Background

The Full Federal Court in Callychurn v ASIC [2017] FCAFC 137 has overturned certain grounds of a decision banning Ms Callychurn, of Unique Mortgage Services Pty Ltd (UMS), from credit activities.  UMS operated as a finance and mortgage broker and was an intermediary between credit providers or lessors and consumers.  Relevantly, Mr Frugtniet, a previous director of UMS and fit and proper person for the purposes of UMS’ Australian credit licence, was in 2011 disqualified from practising as a lay associate of a legal practice in Victoria for three years.  This decision had been upheld by the Victorian Court of Appeal in 2012.  Mr Frugtniet also had authorisations to carry on business as a conveyancer and migration agent.  

UMS lodged annual compliance certificates with ASIC in 2011 and 2012 using an approved online ASIC form.  Mr Frugtniet was removed as a fit and proper person of UMS in January 2013, after the annual compliance date in December 2012.  This was recorded in the 2012 annual compliance certificate.  However, the auto-completing ASIC online form for the annual compliance certificate incorrectly recorded Ms Callychurn as the only fit and proper person at the annual compliance date in December 2012.  Ms Callychurn could not manually correct this error in the online form.  The case concerned whether UMS had:

  1. not disclosed that Mr Frugtniet was not authorised to carry on any trade, business or profession when completing the 2011 and 2012 annual compliance certificates; and
  2. had failed to record that Mr Frugtniet had been a fit and proper person at the company’s 2012 annual compliance date. 

The Court’s decision

On the first ground, the Full Federal Court found that the Tribunal had erred in its decision, because Mr Frugtniet’s VCAT proceedings did not make him unauthorised to carry on a trade, business or profession for which an authorisation was required as no authorisation was required to be a lay associate of a legal practice. The Court also found that ASIC had no evidence that the first appellant had any knowledge that Mr Frugtniet needed to have been ‘authorised’ to carry on his other businesses as a conveyancer and migration agent, so her answers to the online questions were not false or misleading.

While ASIC acknowledged the ‘computer problem’ in relation to the second ground, they submitted that the first appellant should have contacted ASIC to seek clarification as to how best to complete the form so as to accurately reflect the true position, and that a failure to do this meant the information provided was false or misleading. The Court rejected this submission. The Court found that Ms Callychurn had correctly recorded Mr Frugniet’s cessation as a fit and proper person and company secretary at the annual compliance date.  The Court also held that ASIC must have known the restrictions of its own online forms and that there was no evidence that ‘contacting ASIC’ would have enabled the completion of the compliance certificate any differently.

Why is this decision important?

This decision provides comfort to both licensees who complete annual compliance certificates and generally to any person regulated by ASIC who complete online forms for several reasons:  

  • If, when completing ASIC’s online forms, the structure or set-up of the online ASIC form leads to a misleading impression, but a person has filled out the form correctly and honestly to the best of their ability, there are no grounds for finding that the person has made a declaration that is false or misleading. 
  • The Court noted that ASIC’s online forms are to be read as a whole and that, for a statement to be false or misleading, the statement must both actually convey and intend to convey a false or misleading statement. 
  • A failure to contact ASIC about difficulties in completing an online form is not sufficient to justify a finding that a person made false or misleading declarations. 

Additionally, as the Court’s findings in relation to Mr Frugtniet’s authorisations to be a lay associate of a legal practice demonstrate, ASIC’s questions in online forms are to be interpreted and answered literally.  ASIC cannot require additional disclosures beyond the words of the questions in the online form.  This decision provides welcome certainty to any person who has encountered difficulty in providing answers that are accurate in response to ASIC’s auto-completing online forms.