Australian Securities and Investments Commission v Online Investors Advantage Inc & Anor [2005] QSC 324

SUPREME COURT OF QUEENSLAND CITATION: Australian Securities and Investments Commission v Online Investors Advantage Inc & Anor [2005] QSC 324 PARTIES: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v ONLINE TRADERS ADVANTAGE INCORPORATED (ARBN 090 011 304) (first respondent) PHILLIP BRADLEY TOWN (second respondent) FILE NO/S: BS 6042 of 2004 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court, Brisbane DELIVERED ON: 26 October 2005 DELIVERED AT: Brisbane HEARING DATE: 6, 7 and 8 September 2004 and 4 April 2005 JUDGE: Moynihan J ORDER: CATCHWORDS: Australian Securities and Investments Act 2001 (Cth); Corporations Act 2001 (Cth). Australian Securities Investments Commission v National Exchange Pty Ltd [2003] FCA 955; Australian Securities Investments Commission, Re Giann & Giann Pty Ltd [2005] FCA 81; Campomar Sociedad Limitada v Nike International (2000) 202 CLR 45; Commissioner of Taxes v Camphin (1937) 57 CLR 127; Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972; Hill v Terry [1993] Qd R 640; Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216; Joyce v Government Insurance Office of New South Wales 21/7/1976 SCNSW unreported; Londish v Gulf Pacific Pty Ltd (1993) 117 ALR 361; National Exchange Pty Ltd and Tweed v Australian Securities -- 1 of 37 -- and Investments Commission [2004] FCAFC 90; Puxu Pty Ltd v Parkdate Custom Built Furniture Pty Ltd (1980) 31 ALR 73; Re Jungstedt and Australian Securities Investment Commission (2003) 73 ALD 105; Re Wizard Systems (UK) Ltd [1998] 2 BCLC 282; Smith v New South Wales Bar Association (No 2) (1992) 176 CLR 256; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. COUNSEL: Mr G Egan with Mr N Ferrett for the applicant; Mr D North SC with Mr T Bradley for the respondent. SOLICITORS: Australian Securities and Investments Commission for the applicant; Minter Ellison Lawyers for the respondent. -- 2 of 37 -- 1 INDEX 1. Introduction 2. The originating application 3. An application to re-open 4. Background 5. The seminars 6. The workshops 7. The website 8. The relief claimed (by categories) • False and misleading conduct (Claims 3, 4 and 10) • Declaration of contravention (Claims 1, 2, 6, 7, 8, 11) • Education about options (Claims 11, 12, 13 and 14) • The website as a financial product (Claims 15, 16 and 17) • Repayment order (Claim 18) 9. Summary of outcomes by claims -- 3 of 37 -- 2 1. Introduction [1] The Australian Securities and Investment Commission (ASIC) seeks 15 declarations, compliance orders and other relief against the first defendant Online Investors Advantage Incorporated (Online) pursuant to s 1324 of the Corporations Act 2001 (the Corporations Act) and the Australian Securities and Investment Act 2001 (Cth) (the ASIC Act). [2] Each of the claims for relief arises out of seminars (the seminars) presented by Philip Bradley Town (Town) in Brisbane and Melbourne on Online’s behalf to promote Online’s website (the website). [3] ASIC no longer pursues a declaration against Town sought by paragraph 5 of its application; consequently there is no longer any claim for relief against him. Claims have however been amended to seek orders against Online on the basis that it is liable for Town’s conduct at the seminars. [4] It is pertinent to note that Online, having earlier submitted to the contrary, accepted that this court had jurisdiction to grant the relief sought by the various claims. -- 4 of 37 -- 3 2. The originating application (the application) [5] The original application has been amended. A number of claims made initially are no longer pursued by the further amended originating application (it is convenient to refer to it as the application). Claims which are pursued have been amended and fresh complaints have been substituted or added. [6] Claims 5 and 9 are no longer pursued. It is convenient to consider the remaining claims in terms of groups. Claims 3, 4 and 10 allege deceptive and misleading conduct. [7] Claims 1, 2, 6, 7, 8, 11, 12, 13 and 14 seek declarations of contravention or relief consequent on the contravention of provisions of the Corporations or ASIC Acts. [8] Claim 15 seeks a declaration that the website is a financial product in terms of s 763A(1)(b) of the Corporations Act. Claims 16 and 17 seek related declarations. [9] Claim 18 seeks an order for repayment of money paid by people attending the seminars (the seminar) to attend workshops or the use of the website. [10] ASIC gave particulars pursuant to the directions of 14 July 2004 by letters of 21 July, 16 and 17 1 August and 2 September 20042 . [11] The particulars included a colour coded transcript of the seminar proceedings in Brisbane3 . Thus it particularised that Town provided a financial service by giving financial product advice, namely: a. Yellow – Pages 14-18 inclusive of the transcript illustrate how Town provided financial product advice in that he: (i) recommended or stated an opinion that it was preferable to invest in the USA securities market; (ii) did so without distinguishing between investment in securities or derivatives. b. Orange – Pages 20-24, 27 and 75-76 inclusive of the transcript illustrate how Town provided financial product advice in that he: (i) recommended or stated an opinion that people invest in call options and covered calls as a means of lowering risk, getting a good rate of return, and producing cash flow; (ii) recommended or stated an opinion that the holder of a covered call option not sell unless the rate of return on a covered call exceeds 5% of the prevailing stock price. c. Green – all of the green coding related to a discussion by Town related to: 1 Hearing Exhibit 7. 2 Hearing Exhibit 8. 3 Court file document 15; affidavit of Atkinson; exhibit JA4. -- 5 of 37 -- 4 (i) use of the INVESTools website where that website contains signals which, if followed, constitute a recommendation or statement of opinion concerning the desirability of dealing in USA securities and options; (ii) how the website might be used to manage financial risk. [12] The hearing of the application proceeded on the basis of affidavits, a number of deponents were called or were available by phone for cross-examination but many were neither called nor cross-examined. Town swore an affidavit and was cross- examined4 . [13] Written outlines of argument were exchanged before the hearing. After it there were relatively short oral submissions followed by an extended exchange of a series of written submissions. [14] What transpired at the seminars is largely not controversial, although some of the inferences to be drawn and the conclusions based on them are. I viewed a DVD5 of the proceedings at the Brisbane seminar; it is approximately 2 hours duration and a PowerPoint presentation of 73 screens by Town used for the Brisbane and Melbourne presentations 6 . A transcript of the DVD of the Brisbane presentation is in evidence7 exhibited to the affidavit of Jennifer Margaret Atkinson8 . There is no DVD or transcript of the Melbourne presentation. [15] Town used the same PowerPoint presentation in Brisbane and Melbourne. His oral presentation no doubt varied between the two venues in a few matters of detail, overall the Melbourne presentation reflected that in Brisbane, the DVD and transcript. 4 Alison Hill, Andrea Osborne, Geoffrey Brethouwer and Phillip Thomas were also called and cross examined. 5 Court file document 15; affidavit of Atkinson; exhibit JA3. 6 Court file document 15; affidavit of Atkinson; exhibit JA1. 7 Court file document 15; affidavit of Atkinson; exhibit JA4. 8 Court file document 15. -- 6 of 37 -- 5 3. An application to re-open [16] Claim 6 is the subject of an opposed application to re-open and to lead further evidence. The claim seeks a declaration that Online carried on a “financial services business” in that at the seminars Town provided financial product advice concerning derivatives in contravention of s 911A(1) of the Corporations Act. [17] In a letter of 21 July 2004 ASIC gave particulars of claim 6 in these terms:- 1. There was evidence that Town made representations concerning options and/or covered calls; 2. Section 991A(1) of the Corporations Act required a person carrying on a financial services business to have a financial services licence; 3. Online only had a licence to provide general advice in relation to securities; 4. A covered call comprised both a security and a derivative (s 761D(1)of the Corporations Act). To the extent that representations were made about a financial product not the subject of the financial services licence there was a contravention of s 991A of the Corporations Act. [18] It was contended that a covered call comprised both a security and a derivative (s 761D(1) of the Corporations Act). To the extent that representations were made about a financial product not the subject of the financial services licence ASIC submits there was a contravention of s 991A of the Corporations Act9 . [19] Online submitted that the only basis for ASIC’s contention that a covered call was a security was that it was within the definition of security in s 761A of the Act. [20] The claim is founded on Town’s references to investing in call options and covered calls as a means of lowering risk, getting a good rate of return and producing cash flow and his recommendations identified by those portions of the Brisbane seminar transcript colour coded orange10 . [21] It is submitted that the extent that Town’s presentation involved recommendations or stated opinion concerning derivatives (i.e. call options and covered calls) he acted outside the terms of Online’s licence to provide general financial advice in respect of securities. [22] The application to re-open arose as a consequence of paragraph 89A of Online’s final submissions. This submitted to the effect that an option granted by a share owner entitling another person to acquire the share was an equitable right or interest in the share; Commissioner of Taxes v Camphin11 ; Hill v Terry12 . [23] Online submitted the “covered calls” referred to by Town at the seminars are such options. The “call” is covered, it is suggested, because the person granting the option already holds the shares in respect of which the right to “call” is granted. 9 Particulars of the ASIC complaint in respect of options covered calls are coloured green in the transcript of the Brisbane seminar presentation; court file document 15; affidavit of Atkinson; exhibit JA4. 10 Court file document 15; affidavit of Atkinson; exhibit JA2. 11 (1937) 57 CLR 127 at 132. 12 [1993] Qd R 640 at 647. -- 7 of 37 -- 6 [24] Online submitted that the options referred to by Town were within the definition of “security” in Part 7 of the Corporations Act13 . An option to acquire a share the person giving it did not own on the other hand was in an equitable right or interest and so may be a derivative. [25] Before the application to re-open was made ASIC had drawn my attention to the decision of Finkelstein J of the Federal Court in Australian Securities and Investment Commission, Re Giann and Giann Pty Ltd14 delivered on 15 February 2005 which dealt with exchange traded options and exchange traded index options as derivatives in terms of s 761D(1) of the Corporations Act and regulation 7.1.04 in concluding that there were misleading and deceptive statements made in relation to financial services involving those options. [26] The additional evidence ASIC seeks to lead is an affidavit of Sean Mark Ansell15 . The affidavit refers to Town discussing trades in call options (including covered calls) on American exchanges. It is not in issue that he did; he could only have been referring to US markets. ASIC, for whatever reason, lead no evidence about covered calls consequently relying on “options” as constituting “financial product advice about derivatives” until the implications of paragraph 89A were appreciated. [27] The hearing and oral submissions concluded on 8 September 2004 and was followed by an exchange of written submissions. Paragraph 89A was handed up in an outline on the last day of the hearing and was a revised version (including the insertion of paragraph 89A) of an outline provided before the hearing commenced. As I have said there was a somewhat protracted process of exchange. The application to re-open was made on 15 March 2005. The application was heard on 4 April 2005 and the issue reserved to the final disposition of the claim. [28] In considering such an application it is relevant to consider why the evidence was not called at the hearing, a deliberate decision not to do so ordinarily will tell against the application; Smith v New South Wales Bar Association (No 2)16 ; Londish v Gulf Pacific Pty Ltd17 . [29] That hurdle having been overcome the next issue is whether the calling of new or additional evidence may cause “embarrassment or prejudice”; Smith18 . [30] In Londish19 the Full Court of the Federal Court approved the decision of Joyce v Government Insurance Office of New South Wales20 to the effect that the essential principle was to do justice between the parties. The question of prejudice would then arise for consideration on principles similar to an application for leave to amend the pleadings. 13 “security means: (a) a shared…; (b) a debenture …; (c) a legal or equitable right or interest in a security covered by (a) or (b); (d) an option to acquire by way of issue a security covered by (a) or (b); Corporations Law s 761A. 14 [2005] FCA 81. 15 It was filed with the application to re-open. 16 (1992) 176 CLR 256 at 266. 17 (1993) 117 ALR 361 at 372. 18 (1992) 176 CLR 256 at 266. 19 (1993) 117 ALR 361 at 373. 20 21/7/1976 SCNSW unreported. -- 8 of 37 -- 7 [31] The case is a complex one involving a large body of evidence. ASIC did not lead the evidence which it now seeks to lead, whether deliberately or not is understandable. [32] It well may be that the issue to which the proposed evidence is directed was only appreciated when paragraph 89A was considered after the hearing concluded. This case was not conducted on the basis of pleadings but on the basis of affidavit evidence, particulars and the exchange of written submissions. This is not an ideal way to bring about a precise joinder of issues and in part explains the late identification of the point. [33] Online submits that if ASIC is to be permitted to overcome the obstacle presented by its earlier decision” to rely on references to options rather than covered calls the question of prejudice arises. If the case is re-opened it may need to locate an appropriately qualified knowledgeable witness to controvert the evidence tendered in ASIC’s application to re-open. It may be that Town would need to be cross-examined on the issue. As against that there is a public interest in the determination of the issue. [34] In my view on balance the application to re-open should be refused. The case covers a range of complex issues; that to which the proposed evidence is directed is a relatively minor one. [35] It is true that there is an element of public interest in having the issues determined. The application was however made well after the hearing had concluded. Evidence in addition to the affidavit of Ansell may be necessary from either side. There were further submissions. It is difficult to know the extent of the complexities which might then arise and the effect which they may have on the finalisation of what has been a protracted matter. Online has an interest in the case being finalised. [36] I will deal with claim 6 in the context of dealing with the other claims. -- 9 of 37 -- 8 4. Background [37] Online was incorporated in Utah, USA and is a wholly owned subsidiary of ZiaSun Technologies Inc, a US registered foreign corporation. ZiaSun Technologies Inc is in turn a wholly owned subsidiary of INVESTools Inc, another US registered foreign corporation. [38] Online is the principal company through which INVESTools Inc operates. As at 30 June 2004 it accounted for some 94% of the total revenue of INVESTools which for the year ending June 2000 was US$90 million. [39] INVESTool Inc’s major income generator is its website, (www.investoolbox.com.au), which provides access to data on US listed companies and has capabilities to arrange the data in terms of various performance parameters so that a subscriber can make decisions about dealing in US stocks 21 . [40] Since the website gave access to data about US but not Australian security markets it might be inferred Town needed to promote the favourable characteristics of those markets the website dealt with.22 [41] Online has been carrying on business in Australia since 1999 in connection with the promotion of “educational services for investors”. [42] On 20 January 2000 Online gave ASIC an enforceable undertaking pursuant to s 93AA of the ASIC Act reflecting a concern it was providing investment advice without the licence required under s 781 of the Corporations Act. [43] On 9 June 2004 Online was granted a licence pursuant to s 913B of the Corporations Act authorising it to carry on a financial services business providing general financial product advice for financial products that are securities to retail clients.23 . It has no other relevant licence. As I have said ASIC’s case in that the activities the subject of the various claims for relief are outside the ambit of this licence. [44] Online was the licencee for the purpose of the seminars and the workshops which give rise to these proceedings. The issue underlying the claims is whether Online was licenced to engage in the activities the subject of the claims. [45] On 14 July 2004 I refused ASIC’s application for interlocutory injunctions against Online in respect of the seminars and their conduct. Online had offered undertakings. The undertakings included one in respect of payment to register for workshops which gives rise to claim 18. [46] I also gave directions then and subsequently for the supply of particulars and the exchange of affidavits and submissions prior to the hearing of the substantive application. 21 See chapter 7 of the website. 22 What Town said about the US markets is dealt with under Claims 3 and 4. 23 Court file document 4; affidavit of Osborne, annexure 6. -- 10 of 37 -- 9 5. The seminars [47] The seminars in issue in these proceedings titled “Financial Superstars Seminar” were held at the Brisbane Convention Centre on 1 July 2004 and the Melbourne Convention Centre on 2 July 2004. I will refer to them as the Brisbane seminar or the Melbourne seminar, as is appropriate. There was also a seminar in Sydney in this sequence but the proceedings are not in issue in these proceedings. [48] The seminars were conducted by Online as part of the Australian activities of its business of providing education services for subscribing investors. The seminars particularly promoted Online’s website and workshops to enhance the skills of subscribers in using the website to make decisions about investments. [49] Town was the principal presenter at each seminar. [50] His services were provided through a company which he controlled and were paid for by a company involved, if not with Online, then with INVESTools Inc, in the promotion of the website. [51] It was not seriously in issue that Town was presenting the seminars on behalf of or for Online and I am satisfied he was. [52] There is no evidence that Online or Town received any benefit for any stock purchases based on information obtained at a seminar or workshop or using information derived from the website. [53] Put shortly, the essential purposes of the seminars was to “sell” the website so that people attending them would sign up and pay to subscribe to it and pay for workshops put on by Online on how to use it effectively. Town stated that the website’s purpose was to reproduce and apply the considerations developed and successfully used by Warren Buffet (an iconic investor) to determine the present and future direction of the market in respect of specific stocks as well as the American securities market generally and set about to demonstrate how to use it to do so. [54] The website is useful for those investing in or proposing to invest in US shares and securities but is of little interest or use to investors who are not. It is not, however, itself a means of trading. That is done by accessing other sites or services which are readily available, some were referred to by Town in his presentations as an encouragement to prospective subscribers. [55] It will be necessary to turn to the consideration of the website in some detail in due course24 . In the mean time it is noted that it gave access to information about US traded securities and means to organise analysis and evaluating the data from the perspective of investing in US securities and in particular securities. [56] Before the seminars were held they were advertised in the Gold Coast Bulletin and the Melbourne Herald Sun and on the radio stations 4BC, 4KQ, SeaFM, Gold 92.5, Magic (Melb), 3UZ (Melb) and Gold (Melb). People were invited to register by using an Australian telephone number. On or about late May approximately 280,000 invitations 24 The heading the website. -- 11 of 37 -- 10 and “complimentary” tickets of “$149 value” were mailed out to business and residential addresses in Brisbane and Melbourne. [57] In the event the Brisbane seminar was attended by in the order of 960 people and the Melbourne seminar by 720. There is no evidence about the age, education, wealth or other demographics of those who registered or attended the seminars. [58] Town was the principle presenter at each seminar; he gave every appearance on the DVD of the Brisbane seminar of being a persuasive and effective presenter. He used his own, and other experience and his and others’ financial success to promote the website to those attending the seminars. [59] The seminar material stated that Town had an extensive background in managing money and had attended the Harvard Business School Small Corporation Managers Program. Town did not hold a licence that would allow him to sell financial products in the United States or a licence issued by any Australian entity. [60] The seminars were free. Those attending were encouraged, more accurately urged, to complete forms registering for workshops to be held subsequently to the seminar and for access to the website and information about its effective use. The total cost of registration for a workshop was shown as US$3,274 25 . [61] Workshops were scheduled to be held in Brisbane, Sydney and Melbourne between 16–18 July 2004. The registration form provided for payment by “check” or credit card and there was a “100 per cent money back guarantee.” [62] A “Welcome” document26 handed out to those arriving at the seminars described the workshops as a “preview to the INVESTool investor education program” and “a unique opportunity for you to gain a deeper understanding of how you can improve your investing results.” The reference to education program encompassed the workshops. [63] Registration for a workshop gave registrants the right to attend at a “comprehensive investing workshop” with an “expert instruction and comprehensive workshop material”. It also gave them an “investing education five hour DVD library”, a “household investor toolbox account” and “six months’ INVESTools investor tool box website service.” The latter facility included access to the website for the registrant and nominated family members. [64] The Welcome went on to say “we’ll share with you strategies for improving your financial returns and protecting your current investments.” The INVESTool’s method was described as “a disciplined approach to investing that includes education, personal training, hotline support, online stock analysis tool and proven investment strategies.” [65] The Online tool and its working about which the seminar attendees would learn was essentially the capabilities of the website. It “could empower” them to: 25 $481,897 is held pursuant to Online’s undertaking of 14 July 2004 that payment for workshops be held in the solicitor’s trust account pending resolution of these proceedings. Its disposition is the subject of claim 18. 26 Court file document 4; affidavit of Osborne; annexure 10. -- 12 of 37 -- 11 • scientifically search for stocks that meet stringent investment criteria; • analyse the fundamentals to make sure the stocks you choose are of the highest quality; • understand when to buy – “More important” when you should think about selling; • manage your portfolio, track new stocks, watch market trends.” [66] As I have said INVESTools investor education and continuing education registration forms 27 were available at the seminars. Their completion gave access to the website and the workshops. Those attending the seminars were urged to register and there were facilities in place to allow them to do so. [67] A registration form “INVESTools Investor Education” relevantly provides:- “INVESTools Investor Education agrees to provide you’re the following: 5-Step Investing Formula Personal Training System $2,499 • 9 Scheduled Sessions with your Personal Trainer Stock Search Portfolio Builder: 3 Power Sessions • 9 Months Telephone Access to the Investor Hotline • 9 Months Email Access to Your Personal Trainer • “5-Step Investing Formula” Personal Training System Workbook and Audio CD 7 Cash Flow Investing Strategies $2,499 • “7 Cash Flow Investing Strategies” Options Course • “7 Cash Flow Investing Strategies” DVD Library (set of 4) • “7 Cash Flow Investing Strategies” Comprehensive Manual 7 Cash Flow Investing Strategies Personal Coaching $2,499 System • 9 Scheduled Sessions with Your Personal Trainer Options Search and Portfolio Builder: 3 Power Sessions • 9 months Telephone Access to the Options Investor Hotline • 9 months Email Access to your Personal Trainer • “7 Cash Flow Investing Strategies” Personal Training system Workbook and Audio CD Advanced Options $2,499 • Collars & Calendar Spreads: How to use collar and calendar spreads as income strategies • Index Options & Selling Puts: How to trade index options and selling puts to create income • Credit & Debit Spreads: How to combine put and call options within the same spread 27 Court file document 15; affidavit of Atkinson; exhibits JA5 and JA6. -- 13 of 37 -- 12 24 Months Investor “Toolbox” Website Service $999 (one person) • Stock Search and Evaluation Tools • Timing indicators and Online Portfolio Management • Strategies Section and Market Commentary 12 Months Unlimited Workshop VIP Pass $2,999 • VIP Workshop Pass provides the right to attend as many “5-Step Investing Formula” workshops as you want in a 12-month period TOTAL $13,994” ($US) This form included a disclaimer which is the subject of claim 10. [68] There was also an INVESTools Investor education Continuing Education form which provided: “3-Month Options Education Program $3,499.00 7 Cash Flow Investing Strategies Options Course • 7 Cash Flow Investing Strategies DVD library set (set of 4) • Strategies Section /Market Commentary • 7 Cash Flow Investing Strategies comprehensive workbook 7 Cash Flow Investing Strategies Personal Coaching System • 7 Cash Flow Investing Strategies audio CD • 6 scheduled sessions with your personal coach • 12 weeks telephone access to the Options Hotline • 7 Cash Flow Investing Strategies Personal Training System workbook Personal Coaching for Stocks $1,999.00 5 Step Investing Formula Personal Coaching System • 6 scheduled sessions with your personal coach • telephone access to the Investor Hotline • 12 weeks email access to your coach • 5 Step Investing Formula Personal Training System workbook • “Success Principles” audio CD TOTAL $5,498. 00” ($US) [69] Town set out to encourage and persuade those attending the seminars to invest in the US market using the data and, analytical capabilities of the website.28 His activities were directed to encourage attendees to use the website to analyse data about the US market including identifying particular stocks trading in that market which might be bought or sold with advantage. 28 Court file document 15; affidavit of Atkinson; ex JA 4; seminar transcript – yellow code. -- 14 of 37 -- 13 [70] Town spoke of an investor in the US who compounded at about 22 per cent per annum and another compounded at 17 percent for 50 years29 . He spoke of a 10 per cent rate of return on the Australian stock market over the last 12 years30 . He went on to speak of “that extra 7 per cent” and how it might be achieved by using the data, analytical and evaluation criteria provided by the website31. [71] In this context Town commended trading in securities in the US market as a means of obtaining higher returns than the Australian market. This was because the US market was larger than and more transparent than the Australian market. By “more transparent” he meant that more useful information about US securities was available in a more timely way32 . Town spoke of a stock “doubling overnight” in the US market “about four times a week”. [72] Town referred to the use of computers to improve performance by the analysis of data so as to be able to move advantageously in and out of the market. He carried out exercises including a series of analytical steps carried out, using the website, by which three stocks were selected out of a total of 14,000 by analysing the performance of stocks in terms of specified parameters. [73] Having extolled the website capabilities to carry out this kind of analysis Town commended the workshops. Attendees at the seminars were encouraged to enrol in a workshop as providing instruction and practice in the use of the website to make investment decisions. [74] Town demonstrated the use of the website to analyse data to identify whether specific stocks should be bought or sold. His presentation involves the use of models of simulated trading to show how the system supported decision to buy, sell or hold. [75] What follows is by no means a comprehensive account of his presentation of the features of the website or the contents of the INVESTools Investor Education “The 5 Steps Online Investing Formula”. [76] Town dealt with the use of the INVESTools Investor Education “The 5 Steps Online Investing Formula” (the manual)33 . The manual deals with the working of the website. For example the manual directed users to the “Searches” tab located on the main toolbar which offers users more than 50 different pre-built searches to choose from. The manual at page 17 cautions users by suggesting they do not get “too caught up in how the searches work. How they are built is not important. What is important is finding good, solid stocks.” [77] Once the type of search has been selected by the user, a search of the 12,000 stocks on the database is conducted to find the top 25 stocks that best meet the criteria of the search selected. [78] Pages 18 and 19 of the manual shows users how to read the search information provided and how to access the one-year stock graph for any company selected. The user may dictate the time span preferred in the graph shown. Pages 24 to 29 contain an introduction to options and explains a number of strategies for options trading. 29 Court file document 15; affidavit of Atkinson; exhibit JA4; seminar transcript 5-7. 30 There was no evidence to substantiate these apparently improbable claims. 31 Court file document 15; affidavit of Atkinson; ex JA 4; seminar transcript 5-11. 32 Court file document 15, affidavit of Atkinson; exhibit JA4; pp 15-18. 33 Court file document 15; affidavit of Atkinson; exhibit JA2. -- 15 of 37 -- 14 Selected stocks can be imported directly into a user’s portfolio or may be selected for a watch list portfolio. [79] Step 2 outlines ‘fundamental analysis’ which the manual states34 reduces or limits the amount of emotion that comes with an investment decision. Phase 1 of the fundamental analysis is shown in the search results to Step 1 and comprises 13 criteria. Each criterion displayed in the search results has a coloured arrow associated with it: Green is positive; Red is negative; and No arrow is neutral. The manual states Phase 2 of the Fundamental Analysis evaluates five criteria and that each is given an individual score from A to F. The five criteria are: Price Pattern; Volatility; Zacks Report; Market guide; and News. [80] The manual outlines35 the purposes of ‘technical analysis’ as opposed to ‘fundamental analysis’. The manual indicates that “fundamental analysis looks at the company, helping you decide whether or not it would make a solid investment. Technical analysis, on the other hand, looks at a company’s stock to determine when to buy and when to sell. Technical analysis is useful in forecasting potential direction to better time your entry and exit points.” [81] An outlines the five indicators for technical analysis which the manual covers are: Moving Average; MACD; Stochastics; Volume and Support and Resistance. [82] Using those indicators produced red or green arrows, to be interpreted in a negative or positive fashion respectively. The manual enunciates “the simple buy signal rules”: “Up trending stock with 3 green arrows Sideways moving stock with 3 green arrows and a volume surge (1.5 x the average volume?”36 34 Court file document 15; affidavit of Atkinson; exhibit JA2; p 35. 35 Court file document 15; affidavit of Atkinson; exhibit JA4; p 65. 36 Court file document 15; affidavit of Atkinson; exhibit JA4; p 79. -- 16 of 37 -- 15 [83] Page 100 of the manual enunciates “the Basis Sell Signal” as:- “Sell on 3 red arrows and broken support … The most common support area in up trending stock is the moving average … Rather than selling immediately when the most recent arrow on each indicator is red, move the sells top up to protect profits … Use the “3 and 3 Rule”. [84] Page 96 of the manual cautions the user to:- “Only buy enough shares so that if the sells top is hit you can live with the loss … Money Management Rule: Never lose more than 1 per cent to 2 per cent of the TOTAL ACCOUNT value on any one trade … or if the user has a small account, the manual suggest that they purchase a call option at a fraction of the actual stock price”. [85] Step 4 of the manual outlines the portfolio management process and states that it can help users closely track the stocks they own and those stocks they would like to own. Pages 112 and 113 of the manual instructs users on how to create a portfolio, entering share price and transaction details. [86] Pages 114 to 120 provides users with details as to how their portfolios may be managed including using the website to set price alerts and for the provision of analyst ratings. The manual includes the use of a trading account, which allows users to practice the investing principals and formulas they have been taught. [87] Step 5 of the manual deals with industry groups and discusses top down analysis to help users track the movement of institutional funds to and from an industry, focusing attention on the best parts of the market. There are two methods listed in the manual and both of these can be selected by the user by selecting the Industry Groups tab in the main menu. [88] The bonus section of the manual deals with the “Turbo Search” tool which allows users to set the particular criteria they wish to use for their own stock selection. The remainder of Section 5 deals with index tracking stocks, the benefits of same and details three of the common ones. [89] With the exception of the Glossary of Terms, the remainder of the manual relates to “Introduction to Options”: “Options are a popular investment vehicle that can be used to earn a profit in both bullish and bearish markets. Options are also used to generate income from your current stock holdings and insure your portfolio against unexpected declines. This options introduction is to help you understand options as an investment strategy and how you can use them to generate income. As with any investment, options have risks and advantages.” [90] This section of the manual listed the “advantages and risks of options, trading options and leverage”. It also includes segments on call options, put options and covered calls. [91] I will return to consider the website under chapter 7. -- 17 of 37 -- 16 6. The workshops [92] As I have said the workshops were promoted at the seminars both in documents or notices there and by Town in his presentations. Attendees at the seminars were urged to register for the workshops to be held in Brisbane, Sydney and Melbourne following the seminars. [93] Registration forms were available at the seminars to access the website and further training in its use for the workshop, as was provision for payment and there were arrangements in place to collect completed forms37 . [94] $481,897 is held in trust pursuant to an undertaking given by Online on 14 July 2004 to hold payments by seminar attendees for enrolment in workshops. The disposition of that money is the subject of claim 18. [95] A number of other claims relate directly to the workshops. Claim 11 seeks a declaration that the distribution of the manual at the workshops contravened s 911A(1) of the Corporations Act. [96] Claim 13 seeks a declaration that the distribution of the two forms38 at the workshops was a “proposed contravention” of s 911A of the Corporations Act in that the forms “countenanced the provision of financial product advice” in respect of options and Claim 14 sought that Online be restrained from carrying out any aspect of the proposal in the workshops’ registration forms identified by the claims. [97] Claim 17 seeks a declaration of contravention of s 911A of the Corporations Act in that at the workshops Online provided financial product advice concerning the website and dealt in a financial product, the website, in contravention of s 911A of the Corporations Act. [98] There is evidence39 the registration forms were produced to an ASIC officer who at a workshop in Brisbane on 18 July 2004. Otherwise there is no evidence of what transpired at workshops apart from what is to be inferred from Town’s presentation, the forms and the manual. [99] I will return to consideration of the workshops in dealing with the claims in which they are referred to. 37 The relevant portions of the form are set out at [68]-[69]. 38 Court file document 15; affidavit of Atkinson, exhibits JA5 and JA6. 39 Court file document 15; affidavit of Atkinson; exhibit 4; paras 35 and 36. -- 18 of 37 -- 17 7. The Website – financial advice and a financial product [100] The website (www.investortoolbox.com) and its functions are central to the case. I have concluded that the essential purpose of the seminars was to “sell” the website so that those attending would sign up to subscribe to the website and for workshops to learn how to use it to make investment decisions giving better results than would otherwise be the case40 . [101] The website is the subject of specific claims for relief (Claims 15, 16, 17 and 18) on the basis that it is a “financial product” or “provided financial product advice” and its functions provide the basis of ASIC’s claims to relief in a number of other cases. [102] A subscriber to the website enters into a contract with INVESTools41 . The website gives access to updated electronic data and to software which allows the data to be organised, manipulated and accessed in terms of categories and criteria. [103] A subscriber to the website can: • “scientifically search for stocks that meet stringent investment criteria; • analyse the fundamentals to make sure the stocks you choose are of the highest quality; • understand when to buy – “More important” when you should think about selling; • manage your portfolio, track new stocks, watch market trends.” 42 [104] Section 763A of the Corporations Act defines a financial product in terms of: “… a facility through which, or through the acquisition of which, a person does one or more of the following: (a) makes a financial investment (see s 763B); (b) manages financial risk (see s 763C); (c) makes a non cash payment (see s 763D).” [105] The term “financial product advice” is defined in s 766B of the Act in terms of making: “recommendation or statement of opinion ... 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 which would be reasonably regarded as doing so. [106] Section 762C of the Corporations Act defines a “facility” to include : (a) intangible property; or (b) an arrangement or a term of an arrangement (including a term implied by law or that is required by law to be included; (c) a combination of those things. [107] Section 763C provides a person “manages financial risk” if they:- 40 See headings the seminars and the workshops. 41 See the manual; court file document 15; affidavit of Atkinson; exhibit JA4. 42 Court file document 15; affidavit of Atkinson; exhibit JA4. -- 19 of 37 -- 18 “(a) “manage the financial consequences to them of particular circumstances; or (b) avoid or limit the financial consequences of fluctuations in or in the value of, receipts or costs (including prices and interest rates). [108] I have already dealt with Town’s presentation as to the use of the website and referred to his dealing with the manual under the heading the seminars and rely on what is said there. [109] Put shortly, a subscriber to the website gains access to data about US securities and means to organise, analyse and evaluate data to support decisions in respect of buying and selling stock generally and in respect of specific securities. The operation of the website generates recommendations as to the acquisition, holding or sale of categories of securities or securities in terms of the criteria selected by the user and applied by the system. [110] The use of the website advocated by Town went beyond the acquisition or organisation of information. As I have endeavoured to describe, it for example, refines information in terms of pre-determined parameters and criteria for the purpose of supporting a decision as to whether a position should be taken in respect of specific stock in terms of buy, sell or hold. [111] A subscriber to the website is free to disregard the signal or use it as a basis for seeking further advice. The website does not provide the means to effect the sale or purchase of securities. [112] The website generates signals which provided a basis for decisions as to the course of action a user should take in relation to buying or selling securities. It generated signals to sell, buy, hold; the selling constitutes a commendation, representation or advice (i.e. a recommendation) that a particular action or course of action in relation to individual or the class of securities dealt with by the website should be followed: cf the analysis by Deputy President Forgie in Re Jungstedt and Australian Securities Investment Commission43 . [113] The issue of whether computer system facilities such as the website made recommendations about stock was considered in Re Market Wizard Systems (UK) Ltd44 . That consideration is relevant to this case. [114] The system in Market Wizard45 operated on downloaded daily prices and other information and manipulated it against criteria to produce by sell/hold signals in respect of options in each of the designated traded stocks. [115] Carnworth J described the operation of the system as generating signals which:- “provide guidance as to the cause of action … (to) take in relation to buying or selling of the investments. Such guidance, in the ordinary use of English is ‘advice on the merits’ of purchasing those investments.” 46 43 (2003) 73 ALD 105 at paras [254]-[267]. 44 [1998] 2 BCLC 282. 45 [1998] 2 BCLC 282. 46 [1998] 2 BCLC at 292 para [34]. -- 20 of 37 -- 19 [116] He went on to say that it did not matter that the user was free to follow or disregard the advice or might receive further advice from another source before making a final decision and rejected a submission that the system was a sophisticated and technologically based calculator. [117] In doing so Carnworth J impliedly rejected that the system did not offer any interpretation of the information as a guide to future action and went on to say that:- “The whole purpose of the program … is to reproduce in computer program form the concepts developed by legendary market forecasters relating to ‘use of parameters in determining the future directions of market price’47 . [118] It was held to be unnecessary to identify a particular point of time at which the advice was given. It was enough that in providing access to the system by which “it’s purported expertise in the analysis of historical trading patterns is communicated in the form of advice related to a particular investment … the fact that it is the customer who is operating the program does not change the nature of the advice or its source” 48 . Those considerations apply to the website. [119] As I have said s 766B of the Corporations Act defines “financial product advice” to mean a recommendation etc “intended to influence a decision in relation to a particular financial product or class of financial product; or an interest in a particular class of financial product”; or which could reasonably be regarded as intended to have such an influence. [120] Online submits to the effect that this should be as though it said construed “particular financial product or particular (as distinguished from general) class of financial product”. [121] As a consequence, recommendations “not in relation to a particular or specific financial product or class of financial product”; Town’s presentation was submitted to be in the later category, were not financial products in terms of the section. [122] The introduction of “specific” in the proposition relates to the note to regulation 7.1.33A. The regulation relevantly provides that:- “for paragraph 766A(2)(b) of the Act, a circumstance in which a person is taken not to provide a financial service within the meaning of paragraph 866A(1)(a) of the Act is the provision of a service that consists only of a recommendation or statement of opinion provided to a person about the allocation of the person’s funds that are available for investment among 1 or more of the following: (a) shares; … Note This regulation does not apply to a recommendation or statement of opinion that relates to specific financial products or classes of financial products.” 47 Re Wizard Systems (UK) Ltd [1998] 2 BCLC 282 at 292 para [35]. 48 [1998] 2 BCLC 282 at 293 para [39]. -- 21 of 37 -- 20 [123] In my view ASIC is correct in submitting that the effect of regulation 7.1.33A is to prevent the problem of general and educational comments in for example textbooks from the operation of the provisions. [124] Online’s submission continues that to the extent to which anything Town said about US markets is concerned constituted a recommendation they were about “stocks in the US markets”. They were not about a “particular financial product or class of financial products” or “specific financial products or classes of financial products”. In other words insofar as Town made recommendations which could be said to be directed to a class if was a general and not a particular class. [125] I am not persuaded that applying “particular” to both financial product and class of financial product is a proper reading of the section and if it did it would not make any difference given the functions of the website which Town promoted which have been described earlier. The website serves as a source of financial advice in respect of a particular financial product or class of financial product in terms of s 766B. [126] In any event the website manages financial risk in terms of ss 763A(b) and 763C of the Corporations Act. In addition to the functions and characteristics already dealt with see specifically the manual chapter 449 as to this. 49 Court file document 15, affidavit of Atkinson; exhibit JA2. -- 22 of 37 -- 21 8. The relief claimed (by categories) • Misleading and deceptive conduct (Claims 3, 4 and 10) [127] Claims 3, 4, and 10 of the application seek declarations of misleading or deceptive conduct or of conduct likely to deceive or mislead. They are founded on alleged contraventions of s 1041H(1) of the Corporations Act (claims 3 and 4) together with ss 12 DA(1) and 12 DB(1)(g) of the ASIC Act (claim 10). [128] Claim 3 seeks a declaration that the Online engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s 1041H(1) of the Corporations Act, by Town representing at the Brisbane Seminar that in respect of the trading of stocks : (i) one had greater access to USA capital markets; and/or (ii) a positive reason why one ought purchase USA stocks as opposed to Australian stocks or securities as because of greater access to data in respect of USA markets; and/or (iii) USA markets were more transparent to individuals. [129] ASIC gave particulars50 of this allegation referring to evidence of Town’s presentation concerning the advantages of US investment and submitting that the representations “clearly” constituted misleading or deceptive conduct. The transcript colour coded green particularised to Town’s statements at the Brisbane seminar dealing with the desirability of dealing with US securities and options51 . [130] Claim 3 is conveniently considered with Claim 4 which seeks a declaration that Town engaged in misleading or deceptive conduct or conduct likely to mislead or deceive in contravention of s 1041(H) by representing at the Melbourne seminar in respect of trading and stocks that a positive reason for purchasing US stocks as opposed to Australian stocks or securities was that the US market was more transparent. [131] Claim 10 relates to a disclaimer on the “Registration Form INVESTools” form and I will deal with it separately after I have dealt with claims 3 and 4. [132] It is submitted that Town’s statements the subject of claims 3 and 4 were made without reasonable grounds and are therefore deemed for the purposes of chapter 7 of the Corporations Act to be misleading and deceptive pursuant to s 769C. Section 1041H (a provision within chapter 7 of the Act) prohibits misleading and deceptive conduct in relation to a financial product or a financial service. [133] Section 12DA of the ASIC Act provides that a person must not, in trade or commerce engage in conduct in relation to “financial seminars” that is deceptive or likely to mislead or deceive. [134] The statements attributed to Town in Claims 3 and 4 were submitted to be misleading because: (a) they were made on a broad basis and without qualification; (b) they omitted to raise risks such as the possibility of currency fluctuations, lack of familiarity of Australian investors with a foreign market generally and, particularly, the different statutory regime; 50 Hearing Exhibit 7. 51 Court file document 15; affidavit of Atkinson ex JA 4. -- 23 of 37 -- 22 (c) they amounted to recommendations made on a generic basis when the personal circumstances of any given investor will be material to the question of whether investment in a particular market is a sound choice for that investor. [135] ASIC did not call anyone to say they were misled or deceived. It is not necessary that it do so, see Australian Securities Investments Commission v National Exchange Pty Ltd52 , Equity Access Ltd v Westpac Banking Corporation53 . Whether I am satisfied to the requisite degree that the statements were made and whether they were misleading or deceptive or capable of being so is a matter of inference drawn from the conduct complained of construed in the light of the evidence of the whole of the circumstances in which it occurred. [136] The considerations relevant to determining whether conduct is, or is likely to be misleading or deceptive was canvassed in National Exchange Pty Ltd and Tweed v Australian Securities and Investments Commission 54 (2004) 49 ASCR 369. That case dealt with the relevant provisions of the Trade Practices Act (Cth) but the considerations canvassed apply here. [137] Dowsett J, with whom Jackson and Bennett JJ’s substantially agreed said [18]:- • “Conduct will only be misleading or deceptive, or likely to mislead or deceive if there is a nexus between such conduct and any actual or anticipated misconception or deception. • In identifying such nexus regard must be had to the circumstances of the particular case, including the remedies sought. Section 52 of the Trade Practices Act does not confer any entitlement to a remedy for breach or anticipated breach. One must look elsewhere in the Trade Practices Act for such entitlement and construe the act as a whole. • In some case, a representation may be made to identified individuals; in other cases the representation may be to the public at large or to a section thereof. In the former case the process of deciding whether or not the representation is misleading or deceptive or likely to be so may be “direct and uncomplicated”. In the latter case "the issue with respect to the sufficiency of the nexus between the conduct or the apprehended conduct and the misleading or deception or likely misleading or deception of prospective purchasers is to be approached at a level of abstraction no present where the case is one involving an express untrue representation allegedly made only to identified individuals’. (I infer that the word “representation” in [100] of Nike55 should be “misrepresentation”, relying upon the relevant passage in Taco Bell56 to which the High Court was referring.) • When the representation is made to the public or to a section thereof, one must consider its effect upon an ordinary or reasonable member o the class in question. Although such class may include a wide range of persons, the ordinary or reasonable member will objectively be identified as having certain characteristics. In particular, he or she can be expected to take reasonable care for his or her own interests and otherwise to behave reasonable. 52 [2003] FCA 955 at paras [9] and [20] 53 (1989) ATPR 40-972 54 [2004] FCAFC 90 55 Campomar Sociedad Limitada v Nike International (2000) 202 CLR 45. 56 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. -- 24 of 37 -- 23 • It is necessary to inquire as to how a particular or anticipated misconception has arisen or may arise. In so doing, the Court will consider `the effect of the relevant conduct on reasonable members of the class`. • Conduct will only be misleading or deceptive or likely to mislead or deceive if the representee `labours under some erroneous assumption’ or may be expected so to labour. Such an assumption or anticipated assumption may be obvious, predictable or fanciful. • In assessing the reactions or likely reactions of the ordinary or reasonable member of the class, the court may decline to treat as reasonable, assumptions which are extreme or fanciful. The initial question which must be determined is whether the misconception or deception, alleged or anticipated, is properly attributable to an ordinary or reasonable member of the class. • The question whether particular conduct causes confusion or wonderment cannot be substituted for the question whether the conduct answers the statutory description contained in s 5257 .” [138] Intention is irrelevant to determining whether conduct is deceptive or misleading or likely to be so. Whether conduct is misleading and deceptive or is likely to deceive or mislead or deceive is a matter of fact decided by looking objectively at the evidence58 . [139] The appropriate approach is to identify the relevant segment of the public and consider the characteristics of all within the class, astute, gullible, well educated, poorly educated, vocation, etc59 . There is little or no evidence bearing on those considerations. [140] At the Brisbane seminar Town commended the US market as having more timely data available and being more transparent than the equivalent Australian market. [141] He also made the point that the US market was significantly larger than the Australian markets. He put these considerations forward as reasons for investing in the US markets. The power point presentation at the seminar put forward “greater access to US capital markets” and inferentially Town spoke in those terms in Melbourne. [142] It is probable that Town put forward the transparency of the US market as a reason for investing in the US market at the Melbourne seminar. [143] What Town said about the US market has to be put in context. It is the case that since the website was useful only in that context Town had to interest those attending in the market. The remarks in question were a prelude to introducing the website60 and its capabilities with a view to promoting subscribing to it and the workshops. [144] Town did not advocate wholesale investment of funds in the US market. He qualified his remarks in terms of “The money we want to work”61 . 57 [2004] FCAFC 90. 58 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177, Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216. 59 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; Puxu Pty Ltd v Parkdate Custom Built Furniture Pty Ltd (1980) 31 ALR 73, Australian Securities and Investment Commission v National Exchange [2003] FCA 955. 60 Given the website was only of use to investors in the US markets context in which they were made it could hardly be suspected that they would. 61 Court file document 15; affidavit of Atkinson, exhibit JA4; T 18.l 2. -- 25 of 37 -- 24 [145] I have concluded that the website was a financial product and provided financial advice.62 When he made the remarks in issue here Town had not moved to the considerations which founded those conclusions; they came later. [146] The statements in issue in those claims were general introductory remarks about US markets and not recommendations about a “particular or specific financial product” or a “class of financial product”. The statements the subject of Claims 3 and 4 were not, in that sense in relation to a financial service or a financial product. [147] That it was the function of the website to produce such recommendations as described earlier does not make the statements the subject of Claims 3 and 4 false and misleading or capable of being so. [148] There is no evidence to found a conclusion that the particular statements the subject of claims 3 and 4 were made on reasonable grounds or that they were other than true. [149] It is true that Town did not refer to possible risks such as currency fluctuations, the lack of familiarity of Australian investors in foreign markets generally and different statutory regimes and did not take into account the position of particular investors and did not take into account the personal circumstance of individual investors. [150] It is also the case that a factually true statement may be misleading by reason of considerations such as it being out of context, ambiguous, incomplete or otherwise framed so as to be misleading. Such considerations may require the provision of more information or more complete disclosure so as not to be false and misleading or capable of being so.63 [151] I am not persuaded the statements the subject of claims 3 and 4 in the context in which they were made or founded an obligation to consider the personal circumstances of those attending the seminars. Nor am I persuaded that they were made in circumstances where they required qualification, or the risks identified. [152] I am therefore not satisfied the statements the subject of claims 3 and 4 were false and misleading or capable of being so. [153] Claim 10 seeks a declaration that Online, by making the registration form “Registration Form Investools” engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 1041H(1) of the Corporations Act and ss 12DA(1) and 12DB(10)(g) of the ASIC Act, in that such form had printed on it a “Disclaimer” which purported to disclaim “… any and all warranties, express or implied …”. [154] Registration using the form gave access to the website which for reasons stated elsewhere64 is a financial product and a means of providing financial product advice. The registration form was therefore a contract for the supply of financial services in terms of the ASIC Act65 . [155] The disclaimer was in these terms: 62 See the heading The website. 63 Hornsby Builidng Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216 64 See the heading The website. 65 s 12BA3(1). -- 26 of 37 -- 25 “The content included within any of our products or services are provided “as is,” without any warranties. INVESTools nor any of their affiliates or subsidiaries make any guarantees or warranties as to the accuracy or completeness of or results to be obtained from using any of our products or services (including any content therein). INVESTools hereby disclaims any and all warranties, express or implied, including warranties of merchantability or fitness for a particular purpose or use. INVESTools nor their affiliate shall be liable to you or anyone else for any inaccuracy, delay, interruption in service, error or omission, regardless of cause, or for any damages resulting there from. In no event will INVESTools, their affiliates, or any of their third-party licensors be liable for any indirect, special, or consequential damages, including but not limited to lost time, lost money, lost profits or good will, whether in contract, tort, strict liability or otherwise, and whether or not such damages are foreseen or unforeseen with respect to any use of our products or services. In the event that liability is nevertheless imposed on INVESTools or their affiliates, such parties’ cumulative liability for damages under any legal theory shall not exceed the amount of fees you paid for the particular product or service.” [156] Section 12ED of the ASIC Act implies warranties in a contract for the supply of financial services66 . Section 12EB declares void any contractual term excluding restricting or modifying the effect of s 12ED or purporting to do so. [157] Online conducted the seminars at which the form was distributed and those attending were encouraged to complete it and pay as it provided. [158] In my view the disclaimer would probably lead those who registered in terms of the form to conclude they did not have any rights such as those implied by s 12ED or was likely to do so. The claim is therefore made out. 66 The warranties are in respect of due care and skill and reasonable fitness of material supplied. -- 27 of 37 -- 26 • Declarations of non compliance and associated relief (Claims 1, 2, 6, 7, 8) [159] This group has a number of sub-groups, claims 1 and 2 are the first, they are in the alternative. Claim 1 seeks a declaration that Online contravened s 941A(1) of the Corporations Act by failing to provide to persons who attended the seminars a Financial Services Guide pursuant to s 942B of the Corporations Act. [160] Alternatively, Claim 2 seeks a declaration Online contravened s 941C(5) of the Act by failing to provide information required pursuant to s 942B(2)(a),(e) and (f) of the Corporations Act. [161] It is relevant at this stage to summarise a number of conclusions stated elsewhere in those reasons. The purpose of the seminars was to persuade people to sign up for the website and workshops and its use. The website provided “financial product advice” and was a “financial product advice” and a “financial product”. [162] The seminars promoted the website and encouraged subscription to it and to the workshops. [163] A Financial Services Guide must include the statements and information set out in s 942B(2) of the Corporations Act. Online concedes it did not provide a Guide to those attending the seminars. [164] So far as claim 1 is concerned there is no obligation to provide a Financial Service Guide if a “financial service” is provided in a “public forum” by way of “general advice”; Corporations Act ss 941A(2), 941C(4). [165] ASIC concedes the seminars were public forums but submits Online was nevertheless obliged by s 941(c)5 to provide the information required by s 942B(2)(e) and (f) of the Corporations Act but did not do so. [166] Online contends Town gave general advice at the seminars. Section 766B(4) of the Corporations Act provides that general advice is financial product advice which is not personal advice. Section 766B(3) provides personal advice is financial advice given (including by electronic means) in circumstances where: “(a) the provider has considered one or more of the person’s objectives, financial situation and needs; or (b) a reasonable person might have expected the provider to have done so.” [167] Online had not considered any of the matters dealt with in (a) in respect of those attending the seminars. [168] The seminars are dealt with under the heading the seminars; I will not canvass what’s said there. The evidence does not, in my view, found a conclusion that a reasonable person might reasonably have expected Online to have considered the factors identified by s 766B(3). [169] Those attending the seminars it might be inferred did so to see what Online had to offer investors. That was essentially access to the website and to workshops in its use in making investment decisions. The website was not a trading medium. There is no -- 28 of 37 -- 27 evidence that the seminars involved making specific investment decisions or that it might be reasonably expected that they did. [170] Claim 1 is therefore not made out. [171] The alternative Claim 2 seeks a declaration of contravention of s 941C(5) of the Corporations Act in failing to provide those attending the seminars with the information required by s 942B(2)(a)(e) and (f) of the Corporations Act. [172] The effect of those provisions required that if Online by Town, was giving general advice in a public forum, it was required to give each person there, before providing general advice, the following information that would in other circumstances be required to be in a Financial Services Guide: (a) a statement setting out Online’s name and contact details; (b) information about the remuneration (including commission) or other benefits that any of the following is to receive in respect of, or that is attributable to, the provision of any of the authorised services; (i) Online; (ii) a related body corporate of Online. (iii) A director or employee of Online or a related body corporate; (iv) Any other person in relation to whom the regulations require the information to be provided; (c) Information about any associations or relationships between Online, or any related body corporate, and the issuers of any financial products, being associations or relationships that might reasonably be expected to be capable of influencing Online in providing any of the authorised services. See subsections 941C(4) and (5) and paragraphs 942B(2)(a), (e) and (f) of the Corporations Act. [173] Persons attending the seminars were given a leaflet67 and a registration form68 . The registration form included the full name, ARBN and Australian address for Online. This was the information required by paragraph 942B(2)(a). [174] The seminars were free. The price for the workshops was stated. The price for a six monthly subscription to the INVESTools website was stated. [175] Online did not receive any remuneration, commission or other benefits in relation to any purchases of any US stocks or any covered calls that Town mentioned or referred to at the seminars. As I have said Town did not receive any remuneration, commission or other benefits in relation to any purchases of any US stocks or any covered calls that he mentioned or referred to at the seminars. [176] ASIC did not lead evidence of any other remuneration, commission or benefit, in respect of which it might otherwise contend information ought to have been provided. There was no remuneration of the kind described in paragraph 942B(2)(e), there was no relevant information to be provided to persons attending the seminars. 67 Court file document 3; affidavit of Hill; annexure AMH3. 68 Court file document 15; affidavit of Atkinson, exhibit JA5. -- 29 of 37 -- 28 [177] There is no evidence founding a conclusion of a relationship between Online (or any related body corporate) and any company whose stocks were mentioned or referred to by Town at the seminars through which Online (or any related body corporate) would receive any benefit from any purchase or sale of any US stocks or covered calls in the companies. [178] In the circumstances therefore it has not been proved Online did not comply with the provisions of the Corporations Act. [179] Claim 6 seeks a declaration that Online carried on a financial services business in that at the seminars Town provided financial product advice concerning derivatives in contravention of s 911A(1) of the Corporations Act. [180] The claim is the subject of ASIC’s unsuccessful application to re-open its case and call evidence about covered calls69 . [181] It was submitted for ASIC that to the extent to which Town made recommendations or gave statements of opinion in terms of s 766B(1) of the Corporations Act about options and covered calls he was providing a financial service pursuant to s 766A of the Act. [182] At the seminars Town, making reference to the manual and otherwise, referred to the use of call options and covered calls as a means of managing risk, getting a good rate of return and producing cash flow. The material particularised by ASIC as constituting recommendations in respect of these issues includes that identified by the orange colour coded Brisbane seminar transcript70 . [183] Online submits that an option granted by the owner of a share entitling another to acquire that share is an equitable right or interest in the share71 and is a security in terms of Chapter 7 of the Corporations Act; s 761A. On this basis an option to acquire shares not owned by the person granting may however be a derivative. [184] This is potentially a complex question. The evidence does not however provide a basis for concluding whether what was being referred to by Town and in the manual fell into this category rather than the other. The claim is therefore not made out. [185] Claim 7 seeks a declaration that Online, by its agent Town, provided financial product advice at the seminars concerning a direct debit facility. This was in contravention of s 911A(1) of the Corporations Act because it did not hold an Australian financial services licence entitling it to do so. [186] The workshop registration forms 72 provided for payment by a “check or credit card facility”. The price provided by the form was in $US, that was the subject of claim 9 which is not proceeded with. Payment by cheque would involve drawing a $US account or a bank or cashier’s cheque drawn on a US bank. [187] There is evidence Town spoke of payment by credit card. There is no evidence he spoke of a “check” facility or that he knew the form did. 69 Refer to heading 3. An application to re-open. 70 Court file document 15; affidavit of Atkinson; exhibit JA4. 71 Commissioner of Taxes v Camphin (1937) 57 CLR 127; Hill v Terry (1993) 2 Qd R 640. 72 The form spoke of payment by “check”; court file document 15, affidavit of Atkinson; exhibits JA4 and JA5. -- 30 of 37 -- 29 [188] It may be accepted for the moment that a cheque facility makes provision for a non cash payment and a non cash payment is a financial product; Corporations Act ss 763A(1)(c) and 763D(1)(b). In any event a credit card facility is not a financial facility; Corporations Act s 765A(1)(h)(i) reg. 7.1.06 1(a). [189] Town’s only representation was of the fact that payment for workshops could be made by credit card. There was nothing by way of recommendations or statement of opinion in stating what Town said about payment by credit card facility; it was a simple statement of fact. Claim 7 has not been made out. [190] Claim 8 is for a declaration of contravention of s 949A(2) of the Corporations Act that Online failed to warn those attending the Brisbane seminar of the matters specified in the subsection at the same time and by the same means as the relevant advice was provided, sub-s (3); no such warnings were given. [191] Section 949A applies in relation to the provision of general advice provided by a financial services licensee (as Online was) or its authorised representative (as Town was). The advice was to be provided to those attending the seminar as a “retail client” and unless exempted by regulation (sub-s 1), assuming a warning to have been required, none was given. There is no such regulation applicable. [192] ASIC relies on the recommendations and statements of opinion put forward by Town at the seminars as constituting financial product advice as being recommendations or statements of opinion inter alia intended to influence a person or persons in making decisions in relation to a particular financial product, US securities or class of financial product or which could reasonably be regarded as so doing; s 766B of the Corporations Act. [193] The same considerations as are dealt with under the heading the Website in relation to “the use of a particular financial product” or “class of financial product” in s 766B of the Corporations Act arise in respect of this claim. I did not accept Online's submissions on the point 73 . [194] Town’s comments in issue in this claim however were directed to the website as a financial product and its capabilities to generate financial product advice in terms of the Corporations Act. I am not persuaded they were intended, or could reasonably be regarded as intended, to influence decisions in relation to a particular financial product or class of financial product. As I have said elsewhere the seminar was not directed to that. [195] I therefore decline to make the declaration sought. 73 The warning related to the advice not taking the objections etc into account, its appropriateness should be considered before acting on it and providing a Product Disclosure statement. -- 31 of 37 -- 30 • Education about options (Claims 11, 12, 13, 14) [196] Claims 11 and 12 together with claims 13 and 14 can be dealt with together. They arise in the context of a contention that Online gave in respect of derivatives without a licence to do so. [197] Claim 11 seeks a declaration that the manual74 contained recommendations concerning share/stock options and covered calls and that Online’s distribution of it at seminars and/or workshops constitutes a contravention of s 911A(1) of the Corporations Act because Online did not have a licence entitling it to provide financial product advice in relation to derivatives. [198] Claim 12 seeks a consequential direction that Online delete any reference to share- stock options and covered calls from the manual. [199] There is no doubt that the manual, as did Town at the seminars, deal extensively with the capability of the website in using options and covered calls to make decisions about investing effectively75 . I have concluded76 that the website was a financial product and gave financial product advice. [200] The manual of itself however does not contain recommendations or statements of opinion relating to specific financial products or classes of financial products. [201] It follows that the manual does not contain financial product advice in terms of the Corporations Act. Claims 11 and 12 are therefore not made out. [202] Claim 13 seeks a declaration that distribution of the “Investor Education” and “Continuing Education” forms 77 at the workshops constituted a proposed contravention of s 911 in that the forms countenance the provision of financial product advice in respect of options. [203] Claim 14 seeks to restrain Online from carrying out any aspect of the proposals countenanced in the ‘INVESTools Investor Education” form under the heading “INVESTools Investor Education agrees to provide you the following” and that it be restrained from carrying out any of the proposed program in the INVESTools- Investor Education Continuing Education “3 Month Options Education Program” heading. [204] There are a number of evidentiary difficulties with these claims. There is no direct evidence of what in fact occurred at the workshops. The only evidence of “proposed conduct” appears to be the content of the forms. Apart from forms being produced to an ASIC officer78 , there is no direct evidence of the forms being distributed at the workshops. [205] The evidence of Online’s role in the conduct of the workshops and in any distribution of the forms is sparse. The issue of what is being referred to in the forms are securities and not derivatives arises and cannot be resolved. 74 Court file document 15; affidavit of Atkinson; exhibit JA2. The contents of the manual are dealt with under the heading The seminars. 75 The question of whether these are securities or derivatives is dealt with under claim 6. 76 See The website and claim 15. 77 Court file document 15; affidavit of Atkinson; exhibits JA 5 and JA 6. See also paras [68] and [69] of these reasons. 78 Court file document 15; affidavit of Atkinson; pp 35-36. -- 32 of 37 -- 31 [206] The combined effect of these considerations is that the relief sought by claims 13 and 14 should not be granted. -- 33 of 37 -- 32 • The website as a financial product (Claims 15, 16, 17) [207] Claim 15 seeks a declaration that the software program website identified as www.Investoolsbox.com (the website) is a financial product in terms of s 763A(1)(b) of the Corporations Act. [208] Claim 16 seeks a declaration of contravention of s 911A of the Corporations Act that Online by Town as its agent at the seminars provided financial product advice concerning the website and dealt with a financial product, the website, without Online having the relevant financial services licence. [209] Claim 17 seeks a declaration of contravention of s 911A of the Corporations Act in that the workshops Online provided financial product advice concerning the website and dealt with in a financial product, the website, without the relevant licence. [210] For reasons canvassed under the headings the seminars and the website I have concluded that the website is a financial product and provided financial product advice. At the seminars Town, on Onlines behalf provided financial product advice and dealt with the website without the relevant licences. ASIC is therefore entitled to the relief sought by claims 15 and 16. [211] Claim 17 deals with the workshops. There is no direct evidence as to who conducted the workshops and as to what took place there. [212] There is evidence79 that on 18 July 2004 documents, including the INVESTools Investor Education and INVESTools – Investor Education Continuing Education were provided to an officer of ASIC by Jerrod May of OIA (Online) at the venue of a Brisbane workshop. [213] Given what transpired at the seminars the content of the manual, the content of the forms and the expressed purpose of the workshops it is reasonable to infer, and I do, that the workshops provided financial product advice concerning the website and dealt with it as a financial product. [214] The evidence of Online’s connection is slight but sufficient in the circumstances. Claim 17 has therefore been made out. 79 C.f. court file document 15; affidavit of Atkinson; paras [35] and [36]. -- 34 of 37 -- 33 • Repayment order (Claim 18) [215] Claim 18 seeks to have Online cause to be repaid to each person who made any payment either pursuant to the enrolment form for the workshops or the terms of any other form distributed by or on behalf of the first defendant insofar as it related to options such amount as was paid to the first defendant. [216] The claim is apparently referable to the consequences of Online’s undertaking of 14 July 2004 including in respect of payments for workshops. There is no evidence of any breach of the undertakings. Payments made and held under the terms of the undertaking were made by credit card. The amount held is $481,897.81. [217] ASIC relies on ss 1101B(1)(a), 1324(1)(a) and (e) of the Corporations Act and s 12GD(1)(a) and (e) of the ASIC Act together with the decision in National Exchange Pty Ltd80 . It does not rely on s 1325 of the Corporations Act. [218] In that case the court put in place a process of notification to subscribers with an option to withdraw money subscribed for shares. [219] The obligation to pay was dependent on attendance at a workshop. There is no evidence from anyone who attended at a workshop. The evidence is not directed to findings as to any connection between a proven contravention and any obligation to pay for any workshops. There is no evidence of the circumstances of the payments the subject of the order. [220] Online points to discretionary consideration in terms of the seminars or otherwise proven breaches, consideration of any penalties which might be imposed and the effect an order such as is sought or Online’s reputation. [221] The combined effect of these considerations is that as things presently stand I am not prepared to make an order pursuant to Claim 18 as things presently stand. 80 [2003] FCA 955. -- 35 of 37 -- 34 9. Summary of outcome by claim [222] Claim 1 sought a declaration of contravention of s 941A1(1) by failing to provide a financial services guide pursuant to s 942B to those attending the seminars. The claim has not been made out. [223] Claim 2 was in the alternative to Claim 1 and sought a declaration of contravention of s 941C(5) of the Corporations Act in failing to provide that those attending at the seminar information required by s 942B(2)(a), (e) and (f) of the Act. The claim has not been made out. [224] Claim 3 sought a declaration of deceptive or misleading conduct or conduct likely to mislead or deceive in contravention to s 1041H(1) of the Corporations Act by representations made by Town at the Brisbane seminar in respect of the US market. The claim has not been made out. [225] Claim 4 sought a similar declaration sought in Claim 3 with respect of proceedings of the Melbourne seminar. The claim has not been made out. [226] Claim 5 was not pursued. [227] Claim 6 sought a declaration that Online by Town as its agent carried on a financial services business in the seminars and provided financial product advice concerning derivatives without Online having the necessary financial services licence. An application to re-open the case or to lead further evidence in respect of that claim was refused. The claim is not made out. [228] Claim 7 sought a declaration of carrying on a financial services business by Online in that at the seminars Town provided financial product advice concerning a direct debit facility contrary to s 911A(1) of the Corporations Act. The claim has not been made out. [229] Claim 8 sought a declaration of contravention of s 949A(2) by failing to provide close attention at the Brisbane seminar to the warning provided by s 949A(2) of the Corporations Act. The claim is not made out. [230] Claim 9 was not pursued. [231] Claim 10 sought a declaration of deceptive or misleading conduct or conduct likely to deceive or mislead by a disclaimer on the registration form INVESTool. The claim has been made out. [232] Claim 11 sought a declaration that the manual dealt with options and covered calls and its distribution at the seminars and workshops constituted contravention of s 911A(1). The claim has not been made out. [233] Claim 12 sought to have Online delete any reference to options and covered calls from the manual. The claim has not made out. [234] Claim 13 sought a declaration of proposed intervention of s 911A of the Corporations Act by the distribution of identified forms at the workshops. The claim is not made out. The claim is not made out. -- 36 of 37 -- 35 [235] Claim 14 sought to have Online restrained from carrying out “any aspect of any proposals” countenanced in the forms there identified in respect of options. The claim has not been made out. [236] Claim 15 sought a declaration that the website was discussed by Town at the seminar and was a financial product in terms of s 763A(1)(b) of the Corporations Act. The claim has been made out. [237] Claim 16 sought a declaration of contravention of s 911A of the Corporations Act in that the seminars provided financial product advice concerning the website and dealt with a financial product, the website. The claim has been made out. [238] Claim 17 sought a declaration of contravention of s 911A of the Corporations Act that Online provided financial product advice concerning the website and dealt in a financial product being the website. The claim has been made out. [239] Claim 18 sought repayment of moneys paid pursuant to specified forms. No order is made in respect of that application at this stage. [240] I give liberty to apply in respect of the final form of orders to give effect to these reasons. [241] I will hear submissions as to costs. -- 37 of 37 --