Gray v Australian Securities and Investments Commission

[2004] AATA 1235

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(Decision by: Mr SC Fisher, Member)

Gray
vAustralian Securities and Investments Commission

Tribunal:

Member:
Mr SC Fisher, Member

Subject References:
CORPORATIONS
Supervision, Regulation and Correction
Application for exemption from holding Australian Financial Services Licence
Documentation Service did not require Australian Financial Services Licence
Whether trustee service qualifies for exemption
Trustee service a custodial or depository service;Trustee service not an atypical or unforseen circumstance
Compliance with FSR regime not impossible or disproportionately burdensome
Applicant not adequately regulated as a solicitor
Trustee service does not qualify for exemption

Legislative References:
Corporations Act 2001 - 762A; 763A; 763E; 764A; 765A; 766A; 766B; 766E; 911A; 911B; 916A; 916B; 916C; 916D; 916E; 916F; 916G; 951B; 992B; 1371B
- Financial Services Reform Act 2001
- Financial Services Reform (Consequential Provisions) Act 2002
- Financial Services Reform Amendment Act 2003
Legal Profession Act 2004 (Qld) -
Queensland Law Society Act 1952 (Qld) -
Corporations Regulations 2001 regs - 7.1.35; 7.1.40; 7.6.01

Case References:
Ajka Pty Ltd v Australian Fisheries Management Authority - [2003] FCA 248
Leary v Federal Commissioner of Taxation (Cth) - (1980) 47 FLR 414; (1980) 32 ALR 221; (1980) 11 ATR 145; (1980) 80 ATC 4438; [1980] FCA 112
DKLR Holding Co (No 2) v Commissioner of Stamp Duties - [1980] 1 NSWLR 510; (1980) 10 ATR 942; (1980) 80 ATC 4279
Re Transphere Pty Ltd - (1986) 5 NSWLR 309
Commissioner of Stamp Duties (Queenslandd) v Livingston - [1965] AC 694; (1964) 112 CLR 12; (1964) 38 ALJR 197; [1965] ALR 803; [1964] 3 WLR 963; [1964] 3 All ER 692; (1964) 43 ATC 325
Westdeutsche Landesbank Girozentnale v Islington London Borough Council - [1996] 2 All ER 961; [1996] AC 669; [1996] 2 WLR 802
Government Employees' Health Fund Ltd v Private Health Insurance Administration - (2001) 65 ALD 377; [2001] FCA 322
Re Drake and Minister for Immigration & Ethnic Affairs (No. 2) - (1979) 2 ALD 634
Bennett v Chief Executive Officer of the Australian Customs Service - (2003) 77 ALD 375; [2003] FCA 53
Re Aston and Secretary, Department of Primary Industry - (1985) 8 ALD 366
Australian Fisheries Management Authority v Graham - (2003) 73 ALD 525; [2003] FCA 231; (2003) 127 FCR 436
Humane Society International Inc v Minister for the Environment & Heritage - [2003] FCA 64; (2003) 126 FCR 205
Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd - (1995) 16 ACSR 501; (1995) 13 WAR 407
IPT Systems Ltd v MTIC Corporate Pty Ltd - (2000) 36 ACSR 454; (2000) 158 FLR 349; [2000] WASC 316
Bateman v Newhaven Park Stud Ltd - [2004] NSWSC 566; (2004) 207 ALR 406
Solicitors' Liability Committee v Gray and another - (1997) 77 FCR 1; (1997) 147 ALR 154
Re Simersall - (1992) 108 ALR 375; (1992) 35 FCR 584

Decision date: 25 November 2004

Sydney

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Decision by:
Mr SC Fisher, Member

Decision

The Tribunal decides to affirm the decision under review.

INTRODUCTION AND BACKGROUND

1. Mr Ian Gray (the Applicant) is a solicitor practising in Queensland. On 23 June 2003 the Applicant applied to the Australian Securities and Investments Commission (the Respondent) for an exemption from holding an Australian Financial Services Licence ("AFSL") under section 911A(2)(l) of the Corporations Act 2001 (Commonwealth) ("the Act") in relation to two services provided by Mr Gray as part of his legal practice:

A.

A Business Insurance Trust Agreement ("BITA") legal documentation service ("Documentation Service"); and

B.

A trustee service in relation to holding insurance policies for the benefit of parties to the BITA ("Trustee Service").

2. The Documentation Service and Trustee Service arise out of the Applicant's business succession planning services.

3. The Respondent declined to grant the Applicant an exemption from holding an Australian Financial Services Licence (AFSL) under section 911A(2)(l) on 4 February 2004. The Applicant commenced proceedings for review of the Respondent's decision in this Tribunal on 1 March 2004.

4. For convenience in these Reasons for Decision, all references to legislation will be made as follows. References to provisions (whether Chapters, Parts or sections) alone without any specific statute as the referent are to provisions of the Act. References to the Corporations Regulations will be denoted as "regulation ..." or "reg ..." without the referent "Corporations Regulations".

JURISDICTION

5. The Tribunal has jurisdiction in this appeal by virtue of section 1371B. The Respondent's power to exempt a person from the requirement to hold an AFSL is contained in section 911A(2)(l).

THE ROLE OF THE TRIBUNAL

6. The role of the Tribunal is to review the merits of the decision before it. The Tribunal is guided by the norm it should reach the correct and preferable decision on the basis of the material before it: Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248 at [33].

THE MATERIAL BEFORE THE TRIBUNAL

7. The Tribunal had before it the section 37 documents, which were taken into evidence as Exhibit 1.

8. The Applicant was self-represented. The Respondent was represented by Ms M Brennan of Counsel. Both parties lodged a statement of facts and contentions and the Respondent lodged an outline of submissions.

EVIDENCE

9. Neither party called evidence. The Applicant's opening address, together with the Applicant's statement of facts and contentions, explained helpfully and in some detail the history and rationale for the Documentation Service and Trustee Service. The Tribunal considered the documentary evidence before it carefully. ISSUES

10. The central issue in this appeal is whether to the Respondent should have granted the application of the Applicant for an exemption under section 911A(2)(l) in relation to the Documentation Service and Trustee Service provided by the Applicant. The context to this issue is that under section 911A(1), a person who carries on a financial services business in Australia must hold an AFSL unless exempted under section 911A(2). Subsidiary issues in this appeal involved the question whether either or both of the Documentation Service and Trustee Service fit within any of the exemptions under the Act or the Corporations Regulations from when a person provides a "financial service" or otherwise exempt "financial products".

THE DECISION UNDER REVIEW

11. The decision under review is a decision made by the Respondent on 4 February 2004 to refuse the Applicant's application for an exemption under section 911A(1) from the requirement to hold an AFSL in connection with the business succession planning services provided by the Applicant, and in particular the service designated by the Applicant as the "Trustee Service".

APPLICANT'S SUBMISSIONS

12. The Applicant's statement of facts and contentions elaborates in some detail the case of the Applicant for exemption by the Respondent. The following summary may not do justice to the detail of the Applicant's submissions, but it should capture the essence of the Applicant's case.

Documentation Service

13. The Applicant provides what he describes as a "Documentation Service". The nature of the Documentation Service is that it is a tool used for the purposes of business succession planning for clients of his legal practice. An important element of the Documentation Service is the BITA. The BITA is an umbrella or framework agreement that provides for succession planning on behalf of a business proprietor, and facilitates the funding needs of the parties to the BITA blended with insurance funding on a tax-advantageous basis. The BITA provides for a bare trust on behalf of the life assured (the business proprietor) where the trustee (the Applicant) holds certain insurance proceeds on trust for designated beneficiaries when those insurance proceeds become payable when certain events occur. The BITA provides for:

A.

The establishment and maintenance of insurance policies.

B.

The ownership of the insurance policies.

C.

The sale and purchase of the outgoing proprietor's equity in the business.

D.

The payment of the purchase price of the outgoing proprietor parties equity in the business.

E.

The repayment of debts guaranteed by the outgoing proprietor.

F.

The repayment of debts owing to or by the outgoing proprietor.

G.

Compensation of the underlying business for the loss of any income.

H.

Compensation for the continuing proprietors of the business for the loss of any goodwill or capital value.

I.

The payment of any personal debts, liabilities or needs of the outgoing proprietor.

14. The Applicant contended that the Documentation Service as a whole is not a "financial product" within Part 7.1 Division 3 (sections 762A - 765A) even though the insurance policy which forms part of the Documentation Service is a "financial product". Therefore, the provision by the Applicant of the Documentation Service is not the provision of "financial product advice" within section 766B and neither is it the provision of a "financial service" within section 766A.

Trustee Service

15. The twin part of the business succession planning strategy developed by the Applicant is the "Trustee Service". The nature of the Trustee Service is that it is a bare trust under which the trustee (the Applicant) holds the proceeds of insurance policies effected by or on behalf of outgoing business proprietors by the trustee for the benefit of designated beneficiaries. Once the insurer pays out under the relevant insurance policies in accordance with the terms of those insurance policies once the relevant triggering event or events occur, then those proceeds are paid to the trustee who in turn disburses them as required by the provision of the BITA. One of the rationales for the Trustee Service is to provide financial security for outgoing business proprietors on the basis that if they retire or die (whichever comes first), the insurance policy that has been effected for their benefit (as well as for the benefit of family members and business associates) will fund the succession of the business and to meet business and private debts and liabilities of the outgoing proprietor. Indirectly, this leads into another rationale for the Trustee Service, and that is to promote the post-retirement financial prosperity and freedom from debt for the outgoing business proprietor (and his or her estate, in the event of death before retirement).

16. The Applicant contended that the Trustee Service is ancillary to or incidental to the Documentation Service and that, in effect, the Trustee Service should be afforded an exemption from the FSR regime by the Respondent exercising its discretion and power under section 911A(2)(l). There were many strands to the Applicant's claim for exemption, and the more important of these can be reduced to the following contentions:

A.

Pre-FSR, regulation of legal profession by statute and by way of the imposition of fiduciary duties on lawyers by law amounted to adequate regulation of those lawyers who wanted to provide services akin to the Trustee Service.

B.

Trustee company legislation exempted legal professionals who want to provide trustee services.

C.

The definition of "custodial or depository service" in section 766E is very wide and would capture any form of trust, including a trust over insurance policy proceeds. When those proceeds are converted to money or cash, money or cash are not a species of "financial product" , so to the extent that the Trustee Service involves the passive holding of money generated by way of the payout proceeds of insurance policies effected under the BITA, the Trustee Service is not the provision of a "financial service" within section 766A.

D.

Parliament has exempted under regulation 7.1.40(h) "cash management trust interests" from the ambit of "custodial or depository service" in section 766E. Therefore, by analogy, the Respondent should exempt the passive holding of an insurance policy on trust because it is ancillary to the provision of advice by a lawyer in the ordinary course of performance by that lawyer of services in the nature of the BITA.

E.

The clients of the Applicant to whom the Applicant provides services in the nature of the BITA are "associates" of the Applicant and so qualify for the exemption from the Applicant providing a custodial or depository service to clients who are associates under regulation 7.1.40(b).

F.

The Respondent failed to give appropriate weight to its policy that strict compliance with the FSL regime would be impossible or disproportionately burdensome within PS 167.3C(a).

RESPONDENT'S SUBMISSIONS

Documentation Service

17. The Respondent accepted that the Documentation Service is not a "financial service" within section 766A because the Applicant did not provide "financial product advice" within section 766B. The Respondent treated the Documentation Service provided by the Applicant as falling within the exemption afforded by section 766B(5) as amounting to advice given by a lawyer in his or her professional capacity, about matters of law, legal interpretation or the application of the law to any facts. This led to the Respondent's contention that the Documentation Service does not require an AFSL, and accordingly, there was no need for the Respondent to exercise its powers for relief from the FSR regime under section 911A(2)(l).

Trustee Service

18. The nub of the Respondent's contentions on the FSR treatment of the Trustee Service was that it is indistinguishable from the regulation of the other providers of custodial or depository services who are required to be licensed. In elaboration, the Respondent argued that:

A.

The fact that the Trustee Service is provided by a lawyer is an insufficient justification for an exemption from a requirement for an AFSL.

B.

The Applicant's inability to meet licensing conditions, such as the requirement to hold a certain level of Net Tangible Assets, is an insufficient justification for a licensing exemption.

C.

The Trustee Service is fundamentally different from the provision of legal advice under the Documentation Service, so that if the Documentation Service is exempt from the FSR regime, the Trustee Service was not so exempt (unless a specific exemption was provided in respect of financial services or financial products of a class within which the Trustee Service is situated).

D.

The Applicant's Trustee Service is a custodial or depository service within section 766E, and the insurance policy effected under the framework of the BITA is a "financial product" within sections 763A and 763C. It is the holder of the insurance policy that constitutes the service that requires licensing under the FSR regime.

E.

The Trustee Service is not exempt from the licensing requirements of the FSR regime by regulations 7.1.40(a), 7.1.40(b), and 7.1.40(h).

F.

The Trustee Service is not exempt from the licensing requirements of the FSR regime by section 766B(5) as the Trustee Service does not amount to advice given by a lawyer in his or her professional capacity, about matters of law, legal interpretation or the application of the law to any facts.

Exercise of the Respondent's discretion in granting a section 911A(2)(l) exemption

19. The Respondent argued that a section 911A(2)(l) exemption should not be made in this case for many reasons, including:

A.

The regulation of the Applicant as a lawyer is not an adequate alternative regulatory regime in terms of those activities of the Applicant that coincide with the provision of financial services.

B.

The Applicant does not have the requisite and adequate technical competence and financial, technological and human resources to provide financial services.

C.

Regulation of the Applicant as a solicitor under Queensland law is intended to achieve different regulatory goals than those applicable under the FSR regime.

D.

Regulations 7.1.35A and 7.1.40 do not provide a clear principle that should justify the granting of an exemption sought by the Applicant.

E.

The Applicant's activities are indistinguishable from other providers of custodial or depository services who are required to hold an AFSL.

FINDINGS OF FACT

20. Based upon the material and evidence before it, the Tribunal makes the following findings of fact:

A.

The Applicant is a solicitor in practice in Queensland.

B.

The Applicant applied to the Respondent on 23 June 2003 requesting that the Respondent exercise its discretion and power under section 911A(2)(l) of the Corporations Act 2001 to exempt the Applicant from the requirement to hold an AFSL in respect of services provided by the Applicant to his clients, namely the Documentation Service and Trustee Service.

C.

The Documentation Service is part of a Business Insurance Trust Agreement ("BITA") promoted by the Applicant in respect of a practice specialty of business succession planning.

D.

The BITA provides for a bare trust on behalf of the life assured (the business proprietor) where the trustee (here, the Applicant) holds certain insurance proceeds on trust for designated beneficiaries when those insurance proceeds become payable when certain events occur.

E.

The nature of the Trustee Service is that it is a bare trust under which the trustee (the Applicant) holds the proceeds of insurance policies effected by or on behalf of outgoing business proprietors by the trustee for the benefit of designated beneficiaries.

F.

Once the insurer pays out under the relevant insurance policies in accordance with the terms of those insurance policies once the relevant triggering event or events occur, then those proceeds are paid to the trustee who in turn disburses them as required by the provision of the BITA.

G.

The Applicant as the trustee receives a fee for providing the Trustee Service over and above any professional fees and disbursements earned or reimbursed resulting from the Documentation Service.

H.

The Respondent refused the application of the Applicant for relief from the requirement to hold an AFSL in respect of services provided by the Applicant to his clients, under the designation "Trustee Service" on 4 February 2004.

I.

The Applicant's application for review of the Respondent's decision was received by the Tribunal on 1 March 2004.

BACKGROUND TO THE FSR REGIME

21. The Financial Services Reform Act 2001 (Cth) amended the Act by including Chapter 7 into the Act. Chapter 7 is known generally as the "FSR regime". ^[1] The Financial Services Reform Act 2001 is a by-product of the Wallis Report ^[2] and CLERP 6. The substantive changes effected by the Financial Services Reform Act 2001 to the Act were enacted with effect from 27 September 2001 when those changes to the Act received Royal Assent, and were proclaimed to come into operation on 11 March 2002. After a two-year transitional period during which the financial services industry and its participants were required to become FSR compliant, Chapter 7 came into operation on 11 March 2004. Amendments made to Chapter 7 by the Financial Services Reform (Consequential Provisions) Act 2002 and the Financial Services Reform Amendment Act 2003 do not affect this appeal.

THE LEGISLATION

22. Chapter 7 provides the legal framework for the operation of financial services and markets in Australia. Financial services market participants must comply with, among other things, Part 7.6 (licensing of providers of financial services). Section 911A requires a person who carries on a financial services business in Australia must hold an AFSL unless exempted under section 911A(2). If a person provides financial services on behalf a person who carries on a financial services business, then the provider and the principal must satisfy the requirements of section 911B, including the principal holding an AFSL and the provider being an authorised representative of the principal (in which case sections 916A - 916G also come into operation for the authorised representative).

23. The central issue in this case concerns the claim by the Applicant that the Respondent should grant the Applicant an exemption under section 911A(2)(l) in relation to the Trustee Service conducted by the Applicant. Section 911A(2)(l) reads: Need for an Australian financial services licence

911A (1) 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.

Note 1: Also, a person must not provide a financial service contrary to a banning order or disqualification order under Division 8.

Note 2:Failure to comply with this subsection is an offence (see subsection 1311(1)).

(2) However, a person is exempt from the requirement to hold an Australian financial services licence for a financial service they provide in any of the following circumstances:

... (l) the provision of the service is covered by an exemption specified by ASIC in writing and published in the Gazette.

Note:

A defendant bears an evidential burden in relation to the matters in this subsection. See subsection 13.3(3) of the Criminal Code.

ASIC'S POLICY ON ITS DISCRETIONARY POWERS CONCERNED WITH FSR LICENSING

24. The Respondent's policy on the exercise of its discretion and powers concerned with FSR licensing is contained in PS 167: Licensing: Discretionary Powers and Transition ("PS 167"). Relevant excerpts from PS 167 are set out next (historical notes have been omitted):

Our policy

[PS 167.3] We will consider giving relief under s911A(2)(l), 951B and 992B to address atypical or unforeseen circumstances and unintended consequences of the licensing provisions of the Corporations Act. We may give relief on our initiative or on application.

[PS 167.3A] We have the flexibility under the law to give partial or complete relief from the licensing provisions (including with conditions). The kind of relief that is given (if any), the extent of the relief and the situations in which the relief applies will depend on what is appropriate in the circumstances.

[PS 167.3B] When considering using these powers to give relief, we will keep in mind the regulatory goals of:

(a)

promoting consumer confidence in using financial services (including informed decision making);

(b)

promoting the provision of efficient, honest and fair financial services by all licensees and their representatives; and

(c)

supporting confident use of financial markets by consumers and market participants.

We suggest that Applicants address these goals in their applications.

[PS 167.3C] Factors that we may consider when deciding whether to exercise our relief powers include whether:

(a)

strict compliance with the new regulatory regime would be impossible or disproportionately burdensome;

(b)

persons to whom financial services are provided would still have the protection intended by Parliament;

(c)

those to whom the relief applies (eg the Applicant) will receive any benefits;

(d)

a reasonable person would think that the predominant purpose of the product to which the service relates is not a financial product purpose;

(e)

the service is subject to adequate alternative regulation;

(f)

the likelihood and extent of potential consumer detriment resulting from the proposed relief is minimal; and

(g)

the service is only provided to wholesale clients (or in some cases only to professional investors as defined in s9).

[PS 167.9] Any exercise of power has to be justified by the net benefits that will arise. We will carefully consider the impact of any relief on consumer protection.

25. The Tribunal also had regard to PS 167.10-PS 167.13.

TRIBUNAL'S REASONS

Blanket exemptions under the FSR regime

26. Section 911A(2)(k) provides a blanket exemption in relation to the provision of the financial service when the relevant service is covered by an exemption prescribed in any regulations made for the purposes of section 911A(2)(k). The relevant regulation is reg 7.6.01. The circumstances of the Applicant in general, and of the Documentation Service and Trustee Service in particular, do not fall within the exemptions afforded by reg 7.6.01. Accordingly, unless (1) the Respondent (and this Tribunal on review) grants an exemption in relation to the Applicant's Documentation Service and Trustee Service, or (2) an AFSL is not required for either or both of the Documentation Service and the Trustee Service, the Applicant must apply for and hold an AFSL in relation to the Documentation Service and Trustee Service.

Documentation Service

27. The Tribunal noted that it is common ground between the parties that the Documentation Service is exempt from the FSR licensing regime because the Applicant can take advantage of the exemption under section 766B(5) and regulations 7.1.35A. Section 766B(5) provides that where a lawyer gives advice in his or her professional capacity, about matters of law, legal interpretation or the application of the law to any facts, then this is not "financial product advice" within section 766B, and so removes professional legal advice from the ambit of "financial service" under section 766A. This led to the Respondent's contention that the Documentation Service does not require an AFSL, and accordingly, there was no need for the Respondent to exercise its powers for relief from the FSR regime under section 911A(2)(l). In the opinion of the Tribunal, this contention and its conclusion are correct. Leary v Federal Commissioner of Taxation (Cth) (1980) 47 FCR 414 holds that the profession of law includes the duty of a lawyer to give advice as to the meaning and operation of laws and the common law (and equity) and to render proper professional assistance to further the interests of a client within the terms of the client's retainer (at 434 - 5). This would include the creation of a trust. The result is then that there is no occasion for the Respondent (and on appeal, this Tribunal) to exercise its discretion and powers under section 911A(2) to exempt the Documentation Service from the licensing requirements of the FSR regime. The Tribunal proceeded on the basis that the Documentation Service is outside the FSR regime.

The Trustee Service as a custodial or depository service

28. The elements and parameters of the Trustee Service have been described earlier in these Reasons for Decision. The Respondent's contention in relation to the FSR treatment of the Trustee Service was that it is indistinguishable from the regulation of the other providers of custodial or depository services who are required to be licensed. Accordingly, unless the Respondent was prepared to grant an exemption under section 911A(2)(l) (which it was not), then the Applicant needed to apply for and be granted an AFSL licence in respect of the Trustee Service. In such a case, the Applicant would also need to comply with licence conditions set by the Respondent (unless the licence conditions are also modified by exemption consistent with the policy expressed in PS 167.3A).

29. This led the Tribunal to consider whether the Trustee Service is a "custodial or depository service" within section 766E as elaborated by regulation 7.1.40. The core definition of "custodial or depository service" is contained in section 766E(1), which reads (the extension contained in section 766E(2) is not material in the circumstances of this appeal):

"766E(1) For the purposes of this Chapter, a person (the provider ) provides a custodial or depository service to another person (the client ) if, under an arrangement between the provider and the client, or between the provider and another person with whom the client has an arrangement, (whether or not there are also other parties to any such arrangement), a financial product, or a beneficial interest in a financial product, is held by the provider in trust for, or on behalf of, the client or another person nominated by the client."

30. It was common ground between the parties that the insurance policy that is the subject of the Trustee Service is a "financial product" within section 766E(1), and also sections 763A, 764A and 765A. The core mechanism of the custodial or depository service is a trust in respect of a financial product (although the alternative mechanism of a financial product being held "on behalf of" the client or the nominee of the client is also provided by section 766E(1)). "Trust" is not defined separately in Chapter 7 of the Act or under Chapter 7 of the Corporations Regulations . The Tribunal considered that "trust" carries its general law meaning of an equitable interest in real or personal property being carved out of the legal interest with the trustee holding the legal interest in the relevant trust property and the beneficiary or beneficiaries holding the equitable or beneficial interest consistent with authorities such as DKLR Holding Co (No 2) v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-19 per Hope JA; Re Transphere Pty Ltd (1980) 5 NSWLR 309 at 311 per McLelland J; CSD (Qld) v Livingston [1965] AC 694 at 712 per Viscount Radcliffe and Westdeutsche Landesbank Girozentnale v Islington London Borough Council [1996] 2 All ER 961 at 988 per Lord Browne-Wilkinson.

31. In this case, the Tribunal considered that the effect of the BITA was to create a trust in respect of the holding of the insurance policy and the payout proceeds of any insurance policy the BITA covered in such a way that this arrangement fell within the parameters of a "trust" within section 766E(1). Besides the mechanism of a "trust" referred to in section 766E(1), there is the alternative mechanism of a financial product being held "on behalf of" the client or the nominee of the client. In this case, it was not necessary to consider the meaning of this alternative postulation or its possible application except to note that the alternative postulate may have an broader meaning than "trust" . This means that the Trustee Service conducted by the Applicant is a "custodial or depository service" within section 766E(1) and is subject to regulation under the FSR regime accordingly. This led the Tribunal to proceed to consider whether it is appropriate to exempt the Applicant's Trustee Service from the FSR regime relying on the discretion and power contained in section 911A(2)(l).

The policy of the Respondent as expressed in PS 167

32. Relevant excerpts from the policy of the Respondent as expressed in PS 167 have been cited earlier in these Reasons for Decision. The Applicant argued that the Respondent failed to give appropriate weight to his individual circumstances within PS 167.3C. This raises an issue concerning how this Tribunal should treat the policy of the Respondent as expressed in PS 167.

33. The Tribunal began with a consideration of Government Employees' Health Fund Ltd v Private Health Insurance Administration (2001) 65 ALD 377 where the Full Court of the Federal Court said:

"[28] An administrative body is entitled to lay down a general policy, and apply it to individual cases which come before it, so long as it does not apply the policy rigidly and without affording a particular Applicant an opportunity to say why the policy should not have application."

34. The Respondent (as the primary decision-maker) and this Tribunal on review may properly and legitimately take into account general policies to guide the exercise of discretionary decision-making: Re Drake and Minister for Immigration & Ethnic Affairs (No.2) (1979) 2 ALD 634 at 639; Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248 at [33]. In Government Employees' Health Fund Ltd v Private Health Insurance Administration (2001) 65 ALD 377 the Full Court of the Federal Court noted the distinction between a policy or guideline which limits a discretion conferred by statute, and a policy which allows for the discretion to be exercised whilst providing guidance as to how it might be exercised: Re Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 641. In this case, it is the second limb that applies in relation to section 911A(2)(l).

35. A brake on the use of policy exists in the shape of the rule that policy cannot be used to subvert a statutory prohibition: Bennett v Chief Executive Officer of the Australian Customs Service (2003) 77 ALD 375. As a general proposition, deference by primary decision-makers (and by this Tribunal on review) to governmental policy (including Ministerial policy) is appropriate ( Australian Fisheries Management Authority v Graham (2003) 73 ALD 525 at [40]), provided deference does not become surrender. In Re Aston and Secretary, Department of Primary Industry (1985) 8 ALD 366 at 380, this Tribunal (Davies J, Layton DP and Mr Pascoe) observed that a policy ought not to be followed if "the evidence showed that it was entirely misconceived or proceeded on a wholly erroneous basis" (approved in Australian Fisheries Management Authority v Graham (2003) 73 ALD 525 at [40]).

36. Further guidance about the normative dimensions of government policy for Australian governmental decision-makers (and this Tribunal on review) was provided by the Federal Court in Humane Society International Inc v Minister for the Environment & Heritage [2003] FCA 64 in these terms:

"51. A policy is not likely to be held invalid if it is consistent with the statute in respect of which it offers guidance, allows the decision-maker to take account of relevant circumstances and does not preclude them from considering the circumstances of a particular case and all relevant arguments which may run counter to the policy: see Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634, 640-641. There Brennan J held valid a policy which was informative of the standards and values which the Minister usually applied. By contrast, in Green v Daniels (1977) 13 ALR 1, there was a general rule established pursuant to which persons who had left school prior to the end of the school year or during the vacation were to be treated as ineligible for employment benefits. So applied, it allowed for no consideration of the Applicant's application and the circumstances pertaining to her. "

37. The Tribunal took these pronouncements into account. The Tribunal noted that the provisions of the Explanatory Memorandum to the Financial Services Reform Bill 2001 relevant to licensing and authorisations (paragraphs 11.4 - 11.10) did not contain or allude to any material of a policy nature relevant to the determination of this present appeal.

38. The Tribunal noted that the Applicant did not argue that the Respondent's policy on relief from the licensing requirements of the FSR regime was entirely misconceived or that it proceeded on a wholly erroneous basis. The Tribunal noted that the Respondent gave the Applicant opportunity to argue his case for exemption having regard to the relevant criteria contained in PS 167. The Tribunal considered that under the FSR regime, besides section 911A, the Respondent may grant exemptions on modifications of the Act under sections 951B and 992B, and that both of these latter provisions are tempered by restrictions contained in sections 951B(2) and 992B(2) respectively. There are no such restrictions in the case of section 911A(2) or elsewhere under the Act or under the Corporations Regulations, Part 7.1. In this case, the Tribunal saw no reason to depart from the policy of the Respondent as expressed in PS 167. In fact, there are powerful reasons for adhering to that policy.

Atypical or unforeseen circumstances or unintended consequences of the licensing provisions"

39. PS 167.3 states that the Respondent will consider giving relief under, among other provisions, section 911A(2)(l), to address atypical or unforeseen circumstances and unintended consequences of the licensing provisions of the Act. The Applicant argued that his circumstances fell within this head of relief. The Applicant argued that previously a particular institutional trustee had provided the service under which insurance policies were held on trust for designated beneficiaries, but that that trustee had vacated the field. The Applicant argued that this was unforeseen. The Applicant pointed to the fact that the number of BITAs he had prepared to date is not sufficient to have come to the attention of Parliament or to have been the basis of any clear legislative intent when it came to the drafting of the Act or the regulations exempting particular forms of the financial products or financial services from the FSR regime. The Applicant submitted that his Trustee Service was atypical, and the application of the licensing provisions to his circumstances was unforeseen, leading to the conclusion that the Respondent should have exempted in the Trustee Service from the licensing regime.

40. In rebuttal, the Respondent contended that that provision of the Trustee Service is not an "atypical or unforeseen circumstance or unintended consequence" warranting the exercise of the Respondent's discretion in granting an exemption under section 911A(2)(l). The fact that the Applicant is the apparent sole provider of the Trustee Service, acts as a bare trustee of an insurance policy and is the trustee of an insurance policy that the Applicant claims is of little or no value does not mean that provision of the service is atypical or that its regulation would be an encompassing consequence of the application of the FSR regime.

41. The Tribunal considered that even if the Applicant's Trustee Service is unique or atypical that is not of itself an adequate justification to apply an exemption. The Tribunal noted that the Respondent's regulatory goals are set out in PS 167.3B. The Applicant's oral or written submissions did not clearly connect with these regulatory goals, nor did those submissions indicate how his Trustee Service would satisfy the integers of those regulatory goals. The Tribunal was not able, based upon the material before it, to conclude that there exist atypical or unforeseen circumstances that cause unintended consequences resulting from the application of the licensing provisions of the Act to the Applicant's Trustee Service. Accordingly, the Tribunal declined to grant relief under this particular head of exemption.

Unintended application of the licensing regime to the Trustee Service

42. The Respondent submitted that the Applicant's contention that his Trustee Service has not come to the attention of Parliament and said that an appropriate exemption could be crafted is not to the point. The Respondent contended that it would not be proper for Parliament to legislate by reference to the particular circumstances of the Applicant and of the financial service the Applicant wishes to provide. The Respondents said that it is sufficient that the financial service comes within the term of the statute.

43. This contention of the Applicant is somewhat misconceived, in the opinion of the Tribunal. Parliaments enact laws of general applicability intended to bind all legal persons according to their terms and the circumstances of the case. The capacity to soften or ameliorate the impact of laws of general application is addressed by several mechanisms in public law, including the use of discretions to cushion or temper the exercise of powers vested in public regulatory authorities or by specific heads of exemption granted under subordinate legislation such as regulations made under the relevant enabling statute. In this case, Parliament in its wisdom has decided to provide a detailed raft of exemptions from the range of financial products and financial services in Part 7.1 of the Corporations Regulations. In particular, Regulations 7.1.40 provides certain forms of conduct that do not constitute the provision of a custodial or depository service. While there is no specific genus or class that coheres the regulation 7.1.40 exemptions, it is clear that Parliament has identified a range of discrete custodial or depository services that merited exemption on the basis of, it may be presumed, the widespread applicability of those exempted services rather than on the basis of a particular or even unique individual custodial or depository service such as the Trustee Service meriting exemption.

Impossible or disproportionately burdensome compliance with the FSR regime

44. The Applicant contended that compliance with the licensing provisions would be impossible or disproportionately burdensome in the case of the Trustee Service, and this regulation would not provide any additional protection to clients. The Applicant did not provide any examples of such a regulatory impact in the case of the Trustee Service, although there is a hint of this in the Applicant's reference to Condition 17 of the pro forma AFSL which requires a licensee who provides custodial and the depository services to have at least $5 million net tangible assets, with the implication being that the Applicant could not muster these resources. The Respondent has stated that it is prepared to consider modifying licensing conditions if or when the Applicant applies for an AFSL. On the basis of the material before it, the Tribunal was not satisfied that compliance with the licensing provisions would be impossible or disproportionately burdensome in the case of the Trustee Service. The Tribunal noted that under PS 167.3A, the Respondent is prepared to give partial or complete relief from licensing conditions so long as its regulatory goals and the underlying imperatives are satisfied.

Analogies with statutory exemptions

45. The Applicant argued that the statutory exemptions provided under section 911A(2)(f)(viii) and regulation 7.1.40(h) provided an analogy with his application for exemption. Section 911A(2)(f)(viii) provides an exemption to a person who functions in the capacity as a personal representative of a deceased person. Regulation 7.1.40(h) provides an exemption from regulation of custodial depository services provided by a lawyer in connection with the acquisition, holding or disposal of a cash management trust interest where the law of a State or Territory relating to the audit of trust or controlled money applies. The Applicant conceded that he did not fit squarely within regulation 7.1.40(h), but argued that this provision presented an analogy that should ground the exemption in his case. The precise analogy was not drawn in detail, but the Tribunal was prepared to accept the contention on its face.

46. The Respondent contested the exemption by analogy argument of the Applicant. The Respondent pointed to PS 167.3, saying in effect that specific statutory exemptions were indicative of circumstances that were intended to address stated atypical unforeseen circumstances and unintended consequences of the licensing provisions.

47. In the opinion of the Tribunal, the statutory analogies do not assist the Applicant in this case because the specific exemptions contained in the Act and the Corporations Regulations are intended to address specific set of circumstances that Parliament thought should stand outside of the FSR regime. The Applicant has a choice between taking advantage of a statutory exemption according to its terms or not. There is no middle ground in the realm of analogy. If the statutory analogies are compelling, then this could be used as an argument for persuading the Respondent to modify its standard licensing conditions.

Regulation 7.1.40(b)

48. The Applicant argued that the Trustee Service fell within regulation 7.1.40(b), which reads:

"7.1.40 For paragraph 766E(3)(e) of the Act, conduct that is mentioned in subsection 766E(1) of the Act does not constitute providing a custodial or depository service if:

...

(b) the client is an associate of the provider (within the meaning of Division 2 of Part 1.2 of the Act).

49. Regulation 7.1.40(b) in turn leads to section 15, of which sub-section (1) states:

15(1) The associate reference includes a reference to:

(a)

a person in concert with whom the primary person is acting, or proposes to act; and

(b)

a person who, under the regulations, is, for the purposes of the provision in which the associate reference occurs, an associate of the primary person; and

(c)

a person with whom the primary person is, or proposes to become, associated, whether formally or informally, in any other way;

in respect of the matter to which the associate reference relates."

50. The Applicant argued that the client under a BITA is an "associate" of the Applicant within section 15(1)(a) because the client is acting in concert with the Applicant, and therefore under regulation 7.1.40(b), conduct under this type of association does not constitute providing a "custodial or depository service" within section 766E. In elaborating this contention, the Applicant said that he was "acting in concert" with clients of the Trustee Service in order to achieve the client's goal of having insurance proceeds payable by the insurance company under the insurance policy paid securely and tax-effectively to nominated recipients by the operation of the BITA. The Tribunal proceeded to consider the Applicant's claim for exemption under regulation 7.1.40(b).

51. In Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501 at 524 - 525, Owen J said in connection with a precursor of section 15(1)(a) (the parallel provision under the former Corporations Law ):

"The phrase 'acting in concert' connotes knowing conduct the result of communication between parties and not simultaneous actions occurring contemporaneously. Of course, the statutory definition expands that concept by including a proposal so to act. However, in the context of this case the allegation is of a bilateral arrangement. 'Acting in concert' involves at least an understanding between the parties as to a common purpose or object: see Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Company Ltd (No 4) [1985] 1 Qd R 127 at 132. It is necessary that the understanding should be consensual and that there should be some adoption of it. However, it is not essential that the parties are committed to it or bound to support it. An arrangement or understanding can be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it notwithstanding their adoption of it: see Federal Commissioner of Taxation v Lutovi Investments Pty Ltd 140 CLR 434 at 443-4; 22 ALR 519. Such an understanding may be proved by inference from the circumstances surrounding the impugned transaction and from what the parties have done as well as by direct evidence: see Adsteam [1985] 1 Qd R 127 at 133."

52. Owen J affirmed these views in IPT Systems Ltd v MTIC Corporate Pty Ltd (2000) 36 ACSR 454 (see also Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566 at [18] per Barrett J).

53. The Respondent contended (citing Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566) that the Applicant was not acting in concert because, among other reasons, he is acting as an independent trustee passively holding the insurance policy on trust for his client or clients, distributing insurance policy proceeds as directed by the terms of the BITA, all as part of the Applicant carrying out the terms of the retainer. These factors were said to point against the Applicant acting in concert with his clients.

54. Under the BITA, the Applicant (as the trustee) is a bare trustee passively holding the trust property (clause 2.1 of the BITA refers). The BITA, clause 9.1, authorises and directs the trustee to collect the insurance policy proceeds and to pay those proceeds as directed by the BITA itself. The sense of "acting in concert" as explained by Owen J in Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd (1995) 16 ACSR 501 at 524 - 525 and by Barrett J in Bateman v Newhaven Park Stud Ltd [2004] NSWSC 566 refers to extra-contractual understandings or arrangements that are designed to achieve a common purpose or object. ^[3] In the present case, the division between legal and equitable ownership of the insurance policy and its proceeds (as the relevant trust property) split between the Applicant and the BITA client is some legal and commercial distance from the concept of acting in concert. To the extent that the reference to an associate in regulation 7.1.40(b) invokes the concept of "acting in concert" (strictly, a paraphrase of section 15(1)(a)), in the opinion of the Tribunal it is intended to signify legal or commercial relationships that in essence do not involve a trust (or trust-like entity) which is at the core of a notion of custodial or depository relationships. Trustees and beneficiaries of property do not act in concert with each other. The role of the trustee is to actively hold or passively manage the relevant trust property in accordance with the terms of the trust (as the nature of the case requires). The trustee must act in the best interests of the beneficiary and hold and deal with the trust property for the benefit of the beneficiaries: Re Simersall (1992) 108 ALR 375 at 379 - 80 per Gummow J. There is in reality no common purpose or joint enterprise between the trustee and beneficiary as under a trust the trustee must advance, promote and protect the interests of the beneficiary. The beneficiary does not need to work with the trustee to achieve the purposes of the trust. The Tribunal is of the opinion that while the contention of the Applicant has a superficial attractiveness, on closer examination regulation 7.1.40(b) does not afford the Applicant an exemption from section 766E. Adequate regulation as a solicitor

55. The Applicant contended that the Respondent should grant an exemption from the need to hold an AFSL because he was already adequately regulated as a solicitor under the Legal Profession Act 2004 (Qld) and the Queensland Law Society Act 1952 (Qld). The Respondent's response to this contention was to argue that Parliament's intention was to exempt lawyers in only a limited range of circumstances, including those circumstances falling within section 766B(5) and regulations 7.1.35A and 7.1.40. Outside of these specific exemptions, Parliament did not intend to exempt lawyers from regulation under the FSR regime. The Respondent argued that in combination, the Legal Profession Act 2004 , Schedule 5 (' "legal services" means work done, or business transacted, in the ordinary course of legal practice ') and sections 50, 161 and 122 demonstrated that if a solicitor performs work outside of the scope of "legal services", then professional indemnity insurance coverage will not respond to any claims for loss or damage by clients of that solicitor as result of the solicitor's work.

56. The Respondent argued that Solicitors' Liability Committee v Gray and Another (1997) 77 FCR 1 at 14 - 15 per Lockhart J and at 36 - 46 per Beaumont and Burchett JJ indicate that a line must be drawn between those activities that are within or constitute the practice of a solicitor (which are covered by compulsory professional indemnity insurance, subject to any relevant exclusions) and entrepreneurial or business activities, which stand outside relevant insurance coverage. In Leary v Federal Commissioner of Taxation (Cth) (1980) 47 FCR 414 at 434 - 5, Brennan J said that the activities of an entrepreneur in the promotion of the scheme in which taxpayers will be encouraged to participate are outside the field of professional activity of a solicitor. In this case, it may be going too far to say that the Applicant has acted as an entrepreneur in the provision of the Documentation Service and the Trustee Service and the Tribunal does not so decide. Solicitors' Liability Committee v Gray draws a bright line between the practice of law as a profession and the business, commercial or entrepreneurial activities of persons coincidently licensed to practise law. In the opinion of the Tribunal, the activities of the Applicant in acting as a trustee under the BITA coupled with charging and receiving fees paid for this service by clients over and above professional legal services provided in establishing the BITA take this activity outside of the profession of a solicitor. Therefore the professional regulation argument of the Applicant fails.

TRIBUNAL'S CONCLUSION

57. On the basis of the material before it, the Tribunal concludes that the correct and preferable decision in this case is that the Applicant does not qualify for exemption under section 911A(2)(l) of the Corporations Act 2001 .