The corporate watchdog has gone to court looking for a declaration from Dover director Terry McMaster that he was “knowingly concerned in Dover’s misleading or deceptive conduct” in contravention of the Corporations Act and the ASIC Act.
In documents filed in the Federal Court, ASIC highlights 11 clauses in seven versions of Dover’s client protection policy (CPP) from 25 September 2015 to 13 November 2017 that ASIC believes created a significant imbalance in Dover’s and its advisers’ rights and obligations compared with those of clients.
The clauses, which ASIC collectively refers to as the ‘offending clauses’ in the court document, include the authority liability exclusion; SOA liability exclusion; insurance liability exclusion; best efforts clause; losses liability exclusion; continued retainer clause; investments minimum holding clause; ceased engagement exclusion; underinsurance exclusion; insurance minimum holding clause and/or delayed advice indemnity.
ASIC asserts that Dover’s CPP sought to protect the interests of Dover and its authorised representatives by avoiding liability to clients for poor financial advice and contained false and misleading representations as to the rights and protections available to clients.
The federal court document filed by ASIC states: “Those representations were false and/or misleading because, in fact, the purported exclusions, limitations, restrictions and/or dilutions of clients’ rights pursuant to one or more of the offending clauses did not, during the relevant period, constitute the maximum protection available under the general law and/or statute, including as follows:
(a) ss 917B and 917C of the Corporations Act 2001 (Cth) (Corporations Act) and the law of agency operated in a less restrictive manner to the authority liability exclusion in relation to Dover’s liability for the conduct of its ARs;
(b) contrary to the SOA liability exclusion, a client was not prevented by the operation of the general law or statute from claiming, subsequently to acting on Dover’s advice, that the client had not understood the general intent of a SOA or any word, phrase or sentence used in it;
(c) contrary to the insurance liability exclusion, the general law and statute did not operate to extinguish, by way of an ‘acknowledgement’, a client’s right to allege that an AR contravened ss 961B and/or 961G of the Corporations Act in providing insurance recommendations to the client;
(d) contrary to the best efforts clause, the obligations in ss 961B, 961G and 961L of the Corporations Act were not satisfied by the “best efforts” of Dover or its ARs;
(e) the general law and statute did not exclude Dover’s liability for losses incurred by a client on the bases set out in the losses liability exclusion clause;
(f) contrary to the continued retainer clause, the general law and statute did not impose on a client an obligation to contact Dover every six months to request a review of Dover’s advice;
(g) contrary to the investments minimum holding clause, the general law and statute did not exclude a client’s right to make a claim or complaint regarding investment performance until the end of a 10-year minimum holding period with respect to investments recommended in a client’s SOA;
(h) the general law and statute did not exclude Dover’s liability for losses connected to Dover’s advice on the bases set out in the ceased engagement exclusion;
(i) contrary to the underinsurance exclusion, the general law and statute did not exclude a client’s right to complain or seek compensation for loss suffered as a result of being underinsured following the occurrence of an insured event;
(j) contrary to the insurance minimum holding clause, the general law and statute did not require a client to agree to maintain all insurance risk policies for at least two years or otherwise to agree to compensate the adviser for any commissions or other income that had to be repaid to an insurer or another third party; and
(k) contrary to the delayed advice indemnity, the general law and statute did not require a client to indemnify and release Dover from any claim for costs or losses connected to any delays in implementing the advice no matter what caused the delay or who was responsible for the delay.”
ASIC also asserts that during the relevant period, Dover director Terry McMaster was “knowingly concerned in Dover’s misleading or deceptive conduct” in contravention of the Corporations Act and the ASIC Act.
ASIC is seeking declarations that Dover contravened both acts and is seeking orders that Dover pay penalties in respect to its contraventions of the ASIC Act relating to false or misleading representations.
The regulator is also seeking declarations and penalties from Mr McMaster.
In late June, ASIC announced that it was cancelling Dover’s licence following its acceptance of an EU and investigation into the collapsed dealer group, placing blame squarely at the feet of Mr McMaster.
However, ASIC explicitly told Mr McMaster to immediately close his now-defunct dealer group, despite publicly claiming the decision was not theirs.
A document ASIC sent to Dover days before the shock closure was announced on 8 June this year, seen by ifa, shows the regulator wanted Dover to close down as soon as possible as part of an enforceable undertaking.
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