eleuthera was not obliged to repay any Advance made by M101 Nominees prior to the end of the Term, which is the same as the Expiry Date. I have reached that view on the basis that:

(1)    The Facility Agreement contemplated Advances being made up to the Facility Limit, and required repayment of the Repayment Amount by “no later than” the Expiry Date (ie 10 years after commencement). The Repayment Amount was defined (via the definition of Amount Owing) as the “sum of Advances made” plus Interest, but deducted against that “any repayment” of the Advances made. The reference to “any repayment” of the Advances prior to the end of the 10-year Term strongly suggests that there was no obligation on Eleuthera to make repayments of principal before that time. It operates sensibly on the basis that Eleuthera could, but was not obliged, to make repayments of principal before that time.

(2)    The reference to each Advance being made on the basis of a term of “12 months (being a Minimum Term)” can sensibly, if inelegantly, be construed on the basis that Advances could not be repaid (voluntarily) before 12 months, thereby securing for M101 Nominees some interest income. That is supported by the inclusion of the words “Minimum Term” even if not defined.

92    I have reached the view that Eleuthera was not obliged to repay any sums advanced by M101 Nominees prior to the end of the 10-year Term of the Facility Agreement, by reference to the terms of that agreement itself. That conclusion is consistent with the recording of the entirety of the loan to Eleuthera as a non-current asset in M101 Nominees’ balance sheet. It was only reclassified by management as a “current” asset on M101 Nominees’ balance sheet in a set of financial statements provided by Mr Mawhinney to Mr Jahani on 28 April 2021, significantly after Mr Mawhinney and various entities in the Mayfair Group were mired in litigation. Counsel for Mr Mawhinney volunteered that a claim previously made — that the reclassification was made by Mr Mawhinney on 13 August 2020, and so occurred before Mr Jahani’s Court Report was received — was incorrect, and that the change had been made in response to the Court Report (which highlighted the timing mismatch arising where the Eleuthera loan had a 10-year term). Eleuthera also recorded its liability to M101 Nominees on its balance sheets (including as at 30 June 2021) as a non-current liability. My conclusion on the term of the Eleuthera loan is also consistent with the fact that Eleuthera has not in fact sought to repay the Advances on a 12-month term basis to M101 Nominees.

4.8.2    The value of the Eleuthera loan given Eleuthera’s balance sheet

93    A related dispute concerns whether the loan to Eleuthera had material value as an asset of M101 Nominees. ASIC contended that even if the loan was repayable on demand (which was not its primary position and is not what I have found), the loan still had little value in the security structure due to:

(a)    Eleuthera’s assets mostly comprising intercompany loans;

(b)    Eleuthera having negative net assets in 2019 and 2020; and

(c)    M101 Nominees having no control over Eleuthera’s activities, such that it could continue to take on more and more liabilities, diminishing the value of the security held by PAG through the unsecured loan by M101 Nominees to Eleuthera.

94    I accept, for the reasons referred to by ASIC, that the component of the overall security structure represented by M101 Nominees’ receivable from Eleuthera was subject to significant limitations, which meant that anyone considering the value of that security could not safely conclude that the entirety of the loan owed by Eleuthera would be recoverable, whether in 10 years or some shorter period of time.

4.8.3    The debt to equity swap

95    As noted above, a significant point of dispute in the proceeding concerned the value of the securities held by PAG. In addition to the matters just addressed concerning the Eleuthera loan, the broader dispute about the value of the security held by PAG involved a significant dispute concerning when the trustee entities had their debt replaced with equity funding. That point was important because, if the property holding trustees were indebted to Eleuthera for amounts advanced to settle on the real estate purchases, the value of the beneficial interest in the units held by Sunseeker in the trusts would be negligible. To illustrate the point on a simplified basis, if a property holding trustee held property acquired for, and worth, $500,000, and was indebted to Eleuthera in that same amount because Eleuthera advanced the funds to make the purchase, the value of the beneficial interest in the units held by Sunseeker (subject to the security arrangements in favour of PAG) would be zero.

96    I have used the terminology of “debt to equity swap”. Mr Mawhinney’s counsel rejected that terminology on the basis that it was a mischaracterisation. Mr Mawhinney’s characterisation was that the debt was “replaced” by equity, or (in the course of cross-examination of Mr Meredith) that the debt was “converted” to equity. The reasons for considering the terminology of “debt to equity swap” to involve a mischaracterisation were not explained, beyond suggesting this language had a particular “connotation”. As long as it is understood that the “debt to equity swap” terminology does not carry any implicit criticism or pejorative connotations — which it ought not, given that such a swap replaces one funding source with another — I see no reason not to use the common expression used to refer to such changes to an entity’s funding structure.

97    Mr Mawhinney’s contention was that the value of the securities supporting the M Core Notes should be assessed in accordance with the revised Security Trustee reports produced by PAG to ASIC on or around 20 April 2020. Those reports were premised on the property holding trustee companies not being indebted to Eleuthera, or any other Mayfair Group company, for sums advanced for the acquisition of properties. In other words, the revised Security Trustee reports that Mr Mawhinney submitted the Court should accept were premised on the debt of the property holding trustee companies having been converted to equity. As the recast Security Trustee reports prepared by PAG go back at least as far as November 2019, it raises the question of when that debt to equity swap did occur. While ASIC did not accept that a full set of documentation necessary to effect a complete debt to equity swap had been tendered for all the property holding trusts and all the advances, that contention was not advanced with great vigour. Rather, ASIC’s principal contention was that the debt to equity swap only occurred in late March 2020, and not on 20 December 2019, as Mr Mawhinney contended.

98    The resolution of this issue, and a proper understanding of the context of the security trust structure and relations between PAG and the Mayfair Group, necessitates stepping through the dealings between PAG and the Mayfair Group in connection with the security structure and value supporting the M Core Notes.

99    It was common ground that the initial intention had been to provide PAG with first-ranking mortgages over the real property acquired by the trustee companies. Quite when and why that plan changed was not explored by the parties.

100    Although, as referred to above, PAG ultimately wound up producing the Security Trustee reports (and revised versions of the reports for earlier periods), the system was supposed to function, and did initially function, on the basis that those reports would be submitted to it.

101    Before delving into the correspondence, I note that Mr Mawhinney was a party — variously as an author or recipient (including by carbon copy, or “CC”) — to all the email correspondence referred to in this section (to paragraph 125), other than Mr Divens’ email of 11 December 2019 to Mr van Wegen of PAG.

102    PAG was quick to identify the problem in the Security Trustee reports provided to it simply referring to the value of the properties in the trusts when the security was held over the units in the trusts. Having received the Mayfair Group’s report for the period to 30 November 2019, Mr van Wegen emailed Mr Divens as follows on 11 December 2019 (emphasis added):

Hi Michael

Thanks for the report, a good summary. A couple of questions:

1.    We note the values you have provided for settled properties, deposits and Dunk Island, etc. The security we have in place is over the units of each of these trusts – meaning, we have security over the net assets of these trusts, not the value of the assets themselves. Therefore, the booking of monies into these trust [sic] for settlements becomes important. How is it intended that monies used in the trusts will be booked? If each trust will have a loan to either M101 Nominees or another Group entity, then the net asset value of the units is negligible. This would therefore not be $ for $ security. We’re mindful that, although originally contemplated, we don’t have first ranking security over real property directly. In its absence, we need to ensure that alternative security is just as valuable and reliably secured.

2.    As we’ve discussed previously, as Security Trustee, we will need to have visibility on the notes being issued by M101 Nominees – names, amounts, terms, etc. And have visibility that interest obligations and capital return obligations are being met. The report does not have this information, understandably, but we thought we’d have access to this information in the CRM by now, which we don’t seem to have. We can see the various properties on the CRM, but not the noteholder information. If the monthly report is not going to contain this information, can our access to it in the CRM be urgently initiated.

Based on the report and the information we have access to currently, putting our Security Trustee hat on, we don’t feel fully comfortable as yet. It’s early days, but we’re keen to get these things resolved sooner rather than later.

Let us know your thoughts.

103    While it is rather surprising that the seemingly obvious issue raised by point 1 of Mr van Wegen’s email appears not to have occurred to those in the Mayfair Group to that point, by email dated 11 December 2019, Mr Divens acknowledged the concern raised and said he had asked “Venn” (being Venn King of KHQ Lawyers) for his opinion. As mentioned above, Mr Mawhinney was not copied on Mr Divens’ response to Mr van Wegen.

104    After some internal workshopping of the numbers, Mr Anasis submitted the Security Trustee report to PAG for the period to 31 December 2019 on 13 January 2020. The report continued to include the value of properties held by the property holding trusts and deposits paid but not yet settled for purchases to be made by those trusts, in addition to “Dunk Island Deposits paid” at $8.5 million. This report, unlike the report to the end of November 2019, included an entry of $1.97 million for “Properties valuation change” and deducted $3.91 million for the “Napla Loan” (Napla being a reference to Naplend), which was in place and drawn down upon by then. If any one of the entries for the deposits, the Dunk Island deposits or the increase in property value were excluded, the security would be below 100% of the M Core Notes issued to that point, which stood at $33.212 million.

105    PAG was not comfortable with the inclusion of the line item for the increase in value of the properties, particularly given what PAG described as “the Mayfair Group’s spending spree” in the area. Mr van Wegen emailed on 21 January 2020 saying (emphasis added):

I have a couple of questions on the December report:

… We note that a revaluation upwards has occurred based on the accompanying independent report. Has the property price increase in the area been triggered largely because of the Mayfair Group’s spending spree? If so, would it be more prudent and conservative to await a history of future non-Mayfair Group transactions to verify this property price increase? And therefore, should we revert to the cost price for the properties and remove the revaluation amount? We are mindful that the surplus security amount is only as a result of the revaluation – ie without the revaluation amount, we would not have sufficient security. This is a little concerning as security trustees because the revaluation is not a formal revaluation.

106    An email was sent by the Mayfair Group to PAG on 5 February 2020, attaching the report in respect of the period to 31 January 2020. It continued to include the same line items as the previous report, with the valuation uplift stated to be 4% and to be a conservative figure. By the time of this report, the Naplend loan balance stood at $10.8 million.

107    A further report was issued by the Mayfair Group to PAG on 19 February 2020, covering the period to 14 February 2020 (PAG had requested that weekly reports be instituted, although it appears the cycle moved to fortnightly). Over $45 million in M Core Notes investments had been received to that point. The same line items (including the value of settled properties, deposits and valuation uplift) appeared. The Naplend loan stood at $11.9 million. By this time, the figure for “Dunk Island Deposits paid” had risen to $13.65 million (though this figure was later corrected to $10.1 million, apparently in connection with changes to the contracted instalment payments for the acquisition of the Dunk Island titles).

108    The next report in evidence was for the period to 1 March 2020, issued to PAG by email on 4 March 2020. By this time, M Core Notes inflows stood at $54.76 million. The same line items again appeared; the Naplend loan was then $12.57 million.

109    A report for the period to 20 March 2020 was emailed to PAG on 24 March 2020. This report recorded: that inflows in respect of the M Core Notes stood at $59 million; the value of properties settled in the three main trusts; deposits paid for unsettled properties; the Dunk Island deposits ($11 million); and a 4% valuation uplift, including a separate 4% valuation uplift on properties contracted but not settled. Of interest, the valuation uplift for the unsettled properties was $5.57 million, which was only slightly less than the deposits paid on unsettled properties, which totalled $5.89 million.

110    The day before this report was received by PAG (ie on 23 March 2020), ASIC issued a notice under s 33 of the ASIC Act (s 33 Notice) to PAG. When PAG responded to the Mayfair Group regarding this report, Mr van Wegen expressed PAG’s discomfort with relying on an uplift in the valuation of properties where deposits had been paid, but in respect of which the property acquisition had not settled (in addition to its unease about relying on uplifts even for settled properties). Mr van Wegen calculated that, excluding the uplift in the valuation of unsettled properties, there was a shortfall in the security position. He wrote (emphasis added):

We don’t feel comfortable using an uplift value on properties to be settled on which deposits have merely been paid – the title of the property does not rest with the trusts and, in theory, these deposits themselves could be lost if settlement doesn’t occur. I think we would be negligent to rely on this uplift value as security for the noteholders in support of $ for $ security. We are going to need to find additional security to cover the difference of $2,372,143 at a minimum. As we’ve mentioned previously, we’re not entirely comfortable with a reliance on any revaluation to support a shortfall, particularly in this current global economic environment, so ideally we’d find additional security of $4,405,739. Hope this makes sense.

111    Mr van Wegen added that PAG wanted the matter resolved before “the submission to ASIC on 6th April”, which I take to be a reference to the response to the ASIC s 33 Notice issued to PAG.

112    In response to Mr van Wegen’s email setting out PAG’s concerns, the Mayfair Group corrected some cell inputs, but retained the uplift on the unsettled properties, which contributed $5.57 million to the security position that the Mayfair Group was presenting to PAG. By this stage, M Core Notes inflows stood at $59.2 million, the Dunk Island deposits at $11 million and the Naplend loan at $13.5 million. The combined valuation uplift (on settled and unsettled properties) contributed $7.6 million to the security position stated. The Mayfair Group’s email suggested to PAG that the issue of relying on unsettled property uplifts be discussed.

113    It is not clear whether there was a phone call but, in any event, PAG’s concerns remained. On 26 March 2020, Mr van Wegen emailed the Mayfair Group setting out PAG’s concerns as follows (emphasis added):

Hi John and James

Nora and I would like to set some concerns with respect to our ST role.

We’re keen to get the below resolved ASAP – we are concerned with ASIC notices flying around too that we don’t have $ for $ security which is required under the note provisions. As Security Trustees, we have advised previously that we are not comfortable with $ for $ relying on revaluations generally, even on settled properties. This was the case again on the ST report from 1st March. This has gotten considerably worse up to 20th March, in fact now relying on revaluation of properties that as yet have not settled. We don’t see a rationale for reliance on this. We feel though that our concerns are not being met – in fact this concern is simply being swept aside. We want to work with you to find a solution and ensure our obligations and your obligations are being met.

The original discussion when we took on this role was that we would have security over underlying property – we have worked with you to vary away from this by accepting the units in the trusts to the extent that value was relevant, but those units are currently not enough.

We’ve also spoken about getting ST reports weekly so that we can update unit issues and confirm $ for $ valuations with regularity (Venn’s advice was that weekly was minimum) – but we have not received a report between 1 March and 20 March, over which period there is a considerable gap building, in our view, between notes accepted and underlying security.

Can you please revert with some urgency on how this will be resolved or let’s arrange a call to discuss. We’d like a revised ST report as part of our ASIC submission next week showing categoric $ for $ security, this is in everyone’s interest.

114    The Mayfair Group then obtained some advice from Chris Baring-Gould of the “CFO Centre”. Mr Baring-Gould produced a justification for including the value uplift for unrealised gains on unsettled properties based on an analogy with contracts for difference. That rationale was provided to PAG on 30 March 2020, but was contingent on the contracts to purchase the real properties enabling each relevant unit trust to on-sell the purchase contract to an unrelated third party. PAG queried whether that was the case, by email to the Mayfair Group on 31 March 2020.

115    In yet another version of the 20 March 2020 Security Trustee report (sent to PAG on 31 March 2020), the Mayfair Group added a new line item, being a valuation uplift (4%) on Dunk Island titles, continuing also to list the “Dunk Island Deposits paid” of $11 million.

116    Throughout this period, the correspondence overall reveals PAG working closely with the Mayfair Group to document a position that could be submitted to ASIC and which would show the necessary dollar for dollar security.

117    Critically, it was around this time that the 20 March 2020 Security Trustee report started to be presented in a different format. The new format was one that no longer just recorded, as line items, the value of the settled properties and deposits on unsettled properties (together with uplifts). The new format (which was created by PAG) listed, as the secured assets, the units in the property holding trusts (including those where deposits had been paid but not settled). The values of the units presented are such that they can only have been prepared on the basis that the property values were not offset (fully or even substantially) by intercompany loans.

118    Not only was the 20 March 2020 Security Trustee report re-cast in this form, but, around 17 April 2020, Security Trustee reports for earlier periods were also re-cast by PAG in the form that presented the value of the units. Mr Mawhinney approved the provision of this batch of revised reports to ASIC and for PAG to continue to draft future reports. Thereafter, PAG drafted the reports itself.

119    The reformulated reports that PAG assembled, and provided to the Mayfair Group for approval prior to PAG submitting them to ASIC, listed, as “secured assets”, units in trusts holding settled properties — including the value of units in the trust acquiring Dunk Island, units in trusts where deposits had been paid, but the properties had not settled, and units in Jarrah Lodge Trust, described as a trust which had loaned monies to Mayfair Group companies and third parties. These line items were recorded in the reformulated Security Trustee reports going back to November 2019.

120    In sending the collection of revised Security Trustee reports to the Mayfair Group for approval on 17 April 2020, Mr van Wegen said: “It has come to light that these reports have not been quite right in the past and missing valuable security – you’ll see that uplift on unsettled properties is not needed, so we’ve taken this out including the rationale”. The uplift on valuations for settled properties and for Dunk Island appeared in all of the revised Security Trustee reports attached to Mr van Wegen’s email from the January 2020 report onwards. Those uplifts were recorded as separate line items – not attributed to the stated value of the units in any of the trusts.

121    The recasting of the Security Trustee reports to refer to the value of the units in the property holding unit trusts is intermingled with the debt to equity swap that Mr Mawhinney said was undertaken in order to avoid the problem PAG recognised early on, namely that with the property holding trusts owing funds to Eleuthera (or indeed any other Mayfair Group company that funded their real estate acquisitions) the value of the properties would be reduced by the quantum of the debt, rendering the units valueless as security. Swapping debt for equity was identified by Mr King as a means to fix that problem.

122    After ASIC sent its s 33 Notice to PAG, Kate Power, an in-house lawyer of PAG, sent an email to the Mayfair Group on 25 March 2020, in which she forwarded an email to the Mayfair Group from 20 December 2019 attaching a number of documents to be executed. The 20 December 2019 email referred to the documents as “relating to the security arrangement for the M101 Nominees Notes” and explained the documents attached. Without getting into the detail of the documents, as described, they were documents drafted to replace the debt in the property holding trustee entities with equity. In following up, on 25 March 2020, about the need to sign them as soon as possible, Ms Power said they were needed “as part of the ASIC audit which we are due to respond to on 6 April”.

123    Counsel for Mr Mawhinney took the position that the decision had been taken in December 2019 to equity fund the property holding trusts and reverse any previous debt funding, replacing it with equity funding. He accepted, though, that the legal documents were not actually signed until March 2020. Counsel for Mr Mawhinney observed that, while the legal documents purported to give effect to those arrangements from 26 August 2019 (ie to backdate the arrangements), he was not contending that they were legally effective from that date.

124    Nevertheless, in closing submissions, Mr Mawhinney advanced the argument that the replacement of debt with equity had an “effective date” of 20 December 2019 on the basis that there was a consensus among the decision-makers at that date that the existing debt structure should be replaced with equity. As set out above, that followed the realisation that the existing debt structure meant that the units over which PAG held security were not valuable while the trusts had intercompany debts on their balance sheets.

125    In support of the position that 20 December 2019 should be treated as the “effective date” of the change from debt to equity funding, Mr Mawhinney relied on correspondence between 11 and 17 December 2019 involving Mr Mawhinney and through which the problem was identified by PAG (as set out above at paragraph 102), and a solution was proposed by Mr King and then slightly adjusted by Mr Mawhinney. I accept that Mr Mawhinney was central to this discussion of the solution, and that moving to an equity-based structure had been agreed upon as the solution to the problem PAG identified. However, identifying and agreeing on a solution in concept is not the same as giving effect to that solution.

126    Mr Mawhinney also relied on general ledgers for Mayfair Asset Holdings as trustee for the Mayfair Island Trust (being the trust holding the interests in Dunk Island), and two of the trustee companies holding properties in the Mission Beach area. Those general ledgers had entries for the issue of units, with a date of 20 December 2019.

127    Even where a company’s “book” is tendered and s 1305 of the Corporations Act applies, it is clear on the authorities that the Court is to accord these records such weight as the Court considers they warrant, viewed in the context of other evidence and the qualities and characteristics of the records themselves. It is not the case that the Court must treat the content of the record as conclusive in the absence of other evidence; the Court applies its common sense: Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1 at [396]–[400] (Austin J); Hoh v Ying Mui Pty Ltd [2019] VSCA 203 at [191]–[193] (Beach and Hargrave JJA and Sifris AJA); Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188 at [128]–[129] and [136] (Gleeson JA, with whom Meagher JA and Simpson AJA agreed); Re St George’s Development Company Pty Ltd (in liq) [2022] VSC 295; (2022) 68 VR 110 at [29] (Nichols J).

128    In a literal sense, all that the general ledgers establish is that an unknown person, at an unknown time, recorded the issue of units in the relevant unit trusts with a date of 20 December 2019. There is no basis on which to conclude, even on the face of the general ledgers, that the entries were made on 20 December 2019. Moreover, in circumstances where the evidence shows that no action was taken to execute the documents needed to give effect to the equity swap until March 2020, and where reports to PAG continued to be presented on a basis that would have made no sense at all if units had been issued, I do not consider that the general ledgers provide a sufficient (or indeed any) basis to conclude that the debt to equity swap was “effective” as at 20 December 2019 and the documentation merely lagged behind.

129    Having regard to these matters, I find that the debt to equity swap did not occur until around 25 March 2020, when PAG prompted the Mayfair Group to execute the outstanding documentation.

130    On Mr Mawhinney’s view of how ASIC’s case was put, the timing of when the security arrangements were changed does not matter, because the representation it pleaded as to the security arrangements was meaningless. ASIC disputed this, as one would expect. I address this below (see paragraph 775 and following).

4.8.4    The value of properties held and thereby the units held in the property holding trusts

131    Until they switched to reporting the value of the units, the Security Trustee reports reported the value of the properties held and from, 31 December 2019, included an amount reflecting an uplift in the value of the properties held. As already explained, for a time, an uplift on the value of properties where the acquisition had not yet settled was included as a line item.

132    Mr Jahani was critical of the recourse to valuation uplifts and suggested that the valuations obtained for the properties were, in “most” cases, below the purchase prices paid (ie the properties had been acquired at prices that exceeded market values). His specific criticisms were as follows (emphasis omitted):

I am of the opinion that without supporting professional and independent valuations, there should have been no fair value uplift in respect of settled properties, and most certainly there should not have been uplifts for unsettled properties, given these were not assets / owned by the relevant entity yet. Appendix 103 is a copy of a valuation schedule provided by Mr Mawhinney, containing purchase amounts versus valuation amounts. I note the valuations are in most cases, below the purchase prices, with the total of the properties valued being 6% below the total purchase price. Hence, an uplift in valuation cannot be supported based on this external and independent data point which relates specifically to each property. I have sighted the valuations referred to in the valuation schedule summary within the books and records of [M101 Nominees].

133    In cross-examination, Mr Jahani conceded that CoreLogic, being the data source on which the 4% valuation uplifts applied in the Security Trustee reports were based, was a reputable source of data regarding value uplifts in the Mission Beach area. Mr Jahani noted, however, that the Mission Beach market was “in part created by Mayfair itself as being the main buyer of property”, which was a point “referred to in a number of the individual valuation reports”.

134    Mr Quinn, the property valuation expert called by ASIC, also accepted that CoreLogic is “a reputable and reliable source of information about the property market”, but emphasised the impact of the Mayfair Group’s own purchasing frenzy on the data regarding property sales and values. Counsel for Mr Mawhinney also took Mr Quinn to data from Realestate.com, which suggested a 37.5% uplift in the four years after the properties were acquired. The impact of the Mayfair Group’s extensive purchasing in the area was also referred to by another valuer (Dwight Hillier of Colliers) in an email to Mr Anasis on 3 March 2020, in which he said:

Due to the significant transaction volumes made by your company, the Mission Beach market has been artificially inflated … We estimate this inflation to be in the order of 15-20%.

135    Many, but not all, properties held by the property holding trustee entities were valued by Herron Todd White (HTW). HTW was engaged by Mr Mawhinney on about 17 February 2020. It was to complete valuations between 24 February and around 20 March 2020. While Mr Mawhinney relied on HTW’s valuations, no witness was called from that firm. When the purchase prices for the properties that were valued by HTW, and also by Mr Quinn, are compared, one can see that, for properties with a total purchase price of $39.55 million, HTW valued those properties at $37.16 million, and Mr Quinn valued them at $33.99 million. For the properties that HTW did not value, the total purchase price (excluding Dunk Island) was $10.82 million, and Mr Quinn’s valuations totalled $10.05 million.

136    Mr Quinn had significant experience in the Mission Beach area. He conducted “kerbside” valuations. Although Mr Quinn’s valuations for many properties were below the purchase prices paid, Mr Quinn was only cross-examined on five properties in that category. He was not cross-examined on other properties where his valuation was below the purchase price paid. Mr Quinn valued the Dunk Island titles at $20 million (as compared with the purchase price of $31.5 million) but was not cross-examined on his valuation of Dunk Island.

137    The findings I make, on the property valuation issues, are as follows:

(1)    The purchase prices paid by the Mayfair Group were not informed by valuations undertaken at the time. Mr Mawhinney only moved to have properties valued around 17 February 2020. Nevertheless, with the exception of Dunk Island — which HTW’s valuers declined to value due to the lack of comparable sales evidence — the purchase prices paid were not so routinely over the valuation later provided by HTW to the business that they can be regarded as reflecting a purchasing spree that purchased so far above market value as to be reckless for that reason.

(2)    There is no evidence that the price contracted to be paid for the Dunk Island titles was based on any valuation evidence. Nor was there any evidence regarding how Mr Mawhinney determined the purchase price to be paid for Dunk Island. There is a degree of recklessness in committing such a large sum to the purchase of Dunk Island without even attempting to obtain a valuation. On Mr Quinn’s valuation, which I accept, the value of the Dunk Island purchase was significantly below the purchase price. As noted above, Mr Quinn’s $20 million valuation was not the subject of any cross-examination. It is also supported by the fact that Dunk Island was subsequently sold in June 2022 for $23.65 million, in superior market conditions to those prevailing at the date of Mr Quinn’s valuation.

(3)    Although Mr Quinn’s total valuations were significantly below the purchase prices paid, not all valuations had that disparity. Mr Quinn’s valuations were also limited by being “kerbside” valuations. This is likely to have had more of an impact for residential premises than vacant blocks (where the main feature that could not be ascertained from the kerbside in a heavily vegetated area, is whether the block was “benched”, ie whether a flattened area had been created on hilly sites for construction to occur).

(4)    The Mayfair Group’s purchasing spree likely had an impact on the valuation dynamics in the Mission Beach area, and contributed to the objective data sources on increasing purchase prices in the Mission Beach area to such an extent that they could not safely be relied on to establish the value of security based on those real estate values (whether directly by reference to the value of the portfolio, or indirectly by reference to the value of units held in the property holding trusts).

4.9    Liquidity Prudency Policy

138    The M+ Notes Deed Poll and the M Core Notes Deed Poll both contained a provision that permitted the issuer to “extend” the date for payment of an investor’s funds if it considered that it did not have sufficient liquidity to fund the redemption, had received multiple withdrawal notices in a short period, which would affect its liquidity, or the issuer considered that if the redemption was paid when due, it may affect its capacity to pay future anticipated redemptions of other investors’ notes.

139    However, these Deed Polls were not routinely sent to potential investors. Of the 12 investor witnesses in the proceeding (including investor Mr RR, discussed in further detail below), there was only evidence of two investors (Mr AH and Ms CvP) having received a copy of the Deed Poll (in both cases, the M+ Notes Deed Poll). In light of the breadth of the evidence in respect of the lay witness investors, and in the absence of any evidence suggesting that provision of the relevant Deed Poll was a routine part of the information provided to prospective investors, I infer that: those investors did not receive a copy of the relevant Deed Poll; and the relevant Deed Poll was not routinely issued to prospective investors. This is relevant context given ASIC’s case on the Liquidity Prudency Policy (defined below) focused on the continued promotion of the M Notes after the Liquidity Prudency Policy was created by Mr Mawhinney (pursuant to the right to defer repayment provided for in the Deed Polls) and put into effect on 11 March 2020 (the Liquidity Prudency Policy Decision) without, ASIC alleged, informing potential investors.

140    Mr Mawhinney drafted the “Liquidity Prudency Plan (Activation Policy)” (the Liquidity Prudency Policy) on 11 March 2020. That policy referred to a number of events that may trigger the “Liquidity Prudency Plan”. That list elaborated upon, but also went beyond, the circumstances set out in the Deed Polls. For example, it included, as triggering events, the liquidity position of the overall Mayfair Group, there being an investment opportunity that would strengthen the position of the Mayfair Group and which had been approved by the “Investment Committee”, and circumstances existing that cause the Mayfair Group to believe it may attract scrutiny if it were not to “prudently withhold redemptions”.

141    The Liquidity Prudency Policy made provision for the calculation of a “Target Inflow Value” (TIV) that would be identified as needing to be reached for the suspension of redemptions to be lifted. That TIV figure was to be communicated to sales staff. The Liquidity Prudency Policy also included sample wording for communication to investors by staff. The sample wording included the text of a sample email to be sent to investors who had submitted a redemption request. There was also a set of “Do” and “Don’t” actions listed, with the “Do” actions focused on assuring investors that the suspension was normal, and only temporary, the objective being to maintain investor confidence. Conversely, the “Don’t” actions include advising that “the LPP is due to a run on redemptions”. Staff were also instructed not to “[o]ver-apologise” to investors.

142    Mr Mawhinney circulated the Liquidity Prudency Policy by email to staff on 11 March 2020. His email said that the policy “is active” and that the TIV and “Target End Date” (TED) would be communicated the following day (underlining omitted).

143    Mr Mawhinney duly emailed staff on 12 March 2020 stating that the TIV was $5 million, and the TED was 20 March 2020. In addition to communicating the TIV and TED, Mr Mawhinney’s email referred to activities being undertaken to reach the “$5m and beyond” target, including an EDM which Mr Mawhinney said would go out the following day, with a 5.95% promotional rate for a 12-month term in respect of the M+ Notes, which offer would also be added to “the website”. Mr Mawhinney asked the staff receiving the email to “give this a concerted effort over the next few days and let me know if John [Anasis] or I can assist with any investors”.

144    Consistently with the email sent by Mr Mawhinney on 12 March 2020, promotional activities continued notwithstanding the Liquidity Prudency Policy Decision. Those activities included:

(1)    The continued promotion of the M Notes on the Mayfair Platinum website, which remained live.

(2)    The continued issuing of the brochures for the M Notes to prospective investors.

(3)    The issue of an “Investor Insights” document to prospective investors by email on 12 March 2020. That document generally spruiked the Mayfair Group, including with the inclusion of a prominent “NIL” statement against the topic: “Redemptions not paid since inception”. Like much of the marketing material issued by the Mayfair Group, this Investor Insights document included a “Frequently Asked Questions” (FAQs) page, which stated that “early redemptions” were available, but subject to liquidity and other terms.

(4)    The issue of an email to existing investors on 16 March 2020, which email was titled “Investor Update for Mayfair Platinum & IPO Wealth Investors” and included a link to “Download Investor Update”. The document so linked included a covering letter from Mr Mawhinney and contained sections on the “proactive” measures the Mayfair Group was taking, “How you can help” and “Out of crisis comes opportunity”. Those sections stated (emphasis added):

The Group has implemented capital prudency measures and various contingencies to minimise the impact of COVID-19, with a focus on frugality whilst continuing operations as normal. These measures will enable the Group and our various portfolio companies to benefit from the expected normalisation of conditions in the short to medium term.

…

We believe that the best way for Mayfair Platinum and IPO Wealth’s investors to play their role in ensuring that we collectively see ourselves through the COVID-19 storm is by taking no action with their investments - to ‘keep calm and carry on’. This will enable our investment management team to focus on developing our assets and readying the Group to benefit from the abundance of opportunities that will (and already are) presenting themselves.

Our Client Relationship Management team is on hand for any investor queries, as is our investment management team that prudently manages our Group’s assets.

…

The Mayfair 101 Group is positioning itself to take advantage of under-valued assets stemming from the COVID-19 pandemic. We are focused on increasing our cash reserves to higher than normal levels, to enable us to act swiftly when opportunities arise to further strengthen the Group’s balance sheet.

This action has included suspending certain contracts until conditions normalise, which provides the advantage of freezing our position without incurring additional costs, enabling the Group to boost cash reserves whilst retaining its entitlements under the relevant investment agreements.

Our investment management team is comfortable that the series of steps taken to protect the Group during the COVID-crisis 19 [sic] have been implemented carefully and promptly, in order to ensure sustainability and strength such that Mayfair 101 can capitalise upon this unprecedented period of adversity - and opportunity.

No information was provided regarding the contracts that had been suspended. Nor was any detail provided regarding what “frugality” meant, particularly in the context of the statement that operations would continue to be carried on “as normal”.

(5)    The issue of an email to prospective investors on 17 March 2020, which promoted a 5.45% per annum offer for a six-month investment in the M+ Notes. While the email referred to the Mayfair Group “positioning itself to benefit from the market correction by taking prudent and proactive steps whilst preparing for the significant restoration of value which is expected to follow in the near term”, no detail was provided regarding what those “prudent and proactive steps” entailed. There was no mention of redemptions having been suspended.

(6)    The issue of an email to existing investors on 31 March 2020, the text of which was set out in an email from Mr Mawhinney to his staff. That email included the statement that the Mayfair Group was “focusing on enhancing liquidity, regulating redemptions to preserve investor value, and carefully managing capital”. The exact manner in which liquidity was being enhanced, and redemptions were being “regulated”, was not specified.

145    On 12 March 2020, Mr Mawhinney forwarded the Liquidity Prudency Policy to Mr King by email. Mr Mawhinney’s email was in reply to an email from Mr King forwarding an email he had received from an investor’s solicitor attaching a letter of demand. When Mr King queried whether there was any reason “why Mayfair won’t return the investor’s principal immediately?” Mr Mawhinney replied attaching the Liquidity Prudency Policy. His email said: “See attached policy we have prepared and enacted given the current state of the market. I’ll call to discuss.” While Mr Mawhinney, in his written closing submissions, initially attempted to portray this exchange as Mr Mawhinney seeking legal advice on the Liquidity Prudency Policy from Mr King, that submission was later withdrawn.

146    No changes referable to the Liquidity Prudency Policy or the Liquidity Prudency Policy Decision were made to the M Notes brochures or relevant websites until late March 2020.

147    On 25 March 2020, Mr Mawhinney gave instructions to staff that the Mayfair Platinum website (and the IPO Wealth website) be updated to include a section titled “Update to investors”. Mr Mawhinney directed, for the Mayfair Platinum website, that the new section be positioned “underneath the news articles”. The new text included reference to the COVID-19 crisis and said that the Mayfair Group felt it appropriate to “remind” investors that (amongst other things):

Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.

148    It is not clear how this wording came to be included on the website. ASIC and Mr Mawhinney were at one on this text appearing on the Mayfair Platinum website from 25 March 2020, but there is an email from Mr King (on which Mr Mawhinney relied) on 27 March 2020, in which Mr King said to Mr Johnson (Senior Marketing Coordinator at the Mayfair Group) (underlining in original):

Websites – Why has the statement on all of the websites been changed?????!!!!!

Point 4 on all of the websites (as opposed to the Brochures) needs to read: “4. Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.”

149    While not every email in the chain lists the full record of those copied to the emails, the last email in the chain does show Mr Mawhinney as having been copied. I infer that he was copied to the earlier email whereby Mr King suggested the wording that was used, putting to one side the unresolved issue of what the website might have said before 27 March 2020 when Mr King sent the email quoted, which contained the wording that ASIC accepted appeared from 25 March 2020. As best I can work out from the evidence, an updated disclaimer was initially included on the websites, but was updated again by Mr Johnson to match the different disclaimer added to the brochures, which change was then noticed by Mr King and raised in his email of 27 March 2020. (In any event, any uncertainty about this timeline does not matter, for reasons I explain below in considering whether the 25/27 March 2020 version of the Mayfair Platinum website fairly disclosed that redemptions had been frozen.)

150    The Mayfair Platinum website was again updated on 2 April 2020. At that point, the following text appeared (again below the “News & Education” articles):

Update to Investors

In the current circumstances of the COVID-19 global crisis, the Mayfair 101 Group of companies feels it appropriate to remind investors that:

1. Mayfair 101 is not a bank, and nor are any of the companies in the Mayfair 101 Group. Therefore, the Mayfair 101 Group is not regulated by the Australian Prudential Regulation Authority (APRA) and investment in its products is not covered by the Australian Government’s Financial Claims Scheme (colloquially known as the ‘Government Bank Guarantee’ which covers deposits up to A$250,000 per depositor, per bank).

2. As with all investment products, there are elements of risk in investing in the Group’s products.

3. An investment in a term-based investment product offered by a non-bank financier (such as the investment products offered by the Mayfair 101 Group) is not the same as depositing money in a term deposit offered by a bank, and may therefore be seen to have a higher risk relative to a bank term deposit.

4. Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.

Liquidity Prudency Policy

In the current circumstances of the COVID-19 global crisis and its impact on the economy, as a precautionary measure the Mayfair 101 Group has implemented a Liquidity Prudency Policy, meaning that early and end-of-term redemptions are suspended until, at this stage, 30 April 2020. New investors seeking to invest for a term ending after 30 April 2020 are not currently expected to be affected by the Group’s Liquidity Prudency Policy. However, the Group reserves the right to extend or lift the policy at any time, and will continue diligently to monitor developments and take all reasonable steps to seek to preserve value for the Group’s investors.

151    There was no documentary record in evidence to explain what prompted the making of further changes to the Mayfair Platinum website on 2 April 2020, after the changes that had been made on 25/27 March 2020.

152    In late March 2020 — apparently around 27 March 2020 — the M Core Notes brochure, M+ Notes brochure and Mayfair Group corporate brochure were updated to include the following wording: “Depending on financial circumstances, and in the Issuer’s sole discretion, the Issuer may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists” (emphasis added). However, there is no evidence that the revised brochures were issued. ASIC accepted that there is no evidence that unamended versions of the brochures, without this disclosure, were provided to prospective investors after 27 March 2020.

153    Mr Mawhinney sent the wording he proposed be added to the Mayfair Platinum website to Mr King on 1 April 2020. Mr King replied with some changes, and noted in his covering email: “Of course, the statement depends upon the reasonableness and basis of your belief that new investors won’t be affected – which comes back to your financial modelling (as I have often said), liquidity projections, current / expected /planned commitments, policies, etc.”

154    The legal advice obtained that is relevant to the Liquidity Prudency Policy and the Liquidity Prudency Policy Decision, including Mr King’s suggested amendments to marketing materials, is addressed below from paragraph 213.

155    There was additional communication with investors who had outstanding redemptions. For example, from around 3 April 2020, the Mayfair Group provided some individual investors with a letter that referred to the Liquidity Prudency Policy. The letter stated that, in early March 2020, the Mayfair Group management team had decided to activate its Liquidity Prudency Policy, explained that redemptions were suspended and said that, on current estimates, it was expected that the Liquidity Prudency Policy would operate until 30 April 2020.

156    An email to the broader investor group was sent on 20 April 2020, which said (amongst other things) that in recent weeks, redemptions had been temporarily suspended. This was followed by a further email to investors, drafted by Mr Mawhinney, on 30 April 2020, which stated, under the heading “Redemption and distribution update”:

Earlier this month based on forecasts at the time, we expected to be in a position to begin facilitating end of term redemptions and lift the Liquidity Prudency Policy by 30 April 2020. However, the action brought by ASIC in recent weeks has meant we must continue to implement the Liquidity Prudency Policy until further notice.

157    The evidence adduced at trial did not disclose the existence of the forecasts at the time the Liquidity Prudency Policy Decision was taken, to which the 30 April 2020 email referred. The evidence did, however, include a Mayfair Group “Consolidated Cash Flow” for the period 28 January to 27 December 2020 (set out at Appendix 21 to the Jahani Report and said by Mr Jahani to have been located in M101 Nominees’ books and records).

158    This cashflow presents actual cashflows for the period 28 January to 5 April 2020, and forecast cashflows thereafter to 27 December 2020. I infer that it was prepared shortly after 5 April 2020 based on when actual figures switched to forecast figures.

159    The forecast part of the cashflow assumed the receipt of over $111 million in further investor funds (referring to the “M1 Notes”: see paragraph 55 above), but made no provision for any redemptions until the last week of May 2020 (at which point an allowance of $500,000 was provided for, which sum recurred in the last week of June 2020, after which only $350,000 was provided for each month).

160    Given that an email from Mr Mawhinney to his team on 9 March 2020 referred to outstanding redemptions standing at $3.55 million at close of business on 10 March 2020, the provision for redemptions in this cashflow document was inadequate, even more so when account is taken of the fact that, if the Liquidity Prudency Policy were lifted, the Mayfair Group would be coming out of a liquidity freeze, with all the investor anxiety that might be expected to entail.

161    Despite the optimistic outlook of the communications with existing investors, the suspension of redemptions pursuant to the Liquidity Prudency Policy was never lifted.

162    The efforts to continue to attract new investors after 11 March 2020 were successful. On ASIC’s calculations (which were not disputed by Mr Mawhinney) further funds in the amount of $4.107 million were raised from eight investors in the M Core Notes after 11 March 2020 (the last investment application date being 9 April 2020). According to the Jahani Report, an “M+ Fixed Income register” (which was not itself in evidence) recorded that $2 million in M+ Notes were issued between 11 March and 1 May 2020.

4.10    Legal advice obtained

163    One of the topics on which Mr Mawhinney went into evidence concerned the legal advice obtained, particularly advice regarding the marketing material by which the M Notes were promoted. Evidence of legal input was tendered to support Mr Mawhinney’s contention that his conduct does not reveal a wholesale disregard for compliance with governing legislation, but that, on the contrary, the Mayfair Group, under his control and direction, obtained legal advice and sought to ensure that the products offered by Mayfair Group entities, and the manner in which they were offered, complied with the law. ASIC, for its part, contended that the legal advice was superficial and does not go far in supporting Mr Mawhinney’s contention that he should not be subject to any further ban on engaging in activities in the financial services sector.

164    Although the legal advice relied on was not obtained by Mr Mawhinney personally, he claimed joint privilege with the corporate entities involved (which claim was not contested). One consequence of this was that although Mr Jahani, as the liquidator of M101 Nominees, had access to some privileged documents, his reports contained redactions to preserve the joint privilege claim maintained by Mr Mawhinney, and his oral evidence had to steer clear of referring to privileged documents and information unless privilege in respect of particular documents was waived by Mr Mawhinney in the course of cross-examination.

165    On 22 November 2024, after the conclusion of ASIC’s evidence, Mr Mawhinney announced that he would go into evidence on certain topics. When Mr Mawhinney tendered the documentary evidence he relied on (on 5 February 2025), he waived legal professional privilege over the documents tendered in relation to the topic of the legal advice obtained with respect to the marketing materials. Although Mr Jahani’s evidence was constrained to some degree by the privilege claims maintained by Mr Mawhinney at the time, it was not suggested by ASIC or Mr Mawhinney that Mr Mawhinney’s waiver of legal professional privilege meant that any parts of Mr Jahani’s reports should be unredacted (beyond the appendices in respect of which privilege was waived), or that he should be recalled to address matters raised in his oral evidence where his evidence was constrained by the legal professional privilege claims maintained by Mr Mawhinney at the time.

4.10.1    IPO Capital: accounting and legal advice concerning whether an AFSL was required

166    By a letter, authored by Mr Mawhinney and sent by IPO Capital to ASIC, dated 20 September 2016, IPO Capital claimed that “[i]n July 2016 [IPO Capital] sought the advice of its legal counsel (Kurt Falkenstein of General Standards) and the company’s [accountant] (Mark Pozzi of Pozzi Financial Services) in relation to its requirement to hold an AFSL”. The letter then said that both had confirmed this was not required. The emails from Mr Falkenstein and Mr Pozzi were attached to the letter to ASIC.

167    The chronology by which advice was obtained is as follows.

168    On 8 July 2016, Mr Mawhinney emailed Mr Pozzi of Pozzi Financial Services. Mr Mawhinney’s email was in the following terms:

Mark,

We’re having quite some success in raising money for IPO Capital at the moment. I want to make sure everything is watertight to ensure there are no issues with ASIC or anything given we’re making use of essentially private loans to IPO Capital for investments that we deem suitable.

The process is as follows -

1.    Investor loans money to IPO Capital (formal loan agreement is put in place), with a 3, 6, 12 or 24 month loan term and interest paid quarterly

2.    IPO Capital invests this money in transactions including -

•    short term loans to companies needing capital to undertake an ASX listing (we charge a 100% borrowing cost which it seems people are happy to pay)

•    Pre-IPO investments

•    Fire-sale style opportunities

On the basis we’re earning a rate of return higher than what the money is costing us we’re ahead.

My understanding is as follows (and I’d like you to correct me if I’m wrong on any of this) -

•    We don’t need a credit licence as we’re not offering credit to the general public

•        Obtaining private loans to a private company doesn’t require an AFSL

•    How IPO Capital uses the money is our business, governed by the terms of the loan agreement only

•    For IPO Capital (or any companies I run) to make investments, I will need a Sophisticated Investors certificate (this is something I need to get from you ASAP if I qualify...otherwise let me know what I need to do to get one urgently so we can make these investments)

•    We’re not operating a ‘managed investment scheme’ as such as we just have private loans which are not tied to the performance of the investments IPO Capital makes

…

Let me know what risks you see and if there’s anything I should be mindful of to ensure this [is] watertight and fully compliant.

Cheers,

James

169    No documents were attached to Mr Mawhinney’s email. Mr Pozzi, an accountant, was given no more than Mr Mawhinney’s brief recitation of (what he thought to be) the salient facts. Mr Pozzi responded, saying: “From what you have outlined below I would agree with your summation based on the facts.” Mr Pozzi was not even given a copy of the Investment Agreement.

170    It is clear from Mr Mawhinney’s email to Mr Pozzi that his input was only sought after IPO Capital had already started raising money.

171    On 11 July 2016, Mr Mawhinney sought the advice of Mr Falkenstein, of General Standards, by email. Mr Mawhinney’s email was in substantially the same terms as his email to Mr Pozzi, save that he also attached a “Loan Agreement” (which I infer from Mr Falkenstein’s response was a draft of the Investment Agreement), which he asked Mr Falkenstein to “review and sharpen up”.

172    Mr Falkenstein responded to Mr Mawhinney’s email on 20 July 2016, as follows:

•    The borrowing of funds from investors doesn’t require licensing, however you are still bound by the Australian Competition & Consumer Act, particularly around misleading conduct. The implication of “capital preservation” (ie the ability to withdraw) is quite powerful and needs to be clarified. You may be well advised to only take loans from Sophisticated Investors.

•    The lending of funds for business purposes to businesses does not require licensing.

•    Lending en masse does not constitute a managed investment scheme, however if you borrowing [sic] money en masse and promising a return via select opportunities you start knocking on this door.

173    As can be seen, the instructions that were given, and the advice that was received in July 2016, was limited. Nevertheless, the emails do show some attempt being made (albeit after IPO Capital was already issuing investments) to seek confirmation that no AFSL was required.

174    Following engagement with ASIC (referred to further below from paragraphs 226 and 1093), by early December 2016, different lawyers had been engaged, and took a different view. As set out below, statements were made in correspondence with ASIC about moving to a “compliant structure”. I also note that the evidence includes a memorandum from Mr King to Mr Mawhinney dated 2 February 2018, which advises that a plan for IPO Capital to engage in a “Borrowing Business” — which I infer related to a proposal to re-enliven the IPO Capital business — would involve the issue of debentures, and would require an AFSL.

4.10.2    M Notes: legal advice regarding marketing materials

175    In his written closing submissions, Mr Mawhinney contended that “specific legal advice was sought by the Mayfair Group about all the impugned advertising material and that advice was accepted and acted upon”. However, counsel for Mr Mawhinney retreated slightly from this position in oral submissions, stating: “Almost every item complained about by ASIC, not quite every item but almost every item complained about by ASIC, was vetted by the solicitors”.

176    The chronology by which advice was obtained with respect to the M Notes marketing material is as follows.

177    On 15 March 2019, Mr Mawhinney emailed Mr King of KHQ Lawyers seeking advice on the Term Deposit Guide website through which Mr Mawhinney wanted to recommence advertising the IPO Wealth product. Mr Mawhinney sought advice on “what we need to do by way of licence and also any other agreements or anything else we should have in place operationally to ensure the service is not misleading in any way”. On 19 March 2019, after further email correspondence and a telephone conversation with Mr Mawhinney, Mr King provided proposed amendments to the Term Deposit Guide website, and cautioned (emphasis added, underlining in original):

Hi James,

Please see attached some suggested revisions to the website wording (www.termdepositguide.com), which I understand isn’t live yet. Which is a good thing, as it would likely be at very high risk of causing problems with ASIC.

The major difficulty which ASIC would likely have with it, is the name of the website itself. As IPOW products are not deposits, and ASIC was quite excited about that point last year, they might consider it to be quite misleading for a website funnelling investors into non-term deposit products, to be primarily referring to ‘term deposits’. We have therefore suggested changing the name of the website to ‘Term Deposit Alternatives’, and have made other changes to try to make clear that this website isn’t about term deposits.

We need to be very aware (as you will recall) of the predominant message provided by the website, and that the contents of the disclaimer won’t be enough to offset a contrary predominant message.

…

Please let me know your thoughts.

Regards,

Venn.

178    In addition to recommending that the website name be changed, Mr King recommended adding the following text to the website:

Such investment products are not bank deposits and are subject to greater risk of capital loss and negative returns than cash investment products. Such investment products are those offered by such party(s), and are not a comprehensive range of all possible term-based investment products.

179    Mr Mawhinney responded on 19 March 2019 advising that while “all” of Mr King’s proposed changes had been implemented, the Term Deposit Guide domain name (which Mr King had described as the “major difficulty” ASIC may have with the website) would not be changed. Mr King responded: “of course, it would be a less risky position (so far as ASIC is concerned) if you also did change the domain name”.

180    This advice, obtained in March 2019, pre-dated the M Notes being released; the M+ Notes were offered from about 24 June 2019.

181    Although Mr King’s advice was given in the context of the promotion on the Term Deposit Guide website of the IPO Wealth product, ASIC contended that:

Mr King had advised of a “major difficulty” in Mr Mawhinney’s marketing in terms of compliance risk, Mr Mawhinney had rejected that advice, and Mr King had “signed off” on the marketing on that basis. Mr King’s subsequent “sign off” of marketing materials referring to term deposits must be viewed in that light.

182    In oral submissions, counsel for Mr Mawhinney posited this as “the only case that we have found in which Mr Mawhinney did not fully accept all of Mr King’s advice” and “the high watermark of [ASIC’s] case. A potentially misleading website domain name.”

183    On 7 June 2019, Mr Mawhinney sent the following email to KHQ Lawyers, seeking legal advice in respect of the proposed M+ Notes products (emphasis added):

Hi Darren,

Further to our discussions over the last few weeks we are seeking a formal legal opinion from KHQ Lawyers regarding our proposed strategy in relation to issuing Promissory Notes. It is essential for the integrity of the Mayfair 101 group that the proposed strategy is implemented in a 100% compliant manner and is done so in the best interests of investors.

We feel it would be prudent to have this reviewed by a recognised Barrister to ensure we are operating within the guidelines set by ASIC.

…

Misleading & Deceptive Conduct

We need KHQ Lawyers to review all marketing and advertising materials prior to publication, as we are currently doing with Vasco. We have an obligation to our AFSL provider (Quattro Capital) and the general public that view our materials to ensure they are not misleading or deceptive.

…

Bank Deposits

We need adequate disclosures to ensure investors are aware that the Notes are not bank deposits. We may promote the Notes as an alternative to bank deposits and other investment products, and need adequate disclosures to ensure investors are aware of the risks associated with investing in the notes should they have otherwise been considering investing [in] term deposits or other products.

…

We look forward to KHQ’s support in ensuring we address any potential compliance and regulatory risks and are able to make this a commercially sound strategy, which creates a win-win for us and importantly our investors.

184    On 24 June 2019, the M+ Notes were marketed for sale by Australian Income Solutions for the first time, though it is not clear what materials were provided to prospective investors. As detailed from paragraph 186 below, Mr Mawhinney relied on the “KHQ Marketing registry” spreadsheet tracking review and approval (or feedback) on marketing materials. According to this spreadsheet, the first approval relating to the M+ Notes brochure was received from Mr King on 12 July 2019. Accordingly, the M+ Notes investment was launched prior to marketing materials being reviewed and approved by Mr King.

185    On 4 July 2019, Mr Mawhinney asked Mr King to review the M+ Notes brochure (though at this point in time, the M+ Notes were called “M1 Notes”). Although Mr Mawhinney’s covering email noted that “[t]he wording is the same as the previous versions you have seen”, the brochure is marked as version 1. Mr King provided what he described as “unfortunately, substantial” amendments, including noting the “[h]uge confusion between Mayfair Platinum and M101 Holdings Pty Ltd, which must be resolved” (underlining in original) and revising the disclaimer. Mr King also provided handwritten amendments to various statements throughout the brochure — some of these statements, as amended by Mr King, are among those impugned by ASIC in this proceeding. The email correspondence in evidence shows Mr King being provided with revised versions of the M+ Notes brochure for review between July and October 2019. His further amendments were generally not substantive.

186    In the course of this proceeding, Mr Mawhinney tendered a spreadsheet titled “KHQ Marketing registry”. The spreadsheet contained entries dated between 12 July 2019 and 15 April 2020, and recorded information including the form and version of marketing materials approved by Mr King, the date of approval, and a link to the email in which approval was given. The metadata for the native Excel file recorded a “created date” of 30 May 2019 (although, as noted below, it appears ASIC was later given a different date for the initial creation of the document).

187    ASIC objected to the admission of this spreadsheet into evidence. Counsel for ASIC submitted, amongst other things, that while Mr Mawhinney had advised in correspondence that the document was created on 13 August 2019 and last modified on 16 April 2020, its metadata indicated that it was modified as late as 2 December 2024. ASIC was asked whether the 2 December 2024 metadata could be the result of the document being uploaded to a third-party document management system for the purposes of this litigation. In response, ASIC contended that even if the 16 April 2020 date were accepted, it was still suggestive of the document being created or maintained in contemplation of litigation — notably, 16 April 2020 was the date on which a judge of this Court made orders in the Mayfair proceeding restraining the Defendants to that proceeding from using certain phrases in advertisements.

188    I ruled the KHQ Marketing registry admissible as a business record. While it is not certain when this document was created or last modified, I accept that it demonstrates a practice within the Mayfair Group of reviewing and recording the legal advice obtained with respect to its marketing materials. However, I note that it is not a complete record of all marketing materials relied on by ASIC in this proceeding — for example, it does not contain any entries regarding the impugned Australian Property Bonds materials. In my view, the document has the characteristics of a contemporaneous recording of what was sent to Mr King for review, and what Mr King’s response was. The document embedded links (not capable of being viewed in this litigation) to files recording Mr King’s approval, and (in many instances) the approved file. In addition, not all records suggested that Mr King approved the materials. Some carried a note that “feedback” had been received from Mr King. The document has the ring of truth about it. Although ASIC noted, in its objection, that the document was at least finalised after it commenced litigation, it did not suggest that the document was an elaborate reconstruction once ASIC commenced litigation, such that entries going back to July 2019 ought to be treated as suspect. I proceed on the basis that the Excel file is an accurate contemporaneous record of materials submitted for review and, in many instances, the advice received.

189    As with the M+ Notes brochure referred to above, in several instances the documentary record includes email correspondence involving Mr King reviewing or approving revised versions of marketing materials he had already reviewed, without his earlier advice having been tendered. This makes it difficult to determine the scope and depth of Mr King’s legal advice, in circumstances where his later review often involved no or minimal further changes. In other instances, Mr King made no changes to marketing materials reviewed for the first time.

190    However, the evidence also reveals several occasions on which Mr King sought further information from Mr Mawhinney’s staff, and cautioned against the use of particular terms or statements. For example, on 16 August 2019, Mr King reviewed changes to the Mayfair Platinum website landing page. Mr King proposed amending the webpage heading from “Invest where the top 1% do” to “Invest like the top 1% do” (emphasis added). Mr Johnson responded: “In regards to the change requested to the heading, we want to keep this in line with the approved headings from the print ads”. Mr King replied: “then that is an oversight which needs to change going forward, please. The top 1% of the world’s investors don’t invest in M1 Notes (“where”), but they invest in things “like” them.” Following a telephone conversation between Mr King and Ms Lumeste (Group Marketing Manager at the Mayfair Group), Mr King sent a further email:

I understand that the commercial practicalities are that you can’t change the “where” wording in one of the current brand visuals. But regardless of this we have picked it up for the website, and will pick it up again if a different brand visual with similar wording is prepared in the future.

191    Mr Johnson subsequently confirmed that the requested changes had been made to the Mayfair Platinum website landing page.

192    Similarly, on 30 August 2019, Mr King provided comments on the draft Mayfair Group corporate brochure. In his covering email, Mr King stated (emphasis added):

Kristiina,

I attach a scan of my initial comments on the corporate brochure. Can I ask what it’s intended purpose is? This has an impact on the detail of what my comments would be. In general, the document seems to be an advertising piece, and what it is to be used for affects very much what you should say in it …

In general, you need to be very aware that the environment M101 is operating in is not a simple commercial market for the provision of goods and services, where there is some leeway for advertising ‘puffery’, but instead is a very highly regulated financial services world, replete with strong investor protections and an active regulator. What you say can come back to bite you, if it is not completely clear (as opposed to making indirect implications), factual, and not misleading or deceptive in any way. You can’t say things which imply something, without facing great risk, unless you are absolutely certain the thing which is being implied is completely supported by the facts, which you can produce evidence of.

Obviously, it’s my job to help Mayfair 101 manage its risks, by being averse to those risks and bringing them to your attention, but in the end the decision of how hard you want to go in taking a particular line is a question for Mayfair 101 to make, in knowledge of those risks.

Venn.

193    Mr King challenged many of the statements made in the draft brochure. For example, in response to the statement that “Mayfair 101 is proud to be taking a lead role as a trusted non-bank alternative”, Mr King commented: “M101’s proportion of non-bank financing is miniscule, so difficult to say this”. Similarly, in response to the suggestion that the Mayfair Group specialised “in helping market-leading companies reach their full potential through the provision of capital and expertise”, Mr King noted that “early-stage & pre-IPO businesses are rarely – if ever – market leading”.

194    On 16 September 2019, Mr King was provided with a revised draft Mayfair Group corporate brochure to review. Mr King responded: “who will this document go to? It is a raft of advertising clichés and positive spin – which is OK in some (very limited) circumstances, but not if this will go anywhere near anyone who might invest money”. When Mr King was informed that the brochure would be provided to prospective investors, he stated: “if it will be used to help persuade investors to put their money in M101 products, or accompany anything which does, I will need to cut this quite severely”. On 17 September 2019, following a telephone conversation between Mr King and Ms Lumeste and a further round of comments on the draft brochure, Mr King provided his sign-off.

195    On 9 October 2019, in response to a request to review an EDM with the subject “The New Face of Investment”, Mr King responded (emphasis and underlining in original):

1. How do investors gain “access to income-generating investments from AU$100,000 that are typically reserved for investment banks, stockbrokers, family offices and the ultra-wealthy”? They are being invited to consider investing in the M+ Fixed Income Product, which is a simple loan to a company, and is not an investment in an underlying investee company typical of the M101 portfolio (which could reasonably be considered as an investment typically reserved for investment banks, etc.) …

2. How does MP provide “a range of income-focused investment options to qualified investors, providing strong diversification by geography, sector, currency, asset class and business stage”? I understand that that MP current [sic] informs enquirers about the M1 Fixed Income product, and possible [sic] the IPOW Wealth Fund (although I understand that this has recently been closed to further investment), but these two investment possibilities do different, but similar, things: they are either a loan to a company which will use the money for various purposes (including underlying investments), or an investment in a unit trust which has a single asset, being a loan to a company which uses the money for underlying investments …

Perhaps we should be saying something like:

“Experience the new face of investment and get ahead in this low interest rate environment with access to income-generating investments from AU$100,000 involving exposure to opportunities that are typically reserved for investment banks …”

“Mayfair Platinum provides a range of income-focused investment options to qualified investors, involving exposure to investments providing strong diversification by geography …”

196    These changes were implemented in the final version of the EDM sent to investors.

197    Mr Mawhinney was not copied in to the correspondence summarised at paragraphs 190–195 above. However, counsel for Mr Mawhinney invited the Court to find that Mr Mawhinney’s staff were reporting these matters back to him, and submitted that Mr Mawhinney was the “managing director of these companies and … knew what they were doing”. Mr Mawhinney was the person who first communicated with KHQ Lawyers to initiate the review of marketing materials. He was also very “hands-on” in the conduct of the Mayfair Group’s activities. Accordingly, I accept that Mr Mawhinney would have instructed staff in relation to having marketing materials reviewed, and would have been kept abreast of the progress of Mr King’s review of the marketing materials that were sent to him.

198    Mr King also provided iterative changes to the Mayfair Platinum website. Mr King would review the website, then staff within the Mayfair Group would implement the changes and provide a revised copy of the website for final approval, and any further changes would again be sent to Mr King for review. In some instances, Mr King’s review was only requested after the changes had already been implemented. A similar process was adopted with other pieces of marketing material.

4.10.2.1    Intersection of advice on marketing material and the M Core Notes security structure

199    In respect of the M Core Notes security structure, ASIC contended (citations omitted):

It is evident that Mr King was not aware of the security arrangements applying to M Core Notes investors’ funds until he spoke with Mr Divens on 12 December 2019 … This was after Mr King is said to have “signed off” on key marketing materials relating to the M Core Notes including the M Core Notes brochure.

200    However, Mr Mawhinney tendered several documents to demonstrate that this allegation was (in Mr Mawhinney’s words) “simply wrong”.

201    Mr Mawhinney waived privilege over Appendix 54 of the Jahani Report. Appendix 54 contains an email chain between Mr King, Mr Mawhinney, Mr Anasis and Mr Divens dated between 13 September and 2 October 2019. On 17 September 2019, Mr Divens sent an email to Mr King outlining the proposed security structure for the M Core Notes. Following further correspondence, Mr King sent an email to Mr Divens detailing, in depth, his understanding of how the security arrangements were to operate. At this stage, it was still intended that the Security Trustee would have direct security over real property. Mr Divens responded with annotations to Mr King’s email confirming where his understanding was correct, and expanding upon or revising certain points. Mr Mawhinney then provided a further response to Mr King’s email, elaborating upon the proposed security structure:

As I see it the structure will be:

1.    We raise money in Unsecured & Secured Notes

2.    We complete some acquisitions used the Unsecured Note money* (we are already doing this)

3.    Any Secured Note money we raise can only be used 2 ways:

1.    Remain in Cash or Cash Equivalents (dollar-for-dollar backing), including short term interest-bearing investments; or

2.    Purchasing property (up to 75% LVR - this number is reasonable given where the banks are currently lending)

4.    We continue making acquisitions using a combination of funds whilst ‘aiming’ to maintaining [sic] our 75% LVR (note: we should using [sic] the word ‘aiming’ in the materials to provide a degree of flex)

202    The email chain participants subsequently held a meeting to discuss the proposed security arrangements. The final email in this chain was sent by Mr King on 2 October 2019, attaching the draft Security Trust Deed.

203    Shortly thereafter, on 17 October 2019, Mr King provided revised versions of the M Core Notes brochure, Security Trust Deed and Specific Security Deed. Mr King also confirmed that no changes had been made to the M Core Notes Deed Poll and General Security Deed. Mr King provided execution versions of each of these documents on 24 October 2019.

204    It is clear that Mr King was aware of, and involved in, the creation of the M Core Notes security documentation prior to the launch of the new M Core Notes on or around 28 October 2019. It is also clear that Mr King had reviewed and approved the M Core Notes brochure before that product was launched.

205    While it was originally intended that the Security Trustee would have direct security over real estate, a decision was made in around November 2019 that the Security Trustee would be granted security over the units in the property holding unit trusts. This proposal was sent to Mr King by Mr Divens for approval on 26 November 2019. On 26 November 2019, Mr King responded to Mr Divens with Mr Mawhinney in copy, referring to a telephone conversation between himself and Mr Mawhinney “a short time ago”. Mr King extracted sections of the Security Trust Deed and M Core Notes brochure, before advising (emphasis in original):

The above representation requires that the relevant security consist of at least one element of each of: 1. real estate; 2. other group assets (i.e. specific and general security); and 3. cash in the account. So M101 does need first registered mortgage security over at least one property to render the representation accurate.

…

As discussed separately, valuation of security is a key issue, particularly where there may be circumstances in which first registered mortgage security in respect of real estate held by some of these trusts is given to another party. The secured asset is indivisible (a property generally can’t easily be split up to sell only part of it), even through [sic] the value of the other party’s secured exposure is less than the value of the whole property. You need to have your accounting advisers confirm the applicable accounting standard and valuation principles, as the valuation of the security in each given set of circumstances It is [sic] not a simple arithmetic calculation of X – Y = Z. The correct valuation principles need to be applied to determine whether the value of the security over the assets in the trusts is equal to or greater than the amount of secured money spent to purchase the property assets in each trust.

206    In oral closing submissions, counsel for Mr Mawhinney summarised the above correspondence:

So what Mr King is advising on is the very structure that was implemented. He is saying you can do it by charges over the units. You have got to have a lot one [sic] real estate mortgage. He is specifically averting [sic] to the possibility that there might be mortgages given over the real estate and he is saying that might give you a valuation problem. But the very things that ASIC say are wrong with this security structure were the subject of specific advice by Mr King.

207    On 12 December 2019, after receiving an email from Mr van Wegen of PAG noting that the M Core Notes security structure did not provide dollar for dollar security, Mr Divens responded: “Venn [King] and I have discussed and Venn will circulate a proposal shortly”.

208    Shortly thereafter, Mr King circulated the first iteration of the debt to equity swap proposal (discussed in further detail above). This is the point at which ASIC alleged that Mr King was first made aware of the security arrangements applying to the M Core Notes. However, as the foregoing summary demonstrates, Mr King was heavily involved in the preparation and implementation of the security arrangements prior to this date. Of course, ASIC’s team running the litigation was not aware of the contents of these email exchanges until Mr Mawhinney waived privilege over them.

4.10.2.2    Conclusion on advice regarding the M Notes marketing materials

209    Having regard to this evidence, I accept that Mr Mawhinney took meaningful steps to have the M Notes marketed in a way that was not misleading, to the extent that Mr King was asked to review the contents of the marketing material. However, the Mayfair Group (under the control and direction of Mr Mawhinney) launched the M+ Notes product before Mr King’s review of the relevant marketing materials was complete, even though Mr Mawhinney first emailed KHQ Lawyers, to initiate the review process, on 7 June 2019 (see paragraph 183 above), which was before the M+ Notes were launched.

210    I accept that Mr King was aware of the basic features of the products being offered and the security structure, but there is nothing to suggest that he was aware of the internal financial arrangements between members of the Mayfair Group — in particular the funnelling of funds to Eleuthera and the terms on which that was done — when initially reviewing the marketing materials for the M Notes. This limits what can be made of the significance of Mr King’s review of marketing materials for the M Notes when considering contraventions that relate to repayment, risk of default and, for the M Core Notes, the security position.

211    The email chains show a level of back and forth communication between Mr King and Mayfair Group staff (principally Ms Lumeste and Mr Johnson) where Mr King suggested changes, and then reviewed an amended version of the document (eg the correspondence regarding the Mayfair Group corporate brochure). Subject to that observation, the evidence does not allow for a reconciliation to be undertaken at a detailed level to expose whether each and every recommendation of Mr King was implemented by way of amendments to the marketing material. As ASIC has not brought any instance where advice was received, but not implemented, to my attention — other than the recommendation that the name of the Term Deposit Guide website be changed — I proceed on the basis that Mr King’s advice was generally implemented.

212    I also accept that Mr Mawhinney provided for substantial funds to be applied to obtaining legal advice. The evidence he tendered showed that in excess of $200,000 was spent on advice regarding the M Notes, the Australian Property Bonds and other, general, matters between late May 2019 and late May 2020, although the narrations to the fee invoices show a wide range of activity, so only an unknown portion of that total relates to advice on marketing material.

4.10.3    The Liquidity Prudency Policy and the Liquidity Prudency Policy Decision: legal advice regarding disclosure

213    As set out below (from paragraph 1137), Mr Mawhinney initially claimed to have sought legal advice on the Liquidity Prudency Policy Decision on or about 12 March 2020, but later withdrew that claim.

214    He did, however, maintain his claim that legal input was obtained on the marketing material and its disclosure of the Liquidity Prudency Policy and the Liquidity Prudency Policy Decision. I understood that contention to be advanced on the basis that, if the disclosure was inadequate, it could not be said that Mr Mawhinney bears any fault in a way that would justify subjecting him to ongoing restrictions on his ability to participate in the financial services sector.

215    The chronology by which advice in respect of the disclosure of the Liquidity Prudency Policy was obtained is as follows.

216    As outlined at paragraph 147 above, on 25 March 2020 — two weeks after the Liquidity Prudency Policy Decision had been made — Mr Mawhinney gave instructions to staff that the Mayfair Platinum and IPO Wealth websites be updated “urgently” to include a section titled “Update to investors”. The “update” included the following statement (emphasis added):

Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.

217    A member of the Mayfair Group digital team responded to Mr Mawhinney that evening, copying Ms Lumeste, Mr King and Paul Welling of KHQ Lawyers, and confirming that the disclaimer had been added to the Mayfair Platinum and IPO Wealth websites.

218    As explained above (see paragraphs 148–149), it appears that Mr Johnson then changed the website disclaimer, to match the different disclaimer added to the brochures. This change was in error, and was noted by Mr King on 27 March 2020, when he was asked to review a draft disclaimer proposed to be inserted into the M+ Notes brochure and Mayfair Group corporate brochure. The draft disclaimer relevantly stated (emphasis added):

Depending on financial circumstances, and in the Issuer’s sole discretion, the Issuer may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.

219    Mr King approved the above disclaimer for inclusion in the M+ Notes brochure but advised that it should be amended in the Mayfair Group corporate brochure to refer to the “Group’s” right to suspend redemptions (not “the Issuer’s”). As outlined at paragraph 148, Mr King also noted (emphasis added, underlining in original):

Websites – Why has the statement on all of the websites been changed?????!!!!!

Point 4 on all of the websites (as opposed to the Brochures) needs to read: “4. Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.”

Pleas [sic] fix this urgently and confirm when done.

220    Mr Johnson confirmed shortly thereafter that Mr King’s changes had been implemented. While the exact timing and nature of the changes to the website disclaimers referred to in Mr King’s email above are somewhat unclear, Mr King proposed reverting to the same wording added to the websites by Mr Mawhinney on 25 March 2020. While Mr Mawhinney accepted in oral submissions that this drafting was “unfortunate”, counsel for Mr Mawhinney also contended:

So that is – it is Mr King’s wording. Your Honour, it won’t exempt the companies. If your Honour finds it was misleading, not to make a clearer disclosure, this doesn’t get the companies off the hook. We will rely on it obviously at mitigation to say we did what the solicitor said we should do.

221    The evidence does not establish that the wording referred to in the submissions was devised by Mr King, but the evidence does show that he ultimately approved it, if only by directing that it be re-inserted on the websites. Accordingly, it is not significant who first came up with that formulation.

222    In relation to the variance in the wording proposed by Mr King across the marketing materials (ie referring only to the fact that the issuer or the Mayfair Group “may exercise its right to suspend some or all redemptions” in the brochures, compared to “has and may exercise” on the websites), counsel for Mr Mawhinney stated:

Now, the point about that is the brochure is a more permanent document. It’s a printed document. I think it was everyone’s expectation that these freezes would be short-term only and I’m trying to explain why Mr King would have taken a different view about the disclosure on the brochure as opposed to the website.

223    There are no documents in evidence to explain the impetus for the changes later made to the Mayfair Platinum website on 2 April 2020 (as discussed at paragraphs 150–151 above).

4.10.4    Australian Property Bonds: legal advice regarding marketing materials

224    While Mr Mawhinney tendered several invoices from KHQ Lawyers recording the review of Australian Property Bonds marketing materials, there is no further documentary evidence detailing the nature, scope or content of that advice. I note, however, that the Australian Property Bond Agreement referred to KHQ Lawyers in the footer of each page, and infer that KHQ Lawyers drafted the agreement.

4.11    Interactions with ASIC

225    ASIC had interactions with Mr Mawhinney and his companies concerning some of the matters arising in this proceeding, and some overlapping matters. That correspondence, and various statutory notices issued by ASIC, are set out below.

4.11.1    Interactions regarding IPO Capital

226    On 8 September 2016, ASIC wrote to Mr Mawhinney noting:

It has come to our attention that [IPO Capital], via the website http://www.120dayreturns.com/ (the Website), may be operating as a provider of Marketplace lending (peer-to-peer lending) products or otherwise providing financial services that require an Australian Financial Services (AFS) license.

ASIC’s records indicate that neither [IPO Capital] nor yourself hold an AFS licence or authorisation as a representative of an AFS licence holder.

227    The letter requested an explanation of the basis on which IPO Capital operated without an AFSL, stating: “If you are operating in circumstances where an AFS licence is required, you must immediately cease carrying on the financial services business until you obtain an AFS licence or become an authorised representative of an AFS licence holder.”

228    Mr Mawhinney provided a written response to ASIC on 21 September 2016. In relation to IPO Capital’s basis for operating without an AFSL, Mr Mawhinney stated:

In July 2016 [IPO Capital] sought the advice of its legal counsel (Kurt Falkenstein of General Standards) and the company’s [accountant] (Mark Pozzi of Pozzi Financial Services) in relation to its requirement to hold an AFSL. Both confirmed this was not required.

…

If ASIC considers changes are required to the website or business model and that the advice received by General Standards is inadequate, [IPO Capital] will willingly engage a firm that specialises in Corporations Act and ASIC Act compliance to review all of the Company’s materials and activities for compliance on an ongoing basis.

229    In this letter, Mr Mawhinney stated that IPO Capital did not deal in financial products or operate a managed investment scheme. He also enclosed the advice he received from Mr Pozzi and Mr Falkenstein (see above at paragraphs 166–173).

230    Mr Mawhinney similarly noted in his covering email, attaching the letter:

Note: We are an early stage company and despite being of the opinion we are fully compliant based on the advice we have received, we are also very open to making adjustments to our business model if required to do so.

231    Following further correspondence between ASIC and Mr Mawhinney, IPO Capital engaged Astuto Lawyers (Astuto). On 5 December 2016, Don Christie of Astuto wrote to ASIC stating:

We believe that there are a number of issues that are raised in your [8 September 2016] letter that our client needs to address.

We would like to discuss with you how the product might be “regularised” in order to move forward.

As Mr Christie later explained in a letter to ASIC, Astuto had been contacted by Mr Mawhinney on 1 November 2016 by email, following which a meeting occurred and a fee proposal was accepted by Mr Mawhinney on 17 November 2016.

232    ASIC responded to Mr Christie’s letter on 7 December 2016. ASIC outlined its “serious concerns”, including that IPO Capital may be issuing debentures or interests in an unregistered managed investment scheme, and may require an AFSL. ASIC concluded that if, “as it appears”, IPO Capital was operating in circumstances where an AFSL was required, “it must immediately cease carrying on such business until appropriate licensing or authorisation is obtained.” ASIC reiterated these concerns in a letter to Mr Mawhinney dated 9 December 2016.

233    On 9 December 2016, Mr Christie wrote to ASIC stating that the IPO Capital website had been taken down and the Google Adwords directing prospective investors to it would also be deleted.

234    On 4 January 2017, Mr Christie wrote to ASIC advising that in addition to shutting down the IPO Capital website and Google Adwords, “we have made inquiries with a view to ensuring the product is structured with appropriate licences”.

235    In this letter, Mr Christie also said that:

While focus has been on proving up the investors for S708 status we have also discussed the issuing of interests requiring a licence which we will refer to further in question 5.

…

Question 5

… [W]e have made inquiries with a view to ensuring the product is structured with appropriate licences, support services and provides a compliant Information Memorandum[.]

236    On 11 January 2017, Mr Christie notified ASIC that IPO Capital had engaged Vasco Investment Managers Limited (Vasco), which would offer, “subject to their final approval … authorisation or sub authorisation under their AFSL to act as fund manager” to a new entity to be formed. Mr Christie advised that the fund was expected to be ready to accept investors by the end of February 2017, and proposed “to transition the existing investors and assets at that point”.

237    On 19 January 2017, Mr Christie provided ASIC with a draft Information Memorandum and a copy of the services agreement entered into with Vasco. Mr Christie noted (emphasis added):

In your considerations I would like you to take into account that since we have been involved the websites have been shut down and we have moved as quickly as possible to a compliant structure and documentation.

We are planning to transition the existing clients as soon as possible.

While recognising there may have been shortcomings in IPO’s initial business model and their terminology we are moving to a compliant structure with an external trustee and administrator and with licence coverage for our activities in the sale and issue of securities together with a compliant offer document.

238    On 31 March 2017, Mr Christie wrote to ASIC noting that IPO Capital “has been working towards an appropriate fund raising structure” and confirming the establishment of the IPO Wealth Fund.

239    There does not appear to be any response from ASIC in the evidence.

4.11.2    Interactions concerning (or relevant to) the M Notes

240    Some of the allegations that ASIC has advanced in this proceeding in relation to the M Notes are similar to concerns it raised in 2018 concerning the IPO Wealth Fund.

241    On 23 March 2018, ASIC wrote to Mr Mawhinney outlining its concerns that a proposed advertisement for the IPO Wealth Fund contained statements that may be misleading or deceptive. ASIC identified, amongst other things, that the use of language comparing the investment to a term deposit — such as “Tired of term deposits?” — may cause a reader to “infer that an investment in IPO Wealth has similar risks and attributes to investing in a bank term deposit”. ASIC raised similar concerns in a letter to Mr Mawhinney dated 20 April 2018, stating that the IPO Wealth website may be misleading or deceptive because it “contains a dominant message that the Fund is akin to a term deposit or a bank deposit, the Fund provides a fixed rate of return … and/or the Fund has limited risk”.

242    Despite concerns having been raised by ASIC in 2018, marketing of the IPO Wealth Fund continued until Vasco, the trustee of the IPO Wealth Fund, reviewed the marketing material and, in April 2019, changed its “position … in relation to marketing activities and public messaging”, leading to a decision (recorded in a draft Mayfair Group Annual Operational Review dated August 2019) to discontinue most marketing activity for the IPO Wealth Fund. I infer that Mr Mawhinney stopped marketing the IPO Wealth Fund on the basis of marketing materials that referred to comparisons with term deposits when Vasco, the trustee, no longer supported the continued marketing on that basis.

243    ASIC relied in this proceeding on the earlier correspondence concerning the IPO Wealth Fund to illustrate Mr Mawhinney’s knowledge of ASIC’s concerns regarding the use of language that is similar to language used in the promotion of the M Notes.

244    The first action taken by ASIC in relation to the M Notes that the evidence records is a notice issued on 5 December 2019 pursuant to s 912C(1) of the Corporations Act to Quattro Capital Group Pty Ltd (Quattro) (Australian Income Solutions’ Australian financial services licensee) seeking information in relation to the M Notes, including the details of any transfer of investor monies paid by M101 Nominees or M101 Holdings to third parties, and the role of PAG vis-à-vis the M Core Notes product.

245    On 9 December 2019, ASIC issued s 33 Notices to Quattro and Mayfair Wealth respectively, seeking various books relating to the M Notes, including any books recording the promotion or marketing of either product. Mayfair Wealth provided its response on 20 December 2019. As noted above, Mayfair Wealth traded as Mayfair Platinum, and changed its name to Australian Income Solutions on or about 14 June 2020.

246    On 23 March 2020, ASIC issued a s 33 Notice to PAG seeking various books relating to the M Core Notes security structure, including the monthly security statements produced by M101 Nominees for PAG under the Security Trust Deed and books recording the valuation of property over which PAG had been granted a security interest. On the same day, ASIC issued a notice to PAG pursuant to s 19(2) of the ASIC Act, requesting a written statement containing information such as “how PAG Holdings confirms that it holds sufficient security interests of a value at least equal to all amounts due in respect of the redeemable promissory notes issued”. As outlined at paragraph 120 above, in a 17 April 2020 email from Mr van Wegen of PAG to Mr Mawhinney and Mr Anasis, Mr van Wegen advised that PAG would provide amended versions of M101 Nominees’ Security Trustee reports to ASIC in response to the s 33 Notice, stating: “It has come to light that these reports have not been quite right in the past and missing [sic] valuable security”. PAG provided the revised Security Trustee reports to ASIC on or around 20 April 2020.

247    On 1 April 2020, ASIC issued a s 33 Notice to M101 Nominees and M101 Holdings seeking all books documenting or recording the details of the Liquidity Prudency Policy. A response was provided the following day, on 2 April 2020. On 3 April 2020, ASIC commenced what was referred to as the Mayfair proceeding (sometimes also referred to as the “Companies proceeding”) against Mayfair Wealth (ie Australian Income Solutions), M101 Nominees, M101 Holdings and Online Investments Pty Ltd trading as Mayfair 101 (Online Investments or Online Investments trading as Mayfair 101). This proceeding, and the separate proceeding commenced on 10 August 2020, are detailed below.

4.12    Legal proceedings commenced in April 2020 leading to the appointment of liquidators and the making of injunctions

248    On 3 April 2020, ASIC commenced the Mayfair proceeding against Mayfair Wealth (ie Australian Income Solutions), M101 Nominees, M101 Holdings and Online Investments. On 16 April 2020, a judge of this Court made interim orders in that proceeding restraining the Defendants from using some phrases in advertisements, and requiring them to add certain notices to their websites and provide notice of certain matters to prospective investors. The Court’s reasons were published as Australian Securities and Investments Commission v Mayfair Wealth Partners Pty Ltd [2020] FCA 494. Mr Mawhinney was not a party to the Mayfair proceeding.

249    The present proceeding was commenced by ASIC on 10 August 2020, against M101 Nominees, Mr Mawhinney and Sunseeker. The relief sought included the winding up of M101 Nominees, and orders restraining Mr Mawhinney from certain conduct under ss 1101B and 1324 of the Corporations Act.

250    On 13 August 2020, a judge of this Court made orders appointing Mr Jahani (and another liquidator of Grant Thornton) joint and several provisional liquidators of M101 Nominees under s 472(2) of the Corporations Act. Those orders also restrained Sunseeker in its dealings with units in the trusts that held properties at Mission Beach, and Dunk Island.

251    The Court’s orders made in this proceeding on 13 August 2020 also imposed travel restrictions on Mr Mawhinney and restrained him from (inter alia) receiving or soliciting funds in connection with any financial product, including the M Notes and the Australian Property Bonds. The judge’s reasons for the making of those orders were reported in Australian Securities and Investments Commission v M101 Nominees Pty Ltd [2020] FCA 1166; (2020) 147 ACSR 537. This was followed by orders made on 29 January 2021 for the winding up of M101 Nominees on the just and equitable ground under s 461(1)(k) of the Corporations Act, and the appointment of Mr Jahani and his colleague as joint and several liquidators of M101 Nominees. Reasons were published: Australian Securities and Investments Commission v M101 Nominees Pty Ltd [2021] FCA 62.

252    Events then returned to the Mayfair proceeding. On 23 March 2021, the judge made orders declaring that the Defendants in that proceeding had engaged in false, misleading or deceptive conduct contrary to s 1041H(1) of the Corporations Act and ss 12DA(1) and 12DB(1) of the ASIC Act: Australian Securities and Investments Commission v Mayfair Wealth Partners Pty Ltd (No 2) [2021] FCA 247. The representations found to have been made (and to have been false, misleading or deceptive) overlap with the representations alleged in the present proceeding. The liability phase of the Mayfair proceeding was not defended.

253    On 19 April 2021, the judge vacated the interim restraints made in this proceeding on 13 August 2020 and made final orders under s 1101B of the Corporations Act, effectively precluding Mr Mawhinney from involvement in the financial services sector for 20 years: Australian Securities and Investments Commission v M101 Nominees Pty Ltd (No 3) [2021] FCA 354; (2021) 153 ACSR 230. Mr Mawhinney appealed.

254    On 22 December 2021, the Court issued written reasons concerning relief in the Mayfair proceeding: Australian Securities and Investments Commission v Mayfair Wealth Partners Pty Ltd [2021] FCA 1630. The Mayfair proceeding was defended in this penalty phase. The total pecuniary penalties across the corporate Defendants totalled $30 million. Final orders imposing the pecuniary penalties on the Defendants in the Mayfair proceeding were made on 21 January 2022. Those orders were also appealed.

255    On the appeal in the Mayfair proceeding, the Full Court of the Federal Court set aside the broad injunction restraining the Appellants from using certain phrases in advertising, promotion or marketing on the basis that the injunction was “too broad and unworkable”, but otherwise dismissed the appeal: Mayfair Wealth Partners Pty Ltd v Australian Securities and Investments Commission [2022] FCAFC 170; (2022) 295 FCR 106 (Mayfair Full Court) at [16] and [275]–[282] (Jagot, O’Bryan and Cheeseman JJ).

256    On the remitter, ASIC accepted that the findings made in the Mayfair Full Court decision as to the making of certain representations do not bind me. ASIC urged that they were nonetheless “persuasive”. Mr Mawhinney disagreed. I have not found that decision to be of significant assistance in determining the issues before me. As already explained, the trial on liability in the Mayfair proceeding (which addressed whether the impugned representations were made) was not contested. The Full Court noted that, while the hearing on penalty was contested, and the appeal proceedings were brought, its capacity to revisit findings made in the uncontested liability trial below was constrained to some degree: [11]–[15] and [41] (Jagot, O’Bryan and Cheeseman JJ). It was also not suggested that the evidence in the Mayfair proceeding was the same as the evidence before me, although clearly there were overlaps.

257    Mr Mawhinney’s appeal in this proceeding was successful. The Full Court found that Mr Mawhinney had been denied procedural fairness: Mawhinney Full Court. The appeal was advanced on a large number of grounds, including that the orders restraining Mr Mawhinney under s 1101B of the Corporations Act were beyond power as it was not proved that Mr Mawhinney had persistently contravened, or was continuing to contravene, the relevant provisions of the Corporations Act. The Full Court found, however, that the only properly conceived ground of appeal was that Mr Mawhinney had been denied procedural fairness in circumstances where the primary judge’s orders were based on findings of contraventions, and Mr Mawhinney’s involvement in contraventions, but ASIC had never pleaded or contended below that there had been contraventions of the relevant provisions (its position having been that it did not need to establish contraventions): at [4]–[5] (Jagot, O’Bryan and Cheeseman JJ). The Full Court set aside the orders that had been made vacating the interim restraints made on 13 August 2020, the effect being that those interim restraints were re-enlivened.

258    As outlined above at paragraph 7, The Full Court remitted the present proceeding for hearing by a judge other than the primary judge on the basis of such further evidence and submissions as the parties wished to adduce and put respectively, and such further case management orders as the judge to whom the matter was remitted thought fit.

259    It was a feature of the Full Court’s determination and remitter in this proceeding that ASIC would have the opportunity to recast and replead its case. That it did, with an Amended Originating Process dated 15 November 2023, and a Statement of Claim dated 20 December 2023. Over 99 pages, ASIC pleaded the numerous underlying contraventions for which it contended, and having regard to which it contended that Mr Mawhinney should be (to paraphrase the relief sought) precluded from involvement in financial services for a period of 20 years.

260    There have been various interlocutory disputes, some determined by the previous docket judge (after the remitter by the Full Court) and some by me, following the reallocation of the proceeding to my docket on 8 October 2024.

261    Mr Mawhinney claimed that he was entitled to the privilege against self-exposure to penalty, in view of the relief sought against him. ASIC did not contest that position. Mr Mawhinney filed a limited Defence and then, after ASIC’s case was closed, filed an Amended Defence (although it was not much more informative than his initial Defence). Mr Mawhinney elected to go into evidence — documentary only — on the following subject matters:

(1)    The income-producing capacity of the investment scheme operated by M101 Nominees.

(2)    The funding structure of the property holding trusts.

(3)    The discharges of the mortgages to Naplend to support the Australian Property Bonds.

(4)    The date when the Liquidity Prudency Policy was first published.

(5)    Legal advice received on the material used to promote the M Notes and the Australian Property Bonds.

262    Mr Mawhinney was represented at trial by two senior counsel and several junior counsel. ASIC was also represented by a member of senior counsel, and several junior counsel.

4.13    M101 Nominees’ business model

263    ASIC’s case on relief drew attention to the losses suffered by investors and the potential for loss to which investors were exposed, by reason of the way in which the Mayfair Group — under Mr Mawhinney’s control — promoted the products at issue, and the features of the M Core Notes security structure and intercompany arrangements. Mr Mawhinney countered by contending that any investor losses are the fault of ASIC (on the basis of ASIC’s unjustified initiation of proceedings in April 2020) and Mr Jahani, coupled with the COVID-19 pandemic. It was, on Mr Mawhinney’s case, Mr Jahani’s deeply flawed and biased reports that resulted in Mr Jahani being appointed liquidator of M101 Nominees, and that company being placed into liquidation. Accordingly, there was significant focus at the trial on remitter as to whether the M101 Nominees business model was fatally flawed from the outset. While I am mindful that not all investors were invested in the M Core Notes, this background explains why this section of my reasons addresses the M101 Nominees business model (as opposed, for example, to the M101 Holdings business model).

264    Mr Mawhinney contended that the failure of M101 Nominees’ business, which ASIC submitted has or will cause significant losses to investors, occurred due to the unexpected, and severely disrupting, arrival of COVID-19, and ASIC having brought proceedings in April 2020. He contended that the orders made by the Court in the Mayfair proceeding in April 2020 cruelled the Mayfair Group’s ability to continue to raise funds through the issue of the M Notes, even though the orders’ prohibition on the use of certain expressions in advertising materials did not mean that the M Notes could no longer be issued. Mr Mawhinney contended that the orders ASIC obtained against him personally in August 2020 made it even more difficult to raise funds.

265    Mr Mawhinney also had a deep grievance against Mr Jahani. On his view, advanced via his counsel — Mr Mawhinney did not give evidence — Mr Jahani wrongly characterised M101 Nominees as being insolvent from the outset, and (on Mr Mawhinney’s view) stubbornly, and wrongly, persisted in that view. Mr Jahani was cross-examined in the trial before me.

266    Mr Jahani’s evidence, and Mr Mawhinney’s criticisms, should be understood having regard to Mr Jahani’s role in the proceedings.

267    As outlined at paragraph 250 above, by orders made in this proceeding on 13 August 2020 (on the ex parte application of ASIC), a judge of this Court appointed Mr Jahani (and his colleague) joint and several provisional liquidators of M101 Nominees. Those orders required Mr Jahani to provide a report to the Court within 42 days, including an opinion as to the solvency of M101 Nominees and its assets and liabilities.

268    Mr Jahani duly provided the Court Report, dated 24 September 2020, as well as the Statutory Report, dated 29 April 2021. These two reports were in evidence in the trial before me. Mr Jahani also submitted a confidential report to ASIC pursuant to s 533 of the Corporations Act dated 29 July 2021. This report was not in evidence (although its existence was referred to by Mr Jahani). Finally, Mr Jahani prepared the Jahani Report, dated 15 August 2024. The Jahani Report annexed the Court Report and the Statutory Report.

269    On the remitter there was a pre-trial issue, raised by Mr Mawhinney, regarding whether the Jahani Report should be excluded altogether on the basis of an alleged breach of the “Harman undertaking” (referring to Harman v Secretary of State for the Home Department [1983] 1 AC 280) by Mr Jahani. I dismissed the contention concerning the exclusion of the Jahani Report, for reasons given on the transcript. A contempt application, brought by Mr Mawhinney against Mr Jahani at about the same time, was deferred, at Mr Mawhinney’s suggestion, to after the conclusion of the trial. Mr Jahani was legally represented and appeared in relation to the pre-trial interlocutory hearing, but did not participate in the trial, other than as a witness.

270    In the Jahani Report, Mr Jahani adhered to his earlier view that M101 Nominees was insolvent from inception, although he acknowledged that, once M101 Nominees activated the Liquidity Prudency Policy on 11 March 2020, it could indefinitely defer payments to investors, and so may have been “solvent” thereafter (a concession that Mr Mawhinney highlighted was not made in his Court Report). Mr Jahani’s reasons for considering that M101 Nominees was insolvent from the outset are as follows (as presented in the summary of the Jahani Report):

a     The Company’s balance sheet records a net asset position and a current ratio above 1 when various receivable loans are reclassified as ‘current’. However, there is a real risk with respect to the recoverability of the $63.5 million Eleuthera Group Pty Ltd (“Eleuthera”) loan which is the Company’s single largest asset. Considering the recoverability of the Eleuthera loan, which in turn requires assumptions with respect to Eleuthera’s ability to recover various related party loans (many of which have been deregistered or are under external administration), the recoverability is severely impaired.

b     There is a timing mismatch in the Company’s business model. It was issuing Notes with a short term maturity (usually 6 to 12 months) but had entered into a 10 year loan agreement with a related entity, Eleuthera, to whom most of these funds were advanced. Accordingly, it could never have the funds to repay redemptions of Notes at maturity as there was no positive obligation upon Eleuthera to repay borrowed monies until the expiry date of the loan agreement in 10 years. This also leads me to conclude the correct treatment is to classify this loan receivable as a non-current asset of the Company, which will result in a current ratio below 1.0 for the Company.

c     The Company had no income producing assets in its own name. Its only source of income was 8% interest due under the Facility Agreement with Eleuthera for the funds loaned. While the rate of interest earned is greater than that payable to noteholders, resulting in a small gross profit, there was insufficient income generation to repay redemptions, when Notes started to mature.

d     From various cash flows and financial models reviewed for the Group, there is no identifiable revenue source across the Group to fund the repayment of the redemptions within the maturity period of the issued Notes, with 93% of Notes by value having a maturity of 12 months or less. In fact, the models assume there will be minimal redemptions (with no viable basis for this assumption) and instead the value of new notes across the Group’s various products and external debt will both increase. Some of the models also assume longer term development strategies which may generate future income, however, there is no clear and reasonable basis to support these assumptions.

e     In addition to the absence of being able to generate income from third party sources, there was also an absence of cash reserves to fund interest and redemptions. All noteholder funds were transferred to Eleuthera shortly after receipt by the Company. Eleuthera returned funds under the loan when cash was required. However, Eleuthera did not advance sufficient funds to enable April 2020 and May 2020 interest distributions to be paid on time and interest for June 2020 onwards has not been paid. All redemption requests were also suspended on 11 March 2020 pursuant to the Liquidity Prudency Plan (“LPP”) created around this date.

f     Given the dependency of the Company on Eleuthera and other Group members in the absence of its own performance, I have considered the financial performance and position of Eleuthera to assess its ability to continue to support the Company. Eleuthera also had no ability to generate income aside from interest due from related entities, with interest revenue less than interest expenses due to the Company and M101 Holdings Pty Ltd (“M101 Holdings”). I also have concerns with respect to the recoverability and realisation of its related entity loans with several of these entities now subject to external administration or deregistered.

g     The Company and the Group were also not able to raise additional funds. Estimates of between $70 million and $200 million were identified in forecasts and correspondence from the books and records where the Group was seeking to raise funds. Despite an ongoing process, at the date of my appointment as Provisional Liquidator, the Group had still not been able to attract further debt other than a short term loan from a non-bank lender, Naplend Pty Ltd (“Naplend”).

h     A source and application analysis confirms that there was no external income generating capability and that over $1.0 million of noteholder funds were used to fund interest payments back to Noteholders. Internal correspondence from the books and records also indicates that the business model was to use new noteholder funds to pay old noteholders with no ability to generate income across the Group in the short to medium term. The model appears akin to that of a Ponzi scheme.

271    Mr Mawhinney’s principal points of challenge to Mr Jahani’s views concerned:

(a)    the suggestion that there was a mismatch between M101 Nominees’ short-term liabilities to investors and its long-term assets (principally the loan to Eleuthera, which, as outlined above, Mr Jahani approached on the basis that it had a 10-year term, whereas Mr Mawhinney considered that advances were repayable in 12 months);

(b)    the recoverability of the loan to Eleuthera (which was the only meaningful asset on the balance sheet of M101 Nominees);

(c)    Mr Jahani’s assumptions regarding the need for cash to fund redemptions (Mr Mawhinney contended the rate of anticipated redemptions should be much lower given the rates of reinvestment in another product issued by a Mayfair Group entity, the IPO Wealth Fund);

(d)    the income-producing capacity of M101 Nominees and the broader Mayfair Group (Mr Mawhinney focused here on the rental income that could be generated from properties acquired by the property holding trustee companies and short-term plans for “The Spit” on Dunk Island);

(e)    Mr Jahani’s description of the M101 Nominees business model as “akin to … a Ponzi scheme”; and

(f)    whether M101 Nominees would have been sustainable based on a counterfactual put to him (no COVID-19 or intervention by ASIC, $2 million annual rental income, M Core Notes being rolled over at a rate of 90%, a stock of excess properties that could be sold to generate liquidity, the continuation of inflows of funds at the levels experienced between October 2019 and February 2020, and funds being available from other sources within the Mayfair Group).

272    Mr Mawhinney also accused Mr Jahani of being partisan and biased against him, and disputed Mr Jahani’s criticism that Mr Mawhinney had a “vision”, but no detailed plans for the development of the Mission Beach region.

273    Other points of dispute concerned Mr Jahani’s views on the M Core Notes security structure and the value of the security held by PAG. In particular, Mr Mawhinney took issue with:

(a)    Mr Jahani’s criticisms of the reliance on assumed uplifts in the value of the secured properties (relevant to the issue of whether the value of the security held by PAG covered the outstanding M Core Notes); and

(b)    Mr Jahani’s statements regarding the proportion of properties that were acquired at prices above market values.

274    Before addressing the substance of the issues, something needs to be said about the analytical significance (or otherwise) of these issues. Matters concerning the value of security held by PAG are directly relevant to the Security Representation. Factual findings have been made above in addressing the security structure. However, the broader issues concerning the M101 Nominees business model and whether all would have been well (absent COVID-19 and ASIC’s intervention) are not directly relevant to the issues concerning whether the contraventions alleged by ASIC have been made out. Rather, those matters only have relevance as circumstances that may bear upon the question of relief under s 1101B of the Corporations Act. ASIC contended, including by reference to Mr Jahani’s evidence, that investors in M101 Nominees were exposed to a “real and substantial risk of loss”. While ASIC submitted the Court ought to accept Mr Jahani’s opinions on solvency, its case did not depend on that as the “real point” concerned the risk of loss.

4.13.1    The flow of funds

275    There was no dispute that, in practice, the flow of funds in connection with the M Core Notes was as follows:

(1)    The new investor paid funds into the bank account of M101 Nominees (or a cheque was deposited into that account).

(2)    The cash held in M101 Nominees’ bank account was mostly transferred to Eleuthera, so that M101 Nominees itself did not retain a significant balance in its bank account. This was consistent with Eleuthera’s “treasury” function. Mr Jahani reported that, upon his appointment as provisional liquidator in August 2020, only $942 was in the M101 Nominees bank account. He also reported that the account balance peaked at $6 million on 20 November 2019, but $5 million was transferred to Eleuthera the next day. Mr Jahani calculated that, allowing for funds paid from Eleuthera to M101 Nominees, the net transfer of cash from M101 Nominees to Eleuthera was $63.1 million over the period to 13 August 2020. For context, receipts from investors over this period exceeded $65 million according to Mr Jahani’s calculations, which were broadly consistent with management calculations.

(3)    Funds were paid from Eleuthera’s bank account to vendors of the real property being acquired by the property holding trustee companies.

276    The flow of cash is not to be confused with the intercompany liabilities that resulted. Initially, the property holding trustee companies had intercompany debts that were owed to Eleuthera. At some point (as addressed above in connection with the debt to equity swap), and at a level of generality, these intercompany loans from Eleuthera to the property holding trustees were switched to intercompany debt owed by Sunseeker to Eleuthera, with the trustee companies then equity funded by the issue of units to Sunseeker. The intercompany debt owed by Eleuthera to M101 Nominees was not affected by the downstream debt to equity swap.

277    M101 Nominees did not hold the real property acquired using funds contributed by M Core Notes investors, and so did not receive (directly at least) payments for the rent of properties held by the property holding trustees, and Eleuthera had the right, at its discretion, to issue shares to M101 Nominees in lieu of paying interest on the loans advanced to it under the Facility Agreement.

278    The key points to note are that:

(a)    M101 Nominees retained low cash balances and was dependent on two sources of funds to pay interest and redemptions: funds from new investors, and funds from other Mayfair Group entities (principally Eleuthera as M101 Nominees’ principal debtor);

(b)    M101 Nominees did not have direct access to funds generated from renting out the properties acquired in the Mission Beach area, although ASIC accepted that, with Mr Mawhinney controlling the whole Mayfair Group, cash could be moved between entities, which makes the income relating to rental properties relevant to considering the sustainability of the M101 Nominees business model; and

(c)    although M101 Nominees had a right to receive payment of interest owed to it by Eleuthera under the Facility Agreement (see further below), only a fraction of the interest due was in fact paid.

4.13.2    The terms of the Eleuthera loan and its recoverability

279    The Eleuthera loan was unsecured. I have found above that the loan was not required to be repaid until the end of the 10-year Term, although I accept that Mr Mawhinney had the capacity to move cash around the Mayfair Group and, if cash were available and he wanted to have Eleuthera repay its debt to M101 Nominees (or some of it) earlier, he could have arranged for that to be done.

280    It was common ground that the interest owed by Eleuthera to M101 Nominees pursuant to the Facility Agreement was due monthly. However, by 30 June 2020, from a cash perspective, Eleuthera had only paid $121,761 out of $2.5 million in interest that was due by that time (which equates to the payment of less than 5% of the interest due). While, on paper, the interest due from Eleuthera should have been sufficient to meet the interest due to investors, the reality was that Eleuthera did not pay the interest in cash.

281    As a source of cash from which investors’ entitlements could be paid, the entitlement to interest under the Facility Agreement between Eleuthera and M101 Nominees was of very limited assistance. Mr Jahani calculated that, of the $1.1 million in interest actually paid to investors, $1 million (so almost the total) was funded by funds raised from investors. While Mr Jahani considered this indicative of a Ponzi scheme, a description that Mr Mawhinney vehemently objected to, as I have noted above, Mr Mawhinney made no bones about the business model relying on new investor funds to enable M101 Nominees to meet its obligations to existing investors.

282    I am mindful, however, that how things turned out in relation to the payment of interest is not necessarily indicative of the circumstances when the M101 Nominees business model was launched. That said, and as addressed further below, there is a striking paucity of cashflow work by which anyone could have any confidence that any source(s) of available funds — whether interest paid by Eleuthera to M101 Nominees, rental payments channelled up from the trustee entities, and/or earnings from “The Spit” bar (should it be successfully redeveloped and launched, and should that turn a profit that could be made available somehow to M101 Nominees) — would allow it to meet its obligations to investors in the M Core Notes.

4.13.3    Cashflow: income-producing capacity and redemption assumptions

283    Mr Mawhinney contended that approximately $2 million per annum could have been generated as the rental yield from properties owned by the property holding trustee entities. This figure was generated by reverse-engineering the purchase prices of the commercial and residential properties by reference to an estimated yield of 5% per annum for commercial properties, and 4% for residential properties.

284    While these yields had theoretical support from industry data, and were accepted by Mr Quinn in cross-examination as reasonable yield figures, the problem for Mr Mawhinney is that the Mayfair Group in fact did not achieve rental yields anywhere near that level.

285    Mr Mawhinney’s $2 million per annum figure far exceeded the rental yields in fact achieved. As already mentioned (at paragraph 52 above), even annualising the peak rental income achieved by the property holding trustee companies in any one week, only $473,546.52 would have been generated. This is broadly consistent with the figure of $7,955 per week in rental income calculated by Mr Jahani.

286    Mr Jahani appeared, in cross-examination, to concede at one point that his assessment of rental yields was understated, after he was shown various rental agreements and business activity statements (BAS). The BAS showed, over a nine-month period, sales of approximately $380,000. However, it was not established whether the sales in that amount, recorded in the BAS, were referable to rental income, or to the sale of properties. In that regard it was part of Mr Mawhinney’s case that one available source of funds was the stock of real estate in the Mission Beach area, that was held in the Mayfair Group, and which could be sold to generate funds. Mr Mawhinney relied on this apparent concession in his submissions. As the lack of clarity regarding what the sales reflected in the BAS emerged during cross-examination, Mr Jahani effectively recanted his concession. I also note that, once it was pointed out that the cross-examiner had made a mathematical error in putting to Mr Jahani that his estimate of the rental income was only approximately $40,000 per annum (when the sum on the cross-examiner’s questioning would have been more like $400,000), this line of cross-examination was abruptly abandoned. Accordingly, although Mr Mawhinney sought, in his closing submissions, to rely on Mr Jahani as having conceded that his estimate of the rental income was understated, I do not proceed on the basis that Mr Jahani made any relevant concession on this point.

287    In addition, when one is looking at rental yields as a source of cash, it is necessary to address not only the gross rental yield that might be received, but also the costs associated with holding the property portfolio (in particular rates and insurance, but excluding interest on financing). The basis upon which Mr Mawhinney based his contention that there was adequate cashflow in the M101 Nominees business (including his counterfactual) focused on sources of funds but (other than in respect of redemptions) had little regard to costs.

288    Those costs were, however, substantial.

289    A document provided to Naplend dated 13 November 2019 contained a summary page headed “Mayfair Iconic Properties: Information Memorandum” and recorded, against a planned property portfolio with a purchase value of $135.08 million, rental income of $3.21 million per annum and “holding costs” of $4.06 million per annum. These figures included properties that had not yet settled and more than half the anticipated portfolio purchase price value was vacant land (which was not expected to generate rental income).

290    Mr Jahani obtained details of the holding costs associated with the property portfolio. While the Jahani Report does not contain details of the holding costs, in cross-examination, he gave evidence that, although he could not remember the exact amounts, the holding costs exceeded the gross rental income.

291    Around 29 January 2020, a cashflow was prepared headed “Mayfair Iconic Properties”. Mayfair Iconic Properties was the entity established to conduct the Dunk Island project. The cashflow incorporated anticipated cashflows from the MBPT, MBPT No 2 and MBPT No 3. The MBPT (labelled “Vacant Land”) was expected to remain cashflow negative for the entire period covered by the cashflow (to FY 2025), but the MBPT No 2 (labelled “Residential Properties”) was expected to be cashflow positive after FY 2020. The MBPT No 3 (labelled “Commercial Properties”) was only expected to be cashflow positive in FY 2020, and cashflow negative thereafter. The cashflow also recorded the outgoings for “Mission Beach Operations” (being what appears to be general corporate overheads, including wages). In addition, the cashflow included costs for a “tavern” and hotel in Wongaling. This cashflow included a tab titled “DUNK”, which projected zero income for food and beverage for FY 2020. It projected food and beverage revenue of $556,521 in FY 2021 (presumably referable to “The Spit” bar) as well as over $1 million for “[a]ccommodation”. There is no basis in the evidence to explain how it was anticipated that accommodation revenue in that amount could be earned in FY 2021 given the state of the abandoned resort. Even allowing for that assumption, Mayfair Iconic Properties was expected to be cashflow negative in FY 2021.

292    This cashflow did not include any allowance for interest payments or redemptions in respect of the M Notes. That is not, of itself, a point of criticism, but is relevant to put the figures in context. The spreadsheet appears to, and I infer that it does, reflect a corporate plan to devote the anticipated income from the three Mission Beach Property Trusts listed to the costs associated with developing Dunk Island, the “Mission Beach Operations” (overheads), consultants and the tavern and hotel at Wongaling. If those funds were to be funnelled into supporting Dunk Island developments, they would not be available to meet obligations to investors.

293    This cashflow included separate tabs for three of the Mission Beach Property Trusts. Looking, by way of example, at the tab for the MBPT No 2, it projected that revenue from permanent and holiday lets would reach $2,652,089 in FY 2021 (up from a projected $593,829 for the second half of FY 2020). Putting “[o]perating expenses” to one side, the cashflow for the MBPT No 2 projected cost of goods sold (COGS) for FY 2021 to be nearly $1.6 million. Most of those costs were fixed and, it would seem, unavoidable: body corporate fees, insurance, land tax and rates. Even deducting the costs that might be avoided (property management fees and utilities), the total COGS for FY 2021 was over $1.18 million.

294    The tab for the MBPT No 3 presents an even more stark picture, with projected COGS for FY 2021 of $1.06 million, nearly double the anticipated revenue of $524,853. For the MBPT (labelled, as noted ,“Vacant Land”), no income was projected for the entire forecast period, and annual COGS (from FY 2021, being the first full year, to FY 2025) were between $1.38 million and $1.52 million.

295    There was no information regarding how these anticipated revenue figures had been generated. They far exceed even the $2 million per year (across the Mayfair Group) that Mr Mawhinney contended in this proceeding could be generated by way of rental income.

296    The significance of these figures, for present purposes, is that the property holding trusts had significant expenses. The unavoidable expenses of the three Mission Beach Property Trusts are such that, even if the properties generated rental income at the level for which Mr Mawhinney contended — $2 million per annum — there was no realistic prospect that obligations to investors could be met from rental income. That remains the case even if, for argument’s sake, the expenses could be contained to lower levels than indicated in this spreadsheet (which is not a matter that Mr Mawhinney has suggested in any case).

297    Standing back from the detail, this cashflow projected an overall result of -$105.9 million to the end of FY 2025. The overall “Chart” tab of this cashflow shows negative cashflow was expected until October 2023, with periodic negative cashflows anticipated frequently for the remainer of the forecast period (to FY 2025). Operations were only expected to be cashflow positive on a whole year basis in FY 2025.

298    Another version of this spreadsheet was prepared around 13 March 2020, but only went as far as the end of FY 2021. As ASIC pointed out, comparing the January and March 2020 figures, the net loss for FY 2021 was projected to be $43.45 million in the March 2020 spreadsheet, which was higher than the figure in the late January 2020 spreadsheet, which was a net loss of $27.7 million.

299    The March 2020 spreadsheet included an “Island Ops Pty Ltd” tab, which included a line item for alcohol sales. The figures recorded are very minimal. It is not clear whether this line item refers to “The Spit” bar.

300    The March 2020 spreadsheet also separated out development expenses that were characterised as “optional”. These optional items were some (but not all) of the Dunk Island development expenditure, some consultants’ costs, as well as the Wongaling tavern and hotel. Even if all the “optional” expenditure were excluded, the result for FY 2021 was still a sizeable loss: negative $6.97 million.

301    The relevance of these overall cashflows concerning Dunk Island (and other aspects of Mr Mawhinney’s plan) is that, whatever the long-term promise of the ambitious plans for the region, neither Dunk Island nor the operations of the relevant Mission Beach Property Trusts were going to, and were not expected to, deliver net positive cashflows that would assist in meeting liabilities to investors.

302    These two spreadsheets were not the subject of analysis by Mr Jahani; it is not clear that Mr Jahani was provided with them.

303    The Jahani Report does, however, include reference to another cashflow that was identified in M101 Nominees’ books and records. It included actual cashflows from 28 January 2020 to 5 April 2020, and forecast cashflows from 6 April 2020 to 27 December 2020. This forecast has already been referred to in connection with Mr Mawhinney’s “tourism mecca” vision for Mission Beach and Dunk Island, and the Liquidity Prudency Policy (paragraphs 55 and 157–159 above). In the three full weeks before the Liquidity Prudency Policy was activated on 11 March 2020, redemptions exceeding $1.86 million were paid.

304    Inflows of “deposits received” (purportedly in respect of the “M1 Notes”) in the first weeks from 28 January 2020 to the last full week before the activation of the Liquidity Prudency Policy were: $4.82 million, $6.54 million, $3.87 million, $3.7 million, $9.46 million and $4.17 million. In the week of 9 to 15 March 2020, inflows were $2.75 million, but in the week of 16 to 22 March 2020 (after the activation of the Liquidity Prudency Policy), inflows were only $300,000, and $0 the following week (23 to 29 March 2020).

305    It is not clear from the face of the cashflow whether reinvested noteholder funds were included in the “[d]eposit received” line (or whether that line referred only to wholly new investor funds). If necessary to reach a conclusion on this point, I would infer the line refers to new funds as, otherwise, one would expect a notional “inflow” of rolled over funds also to have a notional “outflow”, but there are no matching outflows, which can be discerned from weeks in which there was only an “inflow”.

306    One thing that is clear, however, is that inflows dropped precipitously in the last two weeks of March 2020. That drop occurred before ASIC commenced the Mayfair proceeding on 3 April 2020. There was also an inflow of $2.4 million in the week of 30 March to 5 April 2020. While a sizeable inflow, that figure was below the sums received each week from 28 January to 8 March 2020.

307    There was no evidence that recorded the new investor funds received for M+ Notes from 6 April 2020. For the M Core Notes, there was evidence (in the form of an investment register as at June 2020) which recorded an investment of $500,000 on 8 April 2020, and an investment of $200,000 on 15 April 2020. While the Mayfair proceeding had commenced by this time, the orders affecting the capacity to advertise the M Core Notes were only made on 16 April 2020.

308    I have not referred further to the cashflow that Mr Jahani identified as having been provided to his office in September 2020, and appearing to have been prepared around February 2020. The first tab is titled “Summary Term Sheet” and the whole document appears to have been prepared as a pitch to a new senior lender, rather than as an operating management cashflow. Mr Jahani made some observations about it in the Jahani Report.

309    The counterfactual constructed by Mr Mawhinney also relied on notes being rolled over at the rate of 90%. Obviously enough, the more investors who roll over their investment, the less cash needs to be found to pay redemptions. The proposition that it would be reasonable to assume a rollover rate of 90% was said to be based on the rates experienced for a different Mayfair Group product, the IPO Wealth product. The FAQs page in a version of a brochure with a file reference suggesting it was prepared in August 2019 for that product said that, as at June 2019, “[t]he Fund’s renewal rate … is 88.5%”. Mr Mawhinney also relied on an email chain from November 2018, which attached a spreadsheet. That spreadsheet referred to a renewal rate of 92% for the IPO Wealth Fund between March 2017 and October 2018.

310    While I accept that the IPO Wealth Fund had the claimed rates of rollovers, that alone does not mean it is self-evident that the rollover rates for the M Notes would be the same. Moreover, ASIC referred to admissions made by Mr Mawhinney in another proceeding in which he referred to redemption rates for IPO Wealth having increased by around July 2019. Mr Mawhinney did not go into evidence in this proceeding to explain any assumptions that were actually held about redemption rates for the M Core Notes (or the M+ Notes for that matter), let alone how any such assumptions fed into developing a business model for M101 Nominees that should be accepted as viable. In light of the rising rate of IPO Wealth redemptions in around July 2019, I do not accept that the question of the viability of the M101 Nominees business model is to be approached on the basis of an assumed high level of rollovers based on the experience of the IPO Wealth Fund before its redemption rates increased in mid-2019.

311    To the extent that Mr Mawhinney’s counterfactual relied on funds available from other sources within the Mayfair Group, and pointed to Eleuthera’s balance sheet for 30 June 2020, at that balance date, Eleuthera only had $16,347.86 in its bank accounts. Its balance sheet otherwise largely consisted of some clearing accounts and intercompany loan accounts (current and non-current), the recoverability of which would be dependent on the capacity of the intercompany debtors to pay. Mr Mawhinney’s reliance on the brochure entitled “Investing Has Changed: Australia-Wide Tour November 2019” also does not support the suggestion that there were ready sources of liquidity available in the Mayfair Group to support his counterfactual.

312    As noted, Mr Mawhinney also relied on companies in the Mayfair Group having a “stock of excess properties” that were available to be sold to provide liquidity. There was evidence that, in July 2020, a sales process was undertaken off market and with no public advertising through local agents, through which 12 vacant lots were sold on a short settlement basis (14 days). Eight of the 12 lots were sold to one buyer. The cumulative total sale price of those 12 lots was $943,000, against a total purchase price of $940,500.

313    I accept that the property holding trustee companies had properties they could sell in order to generate cash. I also accept that, with Mr Mawhinney controlling all the entities, he could arrange for properties to be sold, and funds provided to such Mayfair Group entities as he directed (subject to any complications arising from Naplend having first-ranking mortgages on properties). Even putting Naplend’s mortgages to one side, however, the fact that properties in a portfolio could be sold in a pinch does not suggest a viable or well-conceived business model. The purchase of properties involves acquisition costs (stamp duty, conveyancing, other fees and charges), and holding properties for any time also involves costs. The figures set out above in relation to the sale of some vacant lots in July 2020 do not include such costs. Inevitably, those properties were sold at a loss if one were to take into account acquisition and holding costs.

4.13.4    The impact of COVID-19 and ASIC’s actions

314    As set out at paragraphs 303––306 above, the cashflow prepared in early April 2020 supports a contention that COVID-19 had some impact on the inflow of new investor funds. However, the fact that inflows dropped sharply in March 2020, in the period before ASIC commenced proceedings, means that the decline in the Mayfair Group’s fortunes cannot be attributed solely to ASIC having commenced litigation.

315    I reject Mr Mawhinney’s contention that all would have been well had ASIC not commenced proceedings.

316    It is impossible to say with any certainty whether the Mayfair Group would have recovered, had ASIC not commenced proceedings and had orders not been made on 16 April 2020 that affected the manner in which the M Notes could be marketed. In my view, it is not necessary to reach a concluded view on this matter, given the basis upon which I consider relief should be approached.

317    However, if it is necessary to form a view on this matter, given the decline in receipt of investor funds that predated ASIC’s actions, and given that the financial position had become so strained that the Liquidity Prudency Policy was activated on 11 March 2020 (also prior to ASIC having commenced proceedings), I infer that the Mayfair Group would, more likely than not, not have recovered even if ASIC had not commenced proceedings on 3 April 2020. While not a matter known in the early days of the pandemic, the impact of COVID-19 was long-lasting. As counsel for Mr Mawhinney said in oral submissions, it is hard to make money from property in a tourist town when tourists are banned by border closures. Moreover, the impact of COVID-19 on receipt of investor funds from mid-March 2020 also supports the inference that new investor funds would have become harder to come by. Further (but not necessary to the inference I would draw), what would, on the balance of probabilities, have happened should be approached on the basis that the activation of the Liquidity Prudency Policy should have been clearly disclosed from 11 March 2020. Had that occurred, I infer that the Mayfair Group would have had an even harder time raising new investor funds.

4.13.5    Conclusions on the M101 Nominees business model

318    I accept ASIC’s submission that, other than renting out properties and potentially obtaining some income from “The Spit”, the Mayfair Group did not hold any assets that were generating material income, or could reasonably be expected to generate material income in the short to medium term. While Eleuthera had, on its balance sheet as at 30 June 2020, two intercompany receivables which referred to “Accloud”, it also had liabilities which referred to Accloud, which was said to be an entity working towards an initial public offering (IPO). It was suggested that these interests in, or related to, Accloud — the precise nature of which was never revealed — supported a view that Eleuthera had financial substance (so as to support the recoverability of the loan made to it by M101 Nominees). However, according to an email from Mr Mawhinney to a potential investor on 2 June 2021, the IPO was not even expected to proceed until the second half of calendar 2021 (and, ultimately, there was no IPO). There was otherwise no satisfactory evidence regarding the nature of Accloud, its prospects, the nature of Eleuthera’s interest in it, or how (if at all) the M101 Nominees business model involved any calculations that assumed income related to Accloud, or the repayment to Eleuthera of loans it made in connection with Accloud, would be available to help meet obligations to investors. Accordingly, I do not consider that Eleuthera’s asserted interest in Accloud suggests its balance sheet had the strength to support its intercompany debt to M101 Nominees. However, I do accept that, as Mr Mawhinney emphasised, companies in the Mayfair Group held a large number of properties, and could potentially have sold some for cashflow purposes (and some were sold — see paragraph 312 above). I also accept that, all entities being controlled by Mr Mawhinney, he could have taken steps to ensure that any cash he wanted to be made available to M101 Nominees (or M101 Holdings for that matter) could be routed to the destination of his choice notwithstanding the absence of a legal right on the part of those two entities to the proceeds of any property sales, or other income.

319    In my view, whether one considers the business model of M101 Nominees specifically, or the business model of the Mayfair Group more widely, the model was such that investors were put at significant risk. That is because:

(1)    The plans for the revitalisation of the Mission Beach area, and the creation of the “tourism mecca”, were long term plans that would take years, and enormous sums of money, to realise.

(2)    There were, as set out above, no meaningful income-generating assets other than properties that could be rented out. Whatever the income that could theoretically have been generated from those properties, the actual income being generated was much lower and there were very significant holding costs arising from the property portfolio (in addition to other business overheads). I do not consider that, even if the property holding trustee companies could have rented out properties without interference from COVID-19-related border closures, rental income would have delivered funds exceeding holding costs so as to generate free cash flow by which obligations to investors could be satisfied.

(3)    Operations were heavily reliant on a steady flow of new investor funds, and the vast majority of existing investors rolling over their investments.

(4)    M101 Nominees was financially exposed by having significant short and medium-term obligations to investors, but loaning virtually all the funds received from investors to Eleuthera on unsecured, 10-year terms and with no absolute right to receive interest income. Even if (contrary to my view above) the Eleuthera loan provided for advances on 12-month terms, M101 Nominees was still exposed given the lack of security, lack of assured interest income stream and the weakness of Eleuthera’s own balance sheet.

(5)    There was no evidence of any business plans having been developed that addressed how operations would be funded over the period in which properties were being acquired for development, and development was occurring, in order to meet obligations to investors, let alone a business plan that took account of the potential for adverse events, or a downturn in the economic climate that could affect operations and the flow of new investor funds.

(6)    The counterfactual constructed by Mr Mawhinney is based on a series of assumptions that are variously optimistic, unrealistic or lack support in the evidence. The capacity to sell some properties as a source of liquidity does not de-risk the business model in any meaningful way.

5.    FINANCIAL SERVICES BUSINESS ALLEGATIONS

320    Mr Mawhinney was the sole director and secretary of IPO Capital. ASIC alleged that, by accepting money from investors in return for agreeing to pay investors interest, IPO Capital carried on a financial services business without an AFSL, contrary to s 911A of the Corporations Act.

321    It is necessary to set out the statutory stepping stones leading to that ultimate allegation. ASIC’s allegations concern IPO Capital’s operations between 2016 and “at least” December 2017. Some provisions of the Corporations Act that are discussed below changed as a consequence of the Treasury Laws Amendment (2023 Law Improvement Package No 1) Act 2023 (Cth) (the 2023 Amending Act), from 20 October 2023. Save as otherwise stated, statutory references below concern the legislation prior to those amendments, and as it stood in the period between 2016 and December 2017.

5.1    Statutory provisions

322    Pursuant to s 766A(1)(b) of the Corporations Act, a person will (subject to some immaterial exceptions) have provided a financial service if the person “deal[s] in a financial product”. A person will deal in a financial product if the person issues the financial product: s 766C(1)(b).

323    The Corporations Act is (and was during the relevant period) structured so that it provides a “general definition” of “financial product”, with other provisions setting out “[s]pecific inclusions” and “[o]verriding exclusions”: s 762A.

324    ASIC put its case that IPO Capital dealt in a “financial product” on the basis of the three alternatives set out below: ie that IPO Capital issued debentures, offered a facility through which investors could make a “financial investment” or issued interests in an unregistered managed investment scheme (if the investments being offered by IPO Capital were not debentures).

5.1.1    Debentures

325    A “security” is a “financial product”: s 764A(1)(a) of the Corporations Act. During the relevant period, s 761A (which contained a series of definitions for the purposes of Ch 7) defined “security” to include “a debenture of a body”. Following the 2023 Amending Act, the definition of “security” for the purposes of Ch 7 moved from s 761A to s 92, but still includes a “debenture of a body”.

326    The term “debenture” is, and was during the relevant period, defined in s 9 as follows:

a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a security interest over property of the body to secure repayment of the money.

5.1.2    Unregistered managed investment schemes

327    Pursuant to s 764A(1)(ba)(i) of the Corporations Act, an interest in an unregistered managed investment scheme is (amongst other things) a “financial product”.

328    The term “managed investment scheme” is, and was during the relevant period, defined in s 9 as follows:

(a)     a scheme that has the following features:

(i)    people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii)     any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii)     the members do not have day‑to‑day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or

(b)     a time‑sharing scheme; …

329    The issue of debentures by a body corporate is specifically excluded from the ambit of a managed investment scheme by sub-paragraph (j) of the definition in s 9.

5.1.3    Financial investment

330    The so-called “general definition” of “financial product” includes “a facility through which, or through the acquisition of which, a person … makes a financial investment”: s 763A(1)(a) of the Corporations Act.

331    At the relevant time, the term “financial investment” was defined in s 763B as follows:

For the purposes of this Chapter, a person (the investor) makes a financial investment if:

(a)     the investor gives money or money’s worth (the contribution) to another person and any of the following apply:

(i)     the other person uses the contribution to generate a financial return, or other benefit, for the investor;

(ii)     the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii)     the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and

(b)     the investor has no day‑to‑day control over the use of the contribution to generate the return or benefit.

332    This definition has not changed, save for the removal of the words “[f]or the purposes of this Chapter,” at the beginning of the provision.

5.2    Relevant facts

333    It was common ground that IPO Capital did not have an AFSL and was not operating as the authorised representative of any other body holding an AFSL.

334    The evidence included an IPO Capital brochure (which included the pro forma “Investment Agreement”), at least one sample executed Investment Agreement, and a spreadsheet detailing the many IPO Capital investors, indicating that almost all had entered into an agreement.

335    The IPO Capital brochure in evidence set out the interest rates that would be payable on fixed term deposits of between three and 60 months, on deposit amounts between $100,000 and $5 million. IPO Capital was obliged, under the Investment Agreement, to pay interest on a quarterly basis and, following the expiration of a specified term and provided notice was given, required to repay the investor their principal.

336    The pro forma Investment Agreement forming part of the brochure provided relevantly as follows:

IN CONSIDERATION OF the Depositor depositing certain monies (the “Deposit”) to the Recipient, and the Recipient repaying the Deposit to the Depositor, both parties agree to keep, perform and fulfil the promises and conditions set out in this Agreement:

Background

1.     Recipient has sought funding from Depositor in order to provide finance to companies that are seeking access to capital.

2.     Recipient analyses and conducts extensive due diligence on each financing opportunity prior to providing finance.

3.     Investment opportunities Recipient can participate in, at Recipient’s discretion, include:

a) debt finance to registered companies;

b) equity investments in registered companies;

c) provision of short term working capital; and

d) purchases of assets below market value.

Deposit Amount

4.    The Deposit Amount is to be provided from the Depositor to the Recipient within 2 working days of execution of this Agreement.

5.    Deposit Amount to be deposited to the following bank account –

    …

Interest

6.    Recipient agrees to pay Depositor the rate of interest per the Deposit Term, payable on the first day of each calendar quarter to the Depositor’s nominated bank account as outlined in Annexure A.

7.    Depositor to be provided with the option of withdrawing the principal in part or in full at the expiry of the Deposit Term by providing written notice per Clause (10).

…

Deposit Term

9.    It is the Depositors [sic] responsibility to notify the Recipient in writing of its intention to withdraw the principal no less than 14 days prior to the end of the Deposit Term should the Depositor opt to withdraw the principal.

10.    In the event that notice is not provided per Clause (10) the investment will automatically roll over for a further Deposit Term per the terms of this agreement.

11.    In the event that notice is provided per Clause (10) the Recipient is required to repay the principal within 14 days of the Deposit Term expiring.

…

Early Repayment

14.    Recipient is entitled to make early repayment of the principal plus any outstanding interest up to the date of the principal being repaid. Upon repayment of all monies outstanding under this Deposit Agreement the Agreement becomes terminated.

…

Acknowledgement

15.    Depositor acknowledges that a portion of the Deposit Amount may be used to pay principal and interest owing by the Recipient on other deposits, and operational running costs of Recipient in the event that there is a shortfall in a given quarter due to investments not maturing in time to meet quarterly payment obligations.

(There are immaterial differences in the version of the Investment Agreement executed by investors Mr and Mrs R.)

337    Foreshadowing some submissions on relief, Mr Mawhinney submitted that if it were only established that Mr Mawhinney was knowingly involved in the “IPO contraventions”, no further restraint on Mr Mawhinney should be ordered as “that was two loans in 2016”.

338    Counsel for Mr Mawhinney submitted that “we don’t know anything about the terms” on which IPO Capital contracted with other investors. Despite accepting that IPO Capital dealt on a standard form agreement, and despite the existence of spreadsheets detailing other investors and investments with IPO Capital, Mr Mawhinney submitted that the Court cannot — not merely ought not — infer that the agreements between IPO Capital and the other investors were on the same terms as the standard form agreement in evidence, and the two executed agreements in evidence.

339    I reject that submission. As noted, it was accepted that the agreement on which IPO Capital dealt was a standard form agreement, and that there was evidence of multiple others having invested with IPO Capital. In those circumstances, the inference is overwhelming that IPO Capital dealt with all its investors on the basis of its standard terms. While I make that inference without any necessary recourse to a Jones v Dunkel inference, I am further fortified in so inferring because Mr Mawhinney did not go into evidence to suggest that there were any other terms on which IPO Capital dealt.

340    Although the submission was made by Mr Mawhinney in connection with relief, and Mr Mawhinney did not contend that IPO Capital did not engage in its activities with the necessary commercial character and with such repetition as to constitute a business, I have addressed it here as the scale and nature of IPO Capital’s activities is relevant to the question of whether IPO Capital carried on a financial services business.

341    I infer that IPO Capital dealt with its investors on the terms of the Investment Agreement referred to above, as set out in its brochure.

342    The background section of the Investment Agreement set out IPO Capital’s business model. IPO Capital’s business model and operations were explained in a letter to ASIC dated 20 September 2016 as follows:

IPO Capital is an investment company that sources and makes investments including:

•    Providing debt funding to companies seeking to list on a stock exchange so that they can cover the fees associated with the listing process

•    Providing equity funding to innovative pre-IPO companies

•    Providing debt & equity funding for working capital for private companies

•    Purchase of undervalued assets

IPO Capital has a global focus with limited business activities in Australia (IPO Capital is currently involved in providing funding to pre-IPO companies that are listing on the OTC, AIM and ASX stock markets).

To fund these transactions IPO Capital sources funding from private and corporate lenders in the form of a loan with a fixed rate of interest paid quarterly to their nominated bank account. The website at www.120daysreturns.com has been used to generate interest from private and corporate lenders.

5.3    Did IPO Capital issue debentures?

343    As set out above, the term “debenture” is defined, subject to exclusions, by s 9 of the Corporations Act to mean:

a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a security interest over property of the body to secure repayment of the money.

5.3.1    The parties’ arguments

344    ASIC submitted that it was apparent on the face of the Investment Agreements that IPO Capital issued debentures to investors. ASIC also relied on:

(a)    IPO Capital’s balance sheets, which recorded liabilities referable to individual loans, as being consistent with IPO Capital having an obligation to repay amounts to investors;

(b)    various IPO Capital marketing materials, which included references to the advances from investors being “loans” to IPO Capital and to IPO Capital’s obligation to repay investors at the end of the loan term; and

(c)    emails from Mr Mawhinney to his advisors dated 8 and 11 July 2016 (discussed at paragraphs 168–172 above), in which Mr Mawhinney described IPO Capital’s business activities.

345    Mr Mawhinney accepted that the Investment Agreements may be properly characterised as, or as giving rise to, a chose in action that includes an undertaking to repay a debt. Mr Mawhinney nevertheless denied that IPO Capital issued debentures.

346    Mr Mawhinney submitted that, in order to constitute a “debenture”, as defined in s 9 of the Corporations Act, the arrangement must constitute a debenture according to the common law concept, which requires that there be a conventional legal instrument that answers the common law definition of a debenture. As counsel for Mr Mawhinney put it, “[y]ou can’t have a debenture without a debenture”.

347    That argument was advanced on two grounds. First, on the basis that, were that not the case, various provisions of the Corporations Act would make no sense. Secondly, on the basis that the Full Court of the Federal Court in ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1 (ABN AMRO) said that a debenture under the Corporations Act must also meet the common law definition. The statutory definition of debenture was considered by the Full Court (Jacobson, Gilmour and Gordon JJ) in ABN AMRO. That case concerned “a highly complex financial product” (the Rembrandt notes), being a form of structured finance product known as a “CPDO” (constant proportion debt obligation): at [32] and [661].

348    Mr Mawhinney also argued that, as the Investment Agreements did not call themselves “debentures” they would not be regarded as debentures at common law, and so would not be debentures according to the statutory definition. This argument rested on Mr Mawhinney’s reading of the third reason given by the Full Court in ABN AMRO for concluding that the Rembrandt notes were not debentures.

349    As I will come to, a further argument was advanced in oral reply submissions. The argument was that, in order to be a debenture at common law (and therefore to be a debenture under the statutory definition), the debenture must be issued to acknowledge an antecedent debt. The submission was that it is the acknowledgement of a debt that already exists that marks out the crucial distinction between a debenture and an ordinary loan agreement, and the Investment Agreements of IPO Capital did not admit or acknowledge an existing debt.

5.3.2    The statutory and common law concept of a debenture

350    The statutory definition of a debenture has been set out above. It is useful to trace some of the statutory history concerning debentures and their treatment in the Corporations Act. That history puts Mr Mawhinney’s submissions in context, and exposes at least one of the fundamental flaws that beset his argument.

351    Prior to the passage of the Corporate Law Economic Reform Program Act 1999 (Cth) (the 1999 Reform Act), the harmonised Corporations Law defined “debenture” in s 9 as follows:

debenture, in relation to a body, means a document issued by the body that evidences or acknowledges indebtedness of the body in respect of money that is or may be deposited with or lent to the body, whether constituting a charge on property of the body or not, other than: …

(e)    a promissory note having a face value of not less than $50,000; …

352    As may be seen, this definition required that there be a “document” issued by the body. Promissory notes of $50,000 or over were excluded from the definition of “debenture”; conversely, promissory notes under the $50,000 threshold were regulated as debentures.

353    With the passage of the 1999 Reform Act, the definition of “debenture” was changed so that there was no longer any requirement that the body issue a “document” otherwise meeting the statutory criteria. Rather, the focus was put on the rights acquired by the person to whom the debenture was issued, in particular the chose in action. The Explanatory Memorandum to the Corporate Law Economic Reform Bill 1998 (Cth) explained the move away from focusing on the “document” to focusing on the legal right to repayment of the debt as a change to “facilitate electronic commerce in debentures”: at [8.10].

354    Although shifting the focus to the legal rights of the debenture holder, and making it clear that a “document” was no longer required, the statutory definition continued to exclude promissory notes with a face value of $50,000 or more from the definition of debenture. The definition of “debenture” inserted by the 1999 Reform Act was relevantly in the following terms:

debenture of a body means a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a charge over property of the body to secure repayment of the money. However, a debenture does not include: …

(d)    an undertaking to pay money under a promissory note that has a face value of at least $50,000; …

355    Promissory notes above the threshold continued to be excluded from the definition of “debenture” until that definition was amended by the Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 (Cth), when paragraph (d) of the definition was removed (Sch 3, item 1).

356    As the collapse of the Westpoint Group and losses suffered by investors exposed, the exclusion of promissory notes of $50,000 or more from the definition of “debenture” meant such notes escaped regulation by the Corporations Act, unless they were — as was ultimately found to be the case for the Westpoint Group notes — interests in a managed investment scheme. Following the Westpoint Group, and other, corporate collapses, regulatory attention turned to the regulation of promissory notes that previously escaped regulation as debentures if issued at or over the $50,000 threshold.

357    The Revised Explanatory Memorandum to the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 (Cth) (2009 EM) explained that the resistance to having the definition of debentures include all promissory notes related to administrative issues and the imposition of stamp duty if the instrument was classified as a debenture, and noted further that the threshold appeared to reflect an attempt to delineate between the investing public and sophisticated investors: at [8.9]. However, by 2009, the $50,000 threshold (which dated back to 1981) was entirely out of step with the $500,000 threshold for wholesale clients and sophisticated investors.

358    Among three options identified in the 2009 EM was “[o]ption 2”, which proposed to “[h]armonise the regulation of debentures and promissory notes”: at [8.47]. The 2009 EM said that would be achieved by “removing the exclusion of promissory notes from the definition of debentures in section 9 of the Corporations Act”: at [8.47]. That was the option the Australian Government had put forward in its 2008 Green Paper, Financial Services and Credit Reform: Improving, Simplifying and Standardising Financial Services and Credit Regulation (Department of the Treasury, Canberra, 2008). As the 2009 EM observed, “[i]mplementation of [option 2] will mean those promissory notes governed under the Corporations Act currently valued at greater than $50,000 would be regulated as debentures”: at [8.58]. The end result would be “debentures and promissory notes being consistently regulated as debentures under the Corporations Act”: at [8.71] (emphasis added).

359    Promissory notes being treated as debentures was explicitly confirmed as the intention of the amendment by the 2009 EM, which said that (at [3.19], emphasis added):

With the removal of paragraph (d), all promissory notes, regardless of value, are treated as debentures. As such, promissory notes valued at $50,000 or over issued after commencement are subject to the same regulatory requirements as debentures …

360    Before turning to ABN AMRO, the following points should be noted.

361    It is clear from the terms of s 9 of the Corporations Act that no document (whether or not described as an “instrument”) is required in order for there to be a debenture. The statutory definition does not require a document, and the legislative history — particularly the changes made to the s 9 definition of debenture — makes it plain that Parliament deliberately changed the definition so that a document was no longer required.

362    In light of this, and whether or not other aspects of his common law argument have any merit, Mr Mawhinney’s submission — that there must be an “instrument” in order for there to be a debenture under the Corporations Act — is untenable. The submission, advanced as it was with some vigour in relation to the Investment Agreements issued by IPO Capital, is also mystifying. Mr Mawhinney’s insistence that there must be an instrument in order for there to be a debenture under the statutory definition of debenture is not only untenable, it is — as far as I can tell — forensically pointless as it was conceded that the Investment Agreements entered into by IPO Capital were “instruments” in any case.

363    Of course, this point does not, by itself, answer the second stage of Mr Mawhinney’s submission, namely that the instruments did not meet the common law concept of a debenture. That submission was anchored in ABN AMRO.

364    At the outset of its analysis of the statutory definition of debenture, the Full Court in ABN AMRO observed that the statutory definition “departs in a number of respects from the common law meaning and from earlier statutory definitions”: at [642] (Jacobson, Gilmour and Gordon JJ). The Full Court went on to identify two of those departures from the earlier common law: at [645]–[647].

365    The first departure was that a debenture is defined in the statute as a chose in action rather than a document: at [645]. Although their Honours commented that that may be a departure more of form than substance as a debenture has always been understood as a chose in action, the significance of the departure lies in the converse direction: a chose in action that is not recorded in a document can be a debenture under the statutory definition, but would not have satisfied the common law requirement that the debenture be recorded in an instrument.

366    The second departure that the Full Court identified was that, whereas a debenture at common law would “generally, but not necessarily” contain a charge on the undertaking of the company to secure the indebtedness, the statutory definition makes it clear that the chose in action may, but need not, include a security interest over the property of the company to secure the indebtedness: at [647].

367    Even at this point of the analysis, it is clear that Mr Mawhinney’s submission that the statutory definition will only be satisfied if there is also something that would be a debenture at common law, cannot find a foothold in ABN AMRO. Rather, their Honours explicitly acknowledged that which the legislative history makes plain: the statutory concept of a debenture departs from the common law concept, at least in some respects.

368    To this, it may be added that the legislative history makes clear that the legislature proceeded on the basis that certain things were to be regulated as debentures whether or not they would be identified as such at common law. In particular, the original inclusion of promissory notes with a face value of less than $50,000 (and the exclusion of notes above that threshold) in the regime regulating debentures speaks strongly to the legislative intention to subject some promissory notes, but not others, to the regime established for the regulation of debentures. It is not that such promissory notes would have been regarded as debentures at common law, but that the statutory definition of “debenture” would be used to capture that which Parliament determined should be subjected to a particular regulatory regime: here, the regime for the regulation of debentures. When Parliament determined in 2009 to subject all promissory notes to the regulatory regime it had established for the regulation of debentures, the exemption of promissory notes of $50,000 or more was removed.

369    I return to ABN AMRO.

370    Observing that the chapeau to the definition of debenture in s 9 of the Corporations Act purports to contain an exclusive definition of a debenture, the Full Court cautioned that the definition was to be read as part of the fabric of the statute and not given a narrow or literal meaning and then used to negate the purpose or policy of the substantive enactment: at [649] (Jacobson, Gilmour and Gordon JJ), citing Kelly v R [2004] HCA 12; (2004) 218 CLR 216 at [84] and [103] (McHugh J). Consequently, the statutory definition of debenture must be construed in light of the regulatory scheme (relevantly Chs 2L and 6D of the Corporations Act) which the Full Court said recognises that the “nature of a debenture is, as it always has been, inextricably bound up with its function as an important aspect of corporate fundraising”: at [650]. None of that is in tension with the structure of the legislation and history to which I have referred.

371    In elaborating upon the historical concept of debentures over the centuries, the Full Court said (at [663]) that the term “derives from the Latin word ‘debenture’ and has been in use for many centuries to mean an acknowledgment of a debt”. The Full Court cited Topham AF and Topham AMR, Palmer’s Company Precedents (15th ed, Stevens and Sons, 1938) (Palmer’s) Pt 3, p 1 for that proposition, and then referred to Palmer’s again (at [665]) in noting that the authors listed nine other characteristics that were commonly, but not always, found in earlier forms of debenture. The final point at which the Full Court referred to Palmer’s in ABN AMRO was in setting out the third of their Honours’ reasons for determining that the Rembrandt notes were not debentures. I will address that third reason separately, as it was central to Mr Mawhinney’s arguments.

372    The Rembrandt noteholders’ right to redemption, and the sum payable on redemption, was not linked to the conduct of the business of the issuer, but was instead measured by the performance of a separate index. The Full Court held that the Rembrandt notes were not debentures within the meaning of s 9 of the Corporations Act, and that “[t]here are a number of reasons for this”: at [674].

373    The first reason was as follows:

675    First, when the words of the chapeau to the definition in s 9, “to repay as a debt money deposited with or lent to” the company, are read in light of the regulatory provisions of Chs 2L and 6D, it is evident that those words import the notion of an undertaking to repay a debt comprising a loan made to the company as part of its working capital.

676    Here, the nature of the loan and the obligation to repay it are quite different from that which is contemplated by the usual fundraising activities traditionally associated with the issue of debentures. The loan made by LGFS was a particular form of investment in a financial product under which the obligation to redeem the investment by paying the Redemption Amount, both as to time and amount, was linked to the performance of the indices against which the value of the loan moneys was to be measured.

677    In our view the obligation to redeem that form of investment cannot be characterised as an undertaking to repay the loan as a debt.

374    The second reason was that, while a “debt” is capable of including a debt that is repayable on a contingency, the word “debt” must be applied in a practical and common-sense way, consistent with its context and statutory purposes: at [684]. The Full Court considered that (at [685]):

… a debt consisting of an obligation to redeem the Rembrandt notes at a time, and in an amount, that is measured or determined by the performance of the underlying indices to which the obligation is linked is not a debt of the type which is contemplated by the notion of a debenture.

375    The third reason, which Mr Mawhinney relied on in relation to IPO Capital, was as follows:

691    Third, as a general rule, the term debenture was not applied at common law to an instrument unless it purported to be a debenture: Palmer at 4, para (h). That is not to say that the question is to be determined as a matter of form over substance, but the form and structure of the document provides some guidance as to the intentions and commercial objectives of the parties.

692    Here, the Rembrandt notes were called “Notes”. It is true that terms of the Issue Notice describe the Notes as creating a debt and that they use the language of debt to describe the obligations of Perpetual to the noteholders. But instruments such as promissory notes would not ordinarily be described as debentures. Something more is required before the instrument can be characterised as a debenture: Re Bauer Securities Pty Ltd (1990) 4 ACSR 328 at 335; affirmed in Re Austral Mining Construction Pty Ltd [1993] 1 Qd R 358.

376    The fourth reason (at [694]) was that a debenture is issued by the company which borrows the funds and undertakes to repay them, but that condition was not met in the case of the Rembrandt notes.

377    It is the case that, as Mr Mawhinney emphasised, the Full Court in ABN AMRO made some remarks concerning the continued relevance of the common law concept of a debenture to the statutory definition. Those remarks must be understood in their proper context.

378    The first such remark was made in connection with the Full Court’s first reason for concluding that the Rembrandt notes were not debentures. The Full Court said that, due to its features, the form of investment could not be characterised as an undertaking to repay the loan as a debt as the obligations were different in nature from the obligation to repay a loan: at [677]. The Full Court continued (at [678]):

Whilst the statutory definition of a debenture departs from the common law, it would be surprising if a statutory definition which was intended to facilitate electronic commerce in debentures drastically altered the nature of a commercial instrument as understood for many generations.

379    As may be seen, this reference to the historical understanding of debentures was raised in construing what s 9 means when it refers to an undertaking to repay as a debt money deposited with or lent to a body. The passages preceding the above extract have been quoted above (at paragraph 373).

380    The second remark was made in the context of the Full Court’s third reason for concluding that the Rembrandt notes were not debentures (quoted at paragraph 375 above). This reference to Palmer’s and the common law drew attention to the role of the form and structure of a document in construing its character. However, these remarks did not involve the Full Court endorsing any proposition that an arrangement will not be a debenture within the terms of s 9 unless it is labelled as such. As the Full Court observed, it was not suggesting that the nature of the arrangement is to be determined by form over substance: at [691]. The Full Court also said, having noted that the Rembrandt notes called themselves “Notes”: “But here, to the extent that party autonomy provides any guide to the proper characterisation of the instrument, it points against the view that the parties intended to issue the Rembrandt notes as a debenture”: at [693] (emphasis added).

381    The third remark (at [695]) was that, while s 9 does not explicitly specify that a debenture must be issued by the company that borrowed the funds, “there is no reason to think that the definition departs from or ignores a concept which has for so long been recognised as fundamental to the nature of a debenture”. This observation was made in the context of the fourth reason, referred to above, to the effect that the Rembrandt notes were not debentures because the “true issuer” of the notes did not acknowledge any indebtedness to the depositor: at [699].

382    Given that the statutory definition refers to an “undertaking by the body to repay as a debt money deposited with or lent to the body” (emphasis added), it is not clear why the Full Court considered that the unity of the identity of the issuer and debtor was not stated expressly in the statutory definition. Nevertheless, the Full Court’s reference to the historical concept of a debenture in this regard did not go further than referring to that background in confirming that the issuer and the debtor are to be the same entity.

383    None of those observations involved the Full Court stating that the statutory definition of a debenture incorporates the features of the common law concept wholesale. As set out above, the statutory approach was to regulate arrangements meeting certain criteria as debentures even if they would not all have been understood as such at common law. That is most clearly illustrated by the way in which promissory notes under $50,000 were regulated as debentures, with that threshold then removed so that promissory notes of $50,000 or more no longer fell outside the regime for regulating debentures, but were instead regulated as debentures.

384    The Full Court’s observation (at [692]) that “instruments such as promissory notes would not ordinarily be described as debentures” does not cut across this proposition. Their Honours were referring there to the common law concept of a debenture, as confirmed by the cases cited: Re Bauer Securities Pty Ltd (1990) 4 ACSR 328 (Re Bauer) at 335 (McPherson J), affirmed in Re Austral Mining Construction Pty Ltd [1993] 1 Qd R 358 (Re Austral Mining). Re Bauer concerned the exclusion from the definition of “bill of sale” in s 6(1)(g) of the Bills of Sale and Other Instruments Act 1955 (Qld) of “[d]ebentures and interest coupons”. There was no statutory definition of debenture by reference to which the exclusion was to be construed, hence the common law was examined. Re Austral Mining concerned the same provision of that Queensland Act.

385    Where does all of this leave Mr Mawhinney’s arguments?

386    The Full Court’s references in ABN AMRO to the common law and to Palmer’s do not stand as authority that an arrangement will not be a “debenture” as defined in s 9 of the Corporations Act unless it is a debenture at common law (whether generally or as a debenture at common law has been described in Palmer’s). In any event, and as ASIC pointed out, the list of features of a common law debenture in Palmer’s is itself riddled with qualifications. With one (presently irrelevant) exception, each of the nine features referred to in Palmer’s includes the qualification “usually” or “generally” or as a “general rule”: at Pt 3, pp 3–4. The discussion in Palmer’s also recognises that “a certain amount of nebulousness” clings to the concept of a debenture, and cites more than one case in which judges have noted the lack of any clear definition, at common law, of what constitutes a debenture: at Pt 3, p 2.

387    ABN AMRO is not authority for the proposition that an arrangement (whether or not recorded in an instrument) will not be a “debenture” unless it calls itself a debenture. The common law did not embrace such an absolute proposition. Nor did the Full Court in ABN AMRO. In addition, whether or not any of the Full Court’s first, second or fourth reasons for its conclusion that the Rembrandt notes were not debentures can be regarded as “standalone” reasons, it is clear from the discussion (at [691]–[693]) that the Full Court did not consider the terminology used in the Rembrandt notes as determinative of the issue.

5.3.3    Mr Mawhinney’s argument based on other provisions of the Corporations Act concerning debentures

388    Mr Mawhinney submitted that the detailed provisions of Ch 2L of the Corporations Act only make sense if a debenture is regarded as a legal instrument issued by a borrower company, and would not make sense if there could be a debenture without an “instrument” recording its terms. In particular, Mr Mawhinney’s submissions referred to ss 283AB(1)(c)(i), 283BF(4)(a) and (b)(iii), 283BH(1)(b)–(c), 283DA(b)(i) and (c)(i), 283DB(1) and 283EA(4) of the Corporations Act.

389    For the reasons already set out, Mr Mawhinney’s submission that there must be an “instrument” is neither here nor there on the facts of this case as each Investment Agreement was an “instrument”.

390    In any event, the fact that an issue of debentures will often have an instrument, and Ch 2L, where it applies, imposes requirements as to the content of those written terms, does not by some process of reverse engineering, import a requirement for an instrument into the s 9 definition. It may be noted here that the Ch 2L regime requires, pursuant to s 283AA(1), the entry into a trust deed complying with s 283AB and the appointment of a trustee that complies with s 283AC, where (subject to exceptions) the offer of debentures attracts the disclosure requirements under Ch 6D, which disclosure requirements are dispensed with in respect of sophisticated investors: s 708(8). Further, to the extent that the statutory restrictions on how debentures may be described in s 283BH applies even where the trust regime established by Ch 2L does not, that just constrains how a debenture may be referred to where there is writing.

5.3.4    The potential “working capital” criterion

391    There is some controversy concerning whether the Full Court’s reference, in ABN AMRO, to an “undertaking to repay a debt comprising a loan made to the company as part of its working capital” was intended to impose a discrete requirement that, in order to be a debenture, the loan must have been part of the issuer’s working capital: at [675] (Jacobson, Gilmour and Gordon JJ).

392    In Australian Securities and Investments Commission v Finder Wallet Pty Ltd [2024] FCA 228 (Finder Wallet), Markovic J held that the product in question — which involved the deposit of Australian dollars and conversion of the deposit into a cryptocurrency, followed by the transfer of the cryptocurrency to the issuer for its use — was not the deposit or loan of money to the issuer and was therefore not a debenture. However, in dicta, her Honour appears to have regarded ABN AMRO as having imposed a working capital criterion of that kind: at [97]–[98]. Whether ABN AMRO is to be understood in that manner is the subject of a presently reserved appeal from Markovic J’s decision.

393    It is not necessary to form any concluded view on whether ABN AMRO did establish a “working capital” criterion. Mr Mawhinney did not submit that, if there is such a working capital requirement, it was not met on the facts of the case. In any event, it is clear that the nature of IPO Capital’s business, as set out above, satisfies any requirement that the funds it obtained from investors constituted, or contributed to, its working capital. IPO Capital obtained funds from investors, and deployed those funds to make the investments that constituted its business. Clause 15 of the Investment Agreement also preserved IPO Capital’s ability to use a portion of the funds obtained from any investor to meet its day-to-day costs.

5.3.5    Mr Mawhinney’s “antecedent debt” argument

394    Mr Mawhinney raised a new argument in his oral reply submissions. The argument was that, in order to be a “debenture” under s 9 of the Corporations Act, there must be an “antecedent debt”, which debt is admitted or acknowledged by the debenture. The argument was put as follows (emphasis added):

The way debentures are dealt with in a normal commercial world is a company issues a prospectus, says, “I want to borrow some money”, invites people to make an application to lend money to them by filling out the application form and sending in their money. When that money is received by the company as a loan, the company then issues the debenture. The loan happens first. The debenture is then issued acknowledging or admitting the debt. For there to be a debenture there must be an antecedent debt. That is its essential nature, the acknowledgment or admission [of an] antecedent debt.

Your Honour, we may have – and this is probably my fault … we may have led ourselves a bit astray with the statutory definition. If we go back, please, to section 9 and the statutory definition. Debenture of a body means a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. Now, your Honour, the ordinary or natural meaning of those words would suggest that “deposited to” or “lent” – “deposited with” or “lent to”, would encompass future deposits or loans. Deposited or to be deposited, lent or to be lent.

But the conventional understanding of a debenture, your Honour, means that those words should be confined to refer to money which has been deposited or which has been lent – deposited with or which has been lent to the body. That then brings the matter in line with the normal understanding of a debenture at common law.

395    This argument must be rejected.

396    First, it is premised on the proposition that unless something would be a debenture at common law, it will not be a debenture within the terms of the statutory definition in s 9 of the Corporations Act. As I have already addressed (see above at paragraphs 377–387), Mr Mawhinney’s submission that the statutory definition must be read so as to effectively incorporate the common law understanding of what constitutes a “debenture”, proceeds from a misunderstanding (or misreading) of what the Full Court said in ABN AMRO.

397    Secondly, even if the common law position were determinative — which it is not — the proposition that an arrangement will not be a debenture at common law unless it recognises an antecedent debt is wrong. A debenture can acknowledge or create a debt: Levy v Abercorris Slate and Slab Co (1887) 37 Ch D 260 (Levy) at 264 (Chitty J); Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177 (Handevel) at 195 (Mason, Wilson, Deane and Dawson JJ). Even an arrangement creating a future debt can (but need not) be a debenture at common law: Handevel at 196 (Mason, Wilson, Deane and Dawson JJ). The passage in Edmonds v Blaina Furnaces Co (1887) 36 Ch D 215 at 219 (Chitty J), quoted in Palmer’s and relied on by Mr Mawhinney, does not stipulate that the acknowledgement be of an existing debt and, in any event, pre-dates Chitty J’s decision in Levy, which made it clear that a common law debenture can create a debt.

398    Further, there is no basis in the statutory definition in s 9 of the Corporations Act for importing a requirement that the debenture be issued in respect of an antecedent debt. The definition refers to money “deposited with or lent to” the body. As Mr Mawhinney acknowledged, the ordinary and natural meaning of that wording “would suggest that ‘deposited to’ or ‘lent’ – ‘deposited with’ or ‘lent to’, would encompass future deposits or loans”. That concession was well made. It is consistent (by analogy) with Stephen J’s conclusion in Mikasa (NSW) Pty Ltd v Festival Stores (1972) 127 CLR 617 at 661 that use of the past participle was not to be confused with the use of the past tense, and the words “supplied by him” was neutral in temporal meaning.

399    To proceed on the basis that there will only be a debenture where there is a pre-existing debt would wholly undermine the regulatory regime in relation to financial products where, as is typical, the obligation to repay is part and parcel of the agreement (cf a chose in action arising only after the investment has been made, and the obligation to repay assumed by the issuer). Modern authority on the statutory definition of a debenture proceeds on the basis that the relevant chose in action can arise out of the contractual terms (cf only arising in respect of a pre-existing obligation): Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (in liq) [2003] NSWSC 400; (2003) 45 ACSR 401 (Karl Suleman) at [3]–[5] (Barrett J); Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission [2006] WASCA 105; (2006) 32 WAR 204 (Emu Brewery) at [31] (McLure JA) (although in dissent on other issues, the other judges (Pullin and Buss JJA) did not disagree with this aspect of McLure JA’s judgment, or otherwise cast doubt on the proposition that the contracts could give rise to a chose in action); Finder Wallet at [84] (Markovic J).

5.3.6    IPO Capital issued debentures

400    In my view, by entering into the Investment Agreements, IPO Capital issued debentures within the meaning of s 9 of the Corporations Act.

401    Each investor who invested in IPO Capital had a chose in action, being “a right enforceable by an action” (Loxton v Moir (1914) 18 CLR 360 at 379 (Rich J)). Under the Investment Agreements, upon the expiry of the term, and provided proper notice was given, investors had a contractual right to sue for the amount invested as principal. This satisfies the meaning of “chose in action” as that term is used in the definition of debenture. Mr Mawhinney did not contest the chose in action aspect of the definition of debenture in s 9.

402    The chose in action held by the investors included an undertaking by IPO Capital to repay as a debt the money deposited by or lent by investors to IPO Capital.

403    Investors plainly deposited money with IPO Capital. Clause 5 of the Investment Agreement required the investor (referred to in the agreement as “the Depositor”) to deposit their investment into an ANZ bank account held by IPO Capital.

404    There was an undertaking by IPO Capital to repay monies deposited by investors as a debt. Clause 11 of the Investment Agreement required IPO Capital, subject to notice having been given to it under cl 9, “to repay the principal within 14 days of the Deposit Term expiring”. That repayment requirement was not expressed as being subject to the returns IPO Capital generated, or the performance of any separate index (cf the Rembrandt notes in ABN AMRO).

405    It is plain on the face of the Investment Agreements that IPO Capital undertook to repay the monies deposited at the end of the term. While it is not necessary to look further than the Investment Agreement to address this element of the statutory definition of debenture, the IPO Capital marketing materials were also consistent with IPO Capital undertaking to repay as a debt the amounts deposited.

406    In short, all integers of the statutory definition of “debenture” are satisfied. I have (for reasons set out above) rejected Mr Mawhinney’s argument that the undertaking to repay must be in respect of an antecedent debt in order for there to be a debenture, and his argument that IPO Capital did not issue debentures because the nature of the arrangement was not overtly characterised as a debenture within the terms of the Investment Agreements.

407    While all investment arrangements must be characterised by reference to their terms, I note that the instruments in this case are similar to those found to be debentures by Barrett J in Karl Suleman. The First Defendant in that case was, like IPO Capital, the promoter or operator of an investment scheme. It entered into contacts entitled “Loan Agreement” with investors, which contracts provided for what was to be a loan at interest. Justice Barrett held that the subject matter of each investment was, for the purposes of the Corporations Act, a debenture: at [5] and [11].

408    Given my conclusion that IPO Capital issued debentures, it is not strictly necessary to consider ASIC’s alternative arguments that IPO Capital operated an unregistered managed investment scheme, or made available a facility by which investors made “financial investments” for the purposes of ss 763A and 763B. However, I will deal with each alternative basis, in case I am wrong in my conclusion regarding the issuance of debentures.

409    For the avoidance of doubt, my conclusions — that IPO Capital issued debentures and required an AFSL — have been reached without having regard to the correspondence exchanged with ASIC in late 2016 and early 2017, whether or not that correspondence is aptly characterised as admitting that IPO Capital required an AFSL.

5.4    Did IPO Capital make available a facility by which persons made financial investments?

410    Section 763A of the Corporations Act contains the “general definition” of a financial product. It provides relevantly:

(1)    A financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:

(a)     makes a financial investment; …

411    The phrase “makes a financial investment” is defined in s 763B as follows:

A person (the investor) makes a financial investment if:

(a)     the investor gives money or money’s worth (the contribution) to another person and any of the following apply:

(i)     the other person uses the contribution to generate a financial return, or other benefit, for the investor;

(ii)     the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii)     the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and

(b)     the investor has no day‑to‑day control over the use of the contribution to generate the return or benefit.

412    In the context of this case, and consistent with the way in which ASIC’s submissions were framed, the arrangements between investors and IPO Capital would be facilities through which a financial investment was made, and therefore “financial products”, if:

(a)    the investors gave money or money’s worth to IPO Capital (s 763B(a));

(b)    the investors intended that IPO Capital would use the contribution to generate a financial return, or other benefit, for them (even if no return or benefit was in fact generated) (s 763B(a)(ii)); and

(c)    the investors had no day-to-day control over the use of the contribution to generate the return or benefit (s 763B(b)).

413    The first requirement is satisfied. Investors deposited money in the bank account maintained by IPO Capital and nominated in the Investment Agreements. Mr Meredith gave evidence that between 1 January 2016 and 2 January 2018, IPO Capital received $451,893 from investors into the account nominated by the Investment Agreements.

414    The third requirement is also satisfied. As ASIC submitted, none of the IPO Capital marketing material refers to investors having any role in the day-to-day conduct of IPO Capital. Instead, the marketing material represented the management of the business as being undertaken by an “Experienced & Professional Team”, including Mr Mawhinney. The Investment Agreements also made no reference to investors having any control over their contributions once made. In addition, Mr Mawhinney did not suggest that this criterion was not satisfied.

415    The second requirement is more contentious. ASIC did not adduce evidence from IPO Capital investors. There is therefore no direct evidence of investors’ intentions with respect to their contributions. However, the absence of direct evidence does not preclude a finding that investors did intend that their funds would be used to generate a financial return for them: Australian Securities and Investments Commission v Secure Investments Pty Ltd (No 2) [2020] FCA 1463; (2020) 148 ACSR 154 (Secure Investments) at [53] (Derrington J). As Derrington J explained in Secure Investments (at [53]), in making a finding with respect to investors’ intentions, the Court must look to all of the relevant circumstances, including what investors were told about the transaction (see also Australian Securities and Investments Commission v Dunjey [2023] FCA 361 (ASIC v Dunjey) at [55] (Feutrill J)).

416    ASIC made four principal submissions in relation to the requirement in s 763B(a)(ii) of the Corporations Act.

417    First, ASIC invited the Court to infer, based on certain marketing materials, that investors had the objective of obtaining a financial return. ASIC referred to specific examples within the IPO Capital marketing materials which it said emphasised investors making money. For example:

(a)    the IPO Capital website included statements as follows (emphasis added):

Better rates of return

IPO Capital’s investors receive fixed rates of return that rival most major banks locally and internationally. By investing with IPO Capital you become part of our ‘inner circle’ that receives exclusive access to investments to help build your personal wealth.

…

An investment with IPO Capital is an investment in your financial freedom. We provide fixed rates of return on funds invested with IPO Capital that rival major banks, with no hidden fees or exit fees. Investors also become part of our ‘inner circle’ and gain access to lucrative opportunities to grow their wealth.

…

Secure investment

By depositing funds with IPO Capital you can be assured of -

…

•     Quarterly interest payments …

Unlike major banks who have considerable corporate overheads, IPO Capital operates a cost-efficient business model that provides an added layer of security for investors which translates into higher standard [sic] rate of return.

…

We consistently beat bank term deposit rates and have a flawless track record for making regular, consistent payouts to investors.

(b)    an IPO Capital investor pack referred to “[a] fixed, high rate of return”, “[q]uarterly interest payments” and specified certain “Effective Annual Interest rate[s]”, based on differing loan terms; and

(c)    the IPO Capital brochure referred to “Wealth Creation”, “securing your financial future”, investing with IPO Capital being a “smart, effective way to grow your wealth with fixed term deposits at competitive rates of return”, and investors globally having made the decision to “accelerate their returns by selecting IPO Capital”.

418    Secondly, ASIC submitted that by selecting an investment term with a corresponding interest rate (as shown in the Investment Agreements), it can be inferred that investors expected to earn the rate of return associated with the term selected on the amount invested.

419    Thirdly, ASIC submitted that it is implausible that a person would provide such a large sum of money to a company at arm’s length from them as an investment otherwise than because they intended to generate a financial return.

420    Fourthly, ASIC relied on the letter sent to ASIC on behalf of IPO Capital dated 20 September 2016 (discussed earlier in these reasons), in which Mr Mawhinney described IPO Capital as an “investment company”, and said that, to fund the transactions by which IPO Capital made investments, it sourced funding from private and corporate lenders in the form of fixed rate loans.

421    ASIC’s submissions correctly record the facts, but those facts do not lead to a conclusion that s 763B(a)(ii) of the Corporations Act is satisfied.

422    ASIC relied on the investor intentions limb of s 763B(a) (ie s 763B(a)(ii)). That provision will be satisfied where “the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated)” (emphasis added).

423    In Secure Investments, Derrington J drew attention to the distinction between a “mere loan agreement” and an arrangement of the kind referred to in the investor intentions limb of s 763B(a) (at [52]) as follows:

A mere loan agreement between a borrower and lender by which money is lent in return for its repayment together with interest is unlikely to satisfy the requirement that it was intended that the contribution would be used by the Borrower to generate a financial return for the lender. In the ordinary course, a borrower uses borrowed funds for their own purposes to generate a benefit for themselves and the interest rate is the price paid for the use of the funds.

424    The operation of s 763B(a)(ii) was also considered by the Full Court of the Federal Court in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58 (Web3). As the appeal was determined after the parties had made closing submissions on the trial of the remitter in this proceeding, they were given the opportunity to, and did, put on further written submissions concerning Web3.

425    Web3 concerned whether two products (the “Earner” product and the “Access” product) offered by the Respondent, Web3 Ventures Pty Ltd trading as Block Earner (Block Earner) were financial products. As is the case in this proceeding, ASIC contended that the products: (a) were facilities by which persons made a financial investment; or (b) were managed investment schemes. (ASIC also contended, in the alternative, that the products in Web3 were derivatives.)

426    The Earner product in Web3 involved customers lending amounts to Block Earner in exchange for a fixed rate of return over the term of the loan. Amounts would be provided by customers in AUD, which Block Eaner would convert to cryptocurrency for on-lending. In some cases, amounts were provided directly by customers in cryptocurrency. Block Earner would use the loaned amounts to generate income for itself by lending the cryptocurrency to third parties at a higher rate than it was obliged to pay to consumers. Block Earner would derive a profit, being the difference between the amount of interest it received from third parties and the amounts payable to its lenders. Those profits were not paid to the lenders; only the fixed interest amounts agreed with Block Earner.

427    In Web3, the Full Court (O’Callaghan, Abraham and Button JJ) held that the primary judge erred in finding that the Earner product was a financial investment for the purposes of s 763B of the Corporations Act: at [90], [93] and [101]. In determining whether the intentions of investors in the Earner product fell within the terms of s 763B(a)(ii) — which is the limb relied on by ASIC in the present proceeding — the Full Court had regard to:

(a)    the Terms of Use agreed between the investor and Block Earner, which included express statements to the effect that users did not intend for Block Earner to use the loaned cryptocurrency to generate a financial benefit for them, in the following terms:

1.     You acknowledge and agree that:

i.     all Eligible Cryptocurrency that is loaned to Block Earner by you under Lend is Block Earner’s to use, without limitation and at Block Earner’s sole absolute discretion;

ii.     any interest paid to you under Lend is not referable to the activities Block Earner undertakes with respect to the loaned Eligible Cryptocurrency and the only amounts to which you have a right to [sic] are the amount of Eligible Cryptocurrency initially loaned to Block Earner and any interest earned on that amount as determined under these Loan Terms;

iii.     by participating in Lend, you do not intend for Block Earner to use the loaned Eligible Cryptocurrency to generate a financial benefit or act as an investment for you; and

iv.     any benefit gained or loss incurred by Block Earner’s use of the loaned Eligible Cryptocurrency will not be passed onto you.

(b)    the surrounding circumstances, including a response given to an FAQ (the FAQ response), which appeared on the Block Earner website for part of the relevant period, which stated, in answer to the question “How is fixed yield generated?”:

Deposits into the Block Earner 7% fixed option, automatically convert your Australian dollars into the USD-backed stablecoin (USDC) via our exchange services and these stablecoins are then lent to us. Block Earner delivers risk-adjusted, high returns by working exclusively with partners whose investment strategies are proven, sustainable and measured.

Block Earner is able to generate returns by pooling customer funds and lending it to our trusted partners, who are all vetted in accordance with our risk policy, thereby receiving a favourable yield rate.

428    The Full Court in Web3 concluded that, in the circumstances, there was no basis upon which to infer that investors would not have read the Terms of Use, even if they might first have read the FAQ response as suggesting “that they were going to reap the benefit of Block Earner’s activities”: at [96]. On the contrary, the Full Court found that it should be inferred that users would have understood what they were told (and agreed to) in Block Earner’s Terms of Use and investors could not be taken to have intended that Block Earner would use their contribution to generate a financial return or other benefit for them: at [99]–[100].

429    As noted above, the parties put on further submissions concerning Web3.

430    ASIC submitted that:

(a)    unlike the Terms of Use in Web3, the IPO Capital Investment Agreement did not contain any express disavowal by investors;

(b)    rather, the IPO Capital Investment Agreement and other materials received by investors described how invested funds would be used to generate financial returns for investors;

(c)    in the context of these representations, it can be inferred that investors believed that IPO Capital would use their contribution to generate a financial return for them, which would then enable them to earn the specified rate of interest; and

(d)    Web3 does not require a contrary conclusion, because each case turns on its own facts.

431    Mr Mawhinney, on the other hand, submitted that:

(a)    Web3 drew attention to the importance of direct evidence from investors which, as was the case in Web3, is absent in this proceeding;

(b)    to the extent that any inference about investors’ intentions is available from their decision to lend following receipt of the IPO Capital marketing materials, it could only be said to concern the receipt of interest and principal, and not the means by which those payments would be generated; and

(c)    as in Web3, the Court in this proceeding ought to find that IPO Capital used investors’ money to generate a financial return “for” itself and not to generate a financial return or other benefit “for” investors, and that any contrary conclusion would conflate the generation of a return that would enable IPO Capital to meet its obligations to investors with the generation of a return or other benefit “for” those investors.

432    The issue in the present case may be stated as follows: did investors in IPO Capital intend that the “other person” would use their contributions to generate a financial return, or other benefit, “for” them, for the purposes of s 763B(a)(ii) of the Corporations Act? ASIC has not established that investors would have so intended.

433    First, there was no evidence from anyone who invested in IPO Capital.

434    Secondly, the structure of the investment product offered by IPO Capital did not link the payment of interest — being the “financial return” generated by the investment — to the investments made by IPO Capital. Investors in IPO Capital had a right to a stipulated rate of interest and to the return of their principal on maturity. None of those entitlements was linked in any way to what IPO Capital did with the funds it borrowed from investors. Under the terms of the IPO Capital Investment Agreement, IPO Capital was not receiving money from investors in order to do anything “for” the investors. It was raising money to do things for itself, the price of which involved committing to pay interest to investors and return their principal on the agreed maturity date.

435    Thirdly, there is nothing in the terms of the Investment Agreement, or the relevant marketing material, that compels a contrary conclusion.

436    It is not to the point that the Investment Agreement in the present case does not include any disavowal in similar terms to the disavowal in the Terms of Use in Web3. What will be inferred about investors’ intentions depends on the facts of each case. The absence of a disavowal of the kind observed in Web3 does not establish any positive intention on the part of investors of the kind required.

437    Further, and in any event, the terms of the “Background” section of the Investment Agreement (set out at paragraph 336 above) made it plain that, once funds were loaned to IPO Capital, it could deal with those funds as it saw fit. The stated purpose for which IPO Capital was seeking funding was for it to provide finance to companies that would borrow from it, and for IPO Capital to participate in other “[i]nvestment opportunities … at [its] discretion”.

438    For the most part, the statements in the marketing material on which ASIC relied boil down to not much more than puffery, and generic statements about the wonderful rates of return that investors would be paid. There is no doubting investors invested with IPO Capital intending to make a return on their funds, but the return they were pursuing was the rate of interest. At most, what IPO Capital said it was going to do with the money it raised positioned IPO Capital as a successful investor whose acumen and success was such that it could afford to pay the promised returns to investors. Those claims did not alter the character of the investment to one in which investors provided their money thinking that IPO Capital would be using those funds “to generate a financial return, or other benefit, for the investor” for the purposes of s 763B(a)(ii) of the Corporations Act.

439    The only link between the financial return to investors and what IPO Capital was going to do with the money it raised was that, if IPO Capital’s own investments failed or under-performed, that would jeopardise its ability to perform its contractual obligations to investors with respect to the return of capital and payment of interest. That does not, in my assessment, render the arrangement one in which investors intended that IPO Capital would use the funds to generate a financial return “for” them.

440    The arrangements in the present case stand in contrast to the features of the arrangements in Secure Investments, which Derrington J considered fell within s 763B(a)(ii) of the Corporations Act. The features to which Derrington J drew attention in Secure Investments included: the promotion being in respect of “direct” investment in the property market, with the investor to receive the benefits of positive fluctuations, while also being exposed to any lack of success; references to specific properties, developments and types of developments in loan agreements; and the fact that there was no fixed rate of interest to be paid, but rather a stated range which represented the expected profit: at [55]–[57].

441    It follows that I am not persuaded that investors in IPO Capital made a financial investment within the meaning of s 763B of the Corporations Act by depositing money with IPO Capital, and that IPO Capital therefore issued a financial product within the meaning of s 763A of the Corporations Act.

5.5    Did IPO Capital issue interests in a managed investment scheme?

442    As noted above at paragraph 408, it is not strictly necessary for me to address ASIC’s managed investment scheme contention. However, I will address it, in case I am wrong on the debentures point.

5.5.1    Pleading issue

443    There is a preliminary pleading issue. In its Statement of Claim, ASIC pleaded that IPO Capital issued debentures. In his Defence (and his Amended Defence) Mr Mawhinney denied this. ASIC then pleaded in its Reply, that if IPO Capital did not issue debentures, it operated a managed investment scheme within the meaning of s 9 of the Corporations Act. The managed investment scheme contention is a true alternative to the debentures contention because the definition of managed investment scheme in s 9 of the Corporations Act excludes debentures.

444    As mentioned, that contention was pleaded by the Reply dated 23 February 2024. On the trial of the remitter, ASIC opened on the managed investment scheme allegations. It was not until he filed his written closing submissions — he did not file any opening submissions — that Mr Mawhinney raised an objection that an allegation of that kind could not be pleaded by ASIC’s Reply, but should have been pleaded by an amendment to ASIC’s Statement of Claim. Mr Mawhinney accepted that this objection had not been raised at any time before he filed his written closing submissions dated 31 January 2025.

445    The function of pleadings is to put the parties on notice of the contentions arising in the litigation. Mr Mawhinney was put on notice that the case he had to meet included a contention, by ASIC, that if IPO Capital did not issue debentures, it was operating an unregistered managed investment scheme. It is not open to a party to remain silent on a pleadings objection of this kind, only to pull the rabbit out of the hat in closing submissions. In any event, ASIC’s course is consistent with the Federal Court Rules 2011 (Cth). Rule 16.08 provides as follows:

In a pleading subsequent to a statement of claim, a party must expressly plead a matter of fact or point of law that:

(a)     raises an issue not arising out of the earlier pleading; or

(b)     if not expressly pleaded, might take another party by surprise if later pleaded; or

(c)     the party alleges makes another party’s claim or defence not maintainable.

446    Rule 16.33 then provides: “If a respondent files a defence and the applicant wants to plead a matter of fact or point of law of the kind mentioned in rule 16.08, the applicant must file a reply, in accordance with Form 34, within 14 days after being served with the defence.”

447    I reject Mr Mawhinney’s contention, advanced in closing submissions, that there is no case properly before me alleging a managed investment scheme.

5.5.2    Consideration

448    The term “managed investment scheme” is defined in the Corporations Act as a scheme that has the following features:

(i)    people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii)    any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits … for the people (the members) who hold interests in the scheme …;

(iii)    the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); …

449    The construction and application of elements (i) and (ii) of that definition were discussed in National Australia Bank Ltd v Norman [2009] FCAFC 152; (2009) 180 FCR 243. There, Gilmour J (with whom Spender J agreed) explained at [148] and [150] (in passages quoted with approval by the Full Court in Web3 at [65]):

148     [T]he words “contributions are to be pooled” in para (a)(ii) require an intention, objectively discerned, forming part of the “scheme” and formed prior to the making of contributions, that the contributions are to be pooled. That intention may be discerned objectively and variously from documents, discussions or conduct …

150    Furthermore what is required is an intention objectively discerned that contributions are to be pooled, relevantly, “to produce financial benefits … for the people (the members) who hold interests in the scheme”. Accordingly, contributions are not merely to be pooled. Rather they are to be pooled for a purpose, namely, the production of financial benefits for the members as a whole proportional to the interest they acquired by making contributions. The primary judge in this case at [13] acknowledged this when he said:

The scheme must therefore contemplate the generation of benefits under a common enterprise … from the funds contributed.

450    ASIC submitted that the first element of the definition was made out on the following bases:

(1)    Investors deposited money in the bank account nominated by IPO Capital to acquire the right to interest payments, and loans with fixed interest returns can fall within the definition of “managed investment scheme”, and the right to interest and repayment of principal can be a right to “benefits produced by the scheme”.

(2)    The terms of the Investment Agreement were said to establish any necessary link between the return generated by the investments and the payment of interest and repayment of capital. That linkage arose as the terms required investors to acknowledge that their deposits could be used to pay principal and interest owing to other investors in the event there was a shortfall in a given quarter due to investments not maturing in time to meet quarterly payment obligations, demonstrating that the intended source for the repayment of principal and the payment of interest was the benefits to be produced by the scheme.

(3)    Clauses 2 and 3 of the Investment Agreement, as well as the IPO Capital “Corporate Overview” brochure, made it clear that the returns to investors would be derived from participation in the investment opportunities IPO Capital was pursuing. ASIC here emphasised the depth in which this brochure addressed IPO Capital’s investment activities, assets and strategies.

(4)    IPO Capital’s marketing materials emphasised the linkage between investor funds, IPO Capital’s investment activities, and the “higher” or “above-average returns” available to investors. Thus, ASIC contended, “IPO Capital did more than ‘issue notes to investors for the purposes of its business which it held out as having certain creditworthy characteristics’” (quoting Australian Securities and Investments Commission v Great Northern Developments Pty Ltd [2010] NSWSC 1087; (2010) 79 ACSR 684 (Great Northern) at [69] (White J)).

451    As to the second element, ASIC submitted that investors’ funds were “pooled” as funds were deposited into IPO Capital’s nominated bank account, which funds it could use to produce financial benefits for members of the scheme.

452    As to the third element, ASIC submitted that members did not have day-to-day control of the scheme.

453    After the Full Court decision in Web3 was handed down, the parties also made further submissions on the implication of that decision on the managed investment scheme issues in the present case.

454    In Web3, the first two elements of the definition of managed investment scheme were in issue. The Full Court concluded that, contrary to the primary judge’s view, the first element had not been established because (at [56]):

[T]he Loan Terms (not the first FAQ response) defined the relevant legal relationship between Block Earner and its customers; and (ii) in any event, the first FAQ response did not, properly construed, represent that interest would be paid from, or that customers had a right to participate in, the benefits of Block Earner’s own lending activities. The answer did not represent that there was a link between the return on customers’ loans and the performance of Block Earner’s lending activities, nor did it describe a right vested in customers to the benefits of Block Earner’s own lending activities. And to say that Block Earner represented (in the first FAQ response) that “it would be able to pay” because of the benefit produced by the scheme is a very different thing from the statutory concept of a customer acquiring benefits produced by a scheme.

455    While it is fair to say that the Full Court’s analysis of the first element focused on the Terms of Use, the Full Court also addressed the proposition that the FAQ response (set out at paragraph 427(b) above) did not constitute a representation satisfying the element that was said to be missing in Great Northern.

456    In Great Northern, White J said at [76]:

In my view, it is a mistake to conflate an expectation that a return will be generated from a scheme with a right to receive a benefit from the scheme which is consideration for the member’s contribution. The question is what was the consideration for the contribution of money or money’s worth? Unless the consideration was the right (even if unenforceable) to acquire benefits produced by the scheme, then para (a)(i) of the definition of “managed investment scheme” is not satisfied.

457    In Web3, the Full Court observed (at [63]) that (emphasis added):

The representations in the cases that White J distinguished — namely, Waldron v Auer [1977] VR 236; (1977) 2 ACLR 514; Australian Securities and Investments Commission v Hutchings [2001] NSWSC 522; (2001) 38 ACSR 387 and Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 — are far removed from what users were told in the first FAQ response. Those cases all had as a central element of the scheme in fact being offered to investors an interest in or exposure to the underlying business activities of the promoter. As his Honour noted in Great Northern at [69]: “[i]n each of these cases some representation was made to investors that by lending money to the promoter of the scheme the investor would derive a return, sometimes a very high return, out of the anticipated successful operation of the scheme”. Here, as in Great Northern, and contrary to the finding of the primary judge, such an element is wholly missing.

458    The Full Court in Web3 held that the second element was not satisfied in circumstances where, among other things, the relevant Terms of Use expressly stated that users did not intend for Block Earner to use the loaned cryptocurrency to generate financial benefits, and that any benefits produced would not be passed on to users: at [67] and [77]. The Full Court further stated (at [73]):

to the extent that the answer to the question of the intended use of the funds is not to be limited to a consideration of those Loan Terms, and might include consideration of the first FAQ response … The first FAQ response did not suggest that customers were offered an investment that pooled their funds with the contributions of other customers in order to generate greater customer returns.

459    While, as with the first element, the Full Court’s analysis of the second element focused on the Terms of Use, their Honours did refer to the FAQ response and further referred (at [75]) to the circumstances observed in cases where courts have gone beyond the terms of a written agreement to consider what investors were told (referring to Great Northern and Secure Investments at [55], where Derrington J referred to materials conveying that investors would be exposed to the ups and downs of the projects in question).

460    In its submissions addressing Web3, ASIC accepted that its position would be “a lot more difficult” to make out if Web3 were to be interpreted as authority for looking only to the terms of the agreements with investors to determine whether the test in paragraph (a)(i) of the definition of managed investment scheme is satisfied, but submitted that the Full Court in Web3 should instead be understood to have held that, on the facts, the FAQ response did not constitute a representation that customers had a right to benefits produced by Block Earner’s business. By contrast, ASIC submitted, the IPO Capital marketing materials went further than simply representing IPO Capital’s capacity to pay, and in fact represented that investors were entitled to a share of the benefits of the putative scheme.

461    ASIC further submitted that the agreements in this case can be distinguished from the agreements in Web3, which expressly dissociated the investors’ rights from Block Earner’s performance, noting that no such express disavowal was present in the IPO Capital Investment Agreement. ASIC also pointed to the fact that the IPO Capital Investment Agreement:

(a)    specifically described the investment activities to be undertaken to achieve the specified interest rates (which was said to represent to investors that they had a right to participate in the benefits produced by the carrying out of those activities); and

(b)    provided that investors’ funds could be used to pay principal and interest owing to other investors in the event of a shortfall (which, as noted above at paragraph 450(2), was said to imply that their investments were otherwise to be applied to meet obligations to investors and, conversely, that investors had a right to share in the benefits of those investments via interest payments).

462    Mr Mawhinney did not suggest that Web3 should be interpreted as authority for considering only the terms of the agreements, but noted that ASIC’s case here focused almost entirely on the marketing material which, Mr Mawhinney submitted, in light of Web3, would need to contain some “clearly made” representation that lenders would be paid interest and principal out of the successful operation of the scheme, in order for ASIC’s case to succeed. Mr Mawhinney submitted that the marketing materials made no such representation, and went no further than disclosing to investors the borrower’s expectation to be able to pay interest and principal on the loans thanks to its investment activities.

463    ASIC also submitted, in relation to the second element of the definition, that, unlike the Terms of Use in Web3, the IPO Capital Investment Agreement contained no express disavowal, and submitted that, unlike the FAQ response in Web3, the IPO Capital marketing materials represented that funds were being pooled for the purpose of producing financial benefits for investors. In addition to the aspects of the marketing material outlined at paragraph 450(4) above, ASIC specifically pointed to the IPO Capital investor pack, which described to investors the specific investments in which “[their] loan monies” were to be invested.

464    For the reasons that follow, I do not consider that IPO Capital operated a managed investment scheme.

465    I accept that an arrangement delivering fixed returns to those who contribute can constitute a managed investment scheme, and that characterising an arrangement as a loan does not preclude a conclusion that an arrangement is a managed investment scheme: Australian Securities and Investments Commission v Kaur [2023] FCA 599 is an example of both such features. I also accept (should there be any doubt) that regard may be had to matters outside the text of the contract in question. However, neither the terms of the IPO Capital Investment Agreement, nor the various marketing materials, support a conclusion that either the first or second elements of the definition of managed investment scheme have been made out.

466    An initial issue is that ASIC has not explained exactly what the “scheme” comprised. Its submissions addressed investors contributing money, but then generalised about that money being pooled for IPO Capital’s investment activities.

467    The terms of the Investment Agreement merely stated, as background, some of the kinds of investments IPO Capital made. In order for there to be a scheme that can have the characteristics of a managed investment scheme, there would need to be some clarity concerning what the pooled monies were to be used for, and how returns to investors would relate to those investment activities: cf, the specifics concerning use of a special purpose vehicle for investing in a specific development project in Australian Securities and Investments Commission v Emu Brewery Mezzanine Ltd [2004] WASC 241; (2004) 52 ACSR 168 at [94]–[96] (Simmonds J). (An appeal by the company was not pursued, and a cross-appeal by ASIC on other points was dismissed: Emu Brewery).

468    While investors contributed money, and did not have day-to-day control, the funds contributed by investors were not given as consideration “to acquire rights … to benefits produced by the scheme” for the purposes of paragraph (a)(i) of the definition of managed investment scheme, and were not pooled to produce financial benefits for members holding interests in a scheme. Investors who entered into Investment Agreements with IPO Capital received the right to fixed interest payments, and the return of their capital: nothing more. IPO Capital was obliged to pay the interest due, and to return investors’ capital on maturity. Statements explaining how IPO Capital used the funds invested, and how it was in a position to pay the interest rates to which it committed, went to establishing IPO Capital’s bona fides and creditworthiness (noting that the term investments it offered were not secured). IPO Capital used investors as a source of loan financing for its own investing activities. Those were activities it carried out for its own benefit, not the benefit of investors. Paying investors interest was merely the price of accessing their capital.

469    Similarly to the Earner product in Web3, and the promissory notes considered in Great Northern, investors in IPO Capital did not have the right, whether or not enforceable, to the fruits of any investment activities in which IPO Capital might engage: see Great Northern at [77] (White J). On the contrary, investors’ rights were simply to the payment of interest and the return of their capital upon maturity. No promise was made that those payments would be sourced from any particular project(s) or investment(s) being pursued by IPO Capital. The Investment Agreement made it clear that IPO Capital could participate in a range of different investment opportunities, in its discretion. Further, the IPO Capital brochure was a general corporate brochure. It only addressed investors in explaining how it (ie IPO Capital) raised funds so as to engage in the range of activities stated in the brochure.

470    It follows from what I have said above that I do not accept that any of the marketing materials conveyed or constituted a commitment on the part of IPO Capital to pool and use investors’ funds to produce financial benefits for those investors, as members in a managed investment scheme. In short, in this case there was nothing more than IPO Capital raising loan funds with references to its activities potentially securing investor confidence, without granting investors any rights (legally enforceable or not) to the income generated by those activities. Nor, as I have mentioned, did ASIC set out what the putative “scheme” (or “schemes”) comprised.

5.6    Did IPO Capital carry on a financial services business?

471    The relevant question here, given my conclusion regarding the financial product issued by IPO Capital — ie debentures — is whether IPO Capital carried on a financial services business. It will be recalled that, over the relevant period, s 761A of the Corporations Act defined “financial services business” to mean “a business of providing financial services”, and a person “deals” in a financial product if that person issues it: s 766C(1)(b).

472    IPO Capital clearly issued, and so “dealt”, in the financial product constituted by the debentures. Mr Mawhinney denied, by his Amended Defence, that IPO Capital issued any financial products, and also denied that IPO Capital carried on a financial services business between 2016 and “at least” December 2017, as alleged by ASIC. Despite those denials, Mr Mawhinney did not make any submissions to the effect that, should his contentions on the “financial product” issue fail, IPO Capital did not carry on a business.

473    What constitutes a business has been the subject of considerable discussion in different contexts. In Fasold v Roberts (1997) 70 FCR 489 at 524 (quoted by Hamilton J in Australian Securities and Investments Commission v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224; (2008) 69 ACSR 1 (Sydney Investment) at [362]), Sackville J said:

It is generally accepted that the word “business”, to use Mason J's phrase, has a “chameleon-like hue” but must take its meaning from the particular statutory context: Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd (1982) 150 CLR 355 at 378-379; State Superannuation Board (NSW) v Commissioner of Taxation (Cth) (1988) 82 ALR 63 at 72; O’Brien v Smolongov (1983) 53 ALR 107 at 113-114. In Hope v Bathurst City Council (1980) 144 CLR 1 at 8-9, Mason J considered that the word “business” ordinarily denotes activities undertaken as a commercial enterprise in the nature of a going concern — that is, “activities engaged in for the purpose of profit on a continuous and repetitive basis”. His Honour observed, however, that the word took its flavour in that case from the statutory expression “carrying on business”. In Hungier v Grace (1972) 127 CLR 210 at 216-217, Barwick CJ cited the observations of McCardie J in Edgelow v MacElwee [1918] I KB 205 at 206 that, in order for a person to be one “whose business … is that of money-lending”, there must be more than occasional and disconnected loans: “the word ‘business’ imports the notion of system, repetition and continuity.” Barwick CJ accepted (at 217) that “system and regularity are involved in the carrying on of a business”, although he did not think it followed that one who conducts transactions systematically and regularly is necessarily carrying on a business in those transactions.

474    Similarly, Beach J recently observed that “the concept of carrying on a business includes the notion of a system, repetition or continuity of activities undertaken as part of a commercial enterprise being a going concern”: Australian Securities and Investments Commission v Hopkins [2024] FCA 1371 at [71].

475    Section 19 of the Corporations Act provides that a “reference to a business of a particular kind [ie a financial services business] includes a reference to a business of that kind that is part of, or is carried on in conjunction with, any other business”.

476    ASIC relied on the following matters as supporting its contention that, from 2016 until at least December 2017, IPO Capital carried on a financial services business:

(1)    IPO Capital entered into agreements with multiple investors over a prolonged period of time. ASIC relied on a spreadsheet, maintained by IPO Capital, recording investments having been made by investors in IPO Capital over a period between 24 June 2016 and 28 May 2017 (the spreadsheet having been prepared on or around 30 June 2017).

(2)    Account statements and other documents recording IPO Capital as having paid interest to investors.

(3)    IPO Capital’s balance sheets showed an equity investment in Accloud Limited. Mr Meredith’s report recorded funds transferred from the IPO Capital bank account, which included the sum of $325,000 being directed to Accloud Limited.

(4)    The fact of IPO Capital’s marketing materials emphasising investors making money (as outlined at paragraph 417 above).

(5)    IPO Capital’s profit and loss statements, which recorded operating expenses relating to advertising and marketing, rent, staff expenses, subcontractor expenses, legal expenses, travel and other costs being incurred from 2016 onwards.

477    It is clear from the materials on which ASIC relied that IPO Capital’s activities were conducted with such repetition, and with such a commercial character, as to constitute a business and that IPO Capital carried on a financial services business.

478    IPO Capital’s sourcing of investor funds, by way of debentures, was a key part of its business activities. It occurred over a lengthy period. IPO Capital did not undertake a “one-off” issue of capital. It was “a step in the conduct” of IPO Capital’s business, “rather than simply the raising of capital for the purpose of then carrying on business”: Australian Securities and Investments Commission v Edwards [2004] QSC 344 at [66] (McMurdo J). As such, IPO Capital’s business involved the repeated issue of financial products, and the use of the proceeds to make investments; its business involved the provision of financial services through the issue of debentures. This conclusion is consistent with the reasoning of Feutrill J in ASIC v Dunjey at [131], where his Honour held that: “Based upon evidence as to quantum, number and frequency of deposits and withdrawals … the systematic issuing of financial products amounted to the carrying on of a business.”

5.7    Mr Mawhinney’s “credit facility” argument

479    In his oral closing submissions, Mr Mawhinney submitted, for the first time, that IPO Capital was not required to have an AFSL because the agreements it entered into were credit facilities within the meaning of reg 7.1.06A of the Corporations Regulations 2001 (Cth) (the Regulations). The legislative pathway by which Mr Mawhinney contended for this outcome was set out in slightly more detail in a note he subsequently provided. That note identified that s 766A(2)(b) of the Corporations Act provides that the Regulations could provide for circumstances in which a person is taken to, or is taken not to, provide a financial service.

480    ASIC did not object to this point being raised for the first time in oral closing submissions, but took the opportunity to put on a short supplementary written submission explaining why Mr Mawhinney’s submission was wrong.

481    The provisions in question would be in the running for any award offered for the most labyrinthine provisions in the Corporations Act and the Regulations. Regrettably, they must be stepped through laboriously, lest one becomes lost in a legislative hall of mirrors.

482    The steps in the legislative chain are as follows:

(1)    Section 763A establishes the general definition of “financial product”, which includes a facility through which, or through the acquisition of which, a person makes a “financial investment”: s 763A(1)(a). Section 763B then specifies when a person makes a “financial investment”.

(2)    Section 764A specifies that the listed items are “financial products”. That list includes a “security” and interests in a managed investment scheme: s 764A(1).

(3)    Section 765A then specifies that some things that would be “financial products” pursuant to the general definition, or the specific inclusions provision, are “not financial products”. That list includes a “credit facility within the meaning of the regulations (other than a margin lending facility)”: s 765A(1)(h)(i).

(4)    At all relevant times, reg 7.1.06 of the Regulations provided as follows (emphasis added):

Specific things that are not financial products: credit facility

(1)    For subparagraph 765A(1)(h)(i) of the Act, each of the following is a credit facility:

(a) the provision of credit:

(i)    for any period; and

(ii)    with or without prior agreement between the credit provider and the debtor; and

(iii)    whether or not both credit and debit facilities are available; and

(iv)    that is not a financial product mentioned in paragraph 763A(1)(a) of the Act; and

(v)    that is not a financial product mentioned in paragraph 764A(1)(a), (b), (ba), (f), (g), (h) or (j) of the Act; and

(vi)    that is not a financial product mentioned in paragraph 764A(1)(i) of the Act, other than a product the whole or predominant purpose of which is, or is intended to be, the provision of credit;

…

(3)    In this regulation:

credit means a contract, arrangement or understanding:

(a)    under which:

(i)    payment of a debt owed by one person (a debtor) to another person (a credit provider) is deferred; or

(ii)    one person (a debtor) incurs a deferred debt to another person (a credit provider); and …

483    Pausing there, it will be recalled that ASIC’s case alleged that IPO Capital engaged in a financial services business on the basis that it issued financial products that were either facilities through which, or through the acquisition of which, persons made financial investments (s 763A(1)(a)), debentures (and therefore securities and financial products within s 764A(1)(a)), or interests in an unregistered managed investment scheme (and therefore financial products within s 764A(1)(ba)).

484    That being the case, and assuming ASIC is correct as to any of the three bases upon which it said IPO Capital issued financial products, then those financial products are carved out of reg 7.1.06(1) so that they are not “credit facilities” to which the s 765A(1)(h)(i) carve out applies. In short, they retain their status as financial products (assuming they come within ss 763A(1)(a), 764A(1)(a) or 764A(1)(ba)) even if they otherwise involve the provision of credit.

485    But that is not the end of the matter. Regulation 7.1.06A at all relevant times provided that:

Arrangements for certain financial products that are not credit facilities

(1)     This regulation applies in relation to a financial product that would be a credit facility in accordance with regulation 7.1.06 if subparagraphs 7.1.06(1)(a)(iv), (v) and (vi) … did not apply.

(2)    For paragraph 761E(7)(a) of the Act, and in relation to the financial product:

(a)    the credit provider is not taken to be the issuer of the financial product; and

(b)    the debtor is taken to be the issuer of the financial product.

(3)    For paragraph 766A(2)(b) of the Act, and in relation to the financial product:

(a)    the provision of financial product advice to the debtor, or the debtor’s representative, is taken not to be the provision of a financial service; and

(b)    a dealing in the credit facility by the credit provider, or the credit provider’s representative, is taken not to be the provision of a financial service.

(4)    In this regulation:

credit, credit provider and debtor have the same meanings as in subregulation 7.1.06(3)

486    Assuming that the requirements set out in reg 7.1.06A(1) are satisfied — ie that the Investment Agreements entered into by IPO Capital would each be a “credit facility” and only fell outside that concept due to being excluded by reg 7.1.06(1)(a)(iv) or (v) — then the balance of reg 7.1.06A will apply.

487    The balance of that regulation includes reg 7.1.06A(3)(b), which specifies that dealing in a credit facility by the credit provider (or its representative) is taken not to be the provision of a financial service. That regulation was made under s 766A(2)(b) of the Corporations Act which, as set out above, provides that the Regulations may set out the circumstances in which persons are taken to provide, or are taken not to provide, a financial service.

488    Mr Mawhinney’s argument then sought to harness reg 7.1.06A(3)(b) to contend that dealing in a credit facility is taken not to constitute the provision of a financial service, and therefore ASIC’s case that IPO Capital conducted a financial services business without an AFSL must fail.

489    The flaw in that argument is that it misreads reg 7.1.06A(3)(b). That provision deems dealing in a credit facility “by the credit provider” not to be engaging in a financial service. As is clear from reg 7.1.06(3)(a), the “credit provider” is the person to whom the debt is owed. Applied to the facts of this case, IPO Capital is the “debtor”, not the “credit provider”. Not being the “credit provider”, IPO Capital’s activities are not covered by reg 7.1.06A(3)(b).

490    Accordingly, I reject Mr Mawhinney’s argument that IPO Capital did not conduct a financial services business requiring an AFSL on the basis that its activities (vis-à-vis investors entering into the Investment Agreements, cf IPO Capital’s activities in making loans) were deemed not to constitute the conduct of a financial services business by the Regulations.

5.8    Did IPO Capital carry on a business in this jurisdiction?

491    IPO Capital’s business was plainly carried on in this jurisdiction. In this regard, I note that:

(a)    the principal place of business of IPO Capital as recorded in an ASIC historical company extract, at all relevant times, was an address in Melbourne, Australia;

(a)    the overwhelming majority of investors in IPO Capital shown in the investor spreadsheet maintained by IPO Capital were recorded as having residential addresses in Australia as their “billing address”;

(b)    IPO Capital held itself out in marketing materials as being “Australia-based”; and

(c)    the Investment Agreement contained a clause providing that the agreement would be construed in accordance with and governed by the laws of Victoria, Australia.

5.9    Over what period did IPO Capital carry on a financial services business?

492    As mentioned above, ASIC alleged that IPO Capital carried on a financial services business in this jurisdiction without an AFSL “from 2016 to at least December 2017”.

493    In support of its contention that IPO Capital carried on a financial services business from 2016, ASIC pointed to the letter dated 4 January 2017 from Mr Christie of Astuto to ASIC referred to at paragraphs 234–235 above. The letter answered questions posed by ASIC in respect of (amongst other things) IPO Capital, and enclosed a “[f]ull list of investors including names, addresses, amounts, first contacts[,] dates and amounts currently held”. The relevant enclosure, which was in substantially the same form as the spreadsheet referred to at paragraph 476(1) above, contained a list of investors, and included in respect of each investor a “Start Date”, which I infer was the date their funds were deposited with IPO Capital. The earliest “Start Date” is recorded as being 24 June 2016. The version of the spreadsheet as at 30 June 2017 records the latest “Start Date” as being 28 May 2017, but this entry appears to relate to a rollover. The latest fresh investment appears to have been that of investor Mr MR on 14 December 2016.

494    ASIC also relied on IPO Capital’s financial statements, the earliest in evidence being those prepared for the year ending 30 June 2016. The financial statements are consistent with the business having been operated for some time prior to the date of their preparation:

(a)    the balance sheet for the year ended 30 June 2016 recorded, as current liabilities, borrowings from 20 entities, all but one of which appear as investors in the spreadsheet maintained by IPO Capital; and

(b)    the profit and loss statement for the year ended 30 June 2016 recorded expenses such as advertising and marketing of $191,447.65, consulting and accounting of $84,338.15, and rent of $1,041.66.

495    In addition to this evidence, I note that there was also in evidence an earlier iteration of the spreadsheet maintained by IPO Capital, being one recorded as having been prepared as at May 2017. That spreadsheet was attached to an email sent from Martha Koeswibowo (a member of the IPO Capital Accounts team) to Mr Mawhinney (and Qaseem Ansari, Managing Partner of IPO Capital) on 11 May 2017. That spreadsheet recorded, in the “Summary” sheet, deposits having been made as early as November and December 2015. Further, the amounts deposited in November and December 2015, as shown in the spreadsheet, can be reconciled with IPO Capital’s ANZ bank account statement.

496    I also note that in a 24 February 2017 IPO Capital investor update, Mr Mawhinney referred to IPO Capital having been launched in “late 2015”.

497    In light of the foregoing, I am satisfied that IPO Capital was carrying on a financial services business from at least 2016. Given the way the contravention has been pleaded, it is unnecessary for me to — and neither party submitted that I should — make a finding in respect of the precise date in 2016 from which the business was carried on.

498    The date on which IPO Capital ceased carrying on a financial services business is debatable. As noted above, it appears the last “fresh” investment was made in December 2016, but rollovers persisted into May 2017. Other documents show that IPO Capital continued to calculate interest and distributions as far as March 2020 (eg Ms Panetta sent Mr Mawhinney a WhatsApp message on 30 March 2020 regarding the IPO Capital distributions due). ASIC also identified, in its closing submissions, an email dated 15 June 2017, sent by Mr Mawhinney to a potential investor, in which he said that one of the “[i]nvestment [o]ptions” available was an investment of up to three months (for $1 million or more) with IPO Capital.

499    In opening submissions, ASIC contended that there was a continuing contravention to “as late as 2020”. After ASIC opened its case, Mr Mawhinney submitted a note identifying areas in respect of which he contended ASIC’s case, as opened, strayed beyond the pleadings. One of those aspects concerned the allegation that IPO Capital carried on a financial services business without an AFSL after December 2017. In making that objection, Mr Mawhinney identified that the Statement of Claim only alleged that IPO Capital engaged in that conduct between 2016 and “at least December 2017”.

500    While the form of words used in the Statement of Claim — “at least December 2017” — allowed some “wiggle room”, no particulars were given that clearly identified any conduct ASIC relied on after December 2017. Accordingly, Mr Mawhinney did not know the case he had to meet regarding the period after December 2017. I accept that ASIC ought to be limited to December 2017 as the end point of the period during which it has established that IPO Capital carried on a financial services business.

501    I find that IPO Capital carried on a financial services business from 2016 to December 2017. As it did so without an AFSL, it contravened s 911A of the Corporations Act.

6.    MISLEADING OR DECEPTIVE CONDUCT ALLEGATIONS: GENERAL MATTERS

6.1    Principles concerning misleading or deceptive conduct allegations

502    The principles governing cases in which misleading or deceptive conduct is alleged were recently set out by the High Court in Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; (2023) 277 CLR 186 (Self Care) at [80]–[83] (Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ) (citations omitted):

80    The principles are well established. Determining whether a person has breached s 18 of the ACL involves four steps: first, identifying with precision the “conduct” said to contravene s 18; second, considering whether the identified conduct was conduct “in trade or commerce”; third, considering what meaning that conduct conveyed; and fourth, determining whether that conduct in light of that meaning was “misleading or deceptive or ... likely to mislead or deceive”.

81     The first step requires asking: “what is the alleged conduct?” and “does the evidence establish that the person engaged in the conduct?”. The third step considers what meaning that conduct conveyed to its intended audience. As in this case, where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence. The fourth step is to ask whether the conduct in light of that meaning meets the statutory description of “misleading or deceptive or ... likely to mislead or deceive”; that is, whether it has the tendency to lead into error. Each of those steps involves “quintessential question[s] of fact”.

82    The third and fourth steps require the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context includes the immediate context – relevantly, all the words in the document or other communication and the manner in which those words are conveyed, not just a word or phrase in isolation – and the broader context of the relevant surrounding facts and circumstances. It has been said that “[m]uch more often than not, the simpler the description of the conduct that is said to be misleading or deceptive or likely to be so, the easier it will be to focus upon whether that conduct has the requisite character”. That said, the description of the conduct alleged and identified at the first step should be sufficiently comprehensive to expose the complaint, because it is that conduct that will ultimately, as a whole, be determined to be or not to be misleading or deceptive.

83     Where the conduct was directed to the public or part of the public, the third and fourth steps must be undertaken by reference to the effect or likely effect of the conduct on the ordinary and reasonable members of the relevant class of persons. The relevant class of persons may be defined according to the nature of the conduct, by geographical distribution, age or some other common attribute, habit or interest. It is necessary to isolate an ordinary and reasonable “representative member” (or members) of that class, to objectively attribute characteristics and knowledge to that hypothetical person (or persons), and to consider the effect or likely effect of the conduct on their state of mind. This hypothetical construct “avoids using the very ignorant or the very knowledgeable to assess effect or likely effect; it also avoids using those credited with habitual caution or exceptional carelessness; it also avoids considering the assumptions of persons which are extreme or fanciful”. The construct allows for a range of reasonable reactions to the conduct by the ordinary and reasonable member (or members) of the class.

503    Although Self Care concerned s 18 of the Australian Consumer Law (ACL) (sch 2 to the Competition and Consumer Act 2010 (Cth)), the approach to misleading or deceptive conduct allegations is the same across pieces of legislation that harness the same statutory concepts. It is also well accepted that the formulation “false or misleading”, which is used in connection with representations — of which s 12DB of the ASIC Act is one example — means essentially the same thing as “misleading or deceptive”: eg Self Care at [84] (Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ); see also Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 at [14] (Gordon J); Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; (2014) 317 ALR 73 at [40] (Allsop CJ); Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751; (2018) 266 FCR 147 at [2263] (Beach J); Australian Securities and Investments Commission v MLC Nominees Pty Ltd [2020] FCA 1306; (2020) 147 ACSR 266 at [47] (Yates J).

504    References in these reasons to conduct and/or representations being “misleading or deceptive” should be understood also to encompass being “likely to mislead or deceive” and, in relation to representations, being “false or misleading”.

6.2    The characteristics of the hypothetical member (or members) of the class

505    As outlined above, the four steps involved in determining whether a person has breached s 18 of the ACL were confirmed and summarised by the High Court in Self Care at [80] (Kiefel CJ, Gageler, Gordon, Edelman and Gleeson JJ) as follows (emphasis in original, citations omitted):

first, identifying with precision the “conduct” said to contravene s 18; second, considering whether the identified conduct was conduct “in trade or commerce”; third, considering what meaning that conduct conveyed; and fourth, determining whether that conduct in light of that meaning was “misleading or deceptive or … likely to mislead or deceive”.

506    The third step requires the Court to consider “what meaning that conduct conveyed to its intended audience”, and the fourth step requires the Court to determine whether the conduct, in light of that meaning, meets the statutory description of being misleading or deceptive or likely to mislead or deceive (ie whether it has the tendency to lead into error): Self Care at [81]. It is the notional effects of the conduct, in its context, on the state of mind of the “relevant person or class of persons” that must be examined: Self Care at [82]. Context includes immediate context (in the sense of the textual context in which particular words were conveyed) and the broader context constituted by the surrounding facts and circumstances: Self Care at [82]

507    In Self Care, the High Court gave explicit guidance on how the characteristics of the person or persons who are said to have been (or at risk of being) led into error are to be determined (at [83], emphasis added, citations omitted):

Where the conduct was directed to the public or part of the public, the third and fourth steps must be undertaken by reference to the effect or likely effect of the conduct on the ordinary and reasonable members of the relevant class of persons. The relevant class of persons may be defined according to the nature of the conduct, by geographical distribution, age or some other common attribute, habit or interest. It is necessary to isolate an ordinary and reasonable “representative member” (or members) of that class, to objectively attribute characteristics and knowledge to that hypothetical person (or persons), and to consider the effect or likely effect of the conduct on their state of mind. This hypothetical construct “avoids using the very ignorant or the very knowledgeable to assess effect or likely effect; it also avoids using those credited with habitual caution or exceptional carelessness; it also avoids considering the assumptions of persons which are extreme or fanciful”. The construct allows for a range of reasonable reactions to the conduct by the ordinary and reasonable member (or members) of the class.

508    In addressing the ways in which it considered the Full Court of the Federal Court had fallen into error, the High Court in Self Care found that the Full Court erred in approaching the issues on the basis that the target market would have included reasonable consumers with certain knowledge (in Self Care, knowledge about some features of Botox) and who would have formed a particular understanding of the features of the product being advertised (Inhibox): at [90]–[91]. The correct approach, the High Court stated, was as follows (at [90], emphasis added):

The ordinary and reasonable consumer is a hypothetical construct to whom the court attributes characteristics and knowledge in order to characterise the impugned conduct. The class in fact will always have reasonable consumers with varying levels of knowledge; the question was whether the knowledge should be attributed to the hypothetical reasonable consumer in this case.

509    Their Honours went on to explain why “the” reasonable consumer would not have understood the phrase appearing on the packaging of Inhibox as conveying the representation alleged (as to long term efficacy) and stated (at [93], emphasis added, citations omitted):

The court must put itself in the position of the ordinary and reasonable consumer in the relevant class. The primary judge correctly identified the relevant class of consumers and attributed characteristics to the reasonable consumers in that class.

510    As may be seen, there is some variation in language between the singular and plural in the passages of the High Court’s reasons in Self Care set out above. In their closing submissions, the parties before me engaged in some debate about whether the Court should work out the characteristics of a single hypothetical reasonable member of the class, or whether more than one such hypothetical member should be constructed (Mr Mawhinney contended for the former, ASIC for the latter). I consider that the better view is that the High Court’s reasons require the Court to identify the characteristics of a single notional reasonable member of the class and to consider what impression the conduct in question would have on that person. Read in this way, use of the plural (alongside the singular) in Self Care at [83] is not an invitation to construct multiple different reasonable members of the class, whose characteristics and reactions may vary. To construct multiple hypothetical reasonable members of the class, with different characteristics, would at the very least seem to come perilously close to proceeding in the manner that the High Court criticised in Self Care.

511    Contrary to Mr Mawhinney’s oral submission in closing, I do not consider it a useful tool to try and identify the hypothetical person who sits in the “middle” of a range that may be identified for numerous characteristics (eg level of caution, extent of experience in investing, level of financial acumen etc). Proceeding in that way would, in my view, substitute a false quasi-statistical methodology for the approach the High Court laid out in Self Care.

512    With that background I turn to the facts in this proceeding.

513    The M Notes and Australian Property Bonds were only offered to “wholesale” investors. Each investment was offered with a stipulated minimum investment. For the M Core Notes, the minimum was $250,000 (although on occasion, investments for lesser amounts were accepted), for the M+ Notes the minimum was $100,000 and for the Australian Property Bonds the minimum was $100,000.

514    Relevantly to the investments offered that are at issue in this proceeding, in order to qualify as a “wholesale” investor under s 761G of the Corporations Act, or as a “sophisticated investor” under s 708(8), the investor had to: invest $500,000 or more; have net assets of at least $2.5 million; or have had a gross income in the preceding two financial years of at least $250,000. Those figures have not been adjusted since they were introduced more than 20 years ago. Provision of an accountant’s certificate was included as part of the application process. As the product brochures referred to “wholesale” investors, I will use the same terminology (instead of separately including “sophisticated” investors).

515    Mr Mawhinney accepted that, as a matter of fact, the group of people who qualify as “wholesale” investors is a heterogeneous group comprising a spectrum from the “financially illiterate to the financially very shrewd”. The variance in the levels of investing experience and sophistication of the lay investor witnesses in this proceeding bears this out. In light of the spectrum identified, Mr Mawhinney submitted that the correct approach was to fix on the hypothetical person in the middle of that spectrum. As I have already stated, I do not consider that attempting to fix on the notional person in the “middle” of a range is the appropriate way in which to determine what the characteristics of the notional representative member of the class should be. Nevertheless, I will address the characteristics for which Mr Mawhinney contended.

516    Mr Mawhinney contended that the hypothetical representative member of the class — on his approach, the person in the “middle” of the spectrum — should be fixed with the following characteristics: The person would:

(a)    have above average experience in investing;

(b)    have above average understanding of financial investments;

(c)    have no difficulty understanding the marketing material promoting the M Notes;

(d)    understand the difference between banks and non-bank financial institutions;

(e)    know that the government guarantee for bank deposits does not apply to investments with non-bank financial institutions (which point was covered in the brochures in any case);

(f)    understand the relationship between risk and return; and

(g)    understand that if the return on a bank term deposit is only 1.5% and the return on an otherwise comparable investment with a non-bank financial institution is 5%, the latter investment is riskier than the former.

517    In further oral submissions, counsel for Mr Mawhinney stressed, above other characteristics, the understanding of the relationship between risk and return.

518    While there was some lack of clarity in relation to which attribute experience in investing in non-bank products would fit, it was squarely contended by Mr Mawhinney that a characteristic of the hypothetical representative member of the class was that the person would have experience in investing in non-bank products.

519    For its part, ASIC contended that the hypothetical representative member of the class would have the following characteristics: The person:

(a)    would be an individual investor looking to invest their own money or that of their family;

(b)    may not have had substantial experience in evaluating or managing their own investments;

(c)    may not have had experience, or significant experience, investing in financial products such as debentures that were not standard retail or bank products;

(d)    would not have technical expertise in financial matters;

(e)    would have relied on the marketing materials at face value; and

(f)    would have been seeking certainty and confidence in their investments, including by seeking fixed rates of return.

520    ASIC stressed that the marketing of the relevant products was directed to the public at large, via the relevant websites (obviously accessible to the general public), extensive newspaper advertising (including in local and non-financial papers) and radio advertising.

521    I accept Mr Mawhinney’s submission that the hypothetical representative member of the class is to be approached on the basis that the class comprises persons who would qualify as “wholesale” investors. While ASIC is correct that the advertising and promotional materials were published in media that would bring them to the attention of the public at large, the target audience was that sub-set of the public who would be eligible to make one of the investments being promoted.

522    As Mr Mawhinney submitted, Parliament has excluded those qualifying as “wholesale” clients and “sophisticated” investors from certain protections in the Corporations Act, including in relation to the information required to be provided. For example, pursuant to s 708(8) of the Corporations Act, an offer of a body’s securities does not need disclosure to investors under Pt 6D.2 if the qualifying conditions outlined above (regarding size of investment, net assets or gross income) are met. Numerous other examples were collected in an aide memoire prepared by Mr Mawhinney’s representatives. According to Mr Mawhinney, in so excluding “wholesale” clients and “sophisticated” investors from various protections, Parliament recognised their skill, experience and expertise in investing.

523    The distinction between retail and wholesale clients was introduced by the Financial Services Reform Act 2001 (Cth). The Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth) (Financial Services Reform EM) explained the differential approach to wholesale clients and sophisticated investors on the basis that such investors would be better equipped to appreciate the nature and risks of the potential investment, or to afford to purchase advice on potential investments: at [2.27] and [6.19]–[6.20].

524    In my view, it would be erroneous to attribute characteristics to the hypothetical representative member of the class for the purposes of the misleading or deceptive conduct allegations on the basis that the differential treatment of wholesale investors in the Corporations Act attributes certain characteristics to investors in that class.

525    In considering whether impugned conduct contravenes the statutory prohibition on misleading or deceptive conduct (to use the shorthand), the Court needs to determine the impact of the actual conduct on the hypothetical representative member of the actual class of persons to whom that conduct was directed. That is a factual assessment based on the facts as they are. It is not an assessment that is to be driven by assumptions based on the policy rationale behind Parliament’s differential treatment of different classes of investor. Parliament did not exclude wholesale investors from the protections afforded by the statutory prohibition on misleading or deceptive conduct. Further, the Financial Services Reform EM reveals that it was also the capacity to pay for advice that underpinned the differential statutory protections for retail and wholesale investors. Accordingly, and in any event, it would not be correct to proceed on the basis that Parliament assumed all wholesale investors would necessarily have any particular level of experience or expertise.

526    With that background, what are the characteristics of the hypothetical representative member of the class of investors to which the impugned marketing material was directed?

527    In my assessment, the only characteristics distinguishing the target group from the adult population at large in Australia, and the characteristics that should be imputed to the hypothetical representative member of the class, are as follows:

(1)    The person was looking to invest their own money or funds of their family. (This characteristic was conceded by Mr Mawhinney.)

(2)    The person had one or more of the following characteristics:

(a)    $500,000 or more to invest in the product;

(b)    a gross salary of $250,000 or more over the past two years; or

(c)    net assets of at least $2.5 million.

(3)    The person wanted a known return (by earning fixed interest) on their investment for a known period of time, with the capacity to decide to do something else with their funds at the end of the investment term.

(4)    The person would read the advertising material provided to them in full (given they were investing substantial funds and the marketing material was not voluminous) but would not second-guess statements made in the advertising material.

528    In relation to the audience for the Australian Property Bonds and M Core Notes marketing, the hypothetical representative member of the class was also a person who wanted to make a secured (and not unsecured) investment.

529    It follows from the foregoing that I do not accept that the hypothetical representative member of the class would have experience in investing in non-bank products, or would have financial expertise over and above that of the average member of the adult population of Australia. The statutory criteria that mark a person out as a wholesale client say nothing as to how that person came to have the funds available to invest. There is, in my view, no basis upon which it could be concluded that a person with that sum available to invest, including through a self-managed superannuation fund, has particular financial experience or acumen.

530    On the facts of this case, it is evident that the Mayfair Group regarded self-funded retirees as a key target market. That might be thought to provide a basis for including, as a characteristic of the hypothetical representative member of the class, being a self-funded retiree. However, as ASIC did not contend for the attribution of such a characteristic, and as the marketing was targeted more broadly, I have not included being a self-funded retiree in the list of characteristics.

531    In submissions, it was noted that the Full Court in the Mayfair proceeding rejected the hypothetical member construct urged again in this case by Mr Mawhinney: see Mayfair Full Court at [81]–[89] (Jagot, O’Bryan and Cheeseman JJ). However, Mr Mawhinney submitted that the Full Court proceeded from the approach to the characteristics of the hypothetical member of the class that was disapproved by the High Court in Self Care. It is not necessary to address this contention as I have rejected Mr Mawhinney’s proposed list of characteristics on grounds that do not rest on the Full Court’s approach in the Mayfair proceeding.

6.3    Whether ASIC’s case was limited to considering all forms of marketing material as a whole in determining whether representations were made

532    The parties were in dispute regarding whether the case ASIC advanced at trial on the misleading or deceptive conduct allegations went outside the case of which Mr Mawhinney was put on notice. That dispute took place against the backdrop of the Full Court’s observations, in remitting the matter. Those observations included the need for ASIC to give “clear notice and proper particulars of each contravention it alleges and of the connection between Mr Mawhinney and each such contravention”: Mawhinney Full Court at [116] (Jagot, O’Bryan and Cheeseman JJ).

533    ASIC wholly re-pleaded its case on the remitter. Its Statement of Claim included a section, headed “D. M+ Fixed Income Notes and M Core Fixed Income Notes Marketing Material”. That section was split into sub-sections, with headings commencing “D.1”, “D.2” etc. Each sub-section pleaded a form of marketing material (eg the Mayfair Platinum website was covered in sub-section D.1). Each sub-section included a series of paragraphs setting out specific statements actually made in the various forms of marketing material (two websites, brochures, newspaper advertisements, EDMs, and Google and Bing advertising). The Statement of Claim then pleaded the representations that were said to have been conveyed by reason of the matters alleged in the relevant sub-sections of section D of the pleading. Three representations were said to be implied — the Bank Term Deposit Representation, the Repayment Representation and the No Risk of Default Representation — and one representation — the Security Representation — was said to be “express in or implied from” the matters alleged in the identified paragraphs and sub-sections of the Statement of Claim. These representations are defined below.

534    The language used in the Statement of Claim in each of the pleas alleging the making of the representations was conventional. It alleged that “[b]y reason of the matters alleged in [identified sub-sections of the pleading, joined by the word “and”] … one or more of [the entities in question] represented to investors that …”.

535    In the course of a strike out application brought by Mr Mawhinney, there was an exchange between the previous docket judge and counsel for ASIC. The judge noted that (in respect of the Bank Term Deposit Representation, which was one of the implied representation pleas that were the subject of the strike out application) there was nothing saying something had been said in terms, because if it had been, there would be an express representation. His Honour continued: “Though you say that viewed as a whole, looking at all those statements made in different places, that’s what it all amounts to. That’s how you put it?”. Counsel responded: “Yes. We say, looking at those documents as a whole, what’s said and not said, that’s what – that’s a representation that was conveyed to a fair and reasonable recipient of the documents” (emphasis added).

536    In its written opening submissions, ASIC said (in respect of the wholly implied representations):

While it is necessary for the Court to read each item of marketing material as a whole and in context, ASIC draws attention to the following matters in particular (individually or in combination) …

537    ASIC’s opening submissions then went on to identify specific sentences in the various marketing materials.

538    In his written closing submissions, Mr Mawhinney contended, relying on the above exchange before the previous docket judge, that ASIC pleaded a case which required that all of the pleaded statements be considered in their full context, which included the “totality of the pleaded documents” to determine whether the representation was implied. He submitted that ASIC’s case must fail because ASIC would not be able to establish that it was likely any person saw all the statements (of which there were more than 100 over numerous forms of marketing material). Mr Mawhinney contended that the pleaded representations must be shown to have been conveyed by the totality of all the pleaded statements (ie all the statements in all the documents) and could not be proved by reference to a sub-set of the pleaded statements.

539    This submission had been foreshadowed in Mr Mawhinney’s list of matters in respect of which he contended that the case ASIC opened went outside its pleaded case. That document was put on following ASIC’s oral opening. That document contended that ASIC’s written opening — which, as outlined above, referred to the Court addressing each item of marketing material as a whole and then drew attention to certain marketing material “individually or in combination” — went outside the pleaded case in relation to representations said to be implied. That was put on the basis that the Statement of Claim alleged that “each of the representations was constituted by the entirety of the alleged conduct” and then pointed to the exchange with the previous docket judge, to which I have referred, as maintaining that position regarding the pleaded case (emphasis in original).

540    In its written closing submissions, ASIC refuted the suggestion that its case was confined to making out the implied representations based only on the combination of all of the pleaded statements. It also reiterated the approach, set out in its written opening, drawing attention to certain aspects of the marketing material “individually and in combination”. ASIC also prepared an aide memoire that set out, for each piece of marketing material, the statements relied on, and which representation(s) the making of each statement was said to support. It was confirmed by counsel for ASIC that that aide memoire did not go beyond the statements pleaded.

541    Mr Mawhinney’s case, as put in oral closing submissions, evolved in some respects. He submitted that ASIC had abandoned its pleaded case regarding the 100 plus statements, and had confined its case to the sub-set of statements that were referred to in its written opening and closing submissions. Counsel summarised the position initially as follows:

Your Honour, we take from this that the case is that the statements relied on, the specific statements relied on, are those set out in the written opening and the written closing. Your Honour need not have any regard to either the pleading or the aide-mémoire. Our submissions are based on that being their case. If it’s not their case, well, we may have to say something in reply about that.

Now, your Honour, where this all goes, your Honour, is that, even if the case is confined to the subset of statements set out in both the written opening and the written closing, it is highly improbable that anyone saw, read or heard all those statements. They’re taken from seven different publications, websites, newspaper advertisements, email advertisements. If, for example, the Bank Term Deposit Representation is conveyed by all the statements set out in paragraph 299 and 301 of the written closing, it is highly unlikely that anyone would have seen all those statements.

542    Counsel for Mr Mawhinney contended that, while ASIC’s opening and closing written submissions referred to a sub-set of statements “individually [and/or] in combination”, it had not identified the specific combinations it relied on. It was suggested that ASIC’s case did not even clearly relate to the combinations of statements in a single piece of marketing material, such as identified statements contained in a specific brochure. Counsel for Mr Mawhinney said:

But, your Honour, we will accept that their case is the case that they set out in their written opening and they set out in their written closing. The making of the specific statements set out there in the full context gives rise to each of the representations that they now allege.

543    In oral closing submissions, counsel for ASIC said ASIC was content to rely on the examples of statements that it set out in its written closing submissions, approached in their context. The suggestion that ASIC had abandoned its pleaded case was rejected. Counsel for ASIC also noted that neither the exchange with the then-docket judge referred to above, nor the relevant pleas (and particulars) in the Statement of Claim put the case on the basis that representations were only to be implied from “all” or “every” statement referred to.

544    I do not accept Mr Mawhinney’s contentions about the case ASIC put. As already referred to, ASIC systematically pleaded the statements in each form of marketing material that it relied on, and identified the sub-sections of the pleading which contained the statements it relied on in respect of each of the implied representations. It did not plead a case on the basis that it was confined to the implied representations being derived from, and only from, the entire collection of statements and marketing material that was pleaded. That would have been a bizarre and unusual way to plead a case. I do not accept that the pleaded case can fairly be read as putting ASIC’s case on such a limited basis. Nor does the exchange with the then-docket judge so confine ASIC’s case. It is clear from the passage of transcript referred to at paragraph 535 above that counsel for ASIC was referring to what was conveyed to the recipient of each document; each document was to be read as a whole.

545    In addition, the way in which ASIC put the case in its written opening and closing submissions was clear and consistent. It referred to the need to review each item of marketing material “as a whole and in context” and then identified specific statements in the marketing material as matters that ASIC “draws attention to … in particular”. That is not an approach that can be fairly understood as abandoning part of the pleaded case.

546    I should say something about the question of representations being implied from combinations of statements. In closing submissions, Mr Mawhinney’s counsel made much of the specific combinations of statements in ASIC’s “stew of information” being identified. In some cases, the failure to identify specific combinations of statements (or other conduct) from which representations are said to be implied can create difficulties for the opposing party in knowing the case it has to meet. Conversely, where a pleader seeks to avoid being criticised for not specifically pleading each and every specific combination, the result can be equally confusing and unsatisfactory on the basis that it plants a “forest of forensic contingencies”: Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at [27] (French CJ, Gummow, Hayne and Kiefel JJ).

547    But this case is a simple one, and is not a case that gives rise to either difficulty. In addressing a statement in a particular form of marketing material, isolated words and phrases need to be considered in their context. At the very least, that context includes what is said in the rest of the document, and other visual features (such as colour, font size and layout) which will inform the prominence given to different statements.

548    When specific statements need to be considered (at the very least) in the fuller context of the document in which they appear, and where the documents are short (so one is not troubled by questions of the reader having to look far afield) other statements in the document will necessarily be in the frame of reference and will be considered in determining whether an implied representation was made. In that regard, and at least in this case, it is fairly arid to argue that ASIC has not identified those other statements in the same document, which will have to be considered as context in any event. Further, ASIC did not put its case on the basis that the implied representations had to be derived by looking across various forms of marketing material that may well not have been seen by the same person. In this sense, ASIC’s case was not a “combinations” case that gives rise to the difficulties identified above. Rather, the case ASIC put took each piece of marketing material and looked to what it would convey to the hypothetical representative member of the class. I have approached the case on that basis, ie looking at what was said in each piece of marketing material. In some instances, I have referred to some aspects of particular documents that were not quoted by ASIC in its written submissions. However, as all such statements were pleaded by ASIC, and are of the same character as statements quoted by ASIC in its written submissions, or are relevant as context, this works no unfairness on Mr Mawhinney.

549    With one possible exception, this is not a case where looking at any combination(s) of pieces of marketing materials would lead to a different outcome than considering them each separately. The possible exception concerns the Liquidity Prudency Policy alleged contraventions. I address that matter separately below in the section of these reasons dealing with those alleged contraventions.

6.4    Who engaged in the conduct by which any representations relating to the M Notes were made?

550    ASIC contended that it is not necessary for the Court to determine who made each representation so as to fix on the precise corporate identity of the contravener(s), provided the Court is satisfied that someone engaged in the contravening conduct, and Mr Mawhinney had a sufficient nexus with the contravening conduct. Mr Mawhinney did not agree that it was not necessary to determine the identity of the entity or entities who engaged in the contravening conduct (assuming the Court finds that some contraventions occurred). I accept that, where relief against Mr Mawhinney is founded on contraventions having been established, it is necessary — or, if not necessary, it is appropriate — to identify the entities that engaged in the contravening conduct.

551    In this case, the question of which entity or entities contravened the relevant statutory provisions by engaging in misleading or deceptive conduct rests on who made the relevant representations. That directs attention to who engaged in the conduct by which representations were conveyed, and whether anyone else is also taken to have engaged in that conduct pursuant to s 769B of the Corporations Act.

552    Section 769B(1) provides as follows:

(1)     Subject to subsections (7) and (8), conduct engaged in on behalf of a body corporate:

(a)     by a director, employee or agent of the body, within the scope of the person’s actual or apparent authority; or

(b)     by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of a provision of this Chapter, or a proceeding under this Chapter, to have been engaged in also by the body corporate.

553    Given that the conduct said to give rise to the contraventions in respect of the M Notes comprises various marketing materials, the question of who engaged in the conduct, and, on whose behalf, can be addressed for each piece of marketing material.

554    In addressing whether the conduct by which ASIC contended representations were made is to be attributed to the entities that ASIC contended it should be attributed to, it must be remembered that Mr Mawhinney controlled all the relevant entities. There has been no suggestion that any conduct occurred outside of the authority of whichever Mayfair Group entity was the “face” of the relevant communication. While Mr Mawhinney did not formally admit the relevant paragraphs of the Statement of Claim by which ASIC pleaded its agency (s 769B(1)) contentions, he did not make any submissions contesting ASIC’s agency propositions (other than in relation to the Google and Bing advertising, as discussed from paragraph 593 below).

555    I have approached determination of who engaged in the conduct by which any representations were made on the basis that, where a product is promoted by a piece of marketing material, the entity issuing the marketing material will have done so as agent of the issuer of the financial product in question. That is so whether the promotion involved naming the product expressly, or the product fell within a group of products identified in the document (eg investments offered by the Mayfair Group). I infer, in those circumstances, that the issuing entity had the actual or apparent authority to prepare and publish the relevant documents advertising (relevantly here), the M Notes.

556    The matters addressed in the section below are also relevant to the attribution of conduct in relation to the allegations concerning the Liquidity Prudency Policy (although, as noted below, I consider the EDMs that are only relevant to the Liquidity Prudency Policy contraventions separately).

6.4.1    The Mayfair Platinum website

557    ASIC contended that Australian Income Solutions, on its own behalf and as agent on behalf of M101 Holdings (in respect of the M+ Notes) and M101 Nominees (in respect of the M Core Notes), made the relevant statements on the Mayfair Platinum website that are relied on as conveying some of the impugned representations regarding the M Notes.

558    Mr Mawhinney admitted that, if Australian Income Solutions engaged in the relevant conduct (which was denied), it did so on its own behalf. Mr Mawhinney denied that Australian Income Solutions did so as agent of M101 Holdings or M101 Nominees.

559    ASIC relied on documents recording the contents of the Mayfair Platinum website at three points in time: as at 16 August 2019, 18 December 2019 and 2 April 2020. In the two versions of the website where the disclaimer is displayed in full (the screenshots of the 18 December 2019 version omit half of the disclaimer), the disclaimer: referred to Mayfair Platinum (being the former name of Australian Income Solutions); stated that Mayfair Platinum was an authorised representative of Quattro, an AFSL-holder; referred to “the financial products offered by Mayfair Platinum and its corporate group”; specified that Mayfair Platinum provided advice “in relation to financial products of its corporate group only”; and noted that Mayfair Platinum did not accept investments from certain types of prospective clients. The body of the website referred to “[i]nvesting with Mayfair Platinum” and the “income-producing investment opportunities” offered by Mayfair Platinum. Australian Income Solutions (formerly Mayfair Platinum) is also the entity holding the registration of the Mayfair Platinum web domain. From around 18 December 2019, the website also included a webpage titled “Mayfair Platinum Investment Products”, which contained information about the M Notes. The website contained repeated references to “we”, “us” or “our” team in statements encouraging readers to seek information about and make investments in the advertised products.

560    In respect of the 18 December 2019 and 2 April 2020 versions of the Mayfair Platinum website, I am satisfied that the statements on the website were made by Australian Income Solutions on its own behalf and as agent of M101 Holdings and M101 Nominees within the scope of its apparent authority.

561    In respect of the 16 August 2019 version of the website, which was live prior to the launch of the M Core Notes, I am satisfied that the statements were made by Australian Income Solutions on its own behalf and as agent of M101 Holdings, being the issuer of the M+ Notes, within the scope of its apparent authority. While this version of the website made no express reference to the M+ Notes product, it invited enquiries and investments in all term-based investment products offered by or through Mayfair Platinum (ie Australian Income Solutions) — which included, relevantly, the M+ Notes. From the time of the launch of the M Core Notes — on 28 October 2019, according to Mr Mawhinney’s submissions — the continued publication of the Mayfair Platinum website was also conduct of Australian Income Solutions as agent of M101 Nominees, the issuer of the M Core Notes, within the scope of its apparent authority.

6.4.2    The Term Deposit Guide website

562    ASIC contended that Online Investments trading as Mayfair 101, on its own behalf and as agent on behalf of M101 Holdings and M101 Nominees, made the relevant statements on the Term Deposit Guide website that are relied on as conveying some of the impugned representations.

563    Mr Mawhinney admitted that, if Online Investments trading as Mayfair 101 engaged in the relevant conduct (which was denied), it did so on its own behalf. Mr Mawhinney denied that it did so as agent of M101 Holdings or M101 Nominees.

564    ASIC relied on documents recording the contents of the Term Deposit Guide website at four points in time: 11 December 2019, 26 February 2020, 27 March 2020 and 2 April 2020. In each version, the website disclaimer contained the same statements referred to at paragraph 559 above, but in relation to Online Investments trading as Mayfair 101. In the context of this disclaimer, the references throughout the website to “we”, “us” and “our”, in statements urging prospective investors to enquire about the advertised products, conveyed that the representations made on the Term Deposit Guide website were being made by Online Investments trading as Mayfair 101 in respect of all products that were being offered by or through that entity. The Term Deposit Guide website disclaimer referred to the financial products offered by Online Investments trading as Mayfair 101 and its corporate group. Those products included the M Core Notes. The Term Deposit Guide was one of the means used to promote those products.

565    For these reasons, I am satisfied that the statements on this website were made by Online Investments trading as Mayfair 101 on its own behalf and as agent of M101 Holdings and as agent of M101 Nominees, within the scope of its apparent authority. I note the whole period in respect of which ASIC relied on this website post-dated the launch of the M Core Notes.

6.4.3    The M Core Notes brochure

566    ASIC contended that Australian Income Solutions, on its own behalf and as agent on behalf of M101 Nominees, made the relevant statements in the M Core Notes brochure that are relied on as conveying some of the impugned representations.

567    Mr Mawhinney admitted that, if Australian Income Solutions engaged in the relevant conduct (which was denied), it did so on its own behalf. Mr Mawhinney denied that Australian Income Solutions did so as agent of M101 Nominees.

568    ASIC relied on nine versions of the M Core Notes brochure. Each version featured the Mayfair Platinum logo on the cover page and referred to Mayfair Platinum (ie Australian Income Solutions) as the “manager” of the M Core Notes. The disclaimer also stated that the brochure was “issued” by Mayfair Platinum and that Mayfair Platinum was a related party of M101 Nominees (being the entity that issued the M Core Notes) and its corporate group. For these reasons, I am satisfied that the statements made in the M Core Notes brochure were made by Australian Income Solutions on its own behalf and as agent of M101 Nominees, the issuer of the M Core Notes, within the scope of its apparent authority.

6.4.4    The M+ Notes brochure

569    ASIC contended that Australian Income Solutions, on its own behalf and as agent on behalf of M101 Holdings, made the relevant statements in the M+ Notes brochure that are relied on as conveying some of the impugned representations.

570    Mr Mawhinney admitted that, if Australian Income Solutions engaged in the relevant conduct (which was denied), it did so on its own behalf. Mr Mawhinney denied that Australian Income Solutions did so as agent of M101 Holdings.

571    ASIC relied on 14 versions of the M+ Notes brochure (in addition to some revisions to the same versions). As with the M Core Notes brochure, Mayfair Platinum was described in the M+ Notes brochure as the “manager” of the M+ Notes. The disclaimer also stated that the brochure was “issued” by Mayfair Platinum, and that Mayfair Platinum was a related party of M101 Holdings (being the entity that issued the M+ Notes) and its corporate group. I am satisfied that the statements made in the M+ Notes brochure were made by Australian Income Solutions on its own behalf and as agent of M101 Holdings, the issuer of the M+ Notes, within the scope of its apparent authority.

6.4.5    The Mayfair Group corporate brochure

572    ASIC submitted that the Mayfair Group corporate brochure made a number statements, and that those statements were made on behalf of Australian Income Solutions, M101 Nominees and M101 Holdings.

573    Mr Mawhinney denied that the statements made in the Mayfair Group corporate brochure were made on behalf of Australian Income Solutions, M101 Nominees or M101 Holdings.

574    ASIC relied on four versions of the Mayfair Group corporate brochure, the contents of which are broadly the same. Two versions were undated; the remaining two versions were dated 2 September 2019 and 20 December 2019, respectively.

575    The brochure advertised the Mayfair Group as a whole. Unlike the other marketing materials on which ASIC relied, it did not contain a disclaimer tying the brochure to a particular entity.

576    The brochure made no express reference to M101 Nominees or M101 Holdings. It did, however, refer to Mayfair Platinum as the “investor-facing division” and a subsidiary of the “Mayfair 101 group”.

577    The brochure was evidently intended to promote all investment products offered by Mayfair Group entities (referred to in this brochure as the “Mayfair 101 group”). The brochure referred to “Mayfair 101’s investment products”. Prior to the launch of the M Core Notes on about 28 October 2019, this reference included the M+ Notes, issued by M101 Holdings. From 28 October 2019, this general reference also included the M Core Notes, issued by M101 Nominees. Both investments were available to prospective investors through Australian Income Solutions.

578    Although the author of the brochure was not stated, nothing turns on this as the brochure was disseminated in order to (inter alia) promote all Mayfair Group investment offerings, including the M Notes. I accept that the brochure, and the statements contained therein, were made on behalf of these entities (M101 Nominees, M101 Holdings and Australian Income Solutions) within the scope of the apparent authority of the author and disseminator of the brochure. Nothing turns on the identity of the Mayfair Group entity ultimately responsible for publication of the brochure as agent for these entities.

6.4.6    The newspaper advertisements

579    ASIC contended that Australian Income Solutions, on its own behalf and as agent of M101 Holdings and M101 Nominees, was responsible for making the relevant statements in the newspaper advertisements that are relied on as conveying some of the impugned representations.

580    Mr Mawhinney admitted that, if Australian Income Solutions engaged in the relevant conduct (which was denied), it did so on its own behalf. Mr Mawhinney denied that Australian Income Solutions did so as agent of M101 Holdings or M101 Nominees.

581    ASIC relied on four newspaper advertisements, which were published in national, state-wide and local newspapers on various dates between 15 August and 18 December 2019. Each advertisement was published in numerous newspapers, on a range of dates.

582    The advertisement titled “It’s Arrived – Introducing M Core Fixed Income” (M Core launch advertisement) promoted the launch of the M Core Notes product. It was published between 22 November and 18 December 2019. It featured the Mayfair Platinum logo and web address, and stated: “Mayfair Platinum is delighted to make this new product available to Australian wholesale investors”. The advertisement disclaimer made the same statements in relation to Mayfair Platinum (ie Australian Income Solutions) as contained in the disclaimer for the Mayfair Platinum website (see above at paragraph 559).

583    I am satisfied that Australian Income Solutions published the M Core launch advertisement on its own behalf and as agent of M101 Nominees, as issuer of the M Core Notes, within the scope of its apparent authority.

584    The remaining three advertisements were titled “Invest smarter” (Invest smarter advertisement) (published between 15 August and 20 September 2019), “Investing has changed” (Investing has changed advertisement) (published between 21 August and 27 September 2019) and “Invest where the top 1% do” (Top 1% advertisement) (published between 16 and 20 August 2019). Each advertisement had the same content and sub-title: “Why low interest rates are forcing investors to look beyond the banks”. They featured the Mayfair Platinum logo, and the disclaimer referred to Mayfair Platinum and directed readers seeking further information to the Mayfair Platinum website.

585    These three advertisements referred to “Mayfair Platinum’s investment options”, but stated that Mayfair Platinum provided the products in association with other companies in the Mayfair Group (for example, stating that “Mayfair Platinum is a dedicated investor-facing division of the Mayfair 101 group”).

586    I am satisfied that Australian Income Solutions published these advertisements on its own behalf and as agent of M101 Holdings, as issuer of the M+ Notes, within the scope of its apparent authority. While the advertisements did not expressly refer to the M+ Notes, this product is one of the “investment options” that were offered by or through Australian Income Solutions at the time of their publication.

587    These three advertisements were published prior to the launch of the M Core Notes and were therefore not published on behalf of M101 Nominees.

6.4.7    The EDMs

588    ASIC contended that Australian Income Solutions, on its own behalf and as agent of M101 Holdings and M101 Nominees, made the relevant statements conveyed in the EDMs that are relied on as conveying some of the impugned representations. (EDMs regarding the Liquidity Prudency Policy and Liquidity Prudency Policy Decision issues are addressed separately below).

589    Mr Mawhinney admitted that, if Australian Income Solutions engaged in the relevant conduct (which was denied), it did so on its own behalf. Mr Mawhinney denied that Australian Income Solutions did so as agent of M101 Holdings or M101 Nominees.

590    In relation to the representations made regarding the M Notes, ASIC relied on several EDMs (including two auto-responder emails) sent to investors at various times between August and December 2019. (In relation to the Liquidity Prudency Policy allegations, ASIC relied on later EDMs, issued in March 2020. The question of who issued those March 2020 EDMs is considered separately in relation to the Liquidity Prudency Policy allegations below from paragraph 883.)

591    All of the EDMs between August and December 2019 displayed the Mayfair Platinum logo and/or referred in the disclaimer to Mayfair Platinum and the financial products “offered” by Mayfair Platinum. In several instances, the EDMs were sent from Mayfair Platinum email addresses, signed off by “The Mayfair Platinum Team” or directed further enquiries to a Mayfair Platinum email address.

592    I am satisfied that Australian Income Solutions (formerly Mayfair Platinum) is responsible for making the statements contained in these EDMs. For the EDMs sent prior to the launch of the M Core Notes in late October 2019, I am satisfied that Australian Income Solutions did so on its own behalf and as agent of M101 Holdings within the scope of its apparent authority. For the EDMs sent after the launch of the M Core Notes, I am satisfied that Australian Income Solutions made the statements on its own behalf and also as agent of M101 Nominees (in respect of the M Core Notes) and as agent of M101 Holdings (in respect of the M+ Notes).

6.4.8    Google and Bing advertising

593    ASIC submitted that Google, as agent on behalf of Australian Income Solutions, Online Investments trading as Mayfair 101, M101 Holdings and M101 Nominees, was responsible for the delivery of advertisements pointing to the Mayfair Platinum and Term Deposit Guide websites in response to users inputting search terms associated with term deposits. It submitted that Bing, as agent on behalf of Online Investments trading as Mayfair 101, M101 Holdings and M101 Nominees, was responsible for the same conduct, though in relation to the Term Deposit Guide website only. Mr Mawhinney denied each of these allegations. This conduct was alleged to convey the Bank Term Deposit Representation, Repayment Representation, No Risk of Default Representation and Security Representation.

594    In his written closing submissions, Mr Mawhinney argued that these allegations were inconsistent with the High Court’s decision in Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435 (Google Inc). That case concerned whether Google, as the operator of an internet search engine, engaged in misleading or deceptive conduct, contrary to s 52 of the former Trade Practices Act 1974 (Cth) (Trade Practices Act). The High Court held that Google was not the author of the sponsored links that appeared at the head of a page of internet search results generated by Google’s search program.

595    Mr Mawhinney expanded upon this position in oral closing submissions, rejecting ASIC’s agency argument on the basis that the High Court in Google Inc held that Google was not liable for the content of advertisements it was paid to display as sponsored links. In response, counsel for ASIC contended that Google Inc reinforced its agency submissions because it clarified that it is the advertiser, not the search engine, that is the author of a sponsored advertisement, and that Google merely displayed the links on behalf of the relevant advertisers.

596    ASIC pleaded its case on the basis that Google and Bing respectively “suggested” the Mayfair Platinum website and the Term Deposit Guide website (although, as mentioned above, the plea in respect of Bing concerned the Term Deposit Guide website only) as sponsored links when users entered certain search terms. ASIC then pleaded that M101 Holdings, M101 Nominees and Online Investments trading as Mayfair 101 (and, in the case of Google, Australian Income Solutions) “are taken to have engaged in [Google’s/Bing’s] conduct … because [Google/Bing] engaged in that conduct” as their agent, at their direction, or with their consent or agreement.

597    In Google Inc, the plurality (French CJ, Crennan and Kiefel JJ) held at [68]–[69] (emphasis added):

[68]    The ACCC contended that Google, rather than the advertisers, “produced” (in the sense of making or creating) the sponsored links which are the subject of this appeal. That submission must be rejected. It is critical to appreciate that, even with the facility of keyword insertion, the advertiser is the author of the sponsored link. As Google correctly submitted, each relevant aspect of a sponsored link is determined by the advertiser. The automated response which the Google search engine makes to a user’s search request by displaying a sponsored link is wholly determined by the keywords and other content of the sponsored link which the advertiser has chosen. Google does not create, in any authorial sense, the sponsored links that it publishes or displays.

[69]     That the display of sponsored links (together with organic search results) can be described as Google’s response to a user’s request for information does not render Google the maker, author, creator or originator of the information in a sponsored link. The technology which lies behind the display of a sponsored link merely assembles information provided by others for the purpose of displaying advertisements directed to users of the Google search engine in their capacity as consumers of products and services. In this sense, Google is not relevantly different from other intermediaries, such as newspaper publishers (whether in print or online) or broadcasters (whether radio, television or online), who publish, display or broadcast the advertisements of others. The fact that the provision of information via the internet will – because of the nature of the internet – necessarily involve a response to a request made by an internet user does not, without more, disturb the analogy between Google and other intermediaries. To the extent that it displays sponsored links, the Google search engine is only a means of communication between advertisers and consumers.

598    The High Court in Google Inc rejected the proposition that Google “produced” the sponsored links. Here, I reject ASIC’s submission that Google and Bing “suggested” the websites in question, and that they therefore engaged in “conduct” that can be characterised as having been engaged in on behalf of the relevant Mayfair Group entities.

599    Although, as ASIC pointed out, the High Court’s judgment in Google Inc provides support for looking to the advertising entity as the author, its pleaded case was not put on that basis. ASIC did not plead a direct conduct case. Rather, its case against the relevant Mayfair Group entities depended entirely on the attribution to them of the conduct of Google and Bing, pursuant to s 769B(1) of the Corporations Act.

600    In any event, (as set out below) I have found that the Google and Bing sponsored links did not convey the representations pleaded, and ASIC did not plead a pure conduct (cf representations) case in relation to the Google and Bing sponsored links. As such, this point does not need to be explored further, and it ought not affect the result if I am wrong in my analysis of Google Inc and its application to the facts in this case.

6.5    Representations as to future matters

601    Where a representation with respect to a future matter is made and the person making the representation does not have reasonable grounds for making the representation, the representation is taken to be misleading for the purpose of the relevant prohibitions in the Corporations Act and the ASIC Act: s 769C of the Corporations Act (for the purposes of Ch 7 or a proceeding under Ch 7) and s 12BB of the ASIC Act (regarding, inter alia, s 12DA (misleading or deceptive conduct in relation to financial services) and s 12DB (false or misleading representations in connection with the supply or possible supply of financial services)).

602    Section 12BB(2) of the ASIC Act goes further and stipulates that the maker of the representation, whether or not a party, will be taken not to have reasonable grounds “unless evidence is adduced to the contrary”. Mr Mawhinney submitted, and I accept, that the provision does not address who is to adduce that evidence to the contrary. Section 12BB(2) is to be read with s 12BB(3). That provision stipulates (inter alia) that s 12BB(2) “does not … have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation”.

603    The Corporations Act does not include any equivalent of s 12BB(2)–(3), which applies to the provisions ASIC contended were contravened.

604    ASIC’s position was that, under s 12BB(2) of the ASIC Act, the onus was on Mr Mawhinney to adduce evidence of reasonable grounds.

605    There is authority to the effect that s 51A of the former Trade Practices Act does not apply against a person said to be liable as an accessory to the misleading or deceptive conduct of a corporation in respect of a representation as to future matters: Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 (Universal Sports Challenge) at [43]–[45] (Emmett J), approved by the Full Court of the Federal Court in Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; (2004) 160 FCR 1 (Quinlivan) at [11] (Heerey, Sundberg and Dowsett JJ). This authority was adopted and applied to s 12BB(2) of the ASIC Act by Hamilton J in Sydney Investment at [457]–[459].

606    While not the subject of comment in Sydney Investment, s 51A of the former Trade Practices Act was not in the same terms as s 12BB(2)–(3) of the ASIC Act. The former s 51A stated as follows (emphasis added):

(1)     For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2)     For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

(3)     Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.

607    By contrast, s 12BB(2) of the ASIC Act does not contain equivalent language regarding who is to adduce evidence to the contrary. Nor did s 51A go on to stipulate, as does s 12BB(3) of the ASIC Act, that the provision does not impose an onus.

608    An accessory’s inability to adduce evidence that would dislodge an onus drafted in terms referring to the corporate representor adducing evidence (as per s 51A of the former Trade Practices Act) was part of Emmett J’s reasoning in Universal Sports Challenge: at [43]. Given that s 12BB(2) of the ASIC Act is cast in different terms, and in terms that do not stipulate who is to adduce evidence to the contrary, it may be that the principles, as they developed in the context of s 51A, need to be applied with a bit more caution in relation to s 12BB.

609    Nonetheless, leading commentary suggests that s 12BB(2) of the ASIC Act does not apply to persons alleged to have been involved (in the statutory sense) in misleading conduct: eg Austin & Black’s Annotations to the Corporations Act (LexisNexis), which states (at [ASICA.12BB]) that the provision “does not apply to a person alleged to have been knowingly involved in misleading conduct, as distinct from the person alleged to have undertaken that conduct”, citing Quinlivan and Sydney Investment. Further, although the former s 51A differed from s 12BB in the manner noted, the current s 4(2) of the ACL is cast in the same terms as s 12BB(2), and there is authority suggesting that Universal Sports Challenge and Quinlivan apply equally to s 4(2): eg All Options Pty Ltd v Flightdeck Geelong Pty Ltd [2019] FCA 588 at [48] (Steward J), although the different language used in s 4(2) of the ACL and the former s 51A was not adverted to; see also Miller R, Miller’s Australian Competition and Consumer Law Annotated (Thomson Reuters) at [ACL.4.160].

610    The parties did not address these matters in their submissions. In the absence of any reasoned submissions from ASIC as to why s 12BB(2)–(3) should be treated as imposing an onus on Mr Mawhinney notwithstanding s 12BB(3) and the case law to which I have referred, I will proceed on the basis that it does not.

611    In addition, to the extent that ASIC alleged contraventions of the Corporations Act, as I have noted, there is no applicable provision that is the equivalent of s 12BB(2) of the ASIC Act. It would unnecessarily complicate this case to approach the issues on a different basis insofar as the same facts were alleged to result in contraventions of the Corporations Act and the ASIC Act. It would also introduce further unnecessary complications to then have to consider whether any contraventions found, and Mr Mawhinney’s role in relation to them, should be approached differently when it comes to relief to the extent that ASIC relied on his “association” with the contraventions, as well as his involvement in the Yorke v Lucas sense — referring to Yorke v Lucas (1985) 158 CLR 661 (Yorke v Lucas) — with yet further permutations arising depending on whether relief is considered under those two alternatives based on contraventions of the Corporations Act or the ASIC Act.

612    ASIC’s primary case was that the representations with respect to the M Notes were representations as to present matters. The Statement of Claim is pleaded on the basis that ASIC’s alternative case was that they were representations as to future matters. ASIC’s pleading regarding the Australian Property Bonds (the Property Bonds Security Representation and the Wongaling Beach Property Representation) was also put on the basis of an alternative case that those representations were as to future matters. ASIC did not plead that the other representations, ie those concerning the Liquidity Prudency Policy (the Redemptions Not Frozen Representation) and the on-lending to family (the Core Notes Use Representation) were as to future matters. These representations are defined below.

613    I have addressed the future aspect of the relevant representations below.

6.6    Did M101 Holdings provide a financial service by issuing the M+ Notes, and did M101 Nominees provide a financial service by issuing the M Core Notes?

614    ASIC’s expansive misleading or deceptive conduct case involved the identification of various representations said to have been made through various marketing materials. ASIC alleged that each representation was made in relation to a “financial product” (being the M Core Notes issued by M101 Nominees and the M+ Notes issued by M101 Holdings) and/or a “financial service” (being the issue of the M Notes) within the meaning of s 1041H(1) of the Corporations Act. It also alleged that the conduct by which the representations were made was “in relation to financial services” and “in connection with the supply or possible supply of financial services” for the purposes of ss 12DA(1) and 12DB(1) of the ASIC Act. In each case, the dealing in the M Notes was said to constitute the financial service.

615    ASIC put its case that the M Notes were financial products on two bases:

(a)    investors in each type of note made a “financial investment” within the meaning of s 763B of the Corporations Act and s 12BAA(4) of the ASIC Act; and, further or alternatively

(b)    each type of note was a debenture within the meaning of s 9 of the Corporations Act, a security within the meaning of s 761A of the Corporations Act and therefore a financial product within the meaning of s 764A of the Corporations Act and s 12BAA(7)(a) of the ASIC Act.

616    ASIC did not contend that the issue of either kind of note constituted a managed investment scheme (cf its position in relation to the operations of IPO Capital).

617    While Mr Mawhinney admitted that the M+ Notes were issued by M101 Holdings, and that the M Core Notes were issued by M101 Nominees, by his Amended Defence, he denied the other matters set out above. However, when Mr Mawhinney went into evidence, counsel for Mr Mawhinney stated that he did not put in issue that the M Notes were “financial products”.

618    It follows that there was no dispute that the issuer of the M+ Notes (M101 Holdings) and M Core Notes (M101 Nominees) each “dealt” in the relevant financial product and thereby provided a financial service.

6.7    Other elements of contraventions regarding the M Notes and the Australian Property Bonds: financial product, jurisdiction in which the conduct occurred

619    ASIC contended for breaches of s 1041H(1) of the Corporations Act and ss 12DA(1) and 12DB(1) of the ASIC Act.

620    Section 1041H(1) of the Corporations Act provides that:

A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.

621    Section 12DA(1) of the ASIC Act provides that:

A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

622    Sections 12DB(1)(a) and (e) of the ASIC Act provide that:

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

(a)     make a false or misleading representation that services are of a particular standard, quality, value or grade; or

…

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

623    It is clear that the conduct at issue in this proceeding was undertaken “in this jurisdiction” (s 1041H(1) of the Corporations Act) and “in trade or commerce” (ss 12DA(1) and 12DB(1) of the ASIC Act).

624    Mr Mawhinney did not contest that the M Notes were “financial products”. I have found below (see paragraph 944 and following) that the Australian Property Bonds were also “financial products” (if Mr Mawhinney’s concession does not extend to the Australian Property Bonds).

625    The conduct at issue in relation to the M Notes and the Australian Property Bonds (including in respect of investor Mr RR) was conduct “in relation to” a financial product and a financial service (being the dealing in the financial products that are the M Notes and the Australian Property Bonds) (s 1041H(1) of the Corporations Act and s 12DA(1) of the ASIC Act). Similarly, where representations have been found to have been made, they were made “in connection with the supply or possible supply of financial services” (s 12DB(1) of the ASIC Act). I also accept that the representations I have found to have been made concerned the standard or quality of the relevant services (being the dealing in the financial products) or the performance characteristics, uses or benefits of those services (s 12DB(1)(a) and (e) of the ASIC Act).

626    Despite his pleaded denials, Mr Mawhinney did not make submissions contesting satisfaction of these technical elements of the contraventions alleged.

7.    MISREPRESENTATIONS: BANK TERM DEPOSIT REPRESENTATION

627    ASIC pleaded the Bank Term Deposit Representation as follows (underlining added):

one or more of M101 Nominees, Australian Income Solutions, M101 Holdings and Online Investments represented to investors that M+ Fixed Income Notes and M Core Fixed Income Notes as the case may be were comparable to, and of similar risk profile to, bank term deposits (Bank Term Deposit Representation) between about 3 July 2019 and about 16 April 2020 as to the M+ Fixed Income Notes and between about 24 October 2019 and about 16 April 2020 as to the M Core Fixed Income Notes.

628    I have approached this representation on the basis that representing that the M Notes were “comparable to” bank term deposits conveys that they were similar so as to be substitutable, not merely that the M Notes could be “compared with” bank term deposits. This is consistent with the construction of the word “alternative” in the context of the marketing materials that ASIC urged on the Court: namely that saying that something is an “alternative” to something else, conveys that “it’s something available as a substitutable choice for something else”. In Mayfair Full Court at [73], the Full Court (Jagot, O’Bryan and Cheeseman JJ) captured this concept in its discussion of what is meant when someone says two things are “alternatives”; products can be alternatives in the sense that they are different (eg Coke and Fanta), or in the sense that they are similar (eg Coke and Pepsi).

7.1    Was the Bank Term Deposit Representation made?

629    The first issue is whether the Bank Term Deposit Representation was made at all, and if so when. The second issue is who made the Bank Term Deposit Representation.

630    ASIC alleged that the Bank Term Deposit Representation was conveyed by marketing material comprising:

(a)    the Mayfair Platinum website;

(b)    the Term Deposit Guide website;

(c)    the M Core Notes brochure;

(d)    the M+ Notes brochure;

(e)    the Mayfair Group corporate brochure;

(f)    various newspaper advertisements;

(g)    various EDMs sent between 9 August and 14 November 2019; and

(h)    Google and Bing sponsored advertisements.

631    I will address each form of marketing material in turn.

7.1.1    The Mayfair Platinum website

632    16 August 2019: The first version of the website relied on by ASIC is as it stood at 16 August 2019. That version described the investment opportunities offered as involving the investment of sums from $100,000 for fixed terms at varying interest rates. While the product being promoted was similar to bank term deposits insofar as it offered investments for fixed terms at fixed rates, this version of the website said nothing about the risk profile of the investment, either expressly or by implication. The website listed a series of points under the heading “Gain exclusive access”. Those points included “[h]igh yield investments”, “[g]rowth companies & sectors”, “[p]re-IPO opportunities”, and “[e]merging markets”. Those features, to which access was offered, do not convey a risk profile similar to that associated with a bank term deposit. If anything, they tend to describe “higher risk, higher reward” types of investments.

633    The Bank Term Deposit Representation was not conveyed by this version of the Mayfair Platinum website.

634    18 December 2019: A different form of the Mayfair Platinum website was online in the period from about 18 December 2019. This version of the website conveyed, albeit in a more elaborate format, the same core features of the products being offered as the previous version. However, this version included text that distinguished between the M Notes. This version of the website also offered “exclusive access” to a range of stated matters, which included the ones stated in the earlier version of the website, but also listed “[h]igh yield term deposit alternatives” and “[f]ixed income products”.

635    In relation to the M+ Notes, the website stated (emphasis altered):

Investing in our M+ Fixed Income product is a smart and effective way of earning competitive rates of return whilst official interest rates are at record-lows.

Low interest rates have resulted in much-needed innovation within the financial services industry to fill the gaps left by the banks, both in terms of investment products and also deployment of capital. Non-bank alternatives have created wide opportunities for investors and companies.

…

If you are looking for a high yield term deposit or cash alternative for your idle money to keep ahead in this low rate environment, please call our friendly team … or simply click on “Get Started” [sic] button below.

636    In relation to the M Core Notes, the website stated (emphasis altered):

Activate your idle money and earn monthly distributions from a secured, asset-backed, term-based investment product.

We invite you to invest in M Core Fixed Income, a secured, asset backed term-based investment product …

Low interest rates have resulted in much-needed innovation within the financial services industry to fill the gaps left by the banks, both in terms of investment products and also deployment of capital. Non-bank alternatives have created wide opportunities for investors and companies.

637    A comparison page included the item “[s]ecured by a collateral asset pool”. That item was blank in respect of the M+ Notes, but stated “[d]ollar-for-dollar secured asset backing” in relation to the M Core Notes.

638    The webpage titled “How We Invest” stressed diversification across geography, currency, sectors, asset classes and business maturity as the Mayfair Group’s “key risk management strategy”.

639    While this version of the website conveyed the same features (as to investing fixed sums for fixed periods at stated interest rates), no claim about the risk being similar to that of a term deposit with a bank was made expressly or by implication in relation to either product. Many statements made it clear that the entities offering the investments were not banks, but were an alternative to, in the sense of being different from, banks. In circumstances where the website made it plain that investors would be investing with a non-bank entity and investing in a non-bank product, what is it that would convey to the hypothetical representative member of the class that the investments being offered had a “similar risk profile” to a bank term deposit? Something more than presenting that which is offered as an “alternative” is required positively to convey that the investments being promoted had a “similar risk profile” to that of a bank term deposit. In addition, the “[c]overed by Government Financial Claims Scheme” item on the comparison page for the M Notes was left blank in respect of both investment products, thereby drawing attention to a key difference from bank term deposits when it comes to assessing the risk profile.

640    While statements about security were made in relation to the M Core Notes, the claim was that the investment product was “secured, [and] asset backed”. I do not consider that the hypothetical representative member of the class would understand that statement to convey that the M Core Notes had a “similar risk profile” to a bank term deposit. The point here is not what was represented about security in an absolute sense, but what was conveyed about the M Core Notes in relation to bank term deposits.

641    2 April 2020: As at 2 April 2020, the Mayfair Platinum website contained all the information referred to above in respect of the M Notes products. However, it also included a page which stated as follows under the heading “Update to Investors”:

1. Mayfair 101 is not a bank, and nor are any of the companies in the Mayfair 101 Group. Therefore, the Mayfair 101 Group is not regulated by the Australian Prudential Regulation Authority (APRA) and investment in its products is not covered by the Australian Government’s Financial Claims Scheme (colloquially known as the ‘Government Bank Guarantee’ which covers deposits up to A$250,000 per depositor, per bank).

2. As with all investment products, there are elements of risk in investing in the Group’s products.

3. An investment in a term-based investment product offered by a non-bank financier (such as the investment products offered by the Mayfair 101 Group) is not the same as depositing money in a term deposit offered by a bank, and may therefore be seen to have a higher risk relative to a bank term deposit.

4. Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.

642    The same page stated as follows under the heading “Liquidity Prudency Policy” (emphasis added):

In the current circumstances of the COVID-19 global crisis and its impact on the economy, as a precautionary measure the Mayfair 101 Group has implemented a Liquidity Prudency Policy, meaning that early and end-of-term redemptions are suspended until, at this stage, 30 April 2020. New investors seeking to invest for a term ending after 30 April 2020 are not currently expected to be affected by the Group’s Liquidity Prudency Policy. However, the Group reserves the right to extend or lift the policy at any time, and will continue diligently to monitor developments and take all reasonable steps to seek to preserve value for the Group’s investors.

643    The reasons given for determining that the 18 December 2019 version of the Mayfair Platinum website did not convey the Bank Term Deposit Representation apply equally to the 2 April 2020 version. In addition, the text set out above under the heading “Update to Investors” elucidates, and underscores, the differences between the investment opportunity being offered, and term deposits issued by banks, as does the text under the heading “Liquidity Prudency Policy”.

7.1.2    The Term Deposit Guide website

644    ASIC relied on four versions of the Term Deposit Guide website. The screenshots presented the content of that website as at 11 December 2019, 26 February 2020, 27 March 2020 and 2 April 2020. Each version contained substantively the same text, relied on by ASIC (emphasis omitted):

If you are about to invest $100k-$5m in a term deposit and want more than 3% p.a.…talk to us first!

…

Join the hundreds of savvy Aussie investors that were tired of earning low interest rates on their term deposits, and have made the switch to boost their investment returns and upgrade their lifestyles.

645    The version of the Term Deposit Guide website dated 2 April 2020 contained an “Update to investors” section in the same terms as the update appearing on the Mayfair Platinum website, as set out at paragraph 641 above, stating: “Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists”.

646    As with the Mayfair Platinum website, while the content of the Term Deposit Guide website likened the product being offered to a bank term deposit in the sense of being the investment of a fixed sum at fixed rates for a fixed term, there is nothing in the Term Deposit Guide website that conveyed, explicitly or implicitly, that the product being offered carried a level of risk that was similar to that carried by a term deposit with a bank. Appealing to an audience interested in taking out a term deposit with a bank is not the same as conveying that the non-bank product being offered has a similar risk profile to a term deposit issued by a bank. Where advertising material focuses on a particular feature of a product (or service), and does so drawing a contrast with that same feature of a competitor’s product (or service), it does not automatically suggest that all other features are the same: Gillette Australia Pty Ltd v Energizer Australia Pty Ltd [2002] FCAFC 223; (2002) 193 ALR 629 at [21]–[23] (Heerey J), [53] (Lindgren J) and [90] (Merkel J); see also Invisalign Australia Pty Ltd v SmileDirectClub LLC [2024] FCAFC 46 at [69]–[78] (O’Callaghan, Halley and Button JJ).

647    The website address — www.termdepositguide.com — was not pleaded by ASIC to itself constitute a statement that constituted conduct giving rise to the Bank Term Deposit Representation. Rather, ASIC’s pleading (Statement of Claim [77]) identified the “statements” it relied on that appeared on the website. The address of the website was only referred to in locating where it was that the statements relied on by ASIC were made.

648    Although the website address, taken as context, informs what the representative hypothetical member of the class would take from the statements relied on by ASIC, I do not consider that the website address results in the Bank Term Deposit Representation being made, when otherwise it was not, by virtue of the statements on which ASIC relied.

649    Accordingly, the Term Deposit Guide website did not convey the Bank Term Deposit Representation. That conclusion applies to all versions of that website, although I note that the version from 2 April 2020, which included the “Update to investors”, explicitly drew attention to the higher risk associated with an investment in a term-based product that was not issued by a bank.

650    ASIC also contended that, from at least 26 February 2020, the “meta-title tag” of the Term Deposit Guide website was “Term Deposit Rates — Best Term Deposit Options”. Having regard to the screenshot example of where that “meta-title tag” appeared on the Term Deposit Guide website, I understand ASIC to be referring to the text that appears in part on the “tab” in a web browser, and in full when the cursor is hovered over the text on that tab. There was insufficient evidence about what “meta-title tags” are, and how they come to be displayed, in order to conclude that this “meta-title tag” was something that was “stated” by Online Investments (Statement of Claim [78]). In any event, I do not consider that the “meta-title tag”, read in full, conveyed anything about the features of the M Notes relative to bank term deposits.

651    Nor do I consider that the relevant text of the website, referred to above, would convey the Bank Term Deposit Representation to the representative hypothetical member of the class when the “meta-title tag” is also considered, as context for the express statements on the website.

7.1.3    The M Core Notes brochure

652    ASIC relied on nine versions of the M Core Notes brochure, dating between 28 October 2019 and 27 March 2020. The relevant content, relied on by ASIC, was the same in each version, save that, from version two onwards, the brochures referred to the new product name “M Core Fixed Income”, in place of “M Fixed Income”.

653    For convenience, the content of the brochures relied on by ASIC will be set out here, while noting that some specific aspects were relied on for some, but not other, pleaded representations. The content relied on by ASIC was as follows (emphasis altered):

A secured, asset-backed, term-based investment opportunity exclusively available to wholesale investors.

…

Tired of term deposits?

Activate your idle money and earn monthly distributions from a secured, asset-backed, term-based investment product.

Investing in our M Fixed Income product is a smart and effective way of earning competitive rates of return and monthly income whilst interest rates are at record lows. We invite you to invest in M Fixed Income, a secured, asset-backed term-based investment product …

Investment funds raised under our M Fixed Income product are used for ongoing investment and capital management purposes across the Mayfair 101 group of companies …

Key Features

•    Supported by first-ranking, unencumbered asset security (see FAQs)

…

•    Fixed interest rates

•    Monthly interest payments

•    No setup or maintenance fees

…

How is the M Fixed Income product secured?

The M Fixed Income product is secured by a pool of assets in respect of which first-ranking, registered security interests have been granted. The assets are otherwise unencumbered, and are made up of Australian real estate, assets held by Mayfair 101 Group entities, and cash from investors held in the Issuer’s dedicated M Fixed Income bank account. Such cash will only be used where there is dollar-for-dollar secured asset support.

A third party security trustee, PAG Holdings Australia Pty Ltd … of Perpetuity Capital Pty Ltd …, as trustee of the Mayfair Platinum Secured Notes Security Trust, administers the secured pool of collateral assets on behalf of investors, and the assets are revalued at least yearly to ensure dollar-for-dollar secured asset support for each dollar of M Fixed Income notes.

…

Are my returns tied to the Issuer’s investment performance?

No. The Issuer is obligated to pay the quoted rates of interest and principal on the M Fixed Income product, regardless of the performance of its investments.

Is the Issuer a bank?

… [M]any M Fixed Income investors have chosen to move away from the banks due to historically low interest rates on term deposits and savings accounts.

654    The last of the statements quoted immediately above was preceded, in answer to the question “[i]s the Issuer a bank?”, by the words “[n]o. However…”.

655    In addition to these statements, ASIC relied on the fact that each version of the brochure included a table of “Current Rates” of interest, including a “[f]ixed interest rate” column.

656    The “Key Features” list also stated “[e]arly redemption available (subject to liquidity and other applicable terms)”.

657    There are other questions and answers on the FAQs page, that should be noted (albeit not relied on by ASIC as the text by which relevant representations were conveyed) (emphasis added):

Why should I choose Mayfair Platinum?

The Mayfair 101 group was established in 2009 and has assets spanning 10+ countries across a diverse range of sectors, including financial services, wealth management, technology, property and emerging markets. Our capital management strategy provides considerable geographic, industry & sector, business maturity, and currency diversification, which is a key reason why investors entrust their funds with us.

…

How can you pay fixed interest rates higher than the banks?

The interest rates we offer our investors are facilitated by the Mayfair 101 group’s capital management strategy. The group carefully selects opportunities to invest in that provide strong yields, capital growth, and refinancing opportunities that enable us to support principle [sic] and interest repayments to our investors.

…

What are the risks?

Investors should be mindful that, like all investments, there are risks associated with investing in our M Fixed Income product. Risks to take into consideration include general investment, lending, liquidity, asset, interest rate, cyber, related party transactions and currency risks.

…

Can I withdraw my money out early if I need to?

Yes, although redemptions are subject to liquidity and other applicable terms. Please note this may be subject to a 1.5% early withdrawal and liquidity fee. Please provide 30 days’ notice in writing for amounts up to A$1m. For amounts above A$1m simply email your Client Relationship Manager and they will advise a repayment schedule within 2 business days.

Is the M Fixed Income product covered by the Australian Government’s Financial Claims Scheme (FCS)?

The Australian Government’s Financial Claims Scheme (FCS) (or ‘Government Guarantee’) doesn’t cover investments made in our M Fixed Income product. The Financial Claims Scheme has a limit of A$250k for each account holder per bank, and the banks have a bailout limit of just A$20b per bank. Be mindful that bank investments above A$250k aren’t covered by the Financial Claims Scheme, which is a reason why M Fixed Income is worth considering for larger investment amounts.

658    The M Core Notes brochure, like the two websites, drew attention to features of the M Core Notes that the product had in common with bank term deposits: the investment of a fixed sum for a fixed term at a fixed interest rate. While the M Core Notes brochure spruiked features of the Mayfair Group that were intended to, and reasonably would appear to an interested potential investor to, suggest the issuer of the product had a solid financial footing, I do not consider that the brochure conveyed that the M Core Notes had a “similar risk profile” to bank term deposits. The FAQs made it clear that the issuer was not a bank, and the Australian Government’s guarantee did not apply.

7.1.4    The M+ Notes brochure

659    ASIC relied on 14 versions of the M+ Notes brochure (in addition to some revisions to the same versions), issued between 3 July 2019 and 23 March 2020. With some differences (including the brochure referring to the new product name “M+ Fixed Income”, in place of “M1 Notes” from 27 August 2019 onwards), the versions of the M+ Notes brochure relied on by ASIC were in substantively the same terms. ASIC relied on the following statements in the M+ Notes brochure in support of its contention that the Bank Term Deposit Representation was conveyed by this brochure (emphasis omitted):

A term-based investment opportunity …

Tired of earning minimal interest on your idle cash? [This changed to “Tired of term deposits?” in versions of the brochure from about 13 August 2019.]

Congratulations on taking the first step towards boosting the income-generating potential of your idle money.

Investing in M1 Notes is a smart and effective way of earning competitive rates of return whilst official interest rates are at record-lows.

…

Key Features

•    No setup or maintenance fees

•    Fixed interest rates

•    Monthly interest payments

…

•    Early redemption available (subject to liquidity and other applicable terms)

…

Is the Issuer a bank?

No. However, many M1 Notes investors have chosen to move away from the banks due to historically low interest rates on term deposits and savings accounts.

660    ASIC also relied on each version of the brochure containing a “Current Rates” table with a “Fixed Interest Rate” column.

661    The brochure also contained further statements — not relied on by ASIC in relation to the Bank Term Deposit Representation — which may be noted here for convenience:

(1)    From 3 July to 27 August 2019 (emphasis in original):

Is the Issuer’s investment performance tied to my returns?

No. Unlike a Managed Investment Scheme, the Issuer is obligated to pay the quoted rates of interest and principal on M1 Notes, regardless of the performance of its investments.

(2)    From 27 August 2019 (emphasis in original):

Are my returns tied to the Issuer’s investment performance?

No. The Issuer is obligated to pay the quoted rates of interest and principal on the M+ Fixed income product, regardless of the performance of its investments.

662    The M+ Notes brochure also contained statements (on the FAQs page) in substantively the same terms as the statements contained in the M Core Notes brochure (set out at paragraph 657 above) in answer to the following questions:

(1)    “How can you pay fixed interest rates higher than the banks?”

(2)    “What are the risks?”

(3)    “Are M1 Notes covered by the Australian Government’s Financial Claims Scheme (FCS)?”

663    Other relevant and contextual statements in the M+ Notes brochure included (emphasis in original):

Is my money safe investing in M1 Notes? [This paragraph appeared in the versions of the brochure published between 3 July and 27 August 2019.]

Like any investment there are certain risks associated with investing in M1 Notes, however the Issuer is a member of the Mayfair 101 group of companies, a London-headquartered investment group. Mayfair 101 has a diversified portfolio of assets spanning 11 countries and maintains an exceptional track record of meeting obligations to investors, including interest payments and redemptions.

…

How long has Mayfair 101 been around?

The Mayfair 101 group was established in 2009 (see www.mayfair101.com). The group owns a range of companies that provide financial products and services including:

•    Funds management

•    Corporate advisory

•    Business credit

•    Wealth management

•    Corporate bonds

664    Versions of the brochure from version four (27 August 2019 onwards) replaced the “Is my money safe investing in M1 Notes” (and the answer to that question) with (emphasis in original):

Why should I choose Mayfair Platinum?

The Mayfair 101 group was established in 2009 and has assets spanning 11 countries across a diverse range of sectors, including financial services, wealth management, technology, property and emerging markets. Our capital management strategy provides considerable geographic, industry & sector, business maturity, and currency diversification, which is a key reason why investors entrust their funds with us.

665    The reasons set out above (at paragraph 658) as to why the Bank Term Deposit Representation was not made by the M Core Notes brochure, apply equally to the M+ Notes brochure. The Bank Term Deposit Representation was not conveyed by this brochure.

7.1.5    The Mayfair Group corporate brochure

666    ASIC relied on four versions of this brochure. As mentioned above, two versions were undated, and the remaining two versions were dated 20 September and 20 December 2019. The content was broadly the same.

667    The Mayfair Group corporate brochure included the following text:

(a)    “Mayfair 101 provides a selection of investment banking-style services that build value for shareholders and [investors] … providing consistent, reliable investor returns”;

(b)    “[W]e aim to deliver consistent, reliable returns to our investors and clients”;

(c)    “Mayfair 101’s strength lies in our investment banking-style ecosystem, commitment to consistent, reliable returns for investors …”;

(d)    “Mayfair 101’s model has proven itself as a reliable alternative to the banks in generating returns for investors against this sustained backdrop of low interest rates in Australia and the UK”;

(e)    “Mayfair 101’s investment products have been specifically designed to cater to investors seeking certainty and confidence in their investments”; and

(f)    “By investing with Mayfair Platinum, Mayfair 101’s investor-facing division, qualified investors can gain access to:

•    income-generating investment opportunities;

•    a trusted partner with proven track record;

•    intensive credit-analysis and risk management approach;

•    advisory board breadth and expertise;

•    financial strength; and

•    a global presence.”

668    The statement that “Mayfair 101’s investment products have been specifically designed to cater to investors seeking certainty and confidence in their investments” should be read in its context. It appeared on a page headed “Wealth management”, and was preceded by the following statement (emphasis added):

With low interest rates limiting investment returns for many investors and higher yield products proving daunting, Mayfair 101’s investment products have been specifically designed to cater to investors seeking certainty and confidence in their investments.

669    Other features of the Mayfair Group corporate brochure relevantly put the specific aspects of the brochure relied on by ASIC in context. While the different versions of the brochure contained immaterial typographical differences, the following should be noted:

(1)    The brochure emphasised the Mayfair Group’s focus on breaking new ground. For example, the brochure said:

The Mayfair 101 group of companies (‘Mayfair 101’) combines extensive global coverage in financial markets with an entrepreneurial zeal that allows us to explore every facet of the financial services industry in which we operate.

Developing ground-breaking products, investing in technology and new approaches are key requirements for us to drive change across our industry.

Our culture encourages us to think ‘outside the box’ and to achieve great results for investors in our products (our investors) and businesses in which we invest (our clients).

…

This is why we look to think in new ways. Innovation has driven us from our earliest days and continues to drive us now. We push ourselves to be at the forefront with new products, new partnerships and new ways of doing business. We continue to build a strong foundation for long-term growth that enables us to accomplish what we see as extraordinary.

(2)    The page headed “What we do” also focused on the Mayfair Group’s innovative approaches, stating (emphasis in original):

Wealth management

Income-generating investments, pre-IPO opportunities, private equity services and more, for wholesale and high-net-worth investors seeking alternative solutions to access yield and alpha.

(3)    The page headed “Governance & risk management” presented the Mayfair Group’s approach and credentials as follows:

Mayfair 101 takes an active approach to corporate governance and risk management to protect shareholders and investors.

Key areas of focus in the group’s governance and risk management strategy include:

1.    diversification by asset class;

2.    diversification by geography;

3.    diversification by sector;

4.    liquidity management;

5.    due diligence procedures;

6.    leveraging specialist professional services organisations;

7.    employing experienced and qualified management teams; and

8.    utilising the talent available on the group’s Advisory Board.

670    The brochure stressed the cutting edge, innovative approach and investment style that was being touted as a virtue. While the brochure presented the Mayfair Group as having an international profile and a diversified range of investments, the cutting edge, innovative approach it was touting cannot be squared with the suggestion that it was presenting the products offered by Mayfair Group entities to investors as having a similar risk profile to bank term deposits. If anything, the brochure was presenting an image that sought to differentiate the offering as much as possible from such conventional, staid investments. There is nothing in the text of the brochure that would be understood by the hypothetical representative member of the class as conveying that an investment with a Mayfair Group entity would have a “similar risk profile” to a bank term deposit. Such information cannot be conjured from the generalised puffery presented by the corporate brochure.

671    The Bank Term Deposit Representation was not conveyed by the Mayfair Group corporate brochure.

7.1.6    The newspaper advertisements

672    ASIC relied on the following four newspaper advertisements:

(1)    The M Core launch advertisement, published between 22 November and 18 December 2019 in the:

(a)    AFR (five occasions);

(b)    Cairns Post (three occasions);

(c)    Courier-Mail (Brisbane) (two occasions);

(d)    Sydney Morning Herald (three occasions); and

(e)    West Australian (two occasions).

(2)    The Invest smarter advertisement, published between 15 August and 20 September 2019 in the:

(a)    AFR (five occasions);

(b)    Age (three occasions);

(c)    Cairns Post (four occasions);

(d)    Courier-Mail (Brisbane) (six occasions);

(e)    Gold Coast Bulletin (three occasions);

(f)    Manly Daily (two occasions);

(g)    Sydney Morning Herald (three occasions); and

(h)    West Australian (three occasions).

(3)    The Investing has changed advertisement, published between 21 August and 27 September 2019 in the:

(a)    Age (three occasions);

(b)    AFR (five occasions);

(c)    Cairns Post (two occasions);

(d)    Courier-Mail (Brisbane) (four occasions);

(e)    Gold Coast Bulletin (four occasions);

(f)    Manly Daily (three occasions);

(g)    Sydney Morning Herald (three occasions); and

(h)    West Australian (three occasions).

(4)    The Top 1% advertisement, published between 16 and 20 August 2019 on one occasion in each of the eight newspapers listed above.

673    The text of the M Core launch advertisement was as follows (emphasis omitted):

5.45%P.A. 12 months fixed rate^

… [A] new investment product that caters to investors seeking a strong yield from a secured investment product. With interest rates at record lows and investor sentiment shifting away from traditional financial institutions towards non-bank fixed income providers …

M Core Fixed Income provides a fixed monthly income at competitive interest rates backed by dollar-for-dollar security over assets held by the Mayfair 101 Group of companies.

…

Key features include:

•    Secured with dollar-for-dollar asset backing

•    Supported by first-ranking security

…

•    Fixed interest rates

•    Monthly interest payments available

•    No setup or maintenance fees

…

•    Early redemption available (subject to liquidity and other applicable terms)

674    As with the M Core Notes brochure, this advertisement highlighted features that the M Core Notes had: a fixed investment for a fixed term at fixed interest rates. As such, the product presented had the same features that characterise a term deposit with a bank. However, while statements were made about the security position backing the M Core Notes (dollar-for-dollar, first-ranking security), the security was not presented in a way that drew, or directed attention to, the risk profile of the M Core Notes relative to a term deposit with a bank. Other pleaded representations focus more specifically on the claims made regarding security.

675    I do not consider that the M Core launch advertisement conveyed the Bank Term Deposit Representation.

676    The text of the Investing has changed advertisement and the Top 1% advertisement was the same as the text of the Invest smarter advertisement. The text of those advertisements included the following (emphasis in original):

The RBA has held the official cash rate of interest at an all-time low of just 1.0% and thousands of Australian investors, including retirees, self-managed superannuation funds (SMSFs), companies and individuals, are now left stranded earning less than 2.0% on their idle cash.

…

The shift towards non-bank alternatives

Low interest rates have resulted in much-needed innovation within the financial services industry to fill the gaps left by the banks, both in terms of investment products and also deployment of capital. Non-bank alternatives have created wide opportunities for investors and companies.

…

If you are considering making the switch to a non-bank alternative …

Qualified investors can access term-based investment options starting from AU$100k and ranging from 3 months to 5 years, with the option of monthly interest payments.

…

Mayfair Platinum is also focused on providing investors with certainty in relation to their capital and interest payments; after all, certainty helps drive investor confidence.

677    The thrust of these advertisements was that the investment being offered was not an investment with a bank. As with other forms of advertising, the basic features — investment of a fixed sum for a fixed term at interest — were features shared by bank term deposits, but while the advertisement stated that Mayfair Platinum (the former name of Australian Income Solutions) was “focused on providing investors with certainty”, it did not otherwise suggest that the risk profile was comparable. As already noted, the advertisement focused on drawing a distinction between bank lending and the businesses to which the Mayfair Group would lend. The advertisement even stated in plain terms that funds would be loaned to businesses that were being rejected by the banks. That hardly speaks of a comparable risk profile.

678    I do not consider that the Invest smarter advertisement (or the Investing has changed advertisement or the Top 1% advertisement) conveyed the Bank Term Deposit Representation.

7.1.7    The EDMs

679    The first EDM was issued between 9 and 13 August 2019, with the subject “Why low interest rates are forcing investors to look beyond the banks”. That EDM included the following statements (emphasis omitted):

The Reserve Bank of Australia has held the official cash rate of interest to an all-time low of just 1.0%. This means that thousands of Australian investors - including retirees, self-managed superannuation funds (SMSFs), companies and individuals are now left stranded earning less than 2.0% on their idle cash.

…

Mayfair Platinum … have developed our product offering to cater to investors seeking income-producing alternatives in the low rate environment.

680    The second EDM was issued between 11 and 16 September 2019 with the subject “Make the Switch - 6.45% p.a Limited Offer”. That EDM included the following statements:

Get ahead in this low interest rate environment and earn a fixed rate of 6.45% p.a for a 6-month investment period …

6.45% p.a for 6 months …

•    Fixed interest rates from 3.75%-6.45% p.a.

•    Investment terms for 3, 6, 12, 24 & 60 months

•    No setup or maintenance fees

•    Monthly income distributions available

681    The third EDM was issued around 10 October 2019, with the subject “The New Face of Investment”. That EDM presented a table of “Current Rates”, including “Fixed Interest Rate[s] (p.a.)” corresponding to investment terms between three and 60 months for the M+ Notes, and included the following statement: “Experience the new face of investment and get ahead in this low interest rate environment with access to income-generating investments”.

682    The fourth EDM was issued around 4 November 2019, with the subject “[Name], it’s Arrived - Introducing M Core Fixed Income”. That EDM presented a table of “Standard Fixed” and “Promotional” rates of interest, which corresponded to investment terms between six and 60 months, and made the following statements (emphasis omitted):

[A] new investment product that caters to investors seeking a strong yield from a secured investment product.

With interest rates at record lows and investor sentiment shifting away from traditional financial institutions toward fixed income providers …

M Core Fixed Income provides a fixed monthly income at competitive interest rates backed by dollar-for-dollar security …

M Core Fixed Income is a smart way to earn a competitive yield on idle money in the current low interest environment.

This EDM also contained a list of “Key features”, which included: “Supported by first-ranking, otherwise unencumbered asset security”; “Fixed interest rates”; “Monthly interest payments”; “No setup or maintenance fees”; and “Early redemption available (subject to liquidity and other applicable terms)”.

683    The fifth EDM was issued between 13 and 14 November 2019 with the subject “You’re invited to the must-see investment event of 2019”. That EDM contained the following statements (emphasis omitted):

Smart investors are continually seeking new ways to keep ahead financially, particularly during this time of sustained low interest rates, and economic and political uncertainty. Mayfair 101 has emerged as a recognised global investment group that is focused on leading the shift toward non-bank investment alternatives.

The EDM also promised that attendees would learn from Mr Mawhinney about: “What is causing the tidal movement towards non-bank alternatives”; “Where wealthy families are investing to achieve strong investment returns”; “Why bank deposit rates are so low and where to find a better rate of return”; and “Where companies and SMSFs are putting their money to keep ahead of inflation”.

684    Finally, ASIC relied on two “auto-responder” emails that were sent to potential investors who submitted enquiries on the Mayfair Platinum website or on the Term Deposit Guide website.

685    The auto-responder emails each included the statement “We are dedicated to helping qualified Australian investors earn better rates of return on their idle money by focusing on certainty, transparency, and exceptional customer service” (emphasis omitted).

686    The EDMs relied on by ASIC as having conveyed the Bank Term Deposit Representation (which did not include the two auto-responder emails) referred to low interest rates being offered by the banks and made generic statements about Mayfair Platinum (ie Australian Income Solutions) being geared to investors seeking income-producing alternatives. The second, third and fourth EDMs — the 11–16 September 2019 EDM with the subject “Make the Switch - 6.45% p.a Limited Offer”, the 10 October 2019 EDM with the subject “The New Face of Investment” and the 4 November 2019 EDM launching the M Core Notes — set out the details of the investment being offered (fixed term investments at fixed interest rates). The EDM launching the M Core Notes also made statements about the security backing the product (first-ranking, dollar-for-dollar security).

687    The remaining EDMs (being the first and fifth EDMs) said nothing about the specific investment opportunities being offered. The hypothetical representative member of the class would not understand any of those EDMs to have conveyed the Bank Term Deposit Representation. Neither would the hypothetical representative member of the class have understood any of the other three EDMs (being the EDMs referred to at paragraph 686 above) as conveying that representation. As with other forms of marketing already considered, these EDMs offered a product with the same features as characterise a bank term deposit (fixed term investment at fixed interest rates) but said nothing that would convey that the risk profile was similar to a bank term deposit.

688    None of these EDMs conveyed the Bank Term Deposit Representation.

7.1.8    Google and Bing advertising

689    The Google and Bing advertising took two forms:

(1)    The use of keywords or “Adwords” that, if entered by a user on the Google search engine would suggest the Mayfair Platinum website and the Term Deposit Guide website or, if entered using the Bing search engine, would suggest the Term Deposit Guide website as a result. The search terms in question were words associated with term deposits (such as “term deposit”, “bank term deposits” or “short term deposit rates”) or Mayfair Platinum.

(2)    Sponsored advertisements for the Mayfair Platinum website (on the Google search engine) usually with titles referring to “Term Deposit Alternative” and interest rates, or “Tired of Term Deposits? | Looking For a Better Rate?”. Similar advertisements for the Term Deposit Guide website appeared on the Google and Bing search engines, with titles such as “Term Deposit Guide – Tired of Lousy Term Deposits?”

690    ASIC relied on the advertising on Google in the period between June 2019 and “at least” February 2020, and on Bing in the period between June 2019 and “at least” March 2020.

691    ASIC’s case was not that the Google and Bing advertisements contained misleading statements per se. Rather, it contended that the conduct in question — suggesting the relevant websites as sponsored links, and displaying the sponsored links with certain meta-titles — conveyed implied representations, including the Bank Term Deposit Representation. In its oral opening, ASIC said it also relied directly on the conduct of deliberately attracting persons searching the internet who were looking for term deposit investments.

692    ASIC’s reliance on the conduct concerning the Google and Bing advertising otherwise than by representations said to have been conveyed, departs from its pleading. ASIC’s Statement of Claim identified the conduct pleaded in relation to the Google and Bing advertising as conduct by which the Bank Term Deposit Representation was made (as well as the Repayment Representation, the No Risk of Default Representation and the Security Representation). ASIC must be held to its pleaded case. ASIC did not plead a conduct (cf representations) misleading or deceptive conduct case in relation to the Google and Bing advertising.

693    It may be accepted that the conduct in question would have attracted people searching the web using search terms relating to term deposits, and so would have encouraged users to click on the links, and thereby find themselves on the Mayfair Platinum website or the Term Deposit Guide website. However, none of that would convey to the hypothetical representative member of the class that the M Notes had a similar risk profile to bank term deposits. Accordingly, the institution of the Google and Bing advertising in question did not convey the Bank Term Deposit Representation.

694    Further, and even if ASIC should be allowed to rely directly on the conduct (cf relying on the conduct on the basis that it conveyed representations), I do not consider that arranging for those keywords (or “Adwords”) to deliver sponsored links to the Mayfair Platinum website or Term Deposit Guide website, constituted misleading or deceptive conduct. The thrust of ASIC’s contention was that the techniques in question targeted users who were interested in term deposits and sought to attract them to the Mayfair Group’s products by users clicking links to the two websites in question. The targeting of investors interested in making fixed term investments at fixed interest rates may be accepted. But that does not render the conduct misleading or deceptive. They were directed to websites that offered investments meeting that description. In this regard, it should be noted that I have concluded that the websites did not convey the Bank Term Deposit Representation in any event.

7.2    Was the Bank Term Deposit Representation misleading or deceptive?

695    Although I have concluded that the Bank Term Deposit Representation was not conveyed, I will address whether it was misleading or deceptive if (contrary to my conclusion) that representation was made.

696    In his written submissions, Mr Mawhinney contended that the Bank Term Deposit Representation was not made, but did not make any submissions to the effect that, if that representation was made, it was not misleading or deceptive. Nor did he advance any submissions on this topic orally, beyond submitting that if the Court accepted that the hypothetical representative member of the class had the characteristics for which he contended, then ASIC would be unable to “make good its contentions that the hypothetical person would have been misled or likely to have been misled by either the Bank Term Deposit Representation, the Repayment Representation or the No Risk of Default Representation”.

697    In its written submissions, ASIC submitted that the Bank Term Deposit Representation was misleading or deceptive. It contended as follows (citations omitted):

304.    The Bank Term Deposit Representation was false, misleading or deceptive because both the M+ Notes and M Core Notes exposed investors to significantly higher risk than bank term deposits. This is because bank term deposits are subject to prudential regulations that did not apply to the M+ Notes or the M Core Notes. In particular:

304.1.    Under the Banking Act 1959 (Cth) (Banking Act), only a body corporate that is authorised can carry on a banking business in Australia. A “banking business” includes taking money on deposit. A body corporate that is granted an authority to carry on a banking business in Australia is referred to as an authorised deposit-taking institution or ADI. Only ADIs can call themselves “banks”, “credit unions” or “building societies”.

304.2.    ADIs are regulated by both the Australian Prudential Regulation Authority (APRA) and ASIC. ASIC administers the licensing, conduct and disclosure obligations of ADIs under the Corporations Act and the ASIC Act. APRA authorises ADIs in Australia to carry on banking business in Australia under the Banking Act. APRA also makes and enforces prudential standards, which ADIs are required to comply with.

304.3.    In assessing an application for authorisation to carry on a banking business (referred to as an ADI licence or Restricted ADI licence), APRA will seek to understand the risks the applicant’s business will face and its capabilities in addressing those risks. APRA will need to be confident that if the applicant is granted an ADI licence or Restricted ADI licence that it will:

304.3.1.        be financially sound;

304.3.2.        manage its risks effectively;

304.3.3.    have sufficient financial and non-financial resources and capabilities;

304.3.4.    have sufficient capital resources to meet capital and liquidity requirements, both at authorisation and ongoing;

304.3.5.        meet fit and proper expectations;

304.3.6.        have a sound risk culture;

304.3.7.        satisfy prudential requirements; and

304.3.8.    not pose a risk to the safety of depositors’ funds or the stability of the financial system.

304.4.    Deposits with ADIs incorporated in Australia and authorised by APRA are guaranteed by the Australian Government’s Financial Claims Scheme up to $250,000 per person per institution.

305.    None of these protections applied to the M+ Notes and M Core Notes because the relevant companies were not ADIs.

306.    It follows that, by making the Bank Term Deposit Representation, Mayfair Platinum, Online Investments trading as Mayfair 101, M101 Holdings and/or M101 Nominees engaged in conduct that was misleading or deceptive or likely to mislead or deceive, and made a false or misleading representation.

698    I accept that, if the Bank Term Deposit Representation was made, it was misleading or deceptive for the reasons ASIC advanced. I rejected Mr Mawhinney’s contentions as to the characteristics to be imputed to the hypothetical representative member of the class. The acceptance of those characteristics was the only basis upon which he contended that the Bank Term Deposit Representation, if made, was not misleading or deceptive.

699    ASIC also put the Bank Term Deposit Representation on the further or alternative basis that it was a representation as to a future matter. There was nothing to suggest that any reasonable grounds existed for making that representation. Accordingly, it was misleading or deceptive on that basis too.

7.3    Did one or more of M101 Nominees, Australian Income Solutions, M101 Holdings and Online Investments trading as Mayfair 101 contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB(1)(a) and (e) of the ASIC Act?

700    The answer to this question is “no”, because the Bank Term Deposit Representation was not conveyed. If I am wrong, and it was conveyed, then the conduct by which it was made was misleading or deceptive, or likely to mislead or deceive, and the representation was false or misleading. I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

701    Having regard to the matters set out at paragraphs 550–600 above, if the Bank Term Deposit Representation was made, then it was made by: Australian Income Solutions; M101 Holdings; Online Investments trading as Mayfair 101; and, from the launch of the M Core Notes on about 28 October 2019, M101 Nominees, and those entities contravened s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

8.    MISREPRESENTATIONS: REPAYMENT REPRESENTATION

702    ASIC pleaded the Repayment Representation in the following terms (underlining added):

one or more of M101 Nominees, Australian Income Solutions and M101 Holdings represented to investors that, on maturity of the M+ Fixed Income Notes and M Core Fixed Income Notes as the case may be, the principal would be repaid in full (Repayment Representation) between about 3 July 2019 and about 16 April 2020 as to the M+ Fixed Income Notes and between about 24 October 2019 and about 16 April 2020 as to the M Core Fixed Income Notes.

8.1    Was the Repayment Representation made?

703    The Repayment Representation was said by ASIC to have been conveyed by:

(a)    the Mayfair Platinum website;

(b)    the Term Deposit Guide website;

(c)    the M Core Notes brochure;

(d)    the M+ Notes brochure;

(e)    the Mayfair Group corporate brochure;

(f)    various newspaper advertisements;

(g)    various EDMs sent between 9 August and 20 December 2019; and

(h)    Google and Bing sponsored advertisements.

8.1.1    The Mayfair Platinum website

704    The Mayfair Platinum website, in all versions in evidence prior to the 2 April 2020 version, conveyed that investors would be repaid their principal in full at maturity. That was, after all, the essence of the products being offered: the opportunity to invest a chosen sum for a fixed period of time, with the payment of interest at specified rates. It was implicit in the investment opportunity being offered for specified terms that the investor’s funds would be repaid in full on maturity. The hypothetical representative member of the class would have understood the Mayfair Platinum website (prior to 2 April 2020) to convey that their principal would be repaid in full on maturity (unless they rolled over their investment for a new term).

705    The 2 April 2020 version of the Mayfair Platinum website stated, under the heading “Liquidity Prudency Policy”, that “early and end-of-term redemptions are suspended until, at this stage, 30 April 2020” (emphasis added). The Repayment Representation is cast in absolute terms — “on maturity … the principal would be repaid in full” — but the Liquidity Prudency Policy notice referred to made it clear that was not the case in respect of at least a sub-set of investors or potential investors. In addition, that text clearly flagged the possibility that the Liquidity Prudency Policy would be extended beyond 30 April 2020.

706    The Repayment Representation was conveyed by the Mayfair Platinum website until the Liquidity Prudency Policy notice was included in the version that was live on (and I infer, from) 2 April 2020. It was not conveyed by the Mayfair Platinum website on and from 2 April 2020.

8.1.2    The Term Deposit Guide website

707    The relevant content of the Term Deposit Guide website has been set out above at paragraphs 644–645. Like the Mayfair Platinum website, the promise to repay the principal in full on maturity is an implicit feature of offering a term-based investment. The hypothetical representative member of the class would have understood the Term Deposit Guide website to convey that their principal would be repaid in full on maturity (unless they rolled over their investment for a new term).

708    The 2 April 2020 version of the Term Deposit Guide website included the “Update to investors” text, which stated: “Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists”. Accordingly, that version of the website referred to the possibility that the “Group” may decide to suspend redemptions until such time as sufficient liquidity existed. However, that version of the website did not contain any note like the notification of the Liquidity Prudency Policy in the 2 April 2020 version of the Mayfair Platinum website. I do not consider that the reference, in the Term Deposit Guide website, to the existence of a right to suspend redemptions, which might be exercised in respect of “some or all” redemptions, qualifies the representation that a basic feature of the products on offer was that the investor’s principal would be repaid in full on the maturity date (unless they rolled over their investment for a further term).

709    The Repayment Representation was conveyed by the Term Deposit Guide website.

8.1.3    The M Core Notes brochure

710    The promise to repay the principal in full on maturity is an implicit, but vital, feature of offering a term-based investment. While the brochure referred to early redemptions being “subject to liquidity and other applicable terms”, there were no such statements qualifying the implied promise to repay the principal in full on maturity (which, by definition, does not involve early redemption). The hypothetical representative member of the class would have understood the M Core Notes brochure to convey that investors’ principal would be paid in full on maturity (unless they rolled over their investment for a new term).

711    The final two versions of this brochure, both dated 27 March 2020, contained a similar qualification to the one mentioned in the Term Deposit Guide website section above: viz, that “[d]epending on financial circumstances, and in the Issuer’s sole discretion, the Issuer may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists”. This statement is not seen in earlier versions of the brochure. For the reasons already stated in connection with the Term Deposit Guide website, I do not consider that this text qualifies what the hypothetical representative member of the class would otherwise take from the statements in the M Core Notes brochure.

712    The Repayment Representation was made by the M Core Notes brochure.

8.1.4    The M+ Notes brochure

713    Like the M Core Notes brochure, the M+ Notes brochure conveyed that an investor’s principal would be repaid in full on maturity (unless the investor rolled over their investment for a new term), and confined the qualifications stated regarding liquidity to early redemption. Mr Mawhinney tendered a further version of the brochure (labelled version 14) that included the following text: “Depending on financial circumstances, and in the Issuer’s sole discretion, the Issuer may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.” For the reasons already stated in connection with the Term Deposit Guide website, I do not consider that this statement qualifies what the hypothetical representative member of the class would otherwise have understood from the statements in the M+ Notes brochure.

714    The Repayment Representation was made by the M+ Notes brochure.

8.1.5    The Mayfair Group corporate brochure

715    This brochure did not descend to detailing any particular investment product at all. Nothing was said, implicitly or explicitly, about the nature of the investments that might be offered, let alone their terms and repayment on maturity.

716    The Repayment Representation was not conveyed by this brochure.

8.1.6    The newspaper advertisements

717    All of the newspaper advertisements explicitly promoted fixed term investments: the investing of a fixed sum, at interest and for a fixed term. As set out above in relation to the M Core Notes brochure, the promise to repay the principal in full on maturity is an implicit feature of offering a term-based investment. Moreover, the text of the Invest smarter advertisement (and the Investing has changed advertisement and the Top 1% advertisement) referred to providing “certainty in relation to [investors’] capital and interest payments”. In context, the reference to “certainty” in connection with an investor’s “capital” would be understood as referring to the investor’s principal and as reinforcing the implicit statement that the investor’s principal would be repaid in full on maturity (unless the investor rolled over their investment for a new term).

718    The Repayment Representation was made by the newspaper advertisements. While the Invest smarter advertisement, the Investing has changed advertisement and the Top 1% advertisement did not refer specifically to any particular product by name, at the time those advertisements were run, the Mayfair Group was offering the M+ Notes. The Repayment Representation was only made by those newspaper advertisements in respect of the M+ Notes as the M Core Notes had not yet been launched. Conversely, as the M Core launch advertisement solely advertised the M Core Notes product, the Repayment Representation was only made in that advertisement with respect to the M Core Notes.

8.1.7    The EDMs

719    The text of the five EDMs and two auto-responder emails relied on by ASIC have been set out above (see paragraphs 679–685). As set out in paragraphs 686–687 above, three of the EDMs (being the second, third and fourth EDMs) promoted investments in fixed term, fixed interest products.

720    In respect of the three EDMs that did promote investment of sums at fixed rates of interest, for fixed periods of time, it was implicit in the offering of such products that the capital would be repaid in full on maturity (unless investors rolled over their investment for a new term).

721    The hypothetical representative member of the class would have understood those three EDMs to convey the Repayment Representation. The 11–16 September 2019 EDM with the subject “Make the Switch - 6.45% p.a Limited Offer”, and the 10 October 2019 EDM with the subject “The New Face of Investment” (being the second and third EDMs), were both disseminated at a time before the M Core Notes was launched, so the making of the Repayment Representation by those EDMs is confined to the M+ Notes. The EDM issued around 4 November 2019 launching the M Core Notes (being the fourth EDM) was confined to those notes, and the Repayment Representation conveyed by this EDM was confined accordingly.

722    The remaining two EDMs (being the first and fifth EDMs) and the two auto-responder emails did not convey the Repayment Representation.

8.1.8    Google and Bing advertising

723    I have referred above (at paragraph 691) to the basis upon which ASIC relied on this conduct in its pleading. For essentially the same reasons as set out above in relation to the Bank Term Deposit Representation (see paragraph 693), the conduct in question did not constitute the making of a representation that, on maturity of the M Notes, the principal would be repaid in full (unless investors rolled over their investment for a new term). The Repayment Representation was not conveyed by the conduct in question.

8.1.9    Mr Mawhinney’s argument that the Repayment Representation was not made

724    In his written submissions, Mr Mawhinney contended as follows (emphasis added):

130.    … The hypothetical representative member of the target audience would have understood that investment in the M Notes carried some risk of default and that it might not be repaid at maturity or at all.

131.    The hypothetical representative member of the target audience, appreciating from the marketing material that the M Notes issuer was not a bank, and that the notes were not akin to bank term deposits but were alternative term-based investments offering a higher interest rate and having a higher risk profile, would rationally have recognised that the M Notes were not free - or even “practically free” - from risk and that, like all investments, there was a risk of default and loss of capital. They can be taken to have read and understood the section of the “Frequently Asked Questions” page of the brochures under the heading “What are the risks?”.

725    I do not accept that these points mean that the Repayment Representation was not made. Even accepting the premise — that the hypothetical representative member of the target audience would recognise some risk of default — that does not mean that the hypothetical representative member of the class would not understand from the marketing materials that they were being told that their principal would be repaid in full on maturity.

8.2    Was the Repayment Representation misleading or deceptive?

726    ASIC’s case was that the Repayment Representation was falsified because the two Deed Polls governing the M Notes included a contractual right to suspend redemptions for reasons associated with liquidity (cl 5.6(a)). It submitted that the availability, to the issuer, of a discretion to suspend principal redemptions based on its own assessment of the circumstances, is inconsistent with a representation that the principal will be repaid in full. ASIC contended as follows:

As set out above, an ordinary, reasonable member of the relevant audience would have understood the marketing materials to be conveying that repayment of the principal was practically certain. In contrast, the existence of a contractual right exercisable at the issuer’s discretion, in circumstances falling short of the extreme or calamitous, is not compatible with the standard of practical certainty that an ordinary, reasonable member of the relevant audience would have taken to be conveyed through the Repayment Representation.

727    ASIC’s second argument on falsification was that “the existence of a right exercisable by the issuer to suspend redemptions for liquidity reasons meant that there was, necessarily, a prospect that an investor’s principal would not be repaid in full upon maturity”.

728    As noted above at paragraph 696, Mr Mawhinney submitted that, if the hypothetical representative member of the class had the characteristics for which he contended, ASIC would be unable to make good its case that such a person would be misled by the Repayment Representation. Mr Mawhinney also argued that the M Notes brochures contained a liquidity risk warning, and that the hypothetical representative member of the class would have requested a copy of the relevant Deed Poll, and would have read it.

729    In my view, the Repayment Representation was misleading or deceptive. The existence of a contractual right, essentially exercisable at the issuer’s discretion, not to repay an investor’s principal at maturity renders a representation that investors will be repaid their principal on maturity one that is false or misleading. The hypothetical reasonable member of the class would be led into error, whether or not one attributes characteristics to the hypothetical representative member of the class of the kind for which Mr Mawhinney contended (see paragraph 516 above). The hypothetical representative member of the class would also not avoid being led into error on the other bases raised by Mr Mawhinney. As to the liquidity warning and general awareness that an issuer can default, it is one thing to be aware that an issuer can default, but that is not the same as being aware that the issuer has the capacity to unilaterally suspend redemptions and so not “default” at all. Further, I do not accept that the hypothetical representative member of the class ought to be assumed to request, and read, the Deed Poll. The M Notes were marketed to the investing public — albeit a sub-section of it — and it is, in my view, a characteristic of the hypothetical representative member of the class that that person would take the marketing material at face value. The evidence of the lay witnesses shows that very few received the Deed Poll. This further supports my conclusion that the hypothetical representative member of the class is not to be assumed to have requested and read the Deed Poll. In addition, and relevantly to the period from 11 March 2020, even if an investor read the relevant Deed Poll, they would not be made aware that the Liquidity Prudency Policy Decision had been taken, and that redemptions were suspended.

730    The result is the same if the Repayment Representation is approached on the basis that it is a representation as to a future matter for the purposes of s 769C of the Corporations Act and s 12BB of the ASIC Act. The representation will be taken to be misleading unless the person making the representation had reasonable grounds for making it. I proceed on the basis that ASIC has the burden of establishing an absence of reasonable grounds, or that the representation was otherwise misleading (noting that s 769C(2) of the Corporations Act and s 12BB(4) of the ASIC Act both provide that the “reasonable grounds” provisions do not limit the circumstances in which a representation may be misleading).

731    The capacity, on the part of the issuer, to suspend redemptions means, in my view, that there were not reasonable grounds for the making of the Repayment Representation.

8.3    Did one or more of M101 Nominees, Australian Income Solutions and M101 Holdings contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB(1)(a) and (e) of the ASIC Act?

732    The answer to this question is yes, as the Repayment Representation was conveyed, and was misleading or deceptive.

733    I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

734    Having regard to the matters set out at paragraphs 550–600 above, the conduct was engaged in, and the representation was made by: Australian Income Solutions; M101 Holdings; and, from the launch of the M Core Notes on about 28 October 2019, M101 Nominees, and those entities contravened s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act. I note that, although ASIC made submissions to the effect that Online Investments trading as Mayfair 101 contravened these provisions in relation to the Repayment Representation, its pleading did not allege that Online Investments trading as Mayfair 101 contravened these provisions in relation to that representation.

9.    MISREPRESENTATION: NO RISK OF DEFAULT REPRESENTATION

735    ASIC pleaded the No Risk of Default Representation in the following terms (underlining added):

one or more of M101 Nominees, Australian Income Solutions, M101 Holdings and Online Investments represented to investors that M+ Fixed Income Notes and M Core Fixed Income Notes as the case may be were specifically designed for investors seeking certainty and confidence in their investments and carried no practical risk of default (No Risk of Default Representation) between about 3 July 2019 and about 16 April 2020 as to M+ Fixed Income Notes and between about 24 October 2019 and about 16 April 2020 as to M Core Fixed Income Notes.

9.1    Was the No Risk of Default Representation made?

736    ASIC alleged that the No Risk of Default Representation was conveyed by:

(a)    the Mayfair Platinum website:

(b)    the Term Deposit Guide website;

(c)    the M Core Notes brochure;

(d)    the M+ Notes brochure;

(e)    the Mayfair Group corporate brochure;

(f)    various newspaper advertisements;

(g)    various EDMs sent between 9 August and 20 December 2019; and

(h)    Google and Bing sponsored advertisements.

9.1.1    The Mayfair Platinum website

737    16 August 2019: As set out above in relation to the Bank Term Deposit Representation, the 16 August 2019 version of the Mayfair Platinum website did not convey anything, explicitly or implicitly, regarding the security of the investments being offered. There is also nothing that suggests that the product being offered had been designed for investors seeking certainty and confidence.

738    This version of the website did not convey the No Risk of Default Representation.

739    18 December 2019: The Mayfair Platinum website as at 18 December 2019 had the features referred to at paragraphs 634–638 above. While statements were made that were not limited to the M Core Notes, and which conveyed the financial strength and diversification strategy of the Mayfair Group, those statements did not, in my view, convey that there was “no practical risk of default” in relation to the M+ Notes. Nor were statements made that conveyed that the M+ Notes product had been designed for investors seeking certainty and confidence.

740    However, the statements made about the M Core Notes, specifically that they were secured with “[d]ollar-for-dollar secured asset backing” conveyed that there was no shortfall, or potential shortfall, in the security position. The focus on the security position in the statements concerning the M Core Notes implicitly conveyed that the product was suitable for investors seeking certainty and confidence in their investments.

741    Accordingly, the hypothetical representative member of the class reading this version of the Mayfair Platinum website would understand that the M Core Notes investment had been specifically designed for investors seeking certainty and confidence in their investments, and carried no practical risk of default. As such, this version of the website did convey the No Risk of Default Representation in respect of the M Core Notes.

742    2 April 2020: This version had the same features as the 18 December 2019 version insofar as claims concerning the security position of the M Core Notes product is concerned. While this version included the “Update to Investors” and “Liquidity Prudency Policy” text set out at paragraphs 641–642 above, neither of those statements touched on, or qualified, the claims being made about the existence, nature and extent of security (and thereby the risk of default).

743    Accordingly, the No Risk of Default Representation continued to be made in respect of the M Core Notes in this version of the website.

9.1.2    The Term Deposit Guide website

744    The Term Deposit Guide website said nothing about investments being secured or being offered by an entity with particular financial characteristics or standing. It said nothing, expressly or by implication, to the effect that the investments being promoted by that website were specifically designed for investors seeking certainty and confidence in their investments. There is no basis on which to conclude that the Term Deposit Guide website implicitly conveyed the No Risk of Default Representation.

9.1.3    The M Core Notes brochure

745    The relevant statements in the M Core Notes brochure have been set out above at paragraphs 653–657. Like the Mayfair Platinum website from December 2019 onwards, the statements in the brochure emphasised the characteristics of the M Core Notes as being secured and “asset-backed”. The key features listed in the brochure included that the product was supported by “first-ranking, unencumbered asset security” and the details provided regarding the security in the FAQs section of the brochure reiterated those claims, as well as giving further information regarding the assets over which security was held. That section also made the claim that security was held on a “dollar-for-dollar” basis.

746    The focus on the security position of the M Core Notes implicitly conveyed that the product was suitable for investors seeking certainty and confidence in their investments.

747    Accordingly, the M Core Notes brochure did convey the No Risk of Default Representation in respect of the M Core Notes.

9.1.4    The M+ Notes brochure

748    The relevant statements in the M+ Notes brochure have been set out above at paragraphs 659–664.

749    The content of the representation pleaded by ASIC was pitched at a high level: “no practical risk of default”. That is not the same as, eg, a “small risk of default”.

750    Statements were made in the M+ Notes brochure that conveyed the financial strength and diversification strategy of the “Mayfair 101 group”. In versions of the brochure prior to version 4 (dated 27 August 2019), the FAQs contained the question, “Is my money safe investing in M1 Notes?” (being the previous name for the M+ Notes) and the answer to that question (that heading was replaced in later versions with the question “Why should I choose Mayfair Platinum?” and the answer to that question). Versions before and from version 4 also included the question “How long has Mayfair 101 been around?”. While the M+ Notes brochure conveyed that the risk of default — which risk was acknowledged — was low (or small, or limited), the brochure did not convey that there was “no practical risk” of default. Nor were statements made that conveyed that the M+ Notes product had been “specifically designed” for investors seeking certainty and confidence in their investments.

751    The No Risk of Default Representation was not made by the M+ Notes brochure.

9.1.5    The Mayfair Group corporate brochure

752    As set out above at paragraph 667(e), this brochure stated that “Mayfair 101’s investment products have been specifically designed to cater to investors seeking certainty and confidence in their investments”. As such, the first part of the No Risk of Default Representation was made by the Mayfair Group corporate brochure (ie that the M+ Notes and/or M Core Notes, as the case may be, were specifically designed for investors seeking certainty and confidence in their investments).

753    However, I am not satisfied that the brochure also conveyed the message that those investments “carried no practical risk of default”. While the brochure touted the Mayfair Group’s international profile and diversified asset holdings, I do not consider that the hypothetical representative member of the class would have understood that brochure to convey that there was “no practical risk of default” (cf a low, small or limited risk of default). As noted above, ASIC set itself a high bar in pleading this representation in the terms in which it was cast.

9.1.6    The newspaper advertisements

754    The M Core launch advertisement, like the M Core Notes brochure, stressed the security position of the investment. It said the product was a “secured investment product”, was “backed by dollar-for-dollar security” and that the security was “first-ranking”.

755    For the same reasons as those set out above in relation to the M Core Notes brochure, I consider that the M Core launch advertisement did convey the No Risk of Default Representation in respect of the M Core Notes.

756    The other newspaper advertisements generally spruiked the Mayfair Group’s credentials, but, as noted above (at paragraph 677), drew attention to the fact that the investment strategy being pursued by the Mayfair Group — which it was pursuing using the funds it was borrowing from investors — was to lend to businesses that were being rejected by the banks. These advertisements did not convey the No Risk of Default Representation.

9.1.7    The EDMs

757    ASIC relied on the same collection of EDMs for the No Risk of Default Representation as it did for the Repayment Representation. The text of those EDMs has been set out at paragraphs 679–685 above. Other than the 4 November 2019 EDM regarding the M Core Notes, none of those EDMs can fairly be construed as conveying to the hypothetical representative member of the class that the products being offered carried “no practical risk of default”.

758    The No Risk of Default Representation was made by the 4 November 2019 EDM regarding the M Core Notes, but not by the other EDMs (including the auto-responder emails) relied on by ASIC in respect of this representation.

9.1.8    Google and Bing advertising

759    For the same reasons as those given above at paragraph 723 in relation to the Repayment Representation, I do not consider that the Google and Bing advertising conveyed the No Risk of Default Representation, or otherwise can usefully be characterised as misleading or deceptive conduct in a way that is distinct from my findings on the websites themselves.

9.2    Was the No Risk of Default Representation misleading or deceptive?

760    ASIC submitted that the No Risk of Default Representation was misleading or deceptive for the following reasons:

The representation was false, misleading or deceptive or likely to mislead or deceive for the same reasons as the Bank Term Deposit Representation and the Repayment Representation: there was a real risk of investors losing their principal investment in circumstances where the issuers could suspend repayments based on liquidity, and the risk is borne out by what actually happened.

761    ASIC’s submissions also referred to the reasoning of the Full Court in Mayfair Full Court regarding the falsity of that representation.

762    In addition to contending that the No Risk of Default Representation was not made at all, and that the hypothetical representative member of the class would not be led into error, Mr Mawhinney made the same arguments as he advanced in relation to the Repayment Representation (see paragraphs 696 and 728 above).

763    To the extent that Mr Mawhinney’s arguments depend on the characteristics of the hypothetical representative member of the class and the contention that the hypothetical representative member of the class should be assumed to have obtained and read the relevant Deed Poll, my reasons (set out at paragraph 729 above) apply equally to the No Risk of Default Representation.

764    To the extent Mr Mawhinney’s submissions relied on risk statements appearing in the marketing material, I note that the risk statement to which Mr Mawhinney referred was in the following terms (taken from the M Core Notes brochure) (emphasis in original):

What are the risks?

Investors should be mindful that, like all investments, there are risks associated with investing in our M Core Fixed Income product. Risks to take into consideration include general investment, lending, liquidity, asset, interest rate, cyber, related party transactions and currency risks.

A risk statement in substantively the same terms was included in the M+ Notes brochure.

765    As may be seen, Mr Mawhinney’s argument that the representation at issue was not misleading or deceptive (or was not made on reasonable grounds) did not involve any contention that the potential for the contractual right to suspend redemptions to be exercised would not have involved any “default” at all. Rather, he contended that the hypothetical representative member of the class would have been aware of what was stated in the brochures about risks, and would have obtained a copy of the relevant Deed Poll, which disclosed the right to suspend redemptions.

766    I do not consider that the generic risk statement sufficiently discloses the risk on which ASIC’s falsity case was based: that generic statement did not reveal that there was a risk that redemptions might be suspended in exercise of a contractual right that was not disclosed or referred to in the materials in question. Here, it should be recalled that I have, above, concluded that the No Risk of Default Representation was made by some versions of the Mayfair Platinum website (in respect of the M Core Notes), the M Core Notes brochure, the M Core launch advertisement and the 4 November 2019 EDM launching the M Core Notes.

767    I also reject Mr Mawhinney’s contention that the No Risk of Default Representation was not misleading on the basis that investors could have requested the relevant Deed Poll disclosing the right to suspend redemptions. Not only was the right to suspend redemptions not referred to in the body of the relevant marketing material at all (even by way of small print) prior to the investor update and/or Liquidity Prudency Policy notice appearing in some materials from late March 2020, but the M Core Notes brochure only referred to the Deed Poll at all in the portion of the brochure that the investor was required to fill in to apply to invest in the M Core Notes. There was no reference at all to the Deed Poll in the 4 November 2019 EDM that concerned the M Core Notes, the M Core launch advertisement or on the Mayfair Platinum website. Even if an investor were to request a copy of the relevant Deed Poll, by then the investor would already have been drawn into the “marketing web”: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [50] (French CJ, Crennan, Bell and Keane JJ). In addition, and in any event, I have rejected the suggestion that the hypothetical representative member of the class would necessarily request a copy of the Deed Poll before investing.

768    If I am wrong and the No Risk of Default Representation was made by a wider array of the marketing materials relied on by ASIC, then there is nothing specific to those other forms of marketing that would warrant a conclusion departing from my conclusion as to the No Risk of Default Representation being misleading or deceptive in the documents that I consider did convey that representation.

769    ASIC also put the No Risk of Default Representation on the further or alternative basis that it was a representation as to a future matter. There was nothing to suggest that any reasonable grounds existed for making the No Risk of Default Representation. Accordingly, it was misleading and deceptive on that basis too.

9.3    Did one or more of M101 Nominees, Australian Income Solutions, M101 Holdings and Online Investments trading as Mayfair 101 contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB(1)(a) and (e) of the ASIC Act?

770    The answer to this question is yes. I have found that the No Risk of Default Representation was conveyed by the later two versions of the Mayfair Platinum website, the M Core Notes brochure, M Core launch advertisement and the 4 November 2019 EDM concerning the M Core Notes.

771    The conduct by which the No Risk of Default Representation was made was conduct that was misleading or deceptive, or likely to mislead or deceive, and the representation was false or misleading. I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

772    Having regard to the matters set out at paragraphs 550–600 above, if the No Risk of Default Representation was made, then it was made by: Australian Income Solutions and M101 Nominees, and those entities contravened s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

773    If I am wrong and the No Risk of Default Representation was made by a wider array of marketing materials, then there would likewise be contraventions arising from those additional publications.

10.    MISREPRESENTATIONS: SECURITY REPRESENTATION

774    ASIC pleaded the Security Representation in the following terms (underlining added):

one or more of M101 Nominees and Australian Income Solutions represented to investors that M Core Fixed Income Notes were protected, by first-ranking registered security, from being sold or otherwise dealt with in a manner that would prejudice the investors’ interest in the secured assets (Security Representation) between about 24 October 2019 and about 16 April 2020.

10.1    Pleading issue

775    In his closing submissions, Mr Mawhinney contended that the Security Representation, as pleaded, concerned the protection of the M Core Notes themselves from being sold or otherwise dealt with, when the sale of, or dealing with, the M Core Notes themselves was not part of the case at all. He contended that the representation, as pleaded, was meaningless but nevertheless made extensive closing submissions (in writing and orally) addressing the extent and value of the security backing the M Core Notes.

776    While accepting that the pleading was not ideally worded, ASIC disputed that its pleading was meaningless, or was to be confined in the way that Mr Mawhinney contended.

777    The paragraph of the Statement of Claim that pleads the Security Representation (paragraph 161) should not be read in isolation. Paragraph 161 refers back to earlier sections of the pleading where the statements made on websites, in brochures, etc were pleaded. Those sections included statements concerning the security backing the M Core Notes (eg “[s]ecured by a collateral asset pool”, “[d]ollar-for-dollar secured asset backing”). In particular, the paragraph of the Statement of Claim pleading the contents of the M Core Notes brochure quoted, at length, multiple statements regarding the security backing the M Core Notes. Statements made in the M Core launch advertisement regarding the secured dollar-for-dollar asset backing of the M Core Notes were also pleaded. The asset-backed security for the M Core Notes also featured prominently in the 4 November 2019 EDM promoting that product, which statements were also pleaded by ASIC in the sections to which paragraph 161 referred.

778    Paragraph 161, pleading the Security Representation, was then followed by two paragraphs by which ASIC pleaded the matters that it relied on as falsifying the Security Representation. Those paragraphs were as follows:

162.     Funds invested in M Core Fixed Income Notes were:

a.     lent to Eleuthera Group pursuant to a Facility Agreement with Eleuthera Group Pty Ltd and not secured by first-ranking registered security; and

Particulars

(a)     The Facility Agreement was in writing.

(b)     PAG Holdings (Australia) Pty Ltd response to s 33 notice at [1.7(d)(i)].

b.    used to:

i.     pay deposits on properties prior to any security interest being registered; and

ii.     purchase assets that were not secured by first-ranking registered security.

Particulars

ASIC refers to and repeats paragraphs 60 to 63 above.

163.     Further or in the alternative to paragraph 162 above:

a.     investors’ interests in secured assets were not secured by first-ranking registered security; and

Particulars

ASIC refers to and repeats paragraphs 60 and 62 to 63 above.

b.     the value of the security was subject to the capacity of the trustee of the unit trust to encumber the real estate assets of the unit trust at any time.

Particulars

ASIC refers to and repeats paragraphs 60 and 61 above.

779    The falsification pleas cross-referenced paragraphs 60–63 of the Statement of Claim. Those paragraphs pleaded that:

(a)    M Core Notes funds were used to acquire Australian real estate that was held by unit trusts associated with Mr Mawhinney;

(b)    under the Trust Deed for each unit trust, the Security Trustee was entitled to grant other first-ranking security or multiple secured interests over the assets held by the unit trust;

(c)    between certain dates PAG (the Security Trustee) had a first-ranking security over one real property but did not otherwise have first-ranking security over any real property held by the unit trusts; and

(d)    Naplend held first-ranking mortgages over the properties listed in Annexure A to the Statement of Claim.

780    The Statement of Claim made it plain that ASIC’s contention was that the statements made in the marketing material conveyed that investors’ investments in the M Core Notes were fully protected by first-ranking security, which claim was misleading or deceptive because the true position (as ASIC would have it) was that:

(a)    funds received from M Core Notes investors were provided by M101 Nominees to Eleuthera, and were provided to Eleuthera on a basis that did not include any registered first-ranking security;

(b)    the properties acquired with the funds invested by M Core Notes holders were held by the trustees of the unit trusts, who were able to encumber the real estate at any time, and PAG had no security interest in the real estate (other than one property); and

(c)    with the exception of one property, the real estate (other than the Dunk Island titles) was mortgaged to Naplend.

781    The security structure and the value of the security run through all these points.

782    Mr Mawhinney’s initial Defence was pleaded before he made his election regarding whether to go into evidence (having regard to the privilege against self-exposure to a penalty, which he claimed). That Defence pleaded a blanket denial of paragraphs 161–163 of the Statement of Claim. Nothing was said to suggest Mr Mawhinney thought the Security Representation, as pleaded, was nonsensical or embarrassing. Besides admitting the one real property mortgage that PAG did take, Mr Mawhinney also pleaded blanket denials of paragraphs 60–63 of the Statement of Claim.

783    After ASIC closed its case, Mr Mawhinney pleaded his Amended Defence. The paragraphs just referred to were not amended.

784    Mr Mawhinney’s Amended Defence was put on pursuant to orders made on 22 November 2024. Those orders followed Mr Mawhinney’s election to waive the privilege against self-exposure to a penalty on five topics. One of those topics was the “funding structure of the land holding trusts”. That topic was bound up in the value of the units in the unit trusts over which security was held.

785    Pausing there, it was clear from the pleadings that ASIC’s case was not concerned with whether the M Core Notes themselves could be sold or otherwise dealt with in a manner that prejudiced investors’ interests in the secured assets.

786    While it may be doubted that Mr Mawhinney’s professed bewilderment at ASIC’s supposedly confusing or nonsensical pleaded case was genuine, Mr Mawhinney’s conduct of the case puts it beyond doubt that he understood precisely the case ASIC was advancing.

787    In its written opening submissions, ASIC addressed, extensively, the flaws in the M Core Notes security structure that it said falsified the Security Representation, both at the structural level (by which I mean the features of the security structure) and at the level of the value of the assets that were held within that security structure.

788    In oral opening submissions, counsel for ASIC opened extensively on the statements in the marketing material conveying that the M Core Notes were secured, dollar-for-dollar, by first-ranking securities. Counsel also opened on ASIC’s case as to the flaws in the security structure, including that the structure did not constrain the land-owning trustees’ capacity to encumber the real estate (which is what happened), the security that PAG did have over the units in the unit trusts was only as good as the value of those units, and the security afforded over the funds in M101 Nominees’ bank account was vulnerable to those funds being deployed as Mr Mawhinney wished, and which funds were provided to Eleuthera on an unsecured basis. Counsel for ASIC also opened on the value of the security within the security structure.

789    After ASIC opened its case over two days, counsel for Mr Mawhinney raised, at the start of the third day (30 October 2024), the following:

But we consider that a lot of the case that has been opened, both in writing and orally, proceeds well beyond the pleaded case. I just want to make clear, we don’t consent to any widening of issues beyond what’s pleaded. And I don’t want it to be said that we’ve acquiesced in any such widening of issues.

790    I then had the following exchange with counsel for Mr Mawhinney:

HER HONOUR: When do you anticipate being in a position to let Mr Borsky and the court know in what respects you think they’ve gone outside the pleading?

[COUNSEL]: Well, I can say some respects now, but it won’t necessarily be a comprehensive list. If it’s helpful now, I will give a non-comprehensive, brief rundown. If it’s better to wait a day or two and I will give a comprehensive rundown, we will do it then.

HER HONOUR: I think let’s have it in one hit.

[COUNSEL]: Yes, we will do it then, your Honour. If your Honour pleases.

791    As is clear from that exchange, the note was to be comprehensive. One week later, Mr Mawhinney provided a six-page memorandum which was stated to set out “instances in which the ASIC Written Opening and the ASIC Oral Opening departed from its case as pleaded”.

792    Mr Mawhinney’s note raised the following in relation to “[a]llegations as to the security in respect of the M Core Notes” (emphasis added):

17.     At paragraphs 6.3 and 6.4 of the ASIC Written Opening, reference is made to the nature “and level” of the security protecting the M Core Notes. At paragraph 11.5 of the ASIC Written Opening, it is said that the security granted “contradicted the representations made about investors’ security being first-ranking and dollar for dollar.” At paragraphs 272 – 280 of the ASIC Written Opening, there is a detailed summary of the analysis of Greg Meredith as to the “value of the security interests held in trust by PAG”.

18.     At 19.5-8 of the ASIC Oral Opening, senior counsel for ASIC said that Naplend “took mortgages over assets that were supposed to be the subject to [sic] the first mortgage security in favour of investors in the products marketed, we say, [in] contravention of the law.” At 77.47 of the ASIC Oral Opening, senior counsel for ASIC said the marketing material for the M Core Notes described the security as “mortgage security”; and at 88.3-5 that it was represented the security trustee had a first registered mortgage or security interest over Australian real property.

19.    These allegations are at variance with the pleaded security representation at para 161 of the SOC, which does not allege that it was represented the security would be mortgage security over real estate or make any allegation about the level or value of the securities.

793    As may be seen, the only points taken concern whether ASIC’s pleaded case raised issues concerning the value of the securities, and a representation that the security would be over real estate assets. No objection was raised that ASIC’s case concerning the structure of the securities protecting the investments of investors in the M Core Notes was outside the pleading and that the pleaded case was confined to whether the M Core Notes themselves were exposed to being dealt with or otherwise encumbered. On the contrary, Mr Mawhinney’s note refers itself explicitly to the “security protecting the M Core Notes” (emphasis added).

794    I accept Mr Mawhinney’s contention that ASIC’s pleaded case did not extend to the narrow point that there was a representation that the security would be by way of first-ranking security over real property.

795    However, in my view, it was clear enough on the Statement of Claim that ASIC’s case was not that the M Core Notes themselves could be sold or otherwise dealt with in a way that would prejudice investors’ interests. It concerned the security protecting investors’ interests in the notes. I also consider that it was clear enough from the Statement of Claim that ASIC’s case was not confined to the bare structure of the securities, but extended to the value of the security in the structure as falsifying the claims made. That was expanded upon in opening.

796    Even if those points were not (contrary to my view) adequately raised by the pleaded case, Mr Mawhinney’s conduct of the case put them squarely in issue. He engaged, and engaged extensively, with the nature of the security structure and the value of the security held in that structure. In Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd [2015] FCAFC 25; (2015) 230 FCR 298, the Full Court of the Federal Court (Logan, Bromberg and Katzmann JJ) referred (at [63]) to the accepted need to plead allegations in penalty cases sufficiently, to alert the respondent to the case to be met. Their Honours continued (at [65]):

Nevertheless, where an applicant’s pleading is ambiguous but a respondent has nonetheless meaningfully engaged with it in its defence, that engagement and the manner in which an applicant’s case is consequentially opened and the trial conducted and defended can and ought to be considered in deciding whether a respondent has suffered any procedural unfairness. That is so even if there has been no formal application to amend the pleading. The obligations imposed on the Court and the parties by Pt VB of the FCA Act do not lead to any different conclusion.

797    Through the course of the trial, Mr Mawhinney’s legal team cross-examined extensively on the features of the security structure, the value of the security within the security structure, and the ways in which the security made good the claims made in the marketing material. Mr Mawhinney engaged fully with those aspects of ASIC’s case, even if (which I do not consider to be the position) ASIC’s Statement of Claim was ambiguous (such that those matters were not obviously and squarely pleaded). I reiterate, however, that I do not consider that ASIC’s pleading or conduct of the case squarely raised the proposition that there was a representation that the security would be by way of first-ranking security over real estate.

10.2    Was the Security Representation made?

798    ASIC contended that the Security Representation was conveyed by:

(a)    the Mayfair Platinum website (from 18 December 2019);

(b)    the M Core Notes brochure;

(c)    the M Core launch advertisement; and

(d)    an EDM issued on 4 November 2019 with the subject “[Name], it’s Arrived - Introducing M Core Fixed Income”.

799    While some additional marketing materials were referred to in the Statement of Claim, ASIC’s closing submissions were confined to the above marketing materials.

10.2.1    The Mayfair Platinum website

800    The claims made regarding the secured status of the M Core Notes on the Mayfair Platinum website from about 18 December 2019 until at least 2 April 2020 have been set out at paragraphs 636–637 above.

801    As set out above, the Mayfair Platinum website included text stating that the M Core Notes were “[s]ecured by a collateral asset pool” and that there was “[d]ollar-for-dollar secured asset backing” in relation to the M Core Notes.

802    In my view, the statements made, to the effect that the M Core Notes were “secured”, that the security was “asset backed” and the security was “[d]ollar-for-dollar” conveyed to the hypothetical representative member of the class that the security arrangements were such that investors in the M Core Notes were not exposed to a risk that the value of that security might be diminished through sales or other dealings with the assets serving as security. Those statements did not suggest that the security held was subordinate to any higher-ranking security. As such, the statements conveyed, in substance and by implication, that the security was first-ranking.

803    Moreover, and as set out above at paragraph 742 in relation to the No Risk of Default Representation, neither the “Update to Investors” nor the “Liquidity Prudency Policy” notes in the 2 April 2020 version of the website suggested that the features of the security arrangements conveyed in relation to the M Core Notes were not as had been stated, or that the security position had become susceptible to investors’ interests being compromised.

804    The Security Representation was made by the Mayfair Platinum website (from 18 December 2019).

10.2.2    The M Core Notes brochure

805    The M Core Notes brochure is replete with references to the product being a “secured, asset-backed” product. The brochure also stated that the security was “first-ranking”, unencumbered and held on a “dollar-for-dollar” basis.

806    These statements conveyed to the hypothetical representative member of the class that security was “dollar-for-dollar” and that the security arrangements were such that investors in the M Core Notes were not exposed to the risk that the value of that security might be diminished through sales or other dealings with the security. As with the Mayfair Platinum website, this conclusion is not affected by the disclaimer added to the M Core Notes brochure from around 27 March 2020 (discussed at paragraph 711 above).

807    Where the Mayfair Platinum website implicitly represented that the security was held on a first-ranking basis, that was stated expressly in the M Core Notes brochure.

808    The Security Representation was made by the M Core Notes brochure (all versions).

10.2.3    The M Core launch advertisement

809    The content and dates of publication of this advertisement have been set out above at paragraphs 672(1) and 673, along with the newspapers in which it appeared.

810    For essentially the same reasons stated in relation to the Mayfair Platinum website and the M Core Notes brochure, the advertisement conveyed the Security Representation.

10.2.4    The 4 November 2019 EDM

811    This EDM referred to the M Core Notes product being a “secured investment product”, offering “competitive interest rates backed by dollar-for-dollar security”, and to the asset security being first-ranking and otherwise unencumbered (emphasis omitted).

812    For essentially the same reasons stated in relation to the Mayfair Platinum website and the M Core Notes brochure, this EDM conveyed the Security Representation.

10.3    Was the Security Representation misleading or deceptive?

813    In my view, the Security Representation was misleading or deceptive because: the security structure had vulnerabilities that meant it was not correct to claim that the M Core Notes were fully secured by asset-backed security; and the value of the security held was insufficient to make good the claim that the M Core Notes were fully secured (the “dollar-for-dollar” claim).

814    As outlined above, ASIC accepted that there were five kinds of security interests granted to PAG:

(1)    a security interest in M101 Nominees’ bank account (granted by a Specific Security Deed Poll dated 24 October 2019);

(2)    a security interest in assets of M101 Nominees other than its bank account (granted by a General Security Deed Poll dated 24 October 2019);

(3)    a security interest in the units held by Sunseeker in the unit trusts (granted by a combination of Specific Security Deed Polls and Addition Deeds, on various dates from 14 November 2019 through to early May 2020);

(4)    a security interest in property held by the unit trusts other than real property (granted by a series of General Security Deed Polls and Accession Deeds, on various dates between 14 November 2019 and late April 2020); and

(5)    a mortgage over one piece of real estate, being the Seaview property (granted by a mortgage dated 19 December 2019 and registered on 3 January 2020, which became first-ranking on 13 January 2020).

815    I will deal with each category of security interest in turn.

10.3.1    M101 Nominees’ bank account

816    The first category of security interest was the security interest in M101 Nominees’ bank account. However, as outlined above, as money came into M101 Nominees’ bank account, virtually all of it was passed on to Eleuthera. Mr Meredith calculated that 89% of the total funds received by M101 Nominees between 24 October 2019 and 16 April 2020 were transferred to Eleuthera. Mr Meredith also calculated that the total funds received by M101 Nominees from M Core Notes investors ($62.014 million) were exceeded by the net funds transferred to Eleuthera ($62.997 million) (there was a “net” transfer figure because M101 Nominees also received some funds into its bank account from Eleuthera).

817    Consequently, to the extent that the security structure included security over M101 Nominees’ bank account, that aspect of the security structure was of limited value. It was not protected from being dealt with in a manner prejudicial to the interests of the M Core Notes investors by funds being transferred to Eleuthera.

10.3.2    M101 Nominees’ other assets (mainly the loan to Eleuthera)

818    The second category of security interest was in other assets of M101 Nominees. M101 Nominees’ principal asset was the intercompany loan made to Eleuthera. I accept ASIC’s submission that there were a number of vulnerabilities in the security structure insofar as it rested on this intercompany receivable.

819    First, and importantly, the loan to Eleuthera was unsecured.

820    Secondly, Eleuthera was not obliged to repay the loan for 10 years (as to which see paragraphs 87–92 above), so the security over M101 Nominees’ receivable was subject to that very significant limitation.

821    Thirdly, even if the loan to Eleuthera were repayable on demand, or on the basis that each advance was on a 12-month term (which contention I rejected at paragraph 92 above), the utility of the security interest in the receivable on M101 Nominees’ balance sheet was still limited by the fact that neither PAG nor M101 Nominees had any capacity to constrain what Eleuthera did in terms of encumbering its assets, taking on liabilities, making investments (that may or may not be fruitful) and itself lending money to the trustees of the unit trusts on an unsecured basis. This aspect of the security structure was also not protected from being dealt with in a manner prejudicial to the interests of the M Core Notes investors.

822    There is a matter that arose in the course of discussion of the Eleuthera loan during the trial that I should address. To be clear, this does not form part of my analysis of whether the Security Representation was misleading or deceptive, but it is as well to mention it here, in the context of the Eleuthera loan. Mr Jahani noted in his evidence that no part of the Eleuthera loan has ever been repaid to M101 Nominees. Mr Mawhinney did not contest that fact but said (in the course of oral closing submissions) that:

Now, of course, Eleuthera can volunteer the money but the problem, Eleuthera hands over any of the money and the first person who’s going to take it would be Mr Jahani for his fees, so they’re going to be paying Mr Jahani for the deplorable job he has done in the liquidation of this company. And then if they repay the debt in whole, the solvency of the company would be re-established, it may well come out of liquidation in that situation, it should, and then who’s going to pop up for $8 million but ASIC because of the pecuniary penalty that has been ordered?

823    While not probative of the security structure issues, I note this submission as it bears remarking that Mr Mawhinney would seek to excuse non-payment of a debt that is, on his view of the Eleuthera Facility Agreement (12-month terms), well past due to be repaid on the basis that it would result in a court-appointed liquidator having access to funds for the payment of his fees, and a company subject to a pecuniary penalty being able to pay that penalty. That bespeaks a myopic arrogance that may weigh in the assessment of the final orders to be made in this proceeding.

824    With that detour, I return to the security issues.

825    Fourthly, and also irrespective of the 10-year term issue, the utility (as security) of the interest in the receivable in respect of the Eleuthera loan was also limited by questions over the recoverability of the Eleuthera loan, which was itself limited by the strength (or lack thereof) of Eleuthera’s balance sheet. Eleuthera had negative net assets in the years ending 30 June 2019 and 30 June 2020. In addition, most of the assets on Eleuthera’s balance sheet comprised intercompany loans, the recoverability of which was speculative. Although a lot of cash flowed through Eleuthera, it had limited cash reserves ($6,371 in its bank accounts and $1,260 cash on hand at the 2019 balance date, and $14,403 in its bank accounts and $1,260 cash on hand at the 2020 balance date). On Mr Jahani’s assessment, even if the intercompany loan assets of Eleuthera are assumed to be fully recoverable (excluding loans to entities in external administration), only about 35% of the funds loaned to Eleuthera by M101 Nominees would be recoverable.

826    It is also doubtful that the security presented by the loan to Eleuthera had a realisable value equal to its balance sheet value.

827    Mr Jahani was extensively cross-examined on his views about the doubtful recoverability of the loan to Eleuthera, including by reference to the assets on Eleuthera’s balance sheet. He maintained his evidence, which I accept, although it must be borne in mind that Mr Jahani’s analysis in Appendix 17 of the Jahani Report was undertaken with the benefit of at least some hindsight.

10.3.3    Units held by Sunseeker in the unit trusts

828    The third category of security comprised security interests in the units held by Sunseeker in the various property holding trusts. Mr Mawhinney accepted that the security over the units was the primary security for the M Core Notes holders, but disputed that the units had no (or no sufficient) value.

829    The first such security interest was granted by Sunseeker in respect of its units in the Mayfair Island Trust (being the trust holding the Dunk Island titles) on 14 November 2019. Specific Security Deed Polls were executed by Sunseeker in respect of the MBPT, MBPT No 2 and MBPT No 3 on 29 November 2019. The equivalent Specific Security Deed Polls for the other Mission Beach Property Trusts (Nos 4 to 12) were not executed until dates between late April 2020 and early May 2020. However, with the exception of the MBPT No 8 (which became the registered proprietor of 95–101 Banfield Parade, on 5 February 2020), those trusts did not hold settled property at earlier points in time, so the later execution of those security instruments is neither here nor there. (The MBPT No 5 was party to a contract of sale to acquire Lot 99 Jackey Jackey Street, dated 24 January 2020, which was due to settle on 22 July 2020, but did not settle.)

830    The timing of the grant of these security interests exposes an immediate issue as even the earliest grants post-dated the launch of the M Core Notes on around 28 October 2019. It was suggested by counsel for Mr Mawhinney that it had originally been intended that PAG would have direct security over real estate, and the plan changed to give it security over the units in November 2019. Be that as it may, it does not create a non-existent security structure during that earlier period. Nor was it the case that, prior to security being granted over the units, PAG in fact had mortgages over the real estate. PAG only obtained security over the units in the MBPT, MBPT No 2 and MBPT No 3 on 29 November 2019, and never had mortgages over the pool of real estate beyond the mortgage granted in respect of the Seaview property (which mortgage was registered on 3 January 2020).

831    The value of the security over the units in the Mayfair Island Trust (which held the Dunk Island titles) was doubtful given the extent of the vendor financing obligations and associated mortgage, coupled with Mr Quinn’s unchallenged evidence that the value of the Dunk Island titles was about $20 million (against a purchase price of $31.5 million), which is also supported by the fact that the Dunk Island titles subsequently sold for $23.65 million. Even if regard were had to the security over the units in the Mayfair Island Trust, the titles were transferred on 1 October 2019, and the vendor’s mortgages on title were registered the same day, still leaving an unexplained timing gap before the security interest was granted on 14 November 2019. Given these aspects of the Dunk Island acquisition, the more relevant date to refer to in connection with the grant of security interests in the units in property holdings trusts is 29 November 2019.

832    There are, however, two bigger issues that undermine the utility of this element of the security structure. First, there was nothing stopping the trustees of the unit trusts from taking on liabilities or encumbering their assets in a way that would render security in the units valueless (or of little value). This vulnerability in the security structure is borne out by the fact that the property holding trustee entities did encumber their only valuable assets by granting mortgages to Naplend. Although it may be shortly stated, the weakness was significant. It is also a weakness in the security structure that is independent of the debt to equity swap issue (being the next issue).

833    Secondly, the way in which the security structure intersected with the arrangements by which the property holding trustee entities (other than the trustee of the Mayfair Island Trust) were financed meant that the units were valueless (or close to) until the debt to equity swap was effected in late March 2025.

834    Prior to the debt to equity swap being effected, these property holding trustee companies had intercompany liabilities in respect of the funds loaned to them to purchase the properties. Those intercompany liabilities were, at the very least, equal to the prices paid for the properties. The consequence is that the units in those unit trusts (over which there was security) had very little, if any, value. Mr Mawhinney accepted as much in oral closing submissions. It was not suggested that the other security held within the security structure was sufficient to make good this deficit.

835    Further, and as set out above (see paragraphs 95–129), I have found that the debt to equity swap was not effective until late March 2020; it was not, as Mr Mawhinney submitted, effective as at 20 December 2019. Nor, contrary to Mr Mawhinney’s submission, does the existence of any consensus among the decision-makers within the Mayfair Group that there would be a debt to equity swap give rise to a “commercial reality” that the swap had happened and the units had value due to the intended debt to equity swap, or supply a reasonable basis for making the Security Representation.

836    Nor would the capacity to effect the debt to equity swap mean that there were reasonable grounds for making the Security Representation prior to the time when the debt to equity swap was given effect. The robustness of the security structure, and the value of the security held within it, must be assessed as it was when the M Core Notes were being offered. Had any call needed to be made on the security structure, it would be cold comfort that a change could have been made that would mean the units in the trusts had value, if the change had not yet been effected. Likewise, the existence of a consensus among the Mayfair Group decision-makers to move to an equity funding structure would not provide any practical benefit to M Core Notes investors; the existence of a consensus would not change the fact that, until the debt to equity swap was actually effected, the units in the security structure would still be worthless if push came to shove and PAG had to realise the assets over which it held security.

837    I reject the suggestion that the consensus about a debt to equity swap and/or the capacity of those within the Mayfair Group to give effect to the debt to equity swap meant that there were reasonable grounds for making the Security Representation from 20 December 2019.

838    There was considerable argument concerning Mr Meredith’s views on the asset positions of the property holding entities in their 30 June 2020 balance sheets. Although, as I will come to, this particular dispute may not have much significance in the final analysis, I will address it given that it was a particular focus of Mr Mawhinney at trial. Mr Meredith was extensively cross-examined on aspects of his report, including his changes to the trustee entities’ 30 June 2020 balance sheets. To put this topic in context: the thrust of this aspect of Mr Meredith’s report, which proceeded by reference to the trustee of the MBPT No 3 (Mainland Property Holdings No 3) was that there had been “creative accounting”. The result of that “creative accounting” was that the balance sheet of Mainland Property Holdings No 3 as at 30 June 2020 showed net equity of $4.03 million, when it should have shown negative net equity of $56,173.

839    The balance sheet recorded, as a non-current asset, a loan to Eleuthera of $4.08 million, as well as a non-current liability of $5.2 million, being a loan made by Eleuthera to Mainland Property Holdings No 3. Mr Meredith considered that the intercompany receivable from Eleuthera ought to be reversed, which is what accounts for the difference between the stated positive net equity on the balance sheet, and Mr Meredith’s view that Mainland Property Holdings No 3 in fact had negative net equity. Mr Meredith said he would make the same kind of adjustments to the balance sheets of the other property holding trustee entities and they would also have negative net assets.

840    Why this matters is that the value of the units held by Sunseeker in the unit trusts would be negligible if the trust balance sheets showed low, or negative, net equity, with obvious implications for the value of the security held over those units.

841    The thrust of Mr Mawhinney’s cross-examination on this point was that the inclusion of the intercompany receivable on the balance sheet of Mainland Property Holdings No 3 was just an inelegant or unorthodox way (from an accounting perspective) of recording the debt to equity swap on the balance sheets at the trustee level. The proposition, which Mr Meredith resisted, was that the intercompany receivable from Eleuthera, and the intercompany liability to Eleuthera could be netted off ($5.2 million liability minus $4.08 million asset leaves a $1.12 million liability).

842    Although the proposition that the debt to equity swap should not properly be recorded on a unit trustee’s balance sheet in the form of a counter-balancing loan to Eleuthera, that does not mean that the net asset position (and consequently the total equity position) of the trustee entities was overstated as at 30 June 2020 (by which time the debt to equity swap had been effected) and that the trustees had negative net asset positions (and negative total equity) as at 30 June 2020.

843    From one point of view, this dispute does not matter greatly. ASIC pleaded the Security Representation to have been made between about 24 October 2019 and about 16 April 2020. Save to the extent that the 30 June 2020 balance sheets have a bearing on the value of the security over the units after the debt to equity swap was effected in late March 2020, the correct state of the balance sheets as at 30 June 2020 is not really relevant to the issues.

844    ASIC raised some additional issues in its closing submissions.

845    First, only five of the 14 unit trusts were subject to the late March 2025 documentation prepared as part of the debt to equity swap. Mr Mawhinney explained this on the basis that the other unit trusts did not hold settled property at that time. That contention was correct, save that, by late March 2020, the trustee of the MBPT No 5 had paid a deposit (on Lot 99 Jackey Jackey Street), although that property had not settled at that time. Accordingly, nothing arises from the fact that the debt to equity paperwork in late March 2020 did not cover all of the unit trusts.

846    Secondly, the value of the security was undermined by features that would limit PAG’s capacity to realise value from the units, including the fact that:

(a)    there was no market for the units themselves;

(b)    the unitholder (Sunseeker) did not have the right under the unit Deeds of Settlement to require the trustees to sell the real properties, so the only way to compel the trustee to sell the properties and distribute the proceeds would be by requiring the trustee to terminate the trust;

(c)    not all assets on the balance sheets of the unit trusts had clear realisable value (eg deposits paid on properties that had not yet settled, and capital suspense accounts); and

(d)    any enforcement process would involve significant enforcement costs.

847    These are all valid criticisms, as far as they go. Mr Meredith gave evidence, which I accept, that the utility of the charge over the units was limited by the fact that, if a receiver were appointed over the units, the units are not a type of asset or security that could readily be sold (particularly with the state of the trusts’ balance sheets) and so the receiver would have to await a realisation process at the trustee level and would only see any benefit if there was a surplus after the trustee entities’ liabilities were paid. Added to which, Mr Meredith noted that substantial deposits had been paid on unsettled real estate transactions, which value would likely be entirely lost if the settlements did not proceed.

10.3.4    Assets of the trustees (other than real estate)

848    The fourth category of security interests granted was in the property of the trustee entities, other than real estate. As those trustees’ only substantial assets were the real properties, this carve out of real estate meant that the value of the security over the property of the trustees (other than real estate) was very limited. Another issue is that the security interests were granted by the trustees well after the M Core Notes were already being marketed in late October 2019 (14 November 2019 for the trustee of the Mayfair Island Trust, 29 November 2019 for the trustees of the MBPT, MBPT No 2 and MBPT No 3, and dates in late April and early May 2020 for the trustees of the other Mission Beach unit trusts).

10.3.5    Single mortgage over real estate

849    The last element of the security structure comprised the single mortgage over real estate, which was granted to PAG over the Seaview property on 19 December 2019. The mortgage was registered on 3 January 2020. The granting of a mortgage over only one real property was an attempt to make good (albeit in the most limited and technical sense) the claim that had been made publicly that the pool of assets over which security had been granted included real estate. Mr King of KHQ Lawyers had advised by email on 26 November 2019 that there needed to be at least some security over real estate. That property was worth only about $340,000 on Mr Quinn’s valuation (or $400,000 if the purchase price is used). Clearly, it did not provide meaningful security and Mr Mawhinney did not suggest that it did. Email correspondence with another solicitor (apparently involved in conveyancing and related tasks) on 9 January 2020 referred to the mortgage signed by Mr Mawhinney on 19 December 2019, which he confirmed had been registered, though the solicitor went on to note that Naplend still had a first mortgage at that time. Naplend’s first mortgage was not removed until 13 January 2020.

10.3.6    Conclusions on whether the Security Representation was misleading or deceptive

850    The hypothetical representative member of the class to whom the marketing material in question was directed would fairly have understood the materials to convey the Security Representation. The hypothetical representative member of the class would have understood that, if they invested in M Core Notes, their investment was “protected” by first-ranking registered security. The representation that the M Core Notes were “protected” by first-ranking registered security conveys just what it says: that a security structure was in place that meant the M Core Notes would not carry a risk of being rendered valueless (or their value being diminished) because first-ranking registered security existed that, if called on, would be sufficient.

851    Contrary to the Security Representation, investors’ investments in the M Core Notes were not “protected” by first-ranking registered security where:

(1)    Prior to the implementation of the debt to equity swap (so until 25 March 2020), one of the most important, if not the most important, elements of the security structure was the security interest in the units held by Sunseeker in the unit trusts, but the units in the unit trusts had no material value. I am not satisfied that ASIC established the units had no economic value after the debt to equity swap, but the other reasons that follow apply equally even if the debt to equity swap occurred earlier than the time I have found it occurred (about 25 March 2020), and also apply after 25 March 2020 to the end of the period in which ASIC alleged the Security Representation was made (ie until about 16 April 2020).

(2)    The protection provided by the security in the units in the unit trusts was, at all times, exposed to the risk that the trustees would diminish the value of the units by taking on liabilities and/or encumbering their real estate assets by granting mortgages over the real estate to their creditors, or the creditors of other entities in the Mayfair Group.

(3)    Important elements of the security structure were not put in place at all until more than a month after the M Core Notes had been launched. I refer here to the fact that Sunseeker did not grant security over its units in the MBPT, MBPT No 2 and MBPT No 3 until 29 November 2019.

(4)    The utility of the security interest over the bank account of M101 Nominees was very limited where the practice of the Mayfair Group was to funnel all money into Eleuthera. The point is not that using a treasury entity was itself a problem in terms of the Security Representation, but that the security structure had a significant weakness insofar as it rested on security over a bank account that did not hold money for long.

(5)    The utility of the security interest over M101 Nominees’ other assets was limited where its principal asset was the intercompany receivable from Eleuthera and that loan was:

(a)    on 10-year terms;

(b)    unsecured (whether or not on 10-year terms); and

(c)    dependent on Eleuthera’s capacity to repay, which itself was questionable in light of Eleuthera’s own balance sheet.

(6)    The trustee entities had little in the way of assets, other than real estate, making the security interest over their non-real estate assets of no real utility.

(7)    The Seaview property over which a mortgage was granted in favour of PAG was only worth approximately $340,000.

852    Having regard to all of these matters, I find that the Security Representation was misleading or deceptive from the date the M Core Notes were launched (on 28 October 2019) until the end of the period covered by ASIC’s allegations (ie until about 16 April 2020).

853    ASIC also put the Security Representation on the further or alternative basis that it was a representation as to a future matter. My analysis above of the security structure and the value of the security held in that structure leads me to conclude that there were not reasonable grounds for making the Security Representation, and it was misleading or deceptive on that basis as well.

10.4    Did one or more of M101 Nominees and Australian Income Solutions contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB(1)(a) and (e) of the ASIC Act?

854    The answer to this question is yes. The Security Representation was made through the marketing material relied on by ASIC and was misleading or deceptive.

855    The conduct by which the Security Representation was made was conduct that was misleading or deceptive, and the representation was false or misleading. I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

856    Having regard to the matters set out at paragraphs 550–600 above, the Security Representation was made by Australian Income Solutions and M101 Nominees, and those entities contravened s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

11.    LIQUIDITY PRUDENCY POLICY CONTRAVENTIONS

857    ASIC put its case on two bases, the second basis being pleaded “[f]urther or alternatively”.

858    The first basis alleged that the issue of marketing materials in respect of the M Notes, while failing to disclose the existence of the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision, was conduct that was misleading or deceptive. This was a direct conduct case, which did not involve the making of any identified representation.

859    The second basis upon which ASIC put its case alleged that, by the issue of marketing materials, while failing to disclose the Liquidity Prudency Policy or Liquidity Prudency Policy Decision, it was represented that “no decision had been made to freeze redemptions” (the Redemptions Not Frozen Representation).

11.1    Was the omission of reference to the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision from the marketing material and investor updates post-11 March 2020 conduct that was misleading or deceptive?

11.1.1    ASIC’s allegations

860    ASIC alleged that, on or around 11 March 2020, the Liquidity Prudency Policy was drafted, and the Liquidity Prudency Policy Decision had been taken. ASIC contended that no mention was made of the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision in the marketing materials that continued to be issued.

861    Those marketing materials comprised:

(a)    the M Core Notes brochure;

(b)    the M+ Notes brochure;

(c)    the Mayfair Platinum website; and

(d)    EDMs issued on or about 16 March 2020, 17 March 2020 and 31 March 2020 (these are different EDMs from those ASIC relied on in relation to the M Notes representations already considered).

862    In relation to the two brochures, ASIC drew attention to the fact that those brochures stated that early redemption was available “subject to liquidity and other applicable terms”, and that investors’ returns were not tied to the issuer’s investment performance, but made no mention of the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision.

863    The Mayfair Platinum website also stated that early redemption was available “subject to liquidity and other applicable terms”, but changes were made to the website on or about 25 March 2020, and again on or about 2 April 2020.

864    The change made to the Mayfair Platinum website on or about 25 March 2020 (which appears to have been inserted, changed, and then re-instated on or about 27 March 2020: see above at paragraphs 147–149) was to include the following wording:

Depending on financial circumstances, and in the Group’s sole discretion, the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists.

865    ASIC contended that the continued marketing of the M Notes via the Mayfair Platinum website continued to be misleading or deceptive notwithstanding these changes.

866    Mr Mawhinney contended to the contrary. He denied there was any misleading or deceptive conduct and argued that, even if there was, the changes to the Mayfair Platinum website on or about 25 March 2020 were sufficient, so that there was no misleading or deceptive conduct after that date.

867    The EDMs on which ASIC relied were as follows:

(1)    An EDM issued on or about 16 March 2020 to existing investors. The text of this EDM is set out at paragraph 144(4) above. That EDM contained a link to an “Investor Update”, which referred to the impact of COVID-19 and the “[p]roactive measures” that the Mayfair Group was taking. That section included the statement that “[t]he Group has implemented capital prudency measures and various contingencies to minimise the impact of COVID-19, with a focus on frugality whilst continuing operations as normal” but otherwise was silent as to the existence and invocation of the Liquidity Prudency Policy.

(2)    An EDM issued on or about 17 March 2020 to the entire database of prospective investors. The text of this EDM is set out at paragraph 144(5) above. That EDM was silent as to the existence and invocation of the Liquidity Prudency Policy but continued to encourage investment in the M+ Notes.

(3)    An EDM issued on or about 31 March 2020. The text of this EDM is set out at paragraph 144(6) above. That EDM set out certain steps being taken to mitigate the effects of COVID-19, but did not refer to the existence and invocation of the Liquidity Prudency Policy.

868    ASIC contended that potential investors were reasonably entitled to expect that the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision would be disclosed in the marketing material in respect of the M Notes. ASIC contended that, by failing to disclose that the Liquidity Prudency Policy existed and/or that the Liquidity Prudency Policy Decision had been taken, the marketing material conveyed or tended to convey that no decision had been made to freeze redemptions, which rendered the marketing conduct referred to above misleading or deceptive. This aspect of ASIC’s case did not rely on the marketing material in question having conveyed any “representation” (the Redemptions Not Frozen Representation being advanced in the alternative).

869    I accept that the marketing material ASIC relied on was issued, as alleged, and did not disclose the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision.

11.1.2    Was the continued promotion of the M Notes while failing to disclose the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision conduct that was misleading or deceptive?

870    Once the Liquidity Prudency Policy Decision had been taken on 11 March 2020, efforts to attract more investments in the M Notes did not stop. On the contrary, Mr Mawhinney was exhorting staff to bring in further investments; it was from new investment monies that Mr Mawhinney anticipated the Liquidity Prudency Policy could be lifted, and redemptions could resume.

871    For persons contemplating investing in the M Core Notes or the M+ Notes — whether as their first investment with a Mayfair Group entity, or by way of a further investment — the fact that the Liquidity Prudency Policy existed, and that the Liquidity Prudency Policy Decision had been taken, was important information.

872    I accept that potential investors would, as ASIC alleged, expect that they would be informed if the entity offering the investment had, and had invoked, a policy allowing it to suspend redemptions for an indefinite period of time. That was vitally important information, even if the investor were to be told that the issuer anticipated that the liquidity concerns leading to suspension of redemptions would have passed by the time the prospective investor’s investment term expired.

873    The information that the Liquidity Prudency Policy existed was also vitally important information, quite apart from the fact that it had been invoked. Investors were entitled to expect to be informed that the entity issuing the investment they were considering could, in future, suspend redemptions so as not to repay the investor’s principal upon maturity. It should be noted here, though, that ASIC did not plead a case that the failure to reveal that redemptions could be suspended under the terms of the M Notes Deed Polls before 11 March 2020 was misleading or deceptive. Rather, its case was limited to the continued marketing of the M Notes after the Liquidity Prudency Policy was prepared, and the Liquidity Prudency Policy Decision had been taken.

874    The importance of the information that the Liquidity Prudency Policy existed and had been invoked is self-evident. It is also borne out by the evidence of the lay witnesses who invested in the M Core Notes after 11 March 2020 (the date of the Liquidity Prudency Policy Decision). The witnesses concerned (Mr AH, Mr JW and Mr RP) gave evidence that, had they known about the Liquidity Prudency Policy and its activation, they would not have invested in the M Core Notes as they did.

875    The continued marketing of the M Notes following 11 March 2020, and the issue of the EDM on 17 March 2020, while failing to disclose the existence of the Liquidity Prudency Policy and the Liquidity Prudency Policy Decision on and from 11 March 2020, constituted conduct that was misleading or deceptive.

876    I have not included the EDMs of 16 and 31 March 2020 as conduct that was misleading or deceptive. The 16 March 2020 EDM was issued to existing investors and did not encourage further investment in any Mayfair Group products. Rather, the EDM contained a link to an “Investor Update”, which encouraged investors to “keep calm and carry on”. I have also not included the EDM of 31 March 2020 as it did not encourage further investment, but purported to update recipients on steps the Mayfair Group was taking to mitigate the effects of COVID-19, and invited recipients to contact Australian Income Solutions if they had questions. By contrast, the EDM of 17 March 2020 actively encouraged new investments, without revealing the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision.

877    I reject Mr Mawhinney’s contention that a hypothetical representative member of the class would expect and understand an issuer taking some time before deciding to say anything publicly concerning suspending redemptions. There is no basis for seeking to impute to investors such a generosity of understanding, and lack of rational self-interest. I do not accept that, in light of an invitation to invest — however received — a potential investor would not assume, and reasonably assume, that the entity inviting their investment in a term-based investment product was operating as normal, and repaying the principal of investors who elected not to roll over their investments. That is true of wholesale clients and sophisticated investors too. No matter how sophisticated or experienced, investors would not be able to apply their expertise and experience to guess that a decision had been made to freeze redemptions. Only the Mayfair Group entities knew that, yet they failed to disclose that critical matter to potential investors (including existing investors who may be considering a further investment).

878    I also reject Mr Mawhinney’s contention that the text included on the Mayfair Platinum website between 25 March 2020, and the time when the revised text was inserted on 2 April 2020, means that any misleading or deceptive conduct ceased at that time. As set out above (see paragraph 864), the text added to the website on 25 March 2020 stated that “the Group has and may exercise its right to suspend some or all redemptions until such time as sufficient liquidity exists”. I do not consider that the hypothetical representative member of the class would read that and understand that the Liquidity Prudency Policy had been invoked and redemptions were suspended. At most, that wording would have conveyed that the Mayfair Group had something (exactly what was not specified) that gave it the right to suspend redemptions, and also that the Mayfair Group “may”, as in “might”, exercise that right.

879    For the same reasons, the changes to the wording of the brochures around 27 March 2020 did not disclose that which needed to be disclosed (even if those brochures were issued in their amended form, of which there is no evidence: see above paragraph 152).

880    The failure to disclose the Liquidity Prudency Policy and the Liquidity Prudency Policy Decision was manifestly misleading or deceptive.

881    However, I reject ASIC’s contention that the content of the Mayfair Platinum website from 2 April 2020 was deficient. While the text, which squarely disclosed the existence and activation of the Liquidity Prudency Policy, was at the bottom of the webpage, and its placement could not be described as “prominent”, it was not hidden or included only in small type. The hypothetical representative member of the class would have read the full webpage, and so would have read that text. The information was sufficiently clear and prominent, in my assessment, that the promotion of the M Notes following 2 April 2020 via the Mayfair Platinum website adequately informed prospective investors that the Mayfair Group had suspended redemptions for liquidity reasons.

882    For the avoidance of doubt, I note that the continued dissemination of the brochures after 2 April 2020 would still constitute misleading or deceptive conduct notwithstanding changes to the Mayfair Platinum website on that date. However, as noted above (see paragraph 152) there is no evidence regarding the brochures having been distributed in this period.

11.1.3    Who engaged in the impugned conduct?

883    ASIC alleged that Australian Income Solutions engaged in the conduct referred to at paragraphs 860–867 above on its own behalf and as agent for M101 Holdings in respect of the M+ Notes and as agent for M101 Nominees in respect of the M Core Notes. Consequently, ASIC alleged, the conduct in question is taken to also have been engaged in by M101 Nominees (in respect of the M Core Notes) and by M101 Holdings (in respect of the M+ Notes) pursuant to s 769B(1) of the Corporations Act.

884    For the reasons set out at paragraphs 557–561 and 566–571 above, the conduct constituted by the continued promotion of the M Notes on the Mayfair Platinum website and in the M Notes brochures was conduct engaged in by Australian Income Solutions as agent for the two issuing companies: M101 Nominees and M101 Holdings.

885    The EDM of 17 March 2020 referred to Mayfair Platinum and the financial products “offered” by Mayfair Platinum in the website disclaimer. That EDM was sent from an email address associated with Mayfair Platinum, being “invest@mayfairplatinum.com.au”. As set out above at paragraph 31, “Mayfair Platinum” was the trading name of Mayfair Wealth, which changed its name to Australian Income Solutions. It directly promoted investing in the M+ Notes. Accordingly, I find that this EDM was issued by Australian Income Solutions, including on behalf of M101 Holdings, within the bounds of its apparent authority, and so its issue is also the conduct of M101 Holdings pursuant to s 769B(1) of the Corporations Act.

886    If, contrary to my analysis above, the issue of the 16 and 31 March 2020 EDMs was part of the misleading or deceptive conduct, I would conclude that ASIC has not established that the 16 March 2020 EDM was issued by Australian Income Solutions, as it alleged. That is because the 16 March 2020 EDM referred to Online Investments trading as Mayfair 101 in the disclaimer and was signed off by Mr Mawhinney as “Founder & Managing Director” of “Mayfair 101”. The “Investor Update’ attached to this email was directed at all investors within the Mayfair Group and was signed off by Mr Mawhinney as Managing Director of the “Mayfair 101 Group”. It was also sent from an email address associated with Online Investments trading as Mayfair 101, being enquiries@mayfair101.com. This EDM did not purport to be issued by Australian Income Solutions.

887    The 31 March 2020 EDM displayed the Mayfair Platinum logo, and referred to Mayfair Platinum and the financial products “offered” by Mayfair Platinum in the website disclaimer. That EDM was sent from an email address associated with Mayfair Platinum, being “enquiries@mayfairplatinum.com.au”. Accordingly, I find that this EDM was issued by Australian Income Solutions. However, as it did not promote investment in any financial products, I do not consider that ASIC established it was issued on behalf of either M101 Holdings or M101 Nominees.

11.1.4    Did one or more of M101 Nominees, M101 Holdings and/or Australian Income Solutions contravene s 1041H of the Corporations Act and/or s 12DA of the ASIC Act?

888    The answer to this question is yes. All three entities contravened those provisions in respect of the Mayfair Platinum website. Australian Income Solutions and M101 Nominees contravened those provisions in respect of the M Core Notes brochure. Australian Income Solutions and M101 Holdings contravened those provisions in respect of the M+ Notes brochure and the 17 March 2020 EDM.

889    I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and s 12DA of the ASIC Act.

11.2    Misrepresentations: Redemptions Not Frozen Representation

11.2.1    Was the Redemptions Not Frozen Representation made?

890    ASIC pleaded the Redemptions Not Frozen Representation in the following terms:

M101 Nominees, Australian Income Solutions and M101 Holdings represented that no decision had been made to freeze redemptions (Redemptions Not Frozen Representation).

891    ASIC contended that the Redemptions Not Frozen Representation was made by the conduct constituted by the statements made in the following marketing materials, which failed to disclose the Liquidity Prudency Policy and/or the Liquidity Prudency Policy Decision:

(a)    the M Core Notes brochure;

(b)    the M+ Notes brochure;

(c)    the Mayfair Platinum website; and

(d)    EDMs issued on or around 16 March 2020, 17 March 2020 and 31 March 2020, referred to above at paragraph 867.

892    Being repaid upon the maturity of a term-based investment product (assuming no rollover) is a fundamental expectation of persons investing in such a product. While it may be accepted that COVID-19 created a level of disruption, in my view the hypothetical representative member of the class receiving or viewing the relevant marketing material and considering investing in the M Core Notes or the M+ Notes would still reasonably expect to be told, and was entitled to be told, if the issuing entity had invoked a policy of not repaying redemptions when they were otherwise due. The hypothetical representative member would not anticipate, without being informed, that redemptions had been suspended. Rather, the hypothetical representative member would, absent being told otherwise, understand that no decision to freeze redemptions had been taken.

893    Although not necessary in order to reach this conclusion, it is supported by the evidence of some of the investor witnesses (Mr RP, Mr AH and Mr JW) who made investments after 11 March 2020, unaware that the Liquidity Prudency Policy Decision had been taken.

894    Accordingly, the Redemptions Not Frozen Representation was made by:

(a)    the content of the M Core Notes brochure and the M+ Notes brochure (including in their amended forms, if issued: see paragraph 152 above);

(b)    the content of the Mayfair Platinum website until 2 April 2020, when the existence and invocation of the Liquidity Prudency Policy was fairly disclosed (see above at paragraphs 878 and 881); and

(c)    the EDM issued on 17 March 2020 (see paragraph 876 above regarding the EDMs of 16 and 31 March 2020).

11.2.2    Was the Redemptions Not Frozen Representation misleading or deceptive?

895    The answer to this question is yes. The Redemptions Not Frozen Representation was misleading or deceptive. It conveyed a state of affairs — namely that no decision had been taken to suspend redemptions — that was not true after the Liquidity Prudency Policy Decision was taken on 11 March 2020.

11.2.3    Did one or more of M101 Nominees, Australian Income Solutions and M101 Holdings contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB of the ASIC Act?

896    The answer to this question is yes. The Redemptions Not Frozen Representation was made, and was misleading or deceptive.

897    The conduct by which the Redemptions Not Frozen Representation was made was conduct that was misleading or deceptive, or likely to mislead or deceive, and the representation was false or misleading. I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

898    Having regard to the matters set out at paragraphs 883–887 above, the Redemptions Not Frozen Representation was made by:

(a)    Australian Income Solutions and M101 Nominees in respect of the M Core Notes brochure;

(b)    Australian Income Solutions and M101 Holdings in respect of the M+ Notes brochure;

(c)    Australian Income Solutions, M101 Nominees and M101 Holdings in respect of the Mayfair Platinum website; and

(d)    Australian Income Solutions and M101 Holdings in respect of the 17 March 2020 EDM.

Those entities contravened s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

12.    AUSTRALIAN PROPERTY BONDS CONTRAVENTIONS

899    The Australian Property Bonds were launched on 20 April 2020. While ASIC made much of the launch coming four days after a judge of this Court made orders in the Mayfair proceeding that restrained various Mayfair Group companies from using certain phrases in their advertising, marketing and promotional materials, and restrained them from advertising, promoting and marketing the M Notes, the product had been in development for some time. In other words, it was not developed in response to the Court’s orders of 16 April 2020. Nor was its launch precluded by the terms of those orders.

900    The Australian Property Bonds were promoted by Mayfair Wealth, which, as previously noted, changed its name to Australian Income Solutions on or about 14 June 2020. The entities that were anticipated to be the issuers of the Australian Property Bonds were the property holding trustee entities, principally Mainland Property Holdings, Mainland Property Holdings No 2 and Mainland Property Holdings No 3.

901    As with other Mayfair Group products, the offer was limited to “wholesale” investors. The minimum investment amount was $100,000 (though some of the marketing materials referred to the minimum investment amount being $250,000). The Australian Property Bonds were offered for fixed investment terms, with interest rates that varied depending on the term.

902    As matters transpired, by the time ASIC obtained ex parte interim orders in this proceeding on 13 August 2020, only two or three Australian Property Bonds were issued to investors, with a combined total investment of $250,000 or $350,000 if Mr RR (addressed below) is treated as an investor. As outlined above, the orders made on 13 August 2020 restrained Mr Mawhinney and his servants, agents, employees and any company of which he was an officer or member from, amongst other things, receiving or soliciting funds in connection with the Australian Property Bonds.

903    There is a dispute regarding whether Mr RR was issued with Australian Property Bonds or whether he was not an investor on the basis that his application had not been formally accepted, even though his cheque for $100,000 had been banked. Mr RR’s position is addressed separately in relation to ASIC’s allegations concerning him.

904    Although ultimately only two or three Australian Property Bonds were issued, it is not clear why that is the case given that, on 21 June 2020, Mr Mawhinney reported to PAG that there had been “over 700 enquiries totalling over $100m” for the Australian Property Bonds.

12.1    Was the Property Bonds Security Representation made?

905    ASIC pleaded the Property Bonds Security Representation in the following terms:

Between 22 April 2020 and 25 June 2020 … Australian Income Solutions represented to potential investors in the Australian Property Bonds that their investment would be secured by a first-ranking registered mortgage over real property (the Property Bonds Security Representation).

906    ASIC contended that the Property Bonds Security Representation was conveyed by Australian Income Solutions through:

(a)    a series of EDMs issued between 22 April and 19 June 2020 (22 April 2020, 6 May 2020, 28 May 2020, 1 June 2020 and 19 June 2020); and

(b)    the Australian Property Bonds brochure, which was issued to prospective investors, along with the Australian Property Bond Agreement, between early June and 25 June 2020.

907    Although at least two Australian Property Bonds were issued by Mainland Property Holdings, and it was anticipated that other trustee entities would also issue Australian Property Bonds, ASIC only pleaded that Australian Income Solutions made the Property Bonds Security Representation, and only pleaded contraventions by Australian Income Solutions. Accordingly, although ASIC pleaded that the conduct of Australian Income Solutions was to be attributed to the issuing entities, those pleas went nowhere in the pleaded case. That is despite ASIC also pleading (Statement of Claim [211]) that certain conduct of Australian Income Solutions is to be attributed also to the (anticipated and actual) issuing entities.

12.1.1    The EDMs

908    As addressed below, while ASIC’s Statement of Claim referred to an EDM issued on 20 April 2020, that EDM falls outside the date range over which ASIC pleaded that the Property Bonds Security Representation was made. Its content is, however, relevant as context and to Mr Mawhinney’s knowledge and involvement. The 20 April 2020 EDM was written in the first person and under the name and signature of Mr Mawhinney. Its subject was “Mayfair 101 Group Update”. This EDM disclosed that ASIC had commenced the Mayfair proceeding, and announced the launch of the Australian Property Bonds product. The Australian Property Bonds were described in the EDM as “a fixed income product with first-mortgage security over Mayfair 101 Group-owned properties, enabling investors to select their loan-to-valuation ratio (LVR) and investment period based on their risk/return appetite.” The EDM also specified that the properties over which security would be granted “have already been independently valued by a Tier-1 property valuer”.

909    The 22 April 2020 EDM invited recipients to invest in “Australia’s upcoming tourism mecca” through the Australian Property Bonds. The Australian Property Bonds were promoted as having “the support of first mortgage security on Mayfair 101 Group-owned & managed properties of your choice” (emphasis omitted). The EDM specified that the product was available to wholesale investors with a $250,000 minimum investment, and outlined the investment process as follows:

Inform us of your preferred investment amount and period, and our Mayfair Platinum Investor Relations Team will prepare a list of Mayfair 101 Group-owned properties in Mission Beach for you to choose from. You can choose your preferred loan-to-valuation ratio (LVR) - the higher the ratio (or the longer the term), the higher the interest rate.

You can choose from residential, commercial, land and rural properties to make up your portfolio of mortgaged properties, with fixed income returns being based on property type, LVR, investment amount and term.

910    Mr Mawhinney reported to his team in a WhatsApp message on 22 April 2020 that this EDM had gone out to 4,897 subscribers, and was going to be sent to a further 18,000 over the next few days.

911    The 6 May 2020 EDM had the subject “Investment Opportunity - Australian Property Bonds”. The EDM listed the “5 key reasons” why prospective investors should consider investing in the Australian Property Bonds, which relevantly included that investments were “supported by direct first registered mortgage(s) over Australian real estate” and that investors could “choose the specific properties” over which they would “receive a direct registered first mortgage”, with the available properties being residential, commercial and rural properties, as well as vacant land.

912    The 28 May 2020 EDM had the subject “Exclusive investment opportunity”. It advertised the Australian Property Bonds as an “exclusive fixed income, first mortgage secured product with regular distributions”. The EDM stated:

In the midst of the COVID-19 [sic] there are significant opportunities for investors seeking meaningful income, regular returns, peace of mind and the security of Australian real estate. Increased demand for credit via the non-bank finance sector is providing the ability for investors to fill the void left by the banks …

The EDM also stated that the Australian Property Bonds were “providing qualified investors with the ability to boost the income potential of their investment portfolio … by making loans directly to property-owning entities, supported by first mortgage security”. The EDM stated that the opportunity was only available to wholesale investors with a minimum investment of $100,000.

913    The 1 June 2020 EDM also had the subject “Exclusive investment opportunity” and contained the same statements that are quoted from the 28 May 2020 EDM above.

914    The 19 June 2020 EDM had the subject “Investment opportunity - 11 days left”. It contained the same statements that are quoted from the 28 May 2020 EDM above.

915    The EDMs promoted the Australian Property Bonds as an investment product that would be secured by the investor having a direct first-ranking mortgage over real property. Some of the EDMs also conveyed that the investor would be able to choose the type of property over which they would take a mortgage (residential, commercial, vacant land and rural properties), having regard to the LVR, investment term and amount selected by the investors.

916    The hypothetical representative member of the class receiving any of these EDMs would understand that the investor was being invited to invest in the Australian Property Bonds on the basis that their investment would be secured by a first-ranking registered mortgage over real property.

917    The EDMs clearly conveyed the Property Bonds Security Representation.

12.1.2    The Australian Property Bonds brochure and the Australian Property Bond Agreement

918    ASIC pleaded that, between early June and 25 June 2020, Australian Income Solutions provided individuals who expressed interest in the Australian Property Bonds copies of the Australian Property Bonds brochure and/or the Australian Property Bond Agreement. While that plea was initially denied by Mr Mawhinney, it was admitted in the course of closing submissions that prospective investors were provided with both of those documents.

919    ASIC relied on the following statements in the Australian Property Bonds brochure (emphasis altered):

Earn meaningful income with an investment that provides the peace of mind of regular distributions (or interest reinvestment), supported by registered first mortgage security.

…

Australian Property BondsTM helps qualified investors earn monthly income (or re-invest their interest) in a low interest rate environment, by investing in a secured, fixed rate product supported by Australian real estate.

…

Opportunities exist for investors to fill this demand from borrowers that are prepared to provide first mortgage security to finance acquisitions, refinance existing debt and obtain working capital to grow their businesses.

…

We provide investors with the opportunity to earn monthly income (or re-invest interest) by assisting with the financing and re-financing of Australian real estate and the provision of working capital to operating businesses.

920    The hypothetical representative member of the class would understand from the Australian Property Bonds brochure that the investor was being invited to invest in the Australian Property Bonds on the basis that their investment would be secured by a first-ranking registered mortgage over real property.

921    Accordingly, the statements regarding security in the Australian Property Bonds brochure conveyed the Property Bonds Security Representation.

922    The standard form Australian Property Bond Agreement referred, at numerous points, to the provision of a mortgage. While most of the references to the provision of a mortgage did not refer to that mortgage being first-ranking, item 9 of the “Key Investment Terms” stipulated that the mortgage would be first-ranking over property identified in item 10 of the Key Investment Terms.

923    The hypothetical representative member of the class reviewing the Australian Property Bond Agreement would understand that the investment would be secured by a first-ranking registered mortgage over real property.

924    Accordingly, the terms of the Australian Property Bond Agreement conveyed the Property Bonds Security Representation.

925    While the only Australian Property Bonds actually issued were issued by Mainland Property Holdings, the plan had been that the other property holding trustee entities (or at least some of them) would also be “Issuers” of the bonds. For example, in an email sent by Mr Mawhinney on 4 June 2020 to his team, exhorting them to raise $10 million in June 2020, he attached separate draft agreements in which Mainland Property Holdings, Mainland Property Holdings No 2 and Mainland Property Holdings No 3 respectively were listed as “Issuer”. The terms of the Australian Property Bond Agreement included provision for the “Issuer” to be identified. I infer that was to be completed once the property to be offered as security was confirmed, so that the title holding trustee entity (and thereby the “Issuer”) could be identified.

12.2    Was the Property Bonds Security Representation misleading or deceptive?

926    ASIC produced, as a schedule to its written closing submissions, a list of all the properties acquired by Mayfair Group entities in the Mission Beach area, including the Dunk Island titles. There are 138 parcels of land on the list, of which five were Dunk Island titles. The five Dunk Island titles were mortgaged to the vendor, Family Islands Group. By 20 April 2020 (being the date of the launch of the Australian Property Bonds), Naplend held first-ranking mortgages over all but two of the mainland properties. One of the two is the Seaview property, mortgaged to PAG. The other is Lot 110 Rise Crescent. The Dunk Island titles were mortgaged to the vendor and so not available to be mortgaged to investors in the Australian Property Bonds.

927    Obviously enough, unless an issuing company had an unmortgaged property that could be mortgaged in favour of an investor in the Australian Property Bonds, the promise to provide a first-ranking mortgage could only be made good if the Naplend mortgage could be discharged. However, under the terms of the Naplend Facility Agreement, as amended, there were restrictions on the making of repayments so as to obtain the discharge of mortgages.

928    I have set out above (see paragraphs 72–77) the amendments made to the Naplend Facility Agreement over time, including the chronology of the negotiations that culminated in the Third Amending Deed being executed on 6 May 2020. As set out in that more detailed factual narrative, between 22 April and 5 May 2020, the discharge of a mortgage held by Naplend could only be obtained as of right if a single prepayment of not less than $3.5 million was made to Naplend, along with accrued but unpaid interest and fees on the amount prepaid, and Naplend was satisfied that no default under the agreement was continuing. From 6 May 2020, pursuant to the Third Amending Deed, the conditions under which a discharge of mortgage could be obtained changed, so that the prepayment amount was amended to $100,000 plus the aggregate of the release amounts for the specific properties that were the subject of the prepayment and there was no continuing default.

929    An interest statement issued by Naplend dated 23 April 2020 recorded an outstanding balance of $13.55 million, and interest of $307,843 due and payable by 30 April 2020. The interest statement dated 31 May 2020 recorded default interest being levied, as well as showing outstanding interest from April 2020 of $107,843. The outstanding principal remained $13.55 million. Given the interest that was due at the end of April 2020 was not paid in full, and default interest was charged in May 2020, I infer that the Facility Agreement fell into default on 1 May 2020 (being the day after the interest for April 2020 was due). A later loan agreement with Naplend, entered into on 29 June 2020 (and signed by Mr Mawhinney) referred to the main Facility Agreement being in default from 1 May 2020.

930    The right to make voluntary prepayments under the Naplend Facility Agreement, and so procure the discharge of any mortgages, was at all relevant times conditioned on there being no subsisting default. At least from 1 May 2020, the Facility Agreement was in default. It follows that, from that date, there was no “as of right” capacity for properties to be released from the pool of properties over which Naplend held first-ranking mortgages, in order to “make good” the Property Bonds Security Representation.

931    As noted above, ASIC put the Property Bonds Security Representation on the basis that it was both a representation as to a present matter, and (further or in the alternative) a representation as to a future matter. In my view, the representation is best approached as a representation as to a future matter. That is because ASIC’s contention is that “potential investors” were told that their investment “would” be secured by a first-ranking mortgage over real property, ie if they invested, their investment would be secured in that way.

932    As set out above at paragraphs 78–80, I have found that, from 6 May 2020, there were reasonable grounds to think that Naplend would be prepared to release its mortgage over any specific property if it received a payment meeting its conditions for the release of the mortgage over that property. The limited evidence concerning the issued Australian Property Bonds supports the proposition that the amount required to discharge the mortgage over the particular properties in question was less than the amount to be received from the investor. As the property owning trustee companies in the Mayfair Group held several different kinds of property (residential, commercial, vacant blocks and rural properties) at varying price points, those entities (who would be the issuers of the Australian Property Bonds) had a stock of properties that, while mortgaged, could reasonably be expected to be capable of being freed of their mortgage to Naplend and mortgaged to the investor.

933    From the time when these reasonable grounds existed (6 May 2020), I do not consider that the Property Bonds Security Representation was misleading or deceptive. Although ASIC is correct to point out (as it did in its written closing submissions) that a number of steps would have to be taken in order to obtain a mortgage release from Naplend and grant a first-ranking mortgage to an investor, that alone does not render the Property Bonds Security Representation misleading from 6 May 2020. ASIC’s principal point was that the issuing companies’ ability to grant a first-ranking mortgage to an investor was contingent on Naplend agreeing to release its mortgage when it was not obliged to. That is correct but, for the reasons I have given, it was reasonable to be confident that Naplend would not insist on its right to refuse to release a mortgage by reason of the Facility Agreement being in default. As Mr Mawhinney submitted, Naplend was looking to reduce its exposure to its defaulting borrower, and having the outstanding balance paid down, even if bit by bit, was likely to be a prospect it would embrace. In this regard, it should also be noted that Naplend had security over property whose value far exceeded the outstanding balance of the facility.

934    However, that was not the position before 6 May 2020, for reasons explained at paragraph 81 above. Before that time, there was not even an in principle agreement for the ad hoc release of properties from Naplend’s mortgages and no agreement had been reached regarding the terms on which any particular mortgage might be released. Prior to 6 May 2020, the Property Bonds Security Representation was not made on reasonable grounds.

935    Accordingly, the Property Bonds Security Representation was misleading or deceptive prior to 6 May 2020.

936    I note, for completeness, that ASIC’s case on falsification rested on the fact that nearly all the properties were already mortgaged to Naplend and, even after 6 May 2020, Naplend would be entitled to refuse to release its mortgage over any particular property because the Facility Agreement was in default. Its case on falsification did not rest on Mr PK (one of the accepted investors in the Australian Property Bonds) in fact not receiving a first-ranking registered mortgage, or Mr RR (assuming he was an “investor” and not just a person applying for the issue of the Australian Property Bonds) not receiving a first-ranking mortgage.

12.3    Who conveyed the Property Bonds Security Representation (if it was conveyed)?

937    ASIC pleaded the 20 April 2020 EDM on the basis that it was sent by Mr Mawhinney (Statement of Claim [202]). The date range by which ASIC alleged the Property Bonds Security Representation was conveyed did not commence until 22 April 2020 (Statement of Claim [228]). Accordingly, and although ASIC’s submissions contended that this email was issued by Online Investments trading as Mayfair 101, the 20 April 2020 EDM is only relevant as context and in relation to Mr Mawhinney’s association with, or involvement in, the contraventions alleged in respect of Australian Income Solutions.

938    The EDM sent on 22 April 2020 was sent by “Mayfair Platinum”, from the email address “enquiries@mayfairplatinum.com.au”. The disclaimer to this EDM referred to Online Investments trading as Mayfair 101 and Mayfair Platinum, both said to be authorised representatives of Quattro. As already noted, Mayfair Platinum later changed its name to Australian Income Solutions. I accept that this email was issued by Australian Income Solutions.

939    It is not necessary to focus on the EDMs issued on and from 6 May 2020, as I have concluded that the Property Bonds Security Representation was not misleading or deceptive from that date. Similarly, as ASIC’s plea concerning the provision of the Australian Property Bonds brochure and Australian Property Bond Agreement to prospective investors only alleged that that occurred in June 2020, those documents were not issued at a point in time when the Property Bonds Security Representation was misleading or deceptive.

940    Nevertheless, if my conclusion regarding the Property Bonds Security Representation not being misleading or deceptive from 6 May 2020 should be incorrect, I note that the EDMs of 6 May 2020, 28 May 2020 and 1 June 2020 stated that they were published by Mayfair Wealth trading as Australian Property Bonds and/or Mayfair Platinum, which was the former name of Australian Income Solutions. The 19 June 2020 EDM also stated in the disclaimer that it was published by Australian Income Solutions trading as Australian Property Bonds. I find that these EDMs were published by Australian Income Solutions.

941    I also find that the Australian Property Bonds brochure and the Australian Property Bond Agreement were issued by Australian Income Solutions. That is because:

(1)    The Australian Property Bonds brochure contained a disclaimer that said “[t]his communication is published by Australian Property Bonds (a trading name of Australian Income Solutions Pty Ltd (t/a ‘Australian Property Bonds’)” and under authorisation of Quattro.

(2)    The Australian Property Bond Agreement (being a standard form agreement) said on the front cover “Australian Property Bonds (a trading name of Australian Income Solutions Pty Ltd)”, and referred separately to the entity that would be the “Issuer”. Australian Property Bonds (being the trading name of Australian Income Solutions) was said to be the “agent” of the “Issuer”.

942    As noted above (at paragraphs 905–907) ASIC did not plead that any entity other than Australian Income Solutions made the Property Bonds Security Representation and contravened the relevant provisions of the Corporations Act and the ASIC Act. Accordingly, it is not necessary to address ASIC’s pleaded contention that Australian Income Solutions’ conduct is to be attributed to the issuing entities.

12.4    Did Australian Income Solutions contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB(1)(a) and (e) of the ASIC Act?

943    As a preliminary matter, I note that although ASIC made submissions to the effect that the issuing entities as well as Australian Income Solutions contravened the relevant provisions, it did not plead that case. Accordingly, I confine this part of my reasons to addressing whether or not Australian Income Solutions contravened the relevant provisions.

944    In order for the contraventions alleged by ASIC to be made out, it is necessary to establish that the Australian Property Bonds were “financial product(s)”.

945    ASIC contended that the Australian Property Bonds were financial products on two bases:

(1)    The features of the Australian Property Bonds were such that investors would make a “financial investment” within the meaning of s 763B of the Corporations Act and s 12BAA(4) of the ASIC Act, and therefore the Australian Property Bonds were financial products within s 763A(1) of the Corporations Act and s 12BAA(1) of the ASIC Act.

(2)    The Australian Property Bonds constituted a “debenture” pursuant to the definition in s 9 of the Corporations Act, and so a security and a financial product within s 764A(1)(a) of the Corporations Act and s 12BAA(7)(a) of the ASIC Act.

On either basis, it would follow that the issuers dealt in a financial product and so provided a financial service within the meaning of s 766A of the Corporations Act and s 12BAB of the ASIC Act.

946    Although, in his Amended Defence, Mr Mawhinney did not admit that the Australian Property Bonds were financial products, he did not advance any submissions to the effect that the Australian Property Bonds were not financial products. In his written closing submissions, Mr Mawhinney drew attention to the fact that the Australian Property Bonds were marketed under an AFSL. In this respect, Mr Mawhinney’s approach to the Australian Property Bonds was the same as his approach to the M Notes; Mr Mawhinney did not contend that they were not financial products as they were marketed under an AFSL in any event. Although that concession was not made in terms that explicitly extended to the Australian Property Bonds, I understood Mr Mawhinney to be taking the same position in respect of the Australian Property Bonds as he had in respect of the M Notes, particularly in light of the fact that he did not advance any submissions to the effect that the Australian Property Bonds were not financial products (cf his extensive submissions refuting the financial product contention in relation to IPO Capital).

947    Nevertheless, in case I am wrong in my understanding of Mr Mawhinney’s position, I will briefly address the basis upon which I conclude that the Australian Property Bonds were a financial product.

948    In its written closing submissions, ASIC submitted that the Australian Property Bonds were debentures, as follows:

607.    ASIC contends that the Australian Property Bonds were debentures within the meaning of s 9 of the Corporations Act, and thus “securities” within the meaning of s 764A(1)(a) and thus a “financial product” within the meaning of s 764(1)(a) of the Corporations Act and s 12BAA(7)(a) of the ASIC Act (each of which include a security within the meaning of s 761A of the Corporations Act).

608.    This is because, pursuant to the Australian Property Bonds Agreement, the issuer was obligated to repay the invested amount back to the investor at the end of the term of the investment, which means that each bond constituted a chose in action that included an undertaking by the issuer to repay, as a debt, money deposited with it.

949    I have set out above, in connection with IPO Capital, the definition of debenture and the case law guiding the construction of that statutory definition.

950    I accept ASIC’s submission that the Australian Property Bonds were debentures, as defined in s 9 of the Corporations Act. The “Bond Terms” were set out in Part E of the Australian Property Bond Agreement. Clause 1.3 provided that “[t]he Investor must advance the initial Bond Amount by electronic funds transfer to the account described in Part D (Key Investment Terms) as the ‘Property Finance Agent Bank Account’ at the time of the Investor signing this Agreement” (emphasis in original). Repayment was addressed by cl 2, which included cl 2.1, as follows: “Subject to clauses 2.2, 2.3, 2.4 and 6 below, the Issuer must repay the Bond Amount in full on the date described in Part D (Key Investment Terms) as the ‘Repayment Date’” (emphasis in original). Clauses 2.2, 2.3 and 2.4 dealt, respectively, with prepayment, early repayment and rollover. Clause 6 addressed “Events of Default”.

951    Having regard to those key features, an Australian Property Bond constituted a chose in action including an undertaking by the relevant body (here, the “Issuer”) to repay as a debt money deposited with or lent to it. While the Australian Property Bonds were offered as secured investments, the definition of debenture accommodates both secured and unsecured choses in action.

952    It was not suggested that any of the carve outs in the definition of debenture in s 9 of the Corporations Act applied to the Australian Property Bonds.

953    While not strictly necessary to decide (given my acceptance that the Australian Property Bonds were debentures), I will address ASIC’s alternative contention that the Australian Property Bonds product was a “financial investment” within the meaning of s 763B of the Corporations Act and s 12BAA(4) of the ASIC Act. On that point, ASIC submitted as follows (citations omitted):

609.    … ASIC contends that investors’ investment of money in the Australian Property Bonds were “financial investments” within the meaning of s 763B of the Corporations Act and s 12BAA(4) of the ASIC Act, and therefore “financial products” within the meaning of s 763A(1)(a) of the Corporations Act and s 12BAA(1)(a) of the ASIC Act, because:

609.1.    Investors made a money contribution to Mainland Property Holdings (through its agent Property Bonds Holdings Pty Ltd) as issuer of the bond;

609.2.    Investors intended that money be used to generate a financial return for them. This should be inferred from the marketing material (described in Part H.2 above), which promoted the Australian Property Bonds on the basis that they would generate interest for investors. It is also consistent with the evidence of investors in this proceeding; and

609.3.    Investors had no day-to-day control over the use of the money they contributed to generate that return.

954    I accept that investors gave money or money’s worth to another person, and that investors had no day-to-day control over the use of the money they contributed. I do not accept, however, that investors intended that the money would be used “to generate a financial return, or other benefit, for the investor[s]” for the purposes of s 763B of the Corporations Act and s 12BAA(4) of the ASIC Act. The Bond Terms set out in the Australian Property Bond Agreement stated as follows concerning the use to which funds contributed by investors would be put (emphasis in original):

1.4     Purpose - The Issuer will utilise the proceeds of the Bond Loan:

(a)    investments - primarily, to fund investment opportunities of the group of companies of which the Issuer is a member (the Group); and

(b)     capital - secondarily, to provide working capital for the Group, including the payment of operating expenses and refinancing of investment capital; and

(c)     other - tertiarily, for such of the purposes as the Issuer may decide from time to time.

955    Under the Australian Property Bond Agreement, the investor was entitled to the interest payable pursuant to cl 3 of the Bond Terms irrespective of what the issuer did with the funds contributed by the investor. Further, cl 1.4, set out above, made it clear that the issuer would utilise the funds as it saw fit, including by using those funds to pay operating expenses. None of that comes close to supporting any conclusion that investors intended that the issuer would use the funds contributed to generate a return or benefit for the investor. The only investor evidence that ASIC pointed to was a single paragraph in the affidavit of an investor, Mr DK, in which he said:

I intended that Australian Property Bonds would use the money I had invested to generate a financial return on my investment, in accordance with the advertised interest rate for the Australian Property Bonds.

956    That sentence is difficult to follow as it refers to the use of the funds invested in the Australian Property Bonds to generate a financial return “on my investment” and to do so “in accordance with the advertised interest rate”. I do not consider that this single sentence supports a conclusion contrary to the one I have reached (viz, that investors did not intend for the issuer to use their contributions in the manner stated in s 763B(a)(ii) of the Corporations Act and s 12BAA(4)(a)(ii) of the ASIC Act).

957    The marketing material to which ASIC referred also does not support the conclusion for which it contended concerning investors’ intentions. The marketing material promoted the Australian Property Bonds as offering a fixed term, interest bearing investment secured over Australian real estate. Most of the marketing material referred to by ASIC in its submissions said nothing about how the invested funds would be used. The 20 April 2020 launch EDM included the statement: “Importantly, this product will enable us to continue developing our Mission Beach project.” The 22 April 2020 EDM included the statement: “We are providing qualified wholesale investors the ability to be part of Mayfair 101’s planned $1.6 billion investment in the region, by investing in Mayfair Australian Property Bonds”. The statement in the 20 April 2020 EDM only conveyed that the funds raised by the Australian Property Bonds would allow for the continued development of the Mission Beach project. It did not convey to investors that the funds they would invest would be used to generate a financial return for them. Similarly, although the 22 April 2020 EDM went further, I do not consider that the marketing pitch inviting investors to be “part of” the Mayfair Group’s development of the Mission Beach area supports a conclusion that investors would intend that the issuing entity would use the contribution to generate a return for them. No link was drawn between the development of the Mission Beach area and the return to be received by the investor. There was no link drawn in either of these EDMs between that development and the generation of funds to pay interest to investors, or return their principal, still less any indication that investors’ contributions would be invested by the issuing entity to generate a financial return for the investors.

958    I do not accept ASIC’s contention that the Australian Property Bonds were financial products on the basis that they were financial investments for the purposes of s 763B of the Corporations Act and s 12BAA(4) of the ASIC Act.

959    I otherwise refer to the analysis in paragraphs 619–626 above concerning the other elements of the statutory contraventions for which ASIC contended.

960    Australian Income Solutions contravened s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

13.    INVESTOR RR CONTRAVENTION

13.1    The Wongaling Beach Property Representation

961    ASIC pleaded the Wongaling Beach Property Representation in the following terms:

By engaging in the conduct alleged in paragraphs 245 to 254 above, Australian Income Solutions and/or Mainland Property Holdings represented that Investor RR’s $100,000.00 investment would be secured by a first-ranking registered mortgage over the Wongaling Beach Property (the Wongaling Beach Property Representation).

13.2    Was the Wongaling Beach Property Representation made?

962    In re-pleading its case after the Full Court remitted the matter, ASIC pleaded specific contraventions in relation to one investor, who I will refer to as “Mr RR”. The forensic utility of the contraventions pleaded in respect of this particular individual — in what was otherwise a case run at a more general level — is not clear. Nevertheless, the allegations were pleaded, and I will address them.

963    Mr RR swore an affidavit on 19 November 2020, which ASIC relied on at the initial trial. No investors were cross-examined at the initial trial. Mr RR died on 7 May 2023 at the age of 86. ASIC sought to rely on Mr RR’s affidavit at the continuation of the trial, following the remitter, pursuant to s 63(2) of the Evidence Act 1995 (Cth) (exception to the hearsay rule in relation to unavailable witnesses). Mr Mawhinney consented to this course, provided ASIC acknowledged, as it has, that Mr RR was ultimately repaid his $100,000. Given the parties’ positions, it is not necessary to address whether ASIC needed to, in effect, “re-read” Mr RR’s affidavit in the trial on the remitter.

964    Mr RR received marketing material and communications as follows:

(1)    On 15 June 2020, Mr RR received an EDM from “Australian Property Bonds”. The disclaimer said the EDM was published by Australian Income Solutions. The subject of the EDM was “Latest fixed income opportunities” and the EDM referred to investment opportunities being available, secured against Australian real estate by a first-ranking mortgage.

(2)    Mr RR responded the same day, and Mr Mawhinney forwarded Mr RR’s email to Mr O’Keefe for response. Mr O’Keefe emailed Mr RR on 16 June 2020. His email reiterated that one of the features of the offering was a registered first-ranking mortgage. Mr O’Keefe attached the Australian Property Bonds brochure and the Australian Property Bond Agreement. Mr O’Keefe’s email signature block said he was an “Investor Relations Manager” of Australian Property Bonds and the disclaimer stated that Australian Income Solutions was trading as Australian Property Bonds.

(3)    After another response from Mr RR, Mr O’Keefe replied by email at about 4.35pm on 16 June 2020. In that email, Mr O’Keefe said (emphasis altered):

Good afternoon [Mr RR],

I hope that this email finds you well.

I wanted to touch base with you as we have now got the final documents together and I have been able to select a suitable property for you as security.

I have been able to obtain you a fixed rate of 7.95% for the 2-year minimum term, with a fantastic property forming the security.

In order to proceed with this investment, we will need the following;

•    Completed application form (see below)

•    Certified copy of your (and any trustees) Photo ID.

•    Accountants Certificate – Attached (I can send an SMSF one if needed)

•    (if required) SMSF trust deed documents – certified copies of the front, schedule, and signature pages.

On the application form, you will need to complete the following sections;

•    Section C – page 7-14

•    Last page – page 34

I will look forward to working with you now and into the future. Please do not hesitate to contact me should you have any questions or comments.

Thank you kindly [Mr RR].

Mr O’Keefe’s email contained no suggestion that Mr RR’s application to invest might not be accepted. On the contrary, it identified the steps to be taken “[i]n order to proceed with this investment”, and Mr O’Keefe said he was looking forward to working with Mr RR. Mr O’Keefe’s signature block continued to describe him as Investor Relations Manager of Australian Property Bonds (although it did not also include the disclaimer attached to his previous email).

(4)    The form of the Australian Property Bond Agreement that had been sent to Mr RR by Mr O’Keefe at about 4.35pm on 16 June 2020 identified 23 Sanctuary Crescent, Wongaling Beach (the Wongaling Beach Property) as the property over which Mr RR was to take a first-ranking mortgage. That agreement said, on the front cover, “Australian Property Bonds (a trading name of Australian Income Solutions Pty Ltd)”. It also stated that the agreement was distributed by “Australian Property Bonds (a trading name of Australian Income Solutions Pty Ltd) … as agent for the Issuer”. It identified Mainland Property Holdings as the “Issuer”. The agreement further identified that Australian Property Bonds (being the name Australian Income Solutions was trading under) was an authorised representative of Quattro under its AFSL.

965    On 25 June 2020, Mr RR posted a completed application form for an investment in the Australian Property Bonds of $100,000 on a two-year term. He enclosed a cheque payable to Property Bond Holdings Pty Ltd in the amount of $100,000. Mr RR’s cheque was presented on 1 July 2020. (Under the Australian Property Bond Agreement, Property Bond Holdings Pty Ltd was appointed “to act as the Issuer’s agent in respect of receipt and payment of monies the subject of this Agreement”.)

966    On 26 June 2020, Mr O’Keefe emailed Mr RR. He said: “I have discussed with my Managing Director, your situation and he has advised that we are more than happy to keep the interest rate open to you although the cheque may clear later than the 30th of June.” I infer that the “Managing Director” referred to was Mr Mawhinney.

967    Mr RR never received a mortgage over the Wongaling Beach Property.

968    Mr Mawhinney contended that Mr RR was never accepted as an investor, thus the failure to provide a mortgage to him is explicable on that basis.

969    Despite not receiving a countersigned version of the Australian Property Bond Agreement sent to him, and not receiving a mortgage over the Wongaling Beach Property, Mr RR’s $100,000 was not returned to him until April 2022. That was not far off two years after his cheque was banked on 1 July 2020.

970    As ASIC’s pleaded representation is premised on Mr RR being an investor, which Mr Mawhinney disputes, it is first necessary to determine whether Mr RR was an investor. I find that he was.

971    The Australian Property Bond Agreement provided that, following receipt of signed documents and investor funds, Australian Property Bonds “will consider your application and determine whether or not to recommend that the Issuer should accept it, in full, in part or not at all” and anticipated that, if the “Issuer” decided to accept any of the amount, it would “promptly (and within 5 working days)” indicate the amount accepted, countersign and date the agreement, and forward the investor copies of the fully signed documents. It also stated that, if the “Issuer” decided to accept less than the full amount applied for “it will promptly (and within 5 working days) return to you any amount it has decided not to accept”.

972    Although Mr RR was not provided with a countersigned version of the Australian Property Bond Agreement, his cheque was banked, and his funds were retained for close to two years. The only available conclusion is that the right to decline to accept Mr RR’s investment application was waived, Mr RR did not insist on his right to receive a countersigned copy of the agreement and did not follow up on the provision of the promised mortgage.

973    I also note that, in his communications with Naplend, Mr Mawhinney referred to funds that were expected to come in, which included “a $100k cheque arriving today [29 June 2020]”. I infer that was a reference to Mr RR’s funds. Mr Mawhinney’s spruiking of the incoming funds to Naplend is inconsistent with the suggestion that Mr RR’s investment was not accepted, and that, consequently, Mr RR was not an investor. That inference is also supported by a further email from Mr Mawhinney to Naplend, also on 29 June 2020, in which he forwarded a chain of emails between prospective investors and Mr O’Keefe, which included an email from Mr RR saying he had posted a completed application form and a cheque for $100,000. Mr Mawhinney referred to the correspondence being forwarded as “[s]ome correspondence re upcoming inflows”.

974    The suggestion that Mr RR was not an investor, where his funds had been retained for that period of time and Mr Mawhinney was plainly proceeding, in his dealings with Naplend, on the basis that Mr RR’s incoming funds would be accepted, is concerning, particularly where no explanation was advanced for the retention of Mr RR’s funds for so long if he had not been accepted as an investor.

975    As to the question of whether the Wongaling Beach Property Representation was made, it clearly was.

976    The 15 June 2020 EDM, email correspondence with Mayfair Group personnel on 15 and 16 June 2020 (prior to the email at about 4.35pm on 16 June 2020) and brochure conveyed that, if Mr RR invested in the Australian Property Bonds, his investment would be secured by a first-ranking mortgage. However, the specific reference to the Wongaling Beach Property — which is an integral part of the pleaded representation — was only introduced by provision of a populated copy of the Australian Property Bond Agreement by Mr O’Keefe’s email at about 4.35pm on 16 June 2020, which specified that property as the property over which security would be taken. Accordingly, the Wongaling Beach Property Representation was made by Australian Income Solutions in proffering that agreement and the related email at about 4.35pm on 16 June 2020. It was not made by the 15 June 2020 EDM, the other email correspondence, or the Australian Property Bonds brochure, which made no reference to the Wongaling Beach Property. Those other documents, however, form part of the context in which the populated copy of the Australian Property Bond Agreement was provided to Mr RR, reinforcing the making of the Wongaling Beach Property Representation by the 4.35pm email providing the populated agreement referring specifically to the Wongaling Beach Property.

13.3    Was the Wongaling Beach Property Representation misleading or deceptive?

977    The Wongaling Beach Property Representation was made in unqualified terms. The representation conveyed that a first-ranking mortgage would — not might — be provided. Although, at the time that representation was made, Naplend held a first-ranking mortgage over the Wongaling Beach Property, the communications with Mr RR all took place after 6 May 2020. That is the date from which I have determined that there was a reasonable basis upon which to promote the Australian Property Bonds on the basis that first-ranking mortgage security over specific real estate would be provided (see above at paragraphs 72–81).

978    In my view, the Wongaling Beach Property Representation, which was a representation as to a future matter, was not misleading or deceptive when it was made. By the time the representation was made, there were reasonable grounds for making it.

979    Those reasonable grounds are not gainsaid by the fact that no registered first mortgage was in fact provided. I am therefore not satisfied that ASIC has made out its case on the basis of an absence of reasonable grounds, or that the representation was otherwise misleading at the time it was made. As I have concluded Mr RR was an investor, he could have pursued his contractual rights to be granted that mortgage. The apparent breach of contract involved in that mortgage not being provided does not mean that there were not reasonable grounds for stating, in the communications in June 2020, that the mortgage over the Wongaling Beach Property would be granted.

13.4    Who conveyed the Wongaling Beach Property Representation?

980    It is not strictly necessary to address this, as I have concluded the Wongaling Beach Property Representation was not misleading or deceptive. However, if I am wrong in that conclusion, I find as follows regarding who made the representation.

981    ASIC alleged that Australian Income Solutions made the Wongaling Beach Property Representation on its own behalf, and as agent for Mainland Property Holdings within the scope of Australian Income Solutions’ actual or apparent authority, such that the conduct in question is taken also to have been engaged in by Mainland Property Holdings pursuant to s 769B(1) of the Corporations Act.

982    The marketing material and communications received by Mr RR came from Australian Income Solutions: it made the Wongaling Beach Property Representation. The initial email exchange on 15 and 16 June 2020 did not specify the property in question, and so, in my view, was not made by Australian Income Solutions on behalf of Mainland Property Holdings. However, the second email Mr O’Keefe sent on 16 June 2020 attached the proposed Australian Property Bond Agreement, which identified the Wongaling Beach Property and listed Mainland Property Holdings as the issuer. I find that this email and its attachment were issued by Australian Income Solutions also on behalf of Mainland Property Holdings, within the scope of its actual or apparent authority.

983    Accordingly, I find that the Wongaling Beach Property Representation was made by both Australian Income Solutions and Mainland Property Holdings.

13.5    Did one or both of Australian Income Solutions and Mainland Property Holdings contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB of the ASIC Act?

984    The answer to this question is no, because the Wongaling Beach Property Representation was not misleading or deceptive.

985    However, if I am wrong in that conclusion then both Australian Income Solutions and Mainland Property Holdings would have contravened s 1041H of the Corporations Act and ss 12DA and 12DB of the ASIC Act on the basis that they made the Wongaling Beach Property Representation, that representation was misleading or deceptive, and the other features necessary to establish a contravention were satisfied in respect of this set of allegations, as they were for the contraventions in respect of the Property Bonds Security Representation. I refer to paragraphs 619–626 above in relation to the satisfaction of other technical requirements for contravention of s 1041H of the Corporations Act and ss 12DA and 12DB(1)(a) and (e) of the ASIC Act.

14.    THE ON-LENDING TO FAMILY CONTRAVENTIONS

986    ASIC alleged that three trusts associated with members of Mr Mawhinney’s family received funds “traceable to funds invested in the M Core Fixed Income Notes [ie the M Core Notes]”.

987    ASIC pleaded that the M Core Notes brochure stated that “[i]nvestment funds raised under [the M Core Notes] product are used for ongoing investment and capital management purposes across the Mayfair 101 group of companies”, and “did not refer to the fact that funds invested in M Core Fixed Income Notes could or would be transferred to entities associated with Mr Mawhinney’s family”.

988    ASIC then contended that the conduct in question was misleading or deceptive. This case was advanced as a direct conduct case (ie not on the basis that the conduct conveyed a representation).

989    However, ASIC also advanced a case that the conduct was misleading or deceptive on the basis that “M101 Nominees and Australian Income Solutions represented that funds invested in the M Core Fixed Income Notes would be used for ongoing investment and capital management purposes across the M101 Group of companies”. That representation was defined as the Core Notes Use Representation.

990    Mr Mawhinney admitted the following regarding entities associated with members of his family:

(1)    Ms Panetta was the spouse or de facto spouse of Mr Mawhinney. Ms Panetta was the specified beneficiary of the BLP Investment Trust. The trustee of that trust was Emerald 101 Pty Ltd (Emerald 101). Ms Panetta was the sole director and shareholder of Emerald 101.

(2)    Ms Panetta’s parents, Joseph James Panetta and Pamela Panetta, were the trustees of the Panetta Investment Trust, which was a unit trust. Mr Panetta was the unit holder of the Panetta Investment Trust.

(3)    Inga Joy Tamminga, Mr Mawhinney’s sister, was the spouse of David Sibe Tamminga. Mr and Ms Tamminga were the directors and shareholders of Tamminga Holdings Pty Ltd, which was the trustee of the Tamminga Family Trust.

991    ASIC alleged that, between 28 October 2019 and 8 May 2020, the three trusts received funds traceable to funds invested in the M Core Notes, as follows:

(a)    the BLP Investment Trust: $290,200;

(b)    the Panetta Investment Trust: $288,225; and

(c)    the Tamminga Family Trust: $20,250

(which I will refer to collectively as the family trusts).

14.1    Did the family trusts each receive amounts traceable to funds invested in the M Core Notes?

992    The key factual allegation advanced by ASIC was that the family trusts received amounts traceable to funds invested in the M Core Notes. Other documents in evidence show that Mr Mawhinney’s family were purchasing properties in the Mission Beach area.

993    ASIC conceded that there are some “gaps in the evidentiary record” concerning its allegation that funds contributed by investors in the M Core Notes ultimately found their way into loans made to entities associated with Mr Mawhinney’s family members.

994    There is some complexity in the record relied on by ASIC as going far enough to allow the Court to infer that the source of the relevant funds contributed to the family trusts was the funds invested in the M Core Notes.

995    As mentioned above, ASIC issued a notice under s 19(2) of the ASIC Act to PAG dated 23 March 2020. PAG’s response to that notice was dated 20 April 2020. The evidence records significant engagement between the Mayfair Group (including Mr Mawhinney) and PAG in the collating of information and crafting of PAG’s responses to ASIC. One of the items of information sought from PAG was a list of “the Secured Property”. PAG’s response stated that one of the specific assets was units held by Sunseeker in the Jarrah Lodge Unit Trust No 1.

996    A schedule to PAG’s response estimated the value of the security as $8,258,325, being the “net asset value” of the Jarrah Lodge Unit Trust No 1. That same schedule provided a breakdown of that sum, which included:

(a)    $290,200 in respect of an “[i]nterest-bearing Loan Agreement with BLP Investment Trust”;

(b)    $288,225 in respect of an “[i]nterest-bearing Loan Agreement with Panetta Investment Trust”; and

(c)    $20,250 in respect of an “[i]nterest-bearing Loan Agreement with Tamminga Family Trust”.

997    These are the amounts that ASIC alleged can be traced to funds invested in the M Core Notes.

998    In the course of some back-and-forth email correspondence with PAG, which included reference to matters concerning the Jarrah Lodge Unit Trusts (Nos 1 and 2), Mr van Wegen asked: “Where did the funding come from for these? Was it via the notes? If so, I’m not sure we have the loan documentation in place between Jarrah Lodge and the lender (probably Sunseeker).” Mr Mawhinney replied: “Yes, these would have been paid from Eleuthera Group via the notes, just the same as the other properties.” Mr Mawhinney submitted, and ASIC did not contest, that Mr van Wegen’s query was about two properties that were not the properties that were acquired by the family trusts; the five properties they acquired were different.

999    Be that as it may, ASIC submitted that Mr Mawhinney’s response to Mr van Wegen supported its case that the funds that did find their way to the family trusts were the “other properties” Mr Mawhinney was referring to in his response. There are two problems with this. First, Mr Mawhinney’s response said the properties “would have been paid from Eleuthera Group via the notes”. This does not specify whether the source was the M Core Notes or the M+ Notes or both. It was common ground that the funds contributed by investors acquiring either form of note were mostly sent over to Eleuthera, whose bank account constituted a mixed fund. The second problem is that the email chain is sufficiently opaque that I cannot infer that Mr Mawhinney was referring to the other properties acquired by the family trusts.

1000    ASIC relied on the Security Trustee report for the period to 20 March 2020, which reported on the security held by PAG in respect of the M Core Notes. The report listed various “Secured Assets”, one of which was an entry titled “[u]nits in trust which has loaned monies to Group companies and third parties”, in the amount of $8,258,325. The entry recorded “Jarrah Lodge UT1” as the unit trust in question. While it is clear that the sum referred to includes the amounts loaned to the family trusts, and while the report was in respect of security held by PAG in connection with the M Core Notes, that does not establish that the source of the funds that were loaned to the family trusts was funds invested in the M Core Notes. While the security provided to secure a specific liability can, and often does, derive from the funds advanced to which that liability relates, that is also often not the case. For example, a borrower can proffer assets as security that have nothing to do with the funds being borrowed. Accordingly, I do not consider that the Security Trustee report allows an inference to be drawn as to the source of the funds loaned to the family trusts.

1001    ASIC relied on various emails and WhatsApp messages showing that Mr Mawhinney encouraged his family members to invest in properties in the Mission Beach area, said he would help with some of the costs and also directed that expenses were to be recorded as loans from Online Investments.

1002    ASIC also relied on evidence showing that properties were acquired by the family trusts and that some payments were made towards those properties from Eleuthera’s bank account in the period before the M Core Notes were launched. In addition, ASIC relied on other records showing that, in the period after the launch of the M Core Notes, companies in the Mayfair Group made payments towards the family trusts’ properties. However, those companies did not include M101 Nominees, so ASIC was unable to show any amounts going directly from M101 Nominees’ bank account (into which M Core Notes investment funds were first contributed) towards the purchase of the properties by the family trusts (or funds loaned to them for any other purpose).

1003    In his analysis of the destinations of money transferred out of M101 Nominees’ bank account, Mr Meredith recorded that, although the lion’s share (89%) of the funds were transferred to Eleuthera’s bank accounts, 1.3% ($1 million) was transferred to the bank account of Online Investments as trustee for the Sunseeker Trust. Mr Meredith’s analysis of where funds went from Eleuthera’s business bank account recorded that substantial funds were also directed from that account to “Online Investments Pty Ltd t/as Mayfair 101” and “Online Investment Pty Ltd”. It should also be noted that, according to Mr Meredith’s analysis, not all the funds in M101 Nominees’ bank account came from investors in the M Core Notes. It also received significant funds from Eleuthera’s two bank accounts.

1004    The evidence included a balance sheet for Online Investments as at 31 March 2020. That balance sheet includes, as assets, amounts owed by a number of family trusts. I am satisfied, based on the evidence, that Online Investment loaned funds to the family trusts, and was itself loaned funds by way of intercompany loans (also reflected in its balance sheet). However, and as Mr Mawhinney pointed out, there is no intercompany loan owed by Online Investments to M101 Nominees. If the funds came ultimately from M Core Notes investor funds, they could only have arrived in the control of Online Investments through a longer chain of intercompany loans (eg from M101 Nominees to Eleuthera to Online Investments to the family trusts), but no such chain has been proved. In addition, not all funds in M101 Nominees’ bank account were funds provided by M Core Notes investors, as noted in Mr Meredith’s report.

1005    While ASIC submitted that the evidence went far enough to raise a case for Mr Mawhinney to answer — such that a Jones v Dunkel inference arises — and that it had established its case on the Briginshaw standard (referring to Briginshaw v Briginshaw (1938) 60 CLR 336), I am not persuaded that is the case. The evidence does not, in my view, allow an inference to be drawn that the source of the funds loaned to the family trusts is the funds invested in the M Core Notes. As ASIC recognised, the allegation that investor funds were funnelled, essentially at Mr Mawhinney’s direction, to support private acquisitions by his family members is a serious allegation.

1006    At most, an inference would be available as to the use of mixed funds, which included funds sourced in the investments in the M Core Notes, but that was not ASIC’s case. Its case was that the loan funds were traceable in whole to the funds invested in the M Core Notes specifically. ASIC has not made good that case. Nor can it be said that ASIC did as much as it could so that Mr Mawhinney should not benefit from the opacity of the Mayfair Group’s financial records. Notably, while ASIC instructed Mr Meredith to interrogate financial records to identify funds that may have gone to the benefit of Mr Mawhinney personally, it failed to instruct him to conduct a forensic exercise to identify where the funds loaned to the family trusts came from.

14.2    Conduct case

14.2.1    Was the omission of information relating to the transfer of funds to entities associated with Mr Mawhinney’s family in the M Core Notes brochure by Australian Income Solutions and M101 Nominees misleading or deceptive?

1007    As I have set out, ASIC has not made out its case that the amounts in question contributed to the family trusts are traceable to funds invested in the M Core Notes. However, should this conclusion be incorrect, I set out below the basis upon which I would conclude that the failure to disclose that funds invested might be used to make loans to the family trusts would constitute conduct that is misleading or deceptive.

1008    Investors reading the M Core Notes brochure would not understand that the money they invested might be used in that way. The use of investor funds to make loans to entities associated with Mr Mawhinney’s family members is a matter that investors would be entitled to expect to be told. It has an obvious bearing on whether investors would be willing to invest their funds with M101 Nominees.

1009    As set out above, the M Core Notes brochure stated that “[i]nvestment funds raised under [the M Core Notes] product are used for ongoing investment and capital management purposes across the Mayfair 101 group of companies”. The brochure also stated on its FAQs page, in answer to the question “How can you pay fixed interest rates higher than the banks?”:

The interest rates we offer our investors are facilitated by the Mayfair 101 group’s capital management strategy. The group carefully selects opportunities to invest in that provide strong yields, capital growth, and refinancing opportunities that enable us to support principle [sic] and interest repayments to our investors.

1010    Another question and answer on the FAQs page read (emphasis added):

What are the risks?

Investors should be mindful that, like all investments, there are risks associated with investing in [the M Core Notes] product. Risks to take into consideration include general investment, lending, liquidity, asset, interest rate, cyber, related party transactions and currency risks.

1011    The M Core Notes brochure continued to be published through the period in which the loans to the three family trusts were made until at least 27 March 2020 (noting that there is no evidence that the M Core Notes brochure was issued after this date — see paragraph 152 above).

1012    The brochure presented to potential investors in the M Core Notes that the funds raised by M101 Nominees would be used by it in investments being made by the Mayfair Group, which investments would be made by the careful selection of opportunities providing strong yields, etc. Potential investors were reasonably entitled to expect that if funds raised by M101 Nominees were going to be used for purposes other than those stated in the M Core Notes brochure, that would be disclosed.

1013    The total amount loaned to the family trusts —just under $600,000 — was not especially large in the context of the M Core Notes funds raised in the period covered by the report to the Security Trustee referred to above, which exceeded $59 million. Nevertheless, failure to mention that some funds were, or may be, loaned to trusts associated with family members of Mr Mawhinney would be a serious matter. The overall presentation to potential investors was of a credible and professional investment outfit with international reach. Loaning funds to the family trusts was entirely at odds with the “pitch” to investors.

1014    If ASIC had established that the funds loaned to the family trusts were traceable to the funds invested in the M Core Notes, the omission of the information that funds invested would, or may, also be used to make loans to Mr Mawhinney’s family members via their trusts, would be misleading or deceptive conduct.

1015    I do not accept that, as Mr Mawhinney submitted, the brochure’s reference to “related party transactions” in the FAQ on the risks associated with investing in the M Core Notes adequately disclosed the possibility that funds raised by M101 Nominees may be used to make loans to Mr Mawhinney’s family members via their trusts. In my view, that risk would be read and understood as referring to business dealings between companies in the Mayfair Group.

14.2.2    Did one or more of M101 Nominees and Australian Income Solutions contravene s 1041H of the Corporations Act and/or s 12DA of the ASIC Act by the omission (in the M Core Notes brochure) of information relating to the transfers to the family trusts?

1016    As stated at paragraph 568 above, the conduct of issuing the M Core Notes brochure was engaged in by Australian Income Solutions on its own behalf, and on behalf of M101 Nominees, within the bounds of its authority. Pursuant to s 769B(1) of the Corporations Act, Australian Income Solutions’ conduct was also engaged in by M101 Nominees. “Conduct”, for the purposes of s 769B(1), includes an omission: s 769B(10)(b). Accordingly, the conduct was engaged in by both entities.

1017    As explained, I do not consider that ASIC made out the fundamental premise of its case: namely that funds received from M Core Notes investors could be traced into the family trusts. It follows that, in my view, neither entity has contravened the provisions in question. However, if my conclusion on the factual issue is wrong, then the answer would be yes, in respect of both Australian Income Solutions and M101 Nominees, for the reasons set out above (but only until 27 March 2020, given the lack of evidence that the M Core Notes brochure was issued after this date). I otherwise refer to the analysis in paragraphs 619–626 above concerning the other elements of the statutory contraventions for which ASIC contended.

14.3    Representation case

14.3.1    Was the Core Notes Use Representation made?

1018    As outlined above, in addition to its case that the alleged on-lending to family constituted misleading or deceptive conduct, ASIC contended (further or alternatively) that:

M101 Nominees and Australian Income Solutions represented that funds invested in the M Core Fixed Income Notes would be used for ongoing investment and capital management purposes across the M101 Group of companies (Core Notes Use Representation).

1019    The conduct by which that representation was alleged to have been made was the statement in the M Core Notes brochure that “[i]nvestment funds raised under [the M Core Notes] product are used for ongoing investment and capital management purposes across the Mayfair 101 group of companies”.

1020    The Core Notes Use Representation was made expressly by the statement quoted above, which was made in the M Core Notes brochure.

14.3.2    Was the Core Notes Use Representation misleading or deceptive?

1021    The answer to this question is no, because ASIC did not make out its case on falsification on the basis that M Core Notes investor funds were used to make loans to Mr Mawhinney’s family members.

1022    However, if my conclusion on the factual issue is wrong, then the answer would be yes: the Core Notes Use Representation would be misleading or deceptive on the basis that investor funds were used to fund loans to Mr Mawhinney’s family members (via their trusts), which was not within the scope of either “ongoing investment” or “capital management purposes across the M101 group of companies”.

14.3.3    Did one or both of M101 Nominees and Australian Income Solutions contravene s 1041H of the Corporations Act, s 12DA of the ASIC Act and/or s 12DB of the ASIC Act by making the Core Notes Use Representation?

1023    The answer to this question is no, but if (contrary to my conclusion that ASIC has not made out the factual element of its case) my conclusion on the factual issue is incorrect, the answer would be yes, in respect of both entities, for the reasons set out above in relation to the direct conduct case.

15.    RELIEF

15.1    Preliminary matter: Mr Mawhinney’s request to make further submissions on relief after findings on contraventions

1024    It is necessary to explain why these reasons stop short of determining final relief.

1025    Before the trial on the remitter commenced, there were various interlocutory applications. One of those applications was an application by Mr Mawhinney to have a solicitor at ASIC (Ms Buckley) re-called on the remitter so that Mr Mawhinney could cross-examine her. The thesis that Mr Mawhinney indicated he would advance on the question of relief was that any investor losses were all the fault of ASIC for initiating litigation in April 2020 (in combination with the impact of the COVID-19 pandemic), and the fault of Mr Jahani, whose Court Report was central to orders later made by this Court, including orders appointing Mr Jahani liquidator of M101 Nominees and orders restraining Mr Mawhinney’s activities in the financial sector. Mr Mawhinney has long considered Mr Jahani’s Court Report a travesty and has advanced very serious criticisms of Mr Jahani.

1026    In advancing his submissions that Ms Buckley ought to be recalled, counsel for Mr Mawhinney said that her evidence “could affect penalty in very serious ways”. When I drew attention to a paragraph of Mr Mawhinney’s submissions in support of his objections to ASIC’s evidence that said matters going to relief would be addressed separately in a later hearing (and not at the upcoming trial on the remitter), counsel for Mr Mawhinney said he had envisaged a split trial, but that that matter had not been discussed with ASIC or the former docket judge. In response, counsel for ASIC said it had been proceeding on the basis that the trial would not be split. At that point, counsel for Mr Mawhinney obtained further instructions and said:

notwithstanding that we think there’s a proper basis to say that liability and relief should be dealt with separately, we’re content for them to be dealt with together. And that then does make at the consolidated hearing all those matters of relevance - even, I think, in accordance with what Mr Tran said - that questions of relief under 1101B, questions of fault liability, why this scheme failed, will be relevant.

1027    Nonetheless, towards the end of his oral closing submissions on the remitter, I had the following exchange with counsel for Mr Mawhinney:

[COUNSEL]: Your Honour, on the form of any order that your Honour might make, as I’ve already taken you to the proposition that the Full Court recognised that there must be a nexus between the contravention and the form of the order, it means, your Honour, we need to know what contraventions are found before we can make really any meaningful submission on the form of the order. Now, your Honour, we’re not seeking to split the hearing. We’ve accepted that it’s a hearing on liability and penalty and we won’t seek to introduce any further evidence on penalty, but we would seek to be heard when we know what, if any, contraventions your Honour has found about the form of the order.

HER HONOUR: Well, this has come out of the blue.

[COUNSEL]: Well, if it has, I’m sorry I didn’t raise it earlier, but your Honour, it’s not another full-on hearing, all we’re saying – the difficulty is, your Honour, there’s about nine contraventions alleged. Now, there’s any number of combinations of those contraventions that your Honour might find and, without knowing what those combinations are, without knowing what your Honour finds, and what those combinations are, it is difficult for us to say anything definitive about the form of the order.

1028    Although ASIC initially opposed Mr Mawhinney having the opportunity to do more than make submissions on the formulation of orders giving effect to my reasons (once published), following further discussion during closing submissions, ASIC did not oppose Mr Mawhinney having the opportunity to make submissions on the duration and nature of any restraint to be ordered against Mr Mawhinney once I have published reasons that determine, amongst other matters, what contraventions ASIC has established.

1029    Given Mr Mawhinney’s desire to make further submissions on relief in light of any contraventions found, and ASIC’s non-opposition to Mr Mawhinney having that opportunity, I acceded to that course. Accordingly, at this stage, I will make findings that go as far as determining Mr Mawhinney’s involvement in the contraventions, and his “association” with the contraventions, but will stop short of reaching conclusions on whether Mr Mawhinney should be restrained from further participation in the financial services and investments sector.

15.2    Principles: s 1101B of the Corporations Act

1030    Section 1101B(1)(a) of the Corporations Act confers a broad discretionary power on the Court to make “such order, or orders, as it thinks fit” on the application of ASIC where “it appears to the Court that a person” (inter alia): “has contravened a provision of this Chapter, or any other law relating to dealing in financial products or providing financial services” or “is about to do an act with respect to dealing in financial products or providing a financial service that, if done, would be such a contravention”. However, the provision further stipulates that “the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person”.

1031    The expression “it appears to the Court” is equivalent to the expression “the Court is satisfied” and requires that the Court be satisfied of the stipulated matter on the balance of probabilities: Mawhinney Full Court at [156(1)] (Jagot, O’Bryan and Cheeseman JJ).

1032    The purpose of s 1101B is to uphold public confidence in the providers of financial products and financial services: Australian Securities and Investments Commission v Caddick [2021] FCA 1443; (2021) 395 ALR 481 at [322] (Markovic J); Re Idylic Solutions Pty Ltd; Australian Securities and Investments Commission v Hobbs [2013] NSWSC 106; (2013) 93 ACSR 421 at [103] (Ward JA (as her Honour then was)). That purpose may be served, in appropriate cases, by restraining ongoing misconduct, and by preventing future misconduct where the risk of future misconduct is suggested by a history of past misconduct: Australian Securities and Investments Commission v NGS Crypto Pty Ltd (No 3) [2024] FCA 822 at [49] (Collier J).

1033    ASIC sought orders under s 1101B of the Corporations Act. If made, those orders would effectively preclude Mr Mawhinney from having any involvement (whether personally or through any servants, agents, employees or corporate vehicles) in the receipt or solicitation of funds in connection with any financial product, or in the advertising, promotion or marketing of any financial product. ASIC submitted that Mr Mawhinney should be so precluded for a period of 20 years.

1034    Section 1101B empowers the Court to make an order against a person other than the person who has contravened a provision of the relevant financial services law. In Mawhinney Full Court, the Full Court rejected an argument that the power conferred by s 1101B is conditioned on the person in respect of whom the order would operate being the person who has contravened the relevant financial services provision: at [162]–[164] (Jagot, O’Bryan and Cheeseman JJ), agreeing with the analysis of Brereton J in Re Vault Market Pty Ltd [2014] NSWSC 1641 (Re Vault) at [70]. Rather, the Full Court focused on the necessary nexus between the relevant contravention and the order, as follows (at [158], emphasis added):

The only express limitation is that the Court must be satisfied that the order would not unfairly prejudice any person. It may be accepted that there is an implicit limitation that the power to make an order under the section is confined by the scope and purpose of the power, which includes an implication that there is a sufficient nexus between the relevant contravention and the order made: cf, ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 258 per Lockhart J and at 267 per Gummow J and Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 202 per Merkel J.

1035    Although Mr Mawhinney takes the view that orders may not be made under s 1101B against a person who is not the contravener, he accepted that the Full Court determined otherwise in Mawhinney Full Court at [162]–[164] (Jagot, O’Bryan and Cheeseman JJ). Mr Mawhinney also accepted that I am bound by the Full Court’s determination of that issue and accordingly, must proceed on the basis that s 1101B permits orders to be made against a person who is not the primary contravener.

1036    ASIC seeks the s 1101B orders against Mr Mawhinney both on the basis that Mr Mawhinney was “involved” in the contraventions in the Yorke v Lucas sense and on the basis that he was “associated” with the contraventions. Mr Mawhinney submitted that it was necessary for the Court to find involvement in the Yorke v Lucas sense in order to make any orders against him.

1037    The fact that an order, if made, would occasion some prejudice (relevantly some disadvantage) to a person is only a barrier to the making of that order if the prejudice so occasioned would be “unfair”. Whether or not prejudice would be “unfair” will depend on consideration of the relevant facts and circumstances as a whole.

1038    Mr Mawhinney accepted that the Full Court in Mawhinney Full Court provided the following guidance on the exercise of power under s 1101B. The Full Court stated that:

(a)    the power does not depend on establishing that the person against whom the order is made was involved in the contravention within the meaning of s 79 of the Corporations Act, as interpreted in Yorke v Lucas: at [163]–[164], quoting and agreeing with Brereton J’s views in Re Vault at [70];

(b)     “the degree and nature of the relationship between the person and the contravention would no doubt be highly relevant to the exercise of the discretion to make such an order”: at [163]–[164], quoting and agreeing with Brereton J’s views in Re Vault at [70]; and

(c)     “the power to make an order under the section is confined by the scope and purpose of the power, which includes an implication that there is a sufficient nexus between the relevant contravention and the order made”: at [158].

1039    In the present case, the matters that will be relevant to the assessment of relief include: the extent of losses suffered by investors; how those losses came about (including whether the business model adopted by Mr Mawhinney was fatally flawed or was (as Mr Mawhinney asserts) sound, but scuppered by ASIC’s actions in bringing proceedings, Mr Jahani’s Court Report, and COVID-19); the circumstances in which the contraventions occurred (including the duration of the conduct constituting the contraventions and how the contraventions came about (including whether advice was taken)); and whether the circumstances are such as to reveal a risk of further contraventions occurring, if Mr Mawhinney is not restrained as ASIC says he should be.

15.3    The basis upon which ASIC seeks orders under s 1101B of the Corporations Act against Mr Mawhinney: whether Yorke v Lucas involvement must be established

1040    In light of the Full Court’s determination that the power to make orders against a person (other than the primary contravener) under s 1101B of the Corporations Act does not require that involvement in the Yorke v Lucas sense be established, it is not necessary to address in detail Mr Mawhinney’s submissions on why nothing less than Yorke v Lucas involvement should suffice before such an order is made. Those submissions track closely the submissions made to, and rejected by, the Full Court in Mawhinney Full Court.

1041    It suffices to note that I am bound by the Full Court’s decision on this issue and that, for what it is worth, in my view the Full Court (and Brereton J in Re Vault) were correct. As I will come to, there are significant constraints that attend finding involvement in the Yorke v Lucas sense, particularly in cases where the primary contraventions relate to implied representations or silence. By enacting s 1101B, Parliament empowered the Court to adopt a nuanced and qualitative approach, assessing the nature of the conduct of the person against whom orders are sought, so as to determine what orders (if any) are necessary in order to serve the protective purpose of s 1101B. I do not see why it should be assumed that Parliament would not have seen fit to empower the Court to make orders under s 1101B unless the involvement is of a kind that satisfies the strict requirements of Yorke v Lucas involvement.

1042    The line of cases that concerns the knowledge necessary to render an accessory liable to compensate for loss or damage suffered by the principal wrongdoer’s contravention recognises that the expression used in many such statutory formulations — that the person has aided, abetted, counselled or procured the contravention — is taken from the criminal law and should be construed accordingly, thus requiring that a mental element be established: intentional participation (Yorke v Lucas at 666–8 (Mason ACJ, Wilson, Deane and Dawson JJ)).

1043    By contrast, exercise of the s 1101B power does not have any similar automatic consequences; what orders will be made will be determined by the Court having regard to the circumstances of the case. Moreover, the statutory brake on the exercise of the power — the need for the Court to be satisfied that the order would not “unfairly prejudice any person” — also ensures that the orders made in exercise of the power respond to the circumstances at hand. Those circumstances include the role and knowledge of the person against whom the orders are to be made vis-à-vis the conduct giving rise to the contraventions that enliven the power.

1044    Mr Mawhinney’s argument — that the s 1101B power can only be exercised where, at a minimum, there is involvement in the Yorke v Lucas sense — urges a construction of s 1101B that springs from an a priori assumption about the circumstances in which Parliament intended the Court’s powers to be enlivened. The High Court has long rejected recourse to a priori assumptions in statutory construction: Certain Lloyd’s Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378 at [26] (French CJ and Hayne J); DZY (a pseudonym) v Trustees of the Christian Brothers [2025] HCA 16; (2025) 99 ALJR 806 at [23] (Gageler CJ, Gordon, Edelman and Gleeson JJ). Mr Mawhinney’s argument also runs counter to the principle that statutory provisions empowering courts are not to be construed narrowly: Owners of the Ship “Shin Kobe Maru” v Empire Shipping Co Inc (1994) 181 CLR 404 at 421 (the Court).

1045    In his written closing submissions, Mr Mawhinney also sought to confine ASIC to Yorke v Lucas involvement on another basis. Noting that ASIC’s Statement of Claim relied on the same facts and matters in support of the “associated” contention as it did in respect of the Yorke v Lucas contention, Mr Mawhinney submitted that the Yorke v Lucas test is the only test to be applied in assessing Mr Mawhinney’s involvement for the purposes of considering whether any orders should be made against him under s 1101B. This contention must be rejected. It plainly confuses the legal test to be applied with the facts and matters to be considered in applying the legal test. In other words, just because ASIC relied on the same facts and circumstances, it does not follow that ASIC is required to show involvement in the Yorke v Lucas sense in order for orders to be made against Mr Mawhinney under s 1101B.

1046    I proceed on the basis that it is not necessary for ASIC to establish involvement in the Yorke v Lucas sense in order for the Court to make orders against Mr Mawhinney under s 1101B.

1047    In my view, it would be preferable to consider whether orders should be made against Mr Mawhinney simply by examining the qualitative characteristics of his conduct and knowledge, as it relates to the conduct giving rise to the contraventions, rather than running each contravention through the Yorke v Lucas lens and only then considering what orders ought to be made against s 1101B.

1048    However, as both parties have indicated that they envisage yet further chapters in this litigation, I was urged also to make findings on whether Mr Mawhinney was involved in the contraventions in the Yorke v Lucas sense. Unfortunately, doing so gives rise to the need to address some complex issues regarding the knowledge necessary to find involvement in that sense, particularly in relation to implied representations and following the High Court’s decision in Productivity Partners.

15.4    Mr Mawhinney’s association with, and involvement in, the contravening conduct

1049    As noted above, ASIC seeks orders under s 1101B of the Corporations Act against Mr Mawhinney on the basis that his association with the contraventions has characteristics that warrant granting that relief. ASIC also seeks that relief on the basis that Mr Mawhinney was “involved”, in the Yorke v Lucas sense, in the contraventions.

1050    To give a few signposts: I first address what must be shown to establish involvement in the Yorke v Lucas sense. I then address some overarching features of Mr Mawhinney’s role in the Mayfair Group, and his intimate knowledge of all relevant facets of the business and its activities that are relevant in this case. I then address Mr Mawhinney’s role in relation to each of the alleged contraventions (more briefly where I have concluded that ASIC has not established the contravention), with each section providing findings (should they be relevant later) regarding Mr Mawhinney’s knowledge of the essential features of the contraventions for the purpose of the application of the Yorke v Lucas test for involvement.

15.4.1    Knowledge requirements for Yorke v Lucas “involvement”

1051    ASIC has contended that Mr Mawhinney was “involved” in the contraventions in the Yorke v Lucas sense. Yorke v Lucas concerned involvement on the bases specified in s 75B(a) and (c) of the Trade Practices Act, as it stood at the time. Section 75B(a) was in the same terms as s 79(a) of the Corporations Act: a person will have been “involved” if the person has “aided, abetted, counselled or procured” the contraventions. Section 75B(c) was in largely the same terms as s 79(c) of the Corporations Act. Section 75B(c) provided that a person will have been “involved” if the person “has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention”. Section 79(c) of the Corporations Act provides that a person will have been “involved” if the person “has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention”, the relevant difference being the inclusion of the words “by act or omission” in s 79(c).

1052    I have, accordingly, understood ASIC to be alleging that Mr Mawhinney was “involved” in the contraventions alleged on those two bases, and not on the basis that Mr Mawhinney induced the contraventions (s 79(b) of the Corporations Act) or conspired with others to effect the contraventions (s 79(d) of the Corporations Act).

1053    For convenience and brevity, I will refer to the first basis of involvement (s 79(a)) as “aiding and abetting” and the second basis (s 79(c)) as “knowing participation”.

1054    It has long been clear that, in order for a person to be liable as an accessory to a misleading or deceptive conduct contravention on the aiding and abetting, or the knowing participation, basis, the person must have knowledge of the “essential elements of the contravention”: Yorke v Lucas at 666–670 (Mason ACJ, Wilson, Deane and Dawson JJ). The plurality in Yorke v Lucas traced the wording of the aiding and abetting basis to the criminal law, which informed the rejection of the proposition that accessory liability for a contravention did not require establishment of knowledge where commission of the primary contravention does not involve any mental element.

1055    It has also been long clear that, in order to attract accessory liability, a person does not need to know that the conduct in question constitutes a contravention of any particular statutory norm or would be characterised in a particular way (eg that conduct would be “misleading or deceptive” and in contravention of, eg, s 18 of the ACL, or that conduct was “anti-competitive”): Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; (2003) 216 CLR 53 at [48] (Gummow, Hayne and Heydon JJ); Productivity Partners at [82] (Gageler CJ and Jagot J), [148] (Gordon J), [270] (Edelman J) and [339] (Beech-Jones J). It has also been relatively settled that, whatever must be known, actual knowledge is required — constructive knowledge will not suffice — although actual knowledge may be inferred from wilful blindness: Productivity Partners at [81] (Gageler CJ and Jagot J); Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [135] (Cooper, Kiefel and Emmett JJ); Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177; (2019) 377 ALR 234 at [320]–[321] (Lee J) (although overturned in the result on appeal, Lee J’s statement of the principles was endorsed by the Full Court of the Federal Court: Belconnen Lakeview Pty Ltd v Lloyd [2021] FCAFC 187; (2021) 156 ACSR 273 at [150]–[160] (Griffiths, Davies and Moshinsky JJ)).

1056    It is easy to say that knowledge of the “essential elements” of a contravention must be established to render a person liable as an accessory, but delineating what that really means has given rise to diverging views in the authorities over the four decades since Yorke v Lucas was decided. Difficulties have been more pronounced the further the facts of a case are from a straightforward express representation (recalling that Yorke v Lucas itself was a straightforward case, where the putative accessory in fact made the representation, albeit without knowledge that it was incorrect). The line between the legal characterisation of conduct (not required for accessory liability), and knowledge of the essential elements of the contravention (which is required), can be fine.

1057    Without descending into the details of the cases going in each direction, there was, broadly speaking, a narrower view and a wider view regarding what was required in terms of the knowledge of an accessory when it comes to the falsity of a representation. The wider view posited that knowledge of the facts that render a representation false was sufficient, and it was not necessary that the accessory appreciate that the representation was false. By contrast, the narrower view posited that the accessory must know the representation was false, or prone to lead those to whom it was directed into error. Each view had its proponents, although it is fair to say that the narrower view had the upper hand, even before the High Court’s recent decision in Productivity Partners.

1058    Productivity Partners concerned the removal of certain controls by a company offering online vocational education and training courses, which controls had been aimed at ensuring only “engaged” students were enrolled in online courses and remained engaged when “census” dates approached. The ACCC brought proceedings contending the company, Productivity Partners Pty Ltd trading as Captain Cook College (Captain Cook College), had engaged in a system of conduct or a pattern of behaviour that was unconscionable contrary to s 21 of the ACL. ASIC also brought the proceedings against another company, Site Group International Ltd (Site), and an individual (Mr Blake Wills, the COO of Site and, for a time, acting CEO of Captain Cook College), alleging that they were knowingly concerned in, or parties to, the college’s contravention. The primary judge found the allegations proven. Those findings were upheld by a majority of the Full Court of the Federal Court on appeal. The appeal to the High Court was dismissed.

1059    While the reasons published by the members of the High Court addressed accessory liability on a basis that is relevant to misleading or deceptive conduct cases, it should be noted that the case before the High Court was an unconscionable conduct case. Four sets of reasons going to the issues of concern regarding accessory liability were published:

(a)    reasons of Gageler CJ and Jagot J;

(b)    reasons of Gordon J, with whom Steward J agreed on issues concerning Mr Wills’ accessory liability (at [308]);

(c)    reasons of Edelman J; and

(d)    reasons of Beech-Jones J, with whom Gleeson J agreed on the accessory liability issues raised by ground 1 of Mr Wills’ appeal (at [311]).

1060    The grounds of appeal advanced by Mr Wills were as follows, as summarised by Gageler CJ and Jagot J (at [9]):

In the Wills appeal, there are also two principal grounds of appeal. The first is that the Full Court erred in finding that Mr Wills had the requisite knowledge to be knowingly concerned in the College’s contravention of s 21 of the ACL in the absence of any finding that Mr Wills knew that the College’s conduct involved taking advantage of consumers or was otherwise against conscience. The second is that the Full Court erred in finding that Mr Wills satisfied the participation element for accessorial liability by his conduct before he had knowledge of the essential matters making up the contravention (being from 20 November 2015 as found by the Full Court) and by his continued holding of positions of authority, but no identified positive acts, after he had the requisite knowledge. Mr Wills also added a third, derivative, ground of appeal that he could not be liable if the College itself had not contravened s 21 of the ACL.

1061    Explaining their reasoning by reference to the decision of the New South Wales Court of Appeal in Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88; (2023) 111 NSWLR 304 (Anchorage Capital), Gageler CJ and Jagot J said as follows (emphasis added, citations omitted):

[82]    The relevant distinction is not between facts and the law. Nor is it between objective facts and evaluative facts. It is between the essential matters constituting the contravention (be they facts, circumstances, or states of mind) and the character, quality, nature, or status of those matters for the purpose of the characterisation of the conduct the statute requires. For accessorial liability, knowledge of the former is required but knowledge of the latter is not.

[83]    This is why the Court of Appeal of the Supreme Court of New South Wales was right in Anchorage Capital to conclude that the alleged accessories had to know that the representation was false and the circumstances in which the representation was made. But in saying that “[w]here the contravention is the prohibition on engaging in misleading or deceptive conduct, one can be ‘knowingly concerned’ in it only if one knows that the conduct is misleading or deceptive”, their Honours are not to be misunderstood as saying that the person had to know that the conduct (the false representation) was capable of being, or would be characterised as, misleading or deceptive or as conduct proscribed by s 18 of the ACL. In context, it is apparent that their Honours meant only that the person had to know the representation was false (mere knowledge of facts from which a person might have deduced or inferred falsity being insufficient) and the circumstances in which the representation was made. Knowledge of the potential or actual character, quality, nature, or status of the conduct as misleading or deceptive for the purposes of the statutory prohibitions against such conduct was not required.

1062    The key point, in the circumstances of this case, is their Honours’ observation that there must be actual knowledge of falsity, and mere knowledge of facts from which falsity might be deduced or inferred will not suffice.

1063    Similarly, Gordon J (with whom Steward J agreed) said that “properly understood”, the falsity of a representation “is a question of fact, and is hence an essential matter that must be proven for the purposes of establishing principal liability and then the liability of an accessory”: at [153] (citations omitted).

1064    While Edelman J’s views may be said to diverge in some respects from the views of the judges just referred to, and while his Honour set out (at [258] and [266]) what might be regarded as statements about methodology, his Honour similarly endorsed Anchorage Capital and confirmed (at [269]) that knowledge of falsity is usually required (emphasis added, citations omitted):

Hence, accessory liability for misleading or deceptive conduct requires knowledge that the conduct would, or was likely to, lead others into error. As the New South Wales Court of Appeal held in Anchorage Capital Master Offshore Ltd v Sparkes, this generally requires knowledge of falsity.

1065    The final judgment to address is that of Beech-Jones J, with whom Gleeson J agreed on the accessory liability issues. His Honour’s reasons went further than those of the other judges in addressing the knowledge requirements for accessory liability, but also recognised that there can be some nuance involved in drawing the lines being laid out (eg as between knowledge of the essential matters and legal characterisation): at [354]. Justice Beech-Jones also gave more explicit acknowledgement than the other judges in Productivity Partners of the fact that cases like Yorke v Lucas are relatively straightforward, whereas fixing on exactly what is required to be known by an accessory in more complex cases “will depend on the nature of the conduct of the principal that contravenes the statutory provision”: at [357]. His Honour continued (citations omitted):

[358]    For example, in some contexts, the failure to disclose some relevant fact or matter may amount to misleading or deceptive conduct where the circumstances are such that there is a reasonable expectation that the fact or matter would be disclosed. Although it is neither possible nor necessary to exhaustively state in the abstract the requisite knowledge an accessory must possess to be liable for such misleading or deceptive conduct, in broad terms an accessory would have to be aware of the non-disclosure and that disclosure was required. Such knowledge is different to being aware that the principal’s conduct was misleading or deceptive within the meaning of the statute.

[359]    Similarly, where the conduct is directed towards a large class of persons or the public in general, a conclusion that the principal has engaged in conduct that is misleading or deceptive contrary to the statute will, at least in part, require an attribution of certain characteristics to the “ordinary” or “reasonable” members of that class of persons (or the public in general) to whom the conduct is directed to determine whether the conduct has a tendency to lead into error. The precise state of mind required to establish accessorial liability for such conduct will depend on how the case is framed but it may not necessarily require that an accessory have knowledge of, say, the characteristics of the “ordinary” or “reasonable” members of the class of persons (or the public in general) to whom the conduct is directed.

1066    Justice Beech-Jones (with whom Gleeson J agreed) also endorsed the view that mere knowledge of the facts that render a representation false is not sufficient; there must be knowledge of the falsity of the representation: at [360].

1067    So far, the cases I have referred to (and Productivity Partners in particular) focused on the knowledge required of that which made a representation misleading or deceptive, ie the “falsity” limb. Albeit attracting less attention in the cases, the question of the knowledge required of the making of a representation can also present difficulties.

1068    Where a case for misleading or deceptive conduct concerns an express representation, establishing accessory liability will require that it be proved the person knew the representation had been made (indeed, in some cases, Yorke v Lucas being a case in point, the putative accessory will be the very person who made the representation). But what of implied representations? Must the accessory know that the conduct in question conveyed the message that has been found to be liable to mislead, or will it be sufficient that the person knows the facts constituting the conduct which is said to convey the representation in question?

1069    On one view, it might be thought that, where a statutory provision prohibits conduct that is misleading or deceptive, the relevant “essential matter” would be the conduct that was engaged in. On that view, characterising the conduct as conveying an implied representation only uses the concept of an implied representation as an analytical device that explains (together with the falsifying facts) why it is that the conduct is characterised as misleading or deceptive. This line of analysis might draw some support from the fact that these statutory provisions operate on conduct, and so differ from statutory provisions that expressly operate on representations (eg, compare s 18 of the ACL (misleading or deceptive conduct) with s 29 of the ACL (false or misleading representations)). Whatever its conceptual merits, this is not the predominant view on the authorities, albeit there are not as many cases considering the issue as might be expected. That may be explained, at least to some extent, by the development of the case law concerning the conceptual place of the “representation” analysis in determining whether conduct is misleading or deceptive.

1070    Early case law on misleading or deceptive conduct suggested that conduct could only be characterised as misleading or deceptive if it conveyed a misrepresentation: eg Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202 (Deane and Fitzgerald JJ). The approach that suggested a misrepresentation was required fell out of favour, and it was recognised that conduct (including silence) could be misleading or deceptive, without needing to identify a “representation”: eg Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 at 555 (Lockhart J); Butcher v Lachlan Elder Realty Ptd Ltd [2004] HCA 60; (2004) 218 CLR 592 at [102]–[108] (McHugh J); and Google Inc at [92] (Hayne J).

1071    The relevant point, in terms of the analysis of the knowledge required for accessory liability, is that the concept of a “representation” has long been central to the consideration of whether conduct contravenes statutory provisions on misleading or deceptive conduct, even though it is accepted that it is not always necessary to identify a “representation” conveyed by conduct. Once one is in the realm of a case where it is alleged that certain conduct is misleading or deceptive because it advanced a particular representation, the case law does not support any suggestion that the knowledge required of an accessory will be less onerous where the representation is implied than it is when the representation is express.

1072    Even cases that appear to support the wider view with respect to knowledge of falsity support the contention that the accessory must know the representation was made (at least in substance, not necessarily in the exact terns pleaded), even if that representation is implied (cf express). For example, in Keller v LED Technologies Pty Ltd [2010] FCAFC 55; (2010) 185 FCR 449, Besanko J (with whom Jessup J agreed) said as follows (emphasis added):

336    In a case concerning representations, the essential elements of the contravention are the fact that the representation was made and that, in a case such as the present, it was misleading or deceptive, or likely to mislead or deceive (s 52) or was false (s 53(a) and (c)). To establish accessorial liability it must be established that the relevant person knew the representation was made and the facts which made it misleading or deceptive, or likely to mislead or deceive, or false. It need not be shown that the relevant person actually drew the conclusion that the representation was misleading or deceptive, or likely to mislead or deceive, or was false.

337    In many cases, knowledge that a statement has been made will be knowledge that the representation has been made. That will be the case because the representation is clear from the statement. An example is a statement about the weekly takings of a business. In other cases, the representation may not be clear from a consideration of the statement alone, and it will be necessary to examine all the circumstances and the understanding of those to whom the statement was directed. In what I think is likely to be a relatively small class of cases, proof that the relevant person knew a particular statement was made may not of itself show that he or she knew that the representation found by the Court had been made. It seems to me that, in relation to the ADR Approved caption, the primary judge found that this was such a case. She referred to Mr Keller’s subjective understanding of the representation conveyed as not being such as to suggest wilful blindness or actual knowledge of how a relevant purchaser might understand it.

Justice Besanko went on to consider whether the primary judge’s finding regarding the subjective knowledge of Mr Keller should be disturbed, concluding that it should not: at [338]–[339].

1073    Similarly, in Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; (2003) 135 FCR 1 (Medical Benefits) at [13], Moore J (with whom Mansfield J agreed) said that accessory liability requires that the accessory know what the public statements (in that case, advertisements) might convey to the audience (emphasis added):

In relation to the television advertisements, the conduct of MBF was (first) the publication of the advertisements in the context where (secondly) the content of the advertisements (being the visual images, the sound and the way they were formatted and sequenced) might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF where (thirdly), in fact, they would not be. In my opinion, these three matters constitute, as a minimum, “essential matters” for the purposes of applying the principle established in Yorke v Lucas. I have included the contents of the advertisements and what they might convey as a second essential element because it is the probable impact of their content which transforms what otherwise would be unexceptionable commercial conduct into unlawful conduct.

Medical Benefits went on to support the wider view on the knowledge required of falsity (and so cannot be regarded as good authority on that point following Productivity Partners).

1074    ASIC relied on the following passage in King v GIO Australia Holdings Ltd [2001] FCA 308; (2001) 184 ALR 98 (King) at [12] (Moore J) (emphasis added):

The following is arguably the position. Things that are said imply something because what is said does or may convey a meaning to people to whom it is said. A person can know that certain things have been said by another and also know the context in which it was said (including the audience to whom it was said). However, a person with that knowledge would ordinarily not know that what was said conveyed a particular meaning to the people to whom it was said. At best the person would know that it might convey that meaning. The gravamen of the complaint of the second respondent is that it is necessary for the applicant to plead that it knew the implied representations were made. That is, it knew what was said conveyed a particular meaning. As I have just endeavoured to explain, I doubt that the second respondent could ever have known that. But whether this view is correct or not is not critical and I am not expressing, as a concluded view, that all, as a matter of law, the applicant will need to demonstrate to establish the liability of the second respondent on the basis pleaded in para 65 is knowledge of the matters pleaded in para 64 [which alleged that the second respondent knew of the conduct said to give rise to the making of the implied representations but did not allege that the second respondent knew the implied representations were made: see [3] and [8]–[9]]. However, it is at least arguable that this is all that is necessary.

1075    As ASIC acknowledged, King concerned a strike out application on a pleading point, and Moore J did not express a concluded view. In my view, all that can be taken from King is confirmation of the commonsense position that an accessory need not be proven to have knowledge of an implied representation in the precise terms in which it was pleaded. Beyond that, I do not consider the decision authority for the proposition that an accessory need not know what the reasonable hypothetical member of the class would, or might, understand from the conduct. ASIC did not submit that was the position.

1076    ASIC submitted that it was necessary and sufficient to establish (in Mr Mawhinney’s case) that he knew who the audience was (ie the group to whom the marketing materials were directed) “and that ordinary and reasonable members of the audience might understand the marketing material to convey the alleged representations”. I did not understand ASIC to suggest that Mr Mawhinney must have had that knowledge in the sense of the precise terminology in which it pleaded the implied representations. Rather, Mr Mawhinney must have known that the ordinary and reasonable member of the audience may understand the position to be that which the implied representation substantively conveys. The only quibble I have with ASIC’s characterisation of what is required is that its formulation is perhaps a little generous in referring to what the ordinary and reasonable members of the audience “might” understand the marketing material to convey.

1077    In Self Care, the High Court said that the third step in the approach to addressing allegations of misleading or deceptive conduct is to determine “what meaning that conduct conveyed”, and that that step must be executed by considering “the effect or likely effect of the conduct on the ordinary and reasonable members of the relevant class of persons”: at [80], [83] (see above at paragraphs 505–507).

1078    Accordingly, in considering ASIC’s case on “involvement” in the Yorke v Lucas sense, I proceed on the basis that:

(1)    In relation to its implied representations, ASIC must establish that Mr Mawhinney knew the characteristics of the target audience (where relevant to what the hypothetical representative member of the class would make of the material said to convey the representation), knew that the marketing material that ASIC relied on was likely to cause the hypothetical representative member of the class to understand the substantive gist of the implied representation alleged, and knew that the gist of what was being conveyed was false or otherwise likely to lead the hypothetical recipient into error.

(2)    The position is the same in relation to express representations, save that ASIC must establish that Mr Mawhinney knew the representation was made.

(3)    Where ASIC relied on conduct directly, it must show that Mr Mawhinney knew of the conduct in question, knew the circumstances that meant that the conduct (whether silence or other conduct) would tend to lead the hypothetical representative member of the class into error, and that the hypothetical representative member of the class would likely be led into error.

1079    Mr Mawhinney did not give evidence. Accordingly, issues concerning his knowledge must be approached on the basis of the inferences that can be drawn from the evidence.

15.4.2    Overarching matters concerning Mr Mawhinney’s role in the activities and affairs of the Mayfair Group

1080    Mr Mawhinney was the directing mind of the Mayfair Group, and each of its relevant entities. While there were others who had important roles and feature in the evidence (principally Mr Divens, Mr Anasis, Mr O’Keefe and Ms Panetta), Mr Mawhinney was intimately involved in all of the conduct on which ASIC founds its allegations. He was closely involved in approving the marketing material, and drafted some of it himself (eg parts of the M Core launch advertisement, the EDM issued in November 2019 titled “[Name], it’s Arrived - Introducing M Core Fixed Income”, and the EDM issued in March 2020 titled “Earn 5.45% p.a. with M+ Fixed Income”). Mr Mawhinney controlled the flow of funds, including by operating the IPO Capital bank account and directing who could be paid, and when (eg directing and approving payments of supplier invoices and investor redemptions by way of WhatsApp correspondence with the Mayfair Group’s Finance Controller, Lydia Lee).

1081    Mr Mawhinney accepted that he had knowledge of the content of the marketing materials and their dissemination, including the brochures, emails and websites.

1082    Mr Mawhinney accepted that his case was not that he did not know or authorise what was being done — the details of the conduct giving rise to the contraventions — but that ASIC had not established his knowledge of critical integers necessary to establish involvement (using “involvement” in the non-technical sense), in particular that the implied representations were made and were false. As counsel for Mr Mawhinney said, he was the “managing director of these companies and … he knew what they were doing”, he was “hands-on”, and he “was very involved in these businesses, involved in a general, normal sense”.

1083    Mr Mawhinney’s written closing submissions also acknowledged that he was aware of the features of the security structure, the financing structure and the arrangements with Naplend, all being matters with which he was “intimately involved”.

1084    As set out above, I do not accept that, as Mr Mawhinney submitted, ASIC had to establish Mr Mawhinney’s involvement in the Yorke v Lucas sense before any order can be made under s 1101B of the Corporations Act. For the purposes of considering relief, the point is that Mr Mawhinney was closely involved in the conduct (including omissions) that gave rise to the contraventions found. He was not peripheral, or a stranger, to that conduct. Rather, it was conduct engaged in by, and in service of, the Mayfair Group empire that Mr Mawhinney was seeking to build. It was conduct that he variously engaged in personally, or was aware was occurring, and which he controlled as the hands-on head and economic owner of the Mayfair Group.

15.4.3    Association with IPO Capital’s contravention of s 911A of the Corporations Act

1085    Accessorial liability does not attach to a contravention of s 911A of the Corporations Act: Re Vault at [87] (Brereton J); Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 at [125] (Brereton J). On one view, that means that it would not be useful or productive to ask whether Mr Mawhinney was “involved”, in the Yorke v Lucas sense, in IPO Capital’s contravention of s 911A. However, Mr Mawhinney contended that, as a matter of the construction and application of s 1101B of the Corporations Act, no relief can be ordered against him unless he was “involved” in the Yorke v Lucas sense.

1086    Accordingly, I will consider that issue, while noting that: there is no statutory accessory liability provision attaching to a contravention of s 911A; and I have rejected the submission that nothing short of Yorke v Lucas involvement will permit orders to be made under s 1101B of the Corporations Act against a person who is not the principal contravener.

1087    As with other contraventions, I consider that the question of relief against Mr Mawhinney is best considered by reference to the characteristics of the contraventions, and Mr Mawhinney’s role and knowledge in relation to them. That involves many of the same considerations that arise when considering Yorke v Lucas involvement, but permits the question of whether the protective purpose of s 1101B warrants the imposition of restraints on Mr Mawhinney to be approached qualitatively, without the analysis being shaped (some might even say distorted) by the unnecessary application of the tests that have been developed and applied to statutory Yorke v Lucas “involvement”. As Brereton J recognised in Re Vault at [70], in a passage quoted and approved by the Full Court in Mawhinney Full Court at [163]–[164] (Jagot, O’Bryan and Cheeseman JJ), the degree and nature of the relationship between the person and the contravention and, I interpolate, the person’s knowledge of the contravention, is highly relevant to the exercise of the discretion to make an order under s 1101B. The relevant enquiry, for the purposes of relief under s 1101B, is whether and, if so, to what extent, Mr Mawhinney was associated with the contravention.

1088    Mr Mawhinney was at all relevant times the sole director of IPO Capital. He was also, via Online Investments, the owner of all shares in IPO Capital. Mr Mawhinney had, and was held out as having, a managerial role within the business, and was described in correspondence with ASIC and in investor-facing materials as being its Managing Director. In a call between Mr O’Keefe and an IPO Capital investor, Mr Mawhinney was described by Mr O’Keefe as “the highest person in the company”.

1089    Mr Mawhinney was the owner and head of the IPO Capital business. Unlike some owners, it is clear from the documents tendered by ASIC that he was very “hands-on” and had significant involvement in the day-to-day operations of IPO Capital. The evidence showed that Mr Mawhinney:

(1)    Corresponded directly with potential investors, drafted correspondence to be sent to IPO Capital investors, and had a high degree of oversight over marketing materials and other communications with investors. In one instance, Mr Mawhinney complained that he had not “see[n] … letters before they went out”, where those letters were sent to IPO Capital investors.

(2)    Made day-to-day decisions about withdrawal requests.

(3)    Controlled, and was the sole signatory to, IPO Capital’s bank account.

(4)    Released interest payments to investors and reviewed the amounts scheduled to be paid to investors.

(5)    Received invoices from Google in respect of advertising services and a contractor in respect of work done to the IPO Capital website.

1090    Mr Mawhinney had a high degree of knowledge of IPO Capital’s business activities and was involved in almost every facet of the business. Mr Mawhinney knew that IPO Capital did not hold an AFSL; he did not suggest that ASIC had failed to prove that matter.

1091    Mr Mawhinney contended that ASIC has not established that he was “involved”, in the Yorke v Lucas sense, in IPO Capital’s contravention because ASIC needs to, but has not, established that Mr Mawhinney knew that the products IPO Capital was issuing were debentures, interests in a managed investment scheme or financial investments (being the term used in relation to investments meeting the criteria in s 763B of the Corporations Act). On the contrary, Mr Mawhinney said he received advice that IPO Capital was not issuing interests in a managed investment scheme.

1092    The specific submission that was made (in Mr Mawhinney’s written closing submissions) was that:

before the ASIC investigation, Mr Mawhinney had sought and obtained legal advice at the time and was advised that “The borrowing of funds from investors doesn’t require licensing” and “Lending en masse does not constitute a managed investment scheme, however, if you borrow money en masse and promising [sic] a return via select opportunities you start knocking in this [sic] door.”

1093    The supporting footnotes referred to a letter authored by Mr Mawhinney and sent by IPO Capital to ASIC dated 20 September 2016. The contents of that letter, and the advice to which it referred (which was received in July 2016), have been set out above from paragraph 166. As set out above, the instructions and documentation provided to the accountant and lawyer were very light-on: Mr Pozzi was an accountant (not a lawyer), received only a bare-bones statement of facts in an email from Mr Mawhinney, and was not even given a copy of the Investment Agreement. While Mr Falkenstein was a lawyer and was, it appears, given a copy of the Investment Agreement, the instructions he was given were also scant.

1094    It is also clear from the matters referred to from paragraph 493 above that IPO Capital was actively advertising and raising funds before the end of financial year 2016, and well before this (limited) advice was sought.

1095    However, even if it was reasonable for Mr Mawhinney to rely on the limited advice received in July 2016 (which I do not accept), the landscape shifted in the months that followed, once ASIC engaged with IPO Capital from early September 2016. By early September 2016, Mr Mawhinney would have known that the regulator thought there were likely compliance issues and, by December 2016, it would have been clear to Mr Mawhinney that both ASIC and his own lawyers considered that IPO Capital’s activities required an AFSL.

1096    Nevertheless, Mr Mawhinney:

(a)    permitted IPO Capital to continue accepting “fresh” investment funds until at least 14 December 2016;

(b)    continued rolling over investors whose investments were maturing in IPO Capital, into May 2017;

(c)    was still promoting IPO Capital as an available investment option in mid-June 2017; continued to deal with investors within the existing IPO Capital structure until 2020, and so at least until December 2017 (see paragraphs 498–501 above), being the end date of the contraventions I found (given ASIC’s pleading); and

(d)    personally invited a prospective investor to invest with IPO Capital in mid-June 2017, also sending the investor a link to reviews of IPO Capital.

1097    The investors in IPO Capital were not, as Mr Christie of Astuto said they would be, transitioned to a compliant structure.

1098    In my view, Mr Mawhinney’s willingness to have IPO Capital continue in this manner suggests a cavalier attitude to compliance with the important statutory safeguard that requires businesses engaging in certain activities to operate under an AFSL. While the belated, and very limited, advice obtained in July 2016 provides something of a fig leaf in the period between mid-July 2016 and early December 2016, it does not go far in supporting the submission that Mr Mawhinney took a responsible attitude towards compliance, and sought to ensure his companies were fully compliant. I regard Mr Mawhinney as closely associated with, and culpable in relation to, IPO Capital’s contravention.

1099    In relation to Yorke v Lucas involvement, I find that Mr Mawhinney knew at all times that IPO Capital did not have an AFSL (and did not operate under any other entity’s AFSL) and knew, by 5 December 2016, that an AFSL was required, when Mr Christie of Astuto wrote to ASIC stating:

We believe that there are a number of issues that are raised in your [8 September 2016] letter that our client needs to address.

We would like to discuss with you how the product might be “regularised” in order to move forward.

1100    I do not consider that knowledge of the kind required for Yorke v Lucas involvement requires knowledge to the definitive level of having a court declaration that an AFSL was required. It is enough to establish that Mr Mawhinney knew both ASIC and his own lawyers considered an AFSL was required. I also find that Mr Mawhinney knew that IPO Capital continued to operate in the manner I have set out at paragraphs 498–501 and 1096 above and did so without operating under an AFSL. For completeness, I also reject the submission that ASIC would have to show Mr Mawhinney knew that IPO Capital was issuing debentures, interests in an unregistered managed investment scheme or financial investments under s 763B of the Corporations Act. Those labels involve characterising arrangements for the purposes of determining whether an AFSL is required. The relevant point is that he knew an AFSL was required, and that IPO Capital did not have one.

1101    I find that ASIC has established Mr Mawhinney was involved in the Yorke v Lucas sense in IPO Capital’s contraventions between 7 December 2016 and December 2017.

15.4.4    Association with contraventions relating to misleading or deceptive conduct: Mr Mawhinney’s knowledge of the characteristics of the target audience

1102    Mr Mawhinney was intimately involved in, and directed, the marketing strategy executed by companies in the Mayfair Group in relation to the M Notes and the Australian Property Bonds.

1103    At paragraphs 527–528 above, I concluded that the hypothetical representative member of the class had the following characteristics:

(1)    The person was looking to invest their own money or funds of their family. (This characteristic was conceded by Mr Mawhinney.)

(2)    The person had one or more of the following characteristics:

(a)    $500,000 or more to invest in the product;

(b)    a gross salary of $250,000 or more over the past two years; or

(c)    net assets of at least $2.5 million.

(3)    The person wanted a known return (by earning fixed interest) on their investment for a known period of time, with the capacity to decide to do something else with their funds at the end of the investment term.

(4)    The person would read the advertising material provided to them in full (given they were investing substantial funds) but would not second-guess statements made in the advertising material.

(5)    (For the M Core Notes and Australian Property Bonds): The person wanted to make a secured (and not unsecured) investment.

1104    I infer that Mr Mawhinney had actual knowledge that those reading and receiving the marketing materials had at least characteristics (1)–(3) and (5). I consider that Mr Mawhinney should have also known of characteristic (4), but do not infer he had actual knowledge of that characteristic. However, I do not consider that anything turns on this in the circumstances of this case.

15.4.5    Association with contraventions concerning the Bank Term Deposit Representation, Repayment Representation and No Risk of Default Representation

1105    The parties addressed their submissions on Mr Mawhinney’s role and knowledge in relation to the Bank Term Deposit Representation, the Repayment Representation and the No Risk of Default Representation together. ASIC included the Security Representation in its submissions on Mr Mawhinney’s association with contraventions relating to the M Notes, but Mr Mawhinney addressed the Security Representation separately.

1106    Although somewhat lengthy, I set out below ASIC’s overarching submissions on Mr Mawhinney’s involvement in the alleged contraventions concerning the Bank Term Deposit Representation, the Repayment Representation, the No Risk of Default Representation and the Security Representation. To the extent ASIC made distinct submissions on the Security Representation, I set them out separately below (emphasis in original, citations omitted):

424.    The Court should find that there is a sufficient nexus between each of the primary contraventions concerning the M Note Representations and Mr Mawhinney so as to justify the making of the orders sought against Mr Mawhinney under s 1101B(1) of the Corporations Act.

…

425.    ASIC draws attention to four main matters as demonstrating Mr Mawhinney’s association with the contraventions.

426.    First, Mr Mawhinney was the sole director of each of the companies responsible for making the M Note Representations. He was also the ultimate beneficial owner of each of those companies, in that he was the sole shareholder of Online Investments trading as Mayfair 101, which in turn was the sole shareholder of M101 Holdings and Mayfair Platinum, and of Sunseeker, which was the sole shareholder of Mayfair Group Pty Ltd, which in turn was the sole shareholder of M101 Nominees.

427.    Second, Mr Mawhinney was not a passive director or shareholder of these companies. On the contrary, the evidence shows that he was the controlling mind of the Mayfair 101 Group’s operations, across their full scope. The evidence shows that Mr Mawhinney engaged in the following conduct:

427.1.    developing or being involved in developing the products offered by the Group, including developing application processes, deciding on a product name, and setting interest rates for the products;

427.2.    providing instructions for preparing legal documents including the M+ Notes Deed Poll;

427.3.    arranging a bank account to be opened for the M+ Notes;

427.4.    receiving and making communications directly with investors and prospective investors, including in face-to-face meetings;

427.5.    monitoring the general “enquiries@mayfairplatinum.com.au” inbox;

427.6.    developing the proposed security structure for the M Core Notes, making arrangements in relation to the establishment of the Security Trust, and liaising with PAG once appointed about the security;

427.7.    negotiating with financiers, including Naplend, about lending to the Mayfair 101 Group including security arrangements;

427.8.    reviewing and approving communications with the media on behalf of the Mayfair 101 Group;

427.9.    acting as the public face of the Mayfair 101 Group including in media articles, seminars and promotional videos; and

427.10.    having extensive involvement in marketing, as set out below.

428.    Third, Mr Mawhinney was involved in developing, writing, reviewing and approving the marketing for Mayfair 101 Group and its products, including the M+ Notes and M Core Notes. This included:

428.1.    developing overall marketing and sales strategies and campaigns;

428.2.    determining the structure of the marketing team;

428.3.    liaising with digital marketing consultants about online advertising campaigns, including search terms for displaying sponsored links;

428.4.    drafting and providing detailed feedback about marketing materials including as to content, layout and images;

428.5.    reviewing media releases;

428.6.    providing talking points and scripts for radio advertising;

428.7.    training and providing advice to the sales team, including drafting or providing advice about scripts and other communications with prospective investors, and providing feedback on sales calls; and

428.8.    approving fees and the payment of invoices for marketing activities.

429.    The clear impression that emerges from this material is that Mr Mawhinney wanted, and exercised, close control over the way in which the Mayfair 101 Group and its products were portrayed to the public, including prospective investors. There is evidence of Mr Mawhinney complaining about marketing material being released without his approval. In light of these matters, it is implausible to suggest that any significant marketing material went out in relation to the M+ Notes and M Core Notes without Mr Mawhinney’s review, approval, or at least awareness. To the contrary, the Court should find that Mr Mawhinney was aware of the content of all the marketing material and that it was being provided to potential investors.

430.    There is also specific evidence that Mr Mawhinney was involved in drafting or reviewing many of the marketing materials relied on by ASIC in relation to the M+ Notes and M Core Notes as set out in Part F.2.2 [of ASIC’s written closing submissions]. This includes:

430.1.    approving the publication of the Mayfair Platinum website, subsequently providing amendments to and detailed feedback about its structure and content, and setting up new webpages on the website;

430.2.    proposing changes to the Term Deposit Guide website;

430.3.    providing detailed feedback on drafts of, and proposing wording for, the M+ Notes brochure, and subsequently receiving updated copies;

430.4.    reviewing and providing feedback on the M Core Notes brochure, subsequently receiving updated copies, and on-forwarding copies;

430.5.    coming up with the idea for the Mayfair 101 Group corporate brochure, editing a draft of it, and receiving a final copy;

430.6.    providing draft wording for the newspaper advertisement pleaded at [94] of the statement of claim;

430.7.    reviewing and suggesting changes to a draft of the EDM pleaded at [105] of the statement of claim, and receiving and on-forwarding a final version;

430.8.    reviewing the EDM pleaded at [106] of the statement of claim, and receiving a final version;

430.9.    providing amendments to the EDM pleaded at [107] of the statement of claim, and approving it being sent;

430.10.    preparing a draft of and reviewing the EDM pleaded at [108] of the statement of claim, and receiving a final version;

430.11.    reviewing and requesting changes to the EDM pleaded at [109] of the statement of claim;

430.12.    preparing, reviewing and suggesting changes to drafts of the auto-responder email from the Term Deposit Guide website pleaded at [110] of the statement of claim;

430.13.    being responsible for setting up the Google Adwords campaign.

431.    Further examples are set out in Schedule 6 to these submissions.

432.    Fourth, the evidence demonstrates that Mr Mawhinney knew, or was wilfully blind to the fact that, the M Note Representations were made and were false.

1107    This extract of ASIC’s closing submissions refers to Schedule 6 to those submissions. That schedule set out, by reference to each piece of marketing material referred to in the Statement of Claim (other than the Bing advertising), documents showing Mr Mawhinney’s awareness of the content of the document in question and, in many instances, his personal involvement in preparing and reviewing the content of the document.

1108    As set out further below, I accept that ASIC’s submissions, quoted above, and set out in Schedule 6 to its written closing submissions, accurately reflect the extent and nature of Mr Mawhinney’s involvement (in the general sense of the word) in the affairs of all relevant companies in the Mayfair Group, and their activities.

1109    ASIC’s submissions specifically regarding the Bank Term Deposit Representation, the Repayment Representation and the No Risk of Default Representation were as follows (emphasis in original, citations omitted):

433.    As for the Bank Term Deposit [Representation], the evidence includes that:

433.1.    in March and April 2018, ASIC informed Mr Mawhinney of concerns that advertising using phrases such as “Tired of term deposits?” and “non-bank alternative”, or which “contains a dominant message that the [product] is akin to a term deposit or a bank deposit, the [product] provides a fixed rate of return, … and/or the [product] has limited risk” were misleading or deceptive or false or misleading;

433.2.    by 27 May 2019, Mr Mawhinney had received advice that “We are no longer allowed to say ‘Term Deposit alternative’ in our ads or mention TD’s [sic] anywhere”. This corresponded with a decision by Vasco (the trustee of the IPO Wealth Fund, which was the main product then being promoted by the Mayfair 101 Group) not to allow any references to term deposits in marketing material for the IPO Wealth product. This led to a significant reduction in investments;

433.3.    as a consequence, Mr Mawhinney adjusted the Mayfair 101 Group’s marketing strategy to focus on “non-IPO Wealth marketing channels” including the “Mayfair Wealth Partners brand” and the Term Deposit Guide website;

433.4.    on 4 June 2019, Mr Mawhinney was communicating to a digital marketing consultant about updating the Term Deposit Guide website to include the language that ASIC and Vasco had expressed concerns about: “Ads can’t mention that we provide term deposits (because we don’t). We provide alternatives. So a heading like “Term Deposit Alternatives” or “Beat term deposit rates with alternatives” or “Best term deposit rates got you down?” …”;

433.5.    by 11 June 2019, Mr Mawhinney intended and was aware that the marketing of Mayfair 101 Group products, including through the Mayfair Platinum brand and Term Deposit Guide website, was targeting investors “with Term Deposit money to invest”;

433.6.    on 11 July 2019, Mr Mawhinney provided feedback to the Mayfair Group sales team that, in response to a question from a prospective investor about whether their products are like a normal term deposit, they could not say “Yes, it’s very similar” because the “‘very similar’ is potentially misleading”, but they could say: “Yes there are similarities but also some differences. A lot of our investors have made the switch to us because they weren’t happy with the rates they were getting at their bank”. He also acknowledged that the Mayfair Group had “a different risk profile to a bank” and they could not say or indicate “that we are as safe as, or even pretty much as safe as a bank”. In a message to his team, he described these as forms of “alternative wording we can use to get the same impact. It is confidence of delivery that is key”;

433.7.    on 30 August 2019, Mr Mawhinney received advice from Mayfair 101 Group’s lawyer cautioning against using “advertising ‘puffery’” in advertisements for its products, and: “You can’t say things which imply something, without facing great risk, unless you are absolutely certain the thing which is being implied is completely supported by the facts, which you can produce evidence of”, but “in the end the decision of how hard you want to go in taking a particular line is a question for Mayfair 101 to make, in the knowledge of these risks”; and

433.8.    on 29 October 2019, Mr Mawhinney was forwarded an email newsletter from the “Barefoot Investor”, recounting a story from [a] prospective IPO Wealth investor who thought the product was a term deposit, including in the context of marketing that IPO Wealth was an “alternative to term-based investments”. The marketing of M+ Notes and M Core Notes used very similar language.

434.    On this basis, it can be inferred that:

434.1.    Mr Mawhinney knew or was wilfully blind to the fact that the use of language in marketing material such as “Tired of term deposits?”, “non-bank alternative”, “alternative to term-based investments” or otherwise to the effect that the product was an alternative to a bank term deposit would convey to the ordinary, reasonable member of the relevant audience that the product was comparable to, and of similar risk profile to, a bank term deposit; and

434.2.    Mr Mawhinney knew that this representation was false or misleading or deceptive.

435.    As for the Repayment Representation and the No Risk of Default Representation, the evidence includes that:

435.1.    as set out in subparagraph 433.1 above, in March and April 2018, ASIC informed Mr Mawhinney of its concerns that it would be misleading or deceptive or false or misleading to engage in marketing that suggested the products being offered by the Mayfair Group (at that time, the IPO Wealth product) had “limited risk”;

435.2.    in March 2019, Mr Mawhinney emailed the Mayfair Group sales team with “Possibly the most important change to our script ever...”, which was to change the language of “investments” to “assets” to de-emphasise risk and emphasise security of the products; and

435.3.    the feedback Mr Mawhinney provided to the Mayfair Group sales team on 11 July 2019 included several examples of proposed language for de-emphasising risk without stating expressly that it was minimal or the same as a bank.

436.    The Court would infer from the language of the marketing material for the M+ Notes and M Core Notes, including as set out in paragraphs 297, 301 and 311 to 314 above, that the marketing material was designed to convey the overall impression that those products were safe and secure, and intended for investors seeking certainty and (in particular) a fixed outcome. Mr Mawhinney was closely involved in preparing and overseeing this material as set out in paragraphs 428 to 430 above.

437.    In these circumstances, it can be inferred that Mr Mawhinney knew or was wilfully blind to the fact that the marketing material conveyed the Repayment Representation and the No Risk of Default Representation to an ordinary, reasonable member of the relevant audience. It can also be inferred that Mr Mawhinney knew or was wilfully blind to the fact that those representations were false by reason of his knowledge of the right to suspend redemptions and its exercise. The evidence to this effect includes that:

437.1.    Mr Mawhinney gave instructions to lawyers in relation to the preparation of the M+ Notes Deed Poll and, by 23 June 2019, Mr Mawhinney had received and forwarded it to the Mayfair Group team. He also circulated the M Core Notes Deed Poll on 30 October 2019; and

437.2.    Mr Mawhinney made the decision to implement the Liquidity Prudency Policy in reliance on the power in cl 5.6 of the Deed Polls to suspend redemptions as set out in Part G.4 below.

1110    I have already recorded that Mr Mawhinney did not contest the proposition that he was closely involved in the operations of Mayfair Group companies, and was aware of the content of all the marketing material that was issued. Although Mr Mawhinney did not put in issue the nitty gritty of his involvement (in the non-technical sense), I have set out these portions of ASIC’s submissions at length because they expose the kind of granular involvement Mr Mawhinney had in all relevant facets of the conduct giving rise to the contraventions ASIC alleged.

1111    Putting to one side the findings that ASIC invites in the passages extracted above concerning Mr Mawhinney’s knowledge, I accept that ASIC’s submissions accurately capture the nature of the involvement of Mr Mawhinney and find accordingly (noting also that Mr Mawhinney did not submit that ASIC’s narrative of his actions was inaccurate).

1112    I also find that Mr Mawhinney was closely involved in, directed and controlled the conduct of the companies in the Mayfair Group giving rise to the contraventions that I have found arising from the making of:

(a)    the Repayment Representation, as conveyed by some of the material ASIC relied on (being the Mayfair Platinum website prior to 2 April 2020, the Term Deposit Guide website, the M Core Notes brochure, the M+ Notes brochure, the newspaper advertisements and the EDMs dated 11–16 September, 10 October and 4 November 2019); and

(b)    the No Risk of Default Representation, as conveyed by some of the marketing material ASIC relied on (being the Mayfair Platinum website from 18 December 2019 onwards, the M Core Notes brochure, the M Core launch advertisement and the EDM of 4 November 2019).

1113    Mr Mawhinney suggested that it was important to consider his role in light of his intention (so it was said) that redemptions would be suspended in extraordinary circumstances and his narrative that the failure to lift the Liquidity Prudency Policy as initially planned was the outcome of exceptional circumstances (COVID-19) combined with ASIC’s peremptory initiation of legal action. Be that as it may, the fact remains that Mr Mawhinney knew about the capacity to suspend redemptions, himself drafted and invoked the Liquidity Prudency Policy and personally decided (initially at least) not to tell prospective investors that redemptions had been suspended.

1114    In the course of oral closing submissions, counsel for Mr Mawhinney suggested investors would not have an expectation that they would be told of a decision to suspend redemptions because of the “potential for contagion, for a run on redemptions, and for everyone’s investments being wiped out”. I suggested to counsel that that “positions potential new investors as sacrificial lambs”. I maintain that view. Even if existing investors could be kept in the dark — itself a proposition I do not accept — failing to tell potential new investors, the very people who are receiving marketing material designed to encourage them to hand over their personal or family funds to Mayfair Group entities for investment, that redemptions had been suspended, is egregious conduct.

1115    Although I have concluded that the Bank Term Deposit Representation was not made, and the Repayment Representation and No Risk of Default Representation were not conveyed by some of the marketing material that ASIC relied on, if I am wrong in those conclusions, then my findings regarding Mr Mawhinney’s level of involvement, control and direction would be the same as set out in paragraph 1112 above. I do not consider that ASIC’s case is much assisted by the fact that Mr Mawhinney would have been alert to the risk of the marketing material conveying the Bank Term Deposit Representation given that ASIC had warned of the risk that representations similar to the Bank Term Deposit Representation were made by IPO Wealth. That is because ASIC did not seek to establish that the marketing materials regarding IPO Wealth were sufficiently similar to the marketing materials in question concerning the M Notes.

1116    The findings set out in paragraph 1112 above (and my contingent findings in paragraph 1115 above) are to be read with paragraphs 1176 and 1178–1179 below, where I address the extent to which the legal advice obtained in respect of the marketing materials qualifies Mr Mawhinney’s responsibility for the contraventions.

1117    As to Yorke v Lucas involvement, I find as follows.

1118    Bank Term Deposit Representation: I have found that this representation was not conveyed. If I am wrong in that conclusion, I find that ASIC has not established that Mr Mawhinney had actual knowledge that the Bank Term Deposit Representation was made. Mr Mawhinney’s comment, in a WhatsApp message, that the marketing was “ambiguous” does not establish actual knowledge (or knowledge inferred from wilful blindness) that the marketing material was conveying to the target audience that the M Notes were comparable to, and of a similar risk profile to, bank term deposits.

1119    Mr Mawhinney raised that he had taken steps to ensure that his sales team did not make statements that would suggest the M Notes were similar to “normal” (bank) term deposits. The document relied on is an email from Mr Mawhinney to his team on 11 July 2019 (pre-dating the issue of the M Core Notes) in which he coaches his team not to make statements suggesting that the M+ Notes are similar to bank term deposits. While this communication has some relevance in suggesting that Mr Mawhinney did not outright seek to capitalise on a marketing approach that relied on misleading investors, its significance needs to be understood in light of the fact that ASIC’s case concerned written marketing material (not call scripts or call guidance for the sales team).

1120    Repayment Representation: I find that Mr Mawhinney did know that the Repayment Representation was made. I reach that finding as to actual knowledge by inference on the basis that Mr Mawhinney must have known that the relevant marketing materials were conveying to potential investors in the M Notes that their principal would be repaid in full on maturity. That was part of the essential pitch being made to investors.

1121    I also infer that Mr Mawhinney had actual knowledge that the Deed Polls for the M Notes included clauses that permitted the issuer to extend the time for repayment for an indefinite period (which, if invoked, might result in investors not being repaid in full on maturity), that he in fact knew that preparing and invoking the Liquidity Prudency Policy had the result that investors might not be repaid in full on maturity, and that the Repayment Representation would have led the hypothetical representative member of the class into error.

1122    Mr Mawhinney was across all facets of the business and did not, by his submissions, deny that he knew the contents of the Deed Polls, or that he well knew the effect of invoking the Liquidity Prudency Policy was that investors may not be repaid in full, on time.

1123    If it be necessary to find that Mr Mawhinney was aware that potential investors would reasonably expect to be told about a decision to suspend redemptions, I would find he did know that anything impinging on the repayment of investors’ capital at maturity would be of vital interest to those considering making an investment and also of importance to existing investors.

1124    The submission made by Mr Mawhinney — that investors did not have a reasonable expectation of being told because to tell them would likely trigger a run on redemptions — only reinforces the point. Similarly, Mr Mawhinney’s statement, in a WhatsApp message to his team on 30 March 2020 (in response to a request from Mr O’Keefe that he circulate an email to investors explaining the hold on redemptions), that “[w]e aren’t ever going to send out a mass email to the database saying redemptions are on hold. This will cause more problems than good” shows his awareness of how investors (actual and potential, who were also on the database) would respond to the news. Mr Mawhinney’s message also offered helpful tips to enable the sales team to remain focused on bringing in investors, rather than spending too much time responding to “redemption-related clients” chasing repayment of their investments.

1125    While my findings regarding Mr Mawhinney’s knowledge do not depend on Jones v Dunkel inferences, I draw those inferences more comfortably given Mr Mawhinney has not given evidence to dispute that he had knowledge of these matters.

1126    No Risk of Default Representation: whereas the substance of the Repayment Representation is simple, the substance of the pleaded No Risk of Default Representation is more elaborate. ASIC pleaded that representation as an implied representation that the M Core Notes or M+ Notes, as the case may be, were “specifically designed for investors seeking certainty and confidence in their investments and carried no practical risk of default”. Although I do not consider that it is necessary to establish that an accessory had knowledge that an implied representation was being conveyed in terms matching the pleaded terms of a representation, I do not consider that ASIC has established that Mr Mawhinney had actual knowledge that the marketing materials were conveying that the products had been designed for a particular class of investors and carried no practical risk of default.

15.4.6    Association with contraventions concerning the Security Representation

1127    I have already set out above, and accepted, ASIC’s general submissions on Mr Mawhinney’s involvement (in the non-technical sense) in the contraventions relating to representations including the Security Representation.

1128    ASIC’s submissions regarding Mr Mawhinney’s role in the making of the Security Representation, and his knowledge, were as follows (emphasis in original, citations omitted):

438.    Finally, as for the Security Representation, that representation was made expressly in a range of marketing material (as set out in paragraph 335, 336, and 337), with which Mr Mawhinney was involved. It can be inferred from those matters that Mr Mawhinney knew or was wilfully blind to the representation being conveyed. As for its falsity, the evidence includes:

438.1.    Mr Mawhinney engaged with the directors of PAG (before and after the engagement of PAG as security trustee) in a detailed way about security arrangements for the M Core Notes. Mr Mawhinney’s communications with the directors include: “As discussed we would like to see if we can batch the properties by pledging the units of the unit trusts as security to keep admin down. We can discuss this when we start implementing the security.” This indicates Mr Mawhinney was an architect, or at least aware, of the structure that the security would not be held over the properties directly;

438.2.    as set out in subparagraph 427.7 above, Mr Mawhinney was responsible for the negotiations with Naplend that resulted in it taking first-ranking registered mortgage security over most of the real property held in the Unit Trusts. On 17 November 2019, early in the negotiations, Mr Mawhinney expressly proposed Naplend’s security over that property would be first-ranking, after Naplend said they wanted this as a term. This is what occurred, to Mr Mawhinney’s knowledge. That was a reversal of what he had communicated to another financier three days earlier, which was that they would need to accept a first-registered mortgage from PAG. Mr Mawhinney must have appreciated the significance of this change. The documents and information Mr Mawhinney sent to Naplend in his communications with them also demonstrate his detailed knowledge of the property settlements that were occurring, the Mayfair 101 Group’s financial position and its marketing plans;

438.3.    the day after the email referred to above (18 November 2019), Mr Mawhinney proposed a response to a question from a prospective M Core Notes investor about the M Core Notes security structure, which included (emphasis added): “In the event of a default PAG can be called on to either access the M101 Nominees bank account to return cash to investors and/or sell the other assets, including Australian property, that PAG has been granted a first registered mortgage or security interest over. PAG is provided with monthly reports to ensure there is at least dollar-for-dollar backing”;

438.4.    between December 2019 and April 2020, Mr van Wegen, one of the directors of PAG, repeatedly raised concerns with (or copied to) Mr Mawhinney about the security held in the Security Trust, including its structure and that it was not adequate “dollar-for-dollar” security:

438.4.1.    on 11 December 2019, Mr van Wegen wrote to Mr Mawhinney: “The security we have in place is over the units of each of these trusts – meaning, we have security over the net assets of these trusts, not the value of the assets themselves. Therefore, the booking of monies into these trust for settlements becomes important. How is it intended that monies used in the trusts will be booked? If each trust will have a loan to either M101 Nominees or another Group entity, then the net asset value of the units is negligible. This would therefore not be $ for $ security. We’re mindful that, although originally contemplated, we don’t have first ranking security over real property directly. In its absence, we need to ensure that alternative security is just as valuable and reliably secured. … Based on the report and the information we have access to currently, putting our Security Trustee hat on, we don’t feel fully comfortable as yet.”;

438.4.2.    on 26 March 2020, Mr van Wegen wrote, copied to Mr Mawhinney: “Nora and I would like to set some [sic] concerns with respect to our ST role.

We’re keen to get the below resolved ASAP – we are concerned with ASIC notices flying around too that we don’t have $ for $ security which is required under the note provisions. As Security Trustees, we have advised previously that we are not comfortable with $ for $ relying on revaluations generally, even on settled properties. This was the case again on the ST report from 1st March. This has gotten considerably worse up to 20th March, in fact now relying on revaluation of properties that as yet have not settled. We don’t see a rationale for reliance on this. We feel though that our concerns are not being met – in fact this concern is simply being swept aside. We want to work with you to find a solution and ensure our obligations and your obligations are being met.

The original discussion when we took on this role was that we would have security over underlying property – we have worked with you to vary away from this by accepting the units in the trusts to the extent that value was relevant, but those units are currently not enough.

… there is a considerable gap building, in our view, between notes accepted and underlying security.”; and

438.4.3.    on 6 April 2020, Mr van Wegen wrote, including to Mr Mawhinney: “Our concern with regard to the Napla loan and the information provided is that Napla currently has control over most of the assets of the Group and in the event of a default would be in a position to fire sale all properties just to secure their $13million – this potentially could take out half the properties. If this is the case and possibility, then the value of the units in Unit Trust 1, 2, 3 & 8 and Jarrah Lodge (value of the units as opposed to value of the underlying properties, which is what we are valuing each time) are substantially lower than what is shown in the ST Reports …”; and

438.5.    in January 2020, one of Mr Mawhinney’s other lawyers, Jake Robertson, informed him that Naplend had registered a first-ranking mortgage over the Seaview Property. Mr Mawhinney arranged for Naplend to remove that mortgage on the basis that “[o]ur security trustee needs to have a first” (emphasis added). This demonstrates that Mr Mawhinney understood the importance of PAG having a first-ranking security over the Seaview Property. It is also open to infer from it that Mr Mawhinney’s attitude was, so long as there was a first-ranking mortgage over one property, that made the Security Representation defensible. But, for the reasons set out above – he knew the amounts paid for the properties purchased by the Group and, at least broadly, the amounts invested in its products – the Court would infer that Mr Mawhinney also knew the value of the Seaview Property was very far short of the funds invested in M Core Notes, and therefore was incapable of providing effective security for the vast majority of those funds; and

438.6.    on 3 March 2020, Mr Mawhinney was separately informed by a valuer from Colliers that he considered the purchase prices of real property in the Mission Beach market had been “artificially inflated” by the Mayfair Group’s transaction volumes in the area, and their valuation would need to show a 15 to 20% discount on those purchase prices.

439.    It can be inferred from this evidence that Mr Mawhinney knew or was wilfully blind to the fact that the Security Representation was false.

1129    In his closing submissions, Mr Mawhinney stated, in relation to the Security Representation, as follows (emphasis in original, citations omitted):

253.    Mr Mawhinney was plainly aware that the marketing material contained express statements about security. The evidence also makes clear that the statements he understood the material to be making were that:

a.    M Core Note holders would be protected by first ranking, registered security over assets including cash, real estate, and units in trusts holding real estate; and

b.    security would be maintained dollar for dollar, i.e the value of the securities would always be no less than the value of the subscriptions for the M Core Notes.

254.    But the evidence does not establish that Mr Mawhinney was aware that the marketing material expressed or implied the pleaded Security Representation, or any representation that the security would be in the form of first registered mortgages of real estate.

255.    Mr Mawhinney was also aware of the following matters with which he was intimately involved:

a.    the structure of the arrangements made in December 2019 under which:

i.    funds from the M Core Notes were loaned to Eleuthera;

ii.    those funds and other Eleuthera funds were used to pay deposits and to complete acquisitions of real property on behalf of unit trusts associated with Mr Mawhinney;

iii.    Sunseeker drew down on a facility agreement with Eleuthera with respect to those funds; and

iv.    Sunseeker subscribed to units in the trusts in consideration of the property acquisitions in the trust’s name; and

b.    the loan from Naplend and its terms.

256.    The evidence does not show that Mr Mawhinney was aware that any of these arrangements falsified any statements made about security. To the contrary, the evidence shows that [the] intention of the structure was to ensure that the security in the units was valuable.

257.    This intention is, moreover, borne out by the communications and documents from December 2019 referred to above, under which the structure was formally changed from one in which the Unit Trusts were debt financed (via Eleuthera) to one in which they were equity financed via Sunseeker. The evidence shows that this structure was formalised to give effect to the intention, which must be attributed to Mr Mawhinney, that the units in the trusts would have substantial value at least equal to the amount subscribed to the M Core Notes.

1130    As Mr Mawhinney conceded, he was intimately involved in the development and issue of the marketing materials by which the Security Representation was conveyed. He was also intimately involved in the development of the M Core Notes security structure and the way in which funds were directed within the Mayfair Group (including the directing of funds deposited with M101 Nominees to Eleuthera, and Eleuthera’s use of funds). Mr Mawhinney was the person who was responsible for M101 Nominees developing the M Core Notes product and marketing it as a fully secured product. He was also the person responsible for the features of the security structure, which had the vulnerabilities identified above at paragraphs 813–851. I find that Mr Mawhinney has a high level of responsibility for the actions that gave rise to the contraventions arising from the making of the Security Representation. As with the other contraventions regarding the M Notes, I address the significance of the legal advice received below at paragraphs 1176 and 1178–1179.

1131    As to Yorke v Lucas involvement, I find that Mr Mawhinney knew that the Security Representation was made; he knew that the target audience would understand that the M Core Notes were being marketed on the basis that investors were protected by a security structure with the necessary value and characteristics to do just that — protect them. As I have set out above, I do not accept that, in order for an accessory to know that a representation was made, they need to characterise, in their own minds, the representation in the same language used in the pleading; what the accessory must know is the substance, or gist, of what is being conveyed, and that it is false.

1132    The Security Representation was made expressly, and Mr Mawhinney knew the contents of the marketing material by which it was conveyed. As ASIC submitted, PAG repeatedly raised concerns and Mr Mawhinney knew, from no later than 11 December 2019, that the units had negligible value. From at least the time when PAG raised the matter, and until the debt to equity swap was effected in late March 2020 (or such earlier date as it was effected, if I am wrong about the date it was effected), Mr Mawhinney knew that the Security Representation was not correct.

1133    That is enough, by itself, to fix Mr Mawhinney with knowledge that the Security Representation was not true. While there are other features of the security structure, of Mr Mawhinney’s making, that meant that the Security Representation was false from the very outset, I do not consider that ASIC has established actual knowledge on Mr Mawhinney’s part of the falseness of the Security Representation prior to his being advised by PAG in explicit terms that the units were of negligible value. I infer that Mr Mawhinney accepted that the units were of negligible value, as suggested by PAG, because he participated in finding a solution, albeit that the solution was not put into effect by the debt to equity swap until late March 2020. Having received documents from PAG on 20 December 2019 for his signature in order to give effect to the debt to equity swap, in the absence of any evidence from Mr Mawhinney as to his state of mind, I do not infer that Mr Mawhinney believed that the debt to equity swap was effective and resolved the issue concerning the adequacy of the security held by PAG (despite not having signed the documents) merely because he intended to execute a debt to equity swap. Rather, I infer that Mr Mawhinney knew that documents had to be agreed to give effect to the debt to equity swap, and had not been signed (until late March 2020).

15.4.7    Association with contraventions concerning the Liquidity Prudency Policy

1134    As set out above, I have found contraventions relating to the Liquidity Prudency Policy on both bases advanced by ASIC: the conduct basis (which does not involve identifying any representation) and by the making of the Redemptions Not Frozen Representation.

1135    In relation to both the conduct case and the Redemptions Not Frozen Representation case, I find that Mr Mawhinney was central to the events giving rise to the contraventions. It was not in dispute that:

(a)    Mr Mawhinney prepared and updated the Liquidity Prudency Policy;

(b)    Mr Mawhinney communicated that policy, and the Liquidity Prudency Policy Decision, internally;

(c)    Mr Mawhinney was involved in the preparation of, and knew the contents of, the marketing materials, and was also involved in their distribution; and

(d)    initially at least, Mr Mawhinney knew that those advertising materials did not refer to the Liquidity Prudency Policy and the Liquidity Prudency Policy Decision.

1136    For the reasons already set out above in relation to the Repayment Representation, the decision to invoke the Liquidity Prudency Policy and tell potential and existing investors nothing about it is, qualitatively, egregious conduct for which Mr Mawhinney is responsible. It weighs heavily in considering whether Mr Mawhinney should be restrained from further involvement in the financial services sector, raising funds from members of the public.

1137    Besides contesting the contraventions relating to the Liquidity Prudency Policy, Mr Mawhinney did not make any submissions suggesting he was not involved (in the non-technical sense) in the contraventions concerning the Liquidity Prudency Policy. Mr Mawhinney’s written closing submissions sought, however, to downplay his role and render his decision not to disclose the Liquidity Prudency Policy Decision to investors in a benign light by suggesting he promptly sought legal advice. Those submissions said (emphasis added, citations omitted):

177.    The hypothetical representative member of the target audience would also have understood that anyone in the position of the Mayfair companies was entitled to hesitate before broadcasting that it had suspended redemptions, which is all that Mayfair did. It hesitated 14 days while waiting for legal advice before making public its decision to suspend redemptions. Mr Mawhinney had notified the Mayfair Group’s lawyer about the LPP Decision on 12 March 2020 (the day after the decision was made), seeking his advice about the decision …

262.    Mr Mawhinney was undoubtedly involved – in a general or non-legal sense – in the LPP Decision. It was he who sought legal advice on it the day after it was made. From this it should be inferred that he was keen to ensure that his lawyers were aware of the actions he had taken and that he promptly acted on legal advice about the disclosure, including the manner of disclosure, of the LPP Decision. This only tends to negate any inference that he intended to withhold information from investors that he knew he was required to disclose. In any event, the fact that legal advice was sought and, when given, acted upon in respect of the LPP Decision is a relevant consideration to the scope of any order under s. 1101B(1).

1138    The sole evidence relied on to support the claim that Mr Mawhinney sought legal advice on the Liquidity Prudency Policy Decision the day after it was made was an email from Mr Mawhinney to Mr King of KHQ Lawyers on 12 March 2020. That email followed Mr Mawhinney’s receipt of an email from Mr King forwarding an investor’s letter of demand and asking Mr Mawhinney if there was any reason why the investor’s principal had not been returned immediately. Mr Mawhinney’s email to Mr King said no more than: “See attached policy we have prepared and enacted given the current state of the market. I’ll call to discuss.”

1139    There was no request for legal advice, and no evidence regarding what occurred during any subsequent phone call. Initially, in tendering his evidence, and his oral closing submissions in chief, Mr Mawhinney (by his counsel) continued to insist that he had sought advice on the Liquidity Prudency Policy Decision from Mr King at this time. However, in the course of ASIC’s oral closing submissions Mr Mawhinney retracted the submission that he had sought legal advice from Mr King on the Liquidity Prudency Policy Decision on 12 March 2020. That submission should never have been advanced, let alone maintained.

1140    That said, and as set out further in addressing Yorke v Lucas involvement, Mr King was consulted and engaged with Mayfair Group employees to include text in websites and brochures consequent upon the decision to suspend redemptions. I infer Mr Mawhinney was aware that Mr King was being consulted, and was kept abreast of developments to update the marketing material. Although the changes were, at least until 2 April 2020, quite coy and mealy-mouthed, Mr Mawhinney may have believed that the disclosure prior to 2 April 2020 was adequate (even though that is not the case).

1141    I turn, next, to Mr Mawhinney’s involvement in the Yorke v Lucas sense. This needs to be considered separately for the contraventions by conduct, and the contraventions arising from the making of the Redemptions Not Frozen Representation.

1142    Conduct case: Mr Mawhinney knew that the conduct in question was engaged in. That was not contested. He knew the M Notes continued to be marketed and he knew that, initially at least, the marketing material did not refer to the Liquidity Prudency Policy or the Liquidity Prudency Policy Decision. The point of contest between the parties (in addition to when the Liquidity Prudency Policy and the Liquidity Prudency Policy Decision were revealed) was whether Mr Mawhinney knew that investors would have had a reasonable expectation that they would be told about the Liquidity Prudency Policy and the decision to invoke it.

1143    On that point, ASIC submitted as follows (emphasis in original, citations omitted):

552.    Mr Mawhinney knew that disclosure was required. In particular, he would have known that prospective investors had a reasonable expectation that they would be informed of any decision to suspend redemptions. This may be inferred from the following matters.