The Federal Court in Victoria recently considered an appeal by ASIC against a decision of the Administrative Appeals Tribunal (AAT) which arose out of a rather bizarre set of circumstances. In the AAT proceedings, ASIC sought a banning order pursuant to Section 920A(1) of the Corporations Act 2001 (Cth) (the Act) in respect of a well-intentioned Mr McCormack (Mr M), then a financial planning manager at the NAB.
The case highlights that it is never acceptable to impersonate someone, act deceptively or provide false information in relation to financial services, even if no malice is intended.
Background
Mr Wright, a client of Mr M’s, had previously been a client of another financial planner, Mr Bell.
In June 2013, Mr M was sorting through a number of statements given to him by Mr Wright when he noticed one MLC statement in the name of John Wright described as a pension account.
Mr M was puzzled as he knew that Mr Wright did not have a pension account. This led Mr M on a chain of enquiry:
- Mr M contacted MLC and found out that the pension account had been closed and the monies had been transferred into 2 new accounts with Maritime Super;
- Mr M requested copies of various documents from MLC and noted that the documents revealed that Mr Wright had been born in March 1941 and that he lived on Beach Road, Melbourne. Mr M knew that his client was not born on that day and did not reside at that address;
- Mr M then made two telephone calls to Maritime Super impersonating the person whom Mr M believed to be the fictitious ‘John Wright’ (Mr W no.2). The calls were recorded by Maritime Super.
Mr M contacted his client Mr Wright and informed him of the results of his inquiries. Both Mr Wright and Mr M formed the view that Mr Bell had been stealing money from Mr Wright and using his identity to create false accounts.
Impersonations
As a result of Mr M impersonating Mr W no.2, Maritime Super withdrew the funds from the two accounts of Mr W no.2 and paid them into Mr Wright’s NAB accounts on 26 and 27 June 2013. On 27 June 2013 Mr M visited Mr Bell and discovered to his horror that Mr Bell had two clients named John Wright.
After Mr M realised his mistake, rather than explaining the error to Maritime Super or to NAB, he contacted Maritime Super again impersonating Mr W no.2 to arrange for the money to be transferred back into Mr W no.2’s accounts. Mr M said he was concerned that he did not want Mr Wright no.2 to be in breach of any superannuation rules governing the amount of yearly contributions. Mr M informed his boss at NAB what had happened on 28 June 2013. The next day he and Mr Wright went to visit Mr W no.2 to apologise for what had happened. The NAB had frozen Mr Wright’s accounts.
Banning Order
On 10 February 2016, a delegate of ASIC banned Mr M from providing financial services for five years. Mr M successfully appealed to the AAT which substituted the five-year ban with an Order that “the banning order should not have been made” and that Mr M’s name be removed from the register kept by ASIC under Section 922A of the Act and be treated as never having been banned. ASIC appealed to the Federal Court in Victoria.
ASIC’s AAT appeal
In providing its reasons, the AAT noted:
“….it should be apparent that the risk of such an event occurring again must be extraordinarily low. … It is clear that Mr M…gave no consideration at all to the possibility that the impression he had formed may be incorrect or the consequences of his action should that be the case. While I have no doubt that Mr M’s concern was solely for that of his client….His conduct was also deliberately deceptive as, at all times, he knew that he was not entitled to the information he sought from Maritime Super nor was the withdrawal of funds from the account lawfully obtained…. There was no evidence to suggest that Mr McCormack posed a risk to the investing public … it should be obvious that there was never any intention … to misappropriate funds belonging to another person… There was never any question that those monies would not be returned to Mr Wright No 2 …
The AAT also found that giving a banning order would be unlikely to have a deterrent effect as the circumstances were extraordinary and unlikely to be repeated. The AAT said it would be different if his conduct was related to the ordinary tasks conducted by a financial planner in the provision of financial products or services. The AAT also found that banning Mr M would not have the effect of maintaining investor and consumer confidence.
AAT upheld grounds of appeal
The Federal Court reviewed and upheld 11 grounds of appeal raised by ASIC and ordered that Mr M pay ASIC’s costs.
The Court found that:
- the AAT had identified a wrong legal test for the application of a banning order under Section 920A. Referring to the High Court decision in Rich v ASIC [2004] 220 CLR 129 at 38, the Court held that cases have long made it clear that Courts take into account a wide variety of factors in determining whether a banning order (or in the case of directors, a period of disqualification) should be imposed; and
- it was incorrect to say that a banning order should only be made where the evidence discloses that there is a perceived real threat that the conduct complained of is likely to arise again in the future.
The Court confirmed that:
- the AAT had no basis for asserting that the effect of maintaining investor and consumer confidence in financial products is predicated on a consumer, or anyone else, suffering financial detriment as a consequence of a contravention of the Act; and
- the objects of the Act are to promote the confident and informed decision making by consumers of financial products and services whilst facilitating efficiency, flexibility and innovation in the provision of those products and services.
The Court also found that:
- the AAT misunderstood general deterrence and conflated personal deterrence with general deterrence focussing on Mr M’s specific actions in attempting to recover his client’s funds rather than the conduct of him lying to a financial institution and facilitating the provision of false information to a financial institution; and
- the AAT incorrectly asserted that ASIC did not allege that Mr M’s actions were dishonest. The Act does not make a distinction between fraud and dishonesty. A lack of subjective intent to deceive is irrelevant: Gzell J in ASIC v Macdonald (No 12) [2009] NSW SC 714.
The case highlights that it is never acceptable to impersonate someone, act deceptively or provide false information in relation to financial services, even if no malice is intended.