Rudy Frugtniet v ASIC: Things to consider if Victoria introduces a spent convictions regime (with ‘A Message to You,Rudy’)

Introduction: Federal spent convictions legislation

In 1989, the Commonwealth parliament inserted Part VIIC into the Crimes Act in order ‘to give people a chance to live down a minor criminal conviction’. ²¹ If a person's conviction (including a finding of guilt without entry of conviction) for a commonwealth, state or territory criminal offence is more than 10 years old, a person is not required to disclose such a conviction. ²² The conviction is spent immediately if no prison term is ordered. Section 85ZZH(c), which is in Div 6 of Part VIIC of the Crimes Act, provides that Div 3 of Pt VIIC does not apply, among other things, to the taking into account of information by a court or tribunal established under a commonwealth law, a state law or a territory law, for the purpose of making a decision, including a decision in relation to sentencing.

Part VIIC is particularly important to people seeking professional licences, such as to be a tax agent ²³ or migration agent. ²⁴ The legislation governing these licences requires, appropriately, that a person be ‘fit and proper’. However, the stain of a conviction that is more than 10 years old should not prevent a person from rebuilding their reputation, and many commentators have observed that employment is vital to secure effective post-prison reintegration into the community. ²⁵

Notwithstanding the evident purpose of the 1989 federal reforms (to ensure that spent convictions would not be taken into account in federal decision-making contexts) several decisions of the Federal Court had held that the Administrative Appeals Tribunal (AAT) was able to have regard to spent convictions, even though a federal decision-maker, ASIC, could not. ²⁶ The anomalous operation of two conflicting federal statutes has now been brought to an end in Frugtniet v Australian Securities and Investments Commission. ²⁷

The facts

In 2014, Rudy Frugtniet applied to the Australian Securities and Investments Commission for a licence to engage in credit activities pursuant to the National Consumer Credit Protection Act 2009 (Cth) (the NCCP Act). The Australian Securities and Investments Commission has the power to make a ‘banning order’ against an applicant under s 80(1)(f) of the NCCP Act if there is reason to believe that person is not a fit and proper person to engage in credit activities. ²⁸ Later in 2014 ASIC made a banning order against Rudy Frugtniet. A banning order would preclude the person who is the subject of the order from providing credit services. However, s 80(2) of the NCCP Act together with s 85ZW of the Crimes Act indicated that in making a decision to impose a banning order, ASIC had to have regard to certain considerations including any criminal convictions within 10 years before the banning order was proposed to be made, and any other matter that ASIC considered relevant. ²⁹ Kiefel CJ, Keane and Nettle JJ further observed: ³⁰

Section 85ZW of the Crimes Act (which is in Div 3 of Pt VIIC of that Act) provides in substance and so far as is relevant that, subject to Div 6, but despite any other Commonwealth law, or any State law or Territory law, the fact that a person has been charged with or convicted of an offence that is spent shall not be taken into account by a Commonwealth authority.

So, because s 327 of the NCCP Act enables the AAT to review ASIC decisions, and s 85ZZH(c) of the Crimes Act provides that s 85ZW of that Act does not apply to any tribunal established under Commonwealth law, including, relevantly, the AAT could (and did) have regard to Frugtniet's spent convictions when determining his suitability for a credit provider licence, as they provided evidence of prior dishonest conduct.

Frugtniet appealed to the Federal Court, the Full Federal Court and ultimately the High Court, seeking an answer to the question whether the AAT was prevented by Division 3 of Part VIIC of the Crimes Act 1914 (Cth) from taking his spent convictions into account. The Court had to reconcile the apparently conflicting legislation involved.

What had Frugtniet done that caused the AAT concern?

In 1978, Frugtniet, then living in the United Kingdom (UK), was convicted of 15 counts of handling stolen goods, forgery, obtaining property by deception and theft (the UK convictions). Frugtniet was sentenced to prison and served two years. ³¹

In 1995, the Victorian AAT found that Mr Frugtniet had been involved in the conduct of a travel agency owned by a company called Tarson Pty Ltd, of which his former wife was a director. Frugtniet's involvement in this company was in breach of a licence condition applicable to the travel agency excluding Frugtniet from any involvement in the business. Frugtniet argued that it was Tarson Pty Ltd that breached the licence condition, not him, and that as he was not a party to the relevant proceeding, the matters should not have been taken into account by the decision-maker when deciding to institute a banning order. ³²

In 1997, a Victorian magistrate held Frugtniet guilty of obtaining property by deception in relation to the issue of airline tickets. He was fined $1000, but no conviction was recorded. Frugtniet argued that because no conviction was recorded, the matter was not relevant to his application for review of the banning order made by ASIC. ³³

In 1998, Frugtniet was charged with six counts of theft and three counts of attempted theft. It was alleged that he had given personal details of accountholders to an accomplice while working at a bank (the ANZ charges). ³⁴ In March 2000 he was acquitted of the charges, while a person charged as an accomplice pleaded guilty. However, in 1999, Frugtniet applied to the Migration Agent Registration Authority (MARA) for registration as a migration agent, and answered ‘no’ to a question inquiring whether he was the subject of criminal charges still pending before a court. At the time, Frugtniet was the subject of pending criminal charges before a court, for the six counts of theft and three counts of attempted theft. For that reason, his answer of ‘no’ to MARA was dishonest. ³⁵

In 2001, after completing a law degree, Frugtniet applied to the then Victorian Board of Examiners for admission as a barrister and solicitor of the Supreme Court of Victoria. His application was refused, and so he appealed to the Supreme Court. Justice Pagone of the Supreme Court observed: ³⁶

Mr Frugtniet accepted during his submissions to me that the perjury charges, the ANZ charges and the UK convictions were matters that ought to have been disclosed and considered in deciding whether he was a fit and proper person for admission to practice. The Board of Examiners might itself have found in his favour if he had candidly laid out these matters, and if he had done so, there would have been more prospect of the present appeal succeeding. However, these were matters that only came to light upon investigations undertaken by the Board itself after its adverse decision, after Mr Frugtniet's institution of this appeal and after Mr Frugtniet had filed his first affidavit in this court in support of the appeal. In those circumstances I have no present confidence that Mr Frugtniet would have disclosed these matters if they had not come to the Board's knowledge and had the Board not tendered the evidence in the proceeding before me.

In July 2004, Frugtniet again applied to the Victorian Board of Examiners for admission to legal practice. His application was refused in February 2005 and in August 2005, the Supreme Court (Justice Gillard) dismissed his appeal. ³⁸ Justice Gillard drew attention to Frugtniet's false declaration to MARA regarding the theft charges, and extracted an admission from Frugtniet that he should have answered ‘yes’, not ‘no’ in relation to those charges. His Honour concluded that Frugtniet carried ‘a massive bag of dishonest conduct’ stretching out over many years and that he ‘is a person who does not appear to have learned from his experiences’. ³⁹

In the following years, Frugtniet was found to have knowingly made false statements in support of an application for social security benefits, ⁴⁰ made a false declaration to a potential business party that he had not been refused membership of a statutory professional body, ⁴¹ and deliberately and falsely represented to a barrister that he was a solicitor and deliberately gave to a magistrate the false impression that he was a solicitor. ⁴² In respect of the latter matter, the Victorian Civil and Administrative Tribunal upheld an application by the Law Institute of Victoria that Frugtniet be disqualified from conducting a conveyancing business for a period of three years. ⁴³ An appeal was rejected. ⁴⁴ In 2013, the Tax Practitioners Board terminated his registration as a tax agent and disqualified him for five years. Frugtniet appealed and his appeal was rejected. ⁴⁵ In November 2014, MARA cancelled his registration as a migration agent following a complaint that he had provided false information to authorities. Frugtniet did not disclose this matter to ASIC. ⁴⁶

In his later appeal to the Full Court of the Federal Court in respect of the banning order made by ASIC, Frugtniet said that he did not accept the Administrative Appeal Tribunal's decision terminating his registration as a tax agent and that he was appealing that decision to the Federal Court on questions of law. Frugtniet also contended that the banning order concerned credit activities, and the legal disqualification was therefore irrelevant. Notwithstanding all of this, Frugtniet continued to be associated with a business that provided credit services, and a conveyancing business, although disqualified from doing so.

It was in this context and with this background in mind that the Full Federal Court, Reeves, Farrell and Gleeson JJ, considered Mr Frugtniet's submissions relating to the operation of the federal spent convictions legislation that is the subject of this article. Frugtniet argued that the Tribunal had impermissibly had regard to his spent convictions in making its determination. The Tribunal had regard to the 1978 UK convictions as evidence of dishonest conduct. The Tribunal also had regard to the 1997 finding of criminal guilt, even though a conviction had not been recorded. Frugtniet argued that the AAT erred when it decided that s 80(2)(c), which prohibited regard to spent convictions, precluded a decision-maker (here, ASIC) from having regard to the subject matter of the spent convictions, or any other matter therefrom as ‘any other relevant matter’ under s 80(2)(d).

Frugtniet was faced with the difficulty of undermining the persuasive influence of the decision of Middleton J in Toohey v Tax Agents' Board of Victoria (Toohey) ⁴⁷ which had previously considered the operation of those two provisions under Div 3 of Pt VIIC of the Crimes Act (ss 85ZV and 85ZW). Middleton J had observed that those provisions:

are, in express terms, made subject to Div 6 of Pt VIIC. Section 85ZZH relevantly says that Div 3 does not apply in relation to the taking into account of information by a tribunal established under a Commonwealth law for the purposes of making a decision.

Whatever one thinks of Rudy Frugtniet's history, the reasoning of Middleton J in Toohey ⁴⁸ which was applied by Bromberg J in the Federal Court, and by three justices of the Full Federal Court, significantly undermined the efficacy of the federal spent convictions legislation. It meant that, if an appeal against a decision denying a professional licence was lodged, a relevant licensing agency need only appeal to the AAT, which could then have regard to the spent convictions as an otherwise ‘relevant matter’.

The High Court unanimously rejected the Federal Court's reasoning in Mr Frugtniet's ultimate appeal.

Kiefel CJ, Keane and Nettle JJ delivered a joint judgment. Their Honours observed that the role of the AAT was to stand in the shoes of the decision-maker and determine whether the decision was correct or preferable, having regard to the material available to the decision-maker. There might be occasions when evidence relating to matters that had occurred subsequently may be relevant, but:

subject to any clearly expressed contrary statutory indication, the AAT may do so only if and to the extent that the evidence is relevant to the question which the original decision-maker was bound to decide; really, as if the original decision-maker were deciding the matter at the time that it is before the AAT. The AAT cannot take into account matters which were not before the original decision-maker where to do so would change the nature of the decision or, put another way, the question before the original decision-maker. ⁴⁹

Bell, Gageler, Gordon and Edelman JJ also delivered a joint judgment. Their Honours emphasised the purpose of the spent convictions legislation and concluded:

The decision-making power of ASIC under s 80 of the Credit Protection Act is constrained by Pt VIIC of the Crimes Act to preclude ASIC taking spent convictions into account. The decision-making power of the AAT is subject to the same constraint in the exercise of the jurisdiction conferred on it by s 327 of the Credit Protection Act and ss 25 and 43 of the AAT Act. ⁵¹

Things for the Victorian parliament to consider when drafting local reforms

It is impossible to know how many people with spent convictions within the meaning of the federal legislation declined to appeal rejected applications for professional licences for fear of what we now know, after Frugtniet v Australian Securities and Investments Commission, ⁵² was unauthorised review including those spent convictions. To avoid the problems that vexed the AAT, Federal Court and Full Federal Court in a number of cases, it is recommended that when implementing new spent convictions regulations, the Victorian parliament:

clearly define spent convictions, and the circumstances in which regard can be had to them and for what purpose (such as in sentencing);

The facts set out above from the various decisions involving Rudy Frugtniet do, however, raise concerns about the potential for dishonest conduct relating to when and whether spent convictions are to be reported. It is therefore also recommended that the legislation be carefully drafted and clearly stipulate the circumstances where information about past convictions must be provided, and when it need not.

Finally, the observations of the various justices of the Supreme Court of Victoria in relation to Mr Frugtniet's conduct cannot be ignored. In that light, it may be that a specific exemption to the new Victorian spent convictions regime should be carved out when it comes to the admission of legal practitioners. Recently, a spotlight was shone on unethical lawyering in Victoria, ⁵³ and it may be appropriate for the parliament to consider whether even those with even a distant criminal past should have admission to the profession.

‘A Message to you, Rudy’ ⁵⁴

The High Court has ordered that the decision of ASIC now be reconsidered by the AAT, which will now disregard Mr Frugtniet's spent convictions. However although the operation of federal convictions legislation has now been clarified, Mr Frugtniet will still be faced with the difficult task of persuading the AAT (or any other agencies in the future) that his behaviour other than the spent convictions is irrelevant to a finding that he is a fit and proper person to hold a professional licence. As noted above, in 1999 Frugtniet applied to MARA for registration as a migration agent, and answered ‘no’ to a question inquiring whether he was the subject of criminal charges still pending before a court. This answer was not concerned with any spent convictions. ⁵⁵ Evidence of dishonesty (that has nothing to do with spent convictions) is of course relevant to a finding that a person is a fit and proper person. This will be a factor for the AAT and decision-makers to consider in the future.