Supreme Court New South Wales Medium Neutral Citation: Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 1) [2015] NSWSC 752 Hearing dates: 3-5, 9-12 June 2015 Decision date: 04 June 2015 Jurisdiction: Equity Division Before: Sackville AJA Decision: Objections to the reading of affidavits and the tender of statements of the investor witnesses overruled Catchwords: EVIDENCE – whether evidence tendered is tendency evidence within s 97(1) of the Evidence Act 1995 (NSW) – evidence not tendered to prove propensity but as direct evidence of a business conducted in contravention of s 911A(1) of the Corporations Act 2001 (Cth) – evidence admitted Legislation Cited: Corporations Act 2001 (Cth), ss 761A, 764A, 766A, 766B(1), 911A(1) Superannuation Industry (Supervision) Act 1993 (Cth), s 10(1) Evidence Act 1995 (NSW), Part 3.6; ss 94(3), 95, 97(1) Cases Cited: Combined Insurance Company of America v Trifunovski (No 4) [2011] FCA 271 Elomar v R [2014] NSWCCA 303; 316 ALR 206 Jacara Pty Ltd v Perpetual Trustees WA Ltd [2000] FCA 1886; 106 FCR 51 Richards v Macquarie Bank Ltd (No 2) [2012] FCA 1403; 301 ALR 494 Trylow v Commissioner of Taxation [2004] FCA 46; 55 ATR 408 White v Johnston [2015] NSWCA 18 Category: Procedural and other rulings Parties: Australian Securities & Investments Commission (Plaintiff) Park Trent Properties Group Pty Ltd (Defendant) Representation: Counsel: Ms EA Cheeseman SC / TO Prince / KS Anderson (Plaintiff) J Hewitt (Defendant) Solicitors: Mark Pangbourne, solicitor for Australian Securities & Investments Commission (Plaintiff) HWL Ebsworth Lawyers (Defendant) File Number(s): 2014/331307 Equity Division Supreme Court RULING ON EVIDENCE 1. SACKVILLE AJA: On the second day of the hearing I ruled on an objection taken by Mr Hewitt on behalf of the defendant to the tender or reading by the plaintiff (ASIC) of a number of statements and affidavits. Each statement or affidavit was made by a potential investor who had dealt with representatives of the defendant. 2. Mr Hewitt objected to the tender (as I shall describe it) of the statements and affidavits on the ground that the material constitutes tendency evidence within s 97(1) of the Evidence Act 1995 (NSW) (Evidence Act) and that ASIC has not established that the evidence will have significant probative value. Mr Hewitt submitted that the only purpose of the tender was to prove that the defendant had a tendency to act in a particular way, namely to make recommendations or statements of opinion intended or reasonably capable of being regarded as intended to influence potential investors to set up or use a self-managed superannuation fund (SMSF) to enable them to purchase real estate being marketed by the defendant. On that basis, so Mr Hewitt argued, s 97(1) rendered the proffered evidence inadmissible. 3. I admitted the statements (subject to verification) and allowed the affidavits to be read. I did so because in my view the evidence has not been tendered to prove that the defendant had a tendency to act in a particular way or to have a particular state of mind. ASIC has tendered the material as direct evidence that the defendant carried on a financial services business without an Australian financial services licence, in contravention of s 911A of the Corporations Act 2001 (Cth) (Corporations Act). Whether the evidence is ultimately sufficient to establish that the defendant has carried on such a business is a separate question, which will be determined in the light of all the evidence. 4. When making the ruling I stated that if, contrary to my view, the material tendered constitutes tendency evidence, I considered that the evidence had "significant probative value" within the meaning of s 97(1) of the Evidence Act and thus was admissible. I expressed that view having regard to the evidence adduced or to be adduced by ASIC, as s 97(1)(b) of the Evidence Act permits. 5. I indicated that I would give brief written reasons for the ruling. These are the reasons. Legislation Evidence Act 1. Section 97 is in Part 3.6 of the Evidence Act. Section 97(1) reads as follows: "Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person's character or otherwise) to act in a particular way, or to have a particular state of mind unless: (a) the party seeking to adduce the evidence gave reasonable notice in writing to each other party of the party's intention to adduce the evidence, and (b) the court thinks that the evidence will, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value." 1. The Dictionary to the Evidence Act includes the following definitions: "probative value of evidence means the extent to which the evidence could rationally affect the assessment of the probability of the existence of a fact in issue. ... tendency evidence means evidence of the kind referred to in subsection 97(1) that a party seeks to have adduced for the purpose referred to in that subsection." 1. Section 95 of the Evidence Act, also in Part 3.6, provides as follows: "(1) Evidence that under this Part is not admissible to prove a particular matter must not be used to prove that matter even if it is relevant for another purpose. (2) Evidence that under this Part cannot be used against a party to prove a particular matter must not be used against the party to prove that matter even if it is relevant for another purpose." 1. Section 94(3) of the Evidence Act qualifies the application of s 97. Section 94(3) provides that Part 3.6 does not apply to evidence of the conduct of a person or of a tendency that person has or had if the conduct or tendency is a fact in issue. Corporations Act 1. ASIC's case rests on an allegation that the defendant has carried on a financial services business without a licence, in contravention of s 911A of the Corporations Act. Section 911A(1) provides as follows: "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." 1. The expression "financial services business" is defined in s 761A of the Corporations Act to mean "a business of providing financial services". A person provides a financial service if the person provides "financial product advice". [1] In order to determine what is "financial product advice" it is necessary to turn to s 766B(1), which is as follows: "(1) For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence." 1. A "financial product" includes a "superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993 [(Cth)]" (SIS Act). [2] The SIS Act defines "superannuation interest" to mean a "beneficial interest in a superannuation entity". [3] A superannuation entity includes an SMSF. ASIC's Pleaded Case 1. ASIC pleads that the defendant has conducted and continues to conduct a property investment business, involving the sale of real property on a commission basis. The defendant is said to have engaged in a repeated pattern of conduct from about January 2010 until the date of the hearing (the Relevant Period). In summary, the pattern of conduct is alleged to include: * telemarketing and advertising promoting the defendant's ability to provide information about SMSFs; * conducting seminars during which attendees are urged to invest in real property and are told that the defendant can provide expert advice to assist in setting up SMSFs and can also provide advice as to how property works within an SMSF; * arranging home visits during which a representative of the defendant suggests to the potential investor the purchase of real property by means of an SMSF; * arranging office meetings at which a representative provides potential investors with an analysis setting out financial returns from real property on the basis of certain assumptions and advises the potential investor as to how the purchase of a particular property can be financed through the creation of an SMSF and the transfer of the potential purchaser's balance in his or her existing superannuation account to the SMSF; * where the potential investor decides to purchase property through a yet to be created SMSF, charging fees to arrange for an SMSF to be set up and requiring the investor to sign documentation authorising an accounting firm to take the necessary steps; and * engaging an accounting firm to establish the SMSF and liaising with the investor to transfer the balance in his or her existing superannuation balance to the SMSF. 1. The defendant's conduct as a whole, or discrete parts of it, is alleged to contravene s 911A of the Corporations Act. Specifically, ASIC pleads that the defendant, as part of its business, makes recommendations and states opinions which: "e) [are] intended to influence a person in making a decision in relation to a superannuation interest within the meaning of the [SIS Act], or an interest in such an interest; f) further or in the alternative to e), [are] intended to influence a person in making a decision to acquire, vary and/or dispose of a superannuation interest within the meaning of the [SIS Act], or an interest in such an interest." Repeated acts of this kind by the defendant are said to constitute the carrying of a financial services business in Australia, in contravention of s 911A of the Corporations Act. The Evidence 1. ASIC sought to tender statements and affidavits from a total of eleven investors who had dealt with the defendant and who had agreed to purchase properties marketed by the defendant. Mr Hewitt and Ms Cheeseman SC, who appeared with Mr Prince for ASIC, agreed that two written statements made by Mr Davis should be regarded as typical of the tendered statements and affidavits for the purpose of determining the defendant's objection to admissibility. While Mr Davis' evidence departs in certain respects from the evidence of other investors (for example, he received advice from his own accountant about establishing an SMSF), the differences are not significant for present purposes. 2. Like all the investors from whom ASIC has obtained statements or affidavits, Mr Davis established an SMSF in order to purchase a property marketed by the defendant. Both Mr Davis and his wife transferred the balances from their existing superannuation accounts into the newly established SMSF. The corporate trustee of the Davis' SMSF entered into a contract to purchase a unit off the plan. Although Mr and Mrs Davis resided in Cessnock in New South Wales, the purchase was of a unit to be constructed in Fortitude Valley, a suburb of Brisbane. The corporate trustee subsequently defaulted on its obligations under the contract of sale and the deposit was forfeited. 3. Mr Davis' statement recounts that he and his wife attended a seminar conducted by the defendant at Maitland in May 2012. That was followed by a visit to their daughter's home by a representative of the defendant. The representative recorded information provided by the Davis' concerning their financial position, including the value of their superannuation entitlements. Mr Davis told the representative that he and his wife were interested in an SMSF. 4. Mr and Mrs Davis subsequently met with Mr May, another representative of the defendant, in Newcastle. It is common ground that face to face meetings of this kind were referred to within the defendant's organisation as "run meetings" and that the representative conducting them was known as the "runner". According to Mr Davis, Mr May stated at the run meeting that he was a financial advisor. On Mr Davis' account, Mr May suggested to Mr and Mrs Davis that they should set up an SMSF as the best way to invest in properties. Mr May also said that an SMSF would have tax advantages. Mr May showed Mr and Mrs Davis a computer generated chart projecting the returns that could be expected over a period of ten years from the purchase of a unit in the Fortitude Valley development, based on a series of assumptions. The Davis' were taken through the projections but made no commitment at the meeting. 5. Mr and Mrs Davis subsequently sought advice from an accountant in Cessnock about setting up an SMSF. Mr Davis then had a second meeting with Mr May. This meeting lasted about four to five hours, but Mr Davis was still uncertain about whether or not to proceed with the purchase and the establishment of a SMSF. 6. Mr and Mrs Davis had a third meeting with Mr May at the defendant's head office in Wollongong on 28 July 2012. At that meeting, Mr Davis and his wife decided to set up an SMSF and purchase a unit in the Fortitude Valley development through the SMSF. A different representative of the defendant, Mr Buttel, then came into the meeting and asked them to sign a number of documents. These included a "Purchase Application – SMSF", pursuant to which Mr and Mrs Davis paid a "Holding Deposit" of $1,000 for the purchase of a unit in the Fortitude Valley development at a price of $439,000. Mr Buttel also asked the Davis' to sign a document by which they requested an accounting firm, Networth Accounting, to set up an SMSF and provided the details necessary for their instructions to be implemented. In addition to the holding deposit, Mr Davis paid the defendant a fee of $1,995. 7. Mr Davis' statements proceed to deal with the establishment of the SMSF by Networth Accounting, the transfer of some (but not all) of the funds from the Davis' superannuation accounts into the SMSF, the receipt of a costs agreement and other documentation from a firm of solicitors and execution of a contract of sale in respect of the unit. Mr Davis states that he received an invoice from the defendant for $5,000, being the charge for establishing the SMSF. He apparently declined to pay that amount on the ground that he thought the fee of $1,995 covered the establishment of the SMSF. Reasoning Principles 1. There was no dispute as to the principles that determine whether evidence is within the tendency rule stated in s 97(1) of the Evidence Act. A convenient starting point is in Jacara Pty Ltd v Perpetual Trustees WA Ltd (Jacara v Perpetual Trustees). [4] In that case, the Full Federal Court said that evidence is within s 97(1) if it is relevant to a fact in issue only because it establishes a propensity in the relevant person and because that propensity is a link in a process of reasoning tending to show that the person behaved in the particular way alleged. [5] While s 97(1) has been amended since Jacara v Perpetual Trustees was decided, the amendments do not affect the analysis in that case. [6] 2. In Elomar v R, [7] a criminal case, the New South Wales Court of Criminal Appeal pointed out that the prohibition in s 97(1) of the Evidence Act concerns evidence tendered to prove that a person has or had: * a tendency to act in a particular way; or * a tendency to have a particular state of mind. [8] The Court observed that s 97(1) does not contain a prohibition on evidence tendered to prove that a person in fact acted in a particular way, nor on evidence tendered to prove that a person in fact had a particular state of mind. 1. The Court in Elomar v R went on to explain the nature of tendency evidence: [9] "[359] … proof that a person has or had a tendency (whether to act in a particular way, or to have a particular state of mind) of itself goes nowhere. Tendency evidence is evidence that provides the foundation for an inference. The inference is that, because the person had the relevant tendency, it is more likely that he or she acted in a way asserted by the tendering party, or had the state of mind asserted by the tendering party on an occasion the subject of the proceedings. Tendency evidence is a stepping stone. It is indirect evidence. It allows for a form of syllogistic reasoning. [360] The process of reasoning is: ● on an occasion or occasions other than an occasion in question in the proceedings, a person acted in a particular way; ● it can therefore be concluded or inferred that the person had a tendency to act in that way; ● by reason of that tendency, it can therefore be concluded or inferred that, on an occasion in question in the proceedings, the person acted in conformity with that tendency. … Tendency evidence is a means of proving, by a process of deduction, that a person acted in a particular way, or had a particular state of mind, on a relevant occasion, when there is no, or inadequate, direct evidence of that conduct or that state of mind on that occasion." 1. In White v Johnston, [10] a civil case, this Court adopted the description of tendency evidence given in Elomar v R. Leeming JA, who delivered the principal judgment in White v Johnston, added this comment: [11] "If evidence is relevant only for inferential tendency reasoning, then it is inadmissible unless the protections in s 97(1) of notice and significant probative value are satisfied. If evidence is relevant for some other purpose as well as tendency reasoning, then s 95 ensures that unless the protections in s 97(1) are satisfied, the evidence may only be used for the non-tendency purpose. In either case, the need to assess "significant probative value" makes it necessary to identify with some precision what the tendering party proposes to establish by the evidence." 1. Mr Hewitt submitted that a corporation is capable of being a "person" within s 97(1) of the Evidence Act. In Combined Insurance Company of America v Trifunovski (No 4) (Trifunovski), [12] Perram J held that the word "person" in s 97(1) includes an artificial person such as a corporation. [13] Ms Cheeseman, did not challenge the decision in Trifunovski and I am content to proceed on the basis that it is correct. 2. The ultimate issue for determination in the present case is whether the defendant, during the Relevant Period, carried on a financial services business. On ASIC's pleaded case, the defendant carried on such a business because it made recommendations or stated opinions to potential investors which were intended (or which could reasonably be regarded as intended) to influence the investors to establish SMSFs and to invest in property through these SMSFs. ASIC accepts that in order to show that the defendant carried on a business of the relevant kind, it is necessary to prove (as the pleadings allege) that the activities were carried out systematically, repetitively and with continuity. 3. The evidence of Mr Davis and the other investors was tendered to show that the defendant was carrying on a financial services business. The evidence, if accepted, is probative of the fact that the defendant systematically marketed real estate in a manner designed to encourage some investors to purchase properties through SMSFs and encouraged those without SMSFs to take the necessary steps to establish them. Mr Davis' statements tend to prove that the defendant used standard forms and practices to gather and record information about the balances held by potential investors in their existing superannuation funds and to provide the investors with projections designed to show the benefits of investing in real estate through SMSFs. Mr Davis' statements also tend to show that the runner, in particular, encouraged Mr Davis and his wife to invest in the real property through an SMSF to be created with the defendant's assistance. 4. In my view, ASIC is not tendering the evidence of Mr Davis and the other investors in order to provide a foundation for syllogistic reasoning of the kind identified in Elomar v R. In particular, the evidence is not tendered to show that the defendant had a tendency to act in the way described by Mr Davis and therefore is more likely to have acted in conformity with that tendency on other occasions. The evidence is relevant to a fact in issue because it tends to show that the defendant in fact carried on a business which involved making recommendations and stating opinions to potential investors about the merits of using SMSFs to invest in property marketed by the defendant. Of course, the evidence of a single investor is unlikely to be sufficient of itself to prove that the defendant was carrying on a financial services business in the manner alleged in the proceedings. But it constitutes direct evidence that will need to be weighed with other evidence to decide whether a contravention of s 911A of the Corporations Act has been made out. 5. Other evidence that will need to be taken into account includes transcripts of seminars conducted by the defendant, standard documentation presented to potential investors, forms completed by the defendant's representatives during home visits and run meetings and business records showing how investors financed the acquisition of property marketed by the defendant. The evidence of Mr Davis and the other investors may not be determinative of the outcome, but it is nonetheless constitutes direct evidence of the conduct that ASIC alleges was undertaken by the defendant. 6. The present case is clearly distinguishable from decisions relied on by Mr Hewitt. In those cases, the proffered evidence was relevant only because it tended to establish that a person had a propensity to act in a particular way. In Richards v Macquarie Bank (No 2), for example, the fact in issue was whether a financial advisor had made particular representations to the applicant. In support of the allegation, the applicant tendered statements by other investors claiming that similar representations had been made by the advisor's representatives on other occasions. The statements were expressly tendered as tendency evidence and the debate was whether the material had "significant probative value" within s 97(1)(b) of the Evidence Act. [14] 7. In Jacara v Perpetual Trustees, the fact in issue was whether an agent had made certain representations to a prospective tenant of premises in a shopping centre. The Court held that evidence of similar representations on other occasions by the agent was tendency evidence. It was relevant, if at all, to the fact in issue only because it tended to establish a propensity to act in a particular way. [15] The Court contrasted this situation with a case where evidence of conduct is relevant to a fact in issue independently of its tendency to show that a person had a propensity to act in a particular way: [16] "If, for example, the evidence in a shopping centre misrepresentation case shows that the lessor's agent gave instructions that particular representations should be communicated to prospective tenants, that evidence would be admissible independently of s 97(1) of the Evidence Act. The evidence, if accepted, would go beyond proving that the agent had a propensity to make representations of the kind alleged. Rather, it would establish that the agent had set in place a system which, if implemented in a particular case, would have resulted in the representation being made to the applicant. The existence of the system, in the absence of evidence to the contrary, readily supports an inference that it was implemented in the particular case. The evidence of the system makes it more likely that the fact in issue (the making of the representation to the applicant) occurred, independently of the agent's propensity to act in a particular way." The present case is one where the evidence is of conduct relevant to the facts in issue independently of its tendency to show that the defendant had a propensity to act in a particular way. 1. I indicated when admitting the evidence that if, contrary to my view, it was tendency evidence within s 97(1) of the Evidence Act, I would regard it as having significant probative value. I took this view because the evidence of individual investors, having regard to other evidence adduced by ASIC, tends to prove that the defendant had in place systems calculated to encourage investors to purchase real property and, depending on their individual circumstances, to do so by establishing and utilising SMSFs. The other evidence included transcripts of seminars conducted by Mr Cross, the managing director of the defendant. These tend to support ASIC's allegation that the defendant had in place a system of encouraging and facilitating buyers, depending on their circumstances, to purchase property through SMSFs. 2. As I have noted, ASIC submitted that the tendered evidence was covered by s 94(3) of the Evidence Act and thus is not within s 97(1). It will be recalled that s 94(3) provides that Part 3.6 does not apply to evidence of the conduct of a person or of a tendency that person has or had if the conduct or tendency is a fact in issue. Having regard to the conclusion I have reached, it is not necessary to consider whether ASIC's submission is correct. 3. I add a further observation. In White v Johnson, [17] Leeming JA pointed out that the importance of s 95 of the Evidence Act is less widely appreciated than it deserves to be. The effect of s 95 is that evidence which is not admissible under Part 3.6 to prove a particular matter (such as a person's tendency to act in a particular way) must not be used to prove that matters even if it is relevant for another purpose. Thus s 95 prevents the use of evidence, which is relevant and admissible for one purpose, for the purpose identified in s 97(1) of the Evidence Act. 4. These are my reasons for overruling the objection to the tender of the statements and affidavits from the eleven investors. ********** Endnotes 1. Corporations Act, s 766A(1). 2. Corporations Act, s 764A(1)(g). 3. SIS Act, s 10(1). 4. [2000] FCA 1886; 106 FCR 51 at [59], [61] (Sackville J, Whitlam and Mansfield JJ agreeing). 5. The principle was applied in Trylow v Commissioner of Taxation [2004] FCA 446; 55 ATR 408 at [115]-[116] (Hill J). 6. See Richards v Macquarie Bank Ltd (No 2) [2012] FCA 1403; 301 ALR 494 (Richards v Macquarie Bank (No 2)) at [30]-[31] (Reeves J). 7. [2014] NSWCCA 303; 316 ALR 206. 8. [2014] NSWCCA 303; 316 ALR 206 at [358] per curiam. 9. [2014] NSWCCA 303; 316 ALR 206 at [359]-[360]. 10. [2015] NSWCA 18 at [138] (Leeming JA, Barrett and Emmett JJA agreeing). 11. [2015] NSWCA 18 at [139]. 12. [2011] FCA 271 at [9]. 13. Trifunovski was accepted as correct in Richards v Macquarie Bank (No 2) at [21], although the point was not argued. 14. Richards v Macquarie Bank (No 2) at [1], [28]. 15. Jacara v Perpetual Trustees at [63]. 16. Jacara v Perpetual Trustees at [67]. 17. [2015] NSWCA 18 at [136]. 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: 19 June 2015