Supreme Court New South Wales Medium Neutral Citation: Chapel Road Pty Limited v Australian Securities Investments Commission (No 10) [2014] NSWSC 346 Hearing dates: 18 November 2013, 19 November 2013, 20 November 2013, 21 November 2013, 22 November 2013, 25 November 2013, 26 November 2013, 27 November 2013, 28 November 2013, 2 December 2013 and 3 December 2013 Decision date: 28 March 2014 Jurisdiction: Common Law Before: Schmidt J Decision: Chapel Road's statement of claim is dismissed. The usual order as to costs is that they follow the event. In the event that the parties wish to be heard on that order they should approach within 14 days, otherwise that will be the Court's order. All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined. Catchwords: TORTS - malicious prosecution - misfeasance in public office - elements of tort - revocation of security dealer's licence - whether plaintiff pleaded case it pressed - can tort of misfeasance in public office be established by aggregating the conduct of various ASIC officers as plaintiff sought to do - statutory framework - the elements of tort of misfeasance in public office - plaintiff's approach to the tort not available - whether factual findings sought can be made - credit issues - Jones v Dunkel inferences - expert evidence - ASIC's practises in 1999 - expert's views - Regulation 7.3.02 of Corporations Law - compliance system - whether decision to commence second surveillance motivated as alleged - whether conduct of ASIC officers in second surveillance was conducted and motivated as alleged - whether decision to use results of second surveillance for revocation of or imposition of conditions upon plaintiff's licence motivated as alleged - whether decision of the delegate to revoke licence motivated as alleged - damages - causation - expert evidence as to valuation - orders Legislation Cited: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Corporations Law (Cth) Uniform Civil Procedure Rules 2005 Cases Cited: Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 Australian Securities Commission v Kippe [1996] 67 FCR 499; 137 ALR 423 Australian Securities and Investments Commission v Whitlam (No 2) [2002] NSWSC 718; 42 ASCR 515 Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336 Chapel Rd v ASIC [2006] NSWSC 1014 Chapel Road v ASIC (No 2) [2007] NSWSC 975; Aust Torts Reports 81-912 Chapel Rd Pty Ltd v Australian Securities and Investments Commission (No 6) [2012] NSWSC 511 Chapel Road Pty Limited v Australian Securities Investments Commission (No 7) [2012] NSWSC 584 Cornwall v Rowan [2004] SASC 384; 90 SASR 269 Dasreef Pty Ltd v Hawcher [2011] HCA 21; 243 CLR 588 Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409; 24 ALR 577 Fabre v Arenales (1992) 27 NSWLR 437 Jones v Dunkel [1959] HCA 8; 101 CLR 298 Leinenga v Logan City Council [2006] QSC 294 Luxton v Vines [1952] HCA 19; 85 CLR 352 Minister of Aboriginal and Torres Strait Islander Affairs of the Commonwealth of Australia v Malcolm Mcdonald Douglas and Valerie Anne Douglas and Francis Djaigween, Frank Sebastian, Mathew Gilbert and Joe Bernard [1996] FCA 1509 (28 May 1996) Manly Council v Byrne and Anor [2004] NSWCA 123 McLachlan v Australian Securities & Investments Commission [1999] FCA 244; 85 FCR 286 Moder v Commonwealth of Australia [2012] QCA 92; 261 FLR 396 Neilsen v The City of Swan [2006] WASCA 94; 147 LGERA 136 Northern Territory v Mengel [1995] HCA 65; 185 CLR 307 Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129 Sanders v Snell [1998] HCA 64; 196 CLR 329 Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; 200 CLR 121 Singh v Minister for Immigration and Multicultural Affairs [2001] FCA 389; 109 FCA 152. Three Rivers District Council v Bank of England No 3 [1000] 3 All ER 1 Trobridge v Hardy [1955] HCA 68; 94 CLR 147 Category: Principal judgment Parties: Chapel Road Pty Limited (Plaintiff) Australian Securities Investments Commission (Defendant) Representation: Counsel: Mr A Black SC with Mr I Todd and Mr S Walsh (Plaintiff) Mr NJ Williams SC, Mr JR Clarke SC and Mr TL Phillips Solicitors: Creagh & Creagh (Plaintiff) Ashurst Australia (Defendant) File Number(s): 2006/266784 Publication restriction: None Judgment 1In April 2001, the Australian Securities and Investments Commission revoked Chapel Road's security dealers' licence, after a decision made by its delegate, Mr Reynolds. Chapel Road successfully challenged that decision before the Administrative Appeals Tribunal, with the result that in July 2003 the revocation decision was set aside. The matter was remitted to ASIC with a direction that Chapel Road's licence be reinstated, subject to appropriate conditions, with a view to ensuring effective compliance with the conditions of its licence. Despite that success, Chapel Road did not resume its former business. 2Chapel Road brought these proceedings in 2006, claiming that its licence had been revoked for improper reasons, ASIC having intended thereby to wrongly do it harm. It pursued both exemplary and aggravated damages for the torts of misfeasance in public office and malicious prosecution. 3In 2006, Harrison AsJ struck out Chapel Road's statement of claim (see Chapel Rd v ASIC [2006] NSWSC 1014). In August 2007, Howie J upheld an appeal, in part, from that decision, concluding that her Honour had erred in holding that a company could not maintain a claim for malicious prosecution, ASIC having conceded that point. His Honour also concluded that the tort of malicious prosecution did not extend beyond legal proceedings and was generally confined to criminal proceedings, as well as some specific civil proceedings. Accordingly, it was not available to Chapel Road in the circumstances of this case (see Chapel Road v ASIC (No 2) [2007] NSWSC 975; Aust Torts Reports 81-912). 4Harrison AsJ had also concluded that ASIC had acted in accordance with the power vested in it by the Corporations Law (Cth) and that Mr Reynolds' decision had not involved an invalid or unauthorised act. On appeal, Chapel Road's case was that her Honour had: "... failed to consider whether there was an arguable case on the basis of the allegations raised in the pleadings to the effect that ASIC had carried out its functions and duties in respect of Chapel Road in bad faith, with the intention of harming the company and that such can be inferred from its conduct prior to the hearing by its delegate and is confirmed by the unreasonableness of the delegate's findings' ([54]). 5Howie J concluded at [60]: "[60] ...The allegation is to the effect that ASIC had determined to revoke the licence before the hearing and thereby deprived the company of a chance of meeting the concerns of ASIC and maintaining its licence. Upon that allegation which can be derived from the pleadings, although with some difficulty, an arguable case of misfeasance in public office is made out: Northern Territory v Mengel (1994) 185 CLR 307 at 357 per Brennan J. The allegation was of a lack of procedural fairness, not as a result of any defect in the hearing, but on the basis that the result of the proceedings had been contrived at by ASIC in the manner in which the whole of the investigation and procedure had been conducted and that ASIC acted in the way in order to harm the company by depriving it of its licence so that it could not operate its business." 6His Honour considered that there were real difficulties in proving such a case, but that it could not be concluded that it was completely hopeless and so this aspect of the appeal was upheld. The pleadings were later amended to address this pleading problem, but still, whether the case was adequately pleaded and raised an arguable case of misfeasance in public office remained in issue. 7The hearing finally proceeded on the second further amended statement of claim filed by Chapel Road pursuant to leave granted in April 2012 (see Chapel Road Pty Limited v Australian Securities Investments Commission (No 7) [2012] NSWSC 584). 8The case pressed at the hearing was that ASIC had acted upon a series of decisions made by various of its officers who had intended to harm Chapel Road, which had resulted in administrative proceedings which were procedurally unfair and attended by malevolence towards Chapel Road. 9ASIC's case was that the claims so advanced had not been pleaded; that the case pressed was not one available as a matter of law; that the evidence did not provide a factual foundation for the findings on which Chapel Road's case rested; and that what was claimed had not been established on the evidence. 10Chapel Road denied that its pleadings were deficient, contending that it was entitled to rely on a course of conduct of a number of ASIC officers, for which it was responsible and by which the tort it alleged had been established. The issues as finally formulated 11When the hearing commenced, the issues lying between the parties had not been agreed. Chapel Road then identified its case to be concerned with the acts of various ASIC officers. They included Mr Burgess, who led the surveillance ASIC had conducted of Chapel Road's operations; ASIC's Director of DISC, Ms Layton; its general counsel, Ms Redfern; officers involved in the proceedings before Mr Reynolds; and Mr Reynolds himself. 12ASIC contended that the issues lying between the parties could only be concerned with the acts of Mr Reynolds. 13In a lengthy opening it was explained for Chapel Road that the case it would pursue was one of targeted malice as discussed by Buss J in Neilsen v the City of Swan [2006] WASCA 94; 147 LGERA 136 at [43]. 14While Chapel Road accepted that ASIC was entitled to investigate its operations as it had, it contended that ASIC had wrongly targeted it for punishment from some time in February/March 2000, after it had investigated a fraud which Robyn Cochrane, the mother of one of its proper authority holders, Stephen Cochrane, had engaged in. ASIC had considered that Chapel Road should pay out any claimant affected after Mr Cochrane joined it and had misstated Chapel Road's attitude to those who made claims upon it. The eventual result was that its licence was wrongly revoked as the result of conduct wrongly pursued by ASIC officers until the decision revoking its licence was made by Mr Reynolds. That conduct was malicious, pursued with the intention of damaging it, by loss of its licence. 15Chapel Road also alleged that during this time, ASIC had deliberately concealed feedback as to the outcome of the surveillance it had conducted of its operations, even though self evidently it was in the interests of the public that such feedback be provided, so that it could improve its performance. That decision was also motivated by an intention to damage Chapel Road, which ASIC pursued successfully, until Mr Reynolds' decision was overturned by the AAT. It had gone to the hearing before Mr Reynolds not offering Chapel Road the facility of an enforceable undertaking, but intending that its licence be revoked. In the result its conduct was malicious. 16For its part ASIC denied any wrongdoing. Its case was that it had no obligation to provide Chapel Road with technical internal reports provided by Ms Donselaar of its National Compliance Unit to its investigators, on which Chapel Road's case relied. It was a matter for it to determine whether the concerns it had should be dealt with by way of enforceable undertakings, or a hearing before a delegate. It had determined to pursue a hearing for good reason. Mr Reynolds had, however, been critical of its failure earlier to provide Chapel Road with copies of Ms Donselaar's reports and so it was provided with those reports and given an opportunity to deal with them, before the hearing proceeded. The failure to provide the reports earlier could not establish the malice alleged. Nor could the eventual decision to revoke the licence, made after Chapel Road had been given a fair hearing. 17As the hearing advanced it became apparent that there was a measure of agreement between the parties as to some matters. At the end of the second day of the hearing, Chapel Road recast the issues which it contended had to be resolved as: "1 The Tort - Misfeasance in Public Office Elements of the Tort: a. Invalid, unlawful or unauthorised act, b. done maliciously c. by a public officer d. in purported discharge of his (her) public duties e. which causes loss to the plaintiff The plaintiff contends that if the 'act' (otherwise within power) is done for improper/ulterior motive (to intentionally harm someone), then the act is done in bad faith, and the power is exercised unlawfully. 2. The plaintiff contends that: 2.1 The decision to commence the 'second (June 2000) surveillance [para 24 FASOC], 2.2 The decision [para 41(a) FASOC] to withhold the March 2000 Donselaar Report 2.3 The conduct of the defendant's officers in the manner in which the second surveillance was conducted and reported [paras 26 - 31, 33, 34, 35, 41(a), (c) FASOC] 2.4 The decision to use the March 2000 Donselaar report, and results of the second surveillance for an administrative hearing seeking revocation of, or imposition of conditions upon, the playoffs license [para 39] 2.5 The decision of the delegate to revoke the plaintiff's license [para 39] 3[A] were acts and decisions performed in bad faith, for an ulterior motive, (and thus "unlawfully"), and [B] were acts and decisions performed with the intention of causing harm to the plaintiff, and [C] (if it is necessary to stipulate over and above [A]) were done maliciously, and [D] such acts did in fact cause loss to the plaintiff." 18While ASIC accepted that the allegation in 2.5 that Mr Reynolds' decision to revoke the plaintiff's licence had been adequately pleaded, it contended that the other issues had not. The identity of the other alleged decision makers had not been pleaded and what was contended in 2.3 did not identify any particular conduct, officer or state of mind, necessary to establish the claimed tort. 19ASIC did not contest that the decision to issue a notice of hearing and the decision to revoke Chapel Road's licence involved the exercise of public power. That other decisions on which Chapel Road relied were acts or decisions performed by ASIC officers in the discharge of its public duties was in issue. Their alleged malicious motives were denied. 20In written submissions advanced in closing as to the applicable legal principles, Chapel Road reformulated the issues which had to be resolved (MFI 97). They were then identified to be: "(a) The decision to commence the 'second '(June 2000) surveillance [para 24 FASOC] (b) The conduct of the defendant's officers in the manner in which the second surveillance was conducted and reported [paras 26 - 31,33, 34, 35 FASOC] (c) The decision to use the results of the second surveillance for an administrative hearing seeking revocation of, or imposition of conditions upon, the plaintiff's license [para 39] (d) The decision of the delegate to revoke the plaintiff's license [para 39] [A] were acts and decisions performed in bad faith, for an ulterior motive (and thus "unlawfully"), and [B] were acts and decisions performed with the intention of causing harm to the plaintiff, and [C] (if it is necessary to stipulate over and above [A]) were done maliciously, and [D] were acts and decisions performed by a public officer (ASIC) in the purported discharge of its public duties; and [E] did in fact cause loss to the plaintiff." 21It was only in its closing submissions that Chapel Road revealed that its case was advanced on the basis of 24 findings of fact (MFI 93), which were sought by reference to 215 events identified in an aide memoire evidenced by various documents (MFI 94). It addressed its oral submissions to those matters, after ASIC had made its closing submissions. 22Chapel Road then pressed its case on the basis that this evidence established that it was Ms Redfern, Ms Layton, Mr Burgess and Mr Reynolds who were all motivated by ill will towards it and that they, acting in combination, had taken the actions which constituted the tort it alleged. 23ASIC had not called any of these officers to give evidence. Chapel Road relied on this to submit that an inference would be drawn that nothing that any of them, or other ASIC officers who had not been called, such as Ms Donselaar, could have said would have assisted ASIC's case. That was in issue. 24ASIC's position was that the findings which Chapel Road sought could in the main not be made and that the tort could not be established in the way Chapel Road contended. 25It was finally apparent that the parties were not agreed as to whether the case pressed at the hearing had been adequately pleaded; what the elements of the tort of misfeasance in public office were; whether the case which Chapel Road finally advanced was capable of establishing the tort alleged, relying as it did on the acts of a number of ASIC officers, including the delegate, in combination, absent an allegation such as conspiracy between those officers; whether the facts on which Chapel Road's case rested, as finally pressed, could support the factual findings it sought; whether the inferences it sought to draw from the documents on which its case rested were available; whether those facts could constitute the tort it alleged; and whether Chapel Road had established the damages it claimed to have suffered. Did Chapel Road plead the case it pressed? 26Chapel Road pleaded in its second further amended statement of claim amongst other things that: ● ASIC had a usual practice as part of a policy aimed at prompting compliance and certainty to provide financial service business with feedback, information and/or reports (16) ● ASIC's usual practice before commencing enforcement action was to: (a) provide copies of reports such as Ms Donselaar's March 2000 report to the licensee or to provide the licensee with feedback and information in relation to the issues raised in the reports (b) to give the licensee an opportunity to respond (c) to give the licensee an opportunity to rectify any deficiencies identified (17) ● Contrary to its usual practice ASIC did not provide it with any such information or feedback.(18) ● Despite a number of requests Mr Burgess did not provide it with Ms Donselaar's March and August 2000 reports. (19) ● Those reports were not provided until December 2000 (20) ● If it had been informed of the compliance issues would have addressed them promptly (21). ● After a meeting on 7 February 2000 and before a meeting on March 2000, through its general counsel Ms Redfern ASIC had wrongly formed opinions or beliefs were erronope and had no proper basis that it: - It had a responsibility to compensate clients of Robyn Cochrane for losses suffered as a result of her conduct - As a result of changes in its directors Chapel Road would not cooperate with the settlement of the Cochrane claims. - That Chapel Road was a recurring problem and dangerous (22 and 23) 27Chapel Road further claimed that as a result, at a meeting on 22 March 2000 ASIC determined through its officers including Ms Redfern, to: (a)Commence a second period of surveillance. (b)Broaden the scope of the surveillance. (c)Conduct the surveillance in an aggressive manner. (d)Use the surveillance to obtain support for revocation of its licence; or to impose conditions on the licence. (e)To seek revocation or condition on the licence. (f)To proceed to a hearing. (24) 28Chapel Road claimed that thereby, ASIC intended to do it harm and that alternatively, it was recklessly indifferent to what harm it might cause (25). ASIC then pursued further surveillance between March and November 2000, not making its investigator Ms Donselaar aware that a copy of her March report had not been provided to it. It pursued the second surveillance and commissioned a further report from Ms Donselaar, not making her aware that it had not been provided with her March report or made aware of its contents. It did not provide the March and August reports until after the notice of hearing had been issued, (26-29). . 29Chapel Road also contended that: 1 ASIC officers involved, including Ms Redfern, Mr Reynolds, Ms Anderson and Mr Burgess did not have an honest belief that the notice of hearing issued in November should have been issued to it, or that its licensee should have been revoked (39). 2 A person of ordinary prudence and caution in ASIC's circumstances, having the information available to it, could not reasonably have made the decision made (40). 3 That through its officers, including but not limited to Ms Redfern, Mr Reynolds, Ms Anderson and Mr Burgess ASIC displayed bad faith in the performance of its functions and duties under the Corporations Law then in force, by: (a) Withholding the March 2000 and August 2000 Reports; (b) Through Mr Burgess, representing to it that there were no reports; (c) Conducting the second period of surveillance for the ulterior purpose of gathering information to support its decision to suspend or cancel the Plaintiff's licence, alternatively impose conditions on the Plaintiff's licence; (d) Treating the Plaintiff differently to other licensed authority holders including Count Financial Group Pty Ltd, Grosvenor Securities Pty Limited, Westpac Banking Corporation and Suncorp Metway Group; (e) Failing to honestly perform the functions of their office; (f) Wilfully turning a blind eye to the truth regarding Chapel Road's activities, and at the very least displaying a reckless disregard for the inevitable consequences of their conduct; (g) Having previously published a "Hearing Procedure Manual" setting out in clear, unambiguous and relatively particularised form, the manner in which it sought to exercise its powers, duties and functions in following a practice of enforcement, encouragement and certainty and in so doing, causing least disruption to the business community - failing to follow its own guidelines and in doing so denied it procedural fairness and natural justice; (h) Breaching its statutory obligation to observe procedural fairness; (i) Failuring to provide natural justice in withholding information regarding its investigations, knowing that had it been informed Chapel Road could have addressed all relevant issues of concern, and by such a deliberate and consistent course of conduct displaying malice and lack of any honest attempt to perform the functions of its office; (j) Being motivated by a purpose extraneous to the purpose for which the duties were bestowed upon it under "the statutory scheme" was given, in that the Defendant acted maliciously; (k) acting with the intention of causing Chapel Road harm (41). 4 ASIC had engaged in such conduct either intending or with reckless disregard for the inevitable consequences of that conduct to Chapel Road's security business(42). 30Chapel Road sought damages, plus interest, pursuant to s 100 of the Civil Procedure Act 2005 (NSW) for the period 26 April 2011 to date and continuing to judgment, for: 1. Costs incurred in dealing with the surveillance, the hearing and the decision to cancel its licence, including the AAT appeal. 2. Loss of profits resulting from: 2.1 damage which ASIC's conduct caused to its business. 2.2 ASIC's continuing conduct, which amounted to an abuse of the powers and functions of its office. 3. Aggravated damages for loss of the opportunity to expand and grow its business, due to ASIC's conduct. 4. Exemplary damages. 31By its defence, ASIC contended that in 1999 it became aware that Robyn Cochrane had given investment advice to clients of her son, Mr Stephen Cochrane, one of Chapel Road's proper authority holders. It subsequently investigated Chapel Road's adherence to its licence conditions. ASIC admitted various of the factual matters on which Chapel Road relied as to the surveillance which it had conducted, the resulting reports issued by its officers and the steps it later pursued, which finally resulted in the revocation of Chapel Road's licence. ASIC also admitted that the AAT had set aside the delegate's decision on the basis that: "(a) there was reason to believe that Chapel Road would satisfy the required compliance standards and perform its duties as a dealer efficiently, honesty and fairly and (b) there had been a sufficient deterrent effect arising from the revocation, the proceedings in the AAT and the effective cessation of its business n the intervening period." 32ASIC did not admit that it had the usual practice Chapel Road claimed in relation to the provision of feedback, information or reports. It denied having the opinions Chapel Road asserted, or having wrongly conducted itself, as it claimed. 33ASIC contended that the decision to issue the November 2000 notice of hearing and later to revoke Chapel Road's licence were those of the delegate, Mr Reynolds. It denied that he did not have an honest belief that the notice should be issued, or that Chapel Road's licence should be revoked. It also denied that others had made those decisions. 34ASIC also contended that Chapel Road had not properly pleaded its damages claim and did not admit that it had suffered any loss or damage. At the hearing ASIC submitted that Chapel Road's pleaded case was deficient, not identifying with necessary particularity the case it sought to establish. 35Chapel Road narrowed the case it pressed at trial, but still ASIC maintained that it had not identified with necessary specificity the decisions on which its case rested, or the officers it claimed had made them, as it had to do, given the serious nature of the allegations made and the state of mind of the decision makers it had to prove. 36ASIC's case was finally that the only substantive decision which involved the exercise of any public power or performance of any public duty, or which could have caused Chapel Road the damage it claimed to have suffered, was Mr Reynolds' decision to revoke its licence. 37It seems to me that while Chapel Road's case could certainly have been better pleaded than it was, it did largely meet the obligation imposed by Rule 14.4 of the Uniform Civil Procedure Rules 2005 to plead specifically any matter that if not pleaded specifically, could take the defendant by surprise. 38There was, however, a problem with the pleadings in relation to the malice which it alleged and on which its case depended. That flowed from the way in which Chapel Road approached the elements of the tort and how it considered they could be proved, to which I will now turn. Can the tort of misfeasance in public office be established by aggregating the conduct of various ASIC officers as Chapel Road sought to do? The statutory framework 39In resolving what lies between the parties in relation to the tort which Chapel Road alleges ASIC committed, it is necessary to bear in mind the statutory regime under which ASIC operated and Chapel Road was licensed. 40ASIC is a body corporate consisting of a number of members (see s 8 and s 9 of Australian Securities and Investments Commission Act 1989 (Cth) - (the 'ASIC Act'). It had functions conferred upon it by that Act and by the Corporations Law, including powers of investigation (see s 13(1)). It acted through its Commissioners and officers, including in the case of delegated powers such as those exercised by Mr Reynolds, through its delegates (see s 102). There was no issue between the parties as to its liability for such acts. 41Chapel Road held a licence regulated by the Corporations Law. Section s 817 made licensees liable to third parties for the conduct of their authorised representatives (see also s 806). Section 788 required Chapel Road to lodge information as to its securities business as directed from time to time by ASIC. Section 787 obliged licensees to notify ASIC of breaches of licence conditions. 42By s 786, Chapel Road's licence was subject to conditions and restrictions prescribed by regulation or imposed by ASIC, which also had the power to vary those conditions, subject to compliance with s 837. The Corporations Law itself also imposed various obligations on licensees, including for example by s 849, which obliged licensees to disclose to clients any commission, fee or other benefit or advantage they would receive in connection with any recommendation or dealing in securities the client may make. 43It was not in issue that Chapel Road had breached various of these obligations. Whether other alleged breaches had occurred was disputed. There was, for example, disagreement about Chapel Road's compliance with Regulation 7.3.02, which provided: "CONDITIONS TO WHICH LICENCES ARE SUBJECT 7.3.02. (1) [Training and supervision of representatives] For the purposes of section 786 of the Corporations Law, a licence is subject to the conditions that the holder of the licence must ensure that each representative of the holder: (a) is adequately supervised in the performance of the duties that he or she is required by the holder to perform; and (b) is sufficiently trained in relation to those duties before acting as a representative; and (c) keeps up to date in relation to those duties by means of continuing training programs. 7.3.02(2) [ASIC may require proof of training, etc] ASIC may, by notice in writing, require a holder of a licence to satisfy it that the conditions referred to in subregulation (1) have been met by the holder." 44ASIC investigated Chapel Road's compliance with its licence conditions first in 1999 and again in 2000. On both occasions the view reached by the surveillance team was that it was in breach of its licence conditions and other obligations. No statutory or regulatory provision relied on by the parties, or any policy in evidence, obliged ASIC to assist licensees in meeting their licence obligations, as Chapel Road complained ASIC failed to do. Nor did they impose any obligation on ASIC to provide a licensee with copies of reports it claimed it should have been provided, before Mr Reynolds issued a notice of hearing in November 2000. The experts called by the parties gave evidence as to its then practice. That evidence finally did not support Chapel Road's case. 45The consensus reached by the experts was that contrary to Chapel Road's case, the approach ASIC adopted to the provision of those reports to Chapel Road, that is in not providing them prior to hearing, did not depart from its then usual practice. 46ASIC had power under s 93AA of the ASIC Act to accept enforceable undertakings from licensees in relation to conditions of their licence. Such undertakings were ordinarily drafted by ASIC. Under the policy then in force, ASIC had to consider, amongst other things, that such an undertaking was an appropriate regulatory outcome in respect of the concerns it had identified in relation to the licensee, having regard to the significance of those issues to the market and the community. 47The evidence showed that ASIC did consider whether it should deal with concerns which it came to have about Chapel Road's adherence to its obligations by way of such an undertaking, but never finally offered Chapel Road that opportunity. Nor were undertakings ever proffered by Chapel Road to ASIC. Undertakings were initially recommended as the appropriate regulatory response by Mr Burgess and other members of ASIC's surveillance team after its first surveillance in 1999. Ms Donselaar, ASIC's in house expert, then gave advice to the surveillance team. This led to a second period of surveillance in 2000 and the view finally that undertakings were not adequate, so that possibility was not pursued with Chapel Road. 48Section 827 of the Corporations Law empowered ASIC to suspend a licence. Section 826 empowered ASIC to revoke a licence for contravention of a condition of the licence, if: "... (c) the licensee contravenes a securities law; (d) the licensee contravenes a condition of the licence; ... (j) the Commission has reason to believe that the licensee has not performed efficiently, honestly and fairly the duties of a holder of a dealers licence or an investment advisers licence, as the case requires; or (k) the Commission has reason to believe that the licensee will not perform those duties efficiently, honestly and fairly." 49Section 837(2) obliged ASIC to give a licensee an opportunity to appear, make submissions and lead evidence at a hearing, before a licence was revoked. That was the course which ASIC pursued after the 2000 surveillance, after taking further advice from Ms Donselaar. The hearing was conducted by Mr Reynolds in accordance with ASIC's policies and the ASIC Act which governed the conduct of such a hearing. It provided in s 59 and s 60: "59 Proceedings at hearings (1) A hearing shall be conducted with as little formality and technicality, and with as much expedition, as the requirements of national scheme laws of this jurisdiction and a proper consideration of the matters before the Commission permit. (2) At a hearing, the Commission: (a) is not bound by the rules of evidence; (b) may, on such conditions as it thinks fit, permit a person to intervene; and (c) shall observe the rules of natural justice. (3) Subject to subsection (4), Division 4 of Part 4 (other than section 104) applies, so far as practicable, in relation to a hearing as if the hearing were a meeting of the Commission. (4) At a hearing before a Division of the Commission, 2 members of the Division form a quorum. (5) At a hearing, a natural person may appear in person or be represented by an employee of the person approved by the Commission. (6) A body corporate may be represented at a hearing by an officer of the body corporate approved by the Commission. (7) An unincorporated association, or a person in the person's capacity as a member of an unincorporated association, may be represented at a hearing by a member or officer of the association approved by the Commission. (8) Any person may be represented at a hearing by a barrister or solicitor of the Supreme Court of a State or Territory or of the High Court. 60 Commission to take account of evidence and submissions The Commission shall take into account: (a) evidence given, or a submission made, to it at a hearing; or (b) a submission lodged with it under section 57; in making a decision on a matter to which the evidence or submission relates." 50In exercising its powers and functions ASIC was obliged by s 1(2) of the ASIC Act to strive to: "(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and (b) promote the confident and informed participation of investors and consumers in the financial system; and (c) achieving uniformity throughout Australia in how the Commission and its delegates perform those functions and exercise those powers; and (d) administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and (e) receive, process and store, efficiently and quickly, the information given to the Commission under the laws that confer functions and powers on it; and (f) ensure that information is available as soon as practicable for access by the public; and (g) take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it." 51ASIC accepted that the key substantive requirements of natural justice in the context of such a hearing were that any material relevant to the making of the order be made available to a licensee prior to or at the hearing and that licensees be given the opportunity to appear, make submissions and give evidence. As I will explain, Chapel Road was afforded those things. 52Both Mr Reynolds and Handley DP, who later reviewed his decision, plainly came to consider that it would have been preferable had Ms Donselaar's reports to ASIC been provided and Chapel Road been given the opportunity to respond to her criticisms, before the notice of hearing was issued. Chapel Road was, however, given the reports and an opportunity to respond to them, before the hearing proceeded. 53That Ms Donselaar's reports were not provided before the matter was referred to Mr Reynolds and that what occurred prior to and during the hearing was the result of targeted malice engaged in for the purpose of harming Chapel Road, was in issue. The elements of the tort of misfeasance in public office 54The elements of the tort were described by Dean J in Northern Territory v Mengel [1995] HCA 65; 185 CLR 307 at [23] to be: "(i) an invalid or unauthorised act; (ii) done maliciously; (iii) by a public officer; (iv) in the purported discharge of his or her public duties; (v) which causes loss or harm to the plaintiff. That summary statement of the elements of the tort inevitably fails to disclose some latent ambiguities and qualifications of which account must be taken in determining whether a particular element is present in the circumstances of a particular case. The critical element for present purposes is malice." 55Chapel Road's case was that the tort was not confined to these strict parameters and that in the case of targeted malice such as it alleged, it may not be necessary to establish that the act relied on was invalid or unauthorised (see Three Rivers DC v Bank of England No 3 [2000] All ER 1 at 49). In any event, if an act within power was done for the improper or ulterior motive of doing the target harm, then it was done in bad faith and was exercised unlawfully (see Cornwall v Rowan [2004] SASC 384; 90 SASR 269 at [209] - [216]). That was in issue. 56It is apparent from the authorities that the limits of the tort are not yet settled (see Sanders v Snell [1998] HCA 64; 196 CLR 329 at [42]). There is, however, no question that conduct which constitutes an abuse of power may be either a deliberate act or a deliberate omission (see Mengel per Brennan J at 357), but not all acts of a public officer involve the exercise of a public power or duty (see Neilsen v City of Swan at [128] - [138]). Brennan J described the tort in Mengel (at 357) as involving "a purported exercise of some power or authority by a public officer otherwise than in an honest attempt to perform the functions of his or her office whereby loss is caused to a plaintiff". A denial of procedural fairness is an act which can constitute the tort, but it is not every such denial which will be sufficient (see Snell at [38] - [45]). How the cases were pressed 57Chapel Road accepted that it had to establish the wrongful motives it alleged for the acts and omissions on which its case rested. It sought to do so by drawing inferences from documents and other evidence which revealed actions taken and decisions made by various ASIC officers. Together that evidence, it was claimed, established ASIC's malicious state of mind. 58That this tort, claimed to be the result of targeted malice, could be established by so aggregating the acts of various officers, as Chapel Road sought to do, was also in issue. On ASIC's case the serious allegations which Chapel Road sought to advance had not been adequately pleaded and could not be rolled up, as Chapel Road sought to do. Chapel Road's approach to the tort is not available 59As Mullins J discussed in Leinenga v Logan City Council [2006] QSC 294 at [64], this tort is difficult to establish. That is in part because of the seriousness of the conduct involved in the tort, which must be properly pleaded, including as to motive. Proof of what must be established has to be approached in accordance with the requirements of s 140(2) of the Evidence Act 1995 (NSW) That section imports the principles discussed in Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336, which require that the Court bear in mind the seriousness of what is alleged when determining whether the onus falling on the plaintiff has been met, on the balance of probabilities. 60In Mengel Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ observed (at 347) as to motive that: "It may be that analogy with the torts which impose liability on private individuals for the intentional infliction of harm would dictate the conclusion that, provided there is damage, liability for misfeasance in public office should rest on intentional infliction of harm, in the sense that that is the actuating motive, or on an act which the public officer knows is beyond power and which is calculated in the ordinary course to cause harm. However, it is sufficient for present purposes to proceed on the basis accepted as sufficient in Bourgoin, namely, that liability requires an act which the public officer knows is beyond power and which involves a foreseeable risk of harm." 61But proof of malice alone is not sufficient. As Brennan J discussed in Mengel (at 356): "A number of elements must combine to make a purported exercise of administrative power wrongful. The first is that the purported exercise of power must be invalid, either because there is no power to be exercised or because a purported exercise of the power has miscarried by reason of some matter which warrants judicial review and a setting aside of the administrative action. There can be no tortious liability for an act or omission which is done or made in valid exercise of a power. A valid exercise of power by a public officer may inflict on another an unintended but foreseeable loss - or even an intended loss - but, if the exercise of the power is valid, the other's loss is authorised by the law creating the power. In that case, the conduct of the public officer does not infringe an interest which the common law protects. However, a purported exercise of power is not necessarily wrongful because it is ultra vires. The history of the tort shows that a public officer whose action has caused loss and who has acted without power is not liable for the loss merely by reason of an error in appreciating the power available. Something further is required to render wrongful an act done in purported exercise of power when the act is ultra vires." 62Chapel Road's case was that there was no requirement that a challenged act be susceptible to judicial review. That was but one means by which invalidity or lack of authority could be established. It was the intention to injure which was critical. That was also in issue, ASIC submitting that there could be no tortious liability for an act or omission done or made in valid exercise of a public power. 63The additional element which Brennan J identified was the officer's necessary state of mind, malice or knowledge, "that is to say the mental element is satisfied when the public officer engages in the impugned conduct with the intention of inflicting injury or with knowledge that there is no power to engage in that conduct and that that conduct is calculated to produce injury" (at 357). 64This tort is not concerned with mere errors of judgment (see Mengel at 352). What is critical is intention. What Chapel Road had to establish on the evidence is malice on the part of those on whose conduct it relied, that is, that they acted with an intention to do it harm, as well as acting with express knowledge of the absence of power or acting recklessly as to whether or not the power exists (see Mengal at 345-7). Given the targeted malice which Chapel Road pursued, it was thus crucial for attention to be focused on the various acts and omissions of the ASIC officers in question and what they intended thereby, at that time. 65Chapel Road's case however rested on inferences which it claimed, taken together, established ASIC's malicious intent, submitting that in a civil case such as this, inferences may be drawn where the circumstances raise a more probable inference in favour of what is alleged. That submission rested on Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352 where Dixon, Fullagar And Kitto JJ observed (at 358): "...But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co. Ltd. v. Astley (1911) AC 674, at p 687. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise: cf. per Lord Loreburn (1911) AC, at p 678". (at p358)" 66Those observations explained the difficulty Chapel Road faced in establishing the inferences its case rested on. It had to establish not only that it could be inferred that ASIC officers were acting with the malicious intent it alleged, but also that there were no other inferences which could be drawn, of equal probability, as to their intentions. On ASIC's case the competing inference was that its officers were pursuing its legitimate purposes in the pursuit of its investigations into Chapel Road. 67A further difficulty for Chapel Road's case was that it had not pleaded or alleged any conspiracy amongst those who had made the decisions and pursued the acts on which its case rested. It contended that was not necessary in the case of a corporation such as ASIC, which can act only through its officers, this tort not being confined to one act, or the acts of only one officer. On its approach, each act and decision relied on being that of ASIC and all having been pursued for a malevolent purpose, namely to harm Chapel Road, they were together capable of constituting the tort it alleged. 68ASIC's case was that the fictional intention attributed by the law to it was the intention of the particular officer or delegate undertaking the particular act or acts alleged to constitute the tort on its behalf. Chapel Road could not establish its case on a composite or aggregation of the conduct of a number of individual officers as it sought to do (see Logan City Council [2006] QSC 294 at [66] and Moder v Commonwealth [2012] QCA 92; 261 FLR 396 at [73]). 69In the result, on ASIC's approach, the only pleaded act which could have caused the loss Chapel Road claimed to have suffered and whose state of mind should be considered, was that of Mr Reynolds. 70On Chapel Road's approach the tort could thus be demonstrated by a course of conduct, or a number of acts pursued by a number of officers acting in concert, just as readily as by one act. The real question to be resolved was whether ASIC had acted maliciously in so acting through its officers. The motive or intention which it had to establish was that of ASIC, whose state of mind was to be determined by reference to that of all of its employees or officers. This, too, was in issue. 71There was, it seems to me, real difficulty with Chapel Road's approach. 72While the precise limits of this tort remain undefined, it is settled that it is a deliberate tort, which requires examination of motive or intention. Given that ASIC is a corporation which can only act through its officers, in order to impute an officer's motive to ASIC, both the officer's act or omission and his or her motive, must be both pleaded and established. If the tort is alleged to rest on the combined effect of the acts and omissions of a number of officers, each having the requisite motive, that too must be both pleaded and established. 73The licence revocation which Chapel Road claims caused the damage it seeks to have redressed, was the end result of a number of steps taken beforehand, only some of them by ASIC officers. While such revocation is obviously likely to damage a licensee's business, it does not necessarily follow that what was intended by any particular officer who took any particular action which, together with other actions taken by other officers, ultimately led to revocation of the licence was either licence revocation, let alone damage to the licensee. 74Officers who take actions which finally lead to licence revocation may be pursuing quite other motives, when particular actions which precede that final result are taken. Further, even licence revocation itself may be the result of a motive other than inflicting damage on the licensee. 75As discussed in Australian Securities Commission v Kippe [1996] FCA 517; 67 FCR 499 at 508 for example, the legal effect intended by a banning order is "preventative in that it removes a perceived threat to the public interest and to public confidence in the securities and futures industry by removing that person from participation therein." Considerations of personal and general deterrence are also involved (see Australian Securities and Investments Commission v Whitlam (No 2) [2002] NSWSC 718; 42 ASCR 515 at [627] per Gzell J). Considerations of punishment can also arise (see Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129 at [42] - [43] for example). These are all results which may motivate licence revocation and the steps which precede it. 76It follows that proof of an individual officer's intention to cause Chapel Road harm must come from something other than the fact of the licence revocation itself, or from the fact that particular actions taken by an officer beforehand, together with actions taken by other officers, or the licensee itself, eventually resulted in a decision to revoke the licence. 77Even though a corporate entity such as ASIC can only act through its officers or delegates, when targeted malice is alleged, given the nature of this tort, concerned as it is with the acts and intentions of individuals, the tort cannot be established simply by aggregating the acts of various public officers, or establishing a course of conduct, which it is claimed was improper or tainted in some way. As discussed by Mullins J, in Logan City Council, such a case must be pleaded, including as to the knowledge that the impugned conduct would be likely to cause the particular damage attributed to the misfeasance, which is claimed to be linked to that conduct. As her Honour observed at [66] as to the vice in the statement of claim there advanced: "... vicarious liability is for each act of each officer, but the critical allegations about intention of the Council found in paragraphs 68 and 173 of the statement of claim depend on an aggregation of the alleged state of mind of each of the officers for each of the alleged acts committed by them, in order to establish the requisite intent or reckless indifference of the Council in relation to any particular impugned conduct, but the plaintiffs have not alleged any basis in the pleading that would enable such aggregation of the states of mind of each of the officers." 78That was also a deficiency with the way in which Chapel Road pleaded its case. A similar conclusion was reached by the Queensland Court of Appeal in Moder which held at [73]: " Paragraph 13(a) of the statement of claim seems to be an allegation that bad faith can be inferred from the multiplicity of errors by the department and the MRT over seven years. However, a case of misfeasance in public office cannot be built upon a foundation that is a composite of the conduct of a number of individual officers, let alone a department or a statutory tribunal." 79It seems to me that even if a case such as that which Chapel Road pursued were capable of being advanced or established, the alleged acts and common intentions of the officers relied on to constitute the tort must firstly be pleaded expressly, so that they can be understood and met by the defendant. They must then be proved by reliable evidence which also establishes that those acts were the result of the pursuit of a common intention to damage the plaintiff, the officers in question having acted both maliciously and in concert with each other. 80Chapel Road did not set out to establish such a case. 81Even if I am wrong in this view, for reasons which I will explain, I have not been convinced that the evidence establishes the case which Chapel Road finally did seek to prove, namely, that the acts relied on were engaged in by Ms Layton, Mr Burgess, Ms Redfern and Mr Reynolds between February/March 2000 until the decision revoking its licence was made in 2001, they each acting maliciously, wrongly intending thereby to damage Chapel Road by their pursuit of the revocation of its licence. Can the factual findings which Chapel Road sought be made? 82Chapel Road called evidence from Mr Bennett, Mr Davies, Mr Gadd, Mr Hollands and Ms Giles. Ms Giles was not required for cross-examination. The credit of Mr Bennett, Mr Davies, and Mr Hollands was in issue. 83ASIC finally called no evidence from any of the officers involved with Chapel Road or from Mr Reynolds. Chapel Road's position was that the failure to call such evidence inevitably led to adverse inferences having to be drawn against ASIC. ASIC's position was that the evidence Chapel Road relied on was incapable of establishing what it alleged and so no adverse inferences could be drawn against it. 84The parties also called expert evidence which was relevant to the factual findings which were in issue. It is convenient to deal with these matters, before resolving what was in issue as to the facts. Credit issues 85The witnesses each gave evidence about matters which had occurred between 1998 and 2003. No doubt the memory of all witnesses was refreshed by reference to contemporaneous documents. 86Of those who were required for cross-examination, Mr Gadd, Chapel Road's former compliance manager, readily conceded not having a memory of certain events and conversations. His credit was not challenged. That of other witnesses who were not prepared to make such concessions, was. 87Mr Davies was Chapel Road's former general manager. He confirmed as to various matters that his memory rested on previous notes which he had read and that he could not recall certain matters, including, for example, when he first saw ASIC's letter of 24 September 1999, which advised Chapel Road of the outcome of the first surveillance; what had happened at a meeting he had attended with Ms Diplock, an ASIC Commissioner; and the reason for then seeking a three month extension on the second surveillance ASIC conducted in 2000. 88His evidence was particularly relevant to one of the matters in issue, whether ASIC had misled Chapel Road as to the existence of Ms Donselaar's reports. 89Mr Davies said in cross-examination that when he commenced at Chapel Road in 2000 he was made aware that it was awaiting ASIC's determination of the appropriate outcome following the 1999 surveillance. He did not, however, recall anyone telling him about the September 1999 letter, or anyone from Chapel Road giving it to him. He had given evidence in the AAT proceedings that he did not recall whether he had ever seen that letter. He also said that he could not recall, even when writing to Mr Burgess in May 2000, whether he had seen the letter. Later he confirmed, however, that Mr Burgess had given him a copy of that letter at a meeting on 10 or 11 May 2000. 90Mr Davies insisted, however, that he had a recollection, "as clear as day", that when he had asked Mr Burgess on a number of occasions between March and May 2000 whether any reports had been completed from the surveillance, Mr Burgess told him that "no report exists". Mr Davies claimed that he had made a note of that advice, which he had not kept, but agreed that this advice was never referred to in his reports to the Board or in Board minutes. 91Mr Davies denied that he could be mistaken in his recollection of what Mr Burgess had told him, or even that Mr Burgess might have said that "there is no report", rather than "no report exists", even though later Mr Davies agreed that he had understood as the result of his conversations with Mr Burgess that there was no ASIC report to be given to him. 92Mr Davies' insistence that Mr Burgess had told him that "no report exists" was finally difficult to credit. It seems unlikely that Mr Burgess would have told Mr Davies that no report existed. There was a surveillance report created after the 1999 surveillance, the detail of which had already been communicated to Chapel Road by the 24 September letter. It was Mr Burgess who seems to have given Mr Davies a copy of that letter, which outlined what was contained in the first report. 93That Mr Burgess told Mr Davies in March 2000, what he had advised Mr Gadd in February 2000, namely, that he had no other report to give him, seems much more likely. That was consistent with the evidence of the experts that it was not then ASIC's practice to provide reports such as that which Ms Donselaar had provided the surveillance team to licensees. It also accorded with the evidence which Mr Davies had himself earlier given in the AAT proceedings. Then he agreed in cross-examination that in March, April and May 2000, Mr Burgess had told him there would be "no report provided to you". Indeed at one point in his cross-examination in these proceedings, he said that Mr Burgess had told him that several times, even though he then insisted that Mr Burgess had said there was "no report". 94Mr Davies complained variously during his cross-examination that he was being called a liar and that his integrity was being questioned. He also said he appreciated that his credit was on the line, but insisted that he had a clear recollection of what Mr Burgess had said to him, namely that "no report exists". Later, however, he agreed in relation to another matter that he claimed to recollect, that what he was doing was pursuing an approach to his evidence by saying what seemed logical to him. 95Mr Davies still refused to accept that there was any difference between Mr Burgess telling him that no report was to be given to Chapel Road and that no report existed. The difference is, however, a clear and important one in the context of these proceedings, given how Chapel Road pressed its case, even if Mr Davies could not, or would not, recognise it. 96Given his agreement as to how he was approaching the giving of his evidence, by way of logical reconstruction rather than memory, it became apparent that Mr Davies' evidence had to be approached with some caution. In the result, I could not accept that he had an accurate recollection of conversations which took place some 13 years ago, or that his evidence that Mr Burgess had repeatedly told him between March and May 2000 that no report existed, reflected an accurate or actual recollection. 97Mr Hollands replaced Mr Gadd in 2000. He insisted that his memory was much better than it clearly was. When asked when he had received a copy of the 24 September 1999 ASIC letter, his evidence was that if it wasn't before he was appointed in 2000, it was soon afterwards. In the evidence he had given in the AAT some 10 years earlier, however, he said that he was not told about the letter when he was appointed and that: "Q. Well, so the position was that when you were appointed there was some material available indicating ASIC's concerns but you weren't provided with it? A. That's correct. Q. And therefore you didn't have an opportunity to assess the position in terms of ASIC's criticisms of Chapel Road? A. Not on that specific document, no." " 98Mr Hollonds agreed that the evidence which he had then given was correct. That concession shed real light on his ability to recollect what had occurred some 13 years previously. 99Mr Hollonds had a practice of keeping on his desk a book of detailed chronological handwritten notes, of things which occurred throughout the working day, made immediately after the phone call or action taken had occurred. Not all his phone calls were, however, there recorded. Those notes were in evidence. It emerged that Mr Hollonds had referred to them in preparing his statement, but he denied that the account which he had given in his statement of various conversations reflected what his notes suggested, rather than any independent memory which he then had. He insisted that his memory was clear and that he could not be mistaken in various evidence which he had given. 100I was not able to accept this evidence. 101One conversation which Mr Hollonds claimed to have an independent recollection of was a conversation with Mr Burgess on about 28 July: "Burgess: "... there are mistakes in the Compliance Manuals". Hollands : "... what are they..?" Burgess: "it's not our position to tell you, take it up with your consultant". 102That recollection did not accord entirely with the note Mr Hollonds made that day, which did not follow his usual practice of identifying the person who he spoke with and the time. Instead, there was a note written alongside that entry, that "Burgess rang requesting information". Nor did it accord with a letter which Mr Hollonds himself later wrote to Mr Burgess. 103The note which Mr Hollonds made on 28 July dealt with a number of matters which he later took up in the letter which he sent to Mr Burgess on 7 August. There he said that it had been three weeks since he and Mr Burgess last spoke and referred to matters Mr Burgess had discussed with Mr Davies. Despite this, Mr Hollonds insisted that he was not wrong in his recollection of himself having the above conversation with Mr Burgess on 28 January. What he recorded in the note was: "Compliance manual - Kerry Giles contact to find out mistakes - ASIC advise there are many Copy of CPD Presentation for ASIC Bill to supply July Balance Sheet * Draft Letter to Brian Burgess ASIC - Disk with Forris * Induction course details and Implementation" 104Mr Hollonds also remembered Mr Burgess saying: Hollands : "Do you have a report yet from the surveillance visits?" Mr Burgess: "no a report has not been compiled as yet. I hope to respond by next week" 105This claimed recollection also had to be considered in the context of a memo written the same day by Mr Davies, advising Mr Bennett and others that he had been told by Mr Burgess that day that Chapel Road should not expect a report on ASIC's recent surveillance; that there were concerns that it still did not have an induction course; and that there were errors in its compliance manual. 106Mr Hollonds explained that he and Mr Davies worked in the same office. That made it entirely possible that he was present when Mr Davies spoke to Mr Burgess that day. He certainly came to know of their discussion. Mr Davies did not address his note to Mr Hollonds, but Mr Hollonds recollected discussing it and what ASIC required with Mr Davies. Still Mr Hollonds claimed to have an independent recollection of himself having a discussion with Mr Burgess on 28 July in the terms to which he had deposed, even though what he remembered departed from his note and also from the advice which Mr Davies had unquestionably received the same day from Mr Burgess. 107Mr Hollonds vehemently denied having reconstructed a supposed conversation with Mr Davies from his 28 July notes, or that his memory was mistaken, even though when later asked about another conversation of which he had made notes in accordance with his usual practice, he said that he could not remember specific contents without a diary note. Later Mr Davies said that he had used the notes as points of reference which "bring recall", which he explained to mean that the notes jogged his memory of the conversations. 108Given the terms of Mr Hollonds' note of his conversation with Mr Burgess on 28 July and the letter which Mr Hollonds himself later wrote on 7 August, I found Mr Hollonds' evidence as to the state of his memory about his claimed conversation on 28 July with Mr Burgess to be simply implausible. There were other problems with the accuracy of his recollection, which are unnecessary to detail. In the result, I came to the view that his evidence also had to be approached with some caution. 109Chapel Road's evidentiary case on damages rested in large part on the evidence of Mr Bennett. Apart from earning trailing commissions, Chapel Road is not now operating a financial advisory business. Mr Bennett is now the controlling shareholder and managing director of Benwest Investment Services Pty Limited ("Benwest") and also the sole director of Chapel Road. He clearly had a significant interest in Chapel Road's case succeeding. Initially, he owned some 20% of Chapel Road and at the time of the hearing, through various entities he was its principal shareholder. He increased his interest in Chapel Road after it lost its license. He became the sole director in 2001. He was funding the litigation. Orders for security for costs have been made against him (see Chapel Rd Pty Ltd v Australian Securities and Investments Commission (No 6) [2012] NSWSC 511). 110Mr Bennett had worked as a financial adviser since 1988, when Benwest was issued with its dealer's license. On Mr Bennett's evidence he also had experience in valuation. 111Chapel Road was established to acquire the financial planning division of Benwest, with the exception of Mr Bennett's own clients. Some 95 proper authority holders then transferred to Chapel Road. His main focus remained with Benwest, but he provided Chapel Road with consultancy services, assisting Mr Bahles, the managing director and Mr Gadd, its compliance officer. After Chapel Road's licence was revoked, many of its proper authority holders transferred to Benwest. 112In evidence was a letter of instructions which Mr Bennett had given Dr Ashe, the expert engaged in 2009 to value Chapel Road's business, when he was asked to provide a quote to undertake a valuation of Chapel Road as at June 1999 and June 2001. The evidence established that the instructions which Mr Bennett gave Dr Ashe were incorrect in part and also incomplete, in a number of relevant respects. They also departed from the evidence which Mr Bennett and others, Mr Gadd, for example, later gave in these proceedings. 113For example, Mr Bennett instructed Dr Ashe that [ex AAA tab 12]: ● Chapel Road appointed Stephen Cochrane as an adviser in November 1997. He took over his mother's business and she was apparently retiring. She had been licensed to Financial Wisdom which she subsequently left. ● On finding out about the enforceable undertaking given by Robyn Cochrane to ASIC not to provide investment advice, Chapel Road audited Stephen Cochrane and found he had operated in a proper manner "outside a number of minor issues". ● Robyn Cochrane continued to advise clients between November 1998 and June 1999. Some time later she handed herself in to police and was charged with misappropriating 25 clients' money, having stolen about $2.4 million. ● Financial Wisdom paid out most of these claims. ● In July 1999, ASIC began a surveillance of Chapel Road, but not ANZ or Financial Wisdom, the other dealers Robyn Cochrane had operated under. ● ASIC ordered Chapel Road to conduct an independent audit of Stephen Cochrane's files, at a cost of some $65,000 and then ordered it to reduce the number of its proper authority numbers "(ASIC does not have the legal right to do this)". The numbers were reduced to 42 by June 2000. ● The surveillance visit continued until April 2001 when its licence was revoked. "The whole process was a contrived process for ASIC to show strength to the market. It fraudulently withheld reports that it claimed didn't exist" and "used the fact that Chapel Road didn't implement recommendations in the reports it did not receive." ● Chapel Road was successful in having its license restored by the AAT in early 2004. In that time it lost all of its clients and advisers. Its name, that of its directors and advisers was tarnished as a result. 114The evidence which Mr Bennett and Mr Gadd gave contradicted aspects of these instructions. For example, in cross-examination, Mr Gadd's evidence was that Chapel Road had reduced the number of its proper authority holders because it had a number who were doing a small amount of business and it wanted to focus on the representatives who were bringing business through the door. It was Chapel Road's decision to eliminate some of those who were not turning business over. That was a decision taken at a time when Chapel Road was contending with resource issues, which had an impact on its ability to meet the conditions of its licence, which required it to ensure that all of its representatives received ongoing training and supervision. 115Mr Gadd's evidence was consistent with some evidence which Mr Bennett himself gave, contrary to the instructions he had given Dr Ashe in 2009. In his first statement, for example, Mr Bennett said that in August 1999, Mr Snape of ASIC told him that "Chapel Road will have to employ further Staff to assist Mr Gadd with compliance or cut the number of proper authorities issued." In the circumstances, that appears to have been sound advice. While Chapel Road did reduce the number of its proper authority holders, there was no evidence that ASIC ever ordered it to do so, as Mr Bennett instructed Dr Ashe. 116The assumptions Dr Ashe had been instructed by Mr Bennett to make came to be a matter of some importance to his valuation, which in part rested on other instructions and assumptions which Mr Bennett had instructed him to make in discussions. Those instructions had not been documented and Dr Ashe could not recollect or articulate them when giving his evidence. In the result, it became apparent that a basis for Dr Ashe's valuation had not been established. 117In the circumstances Mr Bennett's evidence and Dr Ashe's opinions needed to be approached with some care. Jones v Dunkel inferences 118Under the Jones v Dunkel [1959] HCA 8; 101 CLR 298 rule, a failure to call evidence may, in appropriate circumstances, lead to an inference that the evidence which a witness could have given would not have assisted the case of a party who did not call that witness. 119If it applies, the rule permits an available adverse inference to be more readily drawn from the evidence. No such inference can be drawn unless evidence is given of facts which require an answer by the party who fails to call the witness, or where that party is required to explain or contradict something. That depends, of course, on what is in issue in the particular case. 120Where, as in this case, a public officer is not called to give evidence as to why a power was or was not exercised, a Jones v Dunkel inference can be drawn (see Minister of Aboriginal and Torres Strait Islander Affairs of the Commonwealth of Australia v Malcolm Mcdonald Douglas and Valerie Anne Douglas and Francis Djaigween, Frank Sebastian, Mathew Gilbert and Joe Bernard [1996] FCA 1509 (28 May 1996). Such an inference may not be available if documents in evidence, such as reasons for a decision, throw light on the matter (see Singh v Minister for Immigration and Multicultural Affairs [2001] FCA 389; 109 FCR 152 at [71]). 121Here Chapel Road's case depended on the drawing of various adverse inferences from documentary evidence. It submitted that given the nature of its case, the evidence of ASIC's motives necessarily had to be established inferentially, as Kitto J discussed in Trobridge v Hardy [1955] HCA 58; 94 CLR 147 at 162: "The word "malice" must here mean what has been variously called express malice, actual malice or malice in fact as contrasted with malice in law which is no more than the unlawful intent which is present whenever an injurious act is done intentionally and without just cause or excuse: Shearer v Shields (1914) AC 808, at pp 813, 814, 815. Malice in the latter sense is not a separate matter of proof. In the former sense, however, it forms the subject of a separate issue of fact on which the party alleging it must establish that the conduct of which he complains was actuated solely or predominantly by a wrong or indirect motive. This means, where that conduct could only be justified by reference to an authority possessed by the actor to perform functions for the enforcement of law, that he acted "from an indirect and improper motive, and not in furtherance of justice": Abrath v North Eastern Railway Co (1883) 11 QBD 440, at p 455. That is to say, from some desire other than "to discharge his duty to the public": Cruise v Burke (1919) 2 IR 182, at p 186. What has already been said about the conduct of the defendant in the present case means that malice, in this sense of the word, was proved quite convincingly. But the evidence by which it was proved was circumstantial evidence - cogent enough, but circumstantial. For that reason, it could not fulfil the requirement of "direct proof" if, as we were invited to hold, that expression means proof which does not depend upon the drawing of inferences. But proof of motive is always and necessarily a matter of inference, except where a party whose motive is to be ascertained makes a direct admission on the point after the event and either in or out of court. Even proof of statements made by him before the event, and showing a clear intention to do for an improper reason the acts which thereafter he did, would not be direct proof of malice, for they could provide no more than a ground, when considered with all other relevant circumstances, for drawing an inference that the improper reason persisted at the material time and provided the defendant at that time with his actuating motive. If the legislature had really intended that nothing but proof of an admission by the defendant should suffice as proof of malice, a less happy choice of words than "direct proof" could hardly have been made. 122ASIC did not call evidence from the officers whose motives were in issue. Whether adverse inferences could be drawn from that failure was in issue. 123While accepting that in a civil case such as this there was no expectation that ASIC would call evidence on the issues on which it bore the onus of proof, Chapel Road relied on the rule in Jones v Dunkel, to establish its case. It also submitted that the weighing of the matters to be taken into account in resolving the disputed issues lying required the approach discussed by Lord Masfield in Blatch v Archer [1774] 1 Cowp 63; 98 ER 969 at 2 to be followed, namely that: "... all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" (1744 Engram 2). " 124That approach was considered in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 347. There the High Court was concerned with ASIC's failure to call evidence from a witness it was plainly in a position to call. It was there observed that Lord Masfield's approach it did not permit a departure from the principles which flow from Jones v Dunkel and that at [165]: "Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles..." 125Those principles include that if a prima facie case is not established, or if the party is not in a position to call the witness in question, or has a reasonable explanation for not calling the witness, about which ASIC advanced certain explanations in this case, the rule does not apply. Further, as discussed in Fabre v Arenales (1992) 27 NSWLR 437 at 445-6 a Jones v Dunkel inference will not be drawn: "... if there are facts which provide an explanation of why the witness was not called or which show that the reason for not calling him was not that the party 'fears to do so'". 126The rule also does not permit the failure to call a witness to be used to fill gaps or deficiencies in the evidence (see Schellenberg v Tunnels Holdings Pty Limited [2000] HCA 18; 200 CLR 121 at [51] - [53]). Nor does it permit the conclusion that the witness' evidence would have damaged the case of the party who did not call that witness. 127In Australian Securities and Investments Commission v Hellicar, for example, ASIC had tendered documents which showed that a draft ASX announcement had been tabled and approved by the Board. It did not call evidence from a solicitor, Mr Robb, from whom it had taken and served a statement, who could have given evidence as to what had happened at the Board meeting. It was held that it could not have been inferred from the failure to call Mr Robb, that he would have give evidence adverse to ASIC's case, namely, evidence that what was recorded in the Board minutes was false (see at [168] - [170). 128Whether an adverse inference may be drawn has to be determined in light of the evidence, once it has all been received. As discussed in Manly Council v Byrne and Anor [2004] NSWCA 123 at [54]: "The inferences licensed by Jones v Dunkel are ones which are drawn, if at all, once all the evidence in the case is in. This has significance in two ways. The first is that, though Jones v Dunkel licenses drawing more confidently, an inference available against the party who has failed to call the evidence, before that can happen there must first be available to be drawn, on the evidence which has been admitted, an inference against that party. As Spigelman CJ said in State Bank of NSW v Brown [2001] NSWCA 22; (2001) 38 ACSR 715 at [17]-[18]: "As expressed in Cross on Evidence, above, at [1215]: ... The rule in Jones v Dunkel permits an inference that the untendered evidence would not have helped the party who failed to tender it, and entitles the trier of fact to take that into account in deciding whether to accept any particular evidence which relates to a matter on which the absent witness could have spoken, and the more readily to draw an inference fairly to be drawn from the other evidence by reason of the opponent being able to prove the contrary had the party chosen to give or call evidence ... [Emphasis added] The formulation "fairly to be drawn from the other evidence" reflects the terminology of Windeyer J in Jones v Dunkel at 312, (most recently quoted with approval by the joint judgment in RPS, above, at [26]): ... where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference. [Emphasis added] (See also Insurance Commissioner v Joyce (1948) 77 CLR 39 at 49; 55 ALR 356.)" That reasoning of Spigelman CJ was adopted by Hodgson JA at [104] (with whose reasons Handley JA agreed)." 129In this case, given what the evidence, particularly the contemporaneous documents of both ASIC and Chapel Road established in relation to the actions taken by Ms Redfern, Ms Layton, Mr Burgess, Mr Reynolds and other ASIC officers, I have come to the conclusion that there were not adverse inferences available to be drawn, which supported the case which Chapel Road advanced as to their motives. 130The reasons for this conclusion are given in detail below. In short, I was satisfied that the evidence did not establish that any ASIC officers had acted wrongly or for improper purposes, intending to harm Chapel Road as it alleged. To the contrary, the evidence established that they had acted in order to investigate both what Stephen and Robyn Cochrane had done; to deal with the complaints which emerged; to deal with other of Chapel Road's proper authority holders which it came to investigate and deal with; and to investigate and deal with Chapel Road's failures in adherence to the obligations imposed upon it under the applicable legislation and its licensing conditions in relation to its own operations and the supervision of its proper authority holders. 131Amongst the concerns which ASIC came to hold was a concern as to Chapel Road's complaint handling system, which ASIC not only investigated in the surveillance it pursued in 1999 and 2000, but observed in operation as the complaints about Robyn Cochrane's fraud emerged and were dealt with by Chapel Road. That it was wrong, improper or the result of the malice alleged for views formed as to the operation of that system to have formed a part of ASIC's consideration as to how it would deal with the results of its surveillance of Chapel Road, was not established. 132To the contrary, the opinion of Chapel Road's own expert Mr Walker and the consensus reached by the experts was that the advice which Ms Donselaar gave as to Chapel Road's ongoing failures which the surveillances had revealed, had a basis. Even Mr Walker would have advised Chapel Road to improve its complaints handling systems had his advice been sought. That concerns about its complaints handling was pursued by ASIC officers as the result of malice and an intention to do it harm, was simply not established. 133In the result, I came to the view that it could not be concluded that adverse inferences arose on the evidence, so that Jones v Dunkel inferences could be drawn in relation to ASIC's failure to call the officers who had acted at the relevant times. It could not be concluded that the failure to call those officers was because ASIC feared to do so. Nor could it be inferred that if they had been called, the evidence which they would have given would have supported Chapel Road's case, that they were motivated to pursue the actions and make the decisions which they made, as the result of the malice which Chapel Road alleged. The expert evidence 134Chapel Road did not finally rely on much of this evidence to advance its case. The views which emerged in the joint report and the evidence which the experts gave during their concurrent evidence in large part did not support its case. That evidence is relevant to a resolution of the contest over various of the factual findings which Chapel Road sought and the issues which it finally pressed. 135Chapel Road called Mr Walker, who had given evidence in the AAT proceedings, to challenge Ms Donselaar's opinions as to its failures to adhere to various of its licence conditions in 1999 and 2000 and the inadequacies of its compliance plan and compliance manual. It called Mr Murray to challenge the views of ASIC's expert Ms Birkensleigh, whose opinions were largely supportive of those reached by Ms Donselaar. ASIC's practises in 1999 136After its 1999 surveillance, ASIC advised Chapel Road of its view that it was not meeting its obligations, by letter of 24 September and sought advice from Chapel Road as to how it proposed to respond. The experts agreed that this accorded with its then normal practice. Internal surveillance reports were not provided to licensees. 137Amongst the action Chapel Road then pursued in order to meet ASIC's advice was to implement a compliance manual and a compliance plan by which it sought to address the failings it then acknowledged and to meet its continuing obligations. It also took steps to improve the training it gave its representatives and to audit them. Whether it succeeded depended plainly on the effectiveness of the steps which it pursued, not merely on the creation of that manual and the plan. That depended on what they contained, whether or not they were successfully implemented and whether training provided was effective in ensuring licence compliance, demonstrated by later audit. 138ASIC considered Chapel Road's response and sought advice from Ms Donselaar. Ms Donselaar advised, for reasons which she explained in her March 2000 report, that Chapel Road had not satisfied various of its obligations, despite the existence of the plan and the manual. ASIC determined that it should pursue a second period of surveillance. After taking further advice from Ms Donselaar in August as to what that surveillance had revealed, ASIC determined that the matter should be referred to a delegate to determine how it should respond. Ms Donselaar provided a further critical report in November. It was provided to Chapel Road together with the notice of hearing before Mr Reynolds. Her earlier reports were provided to Chapel Road after the notice was given. The hearing was deferred and it took steps to respond to her criticisms. 139Chapel Road's case rested in part on the evidence of Mr Davies, Mr Hollonds and Mr Bennett as to ASIC's alleged failure to provide it with timely information as to the outcome of the surveillance which it had conducted in 1999 and 2000 and its frustrations at ASIC's failure to assist it in meeting its licence obligations, which it claimed was the result of the targeted malice to which it was then being subjected. Amongst other things it claimed that ASIC was then wrongly concealing Mr Donselaar's reports. 140On Mr Bennett's evidence, for example, on numerous occasions between February and August 2000, Mr Davies and Mr Hollands advised him that there was no surveillance report available from ASIC, or that they were still waiting for such a report and of their frustration in ascertaining what ASIC was looking for and its refusal to provide Chapel Road with any assistance. It only became aware of Ms Donselaar's reports after it received the notice of hearing. 141At the hearing in January 200 Mr Reynolds informed Chapel Road that he would place considerable weight on Ms Donselaar's views, which Chapel Road challenged. Chapel Road was at that stage making even further changes to its compliance manual and plan, which it later provided to Mr Reynolds. Mr Reynolds then sought further advice from Ms Donselaar. In her March 2001 reports she remained critical of Chapel Road. Mr Reynolds referred her further reports to Chapel Road and again gave it an opportunity to respond. It did not call expert evidence to rebut Ms Donselaar's views, but relied on written submissions which it and its solicitors then advanced. 142In her various reports Ms Donselaar explained why she had come to the view that Chapel Road had not complied with various of its licence conditions, notwithstanding its ongoing development and implementation of its compliance plan and manual and improvements which she identified. 143Mr Reynolds accepted Ms Donselaar's views and determined that Chapel Road's licence should be cancelled. 144It was only when it later challenged Mr Reynolds' decision in the AAT, that Chapel Road called expert evidence from Mr Walker to challenge Ms Donselaar's opinions. He disagreed with various of Ms Donselaar's criticisms. ASIC called Ms Donselaar to give evidence in those proceedings. In the result Chapel Road's licence was restored, subject to further conditions being imposed. 145During the concurrent evidence it emerged that ASIC, which had no legal obligation to provide reports and assistance to licensees of the kind Chapel Road claimed it ought to have received before a notice of hearing was issued, also had no practice of providing licencees with copies of internal reports such as those provided by Ms Donselaar. 146Mr Birkensleigh and Mr Murray's experience was that ASIC would issue letters from the lead surveillance officer advising of its concerns and asking for responses and documents, if clarification was required. Internal reports used by ASIC, such as those produced by Ms Donselaar, were not provided. Mr Walker was not aware of the distinction between internal and external documents, but was aware of a practice of ASIC communicating its preliminary findings and desired outcomes after a surveillance, as had occurred in Chapel Road's case in September 1999. Mr Murray clarified that the ASIC report was not necessarily provided, but a summary of issues provided and a response called for. Ms Birkensleigh agreed. 147This evidence did not support Chapel Road's case. The practice which it claimed should have resulted in Ms Donselaar's March and August 2000 reports being provided to it, so that they could address her criticisms, before the notice of hearing was issued in November, was not established to have existed. Nor did the experts suggest that ASIC then had any practice of assisting licensees meet their obligations, as it claimed it ought to have done. Ms Donselaar's views 148Despite its disagreement with Ms Donselaar's views, Chapel Road finally did not suggest that she had any involvement in the misfeasance it alleged. 149Mr Walker and Ms Birkensleigh both reviewed Chapel Road's compliance plan and manual and Ms Donselaar's reports. They agreed that Chapel Road had attempted to establish and operate a system to manage its compliance obligations, but they did not agree as to its efficacy, or its ability to ensure that Chapel Road complied with its obligations. 150In his report Mr Walker explained that he did not agree with various of the deficiencies which Ms Donselaar had identified in her reports. Mr Walker considered that Chapel Road had adequately complied with its obligations. At the relevant time, neither Regulation 7.3.02 nor ASIC's policies required licence holders to have either a compliance plan or a compliance manual and few had them. ASIC had then published little as to what it expected by way of compliance systems and thus licence holders had to satisfy themselves that their proper authority holders were adequately supervised and properly trained. In his opinion, the fact that Chapel Road had both a compliance manual and a compliance plan showed that it was then taking its obligations seriously. He also considered that it was not obliged to adhere to the Australian Standard by which Ms Donselaar had tested its compliance. 151Mr Walker said, as to Ms Donselaar's March 2000 report, for example, that had he then been advising Chapel Road, he would have advised it that her concerns about its plan were matters of form rather than substance. Nevertheless, he would have advised that they be attended to, in order to placate ASIC and to illustrate Chapel Road's preparedness to work to develop a compliance system acceptable to it. He reiterated that view in relation to her other reports. That opinion had to be contrasted with Chapel Road's actual response to Ms Donselaar's criticism in the written submissions which it advanced to Mr Reynolds, where it disputed her views. 152Mr Walker also considered the changes Chapel Road had made to the compliance manual, not having had Ms Donselaar's comments, to have been reasonable and to have exceeded then industry practice. Still he would have advised implementation of her views and observed that at the time, ASIC's practice, in accordance with its obligation as regulator, was to provide feedback to the business community. 153Ms Birkensleigh disagreed. She considered Ms Donselaar's conclusions to have been reasonable and found Chapel Road's compliance program between 1999 and April 2001 to have been deficient in a significant number of ways, with the result that it was then not meeting its obligations. She reached somewhat different conclusions to those reached by Ms Donselaar, in relation to a number of matters, but overall came to similar conclusions as to the standard of compliance being demonstrated. Ms Birkensleigh considered that the initiatives undertaken toward the end of 1999, implemented in 2000, had led to improvements in Chapel Road's programs, but compliance reviews which it undertook showed that at individual adviser and staff level, the compliance program still failed to ensure that breaches did not occur and that compliance remained ad hoc, reactive and ineffective. 154Ms Birkensleigh also observed that Chapel Road did not appear to appreciate the seriousness of what it faced. Waiting for reports from ASIC as to what it should improve, rather than forming its own opinions and acting to meet its obligations, underscored that it was not proactively meeting its obligations as it was obliged to do. 155Both Mr Murray and Mr Walker disagreed with some of Ms Birkensleigh's opinions. This difference appeared, in part, to reflect that they had not been instructed with the same material, which became apparent when the experts gave their concurrent evidence. Ms Birkensleigh had reviewed other identified Chapel Road documents, such as client agreements and forms, audit results, training and testing records, reports to the Board, Board minutes and external advice. She had also considered Mr Walker's report. 156Mr Walker appeared not to have been briefed with the entirety of the internal Chapel Road documents which Ms Birkensleigh had reviewed. That material was also more extensive than that reviewed by Ms Donselaar. What Mr Walker had not received was not clarified. It was clarified that Mr Murray had not been provided with the correspondence exchanged between Chapel Road and ASIC about compliance matters, which Ms Birkensleigh and Mr Walker had reviewed. 157Despite these difficulties, the experts were able to produce a joint report and give concurrent evidence in which common ground was reached as to relevant matters. Those opinions largely did not support Chapel Road's case. 158The joint report recorded that Ms Birkensleigh's affidavit was agreed, other than in relation to the adoption of the Australian Standard at the time; its use as a method for assessing compliance systems; and the interpretation of how a licensee might satisfy the requirements of the Regulation 7.3.02(1)(b). 159The experts also agreed that the matters Ms Birkensleigh had identified in her report, namely the Standard, relevant legislation (explained in the concurrent evidence to be various provisions of the Corporations Law and the Regulations), policy notes issued by regulators, industry guidance and other relevant standards (explained in the concurrent evidence to be the international risk management standard and the complaints handling standard) would have then been relevant to an assessment of Chapel Road's compliance system. 160Ms Birkensleigh had noted that by comparison to Ms Donselaar, her most significant concern was as to Chapel Road's ability to implement and operate the system it had devised, but had not implemented. She agreed, however, with Ms Donselaar's conclusion that its documents did not adequately demonstrate an effective implementation of compliance. 161Ms Birkensleigh also considered that Chapel Road had improved in some aspects of its performance, including in relation to the compliance and procedures manual, which she considered were much improved. She had not seen audit or compliance review reports to judge their effects, reinforcing her view that Chapel Road was then simply responding to ASIC queries, rather than executing a previously well designed and implemented compliance program. She noted, for example, that the 2001 annual test it had administered to its representatives was a simpler version than its 2000 test, with somewhat improved results, but still no recorded action taken to deal with those who had scored less than 60%. 162Ms Birkensleigh also observed that while meetings of a Compliance and Training Committee were proposed, none were held, and the classification program and other processes proposed in the compliance plan to ensure that Chapel Road met its obligations, had still not been implemented. She observed that some 15 months after Chapel Road had undertaken to commission an induction course from a registered training provider, that had not occurred and what was being provided appeared to be a hastily collated set of documents provided in response to the delegate's request. 163Ms Birkensleigh considered that the development of the compliance manual by mid-1999 was commendable, but embryonic. There was no Board sponsored project pursued, no resources or budget directed to achieving necessary improvement and no regular reporting on progress for improvement of the compliance plan. The plan developed was not complete or up to date. Chapel Road was not proactive in pursuing its obligations. What was in place was confusing and led to the non-compliance evidenced by compliance reviews undertaken in 1999. 164A complaints handling system based on another Australian Standard was then required. Only some of what was there required was in place. 165The records kept showed outstanding compliance reports, affecting investigation and rectification action. There were no timelines or accountabilities in reports prepared by THP. Consequences for non-conformance were also unclear. Compliance manager reports to the managing director and Board lacked consistency, timeliness and coverage of issues and approved actions. There was no evidence of reports of breaches made to ASIC. Supervision of authorised representatives was ad hoc and not systematic, so as to stratify audits from prior results. By November 1999 the compliance plan was still in draft form and proposed supervision procedures not implemented. Advisers were appointed on the basis of minimum standards of education. The lack of supervision led to undetected errors and non-compliance. Internal documents showed Chapel Road was not meeting its own standards. Audits suggested knowledge gaps across a wide spectrum of obligations, suggesting that training given was not comprehensive or effective. Nor was communication by Bulletins. Annual testing commenced only in 2000. 166Ms Birkensleigh agreed with Ms Donselaar's conclusions, noting that in October 1998, Mr Gadd had identified the error of the assumptions then being made by Chapel Road about allowing representatives to give advice, before Chapel Road had provided them with training, and the lack of documented and effective assessment methods to ensure that training later given was effective. 167Ms Birkensleigh remained of the view that Chapel Road's procedures were not sufficient, given the high level of non-compliance evidenced by assurance reports and the appointment of at least two representatives in 2000 who did not have the minimum level of qualifications it required. Her report noted that neither Mr Walker nor Mr Murray had been briefed to review the effectiveness of its appointment process. 168In the concurrent evidence Ms Birkensleigh said that if she had been asked to assist Chapel Road, she would have sought a meeting to understand what was at issue, so that an appropriate remediation program could be put in place. Mr Walker and Mr Murray agreed. Ms Birkensleigh would have advised on what was required and then taken a structured plan as to what was proposed to ASIC, including in relation to accountabilities and resource allocation, which ASIC could then monitor, rather than waiting for ASIC to approach it. Given the documentation ASIC was seeking from Chapel Road at the time, it was apparent that its concerns were the compliance system and Chapel Road's compliance with its obligations. Mr Murray and Mr Walker agreed that such a front foot approach should have been taken. 169Consistent with the concerns expressed by Ms Donselaar and the consensus which emerged amongst the experts, the other evidence established that there were ongoing problems in the implementation of the audit program which Chapel Road established to monitor the effectiveness of the steps it was pursuing to meet its compliance problems. Further problems were repeatedly identified and there was ongoing difficulty in their rectification, which no doubt explains its responses to ASIC in 1999 and 2000 and the ongoing concerns which they generated. The Australian Standard 170In the concurrent evidence, Mr Murray and Mr Walker explained that their experience was that the Australian Standard was not being used by compliance experts at the relevant time to assess compliance in the way Ms Donselaar had, nor was it adopted by licensees, other than on Mr Murray's evidence, by larger operations. That was not Ms Birkensleigh's experience. 171On her evidence, membership of the Association of Compliance Experts of Australia, established in 1996, required acceptance of the standard as a guidance tool and at Price Waterhouse Coopers, the standard was adopted as part of the toolkit used to assess compliance of any organisation which they assessed. In her experience licensees of Chapel Road's size, with over 100 representatives, were then considering how the standard might be applied in their compliance efforts. Neither Mr Murray, nor Mr Walker agreed with Mr Murray observing that at that time, much depended on who the parent of the licensee was. 172Ms Birkensleigh agreed that there was then no ASIC mandated system for prescribing how a licensee would meet its obligations, but in her experience the Standard which Ms Donselaar had used to assess Chapel Road's plan and the manual, which had been issued in 1998, was quickly being adopted in the industry as a benchmark for assessing compliance systems. This standard was not utilised by Chapel Road. Even though there was no statutory obligation to have a compliance plan or manual, licensees had to document their compliance systems. On her assessment, during 1999 Chapel Road did not have a system operating which ensured such compliance, as its licence required. 173Mr Walker agreed with Ms Birkensleigh that Ms Donselaar's use of the Australian Standard for assessing Chapel Road's compliance program was reasonable, but not to the exclusion of other considerations. It was not his experience that the Australian standard was then widely adopted. He also observed that there was a commercially driven imperative to minimise exposure to the risk of client complaints. 174Mr Murray also did not agree with Ms Birkensleigh that the Standard was quickly adopted in the financial service industry from 1998. In his experience, organisations with corporate governance infrastructure such as banks and some fund managers implemented the standard in their business operations, but those that did not have such structures did not. In their joint report the experts were agreed about this. Mr Murray considered the use of this Standard to have undermined the findings which Ms Donselaar had reached in her reports. 175Given that the experts had different experiences as to what use was being made of this Standard in 1999 and 2000, but the agreement reached that it was at least one of a number of matters relevant to be taken into account in an assessment of whether Chapel Road was then meeting its obligations, that Ms Donselaar used the Standard in her various reviews of Chapel Roads systems, does not support the conclusion that ASIC then had the malicious motive Chapel Road attributed to it. Regulation 7.3.02 176Ms Donselaar considered that Chapel Road was not complying with its obligations under the Regulation, given that it gave new authorised representatives no training in their duties before they began acting as its representative. The experts did not agree as to Chapel Road's compliance with the requirements of Regulation 7.3.02. 177Chapel Road did not provide new representatives with induction training before they commenced giving advice, considering that it engaged only representatives with certain qualifications and experience, which was sufficient to meet the requirements of the Regulation. 178The experts agreed that Regulation 7.3.02 required licence holders to "ensure that each representative of the licensee is sufficiently trained in relation to those duties [the ones they are to perform] before acting as a representative". What was implemented had to be sufficient to ensure that the licensee was confident that on commencing, the representative could perform the necessary duties diligently. The ways in which this could be ensured included: * induction training * minimum education requirements * vetting probity, eg via personal references * interviews to ensure experience * pre-appointment assessment plan preparation 179Ms Birkensleigh considered that Chapel Road did not comply with this requirement, given that its managing director had identified in February 2000 that some of its representatives did not hold its own minimum training requirements and the position was later found by ASIC still to be the same. That, together with the one month gap in the induction training Chapel Road provided, meant that it did not comply with the Regulation. 180Ms Birkensleigh explained that her opinions rested on internal Chapel Road documents which raised issues about its compliance audits, its resources and its training and supervision of authority holders. By 2001, it had still not addressed the induction program Mr Bahles had committed to in 1999; its compliance classification, which was to determine what level of supervision authority holders required, had not been implemented; there were insufficient resources to undertake the supervision contemplated in the compliance manual; and the compliance and training committee did not meet. In the result, she considered that whilst Chapel Road had made some efforts to address issues which it needed to address, they were not appropriate. Mr Walker, on the other hand, considered that Chapel Road had made a valiant effort to put an effective compliance system in place. 181Nevertheless, Ms Birkensleigh considered that Ms Donselaar's criticisms, with which she largely agreed, could have been reasonably easily addressed. Her views of Chapel Road's compliance system did not rest on its failure to address those criticisms, but rather, that the efforts which it had made had failed to ensure that it put in place the level of compliance it should have had. This was evidenced by work annual assessments of its advisers' competency which had resulted in no adviser achieving over 80% in the first year, with most fewer than 60%, suggesting that they were not appropriately qualified or operating at an adequate standard. Resources were not being directed to this problem, which was not addressed in any Board minute, reflecting that it did not understand its obligations or have a method to delay with them. 182Mr Walker disagreed. He considered Ms Donselaar's views as to the requirements imposed by the Regulation to be incorrect. In his opinion it imposed no pre-appointment training requirement. His experience was that accepted market practice was to appoint a representative without any formal induction training. He assumed that it was Chapel Road's practice to appoint only experienced advisers and to satisfy itself through face to face interviews and reviews of all necessary documents including qualifications, previous advices and relevant character, bankruptcy and criminal checks. 183Mr Walker also did not agree with Ms Donselaar's criticisms of Chapel Road's ongoing education strategy and the obligations imposed by the manual in that regard. He considered that what it required was appropriate and comprehensive. Still, he would also have recommended adoption of Ms Donselaar's views in relation to the improvement of its training systems. 184Mr Walker considered Chapel Road's approach to the obligation imposed by the Regulation to have been on par with what he had observed in industry at the time and that it had instituted steps and developed a compliance system which exceeded then industry standards. The ongoing enhancement of the system between February 2000 and the notice of hearing indicated its commitment to continuous development of the system. 185Mr Murray's evidence was that at the time there were varied approaches within industry as to how the requirements of this Regulation were to be satisfied, with licensees individually interpreting its requirements. A range of tests were applied, including checks for ASIC banning orders, Federal police checks, personal and industry references, CV and work history, past work and compliance checks and personal interview. The industry association, the FPA, provided guidance as to representative training, but there was no standard which was applied. Training was provided by various means, including by external consultants, in-house training, and formal courses, such as the Diploma of Financial Planning, product provider training and professional development presentations by bodies such as the FPAS. 186The experts finally agreed that the compliance industry was developing in 1999 and 2000 and that those who were issued with licences, were immediately subject to a raft of requirements. If they needed advice as to those requirements, they sought advice from compliance experts, industry associations and by attending seminars. They agreed that it would have been preferable for induction training to be provided to representatives before they began operation, so that the possibility of non-compliance was minimised and that was what they would have advised, had they been asked. They considered that the system, which provided for assessment of competency to give advice a month after appointment, to be inappropriate. 187That consensus was consistent with the evidence which showed ongoing problems in Chapel Road's implementation of its induction and training strategies, revealed on audit. Mr Bennett's evidence was that it did not conduct criminal checks. Had it done so, it would have discovered Mr Cochrane's criminal record, which seemingly would have precluded his appointment and all of the problems which that eventually created for Chapel Road. This suggests that its compliance with the requirements of this regulation was in fact not adequate. Chapel Road's compliance system 188The experts were also asked whether, having regard to the matters they had agreed were relevant to take into account, Chapel Road had an adequate compliance system in 1999-2001. 189Mr Walker considered that by reference to the Australian Standard, it did not, but by reference to Regulation 7.3.02, it did. Mr Murray was not able to express an opinion and Ms Birkensleigh said that her review of Chapel Road's internal documents revealed that there was non-compliance during the period; what the compliance plan provided for monitoring and reviewing was not in place; nor was its proposed classification system. It had also appointed authorised representatives who had not met its own minimum education and training requirements. To have an adequate system, the relevant parts of the system had to be working effectively. That was not occurring. 190Mr Walker's view was that a system was in place and an attempt made to operate it, but it may not have been functioning universally effectively and that Chapel Road was not meeting every obligation which it had. 191Ms Birkensleigh noted that the compliance plan introduced in April 2000, still contained no operating procedures and some of what had been planned had still not been introduced. Compliance reviews were still not being reported and compliance audits were the single source of information regarding compliance failures, with no mechanism for identifying systematic or recurring problems, or reporting them, to the Compliance & Training Committee or the Regulator. Proposed supervision procedures were not operating and the results of annual industry testing produced exceptionally low results for an experienced group of representatives. 192The proposed authorised representative classification system was not operating, nor was the Compliance and Training Committee. Failure to implement these proposals meant that Chapel Road did not have adequate monitoring and review of its program and implemented no mitigating or compensating procedures. 193In the face of this evidence it is apparent that at the time of Mr Reynolds' decision, Chapel Road was not meeting all of its obligations, as he later found. Factual findings 194Chapel Road sought the findings in MFI 93 by reference to the documents and events identified in MFI 94. The evidence as to those matters had to be considered in context, with the result that only few of the findings Chapel Road sought can be made. The following references to 'Findings' are references to what was sought in MFI 93, which did not include, it should be noted, a Finding 21. 195The first finding sought was that in the period 1997 to July 1999 Chapel Road's compliance with provisions of its license, in terms of the supervision and training of its authorised representatives, required improvement (Finding 1). That was not in issue and well made out on the evidence. That it had taken some steps to improve its level of compliance before ASIC became interested in Robyn and Stephen Cochrane's activities in 1999, was also established (Finding 2). At that point Chapel Road was clearly already aware of and seeking to address certain known, serious, ongoing breaches of its statutory and licensing obligations. 196Chapel Road had been granted a securities dealer licence in 1996. Until its licence was revoked in 2001 it carried on the business of a licensed securities dealer, employing staff and utilising the services of a changing number of proper authority holders. Its licence was subject to various conditions, including conditions specified by Regulation. As Mr Reynolds later found before its licence was revoked in 2001, Chapel Road was then still in breach of certain of those conditions, despite ongoing steps pursued to address its problems. 197Chapel Road had employed Mr Gadd in 1997 to help deal with its problems. He became its compliance manager some time in 1998. Mr Bahles was then its managing director. Mr Gadd's evidence was that it was his responsibility to ensure that Chapel Road's procedures properly reflected legislative requirements. Mr Gadd carried out audits on its authorised representatives in order to ensure that their business practices complied with regulatory requirements. He explained that given the company's rapid growth, he had a considerable workload, with which he had sought various assistance. 198A consultant Ms Giles was engaged in 1999 to assist in preparing a compliance manual for Chapel Road. A draft was provided to Mr Gadd in March 1999, which he continued to work on. In May he advised Mr Bahles in a memo as to the compliance audit schedule which he then proposed to undertake. He also explained the chronic understaffing he was labouring under, which had prevented him completing required audits on time beforehand. 199In August Mr Gadd engaged another consultant, THP Services, to conduct compliance audits on Chapel Road's representatives that year. Mr Gadd then selected representatives for that audit who he considered would be likely to be 'less vigilant' in relation to matters of compliance and less compliance oriented 200Mr Gadd audited a Mr Owen in April 1998 and May 2000 and Mr Stephen Cochrane, who was also one of Chapel Road's shareholders, in December 1999. A banning order was made by ASIC in relation to Mr Stephen Cochrane in January 2000 and Mr Owen in April 2000. Mr Owen later pleaded guilty to a number of offences under the Corporations Act 2001 (Cth). Another proper authority holder, Mr Cobb, was banned in November 1999. Chapel Road's supervision of these authority holders had plainly not been adequate to ensure their compliance. 201On Mr Bennett's evidence these three proper authority holders were each banned as the result of serious failings in their responsibilities to clients. Mr Bennett explained that Mr Owen's banning was the result of his involvement in the Wattle Group scheme, which he described to be a Ponzi scheme, into which other of Chapel Road's proper authority holders, including Mr Cobb, had also been recommending clients. The 1998 audit had revealed a number of compliance failures, which Mr Gadd was to work with Mr Owen to address. Mr Owen challenged the order before the AAT, but continued to work as a Chapel Road representative, until he lost that challenge. 202Robyn Cochrane came to Mr Gadd's attention when he saw an ASIC media release relating to the banning order made against her in November 1998. She had formerly been connected with two other licence holders, Financial Wisdom and ANZ, but not with Chapel Road. The release referred to both Stephen Cochrane and Chapel Road. Chapel Road had no prior notice of the investigation into Robyn Cochrane. It had never had any relationship with her, but she was known to Mr Bennett. His evidence was that he had known Robyn Cochrane since 1995 when they had worked together for another institution. He barely knew Stephen Cochrane before he became one of Chapel Road's authorised representatives. They were introduced by Robyn Cochrane. 203The release caused Mr Gadd to approach ASIC. He then went to Mr Cochrane's office at Toukley where he conducted a full audit. He noticed that Robyn Cochrane was operating a mobile telephone business next door. Mr Gadd received assurances from Mr Cochrane as to his mother's involvement in his business. Mr Gadd noted in his December report that to be that Mrs Cochrane was then assisting her son with client files, but that she did not speak to clients herself. Mr Gadd prepared a remedial action plan for matters he identified needed to be addressed, in order to improve Stephen Cochrane's compliance. For reasons seemingly associated with Mr Gadd's workload, that report was not sent to Mr Cochrane until April 1999. He responded in June. 204Mr Bennett's evidence was that he had since become aware that Stephen Cochrane had a criminal record. He had become a shareholder at a time when Chapel Road had offered its proper authority holders the opportunity to acquire shares. He agreed that Stephen Cochrane had allowed his mother to use his business as a front to conduct business on her own account, after she had been banned. He said that she was much more experienced than her son and that with the benefit of hindsight, Chapel Road should have investigated what Mr Gadd's report into the audit of his business had revealed, particularly given that it was known when he became a proper authority holder, that Stephen Cochrane was supposed to have been taking over Mrs Cochrane's clients. 205In June 1999, ASIC received complaints that Robyn Cochrane had continued advising clients, despite being banned. The resulting investigation finally led to Bergin J making orders in July 1999 preventing Robyn Cochrane accessing Stephen Cochrane's client files, requiring him to forward all of his client files to Chapel Road and restraining Stephen Cochrane from giving investment advice. 206ASIC advised Chapel Road of these orders by letter of 2 July, after Ms Redfern, ASIC's general counsel, spoke to Mr Gadd. ASIC provided Chapel Road with various evidence, affidavits and documents on 7 July, which it advised raised significant concerns as to Stephen Cochrane's conduct and asked Chapel Road to advise it of any action it intended to take. 207This evidence established that Chapel Road was then aware that ASIC considered that its compliance regarding authorised representatives required improvement (Finding 3(a)). 208On 9 July ASIC served a s 33 notice on Chapel Road, informing that it was conducting an investigation and requiring it to produce certain documents. 209On 14 July Mr Gadd wrote to ASIC informing it that Chapel Road it would cooperate in its investigation; that it had notified its insurer of the matter; had taken steps to suspend Mr Cochrane's proper authority; and had written to his clients. 210ASIC officials Ms Redfern, Mr Wroe, Ms Williams and Mr Gadea then met with Mr Bahles, Mr Gadd and Mr Pierson on 30 July to discuss ASIC's concerns about Stephen Cochrane and its own compliance with its licence conditions. ASIC advised Chapel Road by letter that day of the matters it wished to discuss and the prospect of enforcement action being pursued, which could result in the revocation or suspension of Chapel Road's licence. Those matters included Chapel Road's awareness of Robyn Cochrane's activities; what training it had given Stephen Cochrane; what compliance visits had been undertaken; the actions it had taken since becoming aware of the investigation; and various identified concerns as to Chapel Road's non-compliance with the terms of its own licence. They included initial training, resources and its complaints system. 211On Mr Gadd's evidence, one of the matters then discussed was ASIC's view that Regulation 7.3.02 required Chapel Road to ensure that its representatives were sufficiently trained in their duties "before acting as a representative." Another of ASIC's concerns was its complaints resolution system. His evidence was that at the time, he did not speak to representatives before they were appointed. That was plainly not in accordance with the requirements of the Regulation. The induction training course later developed was designed to address this. That training was to be undertaken before representatives started writing business. That system was not implemented. 212By letter of 2 August, ASIC recorded the actions which Chapel Road had then undertaken to pursue. They included advising all clients that Stephen Cochrane could no longer advise them and providing ASIC with a proposal for the appointment of an independent auditor to review all of his files. In an email of 2 August 1999, Ms Redfern observed to other ASIC officers that Chapel Road "will do anything we suggest". That assessment proved to be incorrect (Finding 3(b)). 213Mr Bahles wrote to ASIC on 4 August, advising of the steps being pursued, including the check of all files the subject of the Court's orders, as well as other files. Further information about what was being done was provided on 10 August. 214On 12 August, Mr Gadea wrote to Mr Bahles, noting his agreement on 30 July to the appointment of an independent accountant to conduct a review of Stephen Cochrane's client files and what the review was to establish, including in relation to investments made for clients and any "churning of investments". ASIC nominated three accountants, one of whom it required Chapel Road to select. It expected a report to be provided within a month of appointment. 215Chapel Road engaged one of those nominated, a Mr De Vries, to undertake an audit of Mr Cochrane's files, at a cost of some $70,000. He produced a preliminary report on some 125 client files on 13 September. He there reported that he had found the files in disarray and that he had attempted to reconstruct clients' investment portfolios from a commission list and confirmation of transactions with fund managers. This had revealed the existence of extra clients not recorded in either Chapel Road or Cochrane's lists. There were 41 clients identified as requiring further investigation. Mr De Vries also reported that he had difficulty in establishing whether there had been any churning. He advised that inconsistencies he had found could be explained either by incompleteness of files maintained, or misappropriation. He recommended direct contact with the clients to be the best way to proceed. 216As Chapel Road submitted, by this time it was not only on notice of ASIC's interest in Stephen Cochrane, but also that ASIC regarded its own compliance in relation to its authorised representatives to require improvement. It was certainly prepared to co-operate with ASIC in the investigation of what Robyn Cochrane and Stephen Cochrane had done and to improve its compliance regimes. That the evidence established that it would have cooperated with (any improvement) required or suggested by ASIC as Chapel Road submitted, was not, however, established (Finding 3(a)). 217To the contrary, on Mr Bennett's evidence even though three of its proper authority holders were banned; there being still a significant potential for fraud by proper authority holders; a conflict of interest having been identified in relation to Chapel Road's auditor, which had led to his resignation; and the ongoing problems it later sought to address before the hearing before Mr Reynolds, in his opinion Chapel Roads' compliance procedures had been adequate at all times. 218Consistent with this view, even what Mr Bahles had agreed with ASIC to do initially, by way of independent audit of Stephen Cochrane's files, was something which Chapel Road came later to have a different view about, to which I will return. Nor was it later prepared to participate in the complaints resolution process which ASIC proposed to Chapel Road and the other two licensees involved in the complaints which emerged in relation to Robyn Cochrane, after Chapel Road terminated Stephen Cochrane's proper authority in November. 219It was on 7 December that Ms Redfern wrote to Mr Bahles advising that ASIC had notified a number of former clients of Robyn Cochrane that they should make enquiries as to the existence and validity of any investments she had allegedly made for them, and that it had already interviewed and taken statements from a number of clients. Ms Redfern also advised that ASIC's role was not to determine licensees' liability, but that it would assist clients who believed that they had not been fairly or efficiently dealt with by the relevant licensee in relation to any claim which they made. A claims resolution process was also proposed, involving independent audit of the portfolios of claimants, noting the work already undertaken by Mr de Vries. Ms Redfern proposed a meeting with all three licences on 13 December, noting ASIC's concern about the adequacy of their respective supervision of Robyn and Stephen Cochrane. 220To this point Chapel Road was co-operating with ASIC (Finding 5). It had received advice from ASIC by letter of 24 September as to its concerns. Mr Bahles had responded by letter of 14 October 1999, accepting that they had a basis and explaining what would be done to address them. It had also notified its insurers, HIH, of potential claims (Finding 4). 221ASIC then sought to establish an agreed regime for the resolution of the Cochrane claims with the three licensees. It emerged that Chapel Road was not willing to incur the further costs which would be involved in what was proposed, nor to participate in that process (Finding 7). 222Mr Gadd and Mr Griffith attended another meeting with ASIC, its insurer's solicitors, Corrs and other licensees on 2 March 2000. Chapel Road refused to participate in what ASIC proposed and its representatives walked out of the meeting. Mr Gadd recalled Mr Griffith saying at this meeting that "I don't know why we are here. The vast majority of the claimants were affected by Robyn Cochrane and their claims relate to the other dealers." That was Chapel Road's attitude, which it pursued from that point despite Mr Gadd's report to the Board as to his concern about that approach, which he considered could lead to retribution from ASIC. 223On 14 March 2000, Ms Redfern advised the licensees of her concern about their handling of claims to date. In his evidence, Mr Gadd said that Chapel Road had dealt with all claims it received "in a prompt manner". That was not born out by the documents in evidence. 224It finally emerged that Robyn Cochrane had provided advice to certain of Stephen Cochrane's clients and that she had defrauded certain of her former clients. Eventually, some 34 claims came from people who had lost money as a result of Mrs Cochrane's fraud. Corrs' view was that Chapel Road might have responsibility for a number of these claims. ASIC was certainly made aware of Chapel Road's approach to its insurer and the views of its solicitor (Finding 6). 225As it finally emerged, Mr Griffith's assessment proved to be correct. Chapel Road came to have responsibility for only one of these claims. Beforehand, however, ASIC officers became concerned as to its approach to the investigation and resolution of the claims which were pursued against it by a number of the claimants under its complaints handling processes. 226Not surprisingly, one of the other consequences of what had happened in relation to Robyn and Stephen Cochrane was that ASIC pursued its investigation into Chapel Road's compliance with the conditions of its own licence and the applicable law, while the investigation and resolution of the claims which had emerged were pursued. How it dealt with those claims evidenced the operation of Chapel Road's complaint handling mechanism in practice. That was a matter of concern which ASIC had raised with Chapel Road in the July 1999 meeting. 227Chapel Road made no complaint about the pursuit of this part of ASIC's investigation. It was already aware beforehand from Mr Gadd's work that its compliance with certain of its obligations and licence conditions needed improvement. It had already taken various steps to address problems which he had earlier identified, some of them serious. Those steps had plainly not all been successful. One of its problems was the number of its authorised representatives, and another, the resources it had to ensure their compliance with the conditions which bound Chapel Road and them, as it was obliged to do. 228ASIC conducted its first formal surveillance of Chapel Road's operation in August and September 1999. Two reports emerged from ASIC's initial surveillance, neither of which were provided to Chapel Road. It made no complaint about that in these proceedings, accepting that the advice which it was given by ASIC by letter of 24 September 1999, reflected the results of that surveillance. 229As Chapel Road contended, thereby, it became aware that ASIC considered its compliance in relation to its authorised representatives required improvement (Finding 4). 230ASIC told Chapel Road that it had concluded that Chapel Road had not complied with certain identified laws and conditions of its licence. It was given until 30 October 1999 to address the concerns which ASIC identified in relation to compliance, training and resource issues, after which ASIC would decide whether it is "necessary or desirable" to take enforcement action'. 231Chapel Road was also advised that: "Your compliance and training regime must be outlined in writing and set out in detail what compliance strategies you currently have. Your response should include what arrangements, steps and practices you intend to implement in respect to your future operations so as to ensure full and effective compliance with the Law and the Licence Conditions. The written response should also identify what Chapel Road will do, (including an immediate timetable) to rectify the breaches of the Law and Licence Conditions referred to in this letter. In the event that the ASIC does not receive a satisfactory response to this letter within the time specified above, the ASIC will consider taking appropriate enforcement action. This may include proceeding to a hearing before an independent ASIC delegate which could result in the suspension or revocation of Chapel Road's licence." 232Mr Gadd's evidence was that it was then understood that ASIC regarded Chapel Road's failures to be serious and needing to be dealt with, with some speed. Despite this recognised urgency, its response was to advise ASIC that they would take some months to address. That, too, became a matter of concern to ASIC, about which it advised Chapel Road. 233Chapel Road sought to address its problems in various ways. It repeatedly provided information to ASIC as to the outcome of its ongoing actions (Finding 4). In some cases, what was provided gave rise to further concerns on ASIC's part, some of them serious, which were raised with Chapel Road and to which it then responded, albeit in ASIC's assessment inadequately. The eventual result of Chapel Road's approach to ASIC's concerns was that its licence was revoked. 234The evidence reveals that this occurred after the following events. 235Chapel Road engaged external consultants to assist it in addressing ASIC's concerns. It also reduced the number of its proper authority holders, which numbered about 100 when it first came to ASIC's attention, so that it could direct its resources to active financial planners. It also decided to appoint a business manager to assist in developing appropriate compliance procedures; to formalise an induction course for new representatives; and to establish a training and development team. 236Management committee minutes of 17 September record that a Robyn Cochrane client had commenced proceedings in relation to some $23,000 of missing funds and that the insurers would be notified of that claim and the De Vries' audit. It was proposed that action be taken when ASIC recommendations were received. Risk assessment of representatives was to be pursued, with the loss of advisers not doing business being noted as being "good as it reduces the compliance burden". 237Chapel Road wrote to Mr Cochrane about Ms Grieve's claims on 20 September, seeking information about applications naming him and Chapel Road, which it had not received and which had not been lodged with the fund managers. 238Mr Gadd also engaged Ms Giles on 30 September to assist in producing a compliance plan and a proper authority holder's procedure manual, to assist Chapel Road in 'comforting ASIC in respect of our compliance structure'. He instructed her that he then understood from ASIC's advice that: "Chapel Road is in need of a comprehensive compliance plan, that codifies our system of compliance and the procedures to be followed in implementing that system. What is also required is a system of compliance plan review - to be undertaken on a periodic basis." 239Mr Gadd intended that the plan would deal with appointment and removal of authority holders, operational issues, training and professional development, a compliance manual and costing. He advised Ms Giles that Chapel Road had a timeframe of 30 October, given its need to respond to ASIC. 240On 14 October 1999, Mr Bahles responded to ASIC's September letter. Chapel Road did not dispute the deficiencies ASIC had identified in its surveillance, which he said had resulted from its growth since October 1996. He advised that as well as reducing the number of its representatives, Chapel Road proposed to outsource compliance visits to external experts; to fill a newly created position of business manager; to introduce an induction course for new appointees, to be provided by a registered training organisation; to publish a bi-monthly newsletter for authorised representatives, dealing with compliance issues; to establish a training and professional development committee; to formulate a plan for bi-monthly continuing professional development days; and to engage an external consultant to construct a comprehensive compliance plan. As it transpired, not all of these developments were ever put in place. 241In October Mr Redpath was appointed the Business Manager. Mr Gadd provided Mr Burgess with a first draft of Chapel Road's compliance plan on 9 November, advising that further work was being undertaken to meet ASIC's concerns and that he would provide further information on progress on 16 November. Mr Gadd's evidence was that he then expected to receive feedback from ASIC, in relation to the steps it was pursuing. On the evidence of the experts, this was a mistaken assumption. Had they been advising Chapel Road, they would have advised it to be proactive, putting a positive plan to ASIC, by which its concerns would have been addressed, including costings, timeframes and ongoing review mechanisms. 242Contrary to Chapel Road's case, it did receive further feedback as to ASIC's ongoing concerns about Chapel Road's approach, which the experts agreed that it sought to have addressed. 243On 17 December ASIC sought further information about what was proposed. Mr Gadd sought advice from Ms Giles, who advised amongst other things, that she considered ASIC was being "a little imposing" and "a little intrusive"; that she considered that the exchange of correspondence was not very productive; and that Chapel Road could consider seeking a commitment from ASIC as to "when enough information is enough". 244On 13 January Mr Bahles responded to ASIC's questions, providing a copy of the minutes of the Compliance and Training Committee which had met for the first time in December, which included an outline of the major findings of the audits conducted by the external provider, THP. They included findings in relation to responsibilities not completed by representatives who had been audited including, for example, of the four audits conducted, that in four cases there had been non full disclosure of commission; in three cases no research data kept in client file; and in two cases no copy of financial plan kept in file. Mr Bahles advised that the issues identified were being addressed "globally via education through the Chapel Road Bulletin and CPD Days and individually by studying of the compliance manual and compliance audits". That did not prove to be effective. 245On 17 January Corrs advised Chapel Road that it seemed likely that there might be a number of claims made against it in relation to Stephen Cochrane under s 817 of the Corporations Law. 246On 27 January ASIC advised that Chapel Road's response had raised a number of other serious concerns in relation to the outcome of the audits which had been conducted and the deficiencies identified in the training of various authorised representatives. Copies of the audits and other documents were sought, including the outcome of annual competency examinations conducted by Chapel Road in January. An explanation of why implementation of remedial action identified was to be delayed until July 2000, was also sought. 247In January Mr Bahles resigned as Chapel Road's managing director and Mr Bennett and Mr Gellet were appointed joint managing directors. Its auditor, Mr Hill, also resigned after ASIC conducted a s 19 examination, after concerns had arisen as to aspects of two annual audits he had conducted. 248Mr Bennett's evidence was that Mr Hill was not only Chapel Road's accountant and auditor, he was also one of Chapel Road's proper authority holders and a shareholder. In cross-examination, Mr Davies, who was later appointed to replace Mr Bahles, denied that Mr Hill's departure had to do with any conflict of interest. In his view there was no conflict. That was a view which Mr Bennett did not share. He considered that the conflict was plain and was the reason for Mr Hill's resignation, but it was not one which he had considered beforehand. On Mr Bennett's evidence, as a result there had been no independent compliance auditing conducted of Chapel Road. 249Thus, at a time when ASIC still had to determine whether enforcement action should be taken, Chapel Road was not only seeking to resolve serious issues in relation to its compliance with its obligations under the Corporations Law and its licence conditions, it was also still dealing with the claims which had emerged in relation to Stephen and Robyn Cochrane. ASIC was plainly concerned about its response to both matters, as well as about the impact which the change in its management would have on its approach to them. 250On 31 January ASIC and Chapel Road representatives met with representatives of the other two licensees, to discuss the terms of letters to be sent to clients of Stephen and Robyn Cochrane and the process to be pursued to deal with any resulting claims. 251On 2 February 2000, Mr Gadd replied to ASIC's 27 January concerns. He provided copies of a number of THP audit reports and provided various information, in order to allay ASIC's concerns, including in relation to what he advised about the detection of "a global lack of understanding regarding full disclosure" and how education, increased communication with representatives and further auditing sought to address this. 252Mr Gadd also advised of certain other developments following Mr Bahles' resignation and a resulting "mini restructure of the dealership", as well as new duties given to Mr Redpath, to follow up on audit outcomes. He advised that a further reduction in authorised representatives was in train, as well as further revision of the compliance manual. He also promised to provide further information as to the progress of various matters, advising that the proposed improvements were to be overseen by the compliance plan and the newly established Compliance & Training Committee. As it transpired, that committee did not meet again in 2000, as had been proposed. 253Mr Gadd's evidence was that he was then expecting to receive periodic feedback of the type Chapel Road had received in December and January from ASIC. He was keen to co-operate and to react constructively to this feedback and that Chapel Road would then have considered enforceable undertakings positively. The fact was, however, that it never itself proposed such undertakings to ASIC and the steps it was pursuing did not satisfy ASIC's concerns. 254In cross examination Mr Gadd said that he was then aware that Chapel Road was facing serious, ongoing concerns in relation to the matters ASIC had given notice of in September 1999 and knew that if they were not rectified, it potentially faced suspension or revocation of its licence. He was aware that ASIC was concerned, for example, with Chapel Road's advice that the vast majority of its proper authority holders had not complied with its own mandatory educational requirements and with what it considered to be a slow implementation of various remedial action Chapel Road had proposed. 255On 4 February, Mr Gadd spoke to Mr Burgess, who led ASIC's surveillance team, who advised him that ASIC would be making a decision about Chapel Road's licence that day and that the outcome "could be an enforceable undertaking". Board minutes of 4 February noted a report from Mr Gadd as to his understanding from Mr Burgess, that a decision from ASIC in relation to the outcome of its surveillance was imminent and that an enforceable undertaking could be the outcome. That was not what transpired. 256This evidence did not establish, as was Chapel Road's case, that ASIC, or the identified decision makers, Ms Redfern and Ms Layton, decided on 7 February that the appropriate regulatory response to Chapel Road would be that its licensee be subject to additional conditions by way of an enforceable undertaking or imposition of licence conditions. No such decision was made (Finding 11). 257As Chapel Road submitted, if a decision was made that additional conditions would be imposed, under s 837 of the Corporations Law, ASIC had an obligation to provide Chapel Road with the option of a hearing. The documents show that this was an obligation of which ASIC was conscious and took into account, in determining the course it would pursue. 258Mr Burgess and the other members of the surveillance team reported to Ms Layton and Ms Redfern in a 7 February memo, that the concerns which had been identified in the surveillance: " ... appeared to have their origins in a largely non-compliant regime. There was a lack of resources addressed to the training and supervision of proper authority holders resulting in general deficiencies in that supervision and training which did occur. There were cases of proper authority holders clearly completely unaware of key responsibilities and obligations of investment advisers." 259Particular deficiencies in documentation and procedures were identified, including only one person, Mr Gadd, having responsibility for supervision of 76 proper authority holders, as well as other responsibilities. Deficiencies identified from a review of proper authority holder files were outlined. Reference was made to numerous fundamental compliance failings identified in the audit program which had been undertaken by an external body and the concerns which had led to the resignation of the auditor. The report also outlined the remedial action which Chapel Road was pursuing, including its intention to reduce the number of proper authority holders to 40, by the end of the month. 260The residual concerns there identified were Chapel Road's capacity to: "... ensure that what in theory would appear an acceptable compliance regime becomes an ongoing reality ensuring adequate service and protection levels for their retail investor clients." 261Mr Burgess and Ms Williams recommended that appropriate options were for ASIC to accept an enforceable undertaking, or to impose further licence conditions. Two other cases where enforceable undertakings had been accepted were referred to and draft undertakings and conditions provided for discussion. 262The evidence did not establish that the surveillance team had the authority to decide what ASIC's regulatory response would be, or that any decision was then finally made by either Ms Layton or Ms Redfern. Instead, advice was sought from ASIC's National Compliance Unit. 263On 8 February, Mr Burgess wrote to Ms Exline Starr at the National Compliance Unit, asking for the compliance plan and compliance manual which Chapel Road had prepared with the assistance of Ms Giles to be examined and advice provided as to "any residual matters which you consider may be of relevance in ensuring the establishment of an effective compliance regime". She was also provided with copies of the correspondence which had been exchanged between ASIC and Chapel Road since September. 264The evidence did not establish that this advice was sought only for the purpose of the National Compliance Unit providing input into additional conditions to be imposed by ASIC either by enforceable undertakings or additional licence conditions (Finding 12). Such input was, however, certainly later sought on 10 March, when Mr Burgess sent Ms Donselaar draft enforceable undertakings to consider. 265On 9 February Mr Burgess advised Mr Gadd that ASIC sought further information. On 10 February Mr Gadd wrote to ASIC, informing that an organisational restructure was proposed as the result of an impending merger with a trustee company, which would assist in addressing resource issues, with three to four compliance officers then being engaged. This did not proceed. 266On 10 February, Mr Hudgeson, an ASIC investigator, notified Chapel Road of a claim which had been made by a Ms Grieve, as the result of advice given by Mrs Cochrane and asking to be kept informed as to its consideration of the matters raised. 267On 11 February Ms Redfern wrote to Mr Gadd about the 31 January meeting at which ASIC had submitted a draft letter, based on a draft prepared by Financial Wisdom, with comments made by ANZ and Chapel Road incorporated. Further changes to the draft were proposed and a proposed internal complaints procedure discussed. ASIC outlined its concern that many of Ms Cochrane's former clients were elderly and might not properly be able to advance their claims without assistance. ASIC advanced various suggestions as to how their complaints might be dealt with by the licensees. Advice was also given that 11 statements from complainants had been referred to other licensees and that statements were being prepared by 23 other claimants. ASIC asked to see the final version of any letters sent to clients, before they were sent and proposed another meeting in February. 268Board Minutes of 11 February noted a report from Mr Gadd as to further information provided to ASIC; advice received from Mr Owen that he anticipated being banned by ASIC; and advice given to HIH about claims which had been received from Cochrane clients. 269Board minutes of 18 February recorded: "Cochrane/Grieves The submission was presented. It was found that Cochrane had forged signatures on cheques drawn in her favour. Applications had been completed under Chapel Roads' name and not submitted to fund managers. The ASIC has prepared a letter (copy will be presented at next meeting) that can be sent to all Cochrane's clients but Tony reluctant to so with the possibility that further claims may arise. Tony and Jim still to investigate further." 270In cross-examination Mr Bennett denied that his primary concern, reflected in these minutes, was then to avoid liability for Chapel Road. That was somewhat difficult to credit, given his evidence that at the time its financial position was not strong; it had certain cash flow problems; the extent of Robyn Cochrane's fraud and its liability was not known; and identification of those who had been the victims of Robyn Cochrane's fraud was difficult. Minimising its liability was then plainly a matter of concern to Chapel Road, as was its obligation under its insurance policy, not to admit liability for any claim made upon it. 271Undoubtedly Chapel Road then had to deal with the claims which emerged, but it was certainly concerned about the extent of what it faced and acted in accordance with that concern. That explains why Mr Bennett said in his letter of 2 March to Mr Gadea, that Chapel Road did not consider Mrs Grieve to have a viable claim against it, even though it had received commissions in respect of her investments. Contrary to what he there claimed as to the problems in dealing with Mrs Grieve direct, later she was contacted and eventually her claim resolved. 272On 28 February Mr Hudgeson notified Chapel Road of a claim received from Mr Buick and on 1 March of a claim from Ms Cullinan. 273On 2 March Mr Bennett wrote to ASIC denying any liability for claims made by Ms Clutter, Ms Grieve, Mr Buick, and Ms Cullinan. That day Ms Redfern met with the licensees' representatives and Corrs. Chapel Road representatives walked out of that meeting, after advising that they would not participate in the process it had proposed or share in the cost of a joint auditor, but Corrs undertook to obtain instructions from the insurer, as to the claims which had been made on Chapel Road (Finding 7). 274The Board minutes of 3 March 2000 recorded concerns about Chapel Road's financial position and in relation to 'ASIC matters': "ASIC Matters * Terry Griffiths gave a report on the meeting with ASIC regarding R&S Cochrane Matters. * Terry pointed out that Chapel Road has already spent in excess of $70,000 unnecessarily on this matter. Terry does not believe that we will be able to recoup Rinds already spent. * He also advised ASIC that if Chapel Road has committed any offences, we should be informed. Any notifications will be forwarded to our Insurers. * It appears that there may be only one case (Grieves) that we are liable for as commissions have been received. This was challenged by the ASIC. * Terry made the recommendation that the Managing Director was not required to attend these meetings and that any negotiations should be put to Frank Lawson, Corrs Chambers Westgarth (BOH). Chapel Road has withdrawn from discussions, any further requests should be submitted in writing. * Clients have been given a copy of claims that have been forwarded to our PI Insurance Company. * DeVries appointment was declined as we feel they are not independent. * Chapel Road was threatened with a Section 50. * Matt is concerned about arty retribution from the ASIC regarding Terry's approach to the meeting. * Chapel Road has been asked for all evidence regarding compliance. Matt is to prepare chronology. * Chapel Road has to now review what current associations its proper authorities have with others, ie Howard Owen." 275ASIC was plainly concerned about the failure to reach an agreement with the three licensees at their 2 March meeting. It was not, however, established that after this meeting with Chapel Road that Ms Redfern and Ms Layton instructed ASIC officers, Ms O'Reilly, Mr Wroe and Ms Good to investigate potential action against Chapel Road, because of its refusal to participate in the process ASIC had proposed at the 2 March meeting and to share in the cost of the joint auditor (Finding 8). What Ms O'Reilly said in her memo was: "I discussed Chapel Road's response with Jan/ Lucienne today. We have been asked to do a 'strategization' for Cochrane. I think this means that we prepare an outline of the options paper. If the RR was done, this would help. But, in its absence, Sean, can you start preparing something along the following lines: 1. options for ASIC if ANZ, FW and/or CR respond to ASIC with a proposal that is not suitable? eg: representative action, injunction to compel performance????? benefits of approach etc 2. what we can do to CR given their response to clients? (s.788 - effect?) what if other licensees do the same? 3. ANZ and FW both suggested alst(sic) week that it was not appropriate to appoint a third party to be the 'investigator' to audit the licensees dealings with complainants, but that this role should be ASIC's responsibility. Can you give some thought to what ASIC would do in such a role (Ismael might need to consider some of this) eg: random checks of files. We may need to chat... over coffee! Clare" 276The inference which Chapel Road contended for does not fairly arise from what Ms Redfern there said, particularly when the memo is considered in its proper context. 277Nor was it established that after the 2 March meeting, Ms Redfern and Ms Layton intended that Chapel Road would be targeted by ASIC and harmed, because of its refusal to adopt the process ASIC had proposed in relation to the Cochrane clients (Finding 9). Nor was it established that the instructions Ms Redfern and Ms Layton gave were by reason of such intentions (Finding 10). 278It was also not established that ASIC documentation prepared after 2 March in relation to the Cochrane claims was created to infer that Chapel Road was unco-operative in relation to those claims and had withdrawn from investigating those claims, when it knew that Chapel Road, its solicitor, and insurer had investigated all submitted clams (Finding 15). The subsequent documents relating to those claims simply do not leave such an inference open. 279They rather suggest that ASIC was dealing with the problems Robyn and Stephen Cochrane had caused, in order to help resolve the claims which emerged from affected people, many of them elderly, in light of how the licensees and their insurers responded, or at times failed to respond to them. Chapel Road's rejection of the process which ASIC had proposed was unquestionably a matter of concern. So was its response to the claims made upon it. That the result of those concerns was the malicious conduct which was alleged against Ms Redfern and Ms Layton and other ASIC officers, cannot fairly be inferred from the evidence. 280On 8 March Mr Hudgeson advised Ms Redfern by memo that Chapel Road had denied liability for all claims, other than one. Ms Redfern replied the same day, proposing a meeting to discuss ASIC's strategy, in the event that a process for dealing with complaints could not be agreed with the licensees. 281On 10 March Ms Donselaar, ASIC's national compliance officer, provided the report Mr Burgess had sought from Ms Exline Starr. She identified the purpose of her report to be: "II. PURPOSE OF REPORT Subsequent to ASIC's surveillance of Chapel Road, the author of this report was requested to undertake a review of Chapel Road's systems of compliance and internal controls. The review specifically related to: * an examination of the Chapel Road compliance manual and related correspondence concerning the ASIC surveillance, * a review of the Chapel Road compliance structure, stating any outstanding matter that should be addressed by Chapel Road, and' * providing advice on any other matters that should be included to ensure an effective compliance regime for Chapel Road. " 282Ms Donselaar referred to ASIC's statutory mandate to protect investors, which she said was achieved by ensuring that licensed dealers complied with the law and licence conditions. She outlined regulatory obligations in relation to supervision of advisers, training of representatives, internal complaints handing procedures, and obligations to notify ASIC of contraventions. In assessing Chapel Road's Compliance Plan, Ms Donselaar applied the Australian Standard for Compliance Programs and the issues there addressed. 283Ms Donselaar identified the areas in which, in her opinion, the Plan failed to meet those standards. She considered that the compliance manual was generally adequate, but also identified that it failed to address certain issues concerned with securities, tax file numbers, termination of authorised representatives, complaints handling, misleading and deceptive conduct, FPA compliance requirements (which were out of date) and certain formal continuing education requirements. Ms Donselaar also considered that the manual failed to address certain issues dealt with in the Compliance Standard, namely methods to identify and rectify compliance failures, particularly systemic and recurring problems; internal reporting structures for reporting compliance issues and appropriate management of compliance. 284Ms Donselaar noted Chapel Road's ongoing advice as to matters such as lack of resources and deficiencies in supervision and training and how they were to be resolved. She discussed deficiencies which she had identified in what was proposed and had been undertaken. In the result she said that she was "not confident" that a "robust compliance regime is in place" or how past problems were to be remedied. As to the compliance committee which was to supervise the regime she observed: "I note that a Compliance and Training Committee has been formed and met on 7 December 1999. The committee minutes focus on specific issues arising within the organisation at that time. What is not apparent from the minutes are: * Agreed terms of reference for the committee. Whilst a statement of purpose is included in the minutes, terms of reference would include what it would look at (and what it would not look at), authority, lines of reporting, standard agenda items, quorum etc. * While action officers were noted, no action time given. * Specific links back to compliance manual or compliance plan and what action should be taken as a result of issues raised." 285Ms Donselaar concluded that Chapel Road had no coherent strategy to effectively manage its licence obligation to train and supervise its representatives and that its compliance approach was reactionary, rather than systematic or proactive. She identified further work which needed in her view to be undertaken. 286Draft undertakings and licence conditions were then discussed with Ms Donselaar. By memo of 10 March to Ms Redfern and Ms Layton, Ms Williams advised: " As you are aware the past few months has involved a fair amount of toing and froing between ASIC and Chaple(sic) Road requesting more detail and clarification of aspects of the Compliance regime and Manual etc. Annette said that she is happy for a copy of her Report to go to Chapel Road with the Enforceable Undertaking ( or new conditions on licence) with the requirement that any additional matters noted thereon are to be addressed immediately and that all the matters in the report be incorporated in the matters to be reported upon by the independent consultant in three months." 287Under practices then in operation, it was ASIC which drafted undertakings it was prepared to accept from licensees. Ms Donselaar offered to assist in the drafting of such conditions for Chapel Road and also advised that she was content for her report to be provided to Chapel Road as part of that process. That did not occur. 288As it transpired, ASIC was finally not prepared to consider accepting such undertakings. Neither draft undertakings, nor conditions, nor Ms Donselaar's March report were then provided to Chapel Road. It was thus not put in a position to understand or respond to the matters she had identified as being of concern to her, until December 2000. 289There were a number of "Fastrac matters enforcement briefing" reports in evidence. Two of them, both undated, explained how it came to be that rather than enforceable undertakings or licence conditions being pursued with Chapel Road, the matter was referred to the delegate Mr Reynolds. 290One report, unsigned, but with Mr Burgess' name on it, noted the three available regulatory options to be an enforceable undertaking, licence conditions or an administrative hearing to suspend/revoke licence. Enforceable undertaking or licence conditions were then considered to be preferable, with potential outcomes noted to be either establishment and operation of an effective compliance regime in the immediate future, or if that was not shown, revocation/ suspension of its licence. 291The second Fasttrac report noted the same three options, but as to future action and potential outcomes that: "1. The establishment and ongoing operation of an effective compliance regime by Chapel Road in the immediate future, with the assistance of the imposition of additional conditions upon the licence of Chapel Road (which may require an administrative hearing) or the entering into an Enforceable Undertaking by Chapel Road. OR 2. Should it (sic) decided that an effective compliance regime is not a realistic expectation in this matter, and administrative hearing for the revocation/suspension of Chapel Road's licence, upon the basis aforementioned in this briefing paper." 292This appears to be a later report. It refers to a memo of 14 March 2000 in which Ms Redfern advised Ms Williams, Mr Burgess and Ms Donselaar: "I have had the opportunity to review the propsed(sic) undertaking and Annette's report. There is a change in management in Chapel Road and I think you will find there will not be the degree of co-operation to settle that may have been there previously. I am concerned about the matters raised by Annette and believe the way we should be approaching this is as a hearing to impose conditions. However, I query whether we have done enough in terms of the surveillance. I note that Annette looked at correspondence from ASIC but did that include a report on the surveillance and the findings? Was a report done on the surveillance? Chapel Road have been a recurring problem in that there are a number of their investment advisers who we have had concerns about. Another is an adviser called Owen who was involved in the Qld Wattle scheme. His defence at the hearing was the(sic) he was a proper authority with Chapel Road and they did not train or supervise him. I will ask John Chambers and Phil Thompson to make that information available to you. While a small organisation, I am concerned they are dangerous. I am also concerned that we should handle this in a more focussed and disciplined manner. If we have not done enough at the initial surveillance stage or we are concerned too much time has elapsed, we will have to do it again. I know there are resource issues but in my view this is a high risk for ASIC. We have known about the inadequacies for some time and have only engaged in correspondence over a 5 month period. Ultimately we could be criticised for this. In summary, in my view the approach should be if we have sufficient(sic) we should prepare a notice under s 837 with a view to imposing condidtions(sic) under s 786. If we do not have enough, we should do what is necessary to get the info, bearing in mind that we do not have to do something as big as Westpac or even Count. This is what I would like to discuss at the meeting on Wednesday. Jan" 293There were no minutes of that meeting, but on 16 March, Ms Layton asked Ms Redfern for a briefing on the outcome of the meeting. This Fasttrac report recorded the result. That reveals that consideration was then being given by those officers involved to whether, given what was known of Chapel Road, the establishment and ongoing operation of an effective compliance regime in the immediate future was realistic, or whether it was not. Ms Redfern also had a concern that ASIC did not have sufficient information to make a decision about such matters, or to proceed to a hearing, if that was considered necessary. 294On 14 March Ms Redfern also wrote to Mr Gadd about ASIC's concern about the way in which the three licensees had handled various claims, with some claimants not having been contacted or had their claim acknowledged. She asked that all claims received at least be acknowledged within three days of receipt. Mr Bennett replied on 15 March, advising that all claims had been responded to and that Chapel Road could not offer hope to claimants it did not believe it had a liability to, having already spent $70,000 at ASIC's direction on investigations. It later emerged that this advice was incorrect. 295This advice and Mr Bennett's evidence as to Chapel Road's then attitude also showed that it was not then prepared to co-operate with "any" improvements then required or suggested by ASIC. To the contrary, it had not accepted the complaint handling mechanism which ASIC had proposed, not being prepared to incur the further expense involved, given the $70,000 it had already spent on the audit of Stephen Cochrane's files and took a different view to that taken by Corrs, as to its potential liability for claimants. It is apparent that Mr Bennett's approach was considered by ASIC officers to represent a change in Chapel Road's attitude, which was also of concern and which was taken into account, in its ongoing consideration of how to deal with the results of its investigations of its operations. Ongoing concerns about its complaint handling system also had an impact on the conclusions which ASIC's officers came to. 296On 13 March Mr Bennett wrote to the insurer advising that Chapel Road had withdrawn from the last ASIC meeting, preferring to be represented by their solicitor, who had also attended the meeting. 297On 16 March an enforcement briefing prepared by Mr Gadea in relation to Robyn Cochrane, Stephen Cochrane and the resulting surveillance of Chapel Road, was sent to Ms Redfern. This referred to two claims which Chapel Road had rejected, where Mr Gadea considered that it had not provided proper reasons. He noted as to Chapel Road that: "Chapel Road * the evidence obtained from the surveillance will need to be assessed to determine whether, in light of the concerns identified in the draft compliance plan and Chapel Road's actions in rejecting the claims submitted to date, it would be appropriate to consider administrative proceedings, such as licensing action, * whether any other action was appropriate to ensure Chapel Road's compliance with s.819 of the Law in respect of its liability to pay any claims made by former clients of Mrs Cochrane." 298As Chapel Road submitted, it was on 22 March that ASIC determined to pursue a second period of surveillance, before making a decision as to the course it would pursue (Finding 13). That this decision was taken with the intention of harming Chapel Road cannot be inferred from this decision, even though Ms Donselaar's report was not first provided to Chapel Road (Finding 14). That plainly did have the result that it was not made aware of the concerns Ms Donselaar had raised in her report, before that surveillance was conducted (Finding 14). As I have explained earlier in relation to credit findings and the expert evidence, the evidence did not establish that ASIC was then actively concealing that report from Chapel Road. Its approach accorded with its practices at the time. 299ASIC was aware that Chapel Road was anxious to receive further feedback and to be told what course ASIC intended to pursue (Finding 14). That was no doubt because it had been repeatedly informed as to ASIC's concerns about its response to the September letter, how its proposed actions were being implemented, their efficacy and how it was handling the Cochrane complaints. The evidence did not establish, however, that at this point as far as ASIC knew Chapel Road was wishing to implement any suggestions or recommendation it made in relation to compliance issues (Finding 14). 300That ASIC departed from its normal practices at this point was also not established. There was then no practice of providing reports such as that provided by Ms Donselaar to licensees, although they sometimes were, when enforceable undertakings were pursued. Whether that course would be taken was a question which ASIC was then still seeking to resolve. 301That these decisions and the second period of surveillance which resulted, were the result of the stance taken by Chapel Road at the meeting with ASIC on 2 March, or the result of intentions formed by Ms Redfern and Ms Layton to harm Chapel Road because of its refusal to adopt the process ASIC had proposed in relation to the Cochrane claims, as was contended for Chapel Road, was not established by the documents on which its case rested. Nor was it established that the decision was taken with the intention of harming Chapel Road (Finding 17). 302To the contrary, the documents suggest that ASIC pursued this course because of ongoing concerns as to Chapel Road's ability and willingness to meet its licence obligations and a perceived need to obtain further information, before a decision was made and pursued. These concerns rested on what the initial surveillance had revealed, Chapel Road's response to the advice of ASIC's concerns and Ms Donselaar's advice about that response. 303No doubt ASIC's officers were influenced by what was considered to have been a change in Chapel Road's management and approach. ASIC was also concerned about the resources it had available to devote to its compliance obligations and its attitude to those obligations. Mr Bahles had resigned at the end of January, when Chapel Road had also lost its auditor. Mr Bennett was then the major shareholder of Benwest, one of the major shareholders of Chapel Road. He became a director in January 2000. He had earlier been providing consultancy services and had regularly attended its management meetings. He and Mr Gellett were then appointed to act as joint managing directors and Mr Bennett became involved directly in the claims which had emerged, at a time when ASIC was also informed that Chapel Road was pursuing other restructuring. There was plainly a concern on ASIC's part as to the consequences of that change in management. 304That concern arose at a time when ASIC was still pursuing the consequences of Robyn Cochrane's misconduct with the three licensees involved, as well as pursuing action against two other of Chapel Road's authorised representatives, Mr Owens and Mr Cobb. These matters also no doubt shed light on how Chapel Road's systems had operated in practice. 305Mr Davies was appointed general manager on 23 March. His evidence was that he was appointed to "tighten up" all aspects of Chapel Road's business and to oversee the efforts being made to effect changes which ASIC required. He was made aware of the friction which had arisen at the meeting on 2 March. He wanted to establish a culture of compliance and co-operation with regulatory authorities and pursued frequent contact with ASIC officers. 306Amongst other things, Mr Davies said that he came to understand that Chapel Road had comprehensively investigated the merits of the claims from Cochrane clients and had determined that the overwhelming majority of the claims related to the activities of Robyn Cochrane while she had authorities either from Financial Wisdom or ANZ. At the time of his appointment he understood that the Board considered that it might be liable for a claim made by Mrs Grieve and that it was Corrs which would represent it in the ongoing investigations and resolution of all claims. When further claims emerged, they were investigated in consultation with Corrs. 307Mr Gadd then reported to Mr Davies, but soon advised of his intention to resign. He appointed Mr Hollands to replace Mr Gadd on a consultancy basis and ensured the continued implementation of internal audit procedures, by engaging external consultants. 308When he was appointed, Mr Davies was concerned to have feedback from ASIC. It appears that it was Mr Burgess who gave him a copy of the September 1999 letter in which ASIC had explained why it considered Chapel Road to be non-compliant and the areas which needed to be addressed. Mr Gadd had provided information as to the steps it was pursuing by way of response. ASIC had advised of its ongoing concerns and had sought further information about these matters, to which Mr Gadd had responded. The decision Mr Burgess had anticipated to be imminent, had not yet been made. 309Mr Davies' evidence was that between March and May 2000 he asked Mr Burgess whether he could give Chapel Road "any reports that have been completed from the surveillance of Chapel Road". Mr Burgess told him that 'there is no report'. He recalled him saying in May "Stop asking for a copy of the report. No report exists". As I have earlier explained, I am not able to accept that evidence. Rather, it is more likely that Mr Burgess told Mr Davies what he had told Mr Gadd, that there was no report to give Chapel Road. 310On 31 March Ms Redfern wrote to Corrs seeking a response to the matters discussed at the 2 March meeting. She received no response. 311Ms Donselaar had been asked to prepare a plan for the second surveillance. On 5 April, the plan she had prepared was finalised. It referred to the two earlier surveillance visits in August and September 1999, the issues of concern then identified and the actions taken by Chapel Road. It noted that on 22 March, it was agreed that a fresh surveillance would be conducted, with the team "to determine the effectiveness of the current compliance regime and whether or not Chapel Road was meeting its licence conditions as a licensed dealer in securities". It also noted: "Meanwhile, there has been a change of management at the Senior levels in Chapel Road. While this, of itself, does not cause concerns, it is noted that there has been a significant change in attitude during the negotiations in relation to compensation payments relating to Mr Cochrane's activities from cooperative to refusal to partake in the process." 312The purpose of the review was identified to be: " ... to determine the efficiency and the completeness of the compliance system as amended by Chapel Road. In its letter to ASIC of 10 February 2000, Chapel Road states that 'we (Chapel Road) believe our compliance is of industry standard.' The purpose of this component of the surveillance is to determine: * the effectiveness of the changes made (does it have genuine regulatory impact or is it merely 'window dressing'?) * the strategic development and rigour of the changes made (are they merely reactive, do they address the total needs of compliance for the dealer and will they last?) * The adequacy of the current compliance plan and structure to ensure an effective compliance regime (importantly, does the compliance structure ensure reasonable advice for clients and safety of their funds?)." 313The review was to consider the operation of the compliance and training committee, the implementation of the compliance plan, the operation of the new internal complaints resolution arrangements, how new advisers were appointed, the rating system and the supervision of advisers, amongst other matters. 314All those involved in settling the surveillance plan were aware that Chapel Road had not been provided with a copy of Ms Donselaar's March report; that it thus had not had an opportunity to address her identified concerns before the further surveillance was conducted; and that it was still pursuing various steps to address the concerns which had been identified by ASIC in September. 315It is reasonable to infer that those involved would have known that Chapel Road would have taken steps to attempt to address the concerns identified by Ms Donselaar, had it been given an opportunity to do so, as it later did. That the decision to pursue further surveillance at that point was made with intention to harm Chapel Road, rather than in order that ASIC could determine what regulatory response it should pursue, given the ongoing concerns it had about Chapel Road, may not, however be properly inferred. There were serious, ongoing concerns which ASIC was properly pursuing, given its statutory obligations. 316On 12 April ASIC issued Chapel Road with a s 788 notice, requiring it to produce certain documents. A further notice was issued on 27 April, after Mr Davies spoke to Ms Layton on 26 April. Mr Gadd was also advised by Mr Burgess of the further surveillance to be conducted in May and June. Chapel Road was given an extension of time to produce documents and Mr Davies sought a meeting with Ms Diplock, ASIC's NSW Regional Commissioner. That these steps were taken to harm Chapel Road for the stance it took at the 2 March meeting, cannot be inferred ( Finding 17). 317On 27 April a banning order was made by Mr Reynolds against Mr Owen after proceedings at which Mr Bahles had given evidence as to steps taken by Mr Owen, while an authorised representative of Chapel Road and the training, induction, directions and supervision which he had received from Chapel Road. 318On 27 April Ms Layton wrote to Mr Davies, advising that a further surveillance would be undertaken in May and June. 319On 3 May Ms Redfern wrote again to Corrs, advising of five unsuccessful attempts to contact them since the 2 March meeting and referring to their failure to respond to the 31 March letter. An immediate response was sought. Corrs replied on 4 May advising that work had been undertaken by them and Chapel Road in investigating claims. It was advised that "there may be between two and four losses where it may be able to be said that the negligence of Chapel Road facilitated misconduct by Robyn Cochrane", but given the time elapsed and the claims received, it appeared that the bulk of any losses established were likely to fall upon Financial Wisdom. Ms Grieve and Mr Cullinan's claims were being pursued and ASIC was asked how it wished to proceed. 320The 5 May Board meeting minutes recorded that documents were to be provided to ASIC by 10 May and that breaches of licences were "to be looked at by the Corporate Governance Committee". The minutes also referred to Mr Owens and that Chapel Road should try to assist him "as long as licence is not put in jeopardy". It also noted: * HO made statement that CR provided no training and had him sign a Dealer's Agreement which he did not read. His attitude is not uncommon amongst reps. * Chapel Road needs to set precedents has responsibility to public and government agencies. 321On 10 May Mr Davies provided various documents to ASIC. He then advised that some documents which it had sought did not exist. For example, he advised that there were no internal or external reports relating to its compliance system or its selection, training or supervision of authority holders, or in relation to any risk rating or risk assessment in the relevant period. Nor had any file audits been conducted, although the plans of Mr Owens and one other representative had been reviewed. 322Chapel Road's ongoing failures in meeting its compliance obligations and addressing the concerns expressed by ASIC in its 24 September letter, was then plainly apparent, clearly explaining why ASIC pursued the second surveillance. 323Mr Gadd's evidence was that he was then aware that this advice would have caused ASIC further concern, as would advice given as to procedures on appointment of new representatives, given ASIC's concern that they were not being sufficiently trained before they started writing business. Mr Gadd said that he himself had concerns about these responses at the time, because they revealed that steps which Chapel Road had earlier told ASIC it would pursue, had not been taken. 324The state of Mr Davies' understanding was different, if his evidence was to be accepted. It is difficult to do so in the circumstances, given his position. In my view, Mr Gadd's evidence must be preferred. 325Mr Burgess met with Mr Davies and in a memo of 11 May, noted that he had given Mr Davies a copy of ASIC's 24 September letter, after Mr Davies had asked if ASIC had sent a report to Chapel Road after the first surveillance. Mr Burgess noted Mr Davies "was not aware that a report had been sent". Mr Burgess did not mention Ms Donselaar's March report. 326Mr Davies also arranged to meet with Ms Diplock, on his evidence because of his concern at the considerable time he and other Chapel Road employees had spent on complying with ASIC's demands to provide the documents he had delivered. He was then also concerned that ASIC was withholding a report resulting from the previous surveillance and he wanted to know why another was to be conducted, when it had not received any feedback after the steps it had taken in response to ASIC's 24 September letter. This evidence cannot be accepted in the face of Mr Gadd's evidence and what the documents in evidence revealed. Mr Davies' approach was inconsistent with that which experts agreed was required at the time. 327ASIC had earlier responded to advice Chapel Road had given it after 24 September, telling it of its ongoing concerns, seeking and receiving further documents and explanations as to steps being pursued and delays in implementation of various proposed steps. The advice which Mr Davies gave on 10 May, amply revealed that Chapel Road had not delivered what it had promised. The concerns which prompted the second period of surveillance, plainly had a real foundation. Problems were continuing. 328In May Mr Gadea advised Mr Davies of another claim received from a Ms Batson. He wrote to her in July after liaising with Corrs, then spoke to her and responded to Mr Gadea. 329Mr Gadd audited one of Chapel Road's proper authority holders, Mr Budd, on 12 May. His 19 May report identified various deficiencies which he considered to be of concern, of which he notified the Board. He met with Mr Budd on 22 May and on 26 May notified ASIC of a potential breach of licence conditions and the steps taken to deal with the problems uncovered in the audit. On a further audit in June, Mr Gadd found significant shortcomings still existed. 330On 16 May Mr Wroe sent a memo to Ms Diplock about "Cochrane/Chapel Road", explaining the investigations pursued in relation to Robyn and Stephen Cochrane and Chapel Road and the claims which had emerged. It noted that it had become "apparent that R Cochrane had misappropriated monies from one client in order to pay another". Amongst other things he reported that ASIC "was not aware of the extent of the misconduct at this stage"; that while Chapel Road had initially agreed in principle with ASIC and the other licensee to a procedure, it finally regarded what was proposed to be unfair. He also noted that Chapel Road's exposure for Mrs Cochrane's misconduct 'was relatively small', by comparison to the other licensees, given the time that the misappropriations had occurred and outlined the claims Chapel Road was investigating and those ASIC intended to pursue with it. 331Chapel Road's management minutes of 18 May referred to Mr Davies' impending meeting with Ms Diplock and its position, that it had no problem with the proposed audit and that it was "on a learning curve and are endeavouring to run the company to the letter of the law". It also noted that Chapel Road had not received a final report from ASIC from the January audit, that the second audit could be as a result of this and that ASIC "will be looking for improvements". In his evidence Mr Davies was not certain that the reference to a January audit was in error, as it plainly was. There was no such audit. 332On 19 May Mr Burgess advised Mr Davies that ASIC would undertake the review on 1 and 2 June. 333On 22 May Mr Davies wrote to Ms Diplock advising of the matters he wished to discuss with her, including amongst other things, that Chapel Road was awaiting a follow up report promised in January, unrelated to the 24 September report; asking why another audit was being conducted and whether that was normal practice. Mr Davies had no recollection of this letter, but insisted that he then wanted to know why they had not then received a report on the first surveillance, notwithstanding what was in the 24 September letter. Mr Davies could remember going to the meeting with Ms Diplock on 25 May, but not what occurred. 334There is no question that there were then serious, ongoing problems with Chapel Road's level of compliance with its obligations, which Mr Gadd, if not Mr Davies had appreciated, before his meeting with Ms Diplock. 335Ms Diplock later asked for clarification from Ms O'Reilly as to the Owen and the Cochrane claims. Ms Diplock said in her memo that her impression was that Chapel Road thinks: "... we are trying to pin matters on them well outside the relevant period. It would seem that early clarification of which claimants we see as they are liable for would clear the air. Perhaps that has been done and they are refusing to agree. Perhaps that has been done and they are refusing to agree? Terry Griffiths made it clear they accept liability for all Stephen C signed. Are there others from our point of view?" 336Ms O'Reilly arranged to meet with Mr Davies to discuss ASIC's position on the outstanding claims. 337On 24 May a notice requiring production of documents was sent to Mr Gadd. On 25 May Mr Burgess wrote to Mr Davies advising that the impending review would consist of two parts. The first, discussing with appropriate Chapel Road staff "the organisation's compliance, training, supervision and complaints handling" and the second, a review of operational issues concerning "compliance system, supervision of advisers and complaints handling", which would include "testing of processes and reviewing of documentation". There would later be reviews undertaken of proper authority holders. 338On 26 May Mr Davies wrote to Mr Burgess seeking a 90 day extension for the pursuit of identified remedial action in relation to two proper authority holders, Mr Owen and Mr Budd; to implement changes in its compliance manual, discussed on 25 May; to implement induction procedures for proper authority holders; and to pursue further discussions with ASIC about complaints procedures. The request was raised with Ms Diplock. It was opposed by the surveillance team, given the time elapsed since ASIC's September advice in relation to the first audit. It was suggested that a shorter period of three to four weeks, would be adequate. The extension was finally not pressed. 339A memo of 31 May noted that Mr Davies spoke to Ms O'Reilly asking for a letter confirming that ASIC had required Chapel Road to appoint Mr De Vries and suggesting that Mr Bahles had acted outside his authority in appointing him. It wished to pursue the resulting cost with its insurer. Mr Davies followed this up with a written request on 16 June, asking Ms Redfern to "supply Chapel Road with a letter outlining your request for the External Audit last year". On 22 June, Mr Gadea replied, providing a copy of ASIC's 12 August 1999 letter. 340The surveillance commenced on 1 June. Mr Davies, Mr Gadd and Mr Redpath were present with Ms Layton, Ms Anderson, Ms Korkofigas, Mr Bertrans and Ms Burgess from ASIC. The interview proceeded by way of pre-prepared questions, based in part on Ms Donselaar's March report, the existence of which had still not been disclosed to Chapel Road. Some of the questions were framed by reference to that report, but its existence was not disclosed at the meeting. 341Amongst other things the notes of the interview record that the Audit Committee Chapel Road had proposed to report to the Board had not met and no audits had been conducted. The Compliance and Training Committee had been established, but it had no terms of reference and had met only once in December 1999, because of staff vacancies. No reports had been made to the Board about Chapel Road's compliance plan, but it had been updated in April. It was noted that Chapel Road had for the first time learned that ASIC thought the Plan required improvement at the 25 May meeting and that it would have appreciated communication of that beforehand and time to investigate and fix problems. 342On 13 June ASIC advised Chapel Road of the proper authority holders it proposed to review and required the production of further documents. Those reviews proceeded between 13 and 16 June. 343On 16 June Mr Davies provided further information sought in relation to certain proper authority holders, about which ASIC had advised it had concerns. On 22 June Mr Davies wrote to Mr Gellett, Mr Bennett and Mr Honeyman, advising that Mr Burgess had advised him that that ASIC would be seeking further documents; that they should not expect to receive a report from ASIC; and that the team would report to Ms Diplock. Further documents were sought from Chapel Road in July. 344In June Mr Gadd left Chapel Road's employ, taking a position as one of its proper authority holders. Mr Hollands was then appointed compliance manager and Mr Gadd gave him some assistance by telephone, for a few months after he left. Mr Hollands audited Mr Gadd soon after he began, with Mr Gadd's support. 345Mr Hollands' evidence was that he had been involved in numerous meetings with Mr Davies, Mr Bennett and Mr Redpath before he joined Chapel Road. He was advised of ASIC's ongoing surveillance and was engaged to respond to regulatory deficiencies or shortcomings identified either by ASIC or Chapel Road's own consultants. He believed that there was then a determination to improve its performance and the public and regulatory perception of the company. 346Mr Hollonds was required to address all issues relating to compliance generally and the necessary training and supervision of proper authority holders and various employees. He took over ongoing issues with the compliance plan and manual, as well as induction for new appointees and their initial training. He sought assistance from the Financial Planning Association, Ms Giles and THP, who he was informed had previously assisted with the auditing and review of proper authority holders. 347In cross-examination Mr Hollonds agreed that before his appointment his qualifications were a financial planning course which he had completed in 1988. He had worked as a financial planner between 1985 and 1989 and had never worked in a compliance function before his appointment. He then commenced studying a Diploma of Financial Planning, completing the first two subjects by 2001. The Financial Planners Association assisted him, as did Mr Gadd and other people, in order to understand his job. 348After he was appointed Mr Hollonds reviewed the compliance plan and arranged for it to be updated. He was then aware that there was no legislative requirement for a licensee to have either a compliance plan or manual, but he was aware of moves to enhance and strengthen practices relating to compliance and supervision generally in the industry. Mr Gadd told him that he and Ms Giles had produced these documents. 349Mr Hollonds understood that he had to ensure that what was in place satisfied statutory requirements and that employees and agents were aware of and complied with them. He continued with the development of the manual, working with Ms Giles, with whom a compliance classification program was also developed. He also continued with the continuing education and auditing of proper authority holders and with regular consultation with ASIC officers, advising Mr Burgess of the surveillance visits he had scheduled. It was intended that 10% would be the subject of an external audit. There were four conducted in 2000. 350On 5 July Corrs wrote to Ms Redfern regarding its 4 May correspondence and apologising that it and Chapel Road had not formally responded to the claims of Ms Grieve, Ms Clutter, Mr Buick, Ms Cullinan and Ms Batson, the explanation being both it and Chapel Road understanding the other was dealing with their claims. Corrs advised that it was still awaiting instructions on advice it had given in relation to possible settlement of some of the claims and asking who at ASIC it should further deal with 351On 7 July Mr Davies advised Mr Gadea that Financial Wisdom had settled Mr Batson's claim. 352Mr Davies spoke to Mr Burgess who he said told him that there were mistakes in the compliance manual, but declined to tell him what they were and advised that it had not yet been complied with and that he hoped to respond the following week. I have earlier dealt with this evidence and that of Mr Hollands in my credit findings. 353Mr Hollonds wrote to ASIC on 7 August, providing further documents, including its 2000 profit and loss statement, to demonstrate Chapel Road's commitment to its responsibilities. He explained his background and experience and advised of developments in relation to continuing professional development, regulation and ethics training, compliance visits and the compliance manual. He also asked for comments in relation to suggested changes. Further information was provided on 21 August in relation to Mr Owen. 354In August ASIC issued a surveillance report. A number of drafts of that report were also in evidence. Mr Burgess sought Ms Donselaar's advice about the report on 4 August. As Chapel Road submitted, it may be inferred that it was then known that it was likely that she would form an adverse view of Chapel Road, it not having had the opportunity to respond to the criticisms in her March report. That was also likely given Mr Davies' advice that steps Chapel Road had said it would take to respond to the advice it had received from ASIC in September 1999, had not been pursued or implemented. (Finding 16). 355In a memo of 4 August, Mr Gadea advised Ms O'Reilly that Corrs had asked him whether ASIC could confirm whether Mr Buick, Ms Cullinan, Ms Grieve and Ms Clutter had received payments from other Licensees. He also received a call from a Ms Adam, advising that she had made a claim on Chapel Road some months previously. He noted that neither ASIC nor Corrs appeared to be aware of the claim. Ms O'Reilly enquired whether the review of Chapel Road's complaint handling procedure had identified her claim. On 9 August he spoke to and wrote to Mr Davies about Ms Adam's claim and a further claim received from a Mr Drew. 356On 9 August Mr Gadea spoke to Mr Davies to advise him of two further claims, from a Ms Adam and a Mr Drew, advising that the claimants had received documentation on Chapel Road letterhead and had gone to Stephen Cochrane's office to receive advice. Mr Davies agreed with the note Mr Gadea kept of that conversation. He did not know why the claims were being pursued with Chapel Road when the claimants had not had dealings with Chapel Road or Stephen Cochrane. Mr Gadea advised him, nevertheless, that the claims needed investigation. Mr Davies told him of his concern at the increase in Chapel Road's insurance premiums. Mr Holland's evidence was that he was asked to investigate these claims. Chapel Road later denied liability for them. 357The same day Corrs wrote to Ms Redfern complaining that it had not received a response to its correspondence of either 4 May or 5 July and seeking the information it had sought in relation to Mr Buick, Ms Cullinan, Ms Grieve and Ms Clutter which Mr Gadea had advised, on legal advice, he could not provide. It said that it was entitled to be told whether ASIC still pursued any claims against Chapel Road in relation to those claimants. 358On 11 August Mr Davies noted in his general manager's report that ASIC "seemed agitated" that he had not informed them that Mr Gadd had left Chapel Road's employ. ASIC then had questions as to Mr Hollonds' qualifications for his position as compliance officer and the adequacy of the resources it was devoting to compliance issues. 359Mr Davies could not recollect ASIC suggesting to him that Chapel Road had been unco-operative in relation to the Cochrane claims. On 16 August, in a file note kept by Mr Gadea, telephone advice from Mr Davies that Chapel Road had received a claim from Ms Adams in 1999, which had not been followed up. Mr Davies advised that neither she nor Mr Drew "came across" as Chapel Road clients. Mr Davies was advised that their claims had to be followed up. 360A draft report circulated by Ms Korkofigas on 17 August, noted that the regulatory response options available to ASIC to deal with Chapel Road were licence conditions, enforceable undertakings and an administrative hearing to suspend/revoke Chapel Road's licence. The recommendation was: "While it appears that Chapel Road has attempted to implement a number of measures to address compliance deficiencies identified in ASIC's 1999 surveillance, further action needs to be taken to ensure that Chapel Road maintains adequate compliance structures in place so that will adhere to its licence conditions, particularly with regards to the training and supervision of its authorised representatives. It is considered that the most effective means of addressing this issue is by way of the imposition of additional conditions on its licence as a result of an administrative hearing. Preliminary recommendations in relation to the type of conditions that might be sought to he imposed on Chapel Road's licence include: * additional liquidity (NTA or SLF) requirements to ensure that Chapel Road is in a viable financial position to continue to carry on a securities business * obligatory comprehensive compliance audits to be conducted on each of its authorised representatives at least once (if not twice) a year (perhaps with the requirement that a certain number or proportion of audits be conducted by an external service provider such as THP) and formal regular reporting of results to ASIC * the use of an external compliance auditor to review the effectiveness of Chapel Road's compliance structure and audit program, who would report to ASIC on a six-monthly basis (for at least one year) * submission of a random sample of financial plans by authorised representatives to Chapel Road Head Office to review data collection, disclosure and quality of advice * the preparation of a comprehensive training schedule addressing a number of specific training issues eg. compliance, licence conditions, complaints handling, and technical training with a requirement that the training to be provided by an ASIC approved training organisation (as per IPS 146) * the implementation of a comprehensive induction or initial training program for all new authorised representatives * the continual review and monitoring of the effectiveness of the Compliance Plan and Manual." 361On 17 August Mr Wroe responded to Corrs, advising that it had misconstrued ASIC's role, which was not to represent claimants, but to assist them in forwarding their claims to licensees and monitoring the process which ensued. He noted the process implemented, given the number of potential claimants and the three licensees' obligations, which included keeping ASIC informed of progress. He said that ASIC could not comment on whether individual claims were maintained against Chapel Road and that s 127 of the ASIC Act precluded it from disclosing information given to it in confidence. He suggested that Corrs speak directly to the complainants and other licensees. On 18 August, Corrs replied, disputing the correctness of this advice, which was said to be illogical and incorrect. A "practical response" was sought. Mr Wroe responded the same day, disagreeing. Corrs persisted, asking ASIC to make enquiries of the claimants. It refused. 362On 18 August Corrs advised Chapel Road to make enquiries of the claimants. Mr Davies' evidence was that this revealed that other licensees had settled all but Ms Grieve's claims. Shortly afterwards the insurer settled with her, even though on Mr Hollonds' evidence Chapel Road's position was that it would accept liability only for those claimants who had losses by reason of defalcation of Stephen Cochrane, not Robyn Cochrane. 363On 21 August Ms Donselaar provided Mr Burgess with her second Compliance review report. She had various concerns about Chapel Road's compliance systems, which she explained in detail. She said: "Part V sets out a review of the proper authority holders. Once again, the issues raised highlighted poor auditing and training processes. Part VI sets out the recommendations for further action. Chapel Road has effectively been on notice since August 1999 that it must remedy areas of concern and has made some changes. However, they have been primarily in response to issues raised, rather than developing systemic processes and procedures for compliance. This has reflected in its inability to competently supervise and train proper authority holders. I agree that licensing action is probably the appropriate course to take in this matter. The use of an enforceable undertaking will probably only lead to the current remedial approach of apparent issues, rather than reviewing the licence obligations as a whole. I note the preliminary recommendations for proposed licence conditions for Chapel Road. My primary concern is that the effort and cost in maintaining the licence be placed on the dealer, not ASIC. To that end, the use of external reviews are warranted, however further consideration should be given as to the role of ASIC in independently reviewing documents. I would suggest that such reviews be undertaken, but a full report provided by an external consultant. A specific timetable should also be envisaged to ensure that immediate problems are remedied (such as Mr Budd) and that effective processes and procedures are put in place to ensure compliance. The immediate problems should have a very short timeframe (one to two months) and the processes should be remedied within six months. I believe a short time timeframe is appropriate, given the fact that Chapel Road has had adequate time to remedy its position. Summary I restate my original findings in March 2000 that I am not satisfied with the standard of compliance demonstrated by Chapel Road. The documents presented to me for the purposes of this paper demonstrate some work being done, however a number of the documents are effectively the same as those I have previously reviewed. I have some concerns about the proposed compliance classification program and believe it will fail in the current haphazard approach to compliance audits. I believe that Chapel Road has had ample opportunity to resolve the initial concerns and licensing action should be taken by ASIC. The final report by NSWRO may wish to take into account some of the observations set out in this paper." 364Ms Donselaar was not called to give evidence. There is no evidence that Ms Donselaar was advised that Chapel Road had not received her March report, nor been informed of its contents (Finding 20). It is thus possible that she assumed in preparing her August report, that it had received a copy of her March report and had failed to address her criticisms, although provision of her report did not accord with ASIC's practice. Her preparedness to have Chapel Road provided with her report was in the context of enforceable undertakings being pursued with Chapel Road. That had not been pursued (Finding 18). 365That it had received a copy of her March report and had failed to address her criticisms was submitted available to be inferred from the report itself. There Ms Donselaar explained her view that Chapel Road was being reactionary, rather than systematic or proactive in relation to its obligations, having regard to various documents, including Mr Hollonds' 7 August letter. She observed that in her March report she had said that the compliance manual was deficient because it was inaccurate, dated and did not refer back to the organisation - specifically the compliance plan. She considered that Mr Hollonds had missed the point in his approach, which he had advised was to review the manual by reference to another dealer's manual. 366It certainly seems possible that Ms Donselaar wrongly thought that Mr Hollonds and Chapel Road had seen her March report. It is also possible that she simply considered their ongoing approach to the review of the manual inappropriate, given its purpose and the problems identified in 1999 surveillance and how they had been dealt with. In other comments she observed that changes made had not addressed concerns she had earlier expressed and so simply reiterated her earlier comments. 367Ms Donselaar was concerned at its ongoing failure to deal adequately with the matters initially raised with it by ASIC in 1999, for the reasons she explained. Her comments do not, however, establish a view on Ms Donselaar's part that Chapel Road had simply refused or declined to respond to her earlier criticisms (Finding 18). 368It is also possible that when other ASIC officers received Ms Donselaar's August 2000 report, they considered that she had incorrectly believed that Chapel Road was aware of the matters raised in her March report and knew that belief was incorrect. If that was their belief, there is no evidence that Ms Donselaar was advised that her understanding was incorrect. (Finding 19). 369ASIC plainly then considered that Chapel Road was still not adhering to all of its licence conditions. Some of the steps it had itself identified it would implement to rectify its deficiencies, prior to the second surveillance, had not been put in place. 370A meeting to discuss Ms Donselaar's report and 'the way forward' was fixed by Mr Burgess for Thursday, 24 August. Potential outcomes then identified in an Enforcement briefing of 22 August were: "The possible outcomes of the surveillance include that Chapel Road's compliance structures now meet its licensing conditions, revocation of Chapel Road's dealers licence, imposition of licence conditions or enforceable undertaking." 371On 22 August Ms Layton raised with Mr Burgess the draft report and enquired as to Ms Donselaar's views and the need for input from her and Ms Redfern in relation to the strength of ASIC's case, the desired outcome and the strategy for getting a legal outcome. Ms Anderson was to have charge of the matter, once it became a legal matter. An action plan was also required. 372On 24 August Mr Hollonds was asked to provide certain records in relation to Mr Owens. In a conversation with a Mr Thompson, he claimed to have been told "you've been primed by Mr Owen" and "you're in collusion with Mr Owen". The context of this conversation was not explained, but on Mr Bennett's evidence Chapel Road continued to support Mr Owens until his appeal against his banning order failed. 373On 24 August Mr Hollonds wrote to Mr Gadea about Ms Adam and Mr Drew, to whom he had spoken, as well as Ms Cullinan, Mr Buick and Ms Clutter. He provided further information on 28 August after speaking to Mr Gadea. 374A decision was made to refer the matter to a delegate and on 25 August 2000, Mr Burgess and Ms Exline Starr met to discuss a possible presentation to the delegate. 375On 30 August Mr Burgess received advice that an examination of Chapel Road's financial records required further investigation. That day, Ms Anderson wrote to Ms Layton outlining steps and a proposed timeline for matters which ASIC needed to pursue. They included ongoing investigations into financial matters, meeting with the delegate, finalising expert reports, preparing a brief, advising Chapel Road of ASIC's concerns, outlining licence conditions and advising it of a right to a hearing. The imposition of licence conditions was then in contemplation. (Finding 20). At that stage, it was contemplated that there might need to be a hearing, at which Ms Donselaar would be a witness. That was something which Chapel Road was entitled to require, if licence conditions were to be pursued. 376On 4 September Ms Anderson advised Ms Layton of further work undertaken on the wording of licence conditions and other steps which had been pursued. Mr Reynolds had been identified as the delegate to whom the matter would be referred. He was, however, to be on leave for 6 weeks so that it was likely that another delegate would have to be identified, possibly Ms Latimer. Work had also been performed on draft "areas of concern" for a notice of hearing. 377On 4 September ASIC engaged an external consultant, Mr Brady, to advise it in relation to the quality of advice given by Chapel Road's proper authority holders and their adherence to industry standards. He was provided with files randomly selected from the authority holders who had been reviewed. ASIC also reviewed Chapel Road's solvency. 378On 5 September Ms Korkofigas provided the draft surveillance report to Mr Reynolds for information (Finding 22). The options and recommendations were: 1. Regulatory Response Options In order to ensure that Chapel Road adheres to the conditions imposed on its dealers licence or, if appropriate, that Chapel Road ceases from carrying on a securities business, it is considered that the following options are available to ASIC: · The imposition of conditions on the licence of Chapel Road. If this option is chosen as appropriate, it will be necessary for ASIC to conduct an administrative hearing before a delegate. The purpose of that hearing will be strictly for the purpose of allowing Chapel Road to address make submissions and give evidence in respect to the additional conditions which ASIC proposes to place on the Chapel Road licence. Once the new conditions are in place on the Chapel Road licence, breach of those conditions may result in a further administrative hearing for the suspension/revocation of Chapel Road's licence. · Enforceable Undertaking. An Enforceable Undertaking allows ASIC to take immediate action in the Supreme Court should Chapel Road breach any of the conditions of the Enforceable Undertaking. Further breach of conditions of the Enforceable Undertaking or any ongoing failure on the part of Chapel Road may be addressed by way of an administrative hearing for revocation / suspension of the Chapel Road licence. · An immediate administrative hearing to suspend/revoke Chapel Road's licence. As noted above, the suspension or revocation of Chapel Road's licence will require an administrative hearing before a delegate to determine whether licence conditions have been breached warranting the removal of Chapel Road from the industry. 2. Recommendation While it appears that Chapel Road has attempted to implement a number of measures to address compliance deficiencies identified in ASIC's 1999 surveillance, further action needs to be taken to ensure that Chapel Road maintains adequate compliance structures in place so that will adhere to its licence conditions, particularly with regards to the training and supervision of its authorised representatives. It is considered that the most effective means of addressing this issue is by way of the imposition of additional conditions on its licence as a result of an administrative hearing. 379On 5 September Ms O'Reilly advised Ms Layton of problems revealed by Mr Hollonds' correspondence in relation to certain claims. She did not consider ASIC could give an adjudication in relation to its liability for claimants. That day Mr Gadea wrote to Mr Hollands, asking him to write to Ms Clutter, informing her of the reasons for Chapel Road's denial of her claim. 380In a report to the Board of 6 September 2000, Mr Hollands reported that Mr Burgess had advised him on 30 August that a report had been presented to the Commission and that: "He would not elaborate about their findings except to say that there would be some remedial action required. Having said this, he seemed to be fairly particular in saying that there was no need to panic but to 'soldier on regardless'. He sated that he has noted in his report the fact that that we have been doing a lot of work to adhere to our dealership requirements. There has been still no feedback to date from ASIC regarding its findings during the adviser audits conducted. 381By way of contrast, in his statement, Mr Hollands said as to this conversation: "On 30th August 2000 Mr Burgess rang me. He said words to the following effect: "my report has gone to the Commission and its lawyers - Chapel Road will get a report back with required action - soldier on regardless" 382Mr Hollands also reported that in relation to Ms Grieve, the matter had been basically taken out of Chapel Road's hands, with HIH making an offer to settle her claim. 383On 6 September, minutes of a managers' meeting record Mr Hollands ' report that Mr Burgess had advised that he expected a report on the audit to come to Chapel Road within a month. Mr Davies' report of that day noted that "it should be business as usual for CR and attend to the action when notified". 384Mr Burgess' expectations of when information would be provided to Chapel Road was not met. There were delays caused by officers' pressure of work and Mr Reynolds's absence on leave. 385On 8 September Ms Korkofigas sent a copy of the preliminary surveillance report to Ms Diplock, noting that it had to be amended to include references to a report Ms Donselaar was preparing and the awaited report from Mr Brady. 386On 11 September Ms Donselaar sent a draft report for hearing to Ms Anderson and Ms Korkofigas and sought comments before it was finalised. There she concluded: "In its correspondence to ASIC, Chapel Road has stated it is adopting a series of remedial actions in its business. While some action has been taken, it is my opinion that Chapel Road has no coherent strategy to effectively manage the licence obligations to train and supervise its representatives. The current compliance approach appears reactionary, rather than systematic or proactive. I do not believe Chapel Road effectively supervises its representatives due to its inadequate compliance structure and review process. The initial training is conducted after proper authorities are issued, and I believe no effective ongoing training strategy is in place. I also believe that Chapel Road does not have an internal dispute resolution system that meets the regulatory requirements. To that end, it is my opinion that the ability of Chapel Road to meet its licensing requirements should be critically evaluated by ASIC." 387That day ASIC's Commissioners were advised by Ms Layton that DISC NSW's surveillance of Chapel Road was complete; that ongoing deficiencies had been identified in its compliance with the Corporations Law and its licence, exacerbated by its failure to implement a robust compliance scheme. They were provided with an executive summary of the report, which was to be provided the following week, together with Ms Donselaar and Mr Brady's reports. Ms Layton advised that a brief was to be lodged with the delegate by the end of the week and that the view which had been reached was that: "..further licence conditions need to be imposed on Chapel Road. While these are still under discussion with Legal, we have outlined these in draft in the attached document" 388As it transpired, Mr Brady's report was not completed in sufficient time for the brief to be sent to Mr Reynolds and on 12 September, Ms Latimer agreed to be the delegate. In the October DISC monthly report it was noted that the brief had been forwarded to the delegate with a show cause notice, requesting imposition of further licence conditions. 389On 3 October Mr Burgess told Mr Hollonds he was waiting for the Commission's report. 390On 6 October Ms O'Reilly wrote to Ms Anderson about Robyn Cochrane and how Chapel Road had dealt with ASIC's proposed procedure and the complaints it had later received. She advised that ASIC's view had been that Chapel Road was liable for advice given to clients by Robyn Cochrane after Stephen Cochrane became its authorised representative. 391On 9 October Ms O'Reilly wrote to Ms Layton confirming that it had been agreed in discussion with Ms Redfern that the way in which the Cochrane claims had been dealt with should be part of the administrative proceedings pursued against Chapel Road. That view was not accepted by Mr Reynolds. 392On 18 October ASIC received advice that Financial Wisdom and Chapel Road had agreed to mediate Mrs Clutter's claim. 393Ms Latimer was unable to deal with the Chapel Road matter and in October it was decided to hand the matter to Mr Reynolds on his return from leave. 394On 13 November, Mr Burgess told Mr Hollonds that it would be two weeks before Chapel Road got the Commission's report. 395On 17 November Ms Donselaar produced her Compliance report - Licensing. It indicated that she had reviewed Chapel Road's systems of compliance and internal controls in relation to its licences. She considered supervision and training of advisers as well as complaints resolution procedures. She concluded as to its resources that the Compliance Committee was inadequate in ensuring effective compliance and supervision of representatives, noting that it had met only once in December 1999. Reports to the Board suggested that the compliance manager's activities were reactionary, without any long term strategy; that while Mr Gadd was employed, further resources were required; and that he had been replaced by Mr Hollands who lacked experience. The result was that adequate resources had not been devoted, particularly given the inadequacies of the committee structure and poor reporting to the Board. 396As to Compliance Standards, Ms Donselaar applied the Australian Standard for Compliance Programs to the compliance plan, which she considered fell short of the standard in identified ways. She considered its compliance manual to be generally adequate, but failed to address a number of identified areas. She also identified problems in linkage between the plan and the manual. She also did not consider that a robust compliance regime was in place, given the way in which reviews were conducted. Ms Donselaar explained her concerns about a proposed classification program addressing the requirements of the Corporations Law and identifying potential breaches of legislation, or effectively discouraging poor behaviour. She was also critical of the quality of compliance audit reports and initial training for representatives. She also had concerns about ongoing training and the complaints handling procedure. Her conclusion was: "In its correspondence to ASIC, Chapel Road has stated it is adopting a series of remedial actions in its business. Wile some action has been taken, it is my opinion that Chapel Road has no coherent strategy to effectively manage the licence obligations to train and supervise its representatives. The current compliance approach appears reactionary, rather than systematic or proactive. I did not believe Chapel Road effectively supervise its representatives true to its inadequate compliance structure and review process. The initial training is conducted after proper authorities are issued, and I believe no effective ongoing training strategy is in place. I also believe that Chapel Road doe snot have an internal dispute resolution systems that meets the regulatory requirements. To that end, it is my opinion that the ability of Chapel Road to meet its licensing requirements should be critically evaluated by ASIC." 397Mr Brady's report was provided in November. He considered advice given in many cases to be broadly suitable, but had concerns as to certain unsuitable advice given, accompanied by a lack of disclosure and poor data collection and in some cases, risk not being treated adequately. He had a particular concern about levels of disclosure, which he found often to have been inaccurate and confused, incomplete on commission and licensee/adviser splits. 398The 14 November Board Minutes note advice received that Mr Owen had accepted a banning order of 18 months from 9 November and how his clients were to be dealt with. 399By memo of 14 November, Ms Anderson advised Mr Burgess and others that she had met with Mr Reynolds regarding the brief and that "he considers our concerns serious enough to warrant revocation of their licence" (Finding 22). This was plainly a different view to that which had been taken to that point by other ASIC officers. That it was maliciously motivated, was not established. 400Ms Anderson there outlined things which needed to be "tidied up" before a notice was sent to Chapel Road. They included finalising the DISC surveillance report, including by the removal of the table of contents, and Part III which dealt with conditions affecting Chapel Road's licence (such as the Corporations Law, ASIC policy statements and Australian Standards) and Part VI (which dealt with Regulatory options and recommendations), which included a recommendation that additional licence conditions be imposed after an administrative hearing. 401The delegate Mr Reynolds was provided with the draft surveillance report, areas of concern document and Ms Donselaar's August report (Finding 22). That the surveillance report was amended as the result of his views may be inferred (Finding 23). That is supported by what was said in a memo of 20 November, where Ms Layton advised that "the Delegate has tentatively suggested licence revocation with imposition of conditions as the fall back condition". He plainly considered the circumstances revealed in the brief to be more serious than the surveillance team had considered, they having been of the view that licence conditions should be ASIC's response. 402On 27 November Mr Reynolds issued Chapel Road a notice under s 837(2) of the Corporations Law (Cth) of an administrative hearing as to what, if any action, specifically licence revocation, should be taken against it. Accompanying this notice was the areas of concern document and another document identifying the documents on which those concerns rested, which referred to a report by Ms Donselaar. The report which Chapel Road then received was her November report. It referred to the March report and thus did not represent that it was the November report which wholly contained her opinion. That was how the March report came to Chapel Road's attention. Neither the November report nor the areas of concern document referred to Ms Donselaar's August report. (Finding 23) 403Ms Donselaar's August report reiterated opinions which she expressed in her March report and the November report adopted things from both of those reports. In the August report Ms Donselaar also said, however, that: "Part V sets out a review of the proper authority holders. Once again, the issues raised highlighted poor auditing and training processes. Part VI sets out the recommendations for further action. Chapel Road has effectively been on notice since August 1999 that it must remedy areas of concern and has made some changes. However, they have been primarily in response to issues raised, rather than developing systemic processes and procedures for compliance. This has reflected in its inability to competently supervise and train proper authority holders. I agree that licensing action is probably the appropriate course to take in this matter. The use of an enforceable undertaking will probably only lead to the current remedial approach of apparent issues, rather than reviewing the licence obligations as a whole. I note the preliminary recommendations for proposed licence conditions for Chapel Road. My primary concern is that the effort and cost in maintaining the licence be placed on the dealer, not ASIC. To that end, the use of external reviews are warranted, however further consideration should be given as to the role of ASIC in independently reviewing documents. I would suggest that such reviews be undertaken, but a full report provided by an external consultant. A specific timetable should also be envisaged to ensure that immediate problems are remedied (such as Mr Budd) and that effective processes and procedures are put in place to ensure compliance. The immediate problems should have a very short timeframe (one to two months) and the processes should be remedied within six months. I believe a short time timeframe is appropriate, given the fact that Chapel Road has had adequate time to remedy its position." 404This, however, was not said in the November report. Chapel Road's case was that it would be inferred that it was Mr Reynolds who wished to have Ms Donselaar's report and the surveillance report 'sanitised', because they did not support his tentative view that the licence should be revoked. The evidence does not establish that Ms Donselaar's reports did not reflect the opinions which she held. 405The undated draft areas of concern document identified 7 areas of concern, including reference to how Chapel Road had dealt with the Cochrane matters. The final document did not include such concerns (Finding 23). The concerns identified included that Chapel Road may have breached the Corporations Law and its licence conditions; that it had not performed its duties efficiently, honestly and fairly; and that it would not perform such duties efficiently, honestly and fairly. Those concerns were described in Annexure A to the notice, which included failures in relation to: The provision of adequate initial and ongoing training for its proper authority holders. The supervision of its proper authority holders. Ensuring the necessary level of disclosure by its proper authority holders Ensuring appropriateness of advice to persons named in the notice An adequate internal complaints handling system An adequate compliance system Technical expertise and knowledge necessary to fulfil its responsibilities to its proper authority holders Performance of the duties of a licensed securities dealer efficiently, honestly and fairly 406The documents on which those concerns rested were identified in Annexure B. They included the August 2000 Surveillance report; interview notes taken during the surveillance exercise; Mr Brady and Ms Donselaar's reports and documents they were based on; ASIC Policy statements; and Australian Standards in relation to compliance programs and complaints handling. 407Amendments appear to have been made to the draft surveillance report and the draft areas of concern documents, as the result of the views which Mr Reynolds held and had discussed with other ASIC officers, who took them on board (Finding 23). The result was that no reference was made in the final documents to the Cochrane matters or to a recommended outcome, the imposition of licence conditions. Plainly, Mr Reynolds had different views about those matters, than did other ASIC officers. The approach finally adopted was designed to leave open an outcome consistent with his reaction to the material on which ASIC relied, that it might be sufficient to warrant licence revocation and that the Cochrane mattes were not of sufficient concern to warrant pursuit at the hearing. 408While the documents served on Chapel Road with the November notice did not include the March and August Donselaar reports, they were soon served, because Chapel Road asked Mr Reynolds about the March report and he ensured that both the March and August reports were provided. Otherwise the notice was in terms which adhered to the requirements of the applicable Hearings Practice Manual. 409Finding 24 sought by Chapel Road cannot be made. It was couched in these terms: "The actions of the delegate (supra [23]) were done with the intention of depriving CR of access to the opinion of DISC NSW (as contained within the draft surveillance report) and Ms Donselaar (as contained within her two earlier reports) and also to conceal from CR his belief that the manner in which he(the delegate) understood CR had dealt with the Cochrane clients was to be part of his adjudication process, and - therefore his intention was so to harm CR" 410The expert evidence was that such reports were not then provided to licensees as a matter of normal procedure. It was Mr Reynolds' actions which led to Chapel Road being provided with Ms Donselaar's March and August reports. His actions do not evidence any intention to harm Chapel Road. 411Mr Holland's evidence was that the notice of hearing surprised him, given that he could not recall any earlier request by ASIC which had not been immediately addressed. That understanding was plainly not correct. What the notice of hearing informed Chapel Road of was: "The Australian Securities and Investments Commission (ASIC) is concerned that Chapel Road Pty Ltd ("Chapel Road"): ● may have contravened a provision of a securities law, (section 826(1)(d) of the Corporations Law ("the Law")); ● may have contravened a condition of its licence, (section 826(1)(d) of the Law) ● may not have performed efficiently, honestly and fairly the duties of the holder of a dealers licence (section 826(1)(j) of the Law) ● will not perform efficiently, honestly and fairly he duties of the holder of a dealers licence (sectio n826(1)(k) of the Law); The purpose of this notice is to inform Chapel Road of these concerns and to offer chapel Road the opportunity of a hearing under s 837 of the Law before a decision is made as to what, if any, action should be taken against it arising out of those concerns, specifically whether an order revoking Chapel Road's licence should be made." 412It made no reference to licence conditions being imposed. It also advised that Mr Reynolds was the delegate appointed to "decide what, if any action, should be taken against you arising out of those concerns" and that they could include suspension of licence. 413The notice also advised that Chapel Road would be given an opportunity to make submissions and lead evidence at the hearing, at which it could be legally represented; that the identified areas of concern and possible orders would be discussed at the hearing; and it offered an opportunity to meet with Mr Reynolds to discuss the procedures to be adopted. An enclosed information sheet explained how administrative hearings were conducted. The evidence did not establish either that Mr Reynolds was not of the view that the matters raised were sufficiently serious that they might warrant licence revocation, or that there was no reasonable basis upon which that view could have been held. Nor did the fact that he had formed this view reveal any prejudgment. That was a pre-requisite to a notice being issued (see McLachlan v Australian Securities & Investments Commission [1999] FCA 244; 85 FCR 286 at [37]). 414Mr Reynolds and Mr Hollands spoke on 29 November. Mr Reynolds wrote to him that day advising that the documents he had based his concerns on, would be provided. On 4 December Mr Burgess wrote to Chapel Road providing documents and a copy of an amended Schedule B to the notice, which corrected some errors and identified the documents which had been sent. They included Ms Donselaar's November report, but not her March or August reports. 415Mr Davies' evidence was that he noticed the reference to the March report in the November report and then spoke again to Mr Reynolds, who initially told him that no such report existed, but then came back to him and provided a copy of the March report and then the August report, a couple of weeks later. The hearing fixed for 21 December 2000 was adjourned by Mr Reynolds to 19 January 2001, so that Chapel Road could consider and respond to those reports. 416That Mr Reynolds' actions were pursued with the intention of harming Chapel Road, rather than dealing with identified problems which he considered could be sufficiently serious to warrant revocation of its licence, cannot reasonably be inferred from the documents on which Chapel Road's case rested. Nor is it consistent with how Mr Reynolds proceeded. 417Nor can it be inferred that Mr Reynolds had acted to conceal his belief that the manner in which he understood that Chapel Road had dealt with the Cochrane clients to be part of his adjudication process and with the intention of harming Chapel Road. The latter contention rested on a view later expressed in Mr Reynolds' decision, where he said: "Whilst I am not aware of detriment caused by Chapel Road in respect to the proper authority holders noted in the materials, I am aware through ASIC media reports of a former Chapel Road proper authority holder, Steven Cochrane, whose clients lost monies through that person's actions or inactions. Therefore I do don't agree with Mr Pearson's submission that "it cannot be shown that any member of the public has been prejudiced", by any shortcomings of Chapel Road in the past." 418This cannot be sensibly read as revealing that Mr Reynolds sought to conceal from Chapel Road that he was taking into account how they had dealt with complaints made in relation to the Cochranes. The documents showed that ASIC officers considered that how Chapel Road had dealt with Cochrane complaints should be identified as a matter of concern notified to Chapel Road. Mr Reynolds took a different view and did not include those concerns when the notice of hearing and areas of concern documents were served. 419It was only when Chapel Road later submitted to Mr Reynolds that "it cannot be shown that any member of the public has been prejudiced" by its shortcomings, that Mr Reynolds referred to the Cochrane matters. Given what was known to Chapel Road, as Mr Bennett accepted in cross-examination in relation to Ms Grieve, that submission was not open. 420Had Mr Reynolds accepted and sought to conceal from Chapel Road that he took account of the views of other ASIC officers that how Chapel Road had dealt with the Cochrane claimants had not been satisfactory, shedding light on the inadequacy of its complaints process, he is unlikely to have reached the conclusion which he finally reached, about that aspect of its operations, to which I will return. 421Prior to the January hearing Chapel Road sought advice from both its solicitor and Ms Giles, the author of its compliance manual, in relation to the matters dealt with by Ms Donselaar in her reports. Ms Giles provided written advice on 29 December and Chapel Road amended its Compliance and procedure Manuals accordingly. 422On 15 January 2001, Chapel Road wrote to Mr Reynolds providing a written response to the areas of concern identified in the 27 November notice, copies of Ms Giles' advice and responses from two authorised representatives interviewed by ASIC in 2000. 423The hearing proceeded on 23 January. Ms Anderson and Mr Burgess assisted Mr Reynolds. Chapel Road was represented by its solicitor Mr Pierson. Mr Davies was present and Mr Hollonds, Mr Redpath, its business development manager and Mr Gellett, then its Chairman, were directed to be present. 424Mr Reynolds spoke with Mr Davies and the others present, particularly in relation to questions which he had arising from Ms Donselaar's reports, which he said he considered important to his task. They undertook to provide certain further information which Mr Reynolds sought. This included Chapel Road's amended compliance plan, which he wished to have Ms Donselaar consider and comment on, before making his decision. 425Mr Davies told Mr Reynolds that when he was first appointed, he had asked Mr Burgess whether ASIC had prepared any report in relation to its earlier surveillance and had been told "I don't think there's a report of any kind to come to you". That was contrary to the evidence in these proceedings, that it was Mr Burgess who provided him with the 24 September letter. 426He also said that the Board later instructed him that it was understood that there was a report to come to Chapel Road and so he approached Mr Burgess again. Mr Burgess confirmed that no report was to come to Chapel Road. Mr Davies asked Mr Burgess again in October and was again told that no report was to come to Chapel Road. On the expert evidence, that accorded with ASIC's then practice. 427Mr Davies complained that Ms Donselaar's March report had not been provided earlier and told Mr Reynolds that if it had been, her comments, which Chapel Road had welcomed, could have resulted in the adjustments it had recently made in April. Mr Reynolds noted this submission, which he said he would address in his decision. 428Mr Brady's report was also discussed. Mr Reynolds gave Chapel Road an opportunity to consider whether it wished to engage its own expert to review what Mr Brady had reviewed. 429When then given the opportunity to make submissions, Mr Davies made brief additional comments on the qualifications of Mr Hollonds and two other staff members. Mr Pierson sought the opportunity for Chapel Road to review its position, before making written submissions, which Mr Reynolds granted. The amended compliance plan and manual were to be considered by the Board at a meeting at the end of January. Mr Reynolds proposed to ask Ms Donselaar to review the final documents when provided and to provide her further report to Chapel Road, who would then have an opportunity to respond, by making further submissions orally or in writing, or producing further materials. 430Chapel Road thus had an opportunity to seek its own expert advice on its compliance plan and manual and whether it met Ms Donselaar's concerns and put it before Mr Reynolds, together with any submission which it wished to advance. Given the expert evidence, there can be no question that her opinions were proper matters for Mr Reynolds to have regard to. Chapel Road did not take that opportunity, but rather attacked Ms Donselaar's concerns for reasons which Mr Hollonds later advanced. 431Chapel Road provided information to Mr Reynolds on 23 January as to the meeting schedule for the Compliance and training and audit committees in 2001. That day it was sent a copy of the transcript of the hearing. On 7 February Ms Li advised Mr Reynolds that Chapel Road had provided the revised compliance manual and compliance plan, but other documents had not been provided. They were sent to Ms Donselaar for review. 432On 1 March Mr Hollands wrote to Mr Reynolds advising of steps Chapel Road had taken in relation to two authorised representatives and various compliance matters. 433Mr Davies' evidence in these proceedings was that if Ms Donselaar's March report had earlier been disclosed, Chapel Road would have earlier engaged Ms Giles to respond to her concerns and advised ASIC of the actions it had taken. As it transpired, those steps were taken before the January hearing. 434When she reviewed the results of the steps Chapel Road had taken to address her concerns, Ms Donselaar did not consider them to have adequately addressed the problems she had identified. The consensus which the experts finally reached in these proceedings, showed that there was a proper foundation for most, if not all of her concerns. 435On 8 March Chapel Road was provided with Ms Donselaar's March 2000 report. She there noted that the January 2001 compliance plan had been substantially modified from the two previous versions. She considered it to be significantly better than earlier drafts, but that the changes made were critically overdue and had taken too long to be initiated, given the time since Chapel Road had come under surveillance. She remained concerned about vague and loose terms used in the plan, which she considered still failed to clearly communicate an effective compliance system. While it identified compliance issues which needed to be addressed, it did not clearly state how, when and why steps would be taken. She remained concerned about issuing of new proper authorities and the timing of initial training of those appointed. She considered the plan breached Chapel Road's licence conditions in this regard. 436As to the Compliance Manual, Ms Donselaar noted changes made, but considered that what was provided to ensure that representatives were aware of their ongoing compliance obligations to the dealer, their clients and the law was poor and that the material did not outline training or assessment of representatives' knowledge and understanding of their compliance obligations. In summary, her concerns were: * The compliance plan fails to demonstrate effective implementation of compliance by Chapel Road, * The compliance plan appears to incorporate a compliance monitoring program on which I have previously expressed strong reservations, * The compliance plan, in my view, fails to meet the licensee's obligations pursuant to Corporations Regulations 7.3.02(1)(b), and is probably a breach of same, and * Training and assessment of the compliance manual and procedures is poor. 437Mr Reynolds then invited Chapel Road to make further submissions about the report and the concerns identified in the 27 November hearing notice by 3 April. 438Mr Davies' evidence was that if Chapel Road had earlier been provided with these reports, he would have ensured that all concerns raised were urgently addressed to the satisfaction of ASIC. Mr Hollonds gave similar evidence, claiming that if Ms Donselaar's concerns had come to his attention, he would have ensured "that every area of ASIC's concern was addressed as a priority" and that he would have liaised with ASIC as to what was required to address its shortcomings. That was belied by the actual response to Ms Donselaar's reports. 439Mr Hollonds' 9 March report to the Board advised that he did not consider Ms Donselaar's report to be at all objective. While he considered that some areas of concern could be rectified quite easily, others would take a reasonable effort to adhere to completely. Mr Pierson was engaged to formulate a response. 440On 15 March Mr Hollonds spoke to Mr Reynolds. On 19 March he wrote advising that Chapel Road would provide written submissions and given his advice that any further hearing would be restricted to submissions, rather than further discussion, it would not seek to make oral submissions. 441It is apparent that at this stage, what Mr Reynolds' decision would be, had not been finalised. On 22 March, Mr Burgess provided Ms Donselaar with recommendations for possible licence conditions which he and Ms Anderson had prepared, for her comment. 442On 27 March Ms Donselaar provided Mr Burgess with a report on Chapel Road's induction training course outline, provided to her on 16 March. She considered that it failed to meet the standard required. That report was provided to Chapel Road on 28 March and it was invited to make submissions by 3 April. 443On 2 April Chapel Road's solicitor provided written submissions to Mr Reynolds. There it was submitted that Mr Reynolds would be satisfied with the earlier written responses it had given to the concerns raised in Mr Reynolds' November letter and at the January hearing. Submissions were made as to Mr Brady's report. It was submitted that while there were some shortcomings in its past performance, it had not been shown that any member of the public had been prejudiced and that notwithstanding those shortcomings, an adequate level of service had been provided by Chapel Road. 444It was also submitted that the public was safe in the future, given the details of changes which had taken place, including reduction of the number of Chapel Road's proper authority holders, the increase in the number and qualifications of its staff and the improvements in its compliance auditing, education and training. It was argued that the improvement process pursued had resulted in a very high standard of compliance with licence obligations. It was also submitted that this would have occurred earlier, had Ms Donselaar's March 2000 report been provided before December, as it should have been, given the concerns she raised and ASIC's ongoing investigations. 445It was submitted that any action in relation to suspension or revocation of licence would only be taken if the circumstances and reasons were compelling and that regard would be had to the consequences of such actions for Chapel Road and its 34 proper authority holders and their employees. It was also submitted that there could be no sound basis for such a decision and that Chapel Road was then well placed to comply with its obligations, efficiently, honestly and fairly. 446On 3 April Mr Hollands wrote to Mr Reynolds about Ms Donselaar's reports in detail, explaining why he disagreed with her comments and conclusions. He observed that there was no obligation for a financial planning organisation to have a compliance plan and that Chapel Road was the only one, to its knowledge, which had one. He disputed that any breach of the law had occurred and queried how ASIC could have allowed Chapel Road to continue to operate, if it had had the concerns Ms Donselaar had, since the surveillance commenced. He advised Mr Reynolds that he considered her concerns in relation to training to be completely unfounded and her summary invalid. 447Given Mr Reynolds' advice as to the reliance he would place on Ms Donselaar's opinions, the consensus reached by the experts as to the foundation for Ms Donselaar's opinions and the problem with the approach that Chapel Road had adopted to meeting ASIC's concerns since advised of them in September 1999 about its ongoing problems, this appears to have been a most unfortunate response. It explains why Mr Reynolds came to the view that licence revocation, rather than licence conditions which had been prepared for his consideration should result. 448Mr Reynolds certainly did not accept what Chapel Road advanced through its submissions. He delivered a written decision on 26 April 2001, by which Chapel Road's licence was revoked. There he dealt with the concerns identified in the notice of hearing, by reference to the various documents before him, including the reports of Ms Donselaar and Mr Brady and Chapel Road's oral and written submissions. 449In relation to initial training, Mr Reynolds concluded that Chapel Road considered that a person who had passed a number of stages of the DFP, had knowledge to adequately perform the duties of a proper authority holder and therefore was sufficiently trained. He considered that this required some assessment of the practical application of the knowledge gained. He then referred to the position of three appointees. He concluded that Chapel Road had failed to ensure that its authority holders were sufficiently trained prior to their appointment; and that given the purpose of its induction course, that it did not provide adequate initial training to any person being appointed a proper authority holder. 450In relation to ongoing training, while Mr Reynolds accepted that Chapel Road had a continuous training program, he had not been provided with information which demonstrated its continuous training strategy or the content of its program. He was thus unable to form a positive view that any program it conducted was adequate in providing authority holders with the knowledge for the conduct of their duties efficiently, honestly and fairly. 451Mr Reynolds concluded that the recruitment and selection of proper authority holders, was ad hoc and that there was no process or procedure as to how recruitment was to be conducted or what factors were to be taken into account. 452In relation to ongoing supervision, Mr Reynolds also concluded that its approach was ad hoc. There was no contract with the external provider THC and no terms of reference or criteria specified for audits conducted, indicating what was intended to be achieved. He noted that remedial action which THC had identified was required in October 1999 and May 2000 in relation to one representative, had not been undertaken. He was concerned that Chapel Road did not have sufficient resources to undertake compliance audits. 453Mr Reynolds did not consider ASIC's role to be an industry consultant for individual licensees and that it was not its role to provide feedback of the kind Chapel Road had sought for improvement of its processes. 454As to quality of advice provided by advisers, Mr Reynolds concluded that shortcomings identified were not more of record keeping, than quality of advice, as Chapel Road had submitted, given identified failures to adhere to the law. He concluded that this reflected a lack of supervision and training by Chapel Road and that it had failed to ensure the quality of advice given by its proper authority holders. 455As to disclosure of proper authority holders' interests, he noted Chapel Road's submission that their practice had improved dramatically. He did not find any contravention of s 849, but concluded that through a lack of adequate supervision, Chapel Road was not aware of the conduct of named proper authority holders. 456As to unsuitable advice, no breach of s 851 was found, but again Mr Reynolds concluded that through a lack of adequate supervision, Chapel Road was not aware of the conduct of named proper authority holders. 457As to compliance with the Australian Standard in relation to complaints handling, Mr Reynolds concluded procedures which had been put in place were adequate to meet the standard. 458As to compliance structure, Mr Reynolds concluded that adequate resources were not devoted to compliance. He acknowledged that Chapel Road was not required by law to have a compliance committee, but considered that given that it had one, it should have a majority of external members, as the law contemplated for such committees. In the absence of external members, he did not consider that the committee could give adequate independent oversight of Chapel Road in relation to compliance and that it was inadequate in ensuring appropriate controls were being maintained to ensure effective compliance. 459As to the audit committee, Mr Reynolds concluded that it was no longer operating and that the compliance committee was undertaking its role. 460As to the compliance plan, Mr Reynolds noted that Chapel Road was not required to have such a plan by law. He considered that if it chose to have one, it should comply with the Australian Standard. He also considered that Chapel Road did not understand the purpose of such a plan and that its plan was inadequate. Mr Reynolds concluded that Chapel Road's compliance manual was adequate, but required some further revision. 461Mr Reynolds considered that Ms Donselaar's reports should have been provided to Chapel Road. He took the view that given that the views expressed in her first report were mirrored in her second and third reports, that Chapel Road had not been caused any detriment, but concluded that if her first report had earlier been provided, concerns expressed about the compliance manual in the notice of hearing may not have been so adverse. 462He concluded that Chapel Road had not efficiently, honestly and fairly performed the duties of the holder of a dealer's licence and that there was reason to believe that it would not do so. 463While Mr Reynolds accepted that revocation or suspension of its licence would cause detriment to Chapel Road's employees and authority holders, he also considered "the wider picture as to whether ASIC's decision in respect to that licensee fostered the integrity of the market place and the public confidence in the securities market". He concluded that Chapel Road "is a perceived threat to public interest and to public confidence in the securities market"; that it had fallen short of required standards; and that a revocation order should be issued. 464The evidence did not establish that these were views which Mr Reynolds did not hold, or that there was no foundation for them, or that he was motivated to reach these conclusions, maliciously intending to damage Chapel Road, as it claimed. To the contrary, the expert evidence supported the conclusion that there was a proper foundation for the views which he reached. 465In his evidence Mr Hollands explained the aspects of Mr Reynolds' decision with which he disagreed. It is not necessary to outline his views. 466Chapel Road ceased trading its security business, not resuming it, despite the stay of Mr Reynolds' decision later granted by the Administrative Appeals Tribunal by consent. Chapel Road claimed that the result of the revocation was that it ceased to trade, at a time when it was looking to consolidate and expand its business, which then had an estimated value in excess of $5 million. 467Chapel Road challenged Mr Reynolds' decision and on 27 April sought a stay in the AAT. There were negotiations about terms which were resolved and on 7 May, a stay was granted on agreed terms which required Chapel Road to provide prospective clients with information about Mr Reynolds' decision, to advise existing clients of the decision and to provide ASIC with a client list. 468Concerns later arose as to whether Chapel Road had breached the terms of the stay. Mr Bennett agreed that advice given by a proper authority holder that no client money had been misappropriated was inaccurate, so far as Ms Grieve was concerned. 469Many of its proper authority holders then transferred to Benwest of which Mr Bennett is the major shareholder, bringing their client base with them. Some later moved on to other dealers. On 31 July, Chapel Road's solicitors advised ASIC that it no longer had any proper authority holders, but that it needed to retain its licence on the conditional basis, to permit trailing commissions to be collected. On 13 August 2001, the conditions of the stay were varied by consent to accommodate this. It continues to receive such commissions. 470On 14 July 2003, the licence revocation was set aside, but Chapel Road did not resume its business 471In his decision Handley DP was also critical of ASIC's failure to earlier communicate Ms Donselaar's views to Chapel Road. He found that in August/September 1999 it may have breached its licence in relation to compliance, but that it had made significant improvements by 2001 and that while in August/September 1999 it may not have performed its duty "efficiently, honestly and fairly", there was reason to believe that it would do so in the future. 472Handley DP concluded that the revocation of its licence and the AAT proceedings had provided Chapel Road with sufficient deterrence and that the appropriate course was not to revoke the licence, but to impose conditions requiring regular, perhaps six monthly reviews of its compliance regime by external consultants and Chapel Road undertaking to implement reasonable recommendations for change made by the consultant and approved by ASIC. 473Despite this success, the steps Mr Bennett gave evidence in the AAT proceedings by Chapel Road intended to take, were not pursued and it never resumed its business. Was the decision to commence the 'second (June 2000) surveillance [para 24 FASOC] motivated as Chapel Road alleged? 474As I explained at [32] the case finally pressed rested on various acts and decisions of Ms Redfern, Ms Layton, Mr Burgess and Mr Reynolds, which it was claimed: "[A] were acts and decisions performed in bad faith, for an ulterior motive (and thus 'unlawfully'), and [B] were acts and decisions performed with the intention of causing harm to the plaintiff, and [C] (if it is necessary to stipulate over and above [A]) were done maliciously, and [D] were acts and decisions performed by a public officer (ASIC) in the purported discharge of its public duties; and [E] did in fact cause loss to the plaintiff." 475Paragraph 24 of the further amended statement of claim alleged: "As a consequence of the said opinions and beliefs, at a meeting on 22 March 2000 the Defendant through its officers including Ms Redfern determined: (a) to commence a second period of surveillance of the Plaintiff; (b) to broaden the scope of the surveillance; (c) to conduct the surveillance in an aggressive manner; (d) to use the surveillance to obtain support for the revocation of the Plaintiffs' license, alternatively imposition of conditions on the Plaintiff's licences; (e) to seek the revocation of the Plaintiff's license, alternatively imposition of conditions on the Plaintiffs' license; (f) to proceed to a hearing." 476The opinions and beliefs referred to were those formed after a meeting on 7 February and before 22 March, when Ms Redfern formed or already had an opinion or belief that: "(a) that the Plaintiff had a responsibility to compensate clients of Robyn Cochrane for losses they had suffered as a consequence of the conduct of Mrs Cochrane; (b) that as a consequence of a change in the directors of the Plaintiff, the Plaintiff would not co-operate with the settlement of the Cochrane claims; (c) that the Plaintiff was a "recurring problem" and was dangerous"." 477For reasons which I have already explained in relation to the factual findings for which Chapel Road contended, the evidence did not establish a factual foundation for this issue to be resolved in its favour. 478The evidence did not establish that the decision to commence the second period of surveillance was made by Ms Redfern, or that she had the opinions or beliefs alleged, or that it was made by other ASIC officers who held or were swayed by such opinions and beliefs. Nor did it establish that the decision made to commence the second surveillance period was made unlawfully, for the malicious purposes alleged. 479Ms Redfern considered that Chapel Road's attitude to claims emerging as the result of Robyn Cochrane's fraud had changed with the change in its management, following Mr Bahles' resignation. Given Mr Gadd and Mr Bennett's evidence, that view was plainly a legitimate one. 480As I have explained, a concern as to how Chapel Road was dealing with the claims which emerged from Robyn Cochrane's activities, certainly grew. That response had shed light on the operation of Chapel Road's complaint handling system, which it was obliged by law to operate and which had been discussed with Chapel Road during the first surveillance. 481This ongoing concern was held at a time when Chapel Road had accepted that it was not complying with certain conditions of its licence and was struggling to address its problems. It was not delivering what it had promised to undertake in October 1999. 482That anything other than legitimate concerns were then held about Chapel Road by ASIC's officers was not established. There were ongoing problems with the consequences of the Cochrane fraud and with its response to what the first surveillance had uncovered. There was a basis for ASIC officers to properly become concerned that the way in which Chapel Road was responding to the concerns ASIC was pursuing with it, was inadequate. 483How these problems should appropriately be dealt with under the applicable regulatory scheme was a matter about which ASIC officers were not all agreed. That motivated advice being sought from Ms Donselaar. She confirmed in March 2000 that there was a foundation for real concern about Chapel Road. The decision to pursue the second period of surveillance resulted from a desire to ensure that an appropriate regulatory response was pursued. 484That ASIC or its officers were wrongly, or unlawfully motivated to harm Chapel Road when the decision to pursue a second period of surveillance was made, was not established. At that time, it was considering whether additional licence conditions, rather than enforceable undertakings, were the appropriate regulatory response. Licence revocation was not considered as a possibility before Mr Reynolds came to consider what the second surveillance had uncovered. 485The evidence does not permit the conclusion that any officer involved in the decision to pursue a second period of surveillance, acted maliciously. Issue (b) Was the conduct of ASIC's officers in the manner in which the second surveillance was conducted and reported motivated as Chapel Road alleged? [paras 26- 31,33, 34,35 , 41(a), (c) FASOC] 486These paragraphs of the further amended statement of claim referred to the conduct of the second surveillance between March and November 2000; the review of Chapel Road files; the August report Ms Donselaar was commissioned to produce; that report; the failure to provide copies of that report to Chapel Road; that Ms Donselaar was not aware that Chapel Road had not been provided with a copy of the August report; that she was commissioned to produce the November report; that the March and August reports were withheld; and that the surveillance was conducted for "the ulterior purpose of gathering information to support its decision to suspend or cancel the Plaintiff's licence, [or] alternatively impose conditions on the Plaintiff's license". 487That the conduct here in issue was engaged in maliciously, rather than for legitimate purposes, namely, to deal with the problems identified in the September 1999 letter, which Chapel Road had accepted had foundations, and the ongoing concerns which developed about the inadequate steps which it took to deal with those concerns, was simply not established on the evidence. 488Chapel Road made no complaint that the report which emerged from the first surveillance had not been provided to it, given the advice which it received by the September 1999 letter. That ASIC did not provide it with Ms Donselaar's March assessment of its response to this advice, or her August assessment of what the second surveillance revealed, before Mr Reynolds issued the November notice, did not establish that for which Chapel Road contended. 489As both Mr Reynolds and Handley DP came to consider, it would have been preferable for ASIC to have conveyed the advice which it received from Ms Donselaar in March and August 2000 to Chapel Road earlier than it did. Chapel Road accepted that it had no legal obligation to do so. The experts agreed that at the time that there was no practice of ASIC providing licence holders with copies of such reports and that the matters about which it was concerned, which in part were based on Ms Donselaar's concerns, were in fact revealed to Chapel Road by what was pursued in the second surveillance. 490Had a decision been made before the second surveillance to advise Chapel Road that it would consider accepting enforceable undertakings, it appears that Ms Donselaar's March report would then have been provided to Chapel Road. It was because it was concluded that this course was not appropriate, given the conclusions which Ms Donselaar reached in her March report, that it was not provided and instead, a second period of surveillance was pursued. 491That was pursued in order to ascertain how Chapel Road had dealt with the concerns drawn to its attention in September 1999 and in subsequent correspondence, by implementation of the measures it had advised it would take. ASIC had already advised Chapel Road as to concerns held about what it had proposed and undertaken. At that time, ASIC was considering the imposition of licence conditions. 492The evidence did not establish that ASIC then had the alleged "ulterior purpose of gathering information to support its decision to suspend or cancel the Plaintiff's licence, or alternatively impose conditions on the Plaintiff's licence". It certainly wanted to gather more information before pursuing the imposition of licence conditions. It was then in contemplation that a hearing before a delegate might be required. 493At the time of the second surveillance no decision had been made that Chapel Road's licence conditions would be suspended or cancelled. Ms Donselaar's August report supported the view that additional licence conditions should be imposed, but no decision had then been made as to what the regulatory response would be. 494As I have already explained, the evidence simply provided no foundation for the conclusion that the second surveillance was pursued for the malicious purposes Chapel Road alleged. Issue (c ) - Was the decision to use the results of the second surveillance for an administrative hearing seeking revocation of, or imposition of conditions upon, the plaintiff's licence motivated as Chapel Road alleged?[para 39] 495Paragraph [39] of the further amended statement of claim alleged that Ms Redfern, Mr Reynolds, Ms Anderson and Mr Burgess did not hold an honest belief that the notice of hearing should be issued or that Chapel Road's licence should be revoked. 496The notice of hearing was issued because a view had been reached that regulatory action other than an enforceable undertaking had to be pursued against Chapel Road, given the outcome of the second surveillance. Imposition of further licence conditions was then in contemplation. It was entitled to ask for a hearing if licence conditions were to be imposed. 497Chapel Road criticised ASIC for not first asking it whether it would consent to the imposition of such conditions. That may have been the preferable course from both Chapel Road and ASIC's point of view, given all that has resulted from the course pursued. That it was not followed does not, however, establish the motives Chapel Road alleged. 498The first delegate was briefed on the basis of draft licence conditions. The matter was referred to Mr Reynolds on his return from leave. He spoke with Ms Anderson, who reported his view to other ASIC officers, that licence revocation might be warranted in the circumstances revealed on the brief. The notice of hearing was drafted on that basis, but the possibility of imposition of licence conditions was not abandoned. 499The evidence provides no foundation for a conclusion that these officers did not hold an honest belief that a notice of hearing should be issued. The notice referred to licence revocation or the alterative licence suspension, but licence conditions remained a possible outcome, which was addressed at the hearing. After the hearing, Mr Burgess finalised draft conditions for Mr Reynolds to consider. 500It appears to have been Chapel Road's submission as to Ms Donselaar's serious concerns in her 2001 reports as to its past compliance with the law and its licence conditions and its ability in future to adhere to them, having had the opportunity to respond to all of her reports, which convinced Mr Reynolds that its licence should be revoked. 501Mr Reynolds had earlier told Chapel Road that he would have to place considerable weight on Ms Donselaar's views. That was not unreasonable in the circumstances. They were views which the experts in these proceedings clearly considered to have real foundations. Had Chapel Road advanced a case of the kind which it later advanced before the AAT, when it called favourable evidence from Mr Walker, in order to meet Ms Donselaar's concerns, rather than merely relying on Mr Hollonds' submissions, which attacked Ms Donselaar's opinions, Mr Reynolds might have come to a different conclusion. Had Mr Reynolds received the expert evidence led in these proceedings, he might not. 502That is, however, not to the point. What the evidence clearly demonstrated was that the decision to issue the notice of hearing was not made unlawfully, for a malicious purpose, namely to do Chapel Road harm, as it alleged, the officers in question not holding an honest belief that the notice of hearing should be issued, but rather seeking to harm it. 503At that point, no decision had been made that Chapel Road's licence should be revoked. Ms Redfern, Ms Anderson and Mr Burgess plainly considered that licence conditions remained an option, as did Mr Reynolds, even though he was of the view that the matters raised were sufficiently serious that they might warrant licence revocation. The evidence well established that there was a reasonable basis for those views. Issue (d) - Was the decision of the delegate to revoke the plaintiff's licence motivated as Chapel Road alleged? [para 39] 504That Mr Reynolds' decision to revoke Chapel Road's licence was made unlawfully, for a malicious purpose, namely to do Chapel Road harm, as it alleged was not established. 505To the contrary, his decision well explained his reasons for reaching the conclusion that its licence should be revoked. The evidence does not provide any foundation for the conclusion that he did not hold those views or that they had no proper basis. To the contrary, the material before him and the case which Chapel Road advanced, well explained the decision which he reached. That it was overturned by the AAT where Chapel Road advanced a different case, is not a reason for coming to any different conclusion. 506As Chapel Road accepted, even inadequate or poor performance of duties or the exercise of powers such as those ASIC had under the Corporations Law, is not a basis upon which this tort can be established. 507In any event, the evidence does not establish that Mr Reynolds performed his duties or exercised his powers poorly or inadequately. The AAT stood in ASIC's shoes, making a fresh decision by way of merit review on the evidence led before it (see Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409; 24 ALR 577.) 508 Handley DP's decision rested on a quite different case then advanced by Chapel Road, resting as it did not only on the supportive evidence led from Mr Walker, but also the evidence then given by Mr Bennett, which was not put before Mr Reynolds. That addressed concerns as to the resources Chapel Road would have to devote to its supervision of a much reduced number of proper authority holders, if its licence was restored. Had such a different case not been led, it is difficult to see that the conclusion which Handley DP reached would have been available. Damages 509Chapel Road has not established its case, but I will deal shortly with its case on damages, which rested on the evidence of Mr Bennett and the opinions of Dr Ashe. ASIC's case rested on the opinions of Mr Gower. 510Both causation and the amount of any damages were in issue. Causation 511The expert's evidence was that before it ceased trading , Chapel Road was not operating profitably. 512Mr Bennett's evidence was that Mr Reynolds' decision to revoke its licence required the immediate cassation of Chapel Road's business. The result was that about 20 proper authority holders transferred back to Benwest and others left to join other financial service providers. 513When cross examined about the pursuit of the stay later agreed, he said that when its licence was revoked fund managers had refused to pay it what was outstanding and it needed to have a licence, in order to receive that money. He agreed that he was then concerned that clients would move their business elsewhere when they learned of the licence revocation. 514Mr Bennett also agreed that Chapel Road had sought and obtained the stay on conditions which included it providing ASIC with a list of new clients and advising existing clients of the decision. Mr Gellett later wrote to its clients, in his capacity as one of its authorised representatives, informing them that no misappropriation of client money had occurred. Mr Bennett accepted that this was inaccurate, so far as Ms Grieve was concerned. 515ASIC had considered this to involve a breach of the terms of the stay, resulting in the matter being relisted before the AAT in August 2001. Chapel Road's solicitors then advised ASIC that it no longer had any proper authority holders. Mr Bennett explained that it was then that some 20 advisers had transferred to Benwest. Amended conditions of stay permitting trailing commissions to be earned were then agreed. 516In his statement before the AAT Mr Bennett had explained that he was then confident that procedures in place at Benwest more than adequately met all requirements of the law and its licence conditions. He then intended that Chapel Road would do likewise. It intended to resume trading, attracting a small number of proper authority holders holding a Diploma of Financial Planning and to outsource all of its administration and compliance procedures. That did not occur. 517Two things follow from this evidence. The first that Chapel Road ceasing to operate its unprofitable business was not only the result of Mr Reynolds' decision, which was stayed by agreement, but also the result of steps which it pursued, despite that stay. The second that it did not take available steps which would have avoided, or at least significantly to mitigated any damage which had resulted from the revocation decision. 518That ASIC caused it immediately to cease trading when Mr Reynolds' decision was given, so as to cause the damage which Chapel Road pursued in these proceedings, was not established by this evidence. 519In the circumstances it is difficult to come to a favourable finding as to causation. The expert evidence as to valuation 520That Chapel Road suffered the damage which it claimed, given that it was not profitable when it ceased trading, was also in issue. 521The experts produced a joint report which identified that they could find no common ground, given the differing bases on which their valuations of Chapel Road rested. While such valuation is plainly not exact and one about which reasonable minds may differ, the concurrent evidence established that Dr Ashe's valuation could not be accepted, with the result that any damages awarded would have had to reflect Mr Gower's assessment. 522Dr Ashe's valuation rested in large part on assumptions which Mr Bennett had instructed him to make, as well as on impressions which he had formed about matters which they had discussed at lengthy meetings, which were not disclosed in his reports. Dr Ashe was not able to clearly articulate what those assumptions and impressions were, when he gave his evidence. That did not accord with the approach to the giving of expert evidence discussed in Dasreef Pty Ltd v Hawcher [2011] HCA 21; 243 CLR 588. 523Mr Bennett's evidence shed no light on these matters. There were other problems with the instructions which he gave Dr Ashe, which I have earlier discussed. In the result, Dr Ashe's opinions can not be accepted as providing any reliable foundation for an assessment of damages, even if Chapel Road had made out its case. 524Dr Ashe had been instructed to provide opinions as to Chapel Road's value as at licence revocation in April 2001; as at February 2000, on the assumption that it had then given an enforceable undertaking to ASIC (no terms for such undertakings having been specified); on that assumption and an assumption that it had been listed on the stock exchange; and on the basis of assumptions that it had given an enforceable undertaking to ASIC in February 2000 (again without such terms being specified) and its proper authority holders having been increased to 100. 525Nothing in the evidence provided any basis for a possible listing, or Chapel Road being able to increase its proper authority holders to 100, given the evidence of its reasons for reducing its proper authority holders from that number, namely inadequate resources to supervise that number of representatives, while ensuring compliance with its licensing conditions. Nor was there any basis established for an assumption as to a stock exchange listing or the giving of an enforceable undertaking. As I have explained, Chapel Road never proffered such an undertaking to ASIC, nor did ASIC ever offer it that opportunity. 526Dr Ashe used several valuation methods to arrive at his conclusions: a multiple of Funds Under Management (FUM); capitalisation of Future Maintainable Earnings (FME), that is earnings expected to be maintainable in future; and multiples of commission earnings. He explained in his report that there were problems with each of these approaches, as well as other difficulties, such as the small number of available comparators and problems created by seeking to undertake a valuation many years after Chapel Road had ceased trading. Whether the comparators used for various of Dr Ashe's and Mr Gower's calculations were appropriate was in issue. 527Another problem with Dr Ashe's approach was that he had disregarded the actual losses which Chapel Road had incurred while it traded, following preceding years of low profitability, basing his calculations on budgeted earnings, without examining whether they were achievable. That approach rested on Mr Bennett's instructions. No reliable foundation for those assumptions was established. 528Dr Ashe had partly based his calculations on a 1997 client base and assumptions that Chapel Road had no subsequent loss of clients and that new business reflected the level of business previously written. That resulted in the $8 million valuation, with Dr Ashe concluding a value of $7.5 million to be reasonable. Chapel Road's decision to divest itself of proper authority holders from 100, which I have earlier discussed, also undermined this approach. 529On a price earning valuation, Dr Ashe found that in 1999/2000 Chapel Road had an operating loss of $131,000, which he observed would ordinarily preclude a valuation. Earnings of $195,000 were budgeted for 2000/2001. Dr Ashe adopted this figure, after discussion with Mr Bennett, on the basis that "historical business practices" would be implemented, assuming no additional effort was required for ASIC interaction. Dr Ashe said that his calculations rested on information which Mr Bennett had provided him, but he could not articulate what that information was. 530Dr Ashe had thus assumed that budgeted earnings represented Chapel Road's normal earnings, without necessary resources being devoted to ongoing communication with ASIC. No basis for that assumption was established. 531Dr Ashe also postulated that Chapel Road had a value of some $4 million, that being based on further assumptions all of which it is not necessary to discuss. A basis for that valuation was also not established. 532Dr Ashe's calculations figured in estimated losses flowing from management time devoted to meeting ASIC's investigations and concerns, rather than being able to concentrate on growing the business, which on Dr Ashe's view was that ASIC's actions made it "too difficult" to determine the impact of other non recurring abnormal items. The evidence also provided no proper basis for such an approach. 533The evidence established that significant management time had to be devoted to meeting ASIC's concerns because Chapel Road was in breach of its licence conditions and did not implement what it had promised to meet those concerns, with the result the ongoing problems it had to contend with. By the time its licence was revoked, Chapel Road had still not solved those problems. Even Handley DP concluded that further licence conditions should be imposed on Chapel Road, which would have required management time to address. 534Given what was established on the evidence as to Chapel Road's resource problems and its ongoing inability to ensure that its licence conditions were adhered to, while trading profitably, a basis for Dr Ashe's assumption that it would have achieved its budgeted earnings was not established. 535Dr Ashe's calculations rested on an assessment of funds under management of some $218.8million, a calculation he had made based on an extrapolation form commission payments. During the concurrent evidence the parties agreed that damages had to be calculated on the basis of Dr Gower's figure of $179.97 million, which Dr Ashe accepted would affect his calculations. He had concluded that as at February 2000 Chapel Road had a value of between $5-6 million, if it had then been purchased by a listed company, with a value of $5million "being suitable", with a valuation as high as $7.9 million in June 2000 with, if the purchaser was listed. Otherwise it fell within the $1.5 million to $2.5 million range. After licence revocation it had no value. 536Mr Gower did not agree with Dr Ashe's approach. Not only did he calculate a lower funds under management figure, after reviewing representative agreements, he considered that Chapel Road's control of all of those funds was questionable. 537Mr Gower had been instructed to determine the fair market value of Chapel Road immediately prior to licence cancellation. He had used the net tangible assets valuation methodology, due to its low profit margins and operating losses, which Dr Ashe considered unsuitable for valuation of an ongoing business. Chapel Road's reported tangible assets were negligible, with the result a valuation as at April 2001 of $1,548. 538On the basis of a multiple of FUM, Mr Gower had arrived at a value within the range of $112,000 to $450,000. He concluded that as at April 2001 Chapel Roads valuation was $280,000, on his figure of $179.97 million. 539Dr Ashe considered the range of companies Mr Gower had used for his calculations to be too small to give a range of indicative values and that he did not give sufficient weight to the state of the then market for firms such as Chapel Road. What Dr Ashe understood that to be was not clear. 540Mr Gower considered that the comparators Dr Ashe had used not to be reasonably comparable, given their size and the respective nature of their businesses and that his resulting analysis was unreliable. He also considered that Dr Ashe had not taken necessary account of the premium at which listed companies traded, or the impact of any enforceable undertakings, which Chapel Road might have given. 541It is not necessary to explain all of the reasons which they each gave for disagreeing with the usefulness of the comparators they had selected. 542As to capitalisation of FME, Mr Gower considered a prudent potential purchaser would not consider Chapel Road to have been a profitable business in 2001 and would not have attributed a value to it on this basis. Dr Ashe considered that a prudent potential purchase could have ascertained its underlying value, without the burden of heavy communication with the regulator, which would permit such a valuation. Given the evidence led in these proceedings, which I have discussed, any valuation which proceeded on the basis that Chapel Road could have traded without attending to its regulatory difficulties, simply cannot be accepted as having a foundation in reality. 543Mr Gower also considered that necessary account had not been taken of the fact that Chapel Road was not profitable and that its budgets and forecasts were historically materially inconsistent with its actual results. He considered that the underlying assumptions of forecasts made in 2001 were not apparent and could not provide a reliable indicator of future earnings. 544The evidence did not establish that the comparators Dr Ashe had used were appropriate, particularly given his approach to Chapel Road's lack of profitability and its inability to trade profitably, once forced to attend to meeting its licence conditions. Even beforehand, in the years ending 1998 and 1999 it had only been able to generate modest profits of some $107,564 and $80,395 respectively. In 2000 it had a loss of $131,000, at a time when it had pay the cost of investigating the Cochrane files the subject of this Court's orders. Even without that one off cost it would not have been profitable 545In the result, if Chapel Road had established its case, at most, calculation of damages would have to be approached on the basis that when it ceased trading, it was valued at no more than the $280,000 Mr Gower assessed. Orders 546For the reasons given Chapel Road's statement of claim must be dismissed. The usual order as to costs is that they follow the event. In the event that the parties wish to be heard on that order they should approach within 14 days, otherwise that will be the Court's order. 547All exhibits and subpoenaed material may be returned forthwith; any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined. ********** Amendments 16 May 2014 - omitted number in first sentence - 'August 200' now 'August 2001' Amended paragraphs: [515] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 May 2014