Supreme Court New South Wales Medium Neutral Citation: In the matter of Vault Market Pty Ltd [2014] NSWSC 1641 Hearing dates: 9 October 2014 Decision date: 20 November 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Declarations of contravention of Corporations Act s 911A, s 911C and s 1041H. Order disqualifying director from managing corporations for 5 years. Order restraining company and director from carrying on a financial services business for 8 years. Catchwords: CORPORATIONS - financial services and markets - financial services providers - carrying on financial services business without a licence - online market for contracts for difference - holding out that has a licence when that is not the case - remedies - restraint on carrying on financial services business CORPORATIONS - financial services and markets - market misconduct and other prohibited conduct - misleading and deceptive conduct CORPORATIONS - enforcement - declarations - where provisions contravened are not civil penalty provisions - where public right to be vindicated CORPORATIONS - management and administration - duties and liabilities of officers of corporation - disqualification from managing a corporation Legislation Cited: (CTH) Corporations Act 2001, s 79, 83, 181, 183, 183, 206E, 209, 254L, 270, 271, 328A, 328B, 412, 727, 734, 761D, 766A, 766C, 766D, 764A, 911A, 911B, 911C, 911D, 1041H, 1101B, 1311,1314, 1317E Companies (NSW) Code, s 572 (CTH) Corporations Regulations 2001, reg 7.1.04 (NSW) Companies (NSW) Code 1981, s 96(3), 572(1) (WA) Companies (WA) Code 1961, s 263 Cases Cited: ACCC v Energy Australia [2014] FCA 336 ACCC v Flight Centre [2014] FCA 292 ACCC v Mandurvit [2014] FCA 464 ACCC v Safe Breast Imaging (No 2) [2014] FCA 998 ASIC v Australian Investors Forum Pty Ltd (No 2) [2005] NSWSC 267; (2005) 53 ACSR 305 ASIC v Australian Lending Centre (No 3) [2012] FCA 43 ASIC v Fuelbanc Australia Ltd (2007) 162 FCR 174 ASIC v GE Capital Finance [2104] FCA 701 ASIC v Ingleby [2013] VSCA 49 ASIC v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 ASIC v McDougall (2006) 229 ALR 158 ASIC v Scott [2012] NSWSC 1643 ASIC v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 90 ACSR 523 Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) [2011] FCA 761; (2011) 282 ALR 246 Australian Competition and Consumer Commission v Telstra Corporation Ltd [2010] FCA 790; (2010) 188 FCR 238 Australian Securities and Investments Commission v Elm Financial Services Pty Ltd (2005) 55 ACSR 411 ; [2005] NSWSC 1020 Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 Barbaro v R [2014] HCA 2; (2014) 305 ALR 323 Bethune v Hamilton (1987) 12 ACLR 279 BMI Limited v Federated Clerks Union of Australia (1983) 51 ALR 401 Corporate Affairs Commission (NSW) v Smith (1988) 13 ACLR 406 Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596, Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 Category: Principal judgment Parties: Australian Securities and Investments Commission (plaintiff) MD Anamul Amin (first defendant) Vault Market Pty Ltd (second defendant) Representation: Counsel: D R Stack (plaintiff) J Sutton (solicitor) (first and second defendants) Solicitors: K R Turner, Solicitor for ASIC (plaintiff) Armstrong Legal (first and second defendants) File Number(s): 2014/194130 Judgment 1HIS HONOUR: Between June 2013 and July 2014, the second defendant Vault, whose sole director was the first defendant Mr Amin, carried on a business of providing foreign exchange trading services to retail clients through an on-line trading system on a website. Neither Mr Amin nor Vault have ever held an Australian financial services licence ("AFSL"), and neither has been authorised to provide financial services on behalf of an AFSL holder. The website conveyed statements that were misleading or deceptive, including to the effect that Vault held an AFSL. By originating process filed on 1 July 2014 and amended at the hearing on 9 October 2014, the plaintiff ASIC seeks declarations that Vault has contravened (CTH) Corporations Act 2001, ss 911A, 911C and 1041H, and that Mr Amin was involved in those contraventions, and banning orders pursuant to ss 1101B and 206E. The defendants admit the contraventions alleged, and the parties join in asking the court to make the declarations and banning orders contained in short minutes of orders upon which they have, as between themselves, agreed. 2In a case such as this, when it is asked to make banning orders by consent, the Court takes into account the agreement between the parties, but is not constrained by the parties' consent and must exercise its own discretion as to penalty [Australian Securities and Investments Commission v Elm Financial Services Pty Ltd [2005] NSWSC 1020; (2005) 55 ACSR 411; ASIC v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373, [136], [137]; ASIC v Ingleby [2013] VSCA 49, [29]-[30]]. The purpose of this approach is to ensure that the public interest is served with the imposition of an appropriate sanction, and the court has on occasion insisted on a more severe sanction than that to which the parties have agreed. However, it is also important to ensure that an excessive sanction is not exacted from a party who may not have the resources to mount a robust defence [ASIC v Maxwell, [137]]. While the view that the Court would depart from the agreed orders only if they were "clearly out of bounds" [ASIC v Vizard [20056] FCA 1037; 145 FCR 57; 54 ACSR 394, [45]] has been disapproved [ASIC v Ingleby, [29]-[30]], some respect should be accorded to the agreement of the parties, for at least two reasons: first, because it represents the parties' agreement as to what is a reasonable outcome in the circumstances (which will be influenced by their perception of the risks of litigation); and secondly, because it will often reflect some aspects of compromise, quite possibly on both sides, not all of which will be known to the court. 3The facts recited in this judgment are founded on a statement of agreed facts tendered at the hearing, and two affidavits of an ASIC investigator. References to legislation are to the Corporations Act, unless otherwise indicated. Background 4Mr Amin was born in Bangladesh, but has resided in Australia since about 2007 and became an Australian citizen in May 2014. In February 2013, while attending his brother's wedding in Bangladesh, Mr Amin met Mr Arafat, who was a friend of Mr Amin's brother and a resident of Bangladesh, and they agreed to set up a retail foreign exchange trading business in New Zealand or Australia. In June 2013, Mr Amin and Mr Arafat approached Pepperstone Financial Pty Ltd, which operates an online foreign exchange trading business and holds an Australian financial services licence, and were informed that an AFSL was required to operate a retail foreign exchange trading business in Australia, and that one of the prerequisites for an AFSL was to have $1 million in net tangible assets. 5On 15 June 2013, Mr Amin caused Vault's website to be established, using the domain name www.kiwifxbank.com, and on 25 June 2013 he caused Vault to be incorporated, with himself as its sole director, shareholder and secretary. In July 2013, Mr Amin opened five bank accounts in the name of Vault, with Westpac and the Commonwealth Bank. 6In June or July 2013, various documents were published on Vault's website, including Vault's terms and conditions, product disclosure statement; and financial services guide ("the website documents"). Although Mr Amin did not contribute to the development of the content of the Vault website, he reviewed it frequently; he knew that the website documents were being published on the website and he knew their contents. He was party to the decision to include a fictitious "English name" as the managing director of Vault, in order to "gain trust and credibility from potential clients". 7Between June 2013 and July 2014, Vault attracted more than 800 clients who deposited almost $1.1 million with Vault, in order to engage in foreign exchange trading. Throughout this time, Mr Amin remained Vault's sole director, shareholder and secretary, and he was the sole signatory to Vault's bank accounts, although he generally acted in accordance with Mr Arafat's directions. 8On ASIC's application, the Court on 3 July 2014, the first return date of these proceedings, by consent made orders until 25 August 2014 prohibiting Mr Amin from leaving Australia and the defendants from carrying on a financial services business, and requiring them to take certain steps in respect of various statements which appeared on Vault's website. Those orders have since been continued, by consent, to 22 September 2014, and then to 20 October 2014. The contraventions 9It is alleged that Vault "repeatedly" contravened s 911A(1), s 911C(a) and s 1041I. Section 911A 10ASIC contends that between 1 July 2013 and 3 July 2014, Vault repeatedly contravened s 911A(1), by, during that period, continuously carrying on a financial services business in Australia, without holding an AFSL. 11Section 911A(1) provides as follows: 911A(1) [Obligation to hold Australian financial services licence] Subject to this section, a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services. 12Section 911A(1) is not a civil penalty provision [see s 1317E], but failure to comply with the subsection is an offence [s 1311(1)]. Carries on a financial services business: 13The first element of the alleged contravention is that Vault carried on a "financial services business". 14Relevantly, a person provides a financial service when they "deal in a financial product" or "make a market for a financial product" [s 766A(1)]. A person deals in a financial product if they apply for, acquire, issued, vary or dispose of a "financial product" [s 766C(1)], or arrange for a person to do so [s 766C(2)]. A financial product includes a "derivative" [s 764A(1)(c)]. A "derivative" includes an arrangement whereby a party is required to provide consideration in not less than one day, where the amount of that consideration or the value of that arrangement is determined, derived from or varies by reference to the value of something else, including "an exchange rate" [s 761D(1), and (CTH) Corporations Regulations 2001, reg 7.1.04(1)]. However, the time element in s 761D(1)(b) does not apply in the case of arrangements which are not foreign exchange contracts [s 761D(2), and reg 7.1.04(2)]. 15Vault's business involved its clients in trading on the differences between prices for competing foreign currencies (generally described in the industry as "contracts for difference" [ASIC v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 90 ACSR 523, [7], [18]]) - as distinct from the actual purchase, sale or exchange of real foreign currency - and thus did not involve "foreign exchange contracts", as defined in s 761A. The consideration payable by Vault's clients, or the value of their arrangements, was determined by the differences between the exchange rates of the two competing foreign currencies, and those arrangements therefore were a "derivative" within s 761D(1) and (2). Vault either issued these contracts for difference, or at the very least arranged for their issue, to its clients, and thereby dealt in financial products. Between June 2013 and July 2014, over 800 clients deposited almost $1.1 million. It follows that Vault carried on a financial services business [cf ASIC v Stone Assets Management, [20]]. 16Further, a person also deals in a financial product if it "makes a market for a financial product" [s 766C(1)]. A person makes a market where they regularly state the prices at which they propose to acquire or dispose of financial products on their own behalf and others have a reasonable expectation that they will be able to regularly effect transactions at the stated prices [s 766D]. 17Vault described itself as "technically a market maker", because it enters into the contract for difference with each of its clients. The price for the relevant currencies was set by Vault, and obtained through its Meta Trader 4 platform, which was used by all clients. Thus, Vault "made a market" within the meaning of s 766D, and thereby carried on a financial services business. In Australia: 18The second element of the contravention is that Vault carried on the business "in this jurisdiction". 19During the period in question, Vault's registered office and principal place of business was in Wiley Park, New South Wales. Mr Amin, who was Vault's sole director, secretary and shareholder, resided in Wiley Park. Vault's website and the various documents on it record that its address as Sydney, Australia. Vault held an ABN in respect of the business, founded on the assertion that the business was conducted in "NSW". Vault's bank accounts were all established in New South Wales, and the $1.1 million received from Vault's clients was banked in Australia. 20Moreover, the offers made by Vault through its website were admittedly intended to entice members of the Australian public (as well as others) to engage in foreign exchange trading. By s 911D, a financial services business is (without limitation) taken to be carried on "in this jurisdiction" by a person if, in the course of carrying on the business, the person engages in conduct that is intended to induce people in this jurisdiction to use the financial services the person provides, or is likely to have that effect. 21Vault's business was therefore carried on in Australia. No AFSL: 22The third element of this contravention is that Vault did not hold an AFSL. ASIC's records show, and the defendants admit, that neither Vault nor Mr Amin held an AFSL, or was the authorised representative of the holder of an AFSL. Conclusion: 23Accordingly, contravention of s 911A(1) is established. 24However, I am unpersuaded that the contravention of s 911A(1) is properly described as a "repeated" contravention. To carry on a business is a single continuous course of conduct. In my view, if (as is alleged and admitted) Vault carried on the business continuously between 1 July 2013 and 3 July 2014, it thereby committed a single contravention of s 911A(1). Section 911C 25ASIC contends that between 1 July 2013 and 3 July 2014, Vault repeatedly contravened section 911C(a), by, during that period, repeatedly holding out that it had an AFSL when it did not. 26Section 911C relevantly provides as follows: 911C [Prohibition on holding out] A person must not hold out: (a) that the person has an Australian financial services licence; ... if that is not the case. 27Section 911C is not a civil penalty provision [see s 1317E], but failure to comply with the subsection is an offence [s 1311(1)]. Hold out: 28The first element of this alleged contravention is that Vault held out that it had an AFSL. To "hold out" involves making a representation. 29The website and website documents contained no statement in the precise terms that Vault held an AFSL. However, on the website appeared a reproduction of ASIC's logo, with the details "ASIC Registered Reg. No: 164 458 511" (which was in fact Vault's ACN), and the statement "Vault ... is registered by ASIC ...". The Financial Services Guide included statements that "... to comply with our obligations as the holder of an Australian Security and Exchange Commission (License No ACN 164 458 511 & ABN 88164458511)", that "Vault Market is a registered company (License No 164458511) which authorises KiwiFX Bank to provide advice on and deal in the following classes of financial products ..."; and "ASIC Licensee: ... Vault ....". 30These statements appeared in the context that the contracts for difference being offered by Vault were financial products; that Vault's website and the website documents included repeated references to the Corporations Act and to ASIC; and that Vault's offers were directed towards "small time" or "mum and dad" investors: the website included statements that its offers were directed towards "individual retail investors" and that its trading platform was "user-friendly" and "easy to use". In that context, to that audience, the website and website documents conveyed that Vault held the requisite AFSL to carry on its business [cf ASIC v Stone Assets Management, [30]]. Not the case: 31The second element of this alleged contravention is that Vault did not hold an AFSL. ASIC's records show, and the defendants admit, that neither Vault nor Mr Amin held an AFSL and were not the authorised representatives of the holder of an AFSL. Conclusion: 32Contravention of s 911C(a) is therefore established. 33However, the contravention of s 911C(a) is not properly described as "repeated". It is alleged and agreed that there was a continuous contravention. The contravention commenced when the material was published on the website, and continued as a single continuing representation until the publication ceased. There was not a separate contravention each day - or hour, or week - while the holding out continued. In my view, there was a single contravention. Section 1041H(1) 34ASIC contends that between 1 July 2013 and 3 July 2014, Vault repeatedly contravened section 1041H(1) by, during that period, continuously publishing statements on its website and though the website documents, which were misleading and deceptive. 35Section 1041H(1) provides: 1041H(1) [Misleading or deceptive conduct prohibited] A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive. 36Section 1041H is not a civil penalty provision [see s 1317E], and failure to comply with it is not an offence, but may lead to civil liability under s 1041I, which provides that a person who suffers loss or damage by conduct of another person that was engaged in in contravention of, inter alia, s 1041H, may recover the amount of the loss or damage by action against that other person, or any person who was involved in the contravention. 37ASIC relies on 15 representations allegedly conveyed by Vault's website and the website documents. 38The first six alleged representations are, in substance, all variations on the theme that Vault was holding itself out as being authorised by ASIC to carry on its business. The next seven representations relate to the general proposition that the moneys which Vault received from its clients would be held in trust accounts and would not be intermingled with non-client funds. The remaining two representations were that (1) Alex Edward was the managing director of Vault; and (2) Vault was an Australian bank. 39In order to conclude that by publishing the website and website documents Vault engaged in misleading and deceptive conduct, it is unnecessary to find that they conveyed all fifteen alleged representations. Nor is the number of different ways in which substantially the same idea is conveyed of importance. I am satisfied that the website and website documents were, in the context in which they appeared, objectively likely to convey to their target audience of unsophisticated retail investors, in substance, (1) that Vault held the requisite licence and authority from ASIC to carry on its business; (2) that the moneys deposited by clients with Vault would be kept in a trust account separate from the other moneys of Vault; (3) that the managing director of Vault was Alex Edward; and (4) that Vault was a bank (by the extensive use on the documentation of the name KiwiFX Bank, including as the domain name for the website). 40In fact, (1) Vault did not hold any requisite licence or authority from ASIC to carry on its business; (2) the moneys deposited by clients with Vault were not kept in a trust account separate from the other moneys of Vault, and Vault operated no trust account; (3) there was no such person as Alex Edward; and (4) Vault was not authorised under the (CTH) Banking Act 1959 to use the word "bank" in relation to its business. Accordingly, by publishing the website and website documentation, Vault engaged in misleading and deceptive conduct, or conduct that was likely to mislead or deceive, in contravention of s 1041H. 41Once again, however, the contravention of s 1041H is not properly described as "repeated". The contravening conduct was the publication of the misrepresentations on the website. The contravention was committed when the misrepresentations were first published. There was not a separate contravention each day - or hour, or week - while they remained published. There was one contravention only [cf Australian Competition and Consumer Commission v Telstra Corporation Ltd [2010] FCA 790; (2010) 188 FCR 238; Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) [2011] FCA 761; (2011) 282 ALR 246, 265 [77]; Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249, [51]-[55]]. Relief against Vault 42Declarations are sought that Vault "repeatedly" contravened s 911A, s 911C and s 1041I. 43For the reasons explained above, the contraventions were not "repeated" and it is not appropriate to declare that the contraventions were "repeated". 44While declarations are not usually made when the only material before the court is the consent of the parties [BMI Limited v Federated Clerks Union of Australia (1983) 51 ALR 401, 412], affidavit evidence and a statement of agreed facts has been adduced to establish the relevant facts [cf ASIC v Fuelbanc Australia Ltd (2007) 162 FCR 174, [62]]. 45The provisions contravened are not civil penalty provisions, so that the declarations sought are not statutory "declarations of contravention" under s 1317E. Moreover, contraventions of s 911A and s 911C incur criminal liability. However, these considerations do not preclude the making of declarations on the application of a regulator, to record the Court's conclusion as to the legal consequences of the defendants' proved conduct, and to vindicate the public right [ASIC v Fuelbanc, [50], [61]; see also Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596, 608; ASIC v McDougall (2006) 229 ALR 158, [55]; ASIC v Australian Lending Centre (No 3) [2012] FCA 43, [271]-[272]; ASIC v Stone Assets Management, [42]-[43]]. 46Although the declarations sought are not statutory declarations of contravention under s 1317E, they are analogous in that they effectively record a civil "conviction" of the contravening conduct alleged, and for that reason the practice applicable to declarations of contravention under s 1317E provides relevant guidance. In particular, as explained in ASIC v Maxwell (at [148]), where the same conduct is caught by multiple provisions of the Act, it should be treated as constituting one contravention only, and should not be treated as constituting separate contraventions of multiple sections each of which may catch it. There is a substantial overlap between the contravention of s 911C(a) - which after all is a particular form of misleading and deceptive conduct - with the contravention of s 1041H. The same conduct constituted a contravention of both provisions. 47I will make declarations to the effect that: (1)Vault, in contravention of s 911A(1), between 1 July 2013 and 3 July 2014, carried on a financial services business without being the holder of an Australian Financial Services Licence. (1)Vault, in contravention of s 911C(a) and s 1041H(1), between 1 July 2013 and 3 July 2014, by publishing its website and documents published on its website entitled "Product Disclosure Statement"; "Financial Services Guide"; and "Terms and Conditions", held out that it had an Australian Financial Services Licence when that was not the case, and engaged in conduct in relation to a financial product and a financial service that was misleading and deceptive. 48ASIC also seeks an order that Vault be restrained from carrying on a financial services business for a period of 8 years. It is convenient to deal with this in the context of the banning orders sought in respect of Mr Amin, below. Liability of Mr Amin 49ASIC contends that Mr Amin was "involved" in the contraventions of ss 911A, 911C and 1041H committed by Vault, and seeks declarations to that effect, an order pursuant to s 206E disqualifying him from managing a corporation, and an order pursuant to s 1101B(1) restraining him from carrying on a financial services business. 50Section 79 provides that a person is involved in a contravention where that person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. 51Mr Amin was at all material times the sole director, secretary and shareholder of Vault. 52From his meeting with Pepperstone in June 2013, he knew that Vault would be required to hold an AFSL if it were to carry on a business of the kind envisaged, and he knew that no AFSL had been obtained. He was responsible for establishing most of the conditions necessary for Vault to carry on its business: he registered the domain name, incorporated the company, opened its bank accounts and registered its business name. He was the sole signatory of and controlled Vault's bank accounts, into which Vault's clients paid almost $1.1 million. He was thus knowingly concerned in Vault conducting a financial services business without holding an AFSL. 53Mr Amin established Vault's website (using the domain name www.kiwifxbank.com), and he knew that the website documents were to be published on it. He admits that he knew that those documents conveyed representations that were misleading; in particular, he was party to the decision to include in the financial services guide the fictitious name of Alex Edward as managing director. I am satisfied that Mr Amin actually knew that the website and website documents conveyed representations that were misleading and deceptive, and intentional participated and assisted in the publication of those representations. Accordingly, I am satisfied that he was knowingly concerned in Vault holding out that it held an AFSL when it did not, and engaging in misleading and deceptive conduct. 54Accordingly, Mr Amin was involved, in the relevant sense, in each contravention. However, s 79 is not a "stand alone" provision that operates universally in respect of every contravention of the Act: it operates in conjunction with other provisions of the Act which impose liability on a person involved in a contravention: see, for example, ss 181, 182 and 183 (directors' duties); s 209(2)-(3) (related party transactions); s 254L(2), (3) (redemption of redeemable preference shares); s 256D(3), (4) (share capital reductions); s 412(9) (explanatory statement in relation to compromise with creditors); s 1041I (civil liability for misleading or deceptive conduct). As I explained in ASIC v Maxwell [(at 388 [57], [76], [124] and [125]), the availability of s 79 to impose accessorial liability has been carefully and deliberately marked out through the Act and, in this way, the Act specifies when, for the purposes of the Act, consequences attach to being "involved" in a contravention. No such consequences were specified for being "involved" in a contravention of ss 727, 734, 911A and 911B, and accordingly, the accessorial liability provisions of s 79 were not available, or did not have any relevance, in respect of contraventions of those sections. The same applies in respect of s 911C. 55However, ASIC submitted that "involvement" within s 79 in a contravention was relevant, even where the section concerned did not attached consequences to it, by reason that s 83 had the effect that the words "person has ... contravened" in s 206E(1)((a)(ii) and s 1101B(1)(a)(i) extend to include a person who was "involved" in a contravention within the meaning of s 79 - a conclusion which is apparently supported by ASIC v Australian Investors Forum Pty Ltd (No 2) [2005] NSWSC 267; (2005) 53 ACSR 305, [92], [110]-[111] (Palmer J), see also ASIC v Scott [2012] NSWSC 1643, [26] (Black J)]. For the reasons that follow, I regret that I am unable to agree. 56Section 83 provides as follows: Officers, and other persons, in default 83 A reference, in relation to a contravention, to an officer of a body corporate, or to a person, who is in default is a reference to an officer of the body (including a person who later ceases to be such an officer), or to a person, as the case may be, who is involved in the contravention. 57The starting point for s 83 is that there be a reference, elsewhere in the Act and in relation to a contravention, to an officer or a person who is in default. The sole function of s 83 is to define the meaning of the terms "officer in default" and "person in default" where they appear elsewhere in the Act - in particular in ss 270(2), (3), 271(5), 328A(4) and 328B(2); see also s 1314(4). These provisions impose liability on an "officer in default" or a "person in default", in terms of which the following (using s 270(2) as an example) is typical (emphasis added): Where a person who becomes the holder of a registrable charge fails to comply with subsection 268(1) , the person and, if the person is a body corporate, any officer of the body corporate who is in default, each contravene this subsection. 58Section 83 is the successor of (NSW) Companies (NSW) Code 1981, s 572(1), which provided: Where a provision of this Code provides that an officer of a corporation or other person who is in default is guilty of an offence, the reference to the officer or other person who is in default shall, in relation to a contravention of, or failure to comply with, the provision, be construed as a reference to any officer of the corporation ... or any person, as the case may be, who is in any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention or failure. 59Thus, in Bethune v Hamilton (1987) 12 ACLR 279, (WA) Companies (WA) Code 1961, s 263, provided: If a company fails to comply with this section, the company and any officer of the company who is in default are each guilty of an offence. 60Pidgeon J said (at 285): What must be established in order to make the defendant a party to the offence is that the company failed to file its annual return, that the defendant was an officer of the company and was in default. Section 572 defines an officer or person in default and indicates how it can be proved. 61In Corporate Affairs Commission (NSW) v Smith (1988) 13 ACLR 406, the question was whether the defendant was an "officer in default" for the purposes of Companies (NSW) Code, s 96(3), which provided (emphasis added): A corporation that, or other person who, contravenes this section and any officer of such a corporation who is in default are each guilty of an offence". 62It was in that context that, as McInerney J said (at 409): The question arose whether the respondent was an officer in default in the terms of s 572(1) of the Companies (NSW) Code. 63Thus s 83 has work to do only where there is a reference in some other provision to an officer, or to a person, who is in default, in those terms. There must be a reference to "an officer in default" or "a person in default" before s 83 is attracted. There is no such reference in s 911A or s 911C. The Act does not provide for accessorial liability in respect of those sections, and accordingly, I do not consider it appropriate to make a declaration that Mr Amin was involved in the contraventions of s 911A and s 911C. 64The position is somewhat different in respect of the contravention of s 1041H, because s 1041I imposes civil liability on a person involved in such a contravention. However, unlike s 911A and s 911C, a contravention of s 1041H is not an offence, and s 1041I gives rise only to a private right to damages by a person who has suffered loss or damage, not a public right [contrast, in this respect, s 1041E, which can found criminal as well as civil liability and therefore involves a public right]. The essential basis on which declarations of this kind are made in this type of proceeding - vindication of the public right - is not present where the only potential relevance of being a "person involved" is liability to a private claim for damages. Accordingly, I do not consider it appropriate to make a declaration that Mr Amin was a person involved in the contravention of s 1041H. 65However, that does not conclude whether the banning orders sought are available against Mr Amin. Disqualification from managing corporations 66Section 206E empowers the Court to disqualify a person from managing a corporation, on ASIC's application, for the period that the Court considers appropriate, if: (1)the person has at least twice been an officer of a body corporate that has contravened the Act while they were an officer and each time has failed to take reasonable steps to prevent the contravention [s 206E(1)(a)(i)]; or (1)the person has at least twice contravened the Corporations Act whilst they were an officer of a body corporate [s 206E(a)(ii)]; and in either case, the Court is satisfied that the disqualification is justified [s 206E(b)]. 67Mr Amin was an officer of Vault when it carried on a financial services business without an AFSL in contravention of s 911A, and also when it published its website and the website documents thereby holding out that it had an AFSL when it did not in contravention of s 911C and engaging in misleading and deceptive conduct in contravention of s 1041H. Thus, even allowing for the substantial overlap between the contraventions of s 911C and s 1041H, he has been at least twice been an officer of a body corporate that has contravened the Act. Mr Amin did not take reasonable steps to prevent those contraventions, and is accordingly liable to be disqualified under s 206E(1)(a)(i). 68ASIC also submitted that Mr Amin was also liable to disqualification under s 206E(1)(a)(ii), on the basis that the requirements of that sub-paragraph will be satisfied if it can be shown that Mr Amin was "involved" in the contravention committed by Vault. For the reasons explained above, that submission must be rejected. It has not been established that Mr Amin himself has contravened the Act while an officer. The Act makes a clear distinction between "contravening" and "being involved in a contravention of" the Act [Australian Securities and Investments Commission v Pegasus Leveraged Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561, [48]ff]. Liability to disqualification under s 206E(1)(a)(ii) is not established, but this is of limited practical significance, as he is liable to disqualification under s 206E(1)(a)(i). Restraint from carrying on a financial services business 69Section 1101B(1)(a)(i) empowers the Court to "make such orders as the Court thinks fit" where, on ASIC's application, it appears to the Court that "a person has contravened" a provision of Chapter 7 (or any other law relating to providing financial services). Non-exclusive examples of the kinds of orders than can be made are set out in sections 1101B(4) and include, relevantly, "(a) an order restraining a person from carrying on a business ... in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene, a provision or provisions" of Chapter 7. 70ASIC submits that the effect of s 83 is that the words "person has contravened" in s 1101B(1) extend to include a person who was involved in the contravention. For the reasons already given, that submission cannot be accepted. However, there are other indications that the broadly expressed power in s 1101B(1) may authorise an order against a person other than the contravener. While satisfaction that a person has contravened a provision of Chapter 7 is a jurisdictional prerequisite, the only limitation on the order that can be made, once that requirement is satisfied, is that "the Court is satisfied that the order would not unfairly prejudice any person". While the example in s 1101B(4)(a) refers to an order restraining a person from carrying on a business ... if the person has persistently contravened a provision or provisions of Chapter 7, it is an example only. More significantly, the example in s 1101B(4)(b) includes an order to the directors of a body corporate, where the body corporate was the contravener, and the examples in s 1101B(4)(c) and (d) expressly refer to a person who was involved in a contravention; these examples demonstrate that the general power in s 1101B(1), of which they are but illustrations, extends to authorise an order against a person other than the contravener - provided that the order would not unfairly prejudice any person. That power does not depend on establishing that the person against whom the order was made was "involved", within the meaning of s 79, in the contravention, although the degree and nature of the relationship between the person and the contravention would no doubt be highly relevant to the exercise of the discretion to make such an order. 71I have accepted, above, that Vault has contravened s 911A, s 911C and s 1041H, all of which are within Chapter 7. Although it may be doubted whether Vault's contraventions are properly described as "persistent", the reference to "persistent" contravention in the example in s 1101B(4)(a) does not make persistence a jurisdictional prerequisite to an order under s 1101B(1). Mr Amin has notice of the application and, in circumstances where he consents to an order against him, it cannot be said that the order would unfairly prejudice him. 72The power to make orders under s 1101B(1), against both Vault and Mr Amin, is therefore enlivened. The periods of disqualification and restraint 73While, in Barbaro v R [2014] HCA 2; (2014) 305 ALR 323, the High Court disapproved the practice, in cases of criminal sentencing, of prosecutors making a submission as to the bounds of the permissible range of sentences, the prevailing view is that this does not apply to civil penalty proceedings [ACCC v Energy Australia [2014] FCA 336, [115]-[140]; ACCC v Mandurvit [2014] FCA 464, [70]; ASIC v GE Capital Finance [2104] FCA 701, [68]; and ACCC v Safe Breast Imaging (No 2) [2014] FCA 998, [47]; cf ACCC v Flight Centre [2014] FCA 292, [56]]. In any event, Barbaro does not preclude the "proper and ordinary use of sentencing statistic and other material indicating what sentences have been imposed in other (more or less) comparable cases" (at 331 [40]). Aggravating factors: 74Mr Amin was at all relevant times the sole director and secretary of Vault. He allowed Vault to carry on a financial services business over a period of 12 months, knowing that in order to carry on that business, Vault needed an AFSL (for which it required net tangible assets in excess of $1 million), and knowing that neither he nor Vault had an ASFL. The requirement that person carrying on a financial services business either hold an AFSL under s 911A (or be an authorised representative of the holder of an AFSL under s 911B) serves an important protective purpose, given the risk of significant financial harm to members of the public if a person who deals with them with a view to enticing them to spend their money to acquire some financial product does not act properly, and the protection of the public (including the deterrence of others) requires that a contravention of that requirement be appropriately denounced. 75Mr Amin also knew that, through its website and the website documents, Vault was misrepresenting itself as being licensed by ASIC and misrepresenting to clients and potential clients that the moneys paid by them would be kept safe and secure in a separate trust account. Mr Amin was party to the decision to include, in the website documents, a fictitious name of Vault's managing director, in order to "gain trust and credibility", and to register and use a business name which described the business as being run by a bank. These misrepresentations were serious, and intentional, and calculated to persuade unsophisticated investors to part with their moneys. Again, the protection of the investing public - in particular unsophisticated retail investors - and general deterrence, requires that this conduct be the subject of a significant sanction. 76Because corporations act through individuals, and individuals control the mind of corporations, it is particularly important that the individuals who caused Vault to commit the contraventions themselves be the subject of some sanction. Mitigating factors: 77Mr Amin's involvement with Vault was his first involvement in a financial services business. In it, he acted largely under the direction of Mr Arafat. Immediately upon commencement of these proceedings, he consented to all the interim orders sought; he co-operated with ASIC's investigation; he has not contested the proceedings; and he has agreed to the proposed orders and the statement of agreed facts. 78Most of Vault's clients must have invested relatively small sums. Most significantly, there is no evidence of any loss having been suffered by any client in Australia. 79Mr Amin is married with two young children. He is currently is employed as a store assistant, with an annual income of approximately $45,000. 80He has no previous convictions or contraventions for similar matters, and he appears to have no present intention to manage a corporation or to engage in the financial services industry. Given the absence of previous involvement in the financial services industry, and his response as soon as these proceedings were commenced, the risk that in the future he would engage in similar misconduct appears remote. Conclusion: 81It is not possible to approach disqualification from managing a corporation under s 206E by considering each contravention individually and determining an appropriate disqualification period for each, and then using the principles of accumulation or concurrence and totality [cf ASIC v MacDonald (No 12) (2009) 73 ACSR 638, [301]-[306] (Gzell J), where what was involved was the imposition of penalties for a number of distinct contraventions]. This is because the trigger for disqualification is multiple contraventions, where any one of them on its own would not result in a disqualification. 82Mr Amin intentionally permitted Vault to engage in conduct which constituted offences against s 911A and 911C, and potentially to incur liability for misleading and deceptive conduct. Essentially, he established Vault as a vehicle for the conduct of an unlicensed financial services business. However, it is to be observed that Mr Amin's misconduct has been more in connection with the conduct of the financial services business than the management of a corporation. For the purposes of s 206E, I would incline to the view that the matter was closer to the lower range, referred to in item (xv) the "Santow list" [see ASIC v Adler [2002] NSWSC 483; (2002) 42 ACSR 80, [56]], than, as ASIC contended, the mid-range referred to at item (xiv). 83Notwithstanding ASIC v Scott (at [19]), I have reservations about the unqualified application of the "Santow list" to an order under s 1101B restraining a person from carrying on a financial services business. The functions of the two sections are not entirely analogous: s 206E operates, in a manner broadly similar to the power to disqualify holders of a motor vehicle driver's licence, to protect the public both directly (while the disqualification operates) and indirectly (as a deterrent). The context and content of s 1101B indicates that its purpose is protective and remedial, rather than deterrent, in nature. While acknowledging that the example in s 1101B(4)(a), which refers to "an order restraining a person from carrying on a business ... in relation to financial products or financial services, if the person has persistently contravened, or is continuing to contravene" a provision of Chapter 7, is but an example and is expressed to be "without limiting subsection(1)" - which empowers the court to make such order or orders as it thinks fit - I would nonetheless treat it as an illustration of what Parliament had in mind, and be influenced by its terms to think that what was contemplated was an injunction to restrain misconduct that was ongoing, or to remove the risk of future misconduct when such a risk was suggested by a history of persistent past misconduct. 84Mr Amin's preparedness to facilitate the conduct of an unlicensed financial services business, and to participate in extensive misleading and deceptive conduct, manifests a need for protection of the public. A banning order under s 1101B(1) is not an unreasonable consequence for Mr Amin's role, and provides a significant measure of protection for the public. While, if I were considering this matter in the absence of the agreement of the parties, I might have imposed a disqualification and restraint of shorter duration than those proposed, it is as I have said important to give weight to the agreement of the parties, acknowledging that it is likely to have involved some elements of compromise, not all of which will be known or evident to the Court. One that is evident here is that whereas ASIC would almost certainly have been entitled to a costs order, none is sought, and in that respect Mr Amin is receiving significant leniency. I am satisfied that the proposed disqualification is justified, and that the restraints are not inappropriate, having regard to the public interest. Conclusion 85My conclusions may be summarised as follows. 86Vault committed contraventions of each of Corporations Act, ss 911A(1), 911C(a) and 1041H. It is appropriate to vindicate the public right by making declarations of contravention. However, the contraventions are not properly characterised as "repeated". Moreover, the contravention of s 1041H and of s 911C(a) were constituted by the same conduct and should be treated as a single contravention. 87While Mr Amin was knowingly concerned in the contraventions within the meaning of s 79, accessorial liability does not attach to s 911A and s 911C, and attaches to s 1041H - via s 1041I - only for the purposes of a private right of damages. The sole function of s 83 is to define the meaning of the terms "officer in default" and "person in default" where they appear elsewhere in the Act. It does not have the effect of extending the words "person has contravened" in s 206E(1)(a)(ii) and s 1101B(1)(a) to include a person who was involved in the contravention. In those circumstances, no public right is vindicated by declaring that Mr Amin was a "person involved" in the contraventions, and it is not appropriate to do so. 88However, Mr Amin is liable to be disqualified from managing a corporation under s 206E(1)(a)(i), by reason of his having been an officer of Vault when it committed each of the two contraventions; and the general power in s 1101B(1) extends to authorise an order against a person other than the contravener, provided that the order would not unfairly prejudice any person. I am satisfied that the proposed disqualification is justified, and that the restraints are not inappropriate, having regard to the public interest in denouncing and deterring the conduct of unlicensed financial services businesses and the deceptive solicitation of investments from unsophisticated investors. 89The Court notes the document entitled "Short Minutes of Order - 9 October 2014" signed by the solicitor for the plaintiff and the solicitor for the defendants, initialled by me this day and placed with the papers. 90The Court declares that: (1)The second defendant Vault Market Pty Ltd, between 1 July 2013 and 3 July 2014, carried on a financial services business without being the holder of an Australian Financial Services Licence, in contravention of Corporations Act, s 911A(1). (2)The second defendant Vault Market Pty Ltd, between 1 July 2013 and 3 July 2014, by publishing its website and documents published on its website entitled "Product Disclosure Statement"; "Financial Services Guide"; and "Terms and Conditions", held out that it had an Australian Financial Services Licence when that was not the case, in contravention of Corporations Act, s 911C(a), and engaged in conduct in relation to a financial product and a financial service that was misleading or deceptive or likely to mislead or deceive, in contravention of s 1041H(1). (3)The first defendant MD Anamul Amin was an officer of the second defendant when it committed each of those contraventions and each time failed to take reasonable steps to prevent the contravention. 91The Court, with the consent of the parties, orders that: (4)Pursuant to Corporations Act, s 206E(1), the First Defendant is disqualified from managing corporations, for a period of 5 years commencing on the date of the making of this order. (5)Pursuant to Corporations Act, s 1101B(1), each of the Defendants is restrained from, by themselves, their servants, agents and/or employees, carrying on, either directly or indirectly, a financial services business, for a period of 8 years commencing on the date of the making of this order. (6)Each of the Defendants use their best endeavours to cause the Second Defendant's internet website, with the domain name www.kiwifxbank.com, to be permanently closed within 14 days of the making of this order. (7)The orders made on 22 September 2014 be discharged. 92The Court, with the consent of the parties, makes no order as to costs, to the intent that each party bear its own costs. ********** Amendments 27 November 2014 - Renumbering Amended paragraphs: 28-39 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: 27 November 2014