An order restraining Mayfair 101 director James Mawhinney from dealing in financial products for 20 years has been set aside today by the Federal Court of Australia on the basis that the businessman was denied procedural fairness.
The decision marks a major turning point for Mawhinney who was hit with a $30 million fine five months ago for misleading advertising of debenture products and was slapped with the 20-year ban in April 2021.
The appeal turned in the director’s favour on the basis that the judge who heard the initial case made against him by the Australian Securities and Investments Commission (ASIC) made findings based on points that were never raised by the corporate watchdog.
As such, the proceeding has been remitted for hearing and determination by a judge other than the primary judge, and the restraining order has been set aside. This means ASIC’s case will be heard again, relating to the alleged $211 million in investor losses attributed to multiple product failures across the Mayfair 101 Group.
However, in a statement from Mawhinney, the director said his legal team was preparing to contest the remittal decision in the High Court.
In the reasons for judgment, Justices Jagot, O’Bryan and Cheeseman found that ASIC’s position in the appeal was “untenable”, as “the case Mr Mawhinney’s counsel came to meet was the case ASIC put”.
Specifically, the primary judge determined Mawhinney contravened a number of sections in the Corporations Act and the Australian Securities and Investments Act - none of which were put to Mawhinney by ASIC during the initial trial.
On these points, the justices did not hold back on criticising ASIC, noting that the watchdog put forward a “legally incorrect case” and that the primary judge instead made orders based on a “legally correct case” - the effect of which was a denial of procedural fairness for Mawhinney.
“It does not matter that ASIC is able to trawl through the evidence and find something arguably capable of supporting the finding of contravention the primary judge made,” the justices said.
“It does not matter that ASIC is able to trawl through the submissions of ASIC below and find a reference to that evidence.
“The idea that the primary judge’s orders, based on findings of contraventions and Mr Mawhinney’s involvement in contraventions that ASIC never sought, can stand because the primary judge also referred to the conduct underlying the findings of contraventions must be rejected.”
The justices noted how Mawhinney’s lawyers were confronted by a “mass of evidentiary material” - an important detail considering they were defending claims made by ASIC, and not those eventually determined by the primary judge.
“It is inconceivable that, had Mr Mawhinney’s counsel been confronted by the case as found by the primary judge, Mr Mawhinney’s counsel below would have adopted the same forensic strategy,” the justices said.
“In any event, there is no need to go so far. It is obvious that had ASIC put the case as found by the primary judge, even during the course of the hearing, Mr Mawhinney’s counsel would have had an entirely different suite of forensic opportunities open for consideration.”
As such, the case has been remitted - the result of these circumstances being “very exceptional”.
“In the present case, an order for remittal would be futile if ASIC is bound by the case it ran before the primary judge,” the justices said.
“An order for remittal would not be futile if this is an exceptional case in which ASIC is not bound by the case it ran below.
“We consider that the present case is “very exceptional”, and that the interests of justice overall require that the proceeding be remitted for another hearing.”
Both Mawhinney and ASIC have been ordered to each pay their own costs of the appeal, on the basis that Mawhinney’s appeal was not confined to the grounds of procedural fairness - in fact, there were 29 grounds of appeal in total which were mostly rejected by the court and labelled “spurious”.
Mawhinney today welcomed the Federal Court's decision to overturn his 20-year ban.
"I am grateful that the court has upheld our appeal on the basis of a denial of procedural fairness," Mawhinney said.
"This is a significant step forward for our noteholders who have had their lives turned upside down by ASIC’s misguided enforcement actions.
“However, we are concerned that the matter has been remitted, giving ASIC a second chance to run a new case which it should have got right first time. We have begun preparing an application for special leave to the High Court. In the meantime, we have 570 investors who have been left out of pocket by a regulator who brought a case which the court found untenable.”
Meanwhile, ASIC deputy chair Sarah Court said the watchdog was evaluating its next steps.
"ASIC took this case to protect the public from the risk of significant financial harm arising from what we believed to be serious misconduct. Mayfair, under Mr Mawhinney’s direction, marketed high-risk products as low risk. Almost 500 people invested in the Mayfair 101 group and they are still owed a total of approximately $211 million," Court said.
"ASIC will carefully consider today’s judgment and evaluate our next steps. Meanwhile, as part of today’s decision, the Court has reinstated injunctions we had previously obtained against Mr Mawhinney.
"These measures will prevent further investor harm while proceedings are ongoing."
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