Decision of ISG Financial Services Ltd v Australian Financial Complaints Authority Ltd & Ors. ANLP Pty Ltd atf AP Superannuation Fund v ISG Financial Services Ltd [2022] QSC 120 investigated a decision made by the Australian Complaints Management Authority involving a group of SMSFs that suffered losses after investing in a property development.
Background
Around March 2015, private client advisor Christian De Lloyd, who had previously worked on property development projects, noticed land for sale in Brimba, Brisbane and thought it was a likely property development.
1 McConnell borrowed $1.1 million from JSKS Enterprises Pty Ltd (JSKS), a family trust company, to settle land acquisitions.
The company also signed a joint venture agreement with Omicron Investment Holdings (Omicron) on August 12, 2016. Benjamin Godfrey was the sole director of his Omicron.
Omicron was a special purpose entity formed for the purpose of offering $5,100,000 of stock to the joint venture in exchange for 55% of total profits. Mr. Godfrey ran his fund management business, ISG Funds Management, which was responsible for raising $5,100,000. ISG has created an information memorandum to offer shares. The JSKS loan was not disclosed in the information memorandum. Omicron was unable to raise the total capital required to develop the property. Omicron has raised approximately $2,492,519.47 in equity. Of the equity raised, $950,000 was provided by clients or individuals referred by Mr. De Lloyd’s financial services firm, De Lloyd Private Wealth.
In May 2018, 1 McConnell granted JSKS a second mortgage on the land to secure repayment of the JSKS loan.
JSKS sold the land as the second mortgagee. Proceeds from the sale paid off the NAB loan and paid some, but not all, of the payment to JSKS. The shares purchased by plaintiffs were worthless.
1 McConnell and De Lloyd were not involved in the sale of the land. Mr. De Lloyd, on behalf of 1 McConnell, has issued to Omicron a Dispute Notice regarding the failure to provide equity to the Joint Venture.
Omicron was asked to reimburse the remaining costs of the joint venture totaling $1,493,059.49. In May 2019, Omicron entered a cross-claim deed in the Private Property and Securities Register as a security interest in the company.
On behalf of Omicron, Mr Godfrey appointed Administrators James Imray and David Hambleton as joint liquidators to 1 McConnell.
Due to the company being placed under voluntary control, Mr. De Lloyd was unable to bring a suit to the Supreme Court over the debt Omicron owed at $1,493,059.49.
AFCA Complaint
SMSF’s corporate trustee, which invested in the development, has filed a complaint with AFCA that it would not have invested had it known about the JSKS loan.
The corporate trustee’s directors said the information memorandum was misleading because it was silent on the JSKS loan.
De Lloyd assisted attorney Tony Anamourlis with a complaint filed with AFCA on behalf of an investor.
In the evidence he provided, De Lloyd said Grant Harrison, the head of licensing at the time, and Michele Jackson, the compliance officer, were aware of the JSKS loan, along with Godfrey, and agreed to the terms of the deal. said. Before the Information Memorandum is completed.
AFCA decision makers discovered that Godfrey knew about the JSKS loan before issuing the information memorandum.
Judge Jean Dalton provided a satisfactory explanation as to why the loan was not listed in the information memorandum and why Mr. Godfrey did not investigate the terms of this financing in order for the investor to provide adequate details. said there was no Informed decision.
ISG Complaints Regarding AFCA Decisions
The ISG filed nine complaints about AFCA’s procedures and decisions, outlining four problems with the way SMSF filed complaints with AFCA.
Unfortunately, the portion of the AFCA form that asked for “complaint details” had the name of the individual inserted rather than the name of the superfund’s corporate trustee.
The ISG submitted that this caused considerable difficulty with respect to AFCA regulations. Judge Jean Dalton noted that in all four cases, the sentences and reasons for decision confused the identities of petitioners.
However, Judge Dalton said that despite the mix of information provided to AFCA, it was “clear enough” that the petitioner in each case was the Superfund’s corporate trustee.
ISG also argued that AFCA failed to recognize procedural impartiality because it did not provide access to relevant information before each complaint was finalized.
With respect to one of the SMSF corporate trustees, A & P Jha Pty Ltd, the court considered three documents not disclosed to ISG.
One of these documents was a memo that a preliminary decision maker engaged AFCA with.
Moura described a phone conversation with Dr. Jah, the company’s trustee director.
Moura explained in the note that Dr. Jah said he moved to Brisbane in 2012 and met Christian de Loyd, who became his accountant. Christian De Lloyd helped Dr Jha and other doctors set up his SMSF.
AFCA argued that the memo was a document prepared by AFCA staff and therefore did not need to be provided to ISG. Rule 10.3 gives AFCA discretion as to whether or not to exchange staff-generated documents.
J.Ustice Dalton said that such memorandum, which is a record of plaintiff’s events, should be disclosed.
“The file memo itself records that Dr. Jah was too busy to email Mr. Moura, so Mr. Moura called and made a note to get his version of the event. In effect, the memo was a statement from Dr. Ja that should have been disclosed,” she said.
“I believe ISG was denied procedural fairness because AFCA did not disclose the document. [these documents]the decision maker may have reached a different outcome, such as being persuaded to seek clarification from Dr. Jar before deciding on the matter.
“My concerns about the lack of procedural fairness are compounded by the poor logic of the reasons for A & P Jha Pty Ltd’s decisions regarding trust, causation and allocation of liability for losses. […]In my view, this non-disclosure is a sufficient violation of AFCA’s contractual requirement to provide procedural fairness that the decision is invalid. ”
As to the other four corporate trustees, Judge Dalton ruled that AFCA’s failure to disclose the documents to ISG was immaterial.
Judge Dalton said ISG failed to prove its allegations on all allegations except those by A & P Jha Pty Ltd.
“With respect to that complaint only, we believe that AFCA’s failure to provide ISG with procedural impartiality violated a tripartite agreement and that the decision, as a result, is not binding on ISG.” she said.
“ISG has issued a document dated 29 June 2020 purporting to be a decision on complaints made by A & P Jha Pty Ltd against ISG in these circumstances, which clarifies the meaning of the terms used in the AFCA Regulations. I ask for a declaration that it is not a decision in
The court ordered ISG to pay AFCA $53,420. ISG also ordered four of his SMSFs, other than A&P Jha Pty Ltd, to refund their initial investments in property developments.
Judge Dalton said interest on the initial investment amount would be dealt with in subsequent orders.
******Editor’s Note: Corrections have been made to the original version of this article published on June 29, 2022.******
