The Federal Court has found Dover Financial Advisers and Terry McMaster guilty in the case brought against them by ASIC.
In a judgement handed down on Friday, Dover Financial Advisers and Terry McMaster have been found guilty of false, misleading and deceptive conduct in relation to the Dover Client Protection Policy which formed the core of McMaster's Royal Commission testimony last year.
The judge deemed the policy to be misleading or deceptive or likely to mislead or deceive in the context of section 1041H of the Corporations Act and section 12DA(1) of the ASIC Act.
This is because the introductory clause of the policy did not ensure Dover clients received the maximum protection available under the law. Instead, clauses contained within purported to remove or dilute the protections they would otherwise have, the judge said.
The policy contained limiting clauses which were presented by Dover as being the maximum protection available.
The judge described the title of the policy as highly misleading and "an exercise in Orwellian doublespeak".
"The document did not protect clients. To the contrary, it purported to strip clients of rights and consumer protections they enjoyed under the law," the judge said.
The judge accepted ASIC's submission that each time the policy was distributed by an authorised representative to an existing or prospective client, Dover contravened the law. Some 19,402 clients received the policy in total, provided as a link within a Statement of Advice.
During the course of the case, Dover and McMaster contended there was no proof any clients had been misled as there was no proof any clients had clicked on the link, nor any evidence any clients were sent paper copies of the policy.
The judge said those contentions were correct "as far as they go", but said it was open to infer.
"And I do infer that at least some clients clicked on the link and some were sent a paper copy of the Client Protection Policy and that, as a consequence, some clients read the Client Protection Policy," the judge said.
"In my view, if the contents of the document are likely to mislead or deceive when read, a person has engaged in misleading or deceptive conduct by successfully providing the document to the client."
It was also argued by the defendants that the introductory clause was a statement of opinion, not fact, and that ASIC had to prove that opinion was not honestly and reasonably held. The judge did not agree.
Another argument put forward by the defendants contended that there was no evidence concerning the content of the SOAs provided along with the policy, meaning the court was unable to assess it in the context of the entire communication with the client. Therefore, it was possible that the SOAs qualified the policy "in a manner that would overcome the misleading content".
In reaching his determination, the judge said the fact there was never any complaints made by Dover clients was not proof the policy was not misleading, rather simply that no clients had bothered to make a complaint.
McMaster conceded that if Dover was found to have contravened the Corporations Act and/or ASIC Act, he - as sole director of the licensee - would also be found in contravention of the law. The judge said his concession was rightly made.
He was also found to have been knowingly concerned in several of Dover's contraventions; section 12DB(1)(i) of the ASIC Act, within the meaning of section 12GBA(1)(e).
However, the judge said he was not satisfied there was a proper basis to declare McMaster knowingly concerned in Dover's contraventions of section 1041H or section 12DA.
A further hearing is to be scheduled in regards to pecuniary penalties.
Dover's AFSL was cancelled on 1 August 2018, following a letter from McMaster to ASIC requesting the immediate cancellation on July 6.