FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v GMS Group (NSW) Pty Ltd (ACN 096 642 349) [2007] FCA 589 AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v GMS GROUP (NSW) PTY LTD (ACN 096 642 349) & ORS NSD2351 OF 2006 EMMETT J 12 APRIL 2007 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD2351 OF 2006 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: GMS GROUP (NSW) PTY LTD (ACN 096 642 349) First Defendant GMS GROUP (VIC) PTY LTD (ACN 096 642 483) Second Defendant GMS GROUP (QLD) PTY LTD (ACN 096 642 401) Third Defendant GMS GROUP HOLDINGS PTY LTD (ACN 079 511 890) Fourth Defendant GEORGE MATTHEW SAMPLE Fifth Defendant CRAIG KENNETH TURRELL Sixth Defendant JUDGE: EMMETT J DATE OF ORDER: 12 APRIL 2007 WHERE MADE: SYDNEY THE COURT: 1. Notes the undertaking of the defendants given be their counsel in the terms of the undertaking initialled by Emmett J. 2. Orders that the matter be stood over for directions on 20 April 2007 at 9:30 am. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD2351 OF 2006 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: GMS GROUP (NSW) PTY LTD (ACN 096 642 349) First Defendant GMS GROUP (VIC) PTY LTD (ACN 096 642 483) Second Defendant GMS GROUP (QLD) PTY LTD (ACN 096 642 401) Third Defendant GMS GROUP HOLDINGS PTY LTD (ACN 079 511 890) Fourth Defendant GEORGE MATTHEW SAMPLE Fifth Defendant CRAIG KENNETH TURRELL Sixth Defendant JUDGE: EMMETT J DATE: 12 APRIL 2007 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The plaintiff, Australian Securities and Investments Commission (the Commission), has brought a proceeding against six defendants (the Sample Defendants). The Sample Defendants' business involves making recommendations about credit facilities, arranging credit facilities and providing budgeting services to assist borrowers to meet their financial commitments. The Commission alleges that the Sample Defendants have engaged in and are engaging in misleading and deceptive conduct in the course of their business. 2 The Commission alleges that, in the course of their business, the Sample Defendants are making a number of representations that are false, or at least misleading, in contravention of the Corporations Act 1989 (Cth). The principal representation complained of is that loans arranged by the Sample Defendants would reduce the term of a standard banking loan and bring substantial savings to a prospective borrower. The substance of the complaint is that the Sample Defendants provide graphs and other information to prospective clients, purporting to compare the time for repayment of alternative loans and in doing so, the Sample Defendants do not make clear to prospective clients the basis of the comparison. 3 Other representations allegedly made are that: · Sample Defendants consider a potential borrower's financial circumstances before advising that person whether to change lenders, and whether the person will benefit from changing lenders; · the Sample Defendants are independent from lenders; · the Sample Defendants' business is a multi-faceted organisation with expertise to provide a range of services to its clients. The Commission asserts that each of those is false or misleading. 4 The proceeding was originally fixed for hearing some weeks ago. That fixture was made on the basis of expedition due to concern expressed by the Commission that the Sample Defendants are continuing to engage in conduct that is misleading or deceptive. However, shortly before the trial was due to begin, I vacated the hearing on the application of the Sample Defendants. The basis for doing so was that the Sample Defendants were not in a position to meet evidence that had been foreshadowed on behalf of the Commission. That evidence consisted of a report by Ms Tamara Lindsay, a forensic accountant, providing calculations as to the effect of loans arranged by the Sample Defendants and the arrangements that presently exist or had previously existed for those prospective borrowers prior to Sample Defendants arranging the loans. 5 In the event, much of that report was admitted solely as a submission and it may well be that with the benefit of hindsight, the hearing should not have been vacated. Be that as it may, while I vacated the final hearing, I indicated to the parties that I would hear any interlocutory application that the Commission wished to bring. Over quite a few days I have now heard evidence and received detailed written and oral submissions from both parties on the question of whether any interlocutory relief should be granted. 6 In the course of the hearing, various undertakings have been proffered on behalf of the Sample Defendants, the most recent of which has been proffered this morning. The Commission has urged upon me its position that, notwithstanding the most recent form of undertaking that has been proffered, I should make additional orders designed to protect prospective clients from being misled or deceived by alleged conduct of the Sample Defendants. 7 I have indicated in the course of the hearing that I have formed at least a provisional view that there is a serious question to be tried as to whether or not the Sample Defendants have engaged in, or are likely to engage in, misleading or deceptive conduct. That provisional view is based, of course, on the evidence produced by the Commission. I should say that the Commission has not relied upon all of the evidence that it has foreshadowed will be adduced at the final hearing. The Commission contends, however, that it has a strong case. One of the difficulties with the evidence of the Commission to date is that it concerns what has happened in the past, rather than what is likely to happen between now and a final hearing. 8 The Sample Defendants point to a number of concessions that they have made over some years designed to address the Commission's concerns. The Commission, on the other hand, says that the concessions do not go far enough. The real question, therefore, that presents itself to me at this stage, is where the balance of convenience lies. The Sample Defendants have adduced some evidence to indicate the extent of their business, and the employees and consultants who are engaged in it. Any substantial interference with the conduct of their business would be highly detrimental and damaging. On the other hand, the Commission points to the public interest in protecting prospective clients who may be induced, by misleading or deceptive conduct, to act to their detriment, pending the final determination of the proceeding. 9 The negotiations between the Commission on the one hand and the Sample Defendants on the other, have taken place over several years. At one stage, for example, the Sample Defendants proffered enforceable undertakings. The Commission was not prepared to accept those undertakings and formulated undertakings of its own that the Sample Defendants were not prepared to give. I have been informed that the parties have engaged in a mediation process, which was adjourned some time ago, without finality having been achieved. The parties have indicated that they have agreed to renew that mediation and I would expect that both parties would engage in the mediation in good faith. I have also indicated to the parties that I would be in a position to give them a final hearing in early July, and as I understand it, both parties expect that the hearing could take place then. 10 All of those matters are relevant, in my view, to the assessment of the balance of convenience. The question is whether detriment that might be suffered by members of the public without some further interlocutory relief would outweigh the detriment to the Sample Defendants if the relief sought by the Commission were granted. I am satisfied that the Sample Defendants have in fact made concessions in the course of their negotiations with the Commission in the past. Those concessions involve changes to the promotional material used by the Sample Defendants in connection with their business. 11 The Sample Defendants have foreshadowed an undertaking that they will use only the promotional material in the form that has been tendered and has been the subject of detailed submissions by both parties. They have also foreshadowed an undertaking to make further changes to some of the promotional material and to provide to prospective clients, at the first meeting with them, a notice and pamphlet drawing attention of the clients to some of the difficulties about which the Commission complains. The Sample Defendants have also undertaken that they will not charge any client a fee if the client does not complete the settlement of a facility arranged by the Sample Defendants. 12 The further matter that has been of concern to the Commission is the fee charged by the Sample Defendants for its monitoring service, which they contend before the Court, is an optional service to be taken by prospective clients. The form of monitoring service agreement that is entered into between one or other of the Sample Defendants on the one hand, and a client on the other, is in evidence, as is the form of finance broking contract that is entered into by one or other of the Sample Defendants with a prospective client. There is clearly some drafting error in the monitoring service agreement, which suggests that a fee in excess of $3900 is payable in consideration of one of the Sample Defendants arranging a loan or finance facility: whether or not a prospective client takes the monitoring service is said to be independent of the arranging of the finance broking contract. 13 The notice that the Sample Defendants propose will be given to prospective clients will indicate that Sample and Partners will not charge a fee if the client changes from his or her existing lender unless the client also wants the monitoring service. I have indicated to senior counsel for the Sample Defendants that, although it may not strictly be an issue in the proceeding as it is presently constituted, attention clearly needs to be given to the wording of the monitoring service agreement to overcome the drafting difficulties. 14 Be that as it may, I am satisfied that acceptance of undertakings in the form proffered most recently by the Sample defendants, in circumstances where there will be a final hearing within a matter of months, will outweigh any possible detriment to prospective clients. I therefore propose to accept the undertaking in the form most recently proffered on behalf of the Sample defendants and for the time being to refuse any further interlocutory relief. However, I would reserve to the Commission leave to apply on reasonably short notice, if it were so advised, for further relief if it appears that the compliance with the undertaking is insufficient to ensure that there is no detriment to the public generally. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 27 April 2007 Counsel for the Applicant: Ms CE Adamson SC with Dr SE Pritchard Solicitor for the Applicant: Australian Securities and Investments Commission Counsel for the Respondent: Mr M Walton SC with Mr MSM White Solicitor for the Respondent: Minter Ellison Date of Hearing: 26, 27, 28 March and 2, 3, 11 April 2007 Date of Judgment: 12 April 2007