GUNNING COMMITTEE OF INQUIRY INTO FAIR TRADING BOARDS AND COMMITTEES MR I.R. GUNNING, Chairman DR D. NEWMAN, Member MR D. BLIGHT, Member TRANSCRIPT OF PROCEEDINGS AT PERTH ON MONDAY, 24 JULY 2000 Transcription by - SPARK AND CANNON PTY LTD 3rd Floor International House 26 St Georges Terrace PERTH WA 6000 Telephone: 9325-4577 1/1/rmo 1 24/7/00

THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you, Mr Chairman. We have a further appearance at the bar table. THE CHAIRMAN: Mr O'Connor. MR O'CONNOR: Mr Chairman and members, my name is Robert O'Connor QC. The witness today who has been invited to appear is Ronald Graham O'Connor, who incidentally happens to be my brother, but I don't see that as being any bar to my appearing today. I seek your leave to appear on his behalf. There have been aspersions and criticisms of Mr O'Connor over the last 18 months or so, and with respect, I consider that it's appropriate that he be represented by counsel so that his interests can be put forward in the appropriate way. THE CHAIRMAN: Yes, thank you, Mr O'Connor. I can tell you that we certainly have heard the name as a valuer, Mr O'Connor, and there could be adverse findings made against him on the evidence so far, so it is proper that you represent him. MR O'CONNOR: I'm obliged to you, Mr Chairman and members. THE CHAIRMAN: But I don't know how you're going to go for costs. MR CHANEY: Mr Chairman, I call Ronald Graham O'Connor. RONALD GRAHAM O'CONNOR sworn: THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you. Mr O'Connor, you're a licensed valuer?---That is correct. How long have you held a valuer's licence?---I was first licensed in 1985. What's your present occupation?---I am operating as a licensed valuer. Could you give the committee an indication of your background and formal qualifications please?---How far or how detailed would you like them? Well, let's start with your formal educational qualifications?---Okay. On completing high school I went to Curtin University where I did a bachelor of business degree majoring in accounting. At that point in time I was working for the Australian Taxation Office and continued to work at the Taxation Office until 1985. 1/2/rmo 2 R.G. O'CONNOR XN 24/7/00

Within the period of 1982 to 1985 I was within the valuation branch of the Australian Taxation Office, having commenced there after doing additional studies in the associate diploma of valuation at WAIT, or Curtin University as it now is, completing that course at the start of 1985. In November of - sorry, in August, September of 1985 I left the government and went to work for Kevin Sullivan and Associates within their valuation department, was there until the end of 1988 when I applied for and took a position with Mair and Co within their valuation department and subsequently became the manager of their valuation department. Around about February of 1990, due to economic circumstances and some restructuring that took place at Mair and Co, I was retrenched at that point in time and decided to go into my own business, setting up a company to operate and operating as a licensed valuer and within the real estate field from that time until the present. Sorry, that time was when, when you set up?---That was in February, March of 1990. I think you have held other licences through the Ministry of Fair Trading?---I have, yes. What licences were they?---I did have a real estate and business agent's licence, an individual licence, and also my company held a licence and a triennial certificate, and for a period of time I was operating as a real estate agent as well as a valuer. When did you get your real estate licence?---I don't have the exact date with me, but I believe it was in 1993 that I got the real estate licence and in 1995 I relinquished my licence to concentrate on other things. In January 1996 you were convicted of stealing a sum of roughly $60,000 from the trust account?---That was a general deficiency within the trust account, yes. Yes, and I think the position in respect of that was that according to the submissions made at the sentencing in relation to that the money was used to pay business expenses from time to time and the funds were ultimately reimbursed. Is that right?---The funds were all reimbursed and, yes, it was basically to try and maintain - to keep the business afloat, and as I say, at the end it became financially completely unviable, which was one of the reasons why I ceased trading. Was the surrender of your real estate licence after you were charged in respect of those matters?---No, I ceased trading in May of 1995 and wrote a letter to the ministry relinquishing my licences, and I can show you a copy of 1/3/rmo 3 R.G. O'CONNOR XN 24/7/00

that, if you like, and I was not charged with any of these matters until November of 1995. At the time you wrote that letter had the ministry contacted you in relation to the matters that ultimately became the subject of the charges?---Yes, the initial contact with the ministry had been in February of 1995 and by the time I ceased trading a full audit had been completed in conjunction with ministry inquiries. That was as a result, I think, of the matter being brought to the ministry's attention through the group with which you were associated at that time?---That's correct, yes, part of the franchise at that stage. During that period - if we can just understand the chronology for a moment, when was the ministry first notified? February 95?---In February of 1995, yes. Right, and you received some contact then through the Real Estate Board in relation to the audit?---I was dealing with a Mr Frank Bull at the ministry. He was responsible for that financial side and the audit, I believe. My dealings were primarily with him. We did have correspondence with the Real Estate and Business Agents Board, as I say, but at that stage I never appeared before the board at any time. Did you have any contact with anyone from the ministry representing the Land Valuers Licensing Board in that period, in 1995?---No. Not directly, no. As I say, there is another matter which came to my notice when I was in the process of finalising my business - it was the fact that my land valuer's licence had expired at the end of June 1994 and had not been renewed. So I had contact with the ministry, or the land valuers licensing area, in relation to the renewal of that licence, but that was contact at my initiation, not at theirs. That was during early 95?---That would have been in probably April of 1995. When was that resolved?---I had to comply with the appropriate procedures to apply for a complete new licence, etcetera, and the new licence was ultimately issued in August of 1995. Did you have any other contact with anyone representing the Land Valuers Licensing Board in relation to the matter which were under review by the Real Estate Board and the subject of the audit?---No, none whatsoever. In April 1996 the Land Valuers Licensing Board took a decision not to hold an inquiry following your conviction in January. Were you aware of that matter being dealt with by the board at that time, in April 96?---I had 1/4/rmo 4 R.G. O'CONNOR XN 24/7/00

never had any contact from the board at all and was not aware that they were considering the matter. I was unaware of it completely until I happened to read a note about it in a paper at the start of 1999. In the newspapers there was some report that they had considered it, but I had never had any contact with them, had never made any submissions to them and was completely unaware of it. Now, as you heard the chairman indicate, your name has been mentioned in connection with valuations in respect of a number of different projects associated with finance brokers in the evidence before the committee to date, and I wonder if you might have a look at this table?---Thank you. You have had the opportunity of reviewing this table some time over the weekend or this morning?---Yes, I have. I can tell you, Mr Chairman, this is a table prepared which simply extracts from the volumes of material before the inquiry the various references to Mr O'Connor and his valuations and the detail of the date, the parties involved, security property, the valuation, whether or not, under the column headed Apparent Value, there has been any subsequent indication of value of a particular property, and then in the final column the reference is to either a transcript or exhibit number which is the source of the information. THE CHAIRMAN: Thank you. MR CHANEY: Mr O'Connor, can I ask you initially whether having reviewed this there are any of the items referred to on the table which in fact you dispute having been involved with?---I appear to have done valuations on all those properties that have been listed there, yes. You will see that it involves a number of different brokers. To what extent does your - or perhaps I should phrase that more carefully. Throughout the 1990s to what extent has your business involved work through finance brokers?---A percentage of my work certainly would have been valuations that eventually ended up with a finance broker. A lot of the instances were - I would be contacted by a client to do a valuation and ultimately they would then present that report to a finance broker who I may or may not have been aware was the situation at that time when I was asked to do he report. A number of times they would shop it around various brokers and then ultimately I may be requested to put a report to a specific broker, or readdress a report. So my contact with the brokers was generally, if you like, on a second-hand type basis rather than a direct request from the broker to prepare a report, although in certain 1/5/rmo 5 R.G. O'CONNOR XN 24/7/00

circumstances obviously I did receive requests from brokers as well. You say a percentage of the work would have ultimately found its way into the hands of brokers. Can you put a figure on that percentage?---Probably since I went into business on my own in 1990 I would have done well in excess of over 4000 valuations. Now, I would suggest probably that work that's gone through to brokers or in relation to the finance would be something about 20 to 30 per cent of that. It certainly hasn't been the bulk of my work. Can we track through the process you have just indicated? You say that on occasions you would be initially contacted by a client. If we're just talking about the ones that would ultimately find their way to brokers, is that approach on the basis that a client needs a valuation for the purpose of borrowing?---Generally, yes, they are looking to get a valuation. They have a project or a development or a property that needs to be valued for finance purposes, yes. Upon what basis are valuations sought? Does that vary, or is there a pattern?---It certainly does vary depending upon the type of property that we are looking at valuing, because the range of properties may be from vacant land to residential, commercial properties, development projects, tourist project. It depends - rural properties. There's a full range and obviously the approach that's taken with different types of properties varies in terms of determining the value. How often have you been approached to do concept valuations, or valuations which assume a development of a particular nature on property?---Yes, well, the hypothetical development analysis method, which is what we use for that type of project, is a recognised valuation principle and procedure and it would be difficult to quantify the percentage or the numbers, but there obviously have been a number of projects that have been - or valuations that have been done for projects that were concept, to use your word, situations. Is this done at the behest of either clients or on some occasions brokers themselves?---Primarily it has been on the behest of the client, although the brokers do request them as well. Where such requests are made and you prepare a valuation based on a hypothetical development what precautions do you take as a valuer to ensure that the figure which ultimately emerges in that valuation is - the basis for that figure is disclosed to those who may be relying on the valuation?---Certainly within my valuation reports where I do a valuation on that basis there is discussion 1/6/rmo 6 R.G. O'CONNOR XN 24/7/00

as to the principle behind that particular method and notes and comments made to that. Obviously given the type of valuation it is it assumes a future event happening, so therefore there is a degree of expectation or a degree of uncertainty as to what may happen. So we have to rely fairly heavily on information that we have been given by our client as to the basis of the project and then from that we have to obviously estimate future returns from the completed project as part of the process of determining that valuation. So there are a number of factors to consider, but certainly the assumptions are generally stated within the report and the basis on which the report has been prepared is certainly disclosed and stated within the report. Is there any restriction placed on the extent of use of the valuation or the manner of use of the valuation by the client to whom it's provided?---There is a limitation clause on all valuations, and as I say, certainly on all my valuations, where the report is prepared for the confidential use of the client to who the report is addressed. Now, in some instances that may be at the request of a client extended to a broker or an investor or whatever it happens to be, but generally the report is solely for the confidential use of the party to whom it's addressed. The reality is though that where a client approaches you for the purpose of a valuation to support borrowing that valuation is going to be used and shown to other people with a view to supporting the application for borrowings, is it not?---It happens that way, yes, but certainly it would be anticipated or expected that obviously if somebody is shown the valuation, if they have any queries or any concerns or any issues that they wish to clarify that I would be contacted to discuss them with that person in order to outline the basis on which it has been done or what assumptions have been made further, or whatever. In a number of these situations valuations have been done and projects have never proceeded. So that there is not 100 per cent situation where if you do a valuation the report proceeds, or the valuation proceeds. So the report is prepared for the client. If it's going further then there will often be questioned asked as to clarification of certain matters within reports, either by a broker or by an investor or another party. Can we just go back to the summary for a moment? ---Certainly. I want to ask you some questions about the brokers mentioned there. The first matter of which there has been evidence before the inquiry relates to a valuation in 1993 for Blackburne and Dixon on behalf of a client 1/7/rmo 7 R.G. O'CONNOR XN 24/7/00

company associated with Mr Casella, Gamehill Holdings Pty Ltd?---Yes. How long before this had you done work which involved Blackburne and Dixon?---I don't - I'm only guessing here, but I probably commenced contact, or had first contact, with Blackburne and Dixon probably in that 92, 93 time frame. Who was the principal at that stage?---Primarily I was doing valuations. I had been requested to do some valuations on behalf of Mr Casella and his associated companies and at that point in time he was using Blackburne and Dixon as a finance broker. So that was where my contact was initiated, if you like. Were you aware of a reasonably close relationship between Casella and Blackburne and Dixon in those days?---Not specifically, no. They shared accommodation at some point? Well, sorry, I should make that clear, I think. An adjoining accommodation?---I believe there was a project done and they ended up, Blackburne and Dixon - or I think it was Owen Blackburne at the time - had some dealings with Mr Casella and they ended up with adjoining properties, but beyond that I don't know any more than that. So you have over the years done a significant amount of work for Mr Casella?---Yes. You're aware generally that that work ended up with Blackburne and Dixon for the purpose of raising finance? ---Primarily, yes, in the early times, although as I say, he did later on - I think he was using Global Finance later. Was that your introduction to Global as well?---I believe it was, yes. The next item on the list is in relation to - - - THE CHAIRMAN: Excuse me, Mr Chaney. Who were you dealing with at Blackburne and Dixon?---The contact - if there was any direct contact with Blackburne and Dixon it was primarily with Ken O'Brien, who was their - basically administration and finance man. He is one I would have spoken to on the phone a few times. I have met him on different occasions as well and obviously he was the one that the clients were primarily dealing with. There were others I have dealt with over the years, different people, but Ken O'Brien would have been the prime person who I had contact with. Thank you. 1/8/rmo 8 R.G. O'CONNOR XN 24/7/00

MR CHANEY: Perhaps before leaving the Blackburne and Dixon issue, there are a number of other Blackburne and Dixon matters on the table relating to initially a Frontier Corporation, Eton Developments, Mr Saulsman, and then Rilestone Pty Ltd?---Can I just before you do make one point in relation to this first item here? That report was prepared and addressed to Gamehill Holdings Pty Ltd. They were my client and at no stage had I addressed that report or was I requested to address that report to Blackburne and Dixon. Yes, and I think it should be said for the record, Mr Chairman, that issue arose in relation to a file associated with a special audit of Blackburne and Dixon and didn't involve issues of valuation. The other valuations, however, in relation to Blackburne and Dixon which are shown on the table, were they valuations which you undertook as a result of business referred to you by Blackburne and Dixon or by the clients concerned?---In the first instance, the one for Frontier Corp, that came as a client request, not from Blackburne and Dixon. Rilestone was a client request, Eton Developments was a client request. Have you had any work referred to you by Blackburne and Dixon on behalf of their borrower clients?---I have had probably a handful of requests direct from Blackburne and Dixon to prepare reports. I can probably only remember one or two specific ones, but there wasn't a lot. Most of the time it was dealing with a client who would ultimately refer a valuation to Blackburne and Dixon. Presumably in the industry one develops relationships with various players in the industry, as it were, with valuers with brokers, with developers, and so on. To what extent did you develop a relationship or how close was the relationship with Blackburne and Dixon and Mr O'Brien in particular?---As I say, I think the only time we socialised, if you want to call it that, was we ended up at a surprise birthday party that Mr Casella held for his 40th birthday. I was invited to that, he was invited to that, but apart from that I have had no contact with him on a social level. I don't know him all that well. I have met him and spoken with him, but I have - as I say, I have done work for them, I have answered queries for them, but I haven't developed a relationship that you would classify as being, you know, a friend or a confidante type situation by any means. They are acquaintances. And with Casella?---Much the same with Casella. I suppose because I have been dealing with Casella over a number of years we're on good terms. He can be a bit slow to pay his bills at times, but beyond that, I say once again, I don't socialise with him. 1/9/rmo 9 R.G. O'CONNOR XN 24/7/00

Presumably you became aware of difficulties he was having with some of his projects during 1988 and early 1999? ---Yes. And his need to refinance projects from time to time? ---Yes. That's part of the industry generally. Were you doing valuations for him in relation to that period?---I have done some valuations for him recently but you would need to give me an indication of which specific properties you're referring to to say whether I have or haven't done them. Well, I'm asking in general terms?---Put it this way, I haven't done - I don't do 100 per cent of Mr Casella's work. He has other valuers doing work for him as well. To what extent were you aware of the success or failure of the various projects which he undertook that might have been the subject of valuations by you?---The project would commence. That was primarily when I became aware of something that happened, or there may be an update requested and you can see that a project has just commenced, but beyond that there was very little feedback certainly from the finance broker and often it would be in other conversation that information about a project's success or otherwise would be discussed. THE CHAIRMAN: Mr O'Connor, when you refer to "clients" and then that was referred to the broker, the client would be, I assume, the borrower?---In the context in which we are talking, yes, I refer to a client as the person who asks me to prepare a valuation for them. Yes, I know, but was the - - -?---So it primarily would be the borrower, yes. Did you ever do it for the investors - an investor?---I have done valuations for investors but not specifically within the context of these financing decisions, no. Thank you. DR NEWMAN: Would the borrower always pay your bill or at times would your bill be paid through the broker when the loan was arranged?---It was both situations. I would normally, depending upon what was happening, bill either the client direct, or they would often say, "Refer the bill to the broker," and ultimately it would be paid out of the settlement proceeds. If I wasn't, then I would be pursuing the borrower individually to recover my fees, but it varied from client to client and depending upon what the particular arrangements were. 1/10/rmo 10 R.G. O'CONNOR XN 24/7/00

MR CHANEY: In 1994, looking to the summary, the end of 1994, you performed a valuation in relation to three lots in Albany Highway, Victoria Park, in respect of property owned by Sher Pastoral Co, a Mr Gomm backed company, involving Gamel Ward. How did that matter come to you? ---I had had previous dealings with Mr Gomm and he requested me to do the valuation. According to my records the report was addressed to Sher Pastoral and not to Gamel Ward. I was unaware until I got your memo that Gamel Ward had actually been a broker associated with this particular deal. Have you had other dealings with Gamel Ward?---I have had other dealings with Gamel Ward, yes. At whose instance, at the client's - - -?---Primarily early in the piece it was at the client's request and then there was a period of time where I had no contact with them and then I have done some reports over the last probably - in 1998 that would have been at the request of the broker. Moving down Global, you have done a couple of valuations involving Mr Sadek - companies, Kentucky Nominees and New Rose Holdings. How did that work come to you?---Once again, I had met Mr Sadek through another development that had been taking place earlier and had done a valuation basically that he became associated with and then I was requested to do these valuations primarily direct from Mr Sadek, but with some of these it would be in conjunction or in association with instructions that I would receive from Mr Margaria. How did you get introduced to Mr Margaria? Was it through these or through other - - -?---I think initially it - as I said before, I think my initial contact with Mr Margaria probably was through Casella, doing a valuation for one of his projects, and basically, as I say, at the end of the day a number of these people ended up using the same broker. So it wasn't a matter of me referring people to them or anything else. I would be told where the report was to be addressed, if it was to be addressed to a broker at all. Again, what sort of relationship did you have with Margaria?---Once again, it was purely just a normal business relationship with Mr Margaria. I would do valuations for them on behalf of clients or I had some requests direct from Global Finance to do valuations as well. I would often drop the report into the office on my way through to other locations, but that was about the extent of my association with Global Finance. I certainly had nothing to do with their operations. 1/11/rmo 11 R.G. O'CONNOR XN 24/7/00

And Sadek?---Once again, a borrower, an investor, a client, who I had contact with over a period of time. Did you have any sort of personal relationship with him or was it purely a business relationship?---I suppose, you know, as I say, as with any small business person, you develop a rapport and obviously a business relationship with your clients. I needed to try and keep my clients, so from that point of view I would not consider it anything more than that. You know, I have met him and had a cup of coffee with him at different locations and whatever. The relationship is, as I say, on friendly terms, but that's nothing unusual. Trust Mortgages, there's reference to a valuation of the Margaret River Motel. When was that work done?---That was done in 1998, in March of 1998. Who was your contact with Trust Mortgages?---My contact there primarily would have been Mr Cliff Mitchell and in this particular instance it was for a borrower, Trishaw Pty Ltd, associated with Mr Charles Boog. That case has received some publicity in recent times, Mr Boog borrowing - - -?---I believe so, yes. - - - far more than he could repay or realise on the properties. What was the amount of the valuation?---The on-completion valuation - and this once again was a situation where he was buying an established facility that had surplus land and the project involved the upgrading of the facilities and extension and building of additional motel units at the complex. The on-completion value we have assessed on that was $5,180,000. I must point out that I believe there have been at least three other valuations done on this particular property subsequent to mine by other valuers and they have all come in much the same or higher than mine on the completed project. How much work have you done for Trust Mortgages?---Once again, I have done a number of valuations for them. None of these individual clients on their own make up a significant proportion of my work. I suppose combined there's probably - as I said, 30, 40 per cent of my work may be associated with these sort of situations, but individually, I suppose, over the two or three years I have had contact with them, I have probably done 12, maybe 15 valuations. I take it Mr Boog was a one-off client, was he, or have you done a bit of work - - -?---I had done previous work for him and Trust Mortgages and this was the second valuation I had done for him. 1/12/rmo 12 R.G. O'CONNOR XN 24/7/00

First Chartered in July 98, another Rilestone borrowing, who was the broker - or who was the individual at First Chartered that you dealt with on that one?---I don't know. As I say, I was dealing with Rilestone, which was Ivan Hill and - can't remember his partner's name now. Rowe, I think?---That's right, yes, Rowe. I was dealing with them, and as I say, they had requested me to do a valuation for them and to address it - I think, in that particular one for Cessnock Way that you have mentioned there, the report that I prepared was addressed to Rilestone and I wasn't aware of it being referred to a broker specifically at that stage. So have you done any work for First Chartered?---I have done some work, once again, that has gone to them, but i have never been requested to do any valuation work by them. The one below that on the table involves some blocks in Collie which involve Mr Grubb. Can you put a date on that more accurately than we have in the table?---Yes, the valuation - as I say, there's some confusing or I believe inaccurate evidence from - I think this came up in Mr Wallace's testimony, which has me slightly confused as well, but that particular valuation that was done there, the blocks in Collie - just bear with me one moment - that report was prepared on 9 July 1997. It was addressed to Rancher Enterprises Pty Ltd and they were my client. It was not addressed to a finance broker and until some time later when I received a query from the Ministry of Fair Trading on this I was not aware that Grubb was even the broker. I had never done any work prior to that but I was aware that it had gone to Grubb. I certainly have never had any direct requests from Mr Grubb to do valuations for him. Now, there's a comment here that there were four blocks. In actual fact, the valuation - there were five blocks that were valued in that particular valuation. The total value was not 185,000, it was $175,000. Thank you. The final one again which emerges from Mr Wallace's evidence and I think we were short on detail. Can you fill in the detail in relation to that? ---Okay. I presume the one that you are referring to - and as I say, once again, having read the transcript, I am confused sometimes as to exactly which properties are being referred to, but this relates, I believe, to units 12 and 13 at a property on the corner of Hanson Street and Bickley Road in Maddington. The report I prepared was on 17 May 1994. The report was addressed to Gamehill Holdings Pty Ltd. The client was Gamehill Holdings Pty Ltd. The value was $250,000. 1/13/rmo 13 R.G. O'CONNOR XN 24/7/00

Sorry, the address was units 12 and 13 - - -?---Units 12 and 13 and it was the corner of Hanson St and Bickley Road. I don't have the street address. Is it related to the one at the top of the list for 15 July, lot 504 Hanson Street?---Lot 504 Hanson Street was another property. This was lots 500 to 502, so they are different properties. Thank you?---At that point in time I think Gamehill Holdings had about three or four properties within that street that they were developing. Now, each of the - sorry, I withdraw that. The column headed Apparent Value in respect of a significant portion of those valuations give a figure significantly less than the valuation figure. For instance, there are sales, the sale of lot 7, 300 Albany Highway, of $55,000 against a valuation of 132, the sales in the last column, 154,000, against a valuation of 250, a property passed in at auction with a reserve of 360,000 against a value of 630,000. All suggest significant inaccuracy in respect to the valuation figure. Do you accept that your valuations, at least in respect of those and possibly in respect of a number of the others on the list, were significantly higher than what proved to be the real value?---No, I don't accept that. Why not?---In relation to that particular unit, lot 7, that you have got the sale on, that was a mortgagee sale, a forced sale. There were other sales within that particular complex over a period of time which were well in excess of that figure. If an investor or somebody wishes to dispose of a property at a mortgagee sale it doesn't reflect market value. That highlights a problem, does it not, where somebody like Mr Gomm comes along, asks for a valuation to support a borrowing that what is of interest to those who may be lending money on that is precisely that scenario, isn't it, the forced sale situation? How is that accommodated in the valuation process so that the valuation doesn't in effect mislead people who rely on it to advance funds? ---The basis that we do the valuation on is as per our instructions from our client. Now, I know that there are differing perspectives that different parties have within any financing decision. The difficulty that we are put in is that we are requested to do a valuation by a client within accordance with their instructions in terms of what basis we are to use, or how we're to look at it, or whatever else. Now, that may be at odds with what somebody else may be wanting to look at. If we are not requested to look at it from that specific approach then there is generally little provision for us to make comment in relation to that. This is where say in a 1/14/rmo 14 R.G. O'CONNOR XN 24/7/00

number of instances where we are doing a report and it's specifically addressed for the use of that particular client only, and that's the reason it is done that way, is because there are differing views, different needs. So that therefore we are addressing it to that client on the basis of their request. Now, if the investor comes to us and asks us to do a valuation for them to ensure that their investment is secured or covered or whatever else, we would probably look at a slightly different method or look at the property slightly differently, but that doesn't mean that either valuation is right or wrong. It just basically depends on the basis on which it is looked at. You know, valuation is a very imprecise science. What this inquiry has heard a deal of is allegations to the effect that valuation figures were being used by borrowers stroke brokers to indicate a level of security which simply did not exist or has not proved to exist? ---In relation to a project or a concept or whatever else certainly we have been asked to do a valuation which reflects something that doesn't exist. That in itself there is nothing wrong with, but it obviously has to become apparent to an investor that they are borrowing against something that doesn't exist, therefore they have to make a decision as to whether they wish to invest on that basis or not. Now, the report we put in covers the detail that it is a future project, it is looked at on that basis. There are certain assumptions made. It's not necessarily within the scope of the valuer if he's not being engaged by the investor to look at it any other way. Put aside the concept?---But - yes, sorry. Put aside concept valuations for a moment. You have indicated that taking an approach - looking at valuing an existing building or property, your approach may be different depending on whether you are doing it for the purposes of the owner or the borrower or the developer on the one hand or if you were doing it on behalf of the lender on the other. Do I understand your evidence correctly?---Yes. That's correct, yes. So that presumably consistent with that you would say that your valuation figure done for a borrower's or owner's own private purposes, whatever they may be, ought not be used as security - sorry, as an inducement as to the level of security for potential lenders?---It would need to be qualified, put it that way. The evidence before the inquiry suggests in a wide range of cases that there was no qualification?---As I say, I have become more aware more recently of a number of these situations where a letter has gone out from the broker 1/15/rmo 15 R.G. O'CONNOR XN 24/7/00

which says that the property has been assessed by myself and the value is X. No further discussion, not further material, no details as to the basis of how it has been prepared, what assumptions or anything else has been made. Now, that in itself to my mind is misleading from the point of view of my report has been prepared on a specific basis. It is set out in the report. Now, the client should at least have the opportunity - and when I say "the client" I'm referring to the brokers' client, being the lender - should have the opportunity to be able to see the report, analyse what's contained within the report and make a decision accordingly or ask questions for clarification. Now, in most instances I have had no idea that at least a copy of the report hadn't been sent out, because any other dealings I have had in the past have often been where a valuation has been sent with the letter of proposal to the lender. So I have assumed that this information is going through but apparently in a number of instances, and particularly a couple that I'm aware of with Global, this has never happened. Yes, and it appears to have been done in almost a systematic way, that a valuation would be obtained from you or in some other cases from others, on a basis which involved much hypothesis but then none of that being disclosed to the potential lenders?---That appears to be a situation, yes. Certainly from the valuer's perspective every time the valuer signs a valuation report he's putting his neck on the line, so therefore whenever I sign a report, and I presume it's the same with every other valuer, when you sign a report you have to be satisfied within yourself that the value you have given is correct within the instructions that you have received. Accepting that the evidence suggests some sort of systematic approach to the overstatement of values, or at least the incomplete statement of values, being given to lenders and that it appears on a number of occasions that it was your values that were being used in that way - your valuations that were being used in that way, the consequence is that you have at least been used as an instrument of the misleading. Do you accept that follows?---I follow your line of reasoning and I suppose I have become a bit of the bunny in that sense. I certainly have never set out to be in that position. As I say, every time I approach a valuation I look at it and when I sign the report I need to be satisfied within myself that the value I have given is correct. Did you know that your values were being communicated in the way that you now know they were at the time?---I wasn't aware, certainly not to the extent that it has been. 1/16/rmo 16 R.G. O'CONNOR XN 24/7/00

DR NEWMAN: Mr O'Connor, when you did a valuation of this nature did you put in your valuation what the property currently was worth before the development took part and then put on additional information with supporting documentation and comments about what would happen with the development and then come up with a valuation as to what it would be worth when it was developed, so anyone looking at the valuation would know a current as well as future figure?---Generally, no, from the point of view of the request that had been made to us was to value the completed project and as such that was the approach that we were adopting. You didn't have a concern that anyone who was lending to the borrower would not necessarily be aware what the property was worth before the work was done, or did you believe that they should be asking questions?---There was the - well, I believed that there was the opportunity for somebody who had some concerns to either ask a question of the broker or of myself, in which case - and I certainly have had instances where I have done a report, it has gone to a broker, there has been a request come back from the broker on behalf of an investor seeking clarification on certain matters or asking me specifically to look at it from a different perspective and I have done so. It depends, you know. At the end of the day we comply with our instructions in terms of how we are to look at something. MR CHANEY: The number of examples which have come up in the light of this inquiry of these sorts of practices, and in particular I'm referring to the practice of misleading information as to value being given, seems to have involved a disproportionate number of valuations where you were concerned as the valuer as a matter of fact. Is that because you did more work which found its way into brokers than other valuers around the place?---I think it's a matter of obviously some of the range of clients I had were people who were active within that development situation and they were using obviously different brokers at different periods of time and certainly work that I have done for them has found they're handed into the brokers, yes. Those sorts of clients were obviously by definition clients who didn't habitually use bank finance?---No. And in part that was because they were at the more risky margins of development projects?---For various reasons they didn't meet the bank criteria, yes. Well, previous bankruptcy is an example?---Probably, yes. Presumably you were aware of something of their background and the nature of the work that they did?---In 1/17/rmo 17 R.G. O'CONNOR XN 24/7/00

general terms, yes, but most of the people I was dealing with, they were undertaking developments, they were doing the developments, they were achieving an end product. So it wasn't pie in the sky situations which never got off the ground. These people were, you know, boots and all, going in there, doing the development, so it wasn't speculating in that sense. So, yes, I have had - after a number of them had had successful projects there was no reason to expect that there would be anything other than a successful project. Do you think that the reason you tended to have those sorts of clients in your client base was because you developed a reputation for being optimistic in your valuations?---I can't comment on what other people's perception may have been. Certainly I have never gone out to seek that reputation, if that exists. It's a matter of - my concern has been to deal with my clients, provide a valuation for my client to the best of my ability, and that's basically been it. Can you offer any explanation for the impression which one gets - and let me say, I don't pretend in asking this question to suggest we have done any exhaustive analysis of who does values for brokers, but the impression which has emerged because of the frequency of your name arising is that you were something of a favourite amongst these brokers and that that was because you would give a value which would allow them to raise sufficient funds to in fact require no capital contribution of them to particular projects?---As I say, I certainly haven't set out to do that, if that has been the situation. I have dealt with a number of these clients. They have been happy with the work that I have done. I have continuing work. I have had referral work from them. At this stage, as any small businessman, I don't seek to sit down and analyse everything to that extent as to the reasons why people are coming to me or not, but at the end of the day there is a flow of work coming to me. I do the valuations and move on. To what extent is it necessary to keep those clients happy to actually ensure that you give them the values that suit their purposes?---No more than anybody else. Basically at the end of the day when I do a valuation I have got to be satisfied with the value that I have put on that piece of paper. So it's not a matter of somebody coming to me and saying, "I want a figure of X, Y or Z." It's a matter of I have got to make my own assessment, I have got to be happy with my valuation. Now, that's what I have done, and basically at the end of the day if they are happy with that figure, great. Has anybody ever come to you and said, "This is the figure that I want you to put on this development"? 1/18/rmo 18 R.G. O'CONNOR XN 24/7/00

---People have come to me and given me an indication of what they think a value is worth, but valuation is such that, you know, everybody - you ask everybody in the room what their own house is worth and they have all got their own opinion. So it's one of those sort of matters that everybody has an opinion about value, which is what gets me annoyed when everybody starts talking about over-values. It's all a matter of opinion. It's a matter of - who's right, who's wrong at the end of the day becomes a subjective question, but certainly I have had people who have said, you know, "Look, I'm chasing a valuation of X." I have looked at the report, I have done a valuation. It may be that figure, it may be higher, it may be less. It depends upon what I consider is appropriate. Was there any systematic arrangement between you and any borrower or developer which enabled you then to in effect dictate the values which you would produce in your report?---No. Did you ever take any interest in - by which I mean financial interest - in any of the projects which were the subject of your valuations?---No. Upon what basis were you paid for valuations which you did - and I realise that's a very broad and general question, but in respect of those on this table, for instance, if there's a uniform approach?---There is a scale of fees which applies to valuations. I very rarely charge at the scale of fees. I discount my fees. I have never been - I have never overcharged anybody. I always look at the report - sorry, at the property, I look at what I have got to do, and I assess a value. In most instances I set a value prior to doing the valuation. DR NEWMAN: Mr O'Connor, how long would it take you to do an average valuation?---What is an average valuation? Well, some of these valuations, how much time would you have to put into it?---It was difficult. It's a matter of - if you don't have to do a physical inspection of a building obviously there is a time saving there, but you need to do your appropriate research. Say a valuation such as - well, take those Collie blocks. There's a trip to Collie to have a look at the land, inquiries within the valuer-general's office and other sources to confirm values, and things like that. That would probably take in effect of time a day, maybe a bit less. Some valuations which I may have done in the past and therefore it was an update or something very similar, there's a time saving there using some of the material that you have already, but generally, you know, you would find that you would spend probably - the shortest time that you would spend on a valuation would perhaps be half a day. It just depends on the particular valuation and 1/19/rmo 19 R.G. O'CONNOR XN 24/7/00

what needs to be done in terms of inquiry and information that you need to get to be able to accurately assess this information. For a job like Collie what would roughly be the fee? ---That job down there, from memory I believe the fee was around $500. Right. So on a 10-hour day, assuming you have got to drive to Collie, inspect it, come back, do research, you're looking at something like $50 an hour?---Something like that, probably. The scale of fees for valuers I think sets it at 140 or $160 an hour. If I can just draw another point, seeing as we have raised the issue of fees. There was a criticism or an assertion made in relation to me by one of the witnesses who appeared here, one of the borrowers. If I can just draw attention to that - I think it was a Mr Hardwick, where he referred to the fact that I had charged $2000 to do a valuation when they had gone through the Global material and they had had a subsequent valuation done for $500, and his suggestion was that I was ripping people off for charging $2000 for the fee. The point that I wanted to make there to highlight this particular issue is that that $2000 fee I charged for that particular job there were 11 lots plus a farm involved, whereas Mr Hardwick, their valuation was for just one single lot of that whole lot. So it's a matter of - the scale of fees, if we had applied it to the value, was well in excess of $5000. So I'm not overcharging anybody and I'm not seeking to make benefit to myself by overvalue or up-valuing reports as people are suggesting. MR CHANEY: Did you ever - - - MR BLIGHT: With the - sorry. Just to pursue the Collie one, if I could, you said that your valuation, I think, worked out to about $35,000 each?---They averaged 35,000, yes. You also mentioned that you would go to Collie, you would make inquiries of the valuer-general's office, because they would have them on their sheets and so forth. What would be the reasoning that later on the valuer-general would come up with a value of 10 to 13 thousand dollars?---The reference that I picked up within the transcript - and this was Mr Wallace, I believe, referring to some information he had from the valuer-general's representative in Bunbury, or whatever, they were referring to Homeswest blocks within the township of Collie. The particular property that we were looking at here was a brand new subdivision. They had no Homeswest housing. It was in an elevated position overlooking Collie. There was new development taking place all around it and there was specific sales evidence 1/20/rmo 20 R.G. O'CONNOR XN 24/7/00

within that area supporting the values that I have adopted. MR CHANEY: But the ultimate outcome of that particular investment, I think, was that the properties simply couldn't be sold, even at 10 or 13 thousand dollars. Do you know anything about that?---I don't know. I don't know. I believe the - you know, I was queried on this by the Ministry of Fair Trading or the Land Valuers Licensing Board in relation to some matters. I have supplied them all the information that I used in arriving at my valuations. That has been done now on three or four occasions and as far as I am aware, they are satisfied with my valuation. Did you ever receive any consideration through any broker or through any borrower associated with a broker beyond your normal fee for the preparation of a valuation?---No, I haven't. There was specific reference in the evidence, again from Mr Wallace's evidence, where he said that a borrower had been asked by Ken O'Brien for a $750 sling to get the right valuation and the evidence subsequently says that you were the person who would be doing that valuation. Have you ever received a sling or any consideration, any funds, for the purpose of producing a particular figure in a valuation?---Certainly not. I have never received, never asked for any sling or any other inducement to arrive at a particular value or anything else. I don't know the parties that are referred to within that transcript. I don't appear - and I don't believe I have ever done a valuation for them. I don't know specifically which property they are referring to. There was some confusion. It appeared to be something in Maddington. Now, I assumed it was the property that I referred to that was valued for Gamehill at $250,000, because I believe Blackburne and Dixon were associated with that as well, but as I say, I never did a report for Blackburne and Dixon that I'm aware of in that context. I certainly never asked for, never received anything, and as I say, if that is the particular property that they're referring to, the report was addressed to Gamehill. It was never addressed to anybody else or referred to anybody else. Now, if Blackburne and Dixon or O'Brien or anybody else have used it it's certainly been without my knowledge. Can we just look at that Gamehill one; that is, units 12 and 13 Hanson Street, or the corner of Hanson Street? That property was subsequently sold for $154,000 against a valuation of 250,000?---Yes. What explanation do you have for that discrepancy?---Once again, I believe it was a - I have been informed that it was a mortgagee sale again. That particular property had 1/21/rmo 21 R.G. O'CONNOR XN 24/7/00

some unique characteristics, in that it was two industrial units but one of the units had a large area of surplus or vacant land attached to it and when we assessed our valuation we valued it on the units plus an added value for the land. Now, in a forced sale or a mortgagee sale situation I don't know how somebody has assessed their own value as to what they wanted to pay for it, but certainly we looked at it on that basis. Once again, that information has been supplied to the ministry and at this point in time there has been no further inquiry on it. Going back to specific evidence where your name arose during the course of the hearing, there was some evidence by Mr Horn in relation to a project by Perimead Investments Pty Ltd which was guaranteed by Dominic Casella and apparently your brother Edward O'Connor. Did you do a valuation in relation to that project?---I did do a valuation for Perimead. It was very hard - I have read that transcript as well and it was very hard to trying to work out what was what. With all due respect to Mr Horn, he was a little bit confused as to who the valuer was or anything else. Yes?---But I have been through my records. I did a valuation on the land at Wellard that was owned by Perimead. I did that in November of 1996, not in August of 1995 as has perhaps been referenced in your material there. At that time my brother was no longer a director or a shareholder of Perimead. I did confirm with him and he has confirmed that he resigned as a director and a shareholder of that company on 26 June 1996. Now, I valued the property in November of 96 on behalf of Perimead for Global Finance, and that, I believe, was at the request of Global Finance. Did the fact that your brother had an involvement with that project provide any sort of issue for you in terms of whether or not - - -?---No - - - MR O'CONNOR: Mr Chairman, the evidence just given is that he did not have any involvement. He was no longer a director or shareholder of the company when the valuation was made. THE CHAIRMAN: Thank you. MR CHANEY: I will rephrase the question, Mr Chairman. Did the fact that your brother had been a director of the company raise any issue for you in terms of the performance of your valuation?---Certainly not. If anything, there was an advantage from the point of view I had some idea of the history of that particular property and was able to prepare the valuation accordingly based 1/22/rmo 22 R.G. O'CONNOR XN 24/7/00

on my knowledge of what was taking place in the area and that particular project itself, but certainly I wasn't influenced in any way by the fact that my brother had been a director of that company. I have no further questions, Mr Chairman. THE CHAIRMAN: Yes? MR O'CONNOR: Mr Chairman, with your permission, I would like to defer my examination until after counsel Mr Allanson and counsel Mr Hooker ask their questions so that I can clarify anything they raise also. THE CHAIRMAN: I think you're going to be pretty quick. Yes, Mr Allanson? MR ALLANSON: He won't be getting anything from me. THE CHAIRMAN: Mr Hooker? MR HOOKER: And likewise from me. THE CHAIRMAN: Yes, Mr O'Connor? Excuse me, Mr Chaney, did you want to put this in as an exhibit? MR CHANEY: Yes, thank you, Mr Chairman. It is nothing more than really an aid, but a convenient one, in my submission, so I tender it. THE CHAIRMAN: The summary of the evidence re this matter is exhibit 205. EXHIBIT 205 Summary of evidence MR CHANEY: Thank you, Mr Chairman. THE CHAIRMAN: Thank you. Yes, Mr O'Connor? MR O'CONNOR: Thank you, Mr Chairman. Mr O'Connor, were you summonsed to appear as a witness today?---No. In what circumstances do you appear here?---I was invited to attend to clarify certain issues that had been raised. I was happy to come and do that because I feel that there has been a lot of innuendo and half-truths and actual straight lies that have been made, so it gives me an opportunity hopefully to address some of those issues. Mr Chairman, Mr Chaney dealt with Mr O'Connor's background. There are some additional points I wish to draw out. 1/23/rmo 23 R.G. O'CONNOR XN 24/7/00 XXN

THE CHAIRMAN: Certainly. MR O'CONNOR: If you don't mind, I will lead on these, because I don't expect that they will be contentious. I think that will be the quickest way of dealing with it. THE CHAIRMAN: Thank you. MR O'CONNOR: Mr O'Connor, would you confirm that this is the situation, that after leaving matriculation you commenced work at the Australian Taxation Office in 1970?---Yes. You undertook part-time study in accountancy?---Yes. And completed the bachelor of business at Curtin University, as it now is, and it was then WAIT?---Yes. You became an associate of the organisation now known as CPA Australia, previously the Australian Society of Accountants and Australian Society of CPAs?---Yes. While working at the Tax Office you commenced valuing and you completed the associate diploma of valuation from WAIT in 1985?---Correct. You became a member of the Australian Property Institute, the body now known by that name?---Yes, I did. Is it the case that you transferred within the Tax Office to the valuation section in 1982?---Yes. But up until that time, from 1970 to 1982, were you involved in the assessing, management and investigation area, and at the time of your transfer to valuations were you a class 6 investigation officer?---Yes. You were a valuer within the Tax Office, 1982 to 1985? ---Yes. You resigned from the Tax Office in 1985 and commenced employment with Kevin Sullivan and Associates where you were employed until 1988 and you then joined Mair and Co?---Correct, yes. You formed your own business in 1990 and you're still operating that practice?---Yes. You have given me a list of the valuation experience you have. Perhaps I could read it out rather than ask you to say it all yourself and would you just confirm whether or not this is correct, that your valuation experience is in the following areas since you commenced practice, and as you said earlier this morning, you have done over 4000 valuations: market capital and rental valuations for commercial, industrial, residential and retail 1/24/rmo 24 R.G. O'CONNOR XXN 24/7/00

properties, finance valuations for commercial, residential and development projects, subdivision consultancy, feasibility analysis and cash flow analysis, preparation and court presentation of family law dispute valuations, assessment of public open space contributions under various local government town planning schemes and other local government valuations, compensation and resumption valuations, Homeswest home purchase scheme valuations, home savings grant, defence service homes loans and asset test valuations and specific types of valuations, including service stations, schools, grazing and ground leases, chattel valuations, capital gains tax valuations, strata title certifications, determinations and arbitrations, caravan parks and car yards and rural valuations. Is that correct?---That's correct, yes. You have told Mr Chaney this morning that you do work for various types of clients. Could you categorise those clients into the groups into which they fall?---Well, I would say I do valuations in relation to the finance, I have done valuations for borrowers, I have done valuations on different occasions for investors, for the brokers. I do a large number of valuations in relation to Family Law Court matters. Owners of properties?---They are owners of properties, yes, owners and also, particularly more so with the commercial, on the rental side, where people are renting commercial premises. So it's investors once again who may own those and I'm looking at it from one side or the other. Do you have any further comment to add to what you have already said to Mr Chaney regarding any involvement at all with Mr Grubb?---Well, at this day, other than the fact, as I say, I think I mentioned, I have never had any direct requests from Mr Grubb and I was unaware in a lot of instances that the reports had ultimately ended up there. So that's all I can really comment on that. I have never met the man and I have never had any telephone conversations or dealings with him. Do you have anything further to add regarding any connection with Blackburne and Dixon?---Not really. I think we have covered it at this stage. I have done valuations that have gone to them but beyond that, that has been my only association, and the same - - - And what about - sorry?---Global Finance is exactly the same. And Gamel Ward?---Once again, I have done valuations that have gone to them and in some instances I have been requested to do valuations by them, but that's it. 1/25/rmo 25 R.G. O'CONNOR XXN 24/7/00

I understand that under the proper principles of valuation there are four types of methodologies for carrying out valuations. Would you tell the committee of inquiry what they are?---Well, the primary one is obviously analysis of properties by comparable sales. There's the summation method of valuation, there's the capitalisation method of valuation in relation to income-producing properties. How does that work?---That's where you're taking the income that's being produced from a commercial or a rental property of some form and capitalise the income to determine the capital value of the property, and then the other type is obviously these hypothetical development - - - Could you give an example as to how that capitalisation works?---If you have a property that's being rented for, you know, $100,000 a year, and the capitalisation rate which is determined from analysing activity in the market shows say a 10 per cent capitalisation rate, then the market value of that property is a million dollars. That's very - - - Which is 10 times 100,000?---Yes, so, you know, that's very basically how it operates. The summation method, how does that work?---The summation method involves the determining of the current value of the land. When is a summation method used?---The summation method is often used where there is a lack of evidence or specific comparables available on a property. So what basis do you then use to value the property?---As I say, we're looking at a land value, trying to establish the current value of the land, and then adding to that the depreciated replacement cost of any improvements that are on the property. Part of the process there obviously is to determine what is an appropriate depreciation rate for buildings. If they happen to be over-capitalised or under-capitalised that has to be taken into account. The fourth method is what?---The fourth method is this hypothetical development method that we mentioned briefly this morning. Is that the same method which has been described within this inquiry as the concept basis?---I believe so, yes. Is it sometimes also called the project basis?---Yes. The valuations in question in this inquiry, the ones mentioned specifically by Mr Chaney this morning, do they mostly fall within this fourth category, the hypothetical 1/26/rmo 26 R.G. O'CONNOR XXN 24/7/00

development analysis?---There's probably a mix of them all. Some of them certainly have been on a hypothetical basis. Some of them have been by way of direct comparable sales and which may involve also the capitalisation method. In what circumstances do you use the hypothetical development analysis method?---Normally where we're requested to look at a future project that somebody may be proposing to do. It's a matter of approaching it to look at the project which is being put up to determine what is the anticipated or the likely value of the end product and then working backwards from there as to what land value, the in globo land value, that would support that project. What are the features of this method - - -?---Well, as I say - - - - - - other than what you have just said?---The feature of the method is that obviously you are looking at something that doesn't exist, so therefore there are assumptions being made, but the features of it are that you have got to anticipate what the end product is, determine what the value of that would be in the current market and then deduct from that the costs associated with marketing the property, the costs associated with developing the property, be it a building or a subdivision or whatever it happens to be, costs such as rates and taxes, borrowing expenses, financial expenses, interest, other fees and miscellaneous expenses, to arrive at a net land value, but there also has to be taken into account - you have to put an imputed profit margin within there for the developer as well. So you have to assess what would appear to be an appropriate profit margin as part of that process to arrive back at a base figure. DR NEWMAN: What independent checks do you make on the cost of the building and the marketing costs?---The marketing costs, you're pretty much looking at what the agents are currently charging in relation to either - because of the nature of the calculation a lot of it obviously is very difficult to be specific, so we're looking at to a degree some generalities, but we would apply a percentage rate to the marketing expenses, taking into account the costs associated with the actual commission to an agent, some of the settlement fees that may be involved in the selling or the marketing of the property, and depending on the type of project, whether the developer is likely to be contributing towards the advertising or promotion of that property or whether that's going to be covered by the agent. So that we would assess a value somewhere between 3 and 5 per cent of the end product price as, just for an example, being what the marketing costs are likely to be, and then say 1/27/rmo 27 R.G. O'CONNOR XXN 24/7/00

in relation to the actual physical costs, in some instances we are given a set of costed plans, so therefore we're working from those. In some instances it is a concept drawing and therefore we have to rely on information obtained from some of the construction services as to what is an appropriate rate to apply to a building of that type of nature. So, you know, people like Cordells and whatever else have services available that we would be referring to in terms of determining an appropriate rate per square metre of building, etcetera. Thank you. 1/28/rmo 28 R.G. O'CONNOR XXN 24/7/00

MR O'CONNOR: In these projected development cases do you consider that there would be any other way of making a valuation of the project?---In what regard? Well, you have adopted the hypothetical development analysis method. Could there be any other course open? ---There could be. Primarily if we're looking at an end product trying to determine an on-completion value of a project and therefore what land value will support that, that is really probably the only method that you can adopt. The other method is just a straight take the land value, if it's a vacant block of land, and try and determine, "Okay, what's the current market value of that piece of land assuming that it's got no project in place." That's this fallback position - - - Yes, but if your instructions are not that the vacant land is to stay vacant land but is to become a project, is there any alternative to - - -?---Not really, no. Where you do adopt this particular method, the hypothetical development analysis method, in your valuation report, is it always the case that you disclose that in the report?---Yes, because the calculations are set out. I always attach a schedule which gives my full calculations in these matters as to showing what figure I have assessed as the end value, what figures I have taken into account, and that is transparent to anybody who looks at the report as to the basis at which it's being adopted. If they wish to dispute any of those figures they certainly can, but at least the information is certainly contained in every report where it's done on that basis. In your opinion, what action should any potential investor take when he or she proposes to lend money on a property in respect of which a valuation has been given? ---The first thing would be, and it appears that it hasn't happened often, is have a look at the actual valuation report. That, to my thinking, would be an absolute essential, yet surprisingly, reading through some of the transcripts, the people who have not bothered to seek a copy of the valuation, have not inquired about a valuation, if they have seen it, it's - but, you know, the normal situation is if you're going to make an informed decision then you have to be informed, and the only way you can do that is to see the report. If they see the report and they have any queries arising from the reading of that report, with whom could he or she, the potential investor, take up the matter? ---Normally it should be taken up, or would be taken up, with the broker, because they are the ones who are presenting the report to the investor. 2-3/1/rmo 29 R.G. O'CONNOR XXN 24/7/00

What could the broker do?---Then it's a matter of him contacting or referring the investor direct to myself or alternatively the broker contacting me asking for clarification, and as I mentioned to Mr Chaney earlier, this has happened in some instances where people have requested further clarification or have requested me specifically to look at the property from another perspective and we have always obliged. As I say, when I do the report I try and make it as transparent as possible in terms of the material that's contained in the report as to how I have arrived at my value. It gives people the opportunity to read it and make their own decisions. Has there ever been a case where you have objected to a second valuation being obtained?---No. As I say, I do a valuation as part of a process. I have no objection to anybody else seeking another valuation to check mine or anything else and I know in certain instances some brokers do require two valuations. Would you care to comment on the rate of interest being sought in these investments compared with say bond interest or return available on blue chip stocks? ---Generally the interest rate that was involved was at a higher level than the more traditional institutions would be providing interest rates to their investors. You have mentioned that you have heard or read in the transcript of this inquiry of instances where valuations had not been provided to potential investors. Can you recall where those instances were?---Well, I'm aware specifically of that property that was done for New Rose Holdings and Global in relation to Wellington Street. I have seen from other sources now a copy of the letter that went to the investors and it purely states a figure. There was no valuation attached and no discussion as to how the value had been arrived at or what basis it was on. In actual fact it told that - I think the report said that it was based on the component value of the individual lots within that, because there were six individual lots, but that wasn't the value - the value that was placed on that was being discussed wasn't arrived at on that basis. So what was stated to the potential investors - - -? ---Was wrong. - - - was contrary to what was in your report?---Yes. What about the evidence of Mr Rigg?---In relation to Frontier - - - Frontier Corporation, his evidence on 9 May 2000?---Well, his evidence there is, I think, that he hadn't seen a copy of the valuation, hadn't asked for one. 2-3/2/rmo 30 R.G. O'CONNOR XXN 24/7/00

What about Mr Horn?---Mr Horn, I don't know whether he had actually seen a copy of the valuation. As I say, unfortunately the testimony from Mr Horn is a bit confusing and it's a bit hard to follow exactly what was what, but certainly, as I say, in relation to that particular property I didn't do a valuation until November of 96, and according to Mr Chaney's notes he's talking about August of 95. I certainly didn't do a valuation at that stage, so I don't know what's being referred to specifically. And J.T. Durban, page 404 of the transcript, 23 May 2000, First Charter Finance?---I believe he was told a figure but didn't actually ask or hadn't actually seen a copy of the valuation. Have you heard of other cases being the same?---I have heard of other cases where that has been the situation. Now, it certainly hasn't been at my instigation. I'm quite happy for anybody to have a look at the report when it's prepared, you know, bearing in mind that it is addressed to a particular client and extension of liability would need to be requested specifically to take it to another party. How would you describe the number of times this appears to have happened with the brokers?---What, that there hasn't been disclosure or hasn't been - - - Yes. Was it infrequently or regular or what?---It appears to have been frequently done. Did you have any control over the matter?---Once I do the valuation it will either go direct to the client or occasionally direct to the broker at the client's request. I have got no contact or no say as to how it's treated beyond that time and in a lot of instances, as I say, it has been shopped around and I have heard from other sources later on that it's somewhere else that - I had no idea how it had got there. What was your belief as to whether those reports would be provided to potential investors?---My understanding was that they were being prepared for various reasons associated with the possible financing, and at that stage my understanding was that if they were to be shown to investors they would be given full information. I come now to the matter of the failure of the Land Valuers Licensing Board to inquire into your position after your conviction. Just on that conviction, if I could just take you to a couple of points on it. That amount of $61,000, was that in one lump sum?---No, it was a general deficiency within a trust account. 2-3/3/rmo 31 R.G. O'CONNOR XXN 24/7/00

Right. So when you say "a general deficiency", was it - - -?---It was not an identifiable situation of saying there was $61,000 taken from any particular person, no. In other words, was there an accumulation over a period? ---It was an accumulation over a period of time, yes. Did any person lose any money out of your actions there? ---Not that I'm aware of, no. Was the full $61,000 repaid?---Yes, it was. Your sentence was 240 hours' community service?---Yes. You had requirements to regularly report to the relevant department?---Yes. I had a probation imposed as well, which was 4 years' probation, which I have been subsequently told was much more than normal, but it was what was imposed. Have all those requirements been fully discharged?---Yes, they have. So what's the present position in that regard?---The present position is that I have satisfied all the community service requirements. That was done within the first 6 months after the charge, and I have gone beyond my probation period. That expired in January of this year. So I no longer have to report - - - So what's your attitude to this conviction and it being resurrected and mentioned frequently?---It was - it's not something that I'm proud of, by any means. It was a betrayal of myself and a lot of my principles and whatever else and my family at the time and I took full responsibility for my action at the time. I pleaded guilty, I went through their fast-track system, I made the appropriate endeavours to ensure that nobody was disadvantaged in any way, and the community through the courts heard the case, heard all the evidence, made a decision and imposed a penalty that was within the court's jurisdiction and to their mind satisfied the community requirement. I have done that and that's it. So I am, as I say, certainly remorseful or regretful that it happened in the first place. It's not something I like to talk about, but it is something that I accept happened. After that period of time I set about trying to just re-establish myself with my business, my family, and move on with life, and then it gets resurrected again and I go through the whole trial process again, effectively, except it's trial by media and by politicians hiding behind the privilege of parliament and other matters there. 2-3/4/rmo 32 R.G. O'CONNOR XXN 24/7/00

Do you feel now that you owe any further debt to society?---No, definitely not. Right, well, as I say, I will come now to the failure of the Land Valuers Licensing Board to inquire into the matter after your conviction. You have told Mr Chaney that you heard nothing at all from the Land Valuers Licensing Board and you were unaware that they were considering the matter in 1996. Is that correct? ---That's correct, yes. You made no submissions to that board on the subject? ---No. And there was no contact with you whatsoever and you were unaware of it until you read it in the newspaper last year?---That's right, yes. That's correct. Is it the case then that they themselves decided not to inquire?---They made their decisions, yes. I certainly had no input into it. Could you tell us the position with the other professional associations with whom you're involved? The Tax Agents Board. You are a registered tax agent. What happened in relation to that board?---I received a request from them for additional information in relation to the charge that had been made against me and the conviction and to the extent that they may consider looking at having an inquiry. I responded to them providing a copy of the transcript of the case and other material and they decided in their wisdom that no action be taken against me. You're also an associate of CPA Australia, formerly the Australian Society of CPAs. What happened with them? ---Once again, they held a formal investigation and disciplinary hearing procedures were commenced and a hearing was held. So that's two separate processes, is it?---Well, yes. No, I'm just seeking to clarify it. Is this the case: the investigation committee referred the matter to the disciplinary committee, which had a hearing?---Yes, that's correct. What was the decision of the disciplinary committee of CPA Australia?---The disciplinary committee hearing, after hearing all the evidence and the facts, took no action against me. The charges were dismissed?---Dismissed the case, yes. 2-3/5/rmo 33 R.G. O'CONNOR XXN 24/7/00

The valuers body, the Australian Property Institute, what happened with them?---I heard nothing from them at all. I was never queried by them on any of these matters and nothing was ever raised with me. The transcript reveals that when this matter was discussed before this tribunal and it was revealed that no inquiry was held, the chairman suggested that the matter could have been taken to the District Court to see what happened. Have you got a comment on that?---There was a reference in the transcript to some - I believe when Mr Newcombe, I think the ministry official, was making some comments, and I believe, I think, Mr Chairman's response was, "Well, launch an appeal and see what happens," and then there was some other general discussion with Mr Chaney, I think, at the time. You have nothing further to say on that?---Obviously, you know, I don't believe that the board or the ministry have the right to appeal that decision anyway, but not really, no. The District Court judge who heard the case against you and who imposed the sentence, did he give any indication in the course of his reasons as to what he saw as your situation regarding practising as a valuer?---Well, Judge Hal Jackson was the judge involved. Within the context of what was being discussed certainly there was a reference within the transcript to him making the assumption that I would be continuing my practice as a valuer. Okay, that's all I have to ask on that. I come now to particular valuations, the valuation of the Victoria Park and Maddington properties. These were referred to by Mr Wallace. He gave as the reason the special reason that these properties had been sold. He said that one property had been valued at $132,000 and sold for $55,000 and the other valued at $250,000 and sold for $154,000. What do you say as to those sales figures?---Well, as I have already mentioned to Mr Chaney, they were mortgagee sales and as such don't necessarily reflect the market value - - - Can you explain that? You didn't explain it to Mr Chaney. What is the special significance of a mortgagee sale and why doesn't it represent a retail - sorry, the fair market value?---The definition of "market value" that's been established a number of years from, I think, the Spencers case in the twenties, which has been used as the guide or the Bible, if you like, in relation to what is market value, and that essentially a market value is where it's the price that somebody is prepared to pay on a particular day and a price that a vendor is prepared to accept on a particular property, both equally informed, neither one under duress or under any special 2-3/6/rmo 34 R.G. O'CONNOR XXN 24/7/00

need to acquire or sell the property and it assumes an openness and it assumes no force or coercion. But what is the situation then with a mortgagee sale in relation to that criteria?---Within a mortgagee sale there is one party who is, shall we say, motivated to dispose of the property, and on such they may - in order to achieve a result or to minimise a loss or whatever else it happens to be, may accept a value that would in normal circumstances be less than would be expected in an open market situation or in an open normal sale situation. As such, that's why auction sales and also mortgagee sales generally have been regarded as not being market evidence within the context of that Spencer's case and often aren't able to be referred to unless they are qualified within a valuation report the fact that they were an auction sale or they were a mortgagee sale. Is it the case that in a mortgagee sale the mortgagee is interested in recovering the amount of his or her security?---Well, ideally, yes, but may be prepared to take a loss to recover some money. As to whether they seek to sell the property at more than the value of the security, what's the position there? ---Obviously they would be - at the end of the day the motivation is not necessarily there for them to sell it at a higher figure. I don't know the full legalities as to what happens if they earn more than the mortgage - as to what happens. I presume the balance goes back to the borrower. There certainly has been evidence, anecdotal as it may be, of a number of instances, certainly even within the context of this particular - the matters relating to the mortgage industry at the moment, where the suggestion has been from legal representatives to, "Look, sell the property. Get rid of it. Make a loss and then sue somebody," and that seems to be the attitude. "Okay, we can't do anything until there's a loss established, so therefore sell it as quickly as you can and for whatever figure you can and then we will sort the rest out." Now, to me that's an irresponsible attitude, but it's what's happening. With regard these Victoria Park and Maddington properties, in his evidence Mr Gary Wallace of the ministry said that nothing was done after his report to Mr Morgan, which is exhibit 93, of 22 May 1997. That's at transcript page 86. I have got some questions to ask on this. Do you have copies of the correspondence between you and Mr Wallace?---Yes, I do. I will hand up copies to you, Mr Chairman, and to the members, and also to my learned friend. MR CHANEY: Thank you. 2-3/7/rmo 35 R.G. O'CONNOR XXN 24/7/00

MR O'CONNOR: I have got one here for my other learned friends which they can share. Now, in relation to these Victoria and Maddington properties is it the situation that nothing was done after Mr Wallace's report of 22 May 1997?---I don't know what was done within the ministry, but certainly I received two letters from Mr Wallace, the first one, as you can see, dated 19 June 1997. Is that signed by Gary Wallace, senior investigator? ---That's correct, yes. And as you say, dated 19 June 1997?---Yes. I replied to that letter and then - - - Well, just hold on. Just hold on for the moment?---Yes. If I could just take the committee of inquiry to some of the contents of this page which they have in front of them:

I have been conducting some investigations into alleged breaches of the Finance Brokers Act 1975 -

and in the third-last paragraph, after stating certain facts -

As a result, I am now conducting investigations to determine whether you have breached the code of conduct for land valuers, and more particularly, items 1A and 2A.

He refers in the fourth paragraph to the Maddington property and in the sixth paragraph to the Victoria Park property, and in the penultimate paragraph he says:

Could you please provide me with details of the basis for your valuations on these properties.

Do you confirm that that letter was received by you from Mr Wallace?---Yes, certainly was. You replied to that as per the next letter of 3 July 1997. Is that correct?---That's correct, yes. The letter addressed to the Ministry of Fair Trading, attention Mr G. Wallace, deals with first, on page 1, Hanson Street, Maddington, and on page 2, Albany Highway, Victoria Park. Under the heading 1 on page 1, the second paragraph there:

The report was based on the sales comparison method and the summation method. The project was still under construction at the time and was one of the first sites developed in the area, which was a new subdivision -

2-3/8/rmo 36 R.G. O'CONNOR XXN 24/7/00

etcetera, and then Mr O'Connor goes into further details:

These were arms-length transactions and formed the basis of the evidence. In addition, other evidence was considered from other areas where new development was taking place -

and he gives an explanation in the first paragraph on page 2 that there was over-supply of new industrial units. In relation to Albany Highway, Victoria Park, in the fourth paragraph under that heading he gives an explanation:

At that time I again confirmed my valuation and advised that unit 8, an adjoining unit of 85 square metres, had sold in October 95.

So was that an example of you there giving the comparable sales figures?---Yes, it was. He then comments in the next paragraph on it being a mortgagee sale, further comments which you can read later, chairman and members, and the final paragraph:

I trust that this information is sufficient for you to complete your inquiries and finalise the matter. Should you have any further queries I would be happy to meet with you to discuss them.

So an open invitation there to provide anything further required. Now, did you receive the next letter, 9 June 1997, from Mr Wallace?---Well, it's signed by Mr Wallace as the senior compliance officer. Well, it just says "compliance officer"?---Yes. DR NEWMAN: Mr O'Connor, can we clarify it? My letter is 9 July, not 9 June. MR O'CONNOR: Sorry, my mistake, Ms Newman. My apologies. I meant 9 July?---The only other point, as I say, it was signed by Mr Wallace. There is a reference to another party at the top, but I don't know - - - Yes, a Bailey Compton. I note that Mr Wallace's description has changed from senior investigator to compliance officer. In the second paragraph he says:

Thank you for the information you provided in the correspondence regarding your valuations, however this information merely relates to the methodology applied. The ministry is seeking information regarding the evidence which you considered when determining your valuation.

2-3/9/rmo 37 R.G. O'CONNOR XXN 24/7/00

Was it the case that when Mr Wallace initially wrote to you he merely asked for the basis of your valuations? ---That's right, and that's what I supplied him. He did neither ask for methodology or evidence. So he asked for a reply by 17 July. Did you reply to that letter?---Yes, I did. On 16 July I wrote to him. Chairman and members, the letter is there. Mr O'Connor quite fairly and properly raises some queries. He says:

Further to your letter, I am uncertain if your requests are part of a formal inquiry under the Land Valuers Licensing Act or merely an informal exercise on your part. While it is my wish to cooperate with you, I do not wish to compromise my rights should a formal inquiry be in progress. Therefore I enclose on a without prejudice basis the information you have requested. I trust that this will be the end of the matter, however should you wish to contact me further please note that I will be out of the state until -

a particular date. Do you confirm that you sent that? ---Yes, that's correct, and attached to that letter were - - - There are two sheets?--- - - - two schedules which gave the sales evidence that I had looked at on both properties. So is it the case that even though you took the point that maybe you may not have been required to, you nevertheless provided all the information and you further invited him to contact you further on your return? ---That's correct. I certainly felt that I had nothing to be concerned about from my perspective. I had done everything right, as far as I was concerned. I had nothing to hide. It's with some interest that I read within the transcripts that Mr Wallace was even proposing to grab a search warrant to search my premises. Now, I don't see why. I had supplied him information, I had been open with him, I had invited further comment. To me it sounds, you know, a little bit gung ho. Had he ever mentioned to you personally the possibility of a search warrant?---No, I have never spoken to him at all, not directly. As I say, I only received this correspondence and once that - - - Ever? Even by today have you ever?---No, not that I'm aware of. I have never spoken with him, but as I say, that was the letter I sent in July of 97 and that was the last I heard at that stage on any of these matters until the start of 1999. 2-3/10/rmo 38 R.G. O'CONNOR XXN 24/7/00

So 18 months went by and you heard nothing from Mr Wallace after providing him with that very full information. What happened in January 1999?---In January 99 I received a letter on ministry letterhead dated 21 January. It was signed by Irena Dillon, who was listed as the registrar of the Land Valuers Licensing Board. The heading on the letter was Land Valuers Licensing Board Possible Inquiry and the first comments within the context of the letter were:

I am the registrar of the Land Valuers Licensing Board. The board is currently considering whether or not to hold an inquiry into a number of valuations prepared by you. The board has requested that you provide the following information concerning the valuations to assist in determining whether or not to hold an inquiry -

and then there was a series of properties mentioned and questions that were raised on particular properties, which once again did include Vic Park again and did include Maddington again. Did you respond to that?---I certainly responded to that letter and gave as much information as I was able to. I don't have copies to hand up to the tribunal - - -?---I do have copies of them available if they wish to see them. - - - at the moment, but if they're required they can be provided?---Yes. Did you receive a letter in response to that the following month in February 1999?---I did receive a follow-up letter once again on the ministry letterhead signed by Ms Dillon. The reference at the top of the letter though was to a Mr Castiglione, who I believe was a legal officer with the ministry. That letter requested some further follow-up and specific information which I provided as best I was able at the time. Did you hear any more from the registrar or from Mr Castiglione?---No. Okay. We come now to November 1999 - - - THE CHAIRMAN: Do you wish to tender this? MR O'CONNOR: Yes, I wish to tender the bundle of four items of correspondence, Mr Chairman. THE CHAIRMAN: Yes, the letters from 19 June 97 through to 16 July 97, they will be exhibit 206. MR O'CONNOR: 206, I think. 2-3/11/rmo 39 R.G. O'CONNOR XXN 24/7/00

THE CHAIRMAN: 206. EXHIBIT 206 Four letters dated between 19/6/97 and

16/7/97 THE CHAIRMAN: Yes, thank you. MR O'CONNOR: What happened on 16 November 1999?---Prior to 16 November I was contacted by Mr Szostak, who was a - - - How do you spell that? Is that Szostak?---T-a-k - I believe is the correct spelling, yes. Who is he?---He is a senior compliance officer with the Ministry of Fair Trading. He contacted me and requested that I come in for an interview in relation to various matters that the board wanted to determine whether to hold an inquiry or not, effectively, and on the 16th - - - Were you required to attend that interview?---No, it was a situation where I was invited to attend but there was no requirement or no summons or anything else to physically attend if I did not wish to. So is it the case that you attended voluntarily?---I certainly attended voluntarily and at that meeting, as I say, I was told that anything I said could be used against me, or whatever else, but essentially I attended voluntarily and I answered as many questions as I was able to on a voluntary basis. Were the questions and answers recorded on tape?---Yes, there was a tape. The interview was taped. Do you now have a copy of that?---I have a copy of that tape, yes. At the start of that - well, were you represented at that interview?---Yes, I was represented by yourself as my counsel at that interview. Okay. At the start of that interview when it was made known to you that you were going to be questioned on the Victoria Park and Maddington valuations what comment did you make?---Within the context of the discussion I had indicated to them that I had already answered questions on those particular properties in writing at the start of this year - of that year, as it was, in 1999, and also previously to Mr Wallace back in 97. Firstly, with regard to Mr Wallace - I will deal with that first seeing that's first in time, 1997 - who were present on behalf of the ministry at that meeting?---At that interview was Mr Szostak and a Ms Italiano. 2-3/12/rmo 40 R.G. O'CONNOR XXN 24/7/00

What did Mr Szostak and Ms Italiano have to say about the exchange of correspondence with Mr Wallace?---The comments that were made generally in relation to the fact that I had previously responded formally in writing to some of these - replying to the questions, the comment that was made by Mr Szostak is that - and I will just quote it, if I may, here, because I took it off the tape last night:

Let me just clarify something from the outset. We are working as inspectors for the Land Valuers Licensing Board. The ministry encompasses a number of different boards - - -

No, just hold on, Mr O'Connor. I think you might be jumping the gun. I'm not talking about the January, February 1999 correspondence, I'm talking about Mr Wallace?---Yes, the comment was that there was no evidence or no information available of anything I had given to Mr Wallace previously. Are you saying that you were told at that meeting that they had no idea, no record, they had never seen anything that Mr Wallace had written to you and what you had said in response?---That's correct, yes. Were they were completely unaware of the existence of that?---Yes, they were completely unaware that that information had been provided or that it had even been requested in the past. Okay. Now I come to the response of Mr Szostak and Ms Italiano regarding the January, February exchanges of correspondence?---Well, as I say - they were just saying - - - Please quote the tape again?---Yes. They were clarifying that they were acting as inspectors for the Land Valuers Licensing Board:

The ministry encompasses a number of different boards. We are specifically looking from the point of view of the Land Valuers Licensing Board.

So they were actually wanting to know the answers or comments from their area of expertise. I indicated the board, or in fact the registrar of the board, Ms Irena Dillon, had written to me and I had provided that information to them already and the response was that they were not acquainted with that information, then the other comment, "But that was for financial" - and then it cuts off and Ms Italiano cuts in and says, "Look, I suppose what we want to know is - we want you to answer the questions now." 2-3/13/rmo 41 R.G. O'CONNOR XXN 24/7/00

So what happened at that meeting was everything you had said previously in January, February 1999 was disregarded and you had to start afresh in answering the questions? ---Well, it was of no consequence as far as they were concerned. The question that I have put to you was that that was disregarded?---It was disregarded, yes. And you had to provide the answers afresh?---Yes. Okay, that's all that I have to say on Victoria Park and Maddington valuations. Now, the Collie ones, these have been dealt with already but I just wish to make certain points so the position is clear to the committee of inquiry. Mr Wallace said that there was a valuation by you of four blocks at Collie for a total of $185,000 at an average of $46,250 each. Is that correct?---No, it's not. What were the details of the valuation you did do at Collie?---The valuation was that there were five lots that I was looking at. They were valued at an average of $35,000-odd each and the total valuation was $175,000. Now, I'm aware that you have already answered Mr Blight's questions on this, but I will just reinforce the point. The valuer-general valued some blocks in Collie at 10 to 13 thousand dollars. Were they the blocks which you valued, five at $175,000?---No, they were not. The reference, I believe, to the material from the valuer-general's office related to just general lot sales within the Collie area, specifically Homeswest lots. These five for a total of $175,000, were they Homeswest lots?---No, they weren't. Where were they?---They were in a new private estate called Wellington Heights, which was located just at the entry to Collie. They were in an elevated position. There was a whole estate being created there. Which of the four bases of valuation did you use in making a valuation of the five at $175,000?---I used the comparable sales method, and as I say, in response to query from that letter at the start of 1999 from the registrar of the board I did provide them with a schedule of evidence of what lots I looked at and what was involved and supporting my valuation. Yes, you provided that at the meeting also on 16 November 1999?---Yes. The taped meeting with Mr Szostak and Ms Italiano?---Yes. 2-3/14/rmo 42 R.G. O'CONNOR XXN 24/7/00

Has there been any further development in that area with regard to an inquiry into you?---Well, there has been an inquiry that has been instigated by the board. In relation to Collie valuations?---No. Of the matters that were raised by the investigators at that meeting on 16 November there were eight or nine properties that they were querying me on. There have only been allegations - and I repeat, allegations - made in relation to two properties that they are holding an inquiry on. So what do you take to be the position regarding the Collie valuations?---That they have been satisfied with my response and that there is nothing else to answer for on that. In the transcript there's a comment made by the chairman of this inquiry that blocks in Collie traded as high as $289,000 and he asked Mr Wallace about that situation. What's your comment about that valuation of - or that trading as high as 289,000?---There were blocks sold at higher prices. The $35,000 was for single residential blocks that were averaging in size around 800 square metres. The blocks that were selling for say up to 200 and something odd thousand dollars that was mentioned, there were super blocks within that estate that had the potential to be further subdivided. They ranged in size from about 5000 square metres up to 2 to 3 hectares. So they were large properties that were being sold at those prices, they weren't the individual blocks that we were considering - you know, a standard residential block of 800 square metres. So they don't relate to the evidence that was being suggested there at all. There is an allegation by Mr Wallace at page 84 of the transcript that you are a part of a conspiracy to over-value properties. What do you say to that?---I certainly deny that and say it's absolute rubbish. The bottom line is that the valuation is just one piece of paper in a total finance application process. It is just one item. Now, the valuation on its own has no meaning without other material and certainly there's no conspiracy on my part. I have no control over what information gets passed to an investor, I have no control over what other information may be supplied to the investor by a broker or anybody else, and certainly there is no conspiracy from my perspective. I have never been involved in any conspiracy to try and do it. Nobody is holding a gun at anybody's head to obtain a valuation or to lend money on a particular project. It's all, as far as I can see, supposed to be an open process. Nobody is being forced to rely on my valuation. If somebody wants to get an alternative valuation or their own valuation nothing has stopped them from my perspective. 2-3/15/rmo 43 R.G. O'CONNOR XXN 24/7/00

The element of a conspiracy at law is that there is a meeting of minds to take a particular course. Has there been a meeting of minds by you with other people to over-value properties?---No. As I have said to Mr Chaney earlier, my approach always is that I have got to be satisfied with the value that I put on a property. I have to be able to support that. As soon as I sign my name to it I'm accepting liability for it, so I approach each valuation the same way. Regardless of who it's for I have to be satisfied that it meets my instructions in terms of the approaches to be taken and that the value I have established I am happy with. Mr Chaney raised with you the impression that you are favoured among brokers because of the level of valuations you give. Are you aware of any valuation given by you being shown to be wrong when regard is had to the basis upon which you made the valuation?---Not that I'm aware of. It just needs to be pointed out too that in relation to - I suppose further to that, you know, Mr Chaney's indicating perhaps that, you know, I'm getting a disproportionate number of borrowers coming to me to get valuations done, but in general terms there have probably been four or five people that I have over a period of time regularly done work for. So it's not as if there's a queue waiting at my door to get people to do valuations for them. It's a matter I have been dealing with some clients who happen to be in this particular industry. So from my point of view, if I had that reputation they would be queuing up waiting for me at the door. That certainly hasn't been the case. Ms Newman in one of her questions today suggested that for a $500 fee - and the hypothetical example was the Collie valuation - she suggested that that might be for a 10-hour day. Is that the basis upon which you would do the calculation, 10 hours in the day?---The fee is based on what I consider is fair and reasonable, but - - - No, just excuse me. I have misphrased the question. She put it in terms of 10 hours for $500 and therefore $50 an hour, but is that how you would see the situation? Do you normally regard a working day as 10 hours a day?---In a lot of instances it's a lot more, but I assess - I look at each valuation on its own merit. I don't work on an hourly rate. If you want to apply that in terms of trying to set a fee on a valuation, I normally don't work on an hourly rate. I just have a fee which I charge which I consider is, you know, fair and reasonable given the property and what's going to be involved in looking at. You said the scale fee is in the vicinity of $140 to $160 an hour. Why do you charge considerably less than that? ---Well, most people don't charge on an hourly rate 2-3/16/rmo 44 R.G. O'CONNOR XXN 24/7/00

anyway. The hourly rate normally only applies where there is no - it's more for, I suppose, consultation or services, because the scale establishes a fee tied to the value of property as well and then where you can't use the fee scale then you use the hourly rate and it often appears to - you know, if you're appearing as an expert witness at court or whatever else, you're entitled to charge at that rate for your appearance. You may have already charged to do a valuation anyway in the past but that's been a fee based on the scale of fees. That is a sliding scale of fees and it is a maximum scale of fees. There were two matters arising from the transcript involving questions by Ms Newman which I wish to invite your comment on. The first was at page 84 of the transcript. Ms Newman asked the witness Mr Wallace whether there was any specific reference in the act directing the board to have consideration of past convictions in considering the fitness of a person. Is there any such reference in the act?---Not that I'm aware of. There is no reference at all. The other point was your brother Edward Vernon O'Connor being a director of Perimead Investments. I think you have fully dealt with that. As you said, Mr Horn was confused and you have now given evidence that the valuation - you have said November 1996. Was that 10 November 1996?---10 November 96 and I do have a copy - - - It's in relation to lot 2, Banksia Road, Wellard?---Yes, and I do have a copy of the report available if the committee wanted to have a look at it for any reason. Would you confirm that Edward Vernon O'Connor resigned as a director on 26 June 1996 and he sold his $1 share in the company on 26 June 1996?---I am informed that that is correct, yes, and I have checked with my brother Ted. I come now to an extract of the evidence from Mr Newcombe of the ministry from 6 July 2000, and he says in discussing the lack of uniformity of interpretation by the various boards - the quote from the transcript is:

There is the example of Mr O'Connor. The issue there obviously was the question of whether it was appropriate for the Land Valuers Licensing Board to consider whether he was a fit and proper person to remain a licensed valuer based on a conviction from a trust account as, I think, a real estate agent. That obviously pre-dates our involvement. I think it pre-dates the minister's involvement and when the matter was brought to our attention the minister wrote to the current chairperson of the board to ask for an explanation of that decision. I think it

2-3/17/rmo 45 R.G. O'CONNOR XXN 24/7/00

would be fair to say that the minister found that a rather unusual decision. It was difficult for the chairperson to respond because she was not involved in the process, but it was made clear in the response that the current board had quite a different view in relation to consideration of those matters. Certainly from the view that was expressed by the current chairperson in response to the minister the view was different and we would probably find more comfort in the current chairperson's view. In relation to Mr O'Connor the issue was that trust accounts are not kept by a valuer and that was one of the differentiating matters which the board at the time took into account, but most of them do have trust accounts.

Was there a lack of uniformity in interpretation by the boards? Was the question ever considered by the Real Estate and Business Agents Supervisory Board?---The question was never considered by the Real Estate and Business Agents Supervisory Board. Why was that?---Because I had relinquished my licence prior to them considering that particular matter. Okay. I will hand up to you now a letter sent to the registrar of the Real Estate and Business Agents Supervisory Board whereby you advised that you relinquished certain real estate licences. Would you confirm that you did send that letter and I will hand up copies for the chairman and members of the board. Do you confirm that you advised that you relinquished the licences for yourself and your company and the reason was that you formally ceased trading as a real estate agent on 23 May 1995 which was the day preceding the letter? ---That's correct. You never heard anything from the Real Estate and Business Agents Supervisory Board in relation to that? ---No. Do you have any comment to make on the evidence of Mr Newcombe which I have read out?---Well, firstly, referring to the fact that most - he implies that most valuers have trust accounts. There is no requirement for a valuer to have a trust account under the Land Valuers Licensing Act. Do most valuers have trust accounts?---Well if they are trading only as a valuer, no, there is no need for them to have a trust account. We are not handling money in trust. If a valuer also happens to be a real estate agent or a settlement agent or another agent and may be required to hold moneys in trust, then they may have it, but it's nothing to do with their business as a valuer. 2-3/18/rmo 46 R.G. O'CONNOR XXN 24/7/00

So valuers per se, do you say, do not have to have a trust account?---That's correct. So would you say that the evidence of Mr Newcombe was wrong?---It's misleading, in that it doesn't give the full picture. Well, if he's only talking about valuers - - -?---If he's only talking about valuers then it's wrong, because most valuers do not have them as valuers. What about his expression of view as to the attitude the new board would take? Do you have a comment on that? ---It's a little disconcerting from the point of view of the current board, who are expressing an opinion now on matters that happened some 3 or 4 years beforehand without them having full knowledge, are in the process of trying to conduct an inquiry into myself, and it begs the question as to whether they have prejudged or formed a biased opinion already. THE CHAIRMAN: Do you wish to tender that letter? MR O'CONNOR: Mr Chairman, do you break at 12.45 or 1.00? THE CHAIRMAN: 1.00. MR O'CONNOR: Yes, okay, I will keep going. THE CHAIRMAN: Do you wish to tender that letter? MR O'CONNOR: Yes, I tender that letter, Mr Chairman. THE CHAIRMAN: Thank you. That's exhibit 207. EXHIBIT 207 Letter O'Connor to Real Estate and Business

Agents Supervisory Board dated 24/5/95 MR O'CONNOR: Mr O'Connor, I have referred to the evidence of Mr Hardwick, an accountant, at page 164 of the transcript, on 16 May 2000. You have already mentioned some aspects of that. Was it the case that he had seen the valuation he was talking about?---Apparently he had not seen the valuations, no. You have already given evidence that the fee referred to - he says that you charged $2000 for valuation of one property. Would you confirm that you have given evidence that it was for 11 properties and a farm?---That is correct. I believe Mr Hardwick, or the group that he was associated with, had advanced money on one particular block. I don't know which block that was, but I looked at lots 51 to 61, so that there are 11 blocks there, plus the adjoining farm. The total value for those valuations came to over $3.3 million. The loan and the value I 2-3/19/rmo 47 R.G. O'CONNOR XXN 24/7/00

believe Mr Hardwick's group was was 390,000. So it's only a very small percentage of that total parcel. The loan proposal said that the property was valued at $390,000 and Mr Hardwick said that at mortgagee auction it sold for $210,000. Do you have a comment on that fact, that at mortgagee auction it was sold for - - -? ---Well, once again, as we have discussed already, it was a mortgagee auction. Rural properties can be difficult to move at the best of times and in a mortgage auction situation everybody is out for a bargain. Continuing on with Mr Hardwick, he said in his evidence at page 164 on 16 May 2000; this is the day he appeared at the inquiry here -

I spoke to Mr Szostak this morning.

The member Ms Newman: Did the gentleman at the ministry indicate whether or not Mr O'Connor was suspended pending a hearing of those charges?

Do you have any comment to make about the question asking whether you were suspended pending a hearing of the charges?---I would have thought - you know, a suspension implies some degree of guilt. The charges, they are a series of allegations that have been made by the board. Those allegations are being strenuously defended and it's a matter of I don't believe that a suspension prior to the hearing of a case would be the normal situation. It is prejudging it. Mr Chairman, I ask for a suppression order on the next part of the evidence. By way of explanation, I don't seek a suppression order on the general nature of the questions but the specific detail, because I'm discussing the fact that Mr O'Connor and Mr Szostak discussed the possibility of plea bargaining in relation to matters which were to go before the Land Valuers Licensing Board when the inquiry was held. There was comment passed between them as to the nature of an offer being made by Mr O'Connor and as that inquiry before the Land Valuers Licensing Board has not yet been heard, I wouldn't want it to be published generally in the public that Mr O'Connor was talking in terms of, "Well, can we do a plea bargain on it?" THE CHAIRMAN: Yes, I agree. Any reference to this inquiry that's yet to be heard is confidential. MR O'CONNOR: Yes, I'm most obliged, Mr Chairman. So as I said a little while ago, the member Ms Newman said: 2-3/20/rmo 48 R.G. O'CONNOR XXN 24/7/00

Did the gentleman at the ministry indicate whether or not Mr O'Connor was suspended pending a hearing of those charges?

That's at page 171, and also at 171 Mr Hardwick replied: I understand he has been trying to get a suspension as part of a potential arrangement, but I think they are going to pursue him.

Now, what's your comment in relation to that with regard to the action of Mr Szostak--Well, I find it amazing, or I was amazed when I read that, that he had actually said that particular statement, from the point of view of - - - Sorry, could you just repeat that again?---Yes, sorry. I was amazed when I read that, that he had actually said that to Mr Hardwick. When we had our interview originally on 16 November that we have already discussed, the point was made there that any material that comes up to the ministry or to the investigators as part of an investigation are held confidential within the ministry. Are you aware of any statutory provisions governing that?---There are obviously provisions under the Public Service Administration Act. I don't know the full details of what - - - Is that the Public Sector Management Act?---Public Sector Management Act, but I don't know - I have never read that act and I don't know the full procedures there, but certainly my understanding is that this is information which I would consider as being of a privileged nature and therefore any comment by Mr Szostak in relation to the matters that have been mentioned here I consider would be a breach of those provisions. In relation to that particular matter, it was some general discussion that was being had. There was no specific deal that was being put or anything else, it was purely a matter of general discussion in an attempt to get some idea of where things may be moving. There was no - - - So it was a general sounding out as to the possibility - - -?---It was a general sounding out on the initial stages when things were being put. That was a conversation between Mr Hardwick and Mr Szostak on 16 May 2000. I go back in time to a conversation now which you had with Mr Szostak on 2 February 2000, 2 February this year. Would you tell the committee of inquiry the circumstances surrounding the particular conversation on that day?---Well, what happened was that I was - - - 2-3/21/rmo 49 R.G. O'CONNOR XXN 24/7/00

Mr Chairman, once again, I seek to have this covered by the suppression order for the same reasons. THE CHAIRMAN: Yes, I understand this will all come up at the inquiries. MR O'CONNOR: Yes?---What happened, on 1 February 2000 I met with Mr Szostak at a time that was arranged and he served on me the formal notice that the Valuers Licensing Board were to hold an inquiry into my valuer's licence. Had he previously had notices served upon you?---No, that was the first notice that had been served. Now, that was 1 February. I had a call later that same day - - - Well, I was asking you about 2 February. You're going back to what happened on 1 February?---Yes, fine. Well, I was about to say there was a second meeting held on 2 February, the following day, because the notice that he had served on me had a number of errors and incorrect information in it and we met - - - In whose name had that notice of 1 February 2000 - not 2 February, 1 February 2000 - been issued?---It had been issued signed by the assistant registrar, I think it was, of the Real Estate and Business Agents Supervisory Board. Yet it was being issued to you as a valuer for an inquiry to be held by the Land Valuers Licensing Board?---By the Land Valuers Licensing Board, yes. But it was issued in the name of the Real Estate and Business Agents Supervisory Board?---That's right, yes. Apparently the same person holds the same position and the comment to me was that they had just put the wrong name down, but they had to reissue it under the correct body. So there was an amendment done and we met on 2 February to receive the amended copy of the notice. Where did you meet?---We met at Subiaco. By whose arrangement?---I was heading in that direction and Mr Szostak said he would meet me in that area there. We met at the bottom end of Hay Street there where's there cafe. He and some other people were having a cup of coffee there. Did he have any preliminary comments to make about the general situation regarding the allegations and the furnishing of them to you and the errors which had been made?---The comment was that, you know, there had been a rush to get the initial notice out. He hadn't been intending, he said to me, to issue it until the 2nd anyway, but apparently there had been some pressure put on for it to go out on 1 February within the ministry. 2-3/22/rmo 50 R.G. O'CONNOR XXN 24/7/00

The impression that I was left with was that because the press had already been advised that it was being issued - - - How did you get that impression?---Just the general discussion that was being said and I think he may have even made mention of the fact that the notification - the press had been advised and therefore they had to get it out to me before it appeared in the paper. The new notice, was that issued in the name of the correct position?---Yes, it was; yes. I think there were some corrections to the charges? ---There were some other minor errors that were corrected in the report as well, including one of the allegations which had been put in twice. That was removed, and some other spelling and other mistakes. Then what did the conversation turn to?---I just - I indicated to him that I hadn't had a chance to discuss it with you or I hadn't really had an opportunity to go through the full allegations that were being made. I just asked him about, "What's the possibility of doing some sort of a plea bargain or whatever?" more from the point of view of trying to find out, okay, what sort of options I had, what I was looking at, and to provide a little bit of background so that I could assess where I stood in relation to the allegations that were being made. What did he say to that?---I did have a copy of a memo that I made at the time. Did you prepare a note of this conversation?---I did prepare a note of this conversation. When did you prepare that?---I prepared that on that day and I prepared that for yourself just to outline what the situation was in relation to our discussion that I had had with him, because there were some concerns that were raised in that discussion that I had and felt that it needed to be recorded somewhere. So what was the relevant part of the conversation that then followed?---The relevant part of the conversation was the fact that as far as he was concerned, if there was to be any sort of a bargain or a plea it would certainly have to involve a suspension or a period of time of a suspension of a licence as a very minimum. Did he say anything to you regarding the attitude of the board?---Well, the comment to me of the attitude of the board was that he said to me - I think he said the words - and as I say, I don't have a copy of that with me - was that, "You know what they want, don't you?" and I said, 2-3/23/rmo 51 R.G. O'CONNOR XXN 24/7/00

"Yes, they want to take my licence. They want to" - and he agreed. He said, "Yes, that's right." So the impression was that, okay, they were looking for an excuse to take my licence away. Okay. Well, you said that you don't have a copy of that with you. I have a copy of the note and I will tell you what's recorded in this and could you tell me whether or not this is correct, seeing you were going from memory and didn't have the note with you. "He asked me, 'You know what they want, don't you?'" Is that correct? Is that what he said?---That's correct, yes. And your reply, "My licence. They want to rub me out." Is that correct?---That's correct, yes. And his reply, he said, "Yes, that's right"?---Yes, that's correct. Do you swear that is correct?---I swear that's correct. I'm already under oath and that's correct. Mr Chairman, I tender a note of that conversation with Mr Szostak, with copies for yourself and the members, and - - - THE CHAIRMAN: That note - just a moment - will be exhibit 208, and of course that's confidential. EXHIBIT 208 Confidential - note of conversation between

Mr O'Connor and Mr Szostak MR O'CONNOR: Thank you. 208, and that is confidential. Thank you. I have no objection if there are allegations of breach of secrecy provisions if it's expressed in that general sense in the reporting of this matter, but not the specifics. We have already dealt with similar revelations by Mr Szostak - well, revelations by Mr Szostak to Mr Hardwick on 16 May that the board has said that it's going to pursue you?---Yes. Do you have any comment on the opinions expressed by the current chairperson, Ms Vickie Scarff, as per the testimony of Mr Newcombe on 6 July 2000?---Well, I think, as I have already said, it's a little disconcerting when you read those things where there are expressions of attitude and of prejudging or of perhaps indicating a decision that may be different or that they may be taking which implies that they will take a different attitude at the time that my licence would probably have been revoked at that time back in 1995, 1996, without them knowing all the information. It becomes a matter of prejudging things on hearsay. 2-3/24/rmo 52 R.G. O'CONNOR XXN 24/7/00

Okay, and - - -?---Obviously the board at the time they carried out that inquiry or that decision not to hold an inquiry or not to do anything back in April of 96 or whenever it was, they would have fully considered the matter, I assume. They would have had all the relevant information available to them and I presume a transcript of my case and they made a decision based on that information to do nothing. Now we have got other people who now have none of that information and in hindsight are trying to come to another decision. Just one further matter before we break. I have already mentioned that there is an inquiry to be held by the Land Valuers Licensing Board involving allegations against you. There is an allegation resulting from your not being licensed for a year in 1994 to 1995 which I will deal with after lunch, but - - - THE CHAIRMAN: Excuse me, Mr O'Connor, that has arisen before us in this committee, has it? MR O'CONNOR: No, it's another matter which - - - THE CHAIRMAN: But is it relevant to us? MR O'CONNOR: Yes, it is, because it falls within the matters - I have been led to believe by counsel assisting, Mr Chaney, that Mr O'Connor will probably not get an opportunity again - won't be called upon again to give evidence and so there are certain matters regarding the board we wish to raise today seeing the board is in the terms of reference of this inquiry. THE CHAIRMAN: Thank you. We will adjourn.

____________________ 2-3/25/rmo 53 R.G. O'CONNOR XXN 24/7/00

THE CHAIRMAN: Yes, Mr O'Connor? MR O'CONNOR: Mr Chairman, I have had a discussion with counsel assisting the inquiry. He has made his views known to me and given an indication as to how you're feeling, which was perhaps obvious from the question you raised just before the adjournment. I had proposed to only deal with one more matter which involves the attitude of the board in a particular matter which is to go before the Land Valuers Licensing Board inquiry, but I now propose not to deal with that today. The reason I was going to deal with it was that I have been told by Mr Chaney that perhaps this might be the only opportunity of Mr O'Connor to appear before this committee, but now it seems that maybe that might not be so and that you haven't really got to the Land Valuers Licensing Board terms of reference yet. I will be seeking leave from you to make some closing submissions in relation to the evidence today and I had intended to deal in that with the heading the inadequacies and inefficiencies of the ministry and the board, but I now don't propose to deal with that today either. I will deal with that some other time and counsel assisting has suggested that perhaps it could be done in writing. So I will move on now and won't deal with that matter which I intimated I would. THE CHAIRMAN: Thank you, Mr O'Connor. MR O'CONNOR: Mr O'Connor, I come now to the fact that several persons have criticised you both inside this inquiry and outside this inquiry, and seeing you have got the opportunity to comment on the situation I will give you that opportunity now. Do you have any comment to make on the role played or the evidence given by Mr Wallace of the ministry?---In general terms a lot of the information given by Mr Wallace seems to be fairly sketchy. Reading through what I can of the transcripts it is sometimes difficult to follow as to exactly what he's saying or what he's getting at and some of the sequencing certainly seems to be wrong. All I can say is that there have been other suggestions that he tends - can be a little bit vindictive in relation to certain matters and I feel that maybe for some reason I have been singled out in this regard, but there is no evidence specifically to say on this occasion or that occasion or anything else like that. It's purely a general impression that I may be left with. Certainly I have made every endeavour to address any concerns that he raised with me direct, and as I say, there have been those two letters that have already been presented, but beyond that I have had no contact with him and therefore some of the statements he is making imply that I have been evasive or I have been avoiding him or I haven't given him any information. That's definitely to the 2-3/26/rmo 54 R.G. O'CONNOR XXN 24/7/00

contrary. I have been quite open with him. I was quite happy to meet with him if he wanted to and I have given him information. It appears that at this stage he may have been doing his own thing and not within the scope of any directions he may have been given by either of the Finance Brokers Board or the ministry or the Valuers Licensing Board but acting as a free agent in some ways, and that, I suppose, concerns me as to exactly what the situation is within the ministry in that regard. Mr Newcombe of the ministry?---He, once again, I think, has based - a lot of his comments are based on trying to interpret events that happened in the past based on situations now. It is prejudicial, some of his comments, and also it's purely a matter of some of the statements have been reported definitely incorrectly, and that creates another impression that the information that is being presented to the committee is not right, or, sorry, is different to what's actually being reported once you read the transcripts. So from that point of view that's another concern, but certainly the comments he has made are of concern because it expresses opinions that may be being formed within the existing Land Valuers Licensing Board on matters that have occurred in the past and that they have got no control and no interest in. Mr Hardwick, the accountant?---As I say, I was a bit amazed by some of the comments that Mr Hardwick did make. He was highly critical of me and the fact that I had a conviction and was still a licensed valuer and whatever else, but I believe, you know, as an accountant he would have been the first person to be asking questions of the broker in relation to valuations and other procedures within it, but it appears that he has at no stage seen copies of valuations, has never asked for them, and has relied on other people's information in terms of making his own decision that way rather than inquiring himself and making an informed decision. So it's a bit amazing then for him to turn around and criticise me when he has made no endeavour to seek the information himself. Mr Horn, the investor?---Mr Horn, as I say, it's very difficult to comment, because his testimony was quite confusing and at the end of the day I don't think - he wasn't really sure exactly where it stood. So it's hard to say anything other than that. Mr R.J. Reid, an investor?---Once again, another person who has starting to comment about the valuations and over-valuations - has made a decision without seeing any initial paperwork, so it's very hard to judge. Mr Jim McGinty, shadow minister, who referred to you as being one of the dirty dozen?---We have not enough time, unfortunately, I don't think, to deal with a lot of that, 2-3/27/rmo 55 R.G. O'CONNOR XXN 24/7/00

but I certainly feel that the whole issue - it gets to the whole issue of parliamentary privilege which I am a strong disbeliever in, particularly after some of the material that has been outlined and said in parliament which is either untrue or completely misleading. Mr McGinty has a political career that he is trying to resurrect and this has given him an ideal vehicle, but beyond that, his comments have certainly not been constructive in the overall context. Mr Doug Solomon, solicitor, who has made many media appearances and criticised you?---The only comment I want to make in relation to that is that often Mr Solomon is being presented as - - - MR CHANEY: Mr Chairman, I think - I hesitated to rise during the comments in relation to Mr McGinty. We really are going here beyond issues of evidence arising in these proceedings and although one can well understand the temptation of Mr O'Connor to wish to have an opportunity to put the record straight, in my submission this committee is not an appropriate vehicle for making public statements that go beyond the evidence that has been led. THE CHAIRMAN: Thank you. Mr O'Connor - - - MR O'CONNOR: Yes, thank you, chairman. THE CHAIRMAN: - - - I'm inclined to agree with that, because there's no way we can make any finding on any of this outside stuff - outside evidence. MR O'CONNOR: No. THE CHAIRMAN: It's not even evidence. Outside statements. MR O'CONNOR: Well, I take that as a preliminary view expressed by you, Mr Chairman, with respect. The position is that these statements are being made against Mr O'Connor and are receiving considerable publicity. They're in Hansard, they're on television, radio, in the newspapers and they are getting reported. This is the only vehicle where Mr O'Connor can make a short comment in response to it. That's what I asked him to do and which he has done and he has now moved on to the next one. It would have taken less than 2 minutes. As he says, to deal with it properly would take a long time, but he just wanted to get a short statement in of rebuttal of what Mr McGinty was saying rather than being left. If you go to radio stations, the media, it's up to them what they put in and they haven't wanted to be putting in anything on the other side of the story. They're pushing one particular line. 2-3/28/rmo 56 R.G. O'CONNOR XXN 24/7/00

THE CHAIRMAN: I'm sorry, Mr O'Connor, I still think it's not relevant to this committee. MR O'CONNOR: Okay. THE CHAIRMAN: A lot of people have been criticised. MR O'CONNOR: Sorry, other people are being criticised? THE CHAIRMAN: Well, yes, in the press and in parliament, but we don't take any notice of it. MR O'CONNOR: I have just asked - okay, I note what you have said in relation to Mr McGinty, that you won't allow that. I have asked the question as to the active role taken in all these matters by Mr Solomon and whether Mr O'Connor has a comment on that. THE CHAIRMAN: No, it's not relevant to this committee. MR O'CONNOR: Okay. Ms Denise Brailey, the activist, the role taken by her in this, her comments? THE CHAIRMAN: No, it's again not relevant to this committee. MR O'CONNOR: The West Australian and in particular the reporting of Michael Southwell? THE CHAIRMAN: We read it with interest but it's not relevant. MR BLIGHT: Sometimes it's relevant?---You can say that again. MR O'CONNOR: It's the interest that concerns me, the fact that you read it with interest. I mean, I would have been happier for you to say you ignore it. THE CHAIRMAN: We read all the papers with interest. MR O'CONNOR: Okay. From the seeking of those general comments I move now to refer to corrections necessary in the reporting of this inquiry by the press and I have got two instances which I wish to deal with. The first is by Ms Colleen Egan of The Australian who on 31 May reported that a $750,000 sling was referred to in the evidence. That was corrected the next day on 1 June, but in that she says in the correction:

It was incorrectly reported in The Australian yesterday that the Gunning inquiry was told of a $750,000 sling requested by a broker for a land valuer.

2-3/29/rmo 57 R.G. O'CONNOR XXN 24/7/00

Mr O'Connor, you have read the evidence. Is that what the evidence said?---No, it's not. What did the evidence say?---The evidence merely said that on about third party hearsay Mr Wallace had - somebody had said to him that O'Brien had asked for a sling to get a valuation done and that he would get O'Connor to do it, but that was the only reference. Ms Egan also said that you had ceased to practice as a valuer. Have you?---No. In The West Australian, a report by Michael Southwell, he said that Mr Newcombe of the ministry had said that you had lost your real estate licence. Did Mr Newcombe say that?---No, he did not. Have you lost your real estate licence?---No, I surrendered my licence voluntarily. Mr Chairman, that concludes my questions. I would, if possible, like to collate everything together and present an address to you now based on the evidence today concerning Mr O'Connor. THE CHAIRMAN: Do you wish to do it now? We are going to have addresses, a period of addresses, when we conclude very shortly the Finance Brokers Board, and then we're going to have addresses before we adjourn to write out report, which we have undertaken to deliver by 1 September. We will be having a whole - I think it's a week set aside for that. Is that right, Mr Chaney? MR CHANEY: For the addresses? THE CHAIRMAN: Yes. MR CHANEY: I think we're hoping to do it in somewhat less than a week, but it's - - - THE CHAIRMAN: Well, I can only hope. MR CHANEY: - - - the week I think commencing 7 August, from memory, without a calendar. THE CHAIRMAN: I would prefer it then, Mr O'Connor. MR O'CONNOR: Mr Chairman, if I could press the issue, it would seem to be more convenient and commonsense, with respect, for it to be dealt with now. The evidence is fresh in everyone's mind. I have got my address. I'm ready here to deliver it and it will be over by this afternoon. I believe there is no other witness set down for this afternoon and it would completely dispose of the matter in relation to Mr O'Connor without the need for that to arise again. 2-3/30/rmo 58 R.G. O'CONNOR XXN 24/7/00

THE CHAIRMAN: How could we resist you? MR O'CONNOR: I'm much obliged. Sorry, perhaps the witness could be released now seeing I'm finished with him?---I just had one brief - - - THE CHAIRMAN: Just a moment?--- - - - statement I wanted to make as well. Now, what's this brief statement about, do you know? MR O'CONNOR: No. You will have to tell the chairman - - -?---Really I suppose it was just summarising a couple of things that have been raised that I just wanted to clarify. THE CHAIRMAN: Yes. Well, Mr Chaney might have some - - - MR CHANEY: I don't have any questions, Mr Chairman. THE CHAIRMAN: Yes?---Okay, just a couple of points I just wanted to reiterate while I had the opportunity to do so. The first is that I have never asked, expected, received any form of sling back, incentive or other inducement to produce a valuation with a particular result. I just want to make that quite clear. Also, that I have always carried out the valuations on their own merit and that I'm satisfied when I sign a valuation that the value is right within the context in which the valuation has been made. The third one is that I have never been involved in any conspiracy to produce any particular value. The notion is completely wrong. When the valuation is made full disclosure of the method is made within the valuation report. The valuer has got no control over any funds, does not advance any money, has no say in how or who gets what money through a broker or from an investor. The investors enter these deals with their eyes open. There is no gun held at anyone's head. They are free to get answers on any questions they have, they are free to obtain copies of the valuation and make their decision whether to invest or not. They are free to walk away from it. Mr Chaney's evidence noted that some people had not invested. There is free - there is no inducement. My understanding of a conspiracy would be that it would be some form of inducing somebody or misleading somebody to do something against their will. Certainly I have always provided full information and have never been queried in relation to that. It's the old case of don't shoot the messenger if you don't like what the message is, but at least read the message first, and the problem is a lot of the people have never read the valuations yet they are happy to criticise them. The whole process of the inquiry and a lot of what has been happening has been, I suppose, put into a bit of a frenzy 2-3/31/rmo 59 R.G. O'CONNOR XXN 24/7/00

through some of the reporting and whatever else. A lot of that is more about intimidation rather than resolution of any of the problems. In view of your other comments there are some things I won't go into now, but the whole concept - a lot of the reporting and the way this has been going is only designed, I think, to prejudice and prevents any concept of any fair trial that any inquiry or anything else may have. I agree that there is something endemically wrong with the system. The role of the committee here, I believe, is to examine the system and work out what needs to be done. Certainly there are some areas, but at the moment people have been operating within the system as it exists and at this stage if the system needs to be fixed, then that needs to be done, but certainly, as I say, I am happy with the valuations, I'm confident with the valuations that I have done. They have always been prepared to the best of my ability on the understanding and on the basis of disclosure that has been made. Thank you, Mr O'Connor. You're excused.

(THE WITNESS WITHDREW) MR O'CONNOR: Thank you, Mr Chairman, for allowing the indulgence of making that statement. There have been many references to Mr O'Connor at this inquiry and in the media but to date it has been very one-sided. Today Mr O'Connor has directly and squarely faced all the issues and has satisfactorily explained them all. Victoria Park and Maddington. Mr Wallace dwelt upon three particular valuations, Victoria Park, Maddington and also Collie. Well, Victoria Park was sold under a mortgage sale and Mr O'Connor's evidence today was Maddington was also sold under a mortgage sale. The significance of that is that the values are not fair market values because mortgagees will often sell at any figure provided it will return to them the amount of their security. With regard to Collie, Mr O'Connor has no record of ever valuing four properties at a total of $145,000 as claimed by Mr Wallace. He has a record of valuing five properties at a total of $175,000. The valuer-general's valuation of 10 to 13 dollars per block did not relate to the five properties valued by Mr O'Connor. The valuer-general's valuations relate to Homeswest lots. Mr O'Connor's valuation related to other lots in the Wellington Heights estate subdivision and was based on comparable sales. The Land Valuers Licensing Board queried this valuation at a meeting on 16 November 1999 and no inquiry has resulted. The chairman, Mr Gunning, has made 2-3/32/rmo 60 R.G. O'CONNOR XXN 24/7/00

reference to one of the Collie properties changing hands at $289,000 although valued by the valuer-general at 10 to 13 thousand dollars. However, that valuation of 10 to 13 thousand dollars did not apply to that block. The block which was sold at $289,000, according to the evidence of Mr O'Connor, was a super lot at a special site having special characteristics and features. Mr Wallace took quite some time in his evidence dealing with Mr O'Connor's valuations of particular properties in Victoria Park and Maddington, however other than mentioning in passing that he thinks the board asked Mr O'Connor for his methodologies in doing these valuations, Mr Wallace failed to reveal the crucially important fact that he himself as a senior investigation officer and compliance officer had written to Mr O'Connor twice after his report of 22 May 1997 to Mr Morgan in mid 1997 seeking and obtaining first the basis and then the methodologies and evidence of those valuations. They were all provided fully and cooperatively by Mr O'Connor within the specified time frames and with invitations from Mr O'Connor to seek further information if required. Nothing further was heard from Mr Wallace after those explanations given. Mr Wallace said in his testimony that he did not have any authorisations to investigate or inquire into Mr O'Connor and that nothing was done after his report of 22 May 97 to Mr Morgan. This raises the very serious question whether Mr Wallace's two letters to Mr O'Connor in June and July 1997 were made without authority or whether alternatively he has given false evidence to this present inquiry. But this matter does not end there. In January and February 1999 Mr O'Connor received first a letter from Ms Dillon, the registrar of the board, and then one from Mr Castiglione in the registrar's name, Mr Castiglione being a solicitor at the ministry and the board, querying the Victoria Park and Maddington valuations. Then an interrogation meeting was voluntarily attended by Mr O'Connor on 16 November 1999 with Mr Szostak and Ms Italiano on behalf of the board and at which questions were asked about those two valuations. Mr O'Connor pointed out that he had already provided information to Mr Wallace in 1997 and to Ms Dillon and Mr Castiglione in January, February 1999. Mr Szostak and Ms Italiano said that they had no knowledge or record of the correspondence with Wallace in 1997 and that any information given earlier in 1999 was for the board and Mr O'Connor would have to give all the information again, which is what he did, and that was even though when those letters came in January, February 1999 it was said to be for the board then. As a result, no allegations necessitating an inquiry by the Land Valuers Licensing 2-3/33/rmo 61 MR O'CONNOR QC 24/7/00

Board have been made against Mr O'Connor re those valuations of the properties in Victoria Park and Maddington. The matter of no inquiry by the board following Mr O'Connor's conviction, Mr O'Connor's evidence of this was clear and simple. He had no involvement or input whatsoever into the Land Valuers Licensing Board consideration of this matter. The decision taken by the board was wholly a decision of the board alone. The first Mr O'Connor was aware of the matter, that it had been considered by the board in 1996 and that they had decided not to hold an inquiry, was when the matter was given newspaper publicity in 1999. However, the decision taken by the board was one taken within its jurisdiction. The parliament of Western Australia through its Land Valuers Licensing Act, has given the board the power to decide such matters. Mr Wallace put this matter to the board and after considering it the board decided that it would not hold an inquiry. It was clearly the jurisdiction of the board to decide the issue and this they did. It was a decision properly open to them. Even Mr Wallace said, "You win some, you lose some." Furthermore, the decision not to hold an inquiry was a reasonable one. The evidence of Mr O'Connor was that contrary to the evidence of Mr Newcombe of the ministry, most valuers do not have trust accounts. The grant of a valuer's licence does not require a police clearance, unlike the provisions of some other acts. Other professional bodies did not take any adverse action against Mr O'Connor in relation to his conviction. The Tax Agents Board took no action at all. CPA Australia, the charges were dismissed, and the Australian Property Institute, nothing was heard from them. The judge in the District Court said at page 10 of the transcript something which indicated that he assumed that Mr O'Connor would continue to practise as a valuer. Even the ministry accepted this position. This involves the - no, I won't go into that because that's a matter I said I won't deal with today, I will deal with perhaps in writing. Perhaps I can just say that there was a period when Mr O'Connor was not registered. He had to go through the re-registration process. It was open to the ministry and any person, including Mr Wallace, to object when advertisements appeared in the paper when Mr O'Connor was seeking a new licence. Nothing was advanced from any of those parties in objection to Mr O'Connor having a licence granted to him by the board. 2-3/34/rmo 62 MR O'CONNOR QC 24/7/00

Mr Chairman, you yourself have made a comment in this matter, asking why an appeal to the District Court was not lodged, saying, "Lodge an appeal and see what happens," to which Mr Chaney observed, "With one former District Court judge we would know the answer," thus showing how clearly you had made known your own particular view. Mr Chairman, with all due respect, there is no right of appeal in the act against the decision of the board not to hold an inquiry. The right of appeal is against the decision of the board after it has held an inquiry, and again with due respect, to say, "Lodge an appeal and see what happens," when only one side's evidence has been heard, was, with respect, gratuitous, ill-considered, unwise and very unfair to Mr O'Connor. Further, I suggest that if the matter had come before you at the District Court when you were a judge of that honourable court with counsel saying, "We don't have the competence to appear here but we have appealed to see what happens, then you would have quickly thrown the matter out of court, with respect. With regard to the $750, the alleged sling, the allegation was hearsay upon hearsay by Mr Wallace, being stated in the testimony of him as having been told to him by Mr Deakins as to what Mr O'Brien of Blackburne and Dixon had said to him. However, most importantly, Mr Wallace did not say that the sling was asked for, received by or paid to Mr O'Connor or even that Mr O'Brien said that it was for Mr O'Connor. What Mr Wallace said was that Mr O'Brien asked for a sling for Mr O'Brien and that Mr O'Connor would do the valuation, nothing more than that. The matter was raised in passing in Mr Wallace's testimony and was not pursued by further questioning by anybody. Today Mr O'Connor has dealt with the matter by giving testimony on oath as follows, and as he reiterated in his closing statement: he has never asked for or received any sling from anyone to give an over-valuation. With regard to the particular matter referred to by Mr Wallace, if it is the property Mr O'Connor thinks it is, he did a valuation for Mr Casella but not for Mr O'Brien or anyone else at his company, Blackburne and Dixon. He did not receive a sling from anybody for this or any other valuation. This leaves us with no inference or implication whatsoever being able to be validly drawn against Mr O'Connor. With regard to the position of Mr O'Connor's brother, Edward Vernon O'Connor, there was no impropriety in Mr Ronald O'Connor doing a valuation of lot 2, Banksia Road, Wellard, for Perimead Investments Pty Ltd, as Mr Edward Vernon O'Connor had ceased to be a director and 2-3/35/rmo 63 MR O'CONNOR QC 24/7/00

shareholder of Perimead some 4 and a half months before the valuation was made.

I now deal with the unreliable testimony of Mr Wallace. Mr Wallace was very uncertain, unsure and indecisive in his testimony, and I give these examples from the transcript. Page 68 he said, "Whether I specifically mentioned the Collie over-valuation problem to the Finance Brokers Board I'm not too sure." Page 68, "I don't know how wide the distribution of the Finance Brokers News was. I'm not too sure."

Page 69 there was Mr Wallace's memo to the Finance Brokers Supervisory Board in relation to the Mrs Brown issue concerning the Collie valuations stating that the valuer-general's office showed that these blocks were worth between 10 and 13 thousand dollars. I have already given an explanation as to that so I won't go into that detail again. Page 70, repayment to Mrs Brown by Grubb of $100,000. Mr Wallace said, "I'm not very accurate in my recollection here."

Page 71, when the chairman mentioned that some lots had traded as high as $289,000 against the valuer-general's valuation of $10,000 to $13,000 and asked, "Did somebody in the board say anything about that?" Mr Wallace replied, "I don't know," and to the further question, "You can't remember any reaction?" he replied, "No." Page 72, "I'm really stumped to be very accurate without seeing the file." Page 73, Mr Chaney said, "By this time" - which was June 1998, according to page 72 of the transcript - "you had ceased with - ceased being the investigator for the Finance Brokers Supervisory Board?" "I think so, yes." Mr Chaney said at page 73, "Are you able to throw any light in the process which led to the publication of this report or this article?" The reply? "Not at this date. I don't know who did this." Page 79, Mr Chaney said, "As at 1995 when you were referring to over-valuations, were there over-values of these properties in Victoria Park, in Maddington or in respect of other properties?" "That I cannot be too sure of. Page 80, he says, "I was wanting to visit O'Connor. I needed some sort of authorisation to do some work on it as a separate inquiry. I didn't ever receive" - and I repeat that - "I didn't ever receive any authorisation. I didn't start to investigate O'Connor in a proper way. I didn't start." However, you see the four letters of June and July 1997 where Mr Wallace wrote as senior investigator and compliance officer to Mr O'Connor and 2-3/36/rmo 64 MR O'CONNOR QC 24/7/00

said that he was examining whether there had been breaches of the code of conduct of the valuer. Page 84, you, Mr Chairman, said, "Were you at the board meeting when that was said to you, or how did you - how did that come about?" and he replied, "No, I think it was a report or a decision from the board that came out of that that I became aware of it in some sort of writing." Page 89, he says, "I think at the end of that they decided to write to O'Connor and ask him for the methodology that he adopted in doing these valuations. My comments on that, he says, "I think" - he says "they decided", yet it was Wallace himself who wrote. There's no indication in his response that he wrote and there is no indication in either of his 1997 letters that he was acting on the instructions of the Land Valuers Licensing Board. At page 97 Mr Allanson of counsel asked, "Was it at any time gathered together?" He was speaking about materials on Mr O'Connor. "No, I don't think so. Page 98, he says, "I'm getting a little bit lost here." Also at 98, at a Finance Brokers Supervisory Board meeting someone allegedly said that Mr O'Connor was known in the industry for over-valuations and was not used, However, even though Mr Wallace was the investigator for the Finance Brokers Supervisory Board and even though he described this particular person as "very knowledgeable on the industry", he was unable to name the relevant board member. At 98 he was asked, "Can you remember whether anything else was said by any member of the board regarding that issue when he raised it at that meeting?" and the answer, "Not specifically." At page 99 he said, "One member of the Finance Brokers Supervisory Board, in your words" - sorry, the question was put to him and I think it was Mr Hooker. "One member of the Finance Brokers Supervisory Board in your words castigated you for not acting on complaints correctly," and he said, "Castigated the department." He then went on a little bit later, "I think this individual member, if I recollect, "he was an ex-army sort. He was a very astute sort of bloke, he was." "Who was it, can you remember?" "No, I would have to go back to the minutes." Once again, we're talking about a member of the Finance Brokers Supervisory Board, the board for which Mr Wallace was the investigator. He is talking about a member whom he regarded as a very astute sort of bloke, yet he cannot remember the name of that member. At page 99 Mr Wallace is asked about a meeting which is said to have taken place in August 1989. Despite his clarification that that was the date, it seems that the date could have been out by any number of years up to 2-3/37/rmo 65 MR O'CONNOR QC 24/7/00

10 years. 1989 has never been mentioned in this inquiry at all. He was asked to clarify it by Mr Hooker and he did. He also merely made a note on the desk calendar. There is a further reference to writing a note on a desk calendar. It is in relation to a meeting with the Land Valuers Licensing Board to which he was accompanied by Gavin Wright, a lawyer. Once again, the only record he had was a note on his desktop calendar. That's at page 88 of the transcript. The earlier one mentioned by me is at page 99 where he attended a meeting with Mr Michael Coghlan. So for those reasons I consider that his evidence is very unreliable, vague and uncertain and should not be relied upon. There is also the question whether Mr Wallace's evidence was incorrect or whether he was acting without authority when he wrote the letters of June and July 1997 to Mr O'Connor, and I refer to these pages of the transcript. At 71 he was obviously aware of the potential problem, because he said, "It could be found that I was acting without authority." At 78, the question as to whether he was vindictive is also one which had occurred to him. He said, "It might very well be that you're not the person that conducts the inquiry because it could look as if you're being vindictive." At 80 he said, "I was wanting to visit O'Connor. I needed some sort of authorisation to do some work on it as a separate inquiry. I didn't ever receive any authorisation. I didn't start to investigate O'Connor in a proper way." Now, this is contrary to the factual situation as evidenced by the exchange of those four letters in June and July 1997. At 85 he said:

I figured that if I could get a lot more, particularly where there are sales, or even if there are claims against his insurance or something like that, the board may have taken yet a different attitude, but I didn't have that authority to go that step further.

He was talking about the Land Valuers Licensing Board. Again this is contrary to the facts and those four letters in June, July 1997. At 86 he said, "What I was only finding out was collateral from these other inquiries. Nothing happened after that." Again, to say that nothing happened is to ignore the correspondence in June and July 1997, the existence of which he did not reveal to this inquiry and the existence of which was not known to the board representatives in November 1999. He says at 89, "I think at the end of that they decided to write to O'Connor and ask him for the methodology that he adopted in doing the valuations." This is an oblique reference to the letters which - it could be an oblique reference to the letters in June and 2-3/38/rmo 66 MR O'CONNOR QC 24/7/00

July but he says, as I mentioned before, "he thinks", he refers to "they", and the letters were written by him personally and as senior investigator and without mention of any authority or decision taken by the Land Valuers Licensing Board to require that information to be produced. The first letter did not ask for the methodology but only for the basis, but the first reply did in fact provide the methodologies. The comment by Mr Wallace does not give any credit to Mr O'Connor for the responses. They provided all the information requested. They were fully cooperative. The responses were made within time on both occasions. Offers were made to provide any further information required. No further information was sought by Mr Wallace after he received those responses, however the queries and the responses were not recorded, as is evidenced by Mr Szostak and Ms Italiano not being aware of them when Mr O'Connor was queried on the same matters in November 1999. After Mr O'Connor again provided the information required Mr Szostak was obviously satisfied with the responses because those two valuations have not been the subject of any formal inquiry. At page 98 Mr Wallace could not remember the name, as I have said, of the industry representative on the Finance Brokers Supervisory Board who said that Mr O'Connor was known in the industry and was not used, even though Mr Wallace described him as very knowledgeable, and the same applies, he couldn't remember the member who was a very astute sort of bloke. He did not keep a file collecting together the various instances where Mr O'Connor's valuations were questioned, and as I have mentioned, the only record on two occasions were notes on desk calendars. I did have 15 points to make on inefficiencies and unsatisfactory aspects of the ministry and the board, but I will now skip over that in the light of what I said just after the luncheon adjournment. Mr Hardwick, the accountant, he had not seen a valuation but saw fit to criticise it. He misunderstood the payment of $2000 to Mr O'Connor in June 1998. It was not for one valuation but for 11 lots and a farm. He was of the view that licensed valuers were regulated by the state government rather than the Land Valuers Licensing Board. He made a big effort to big-note himself but he had no substance whatsoever. He made no attempt to find out the facts and didn't obtain a copy of the valuation. Mr Chairman and members, my conclusion is that the valuer Ronald Graham O'Connor should come out of this inquiry with a completely clean slate. No findings or aspersions whatsoever should be cast against him. 2-3/39/rmo 67 MR O'CONNOR QC 24/7/00

THE CHAIRMAN: Thank you, Mr O'Connor. We will adjourn. MR CHANEY: Sorry, Mr Chairman, just before you adjourn, I omitted in re-examination to take up the invitation of my learned friend Mr O'Connor where he offered to make available the correspondence in February and March 1999 between Mr O'Connor and the registrar of the Land Valuers Licensing Board. MR O'CONNOR: We will be happy to provide that immediately. MR CHANEY: Well, in fact we have taken the liberty of getting them, so can I tender them and I will have copies made. THE CHAIRMAN: Very well. Those letters - - - MR CHANEY: The dates, Mr Chairman, range from 21 January 1999 to 5 March 1999. THE CHAIRMAN: They will be exhibit 209. Thank you. EXHIBIT 209 Letters between Mr O'Connor and Land

Valuers Licensing Board, 21/1/99 and 5/3/99 MR CHANEY: Thank you, Mr Chairman. THE CHAIRMAN: 10.30, is it? MR CHANEY: Yes. THE CHAIRMAN: Right. We will adjourn.

____________________ 2-3/40/rmo 68 MR O'CONNOR QC 24/7/00

GUNNING COMMITTEE OF INQUIRY INTO FAIR TRADING BOARDS AND COMMITTEES MR I.R. GUNNING, Chairman DR D. NEWMAN, Member MR D. BLIGHT, Member TRANSCRIPT OF PROCEEDINGS AT PERTH ON TUESDAY, 25 JULY 2000 Transcription by - SPARK AND CANNON PTY LTD 3rd Floor International House 26 St Georges Terrace PERTH WA 6000 Telephone: 9325-4577 1/1/ces 1 25/7/00

THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, I call William George Gamel. WILLIAM GEORGE GAMEL sworn: MR CHANEY: Be seated, thank you, Mr Gamel. Mr Gamel, you are the sole director of Gamel Ward Pty Ltd?---I am. You operate from suite 10, 6-10 Douro Place in West Perth?---I am. You have had the opportunity as a result of an invitation from the inquiry to review the transcripts of evidence to this inquiry which have raised issues which concern you or your company?---Yes. As a result of that, you prepared a statement in response to that evidence which you wish to read to the inquiry? ---I do. Do you have copies of that statement there?---Yes, sir. Perhaps the members could have them?---One for each of the committee and one for counsel assisting. Mr Chaney has his. MR CHANEY: Mr Gamel, I will invite you to read the statement. What I will do is stop you from time to time - and I will try to do that at the end of particular passages rather than the middle of them - to ask you some additional questions in relation to various topics you deal with?---Mm'hm. So I invite you to read the statement please?---Thank you, Mr Chaney:

I am William George Gamel, holder of finance-broking licence number 1. I am the sole director of Gamel Ward Pty Ltd operating from suite 10, 6-10 Douro Place, West Perth. This company was incorporated in 1975 as Kerwin Investment Services. It changed its name on 30 June 1990 when Mr John Ward became a shareholder-director. Mr John Ward resigned from this company on 31/1/1997. I have come today by invitation without legal representation to explain how Gamel Ward Pty Ltd operates its mortgage business. I also wish to comment on various statements by lenders to this inquiry and inspectors from the minister of Fair Trading. Gamel Ward operates as a finance broker. We do not manage mortgages, nor do we promote pooled mortgages, nor are we quasi-bankers. I have

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personally, by my recollection, never arranged a pooled mortgage. We are approached by people who require funds secured by first, second or third mortgages. We receive and prepare applications and present these to various known lenders both institute and private to obtain the best for the borrower. All documentation is prepared by solicitors nominated by the lender. If the lender requires, we assist in nominating a conveyancing solicitor. We have never and still do not deposit lenders' money into Gamel Ward's trust account. All money from lenders are deposited into a solicitor's trust account. I believe finance brokers are under contract by the person paying his fees. In real estate the agent works for the vendor and other professions who work for - they pay their fees. We are employed by the borrower. He pays our costs, therefore we are of the opinion that the borrower is our client. We receive no remuneration from the lender. If there is a problem with the loan, we assist the lender to solve these problems at no charge to the lender.

Can I just stop you there for a moment and ask you about that last sentence? You assist lenders in recovery or taking steps to recover funds if loans go into default. Is that correct?---That's correct. I'm sorry, I just have to get something out of my case. I need a ruler to follow. Yes, that's correct; we assist. That part of the service would you provide to lenders generally?---Yes, we're always there. It's called "service". You have lenders who from time to time use your business on a repeat basis, in other words?---Yes. Presumably over time you develop a relationship with people with funds to invest?---Yes. And they regularly invest through you?---That's correct. There has been a deal of evidence from lenders to the effect generally both in respect of your firm and others that they considered there was an objection on - well, I will rephrase that. They considered that they were a client of the broker first and that the broker was, in effect, looking after their interests in respect to their particular transaction. How does that fit with your perception of the relationship?---My first obligation is to the borrower because he employs me to find the money. People don't come to me with money and say, "Find a 1/3/ces 3 W.G. GAMEL XN 25/7/00

mortgage." It's the other way around. If the lender has a problem, we assist him to do it and that's why we get repeat business because we keep in contact with the lenders and we help them if there are any queries they have got. In effect, in assisting the lender you're acting contrary to the interests of the borrower, are you not?---Not necessarily because sometimes the borrower - it's a very minor thing and instead of them contacting the borrower, they might be looking for the renewal of his insurance or something and we assist there. What if it gets to the point of issuing default notices? ---We don't issue a default notice. We refer them to a solicitor. You don't see any sort of conflict in the role that you play there in respect of your clients as borrowers?---No. THE CHAIRMAN: Mr Gamel, when a lender comes in, do you tell him when he is lending his money to a borrower that you are acting for the borrower?---I tell him there is no charge to him. No, do you tell him you are acting for the borrower? ---No, I tell him I'm acting for the lender. The lender?---Sorry, for the borrower. You tell him that, do you?---Yes. On all occasions?---No, that's not true; not all occasions. Thank you. MR CHANEY: It is not done in writing, I take it?---No, it's not done in writing. You don't give them advice that they, the lenders, ought to take any steps to protect their interests by making their own inquiries as to the adequacy of security, etcetera?---We encourage that if they wish to. In what form? Is there any standard procedure you follow to give that encouragement to lenders?---Well, we encourage them to inspect the property and we always tell them it's their money and they have to make their decision. THE CHAIRMAN: Do you ever have a valuation from a borrower?---What, the borrower supplies us with a valuation? Sometimes the borrower provides us with a valuation. 1/4/ces 4 W.G. GAMEL XN 25/7/00

Is that shown to the lender?---Yes, it's given to the lender. Do you tell him to check it out or get independent advice on it?---No, I don't tell him to check it out. He has it in his possession. Thank you. MR CHANEY: Just going back to an earlier passage in the passage you have just read out, you say you are not quasi-bankers. What are you talking about there?---Well, I don't want to criticise other brokers, how they run their business, but I believe that a person who accepts money as a bulk from various people and lends it out to one person, that's really acting as a banker. Yes?---In other words, if they use pooled funds, in my opinion they're bankers. They're raising money, in effect, on deposit from investors?---Yes, that's right; yes. That has clearly been the flavour of much of the evidence before this inquiry in respect of some other brokers? ---Mm. Certainly not your firm, but was that a perception that you have had for a number of years or only since all of this has blown up?---It has been my policy since day one. Have you been conscious that others in the industry have been acting as quasi-bankers?---Yes. How long has that been a prevalent practice in the industry?---I couldn't actually say; probably 6 or 7, might be longer, years. There has always been people who have joined people together to do mortgages in two or three but never in the volume. We have only been conscious of people doing it in great volume in the last, say, 5 or 6 years. I think you have actually joined some people together. The Timms mortgage is an example, isn't it, as one of several?---No, I didn't participate in that. I was overseas when that was done. My ex-director - and I will come to that in a minute. All right. We will leave that for the time being. There is also an issue in relation to the process you undertake in respect of institutional and private lenders but I think we will deal with that subsequently as well. I invite you now to go back to your statement please? ---Thank you:

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My next heading is Presentation by Lenders to this Inquiry and what I want to do is explain my side of the story of each lender, each person who has complained through this inquiry. On page 136 of the transcript there's a complaint by Mr A. Ryder, a lender to Atalas Pty Ltd for the first mortgage of $20,000 secured by lot 133 Jacaranda Loop, Collie.

I just for the record note that Mr Ryder's evidence was given on 15 May 2000. Yes, carry on please?

---I was overseas on business at this stage and the former director of Gamel Ward, Mr John Ward, handled and completed this transaction on 17 August 1995 therefore I can only comment in a general way. The application was presented to Mr Ryder as Sher Pastoral Co as the borrower. The mortgage document states that the legal owner was Atalas, a company also owned by Mr Robert Henry Gomm. The mortgage, when it was written, that's from the solicitor, was written in the name of Atalas. It was guaranteed by Sher Pastoral Co and Mr Robert Henry Gomm. I do not know the reason for this change. However, I believe it strengthened the mortgage and the security.

I think the rest is more issues in relation to Mr Ryder, is it?---Yes. Yes, we will complete Mr Ryder first and then we will come back to it?---Okay:

I would like to comment on the Collie land and the multiple residential blocks in the subdivision which Mr Ryder invested his money. This was a new subdivision containing many building blocks with several new houses already built and occupied. The plans for this subdivision of land included a motel, retirement village, a small shopping centre and a service station. Two real estate agents placed values on this vacant land; Century 21 of Bunbury between 35 and 36 thousand each block; Carol Realty of South Perth between 36 and 38 thousand each block. An article in the Home Buyer magazine dated 16 June 95 stated the medium price of this land was around 30,000. Mr Gomm paid $25,000 per block by buying 16 blocks of land under one offer and acceptance and $28,000 per block by buying five blocks of land under one offer and acceptance. The valuer-general's office shows sales of blocks of land in this subdivision in late 1995 and early 1996 as 31,000, 33,000, 35,000 and 46,000. What distracted at a later date from this subdivision's

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early advantage is the backers of the subdivision did not proceed with the motel development, shopping centre or service station. The anticipated increase in demand for housing for the workers at the new power station did not happen and the State Housing Commission released land in Collie at a very cheap price. They also sold many houses in Collie, I understand, as low as $12,000. This depressed the property market in Collie. The estimated cost of developing each block of land in this subdivision, including underground power, water, sewerage, roads, kerbing, was at least 18,000 without allowing for the cost of raw land. At a different time and under different circumstances some of the blocks of land were valued by Southern Districts Real Estate at $22,000 on 11/3/96 and Century 21 of Bunbury at 25,000 dated 30/6/1996. This is the same real estate agent who on 12/2/1995 stated that the land was worth 35 to 36 thousand.

Can I just interrupt you there for a moment? The figures which you have given for various valuations from time to time - where have you got those from?---I have got them here. You have actually got copies of the valuations?---Yes. Thank you. Just carry on and we will come back to Mr Ryder when we have finished this paragraph?---Yes:

Comments on Robert Henry Gomm and his group of companies: Gamel Ward knew of Mr Gomm's first bankruptcy approximately 20 years ago. We had no knowledge of his second bankruptcy. Of course his third bankruptcy was well after this happened. Mr Gomm was a property trader. He was not a developer. He purchased properties at wholesale values and sold them at a profit. As traders similar to Coles or Woolworths selling groceries, he bought and sold properties. At one time he held up to 73 properties and several companies. In 1992 his unsigned asset statements were prepared by a public accountant. From June 1993 Mr Gomm presented us with regular update assets and liabilities statements signed by him. These changed as he purchased and sold various properties. We discovered at a much later date that Mr Gomm when purchasing a property would instruct his settlement agent not to pay for any outstanding or adjustment of rates and taxes. The effect of that was that when the property was resold, the first debt was for outstanding rates and taxes, plus he did not pay for

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any current rates or taxes which added up to a considerable amount of money. In 1996 or 1997 Mr Gomm suffered a nervous breakdown and from that day onwards his performance suffered greatly. Gamel Ward Pty Ltd was not the only broker or lending institution he used. Mr Gomm and his companies held loans from the Commonwealth Bank, City Bank, Town and Country Bank, the Uniting Church and Country Wide Credit. Other finance brokers we knew he used included Blackburne and Dixon, John Bell, S. Mitchell and the Trust Group.

Now, I wonder if Mr Gamel might have a copy of exhibit 70, please. This is found in volume 3. It might be easiest just to leave it in the file. Mr Gamel, that's the copy of Mr Ryder's statement that you read into evidence. I would like you to turn to tab 1. You will have read that statement in the transcript?---Mm'hm. Tab 1 is a letter from your company signed by Mr Ward of 9 August 1995 and it attaches a statement of assets and liabilities of Sher Pastoral Co. Do you see that on the third page?---Yes, I do. As a matter of course it was your practice, was it not, to send out with a proposal letter such as this the information which was available in relation to a particular investment?---Yes. So if you had a valuation, for instance, that would go with this letter, would it?---Should have gone with the letter, yes. And this information, the assets and liabilities, is showing the wherewithal, as it were, of the borrower? ---Correct. To what extent did you inquire into the figures which were shown on that statement?---Well, I would say most of say most of these properties we knew about because we had quite a few of them under mortgage. Yes?---We often queried Mr Gomm on some of his valuations, only to be proved extensively that we were wrong in suggesting to them that they weren't worth this much money because when he sold them, he would get more than what he put down on his asset statement. There's actually a photocopy - at least my copy appears to have some sort of handwriting in the bottom of the corner. You can just see the top of it in the bottom left-hand corner, a couple of squiggles. That has been 1/8/ces 8 W.G. GAMEL XN 25/7/00

cut off in the photocopy?---Yes, cut off on the photocopy. We assume that's a signature?---That would be Mr Gomm's signature. I could get the original of that. I have got the original here. Perhaps you can just explain the process. Mr Gomm presumably provided this statement to you?---Correct. I'm sorry, I interrupted you. If you have the original, you might just check that?---I know I have seen it lately. It is his signature, is it?---It's signed by him. So he would it provide it to you and you would put together then the proposal letter, or would there be some inquiries carried out first?---Well, we knew Mr Gomm fairly well and we kept up-to-date on all his movement of his properties so that the assets changed periodically as he bought and sold other properties. If we go quickly down this page here, the ones we probably can't comment on were the ones we didn't have a mortgage on and that would have been people like the Latham farm, the factory in Naval Base, the 1500 acres in Beacon, the Meckering properties, his farm at Coorow and his industrial land at Karratha. I wouldn't be able to comment on any of those, but the others were - - - Sher Pastoral Co eventually went into liquidation?---Yes. Into insolvency, I think. Is that correct? Is that your understanding?---Yes. Do you know when that was?---Approximately 1996 or 97, I think. I'm not too sure on that date. Within at least a couple of years?---Yes, approximately 2 years; yes. One assumes from that piece of information - we're looking at this statement of assets and liabilities - that the value of the assets must, for the purposes of this statement, have been grossly overstated because it seems he has gone from a position of in excess of $2.6 million in assets over liabilities to a position of insolvency in a very short time. Is that a fair conclusion to draw from this document?---Well, what's not in here is a liability which arose from a court action by a bank against Mr Gomm which he never declared which was a considerable amount of money, approximately a million dollars, I understand. 1/9/ces 9 W.G. GAMEL XN 25/7/00

Even accepting that, there's still another $1.6 million that seems to have disappeared?---If all of these properties were still in his possession at that time. Mr Gomm was a property trader, was he not?---Correct. And he depended for his ability to service borrowings on his ability to sell property?---That's correct. Presumably to make a success of that he would sell at value or better than value?---Correct. You accept, I take it, that he could not have serviced the liabilities under the various mortgages that he had or that Sher Pastoral Co had other than by sales in property?---That is correct. At the time that this document was sent to investors, what inquiries had you made to ensure the accuracy of the statement?---As I said before, we had a good idea of Mr Gomm's properties because we had quite a few of these mortgaged and we knew the value and we knew how much was advanced against that. Perhaps I should ask you again what went wrong. If $1,000,000 went to the Commonwealth Bank, where did the other $1.6 million in value go?---Well, I can't really answer that. All I know is that Mr Gomm about that time had a very serious nervous breakdown and everything was in disarray. Can I just ask you to look at another - - - THE CHAIRMAN: Just before you do that, Mr Chaney. Mr Gamel, this letter that we are all looking at now, tab 1, would you agree with me that this is a representation by you or your company to Mr Ryder that the contents of this document are correct, that your guarantor is Mr Gomm, you list his assets of whatever they are, a million, millions or whatever, and that finally you say, "We consider this to be an excellent short-term investment which should produce excellent interest returns. We recommend your acceptance to this loan." Now, first of all, would you agree with me that anybody getting that, you are representing to them that the contents of that document are correct?---I would say the contents of that document are correct. Particularly in view of that statement that they are correct and with respect to the last paragraph I just read out, did you accept that you had any legal obligation to Mr Ryder, the investor, in other words, as a client?---Mr Ryder wasn't our client. Mr Gomm was our client. 1/10/ces 10 W.G. GAMEL XN 25/7/00

Why?---Because Mr Gomm paid for us to find money for him. All right. That is the only criteria you list, because he paid, and that wipes all the obligation out?---No, there's a moral obligation to make sure the information we give him is correct. I was coming to that next. You will agree there is a moral obligation?---Yes, there's a moral obligation there. But you deny that there is any legal obligation?---I can't answer it. I don't know about the legal obligation. That is fair enough. I shouldn't have put it that way. Very well, thank you. MR CHANEY: I will show you a similar letter, please, Mr Gamel. It's a bundle of two letters. THE CHAIRMAN: By the way, Mr Gamel, did you ever take any legal advice as to your legal liability or obligation to an investor and/or broker?---No, I didn't take any legal advice. Thank you. MR CHANEY: Now, this is a letter to another investor in relation to an application for a loan by Hornsby Holdings Pty Ltd, another of Mr Gomm's companies?---Correct. It shows a statement of the assets and liabilities of Hornsby Holdings Pty Ltd or it attaches such a statement. Again, were you familiar with the assets referred to in that particular document?---I was familiar with some of them, not all of them. I wasn't over-familiar with the service station - I knew it existed - or the 200 acres at Katanning and the aged persons site or the farm at Armadale. I think the rest I'm familiar with. Now, you told Mr Wallace, the investigator who investigated this, amongst a number of other Gomm-related investments, that you had been a value of $750,000 by Mr Gomm in relation to the service station but, to you use your words, you pooh-poohed that valuation. Do you remember telling Mr Wallace that?---No, I don't remember telling him that. Can I just show you this record of interview? I don't have additional copies of this, Mr Chairman. Turn to page 6, please. Perhaps I should ask you some questions generally about it. It's an unsigned document. Do you remember having the interview with Mr Wallace in June of 1997. 1/11/ces 11 W.G. GAMEL XN 25/7/00

THE CHAIRMAN: Excuse me, Mr Chaney, whereabouts is this document? MR CHANEY: You don't have copies of it, Mr Chairman. THE CHAIRMAN: I see, thank you. MR CHANEY: Do you remember having an interview with Mr Wallace at some length at 6 Richardson Street in West Perth on 26 June 97?---Yes, I had the interview but I couldn't tell you the exact date. This document is extracted from a brief prepared by the Ministry of Fair Trading in relation to a significant number of complaints, about eight or nine complaints, concerning Gomm Investments?---Mm. The investor to whom that letter which I have just shown you was addressed was one of those. If you look at page 6 about halfway down the page and what is said there, just looking to put the matter in context a little earlier in the page, Mr Wallace said, "I'm not talking about when he sells. I'll clarify this. A lot of these valuations he puts on these assets and liabilities lists are on the basis that he'd received offers." You responded, "We wouldn't have taken any notice of what - - -"?---Sorry, I have got the wrong page. Sorry, page 6?---Page 6, yes. The fourth paragraph I was reading?---Sorry, yes. "We wouldn't have taken any notice of what offers he received." That's the response by you. Mr Wallace: "Oh, okay then." You said, "None whatsoever, and we didn't take most of these things. We also wrote back what he reckoned they were worth." Mr Wallace: "So you had some sometimes in your mind thinking that possibility." You said, "His farm, for example, which he had down at $1,000,000, we pooh-poohed that, and he had a service station at one stage. He reckoned it was $750,000 or something and we pooh-poohed that because we just think that it wasn't anywhere near the valuation - anywhere near it." Mr Wallace said, "Okay then," and then you talk about a Kent Street example at $150,000, "He had put that down as $375,000 or something, some ridiculous figure. Somewhere around the place he had a service station somewhere. No, that's not it," and then you talk about the service station, "That ends up selling for $250,000." You said, "He sold it for 200,000 on one day and the person who bought it sold it for $400,000 the next day." Is that an accurate record of the taped interview with Mr Wallace?---Well, I can't swear that it's an accurate record because it's a long time ago but it's fairly correct. 1/12/ces 12 W.G. GAMEL XN 25/7/00

Well, rather than worrying too much about the accuracy, is the substance of what was said correct?---Yes, the substance is; yes. So you had not accepted his valuation of 750 in relation to the service station?---Well, at a later date because the person who paid 400,000 for it came to our office to want to mortgage it. Yes?---So we never looked at that service station as a going identity. Since the time he purchased it and the time the next person bought it the service station had closed down. It was not a going identity. It had a service station, two work shops and I think a tyre repair place in a fairly prominent position in an industrial area and in between time it had closed down. The 400,000 purchaser bought it for 200,000 at the mortgagee sale from the Commonwealth Bank and then came to us and said he had sold it for 400,000 on the same as he paid for it and the person who paid 400,000 came to see us so then we went out and had a look at it. Were these parties related to Mr Gomm at all?---No, no relation whatsoever; independent people. In any event, what you were telling Mr Wallace - and I don't think we need to get too bogged down in the actual issue of the service station so much as the process which is undertaken which I'm interested in investigating. What you have told the investigator is that 750 was the figure which Gomm had put on it, but at the time he put that on it and the context of how you reviewed his assets for the purposes of assessing his applications for finance you didn't accept that figure. Is that right? ---At the time I accepted it, it was a going identity. I can't remember the exact figure but it had quite a large rent return; I think in the vicinity of about $100,000 a year. According to this document, the 8 December assets and liabilities, it had an income of $70,000?---$70,000. We didn't pooh-pooh it until we had inspected it when this other person came in and said that he just paid 400,000 to it, which we didn't mortgage because we didn't want to. You might need to look at the statement so that you understand the context. I will invite you to do that in a second before you answer the question, but I will tell you what the question is so you know what you're looking for. The context of the passage I have just read out was an inquiry into the extent to which you investigated the values in statements of assets and liabilities provided to you by Mr Gomm, in other words, whether you simply accepted them at face value or made some assessment 1/13/ces 13 W.G. GAMEL XN 25/7/00

yourself, and your response, as I have read it - I would be obliged if you would tell me if I'm wrong about this. The context of the interview was that you didn't just accept it, that you made your own assessment from your own knowledge of your dealings with him and whatever and in the case of the petrol station you pooh-poohed the value he had put in his form at the time he put it in? ---No, not at that time. 3 years later we pooh-poohed the valuation. That construction of what was said at page 6 of this record of interview is an irrelevant answer to the question that was being put and the context it was being put. Do you understand what I'm saying?---No, you have lost me; start again. Read, if you would, from about the middle of page 4. I'm sorry, Mr Chairman, that you don't have this. THE CHAIRMAN: Read it out loud, Mr Gomm, so we can all hear it, please. I'm sorry, Mr Gamel. MR CHANEY: From page 4 you will see about two-thirds of the way down "GW", "When there were proposals put up for either Gomm or his companies to borrow funds, do you recollect those lists at all?" I'm sorry, I will go back a bit. Start at "GW", "Now I'll show you some asset and liability statements." Do you see that passage?---Yes. Just read that aloud?

---Now I'll show you some assets and liabilities statements or lists that they were, which we could call them.

Answer, "Yes." That's my answer: And they're dated 21 February, 6 July, 1 August and 21 February for Hornsby. Now, we have photocopies. They were lists and were given to the various complainants?---Yes. When these proposals are put by either Gomm or his companies to borrow funds, do you recollect these lists at all?---Yes; yes, they are assets and liabilities. We consider these to be his assets and liabilities statements, as it says, of the various companies at various times. Do you know roughly the total amount that Gomm had borrowed through arrangements made by Gamel Ward in respect of these?---No, I couldn't answer that because I have to add it up and see ones we've lent him and ones that other people have lent him.

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Did Mr Gomm give you these lists?---These lists were signed by Robert Gomm so we could say that he gave them to us. We also probably typed some of these lists up because we kept an up-to-date kind of thing with him as best we could.

Do you want me to continue? Yes, please?

---Did those lists go to the prospective lenders? ---Yes. Now, in respect to all properties being bought up for security, was an independent -

I'm sorry, that was "GW" - was an independent value obtained -

no, sorry, I will start that again: Yes, now, in respect to all properties being put up for security, was an independent valuation obtained?---Not on all of them. Do you know why not on all?---I have no idea why not. We inspected most of the properties ourselves. The offer and acceptance showed that the property was X number of dollars and we went out and had a look at it. Sometimes we'd call for valuations and sometime we didn't. So what was that rationale for that decision?---The rationale was when you looked at the property, it's a security lending. If a property in our opinion on the offer shows that he paid 30,000, 40,000 or 50,000 - it doesn't matter, the figure - and it was approximately two-thirds of the value, we considered that that property was fair security. The answer is yes. No, we didn't call for a valuation.

Keeping going? ---Did Gomm show you an offer and acceptance which supported these?---Yes. Did you keep copies?---I'll have to check the file; some we did. When you saw an offer and acceptance document, did you check the capacity of the people proposed in the contract - their capacity to actual settle in its terms?---You're talking about the vendor?

1/15/ces 15 W.G. GAMEL XN 25/7/00

No, the purchaser. So Gomm is a vendor or his companies. He then gets an offer -

"WG" - like someone to buy, so someone wants to buy a property.

"WGG" - that's me: No; no, I'm not talking about those offers and acceptances. I'm talking about Gomm?---When Gomm buys? We're talking about when Gomm sells.

"You're talking about when Gomm sells? ---You're talking about when Gomm sells. No, I'm talking about when he sells?---I'll clarify this. A lot of these valuations he put on his assets and liabilities list were not on the basis that he had received offers.

"WG": We wouldn't have taken any notice of what offers he received. Okay then.

"WG": None whatsoever, and we didn't take most of these things. We also wrote back what he reckoned they were worth. So you're sometimes in your mind thinking that possible.

"WG": His farm, for example, he had down as a million dollars. We pooh-poohed that, and he had a service station at one stage. He reckoned it was worth a sum of 150 or something and we pooh-poohed that because we just think that it wasn't anywhere near the valuation - anywhere near it.

All right. Now, accepting that is not the most erudite conversation ever held, the sense of it, Mr Gamel, I put to you for you comment, is an analysis of how you dealt with the asset and liability statements which he provided and in relation to that service station value, you did 1/16/ces 16 W.G. GAMEL XN 25/7/00

not accept at the time he provided you - he suggested to you it was $750,000 and you pooh-poohed that?---No, we didn't pooh-pooh it at the time. We pooh-poohed it 3 years later or 2 years later because when he sold it at a mortgagee sale, we knew then that the value was only 400,000. THE CHAIRMAN: Why didn't you tell Wallace that at the time?---Mr Chairman, I can't even remember the interview with Mr Wallace, to be honest with you. These are the lists that went out to these investors? ---Assets and liabilities statements signed by Mr Gomm, yes. And you were being asked at the time, "What do you say about them?" and you said, "The service station is not worth that"?---No, that's 3 years later I'm asked at, not at the time I sent them out. At the time you sent them out you agreed with the values?---No, I accepted Mr Gomm's word that this was his asset and liability statement. At one stage he had 73 properties. And, of course, you asked the investors to accept that too?---I showed this as an indication of what he was worth. And asked them to accept it as such?---Yes. The main security for the loan is not what he's worth but what the property is worth they were lending against. DR NEWMAN: Mr Gamel, in your statement that you read out to us you said that in 1992 Mr Gomm gave you an unsigned asset statement prepared by a public accountant. From June 1993 he presented you with regular up-to-date assets and liabilities statements signed by him. These changed as he purchased and sold various properties. In view of the fairly substantial assets that are listed here before us both for Sher Pastoral and also for Hornsby Holdings, why did you seek from him regular accounts from his public accountant because I would have thought with the assets we are looking at here he would have had to have a public accountant who prepared regular financial statements for him both for tax purposes and for other purposes, including borrowing?---His accountant at the stage who offered the asset and liability statement wouldn't sign that current asset and liability statement so then from then on we got Mr Gomm to sign them to say that that's his assets and liabilities. At one stage we did have a set of accounts from an accountant. I can't remember who or what that accountant was, whether it was the same one, as Mr Gomm had many companies and he would change accountants and change 1/17/ces 17 W.G. GAMEL XN 25/7/00

solicitors and change settlement agents very quick. I can't answer the last time I saw his taxation returns. I did at one stage see his profit and loss statement but I can't remember from what accountant it was or what. But didn't the fact that the accountant in 1992 wouldn't sign the statement and then subsequently he kept changing accountants give you cause for concern?---No, we asked Mr Gomm to get the accountant to sign it and the accountant said, "No, I don't want to sign it because these are Mr Gomm's figures." That of itself surely should have been an indication to you that there should be some checking and some independent appraisal of what he was telling you. I mean, apart from anything else, he is telling you he has got an income of 74,880 in July 1995. Wouldn't you have bothered to confirm that that was accurate? That's in the statement in exhibit 70 and it is part of item 1, being Sher Pastoral Co Pty Ltd assets and liabilities which is immediately after your letter to Mr Ryder? ---That was the income from rentals from the property. His main income was from selling them. Yes, but wouldn't you have wanted to see some confirmation that he was making a profit out of selling them and that he was making this income from property he was telling you?---I knew that he was selling them at a profit, otherwise he wouldn't be trading because he would soon go out of business, but he always bought and sold. Some properties he only held for 10 days or 20 days; you know, there was a difficulty keeping up-to-date with him. THE CHAIRMAN: You see, why Dr Newman is asking you these questions, Mr Gamel, is because these letters with these documents attached are representations, which you have agreed with me very recently, to the investor that they are correct and it is an inducement. Can't you see that it is an inducement to ask them to invest in Gomm's company?---Well, the inducement was the valuation of the property. When property is valued, it's a security loan. You will agree with me that the document was an inducement to the investor?---The document was information about the investment. An inducement for the investor?---No, I don't say that. I say it's information about the investment. Well, what was it?---Information about his assets and liabilities. What about, "This company has been using our service for over 10 years and we hold them in high regard. Enclosures: copy of assets statements"?---Mm. 1/18/ces 18 W.G. GAMEL XN 25/7/00

Now, don't you think anybody reading that would suggest to them that what you were enclosing was correct?---Well, I believed it was correct at the time. "Your consideration to this application is appreciated and we consider this should be an excellent short-term investment for which you should produce excellent - we recommend your acceptance of this loan." You don't say that that is an inducement to those people to invest? ---Mr Chairman, that letter was written by my co-director. All right. The other one - - -?---The other one of Mr Poole which I wrote said, "Your consideration to this application is appreciated." Yes, but let's forget the semantics. Don't you think it is an inducement to invest asking them to invest and you recommending the investment?---We presented it to the people and asked them to make their own decision. Yes. DR NEWMAN: But why would you send something to somebody recommending that they invest, telling them what a good relationship you have with Mr Gomm, attaching a list of assets and liabilities, if you didn't expect the person to rely on what you were providing them and to consider that you were giving them accurate and up-to-date information?---The information we asked the people to consider was what we call security lending, that is, you have a valuation, you have a valuable property and you're lending against that property. That's the first line security and that's what we ask for people to lend against, that property for the value. It's got that value, 35 or 25 or 105 thousand, and you expect them to lend that much money on that property. That's the first line security. But don't you think someone who is receiving a letter from you whom you're inviting to invest money is entitled to believe that you are giving them reliable and accurate information?---Yes, they do, and we pass on the information we get from the borrower and we believe that - if the borrower signs the asset and liability statement, that's his belief in what he is worth. THE CHAIRMAN: Yes, but you're passing that on to the investor?---I'm passing it on to the investor on behalf of the borrower. And you won't agree that that is representing to them that it is correct?---I can't see the connection, to be honest with you. 1/19/ces 19 W.G. GAMEL XN 25/7/00

Did they ever query you? Did they ever come in?---No. You had been handling these people for years?---Yes, some of them a long time and we always stated, "This is the value of the property." The most important thing was the property as against the loan. The asset and liability statement was a conjunction or something which wasn't of great value compared to the asset being lent against. DR NEWMAN: But you say in your letter "Copy of asset statement". You don't say that you have not verified it, nor do you suggest to Mr Poole that he should make his own independent inquiries, nor do you state in there that this is Mr Gomm's own assessment of the value of Hornsby Holding. You leave it just completely and utterly up in the air, "Copy of asset statement" with no indication as to who did or didn't prepare it, whether it is or isn't checked out by you, whether it should or should not be checked out by Mr Poole. Wouldn't you feel that Mr Poole is entitled, the way your letter is set out, to believe that you made some sort of inquiries?---We made inquiries on the main security. The main security is the land or the thing. THE CHAIRMAN: Did you attach a valuation?---I can't remember, to be honest with you. There is nothing in there?---Well, I don't know. We had what the value was worth in the office. Yes, you say "Value $35,000" or whatever?---Yes. You expect them to accept that, of course?---Yes. The investors?---We had a copy of the valuation. MR BLIGHT: Just to pursue the question of Mr Poole, I accept what you're saying that - - -?---Sorry, I missed one word. Just to check a little bit further this letter to Mr Poole which you send, you indicated earlier on that you went through the statement of assets and liabilities. You knew quite a number of them. There were some that you didn't know and the ones that you said you didn't know add up to 2,000,000 of the 3,000,000 that he has listed as assets so it is not a terribly reliable judgment you're making over the validity of the statement of assets which is sent out to the prospective lender? ---When we made that comments on his assets and liabilities, it was some years later than when he gave them to us. At that stage we did. With one particular farm we did ring up one of the local agents - I think it was on the Coorow property - and he confirmed that that was about right. 1/20/ces 20 W.G. GAMEL XN 25/7/00

That is not on this list?---It's on one of his lists. I don't know which one - which property he had that in. DR NEWMAN: It is on the 6 July list. MR CHANEY: It is the Sher Pastoral Co list?---Sher Pastoral. MR BLIGHT: But I'm talking about the one to Mr Poole. That is the one you signed, the Hornsby Holdings, and you mentioned you didn't know much about the service station, you didn't know much about the Katanning farm, nor the aged unit site, nor the farm at Armadale. They totalled almost 2,000,000 of the total value of 3,000,000 listed so, to my way of thinking, it is not terribly fair on the prospective lender to attach that list of assets indicating - to my way of thinking, if I received that copy of asset statement - what did you put it in for if it wasn't to assist the prospective lender in assessing the background of the person that he was proposing to lend money to?---Well, we put it in because that's what Mr Gomm said was his assets and liabilities. We knew about the other properties because we had some of those - we knew about some of the valuations of those and we knew some of them existed. So you are really putting it in to say this is what Mr Gomm assesses the value of the assets that he has? ---This is what Mr Gomm assesses his worth at. Not supported by valuations, unknown by your organisation, but something which the prospective lender should take into account in deciding to whether to lend money or not to Mr Gomm?---Sorry, sir, you will have to speak up. That's not a good ear. I'm sorry; I'm saying to you really that it is not very fair to a prospective lender to attach a statement of assets two-thirds of which are not known to you and expect him to take that into account in deciding whether or not to lend money to Mr Gomm. I can't see why you would attach the statement of assets unless you thought that would assist him in determining whether or not to lend money to Mr Gomm?---Well, I suppose in hindsight, which is always a marvellous thing, it would have been assisting the person. This was a signed statement by Mr Gomm with what he was worth. What he thought he was worth?---To take his word for what he's worth, you know. Not supported by valuation?---No. At one stage he had 73 properties, you know. But I'm talking about this one?---This one is $20,000 worth of loan. 1/21/ces 21 W.G. GAMEL XN 25/7/00

DR NEWMAN: Mr Gamel, you said there "A copy of the asset statement". With that asset statement there is a copy of the mortgage details, but what about all his other liabilities? What about things like unpaid rates and taxes? What about unpaid income tax? What about normal come and go bills such as unpaid rent or unpaid insurance or even an unpaid account with his local garage? There is no mention of liabilities anywhere in your letter and even the statement only specifies the land and buildings and the mortgages. It does not refer anywhere to liabilities as a whole?---I can comment quite strongly on his rates and taxes situation because we only discovered after what he was doing. If you read my statement, it states there that at a later date, a much later date, we discovered that the settlement agent he was using was not paying the outstanding rates and taxes at settlement, then Mr Gomm would not pay any other rates and taxes under a normal property until the sale. Now, we only discovered that some time later. You anticipate that if a settlement agent is handling a settlement, his obligation is to pay all outstanding rates and taxes before he passes that property onto the new purchaser. My understanding is Mr Gomm instructed his settlement agent not to pay those. I had noted your statement and I also hear what you say about the settlement agent, but if you had got a statement of income and expenditure prepared by an accountant, you would either have found, as you have stated, that the rates and taxes weren't paid and therefore there was a liability or alternatively if they had been paid, they would have been shown, but at least if you had got on a regular basis a set of accounts for the companies and Mr Gomm prepared by someone independent and someone who had an accounting background, you would have been in a position to more properly advise Mr Poole as to what the assets and liabilities were. As it is, obviously Mr Poole relied on you and yet Mr Poole has not been given all the facts and what facts he was given are incomplete and in many instances would appear to be inaccurate. Now, don't you feel in those circumstances Mr Poole has been materially disadvantaged because you simply did not give him accurate information or up-to-date information or reliable facts as to what the situation was?---I can't on Mr Gomm's accounting ability or what he did with his accountant because he was so far behind in his accounting practices the last statement we had was, I think, 1993 or 1992 from his accountant and it was probably a year old then. Mr Gomm used to buy and sell some of these properties so quickly that he would have had to have an accountant at his elbow all the time to keep up-to-date. THE CHAIRMAN: When the accountant wouldn't sign the document, didn't that ring alarm bells?---That was the 1/22/ces 22 W.G. GAMEL XN 25/7/00

first asset and liability statement we ever received from Mr Gomm when we started to commence business again. We then asked him to sign his own assets and liability statement because the accountant said unless he verified each individual property, he wasn't prepared to sign it. DR NEWMAN: Why didn't you tell Mr Poole that you had no up-to-date independent information in relation to Mr Gomm or his companies' financial position?---Well, we had signed statements by Mr Gomm. We didn't have accounting figures. THE CHAIRMAN: How do you think they would read this, some investor, "This company has been using our services for over 10 years and we hold them in high regard"? What would the investor think when he read that?---Up till the time Mr Gomm - - - No, when he read it. It doesn't matter up to what time; when it went out to him and he read it?---Well, Mr Gomm used our company for that long period and the early - - - What would the investor think when he read that statement?---Yes, sir, well, you know, I will try to explain Mr Gomm, then I will tell you what I think about the investor. Up to that stage Mr Gomm had not defaulted on a loan with us. What about the investor? What would he think when he read that?---Well, Mr Gomm at that stage was meeting all his obligations under the loan. Under all his loans at that stage he was meeting his obligations. It was only after that stage that he started to go wrong. I come back to it. You think that because Mr Gomm signed that statement, you had no obligation to the investor? ---I had a moral obligation to the investor. Nothing other than moral?---No, he's not my employee. He didn't employ me. DR NEWMAN: But if you were giving the investor information, why did you not tell him that it was Mr Gomm's statement of his assets and it did not include the liabilities rather than just saying "Copy of asset statement", which to any investor, I would believe, would entitle him to feel that you had checked it out and what you were giving him was independently check and reliable?---It had the liabilities against all the properties, but his personal liabilities - I had no idea what he had. Not only his personal liabilities; we are talking about the company which has got substantial assets and these potentially apart from the mortgages could have 1/23/ces 23 W.G. GAMEL XN 25/7/00

substantial liabilities. You have said yourself you later discovered there were unpaid rates and taxes, but what about all the other costs that could be involved? What about unpaid insurance? After all, if there is a mortgage and the building burns down and there is no insurance, what happens to the mortgagor and to the other creditors?---Mr Gomm had a master insurance policy covering all his properties and as the properties bought and sold, so they went on and off this master policy. Whether the premium was paid, I could never tell you, except that they used to issue us from time to time certificates of currency and say, "These buildings are insured." They wouldn't do it for nothing, the insurance company. They would also lapse the policy if the premium weren't paid so again I come back to if you had had independent accountant's records of income and expenditure prepared and had reviewed them, you would have been able to check what the expenses were as well as the income in relation to these properties and you would have been in a far better position to advise Mr Poole just what the financial position was as opposed to just giving him a copy of assets and not telling him that there had been no independent check and that you were purely relying on what Mr Gomm had told you?---If Mr Gomm went to an accountant and said, "These are my outstanding accounts," and had a bag full of them as well and he didn't declare that to the accountant, what would the situation be then? It would be exactly the same as us. The accountant is required where he is preparing a tax return or accounts for the Australian Securities and Investments Commission or generally to make reasonable inquiry. If you see a set of accounts where there is income from rented property, you ask questions like, "There is nothing here for rates and taxes. There is nothing here for insurance. What about repairs and maintenance. What's happened in terms of all your normal operating expenses such as electricity, telephone? Are they paid by the tenant or are they reimbursed by the tenant?" The accountant would ask a lot more questions than you appear to have asked Mr Gomm?---That's probably so, you know. I don't deny the accountant would ask a lot more questions, but if things were hidden from us and hidden from the accountant, how would either of us know? I come back to the question I asked you a few minutes ago. Why did you not tell Mr Poole the copy of asset statement was Mr Gomm's statement and there had been no independent check in relation to the accuracy of the asset statement, nor as to the liabilities that were outstanding by the company?---I can't answer that. I don't know the reason why. Our method was that we sent always the asset and liability statement as declared by - - - 1/24/ces 24 W.G. GAMEL XN 25/7/00

But you didn't tell the proposed lender - - -?---No, we didn't tell them that - - - - - - that it was a statement that should be checked out and that there was no other information to support it other than had been supplied by Mr Gomm?---That's correct. Thank you, Mr Chaney. MR CHANEY: The other aspect of the assets and liabilities statement is that they show - and admittedly these two we're looking at are 6 months apart - total mortgage liabilities as slightly in excess of 3,000,000, 1.9 for Sher and 1.2 for Hornsby?---Mm'hm. The interest rate proposed in relation to Hornsby is 14 per cent and I think in relation to the Sher one was 15 per cent. I take it that was the going rate?---It was the higher rate. So on those total borrowings, if for the ease of the mathematics, we take it around 15 per cent, an ongoing liability of about $400,000 a year to service the interest component. Do you accept that?---Yes, that's about right. Presumably when properties were purchased or sold, there were agent's commissions and stamp duty and transactional costs to be met involving a significant drain on cash? ---Yes. So these asset and liability statements were crucial in the sense that they were the only disclosure of the basis upon which cash flow could be generated to meet those ongoing annual expenses?---Mm. Is that right?---By sales. I mean, his property trading was the source of - - -? ---Yes, property trading was the source of his income. Therefore if the values of the properties were wrong, then his ability to trade profitable is obviously affected?---I would think so. And to generate an income before profit of some 400,000 for the interest costs, plus whatever it is for all of the other transactional costs involves a very successful operation, does it not?---Yes. It's a lot of money to generate gross profit?---Mm. Did that not concern you in terms of the moral obligation to borrowers to assess that in fact there really was this 1/25/ces 25 W.G. GAMEL XN 25/7/00

value which could be turned into proceeds of sale and generate the necessary profits?---Well, Mr Gomm used to buy and sell property. He was a trader and quite often he would come to us and show us that the thing he sold was a greater value than on his asset statement and he had generated X number of dollars which he then paid the interest and so on out of. He wasn't a holder of properties. All his properties were bought and the idea was immediately these would go back on the market at a profit and they would sell. He would say, for example, "This property is worth 110," and he would get 135,000 for it and would make his asset statement then different at that stage. Now, when he was at his peak, which we're talking about here, he was making good profits from what we knew on his asset statements. Now, one other matter you touched on in your written statement was the substitution of Atalas as the borrower in respect of Sher Pastoral Co in respect of one of Mr Ryder's investments?---Mm. I think your comment on that is that it had in fact enhanced the security because Sher was a guarantor so there was another company in the loop. That is the point you make, is it?---That's right. That is only true, is it not, if Atalas in fact is solvent?---Insolvent? No, if it is solvent, it adds value to the transaction. If it is insolvent - - -?---Yes, it puts another company in to some that Atalas is the first person to sue, then Sher Pastoral and then Gomm, but if it was just in Sher Pastoral, Atalas's assets could not be included in that. That's right, but that assumes Atalas has assets?---Yes. And not net liabilities?---Yes. Was any inquiry made, do you know, about Atalas's financial position prior to it being substituted in Mr Ryder's investment at the borrower?---I knew nothing of Mr Ryder's investment. I can only comment in a general way. I never heard of Atalas up to that stage. It was another company which Mr Gomm suddenly appeared with. At a later date we did get an asset and liability statement or we may have got it then, but I was not involved in the Ryder mortgage. I was overseas at the time. Mr Ryder's evidence was that he didn't know anything about it himself until after the event?---Mm. Presumably you can't comment on that because weren't party to it?---I wasn't there. The first I heard about that was when I came in and read the transcript. 1/26/ces 26 W.G. GAMEL XN 25/7/00

Do you accept that Mr Ryder should have known about it? ---Yes. He should have been told there was a different borrower? ---Correct. He should have been given information about that borrower?---Yes, that's correct. You simply don't know what went wrong there?---I have absolutely no idea. I take it you're not justifying the transaction as it occurred in Mr Ryder's ignorance, if his evidence is accepted, on the basis that, "Well, there's another company in there so in the end he's better off." That as a broker would not be sufficient justification for doing it without the consent of the lender?---No; no, I have no idea why it was put in Sher's name and then became Atalas. I have no idea at all why that occurred. Thank you. Can I invite you to go back to your statement please in relation to Mr Bowman?---Mr Bowman is page 179 of the transcript dated 16 May 2000:

Mr Bowman was lending money through Gamel Ward from 1978 to 1992. Sometimes he lent on first mortgages, generally second or third mortgages. He also lent on acknowledgments of debt. He would advance mainly against a person's personal cheque at a discounted rate to be cashed at a future time, no longer than 6 weeks. He also once or twice placed a lien over a car, truck and boat. Gamel Ward never held Mr Bowman's money in our trust account. We never made any investment decisions on his behalf. He always decided himself to lend or reject a proposal.

Mr Robert Peterson; Mr Bowman lent Mr Peterson some money, okay:

He was WA's state manager for a firm called Fusions, an international company. His salary package was 58,000 a year, plus car and his wife, Mrs Ella Peterson, was an airline employee on a salary package of 46,000 per year. Their assets stated included five properties with a surplus of 340 and they produced a cash flow showing a surplus of 4400 per month. Other lenders to the Petersons included the Commonwealth Bank, Household Finance Corporation, Westpac Bank, Home Building Society and the United Credit. Properties were valued by various sworn valuers, including John Carmody, Mossensons and Griffiths and Moore.

1/27/ces 27 W.G. GAMEL XN 25/7/00

I do not exactly recall, yet I believe Mr Bowman advanced Mr Peterson four different amounts over two or three properties. Some were repaid in full. They were always second mortgages at best. The principal sum was discounted and the interest rate was well over the market rate on the full amount of the mortgage. Mr Peterson entered into a part 10 arrangement in 1994 owing, besides other creditors, Gamel Ward fees of 2000 or over. It was then disclosed that some years before he had been made bankrupt in the Eastern States and we had no knowledge of the fact in our earlier dealings with him.

Sorry, can we just stop and deal with Mr Peterson briefly? Again the information provided to Mr Bowman in relation to the Petersons' position was information given to you by the Petersons?---By the Petersons, yes. To what extent did you verify the information which was given?---I don't have that in hand, but Mr Peterson's properties were valued. He had a property in East Fremantle which we mortgaged to the Home Building Society and that had a sworn valuation. He had a property in Victoria Park which had a sworn valuation. He had a property in Sorrento which had a market appraisal and he had two blocks of land with sworn valuations. And they were all provided to you?---Well, we had them under our control. DR NEWMAN: Mr Gamel, you never ever made any searches of what was then the Federal Court acting as the Bankruptcy Court in relation to whether Mr Peterson or, for that matter, any other borrower had been through a bankruptcy administration?---No, but I would like to come to bankruptcy in a moment. It's in my submission. MR CHANEY: Yes, can you carry on with Mr Ikin, thanks? ---Daniel Ikin, 1992:

He presented himself to us as a mature young man. His wages -

and I have a wages slip here - was $550 per week as a limestone masonry labourer. He drove a car without P plates and was in a live-in relationship. At various times he owned four properties, including two houses and two blocks of land. No-one ever queried that he was a juvenile until an inspector of the minister for Fair Trading informed us that he was in 1992. This came as a great surprise to us.

1/28/ces 28 W.G. GAMEL XN 25/7/00

Mr Bowman advanced $11,000 discounted to $10,000 by way of a second mortgage. The property had a sworn valuation of 115,000 by Mr Ron O'Connor and a first mortgage arrangement of 70,000 to Mr and Mrs Foreman. The schedule of Mr Bowman's mortgages was he advanced $11,000, he had an opening fee of $1000 which was to be repaid to him, his interest rate was 18 to 20 per cent and the term of the mortgage was 2 months. If correctly calculated, the interest factor for Mr Bowman was somewhere between 72 and 74 per cent, depending on how you worked it.

Could I just ask you about this discounting arrangement? The loan had discounted to $10,000 which means in fact $1000 goes back immediately and interest is paid then on top of - - -?---On the full amount. On the full $11,000?---That was the way Mr Bowman wanted his mortgages written. It's enormously expensive for the borrower, I take it? ---It depends on what the borrower wants to do with the money, but Mr Bowman had been doing this since about 1978 or something. That's all he was interested in. All right, I'm sorry, thank you. THE CHAIRMAN: We will have a break for a moment, Mr Chaney. MR CHANEY: Thank you, Mr Chairman.

____________________ 1/29/ces 29 W.G. GAMEL XN 25/7/00

THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you, Mr Chairman. Just before we leave Mr Ikin, Mr Gamel - - -?---Excuse me, I haven't finished on Mr Ikin. I'm sorry, no; where did you get to?---The interest rate factor. Go on with it, I'm sorry?---Yes, just to refresh on that, he always presented himself as a very young man who had a good income and he was of stated maturity:

Mr Bowman advanced $11,000, discounted to 10 with sworn valuation of 115. A schedule of Mr Bowman's mortgage from the document calculated out the interest factor as 72.54 per cent or 74.52, depending on how you worked it out. This property had substantial improvements carried out on it since it was purchased, including a pergola, brick paving, new kitchen and bathroom. I received a copy of an offer to purchase this property well before the mortgagee sale of 135,000 subject to finance. This sale did not proceed. The property was sold at mortgagee sale for 85,000. We did not become aware of this sale until well after the event. Daniel Ikin promised to repay Mr Bowman. He never did.

You say you received a copy of an offer to purchase. Who provided you with that?---I have a copy of it here. It's through a real estate agent. The purchaser's name I can't tell you offhand, but it was from a real estate agent to offer to buy at 135,000. It was accepted but the finance was not forthcoming. In a letter to the Finance Brokers Supervisory Board of 26 September 94 in relation to this matter, Mr Bowman - this letter is found - I don't think it's necessary to go to it now. For the record, it's exhibit 72, tab 1. He says this - this is in recounting the events after the default of the Ikin mortgage:

En route to Mr Burn's office -

that's a solicitor - I called at Mr Gamel's office where he received a phone call from an accountant representing Mr Ikin and after discussion we agreed to defer legal action against Mr Ikin for 1 week. On 15 February 93 at Mr Gamel's request I signed a release with security to be moved to another property of a higher valuer. Settlement was promised for 18 March 1993 and no documents were ever received. Subsequently I was advised by Mr Gamel that the property had been sold

1/30/ces 30 W.G. GAMEL XN 25/7/00

with a shortfall that would be met by him. I intended forwarding Mr Burn the letter but it wasn't sent when Mr Gamel endorsed the draft, "I agree to repay in full." Despite many requests he has not honoured that commitment.

Did you ever indicate to Mr Bowman that you would meet the shortfall in relation to the Ikin borrowing?---Yes, I did. That was a moral thing I felt about Mr Bowman. What underlaid that moral obligation?---Well, I had been doing business with Mr Bowman since - several reasons for that. I had been dealing with Mr Bowman since 1978. He was my ex-partner's - not Mr Ward, the director of the company before that's father-in-law. We did a lot of business with Mr Bowman both in property and in lending and I felt that this was a loss that he should have been recompensed for. I would like to dispute some of those other things he said in his letter. I haven't seen that before. If you want to look at the letter, I will show it to you?---Well, I think he said there that he received - we were to transfer this to another property. To another security, yes, of greater value?---No, that's not correct. I know that's not correct. In any event, what happened in relation to that payment? I take it you didn't ever pay Mr Bowman the shortfall? ---Well, another situation arose. It was to do with Mr Bowman's daughter. It was my ex-director's wife and I didn't feel obliged from then on. Can you return to your statement in relation to Mr Timms, please?---Nothing on Mr Bowman. No, nothing further?---May 23 - I don't know the page number - Mr Timms:

A former director of Gamel Ward, John Ward, handled this transaction. When he resigned, this was one of the files he claimed as his and has kept in his possession. Mr Timms stated that he met me in February 1996. I cannot recall such a meeting. This doesn't mean it did not take place. I just can't remember. I certainly would not have stated that there was a fund for shortfall for mortgage losses. In 95-96 I worked mainly overseas. I arrived in Perth on 30 January and departed again on 24 February. In this period I worked long house concluding paperwork from one business trip while preparing for the next business trip. I just can't recall meeting with Mr Timms.

1/31/ces 31 W.G. GAMEL XN 25/7/00

Timms gave evidence an investment with Fineland Holdings, a company involving Mr Pleiksna, I think?---Yes. Do you recall those transactions?---No, I don't really recall them except in a general term because Mr Ward always handled Fineline and that account. I didn't have anything to do with that account at all. One of the concerns which he expressed - and the transcript reference on 23 May is at page 379 - was that at the time of settlement there were rates outstanding in relation to this thing and that was the same situation as we have heard occurred in relation to Gomm?---Mm. Why was there no system in place by which you as the broker monitored the settlement and the proper application of the funds for the purpose they had been lent?---Are you saying that when Fineline Homes purchased the place, the property, there were outstanding rates? Yes, that is the evidence. This is Mr Timms at page 379 of the transcript:

I later found out at the time the loan was brokered that there shire rates, water rates and land taxes were outstanding.

I'm not sure without going back whether or not this was refinancing an existing property rather than just a purchase, but it may have been?---Yes. But if I ask you the general question, because we have heard that was the situation in respect of Gomm at the time of purchase, what were the systems, if any, in place whereby you ensured that the funds which were advanced by lenders were advanced for the purpose for which they were lent?---This is always a very difficult question to answer. I don't know this transaction at all, right. I do have so evidence of it but I don't know the transaction. If the property is being purchased, there is another profession that looks at the settlement, that is, settlement agents or conveyancing solicitors, and it is their responsibility to make sure that at settlement all rates and taxes up to that date are paid. That's for the protection of the vendor?---That's for the protection of the vendor. Now, we have heard that Mr Gomm overcame this. I don't know the situation with Fineline, but if they used a professional settling agent - and I would say they did because most people do or a conveyancing solicitor - it is their responsibility to pass that on to the purchaser without any outstanding rates and taxes. This is adjusted, taken out of the purchase price and paid. 2/32/ces 32 W.G. GAMEL XN 25/7/00

Yes?---So you presume that that has happened. Now, from that day onwards - sorry? No, sorry, I was wrong. It's actually for the protection of the purchaser?---Yes. From that day onwards with the outstanding rates and taxes if he purchased it in, say, August and the rates weren't due or July and the rates weren't struck and then we did the mortgage, at that stage all outstanding rates and taxes are met, but from then on he may accumulate them. I don't know. I can't answer that question much more. In terms of the precise question which I have put though, is the answer that where there was a purchase situation, there were no steps taken by the broker because you didn't see it as your responsibility to?---Well, it's the responsibility of another profession. And where there is a refinancing in relation to a security property?---Well, we normally ask whether there are any outstanding against the property. If there are no caveats on there, you presume the person has paid their rates. There are no checks made?---No. No searches done?---No. No inquiries made of the local authorities, rating authorities?---No. You have addressed this question in your written statement to some extent, but Mr Timms at page 380 says that there was a fund available, that you told him at least that if things went wrong - "there was a fund that would pay me my capital if things went wrong"?---I categorically deny ever making that kind of statement because there never was a fund like that. I can't even recall the meeting, you know. I'm not trying to be smart but, you know, I was in Perth for 3 weeks. I just can't recall having a meeting with Mr Timms. I may have. I'm not denying that, but I just can't recall. Can you conceive of any fund to which reference might have been made?---No, there's no fund; no. No fidelity fund or reference?---No, there's no fidelity fund, etcetera, etcetera. There was an expressed assertion by inference made by Mr Timms in a letter of complaint, a follow-up letter, to the Finance Brokers Supervisory Board where he said, "Irrespective of who the client is" - and this was after July 1998 when he was told the matter wouldn't be pursued further by the board. He said, "It's our opinion the 2/33/ces 33 W.G. GAMEL XN 25/7/00

borrower and the broker were in collusion to defraud the lenders." He elaborated on that in his oral evidence by saying, "We are of the opinion that the borrower and the broker were in collusion to have our money and the lender to reduce his mortgage with the Challenge Bank, that not being the purpose for which the loan was originally advanced." Are you able to say anything about that assertion?---No, I have never seen the file because Mr Ward claimed that as his file, but if the loan - we arranged on the block to get first mortgage. We would have had to pay out the existing mortgage so therefore it would have had to go towards - if Challenge Bank was the mortgage, it would have to go there. I can categorically state that Mr Ward would never work in collusion with anyone to defraud anybody. The underlying issue that gave rise to that assertion was that money was advanced on the face of it for the purpose of developing the land rather than discharging existing borrowings?---I can't comment on that too much, but I did know it went to - you say it went to the Challenge Bank to pay out the existing mortgage. From that date onwards I do know a little bit about the development of that property; not a lot. There was a builder and the developer going to build a number of independent townhouses. I can't tell you how many because I don't have that much record, but what I do have is sales evidence of three of those townhouses and finance applications for the three purchases of those townhouses. Finance applications made to Gamel Ward?---Gamel Ward by three people who had actually purchased those townhouses. Now, I have still got those files. Was finance advanced in relation to - did those purchases proceed?---No, well, the development didn't proceed and therefore the finance didn't. Our finance was subject to (a) being a free title or (b) being a strata title being available. We wouldn't advance - well, we couldn't advance money unless we had a title. That's because Fineland went into some sort of administration prior to completion?---Yes. I think I might take you back to your statement, please?

---I would like to comment on one particular thing. I would like to comment on mortgages. Investing in mortgages had never been 100 per cent secure investment. Protection is given by securing property. There is no guarantee that this property will retain its value given a different time and a different circumstance. The old English adage the risk in the investment is reflected by the reward it offers is very true about first, second and third

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mortgage investments. The West Australian newspaper on 10 July 2000 on its front page had a school who had invested money in pooled mortgages. On the same day in the same paper on page 30 it said, "Come along and learn about the risk of your investments," and I think that is correct on mortgages and they state mortgages.

Carry on?---All right: Bankrupts and discharged bankrupts: much is being stated about a class of person who I believe does not legally exist, that is, discharged bankrupts. These seem to be a people who were at one time bankrupts or undischarged bankrupts. I believe that once a person is discharged from bankruptcy they are free to go about their normal business practice. Even the Credit Reference Association clears their name from their records after 5 years. They have paid the price for their bankruptcy. How much longer are people expected to be treated with a bankruptcy stigma.

DR NEWMAN: Mr Gamel, I appreciate what you are saying, but don't you feel that someone who has been bankrupt prima facie is someone who is not a good money manager and therefore anybody who is lending to them needs to consider perhaps more closely than they otherwise would whether or not the proposal that has been put to them is of a sound nature and the person is capable of servicing the debt that they are incurring?---Let me comment. If everybody who had been a bankrupt was denied finance at a later date when they were cleared, a lot of businessmen in this town, and very successfully, would not be there, and I don't wish to name them. Also when a person is bankrupt and comes out after 3 or 5 years or whatever the period is - if he doesn't tell me he's bankrupt, I don't know. If I do know and I submit to someone that this man is a discharged bankrupt without his permission, I have problems with the Privacy Act. That's his private affair. So I say to you that this - once a man or person - I shouldn't say man. Once a person has done his 5 years or whatever the period of time is, he is a free man to walk the streets of Perth and to conduct business. May I correct a couple of things you have said?---I'm not an accountant; you are. No, but bankruptcy is not normally 5 years. It is normally a maximum of 3 years unless someone breaches the act in which case it can be extended for 5 years and in certain cases up to 8 years, but many people are legally entitled to be discharged from bankruptcy after 6 months. It is specifically set out in the Bankruptcy Act. So you need to be aware that if you are advising someone to lend 2/35/ces 35 W.G. GAMEL XN 25/7/00

money on a specific project, there could be bankruptcy situations which whilst I'm not saying they should not lend, they should at least be given the opportunity to perhaps check the person out a little more thoroughly than they would someone who has a clear record?---This is probably very true in many consequences, but I am a finance broker and that's my profession. If a person comes to me and hides his bankruptcy or if I know he is bankrupt - and I have a case like that at the moment which is causing me a bit of heartburn. If I declare that he is a discharged bankrupt and he doesn't me to, I have got problems with him. MR CHANEY: There is an issue there. You mentioned the Privacy Act. You're talking about the Commonwealth legislation?---Well, I'm not up-to-date on it altogether, but his privacy has to be protected. Regardless of whether that is a statutory requirement or not, it is within your control, is it not, to decline to deal with a finance application unless he waives that right if there is a material piece of information that needs to be put to a lender?---Well, that means that every person who comes into my office either has to produce a bankruptcy clearance or declares that he has not been a bankrupt at any time. Yes?---In my opinion it's a bit like saying a person who robs a bank and gets put away for 3 or 5 years, when he comes out he's not allowed to go into a bank again unless he says, "I've robbed this bank before." Banks as a matter of course are reticent, are they not, to advancing money to people who have a history of bankruptcy?---I can't speak for banks but I know that several people I know who have been bankrupts borrow a lot of money from banks. Do you not think it is a decision which ought be taken by the lender, not the broker as to whether or not it is a material issue, whether they share your philosophy? ---It's not a matter of a material issue. It's a matter of my liability lies. I mean, I also have a liability of privacy to the person who makes the application for a loan. If he says to me, "I'm a discharged bankrupt but you can't use it," I can't use it. You can decline to do the business?---Yes, I can decline to do the business, but if the security is right and his discharge was 20 years ago, how much longer are we going to keep him in purgatory? Well, isn't that a decision for the lender though? You may persuade them or the borrower may persuade them that it was an aberration in the past and they should lend, 2/36/ces 36 W.G. GAMEL XN 25/7/00

but shouldn't they know?---Well, I don't know. I can't obviously answer that. Some of the people have been bankrupt 20 years ago. Mr Peterson was bankrupted about 15 years before he even walked into my office. There are no records anywhere. We didn't think that he was a bankrupt. We knew Mr Gomm was a bankrupt 20 years before because I handled some of his mortgages then. What we didn't know was he had been bankrupt in between time. You didn't ask him?---We did, but he said, "I have been bankrupt." He didn't say, "I've been bankrupted twice." He just said, "I have been bankrupt," and we knew that as a fact. I don't think it is necessary for us to debate this, I think, but if I could put this simple proposition: you don't accept the proposition that the bankruptcy history of a borrower is a material matter which any lender would wish to make its own assessment about?---Well, I don't know because I'm not any lender. I'm a broker. I'm not a lender. Yes?---If the person has rehabilitated himself, am I under obligations then to say that this man was a bankrupt 15 years ago, 25 years ago? How much longer does he have to bear that stigma? Your rhetorical answer is, no, you're not under an obligation. How do you draw the line when it ceases to be material?---Well, if he popped out of bankruptcy last week and he told me, I would say, "I want to declare that." And if he said no?---No, I don't know then. I would have to make a judgment on the spot whether I would handle the case or not. Would you return to the next segment please?

---The next statement is about interest paid in advance or paid out of proceeds. Again much has been stated about this practice. There is absolutely nothing wrong with putting aside from a mortgage amount a reserve of payment of interest in advance as long as the lender is aware of it and the total amount advanced still falls under the acceptable loan to value ratio for this type of mortgaging. Banks in Australia have always allowed this practice. They call it part drawing against a line of credit or allowing an overdraft in conjunction with a fixed mortgage.

Do you accept that it is information which is material to the lender to know whether or not money is being retained to service the interest?---Yes. 2/37/ces 37 W.G. GAMEL XN 25/7/00

And that it's an issue which goes to the assessment which any lender makes as to the ability to repay?---That's correct. Thank you?---Sorry. Sorry, go back to the statement please?---My next comment is about the Finance Control Act, the code of conduct and the Finance Brokers Supervisory Board:

The Finance Brokers Control Act 1975 is now 25 years old. It was introduce because of another scandal concerning two or three finance brokers who stole clients' money and did not register mortgage documents at the Titles Office. I have stated many times to interested people, including the chairman of the Finance Brokers Board, the difficulty the board must have in administrating this badly and outdated act. The board receives complaints against brokers. They investigate the complaints, then they call the broker in and hear the complaint against them, then they judge the complaint with the broker's full history in front of them. At my second appearance I was fined $600 for breaking the code of conduct. The chairman stated that my licence would not be affected, yet when my licence was renewed, the board placed an endorsement of restriction on my licence which means that I pay two penalties for one offence. The act has not kept up-to-date with rapid changes in business practices or the changing mortgage markets or the electronic age. It is a local act which only covers Western Australia. The act has many irregularities which are difficult to comprehend. Page 10 of the act, 15(1), "Inspect any documents he finds therein." Even if the documents" - this is the inspector's right or the Finance Brokers Board - are nothing to do with finance in WA, the Finance Brokers Act gives them the right to inspect documents in my office. The code of conduct contradicts itself under Definitions. The "principal" means the person, corporation or identify on or behalf of whom the finance broker negotiates or arranges a loan of money, that is, the borrower. Page 3, 4 and 5 then states, "The finance broker obtains from each intending lender, being the finance broker's principal." Now, we have two principals, the borrower and the lender.

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Code of conduct, general 5(2), "Personally manage full-time." The Finance Brokers Board has ruled that this means attendance of a licensed finance broker's office every day. It makes no allowance for business trips to the country, to the Eastern States or overseas, nor does it take into account the electronic age of mobile telephones, emails, faxes, etcetera, being available to overcome personal attendance at a set location. Several times I have written to the Finance Brokers Board requesting rulings on definitions of sections of the act. Each time the board has refused to make a ruling stating that I should obtain my own legal advice. I would like to say how surprised I was at Mr Urquhart's comments at this inquiry last week. Given that he was chairing a Finance Board inquiry involving Gamel Ward the following day. I also am surprised that the board have taken the view that I was a worry to them given that the majority of complaints against Gamel Ward have little or not substance. In comparison, the far more serious allegations about other brokers apparently caused no worry or were overlooked. I have been before the Finance Brokers Board three times. The first time was a long time ago, probably about 20 years, I think. A complaint was lodged by a person unknown about an advertisement for a certain type of mortgage loan I had arranged. The finance was a new product being released from Melbourne. The board requested that I explain how it worked so they had never heard of such a mortgage. I refused to disclose the commercial terms of this loan to the board. The case was dismissed. The second in 1997 was the much stated hearing when two complaints were dismissed for being over the 3-year time limit. The other complaint was upheld and Gamel Ward was fined $600. The third complaint was last Wednesday and I pleaded guilty against a code of practice violation and the case is adjourned.

Can I just ask you about the case which went on appeal which was following the dismissal of charges being out of time? It went on appeal to the District Court and the appeal was successful by the ministry. There was then a further appeal to the Supreme Court. What has happened to that?---I'm sorry, I don't think it went to the Supreme Court. It was to go to the Supreme Court. I think an appeal was instituted, according to the evidence we have heard, but never prosecuted?---I didn't 2/39/ces 39 W.G. GAMEL XN 25/7/00

have $50,000 to put up the appeal, I'm sorry. I mean, that's what they wanted for an appeal to the Supreme Court because the act - - - In any event, it was a matter of you discontinued that appeal?---The action, yes. I think it is formally not discontinued. Did you know that? It is still actually on foot and never been heard, or don't you know?---I don't know that, sorry. It would surprise me if it wasn't. I thought it would have been finished or whatever you call it, struck off or something. I don't think I will get into your questions of construction of the act. I think that is a matter of your observation. I'm not going to ask you any questions about it?---Mm. I might just take this opportunity to ask you some questions about your attendance before the board in April 1997 which resulted in the renewal of your business certificate with condition added. Do you remember attending before the board?---Yes. That was a separate attendance from any of these? ---That's correct, yes. This was when my licence was for renewal. There was a deal of discussion then about the question of bona fide control?---Yes, there was a lot of discussion about bona fide control. That was always my question. That was really the principal issue that was being dealt with at that meeting?---That and the licence renewal, yes. That was in the context of the licence renewal?---Yes. That was an issue?---That was an issue. The imposition of a condition arose as a result of that discussion at that meeting in April 97. Do you recall that?---No, that's not the reason for the condition on the mortgage. What was your understanding as to the reason for the condition on the mortgage?---Because they had had several complaints in between times and they wanted to restrict my contact with private people. Was that not a matter to which you agreed in 97?---In principle, yes. Well, I had to. If you don't have a licence, I can't operate as a business. 2/40/ces 40 W.G. GAMEL XN 25/7/00

So it was agreement in the face of not much alternative? ---Adversity; there's no alternative. Perhaps I can go to the minutes of that meeting briefly. What the minutes record is this - I'm reading from exhibit 191 which are the minutes of the Finance Brokers Supervisory Board of 9 April 97:

Mr Gamel stated that when Mr Ward left, he took the local clients with himself retaining the overseas clients and three local clients. Mr Gamel said any funds received would be through a solicitor's trust account as no money goes into the Gamel Ward trust account.

Was that your practice all along or was that a new practice?---It has always been our practice for 25 years. So you have never actually put money into a trust account?---Yes, we have to have a trust account by law and there are odd payments go into the trust account, for example, a valuer - sorry, a borrower might give us the valuation fee and solicitor's costs in advance and things like that. That has to go into our trust account for disbursement but the actual physical capital amount or the amount lent never goes into our trust account. It goes straight to a solicitor's trust account. DR NEWMAN: Mr Gamel, could you just clarify, why does the valuation fee come to you and go into your trust account? Why wouldn't the borrower normally be responsible for paying the valuer himself if he arranged the valuation?---The borrower doesn't always arrange the valuation. The lender has the right to nominate the valuer and if they are happy, we nominate the valuer. It only happens - it hasn't happened for the last 2 or 3 years, but if the cheque is made out to us, we put into our trust account, the 2 or 3 hundred dollars, and then we pay it to the valuer. But this is for a lender's valuation, not a borrower's valuation?---No, the borrower pays for the valuation. Right?---But the valuation is addressed to the lender. Now, if the borrower gives us a cheque and instead of making it out to the valuer, say A.A. Moore and Associates, it's made out to Gamel Ward, we have to bank it in our trust account - we can't bank it in our ordinary account - and then when Mr Moore's account comes in, we have to send it back to Mr Moore. We hold that money on trust. We don't hold physical capital amounts on trust. That's fine; I just wanted to confirm that you weren't paying out of your trust account for a borrower's valuation because that had me a little puzzled. If it 2/41/ces 41 W.G. GAMEL XN 25/7/00

was the borower's responsibility, why didn't he pay, but I quite understand a lender does have a right and in fact should get his own or her own independent valuation and that would be the borrower's responsibility to pay for it so that's fine?---Correct. I understand what you are saying?---Yes. MR CHANEY: The condition which was imposed as a result of that meeting was that the licence was subject to the condition, "The licensee shall not negotiate or arrange any loans of money unless in respect of that loan the lender is either a licensed credit provider or a body mentioned in section 7(1) of the Credit Administration Act 1984." To what extent did that condition change your practices or the range of business that you undertook? ---Well, it had a devastating effect because always I had been a private mortgage broker. I was not a pool mortgage broker and that kind of thing, but always I had a client base of people who borrowed money and we got it from private people. The first year that was in I think my income dropped over $100,000 in that year so it was a fairly big penalty for one conviction under the Finance Brokers Act. You have told us in the first page of your statement:

We receive and prepare applications and present these to various known lenders, both institutional and private lenders, to obtain the best mortgage for a borrower.

How do you do that consistent with the condition on your licence?---Private lenders are also solicitor's funds which are exempt under the act. I write to a solicitor and he passes it on to his client. Under the Finance Brokers Control Act?---Yes. So I write to the solicitor and the solicitor passes it on to his client. I address the loan to the solicitor. You don't take that as being negotiating a loan in respect of somebody who is not a credit provider?---Well, I checked that with one of the members of the board and he said that as I wasn't having any contact at all with the private person, the solicitors were exempt from the act. Do you use particular solicitors that you have that you deal with?---Yes. And they have a particular base of clients?---Mm'hm. Are they clients that you formerly acted for?---Only one, as far as I know, but I got that originally. They used the same solicitor then as they do now. 2/42/ces 42 W.G. GAMEL XN 25/7/00

Well, in that sense, how has anything changed?---Well, I can't - I don't write to - the person in question is a lady. I don't write to the lady. I write to her solicitor. He checks it, tells me what I have to do and then he presents it. If he doesn't like it, it doesn't go any further. He mightn't take it to her. He may give it to someone else. I don't know who he takes most of them to. You have told us that in respect of a number of these matters of complaint that concerned the board, presumably the subject of a discussion in 97, Mr Ward had been the broker or the actual person involved with the loans. Is that right?---Let me explain that situation. Up till Mr Ward's retirement from the firm under the Finance Brokers Act he is the finance broker in control so everything has to be against him. He takes responsibility for the business. Yes?---When he resigned, I took over as the finance broker in bona fide control. Accepting that, that is, the ultimate responsibility regime, the hands-on person in some of these loans that were the subject of complaint to the board was Mr Ward and in some cases it was you. Is that correct?---That would be correct. Do you know whether anything was done by the board in relation to Mr Ward's licence to impose a similar condition to that which applied to Gamel Ward's licence? ---My understanding is nothing. When we got fined the $600, he was the licensee of the company at that stage and his licence wasn't endorsed. I, who took over, had my licence endorsed. The company was actually the licensee - - -?---Yes, the company was, but you still have to have a - - - - - - but you both as directors had responsibility? ---Yes, but you still have to have a director who's responsible for the business. A nominated person?---Nominated. Can I take you back to your statement, thanks, to the heading Privacy?---Right:

I would like to comment on privacy. Privacy today is of paramount importance both to the lender and the borrower. At present if a party complains, the broker's file may be inspected and all of the other party's financial details are revealed. There should be some safeguards against invasion of the minister of Fair Trading inspectors of a client's or other person's private financial affairs.

2/43/ces 43 W.G. GAMEL XN 25/7/00

Carry on? ---The minister for Fair Trading inspectors: it is very easy to complain to the Finance Brokers Board who in time passes the complaint onto the minister for Fair Trading. The inspectors of the minister of Fair Trading seem to believe that the broker is wrong until he proves otherwise. If the original complaint is without foundation, they search the file to see if there are any breaches of the act they can act on. Every complaint, whether valid or not, is registered as a complaint against the broker. As a whole, I do not understand this act, for example, the 3-year time limit for which we had complaints dismissed. I have clashed several times with inspectors over their powers as to the extent of their jurisdiction which is in fact WA.

THE CHAIRMAN: Mr Chaney, are you going to be another half hour? MR CHANEY: I think not. I don't have a great deal more to ask Mr Gamel. THE CHAIRMAN: Very well, thank you?

---Case number 1 -

which I was investigated by the - the complaint was received from a Singapore firm of accountants that they did not receive what they believed was their share of commission on a transaction. The property was in Singapore, the borrower was in Singapore, the lender was in Singapore and the complainant was in Singapore. The Fair Trading inspector demanded the file. I refused, pointing out to him this was a state act and his jurisdiction stopped at the West Australian border and there was no further action. Case 2: another inspector at a later date came into my office on a local matter which consequently didn't proceed. He pointed to another file on my desk stating he wished to inspect this file. I refused, stating that this file was an application for a foreign government agency and the security was in another country. The lender was in a third country. He became very upset, stating the Finance Brokers Control Act, page 10, 15C which I have alluded to before, which means he can inspect any file on my desk. I stated that he would cause a diplomatic incident if he touched this file. He left, stating that he would get even with me for this.

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I believe I have had 12 to 14 complaints against me. The complaints are recorded at the Ministry of Fair Trading regardless of whether they have substance or not. The example of this is advertising for loan funds, the Singapore complaint, two ladies who disagreed over the payout amount of both loans, both complained, two complaints, no action, Mr Bowman's two complaints, Mr Timms and Ryder, plus others. These complaints remain on my record regardless of their validity under the Finance Brokers Act. My experience with the Fair Trading inspectors is that they were investigating. They often try to associate me with people in no way involved with transactions being investigated. They made accusations of collusion between parties unrelated to me or to my clients' transactions. I have that in the transcript of the last situation. It seems to me that the Ministry of Fair Trading inspectors can make wild statements with little information or truth to back them up, yet face no repercussions from anyone. Mr Wallace's statement in this inquiry at page 28 on 13/7/2000: "Mr G" could be Mr Gamel or Mr Gomm, "It was quasi-fraud, if not fraud."

I would like to stop there and see if there is anything before I go on to the last paragraph. MR CHANEY: No, other than to clarify. I think the reference to "G" was clearly to the borrower?---The way I read it, it was clearly to me. I think you can take it that it wasn't, Mr Gamel. No, I have got nothing in relation to that matter, although there is one other topic I want to deal with separately. Perhaps you might - - -?---Have we passed that topic? No, it's an unrelated or incidental matter?---Right. I will ask you now if you want to finish off with your closing remarks?---I would like to finish that off, but you ask your question first. Yes, all right. I just want to ask you about a number of complaints. Again they were mostly the Gomm complaints, although it also relates to Timms and some other, where the individual complainants were sent letters around 13 July 98 advising them that the complaints wouldn't be proceeded with because they were not clients of the broker. Were you aware at the time that those letters went out of the fact that the complaints were being disposed of in that manner?---No, the first I heard about it was when I read the paper in this inquiry and stated 2/45/ces 45 W.G. GAMEL XN 25/7/00

that this - one of the inspectors, I think it was Mr Wallace, said that this letter went out. I had no prior knowledge of that at all. Were you aware of the complaints? You had been through that interview with Mr Wallace at some length dealing with them all so you were aware they were on foot?---Yes, I was aware. Did you know anything about what happened to them before reading the paper?---No, none whatsoever. You didn't inquire, I take it?---Well, as you can see, the transcript was a very interview. He was interviewing me about the whole of Gomm's transactions. As I have said before, at one stage he had 73 properties of which we probably had 23 mortgaged. So is it the case that after that interview you simply heard nothing more from the ministry about those? ---Nothing at all; nothing at all. In particular after July 1998, did you ever have any approach from the ministry to try to talk to you and assist you to ensure compliance with the code of conduct or to - - -?---No, never. - - - deal with any of the problems that might have emerged in the ministry's view as a result of those inquiries?---No, never. Thank you?---The last page, Mr President:

Another instance was during my appearance before the Finance Brokers Board in 1997. Mr Rodney John Higgins, inspector from the Ministry of Fair Trading, in his statutory declaration did solemnly and sincerely affirm and declare as follows - and the reference in his declaration is 5H: "In the end Collac" - that's the borrower - "defaulted and the lender received nothing in the ensuing mortgagee sale." The lender at the inquiry, Mr Bladen, at the Finance Brokers Board stated that no such mortgagee sale took place and further that he received 100 per cent of his capital, all his interest and all his costs. Mr Higgins admitted he signed a false declaration. I understand there has been no action taken by the Ministry of Fair Trading or the police against Mr Higgins for signing a false declaration.

Is that a matter you have ever taken up with the ministry or the police subsequently?---I have taken it up with the chairman of the Finance Brokers Board who says it's 2/46/ces 46 W.G. GAMEL XN 25/7/00

inconsequential that one of the inspectors signed a false declaration. I have nothing further, Mr Chairman. THE CHAIRMAN: Mr Allanson? MR ALLANSON: No, I have nothing. MR HOOKER: Not for me, sir. THE CHAIRMAN: Thank you, Mr Hooker. Thank you very much.

(THE WITNESS WITHDREW) THE CHAIRMAN: We are adjourning now, but I would just like to say that I have to make a short statement because that is the end of the evidence that we are calling with respect to the Finance Brokers Supervisory Board. We have called investors, brokers, auditors, valuers, ministry witnesses and the board and I think everybody will agree that over 90 per cent - probably greater than that - of our hearings have been in open hearing and we now have, the committee is of the opinion, a comprehensive overview of all the problems that have arisen and which led to the creation of this committee. First of all, we have not called any others because of the undertaking we gave to the fraud squad. Everybody will be aware that they have been active over the last month or so and we have worked in close cooperation with them. We have undertaken to give our report with respect to the Finance Brokers Supervisory Board by 1 September and we will therefore concentrate on that and the other boards after that date, but in the meantime, of course, we have beginning next week, I think it is, the submissions. MR CHANEY: Monday of the week after. THE CHAIRMAN: The week after. We will now concentrate on that report that we have to give and the week after next we will be hearing submissions from counsel who are interested and have appeared before us and then we will resume hearings hopefully on - what date is it, 1 November? MR CHANEY: 1 September. THE CHAIRMAN: 1 September. MR CHANEY: It is the first week of September. THE CHAIRMAN: The first of September or whatever it is, following after we have handed in our report. 2/47/ces 47 W.G. GAMEL XN 25/7/00

MR CHANEY: Yes, I should say, Mr Chairman, there may be some small tidying up matters; certainly there will be the tender of a number of written submissions that have been obtained but it is unlikely there will be any further oral evidence, as you have indicated, subject to my reviewing a couple of recent submissions and just ensuring that oral evidence isn't needed to supplement those. THE CHAIRMAN: I didn't know anything about those but, anyway, it will subject to your election. MR CHANEY: Yes. I anticipate with great hope that this is in fact the end of the oral evidence, as you have indicated. Can I while I'm on my feet, because I forgot to do it earlier, tender this statement. THE CHAIRMAN: Yes, the statement. MR CHANEY: The statement of William George Gamel. THE CHAIRMAN: Mr Gamel's statement will be exhibit 210. EXHIBIT 210 Mr W.G. Gamel's statement MR CHANEY: And similarly, Mr Chairman, I tender the bundle of correspondence in relation to proposals on Gomm matters, the first being a letter from Gamel Ward Pty Ltd to Mr Poole dated 13 December 94. THE CHAIRMAN: Yes, that is exhibit 211. EXHIBIT 211 Bundle of correspondence re proposals on

Gomm matters THE CHAIRMAN: Any more? MR CHANEY: No, I think that was it. THE CHAIRMAN: At this stage. Thank you. We will adjourn.

____________________ 2/48/ces 48 25/7/00

GUNNING COMMITTEE OF INQUIRY INTO FAIR TRADING BOARDS AND COMMITTEES MR I.R. GUNNING, Chairman DR D. NEWMAN, Member MR D. BLIGHT, Member TRANSCRIPT OF PROCEEDINGS AT PERTH ON MONDAY, 7 AUGUST 2000 Transcription by - SPARK AND CANNON PTY LTD 3rd Floor International House 26 St Georges Terrace PERTH WA 6000 Telephone: 9325-4577 1-3/1/rmo 1 7/8/00

THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Thank you, Mr Chairman. Before we commence with addresses, there are some matters of tidying up some final evidentiary material which I would like to attend to. You have in front of you four volumes of documents and I wish simply to tender those. In relation to a couple of them I want to take you to them and indicate to you what they contain and their significance. The first two volumes, volumes 16 and 17 - - - THE CHAIRMAN: Are you referring to volume 16 to 19, are you? MR CHANEY: Yes. THE CHAIRMAN: Volumes 16 and 17 contain - sorry, and 18, indeed, contain three volumes of submissions. Many of those submissions were received early in the inquiry and others have been received over the months that the inquiry has been in train. They are submissions which for the most part go to problems which the individuals making the submissions have had with different finance brokers, to some extent made complaints about issues to do with the board or the general consequences of the finance brokers problem. They are matters about which the committee has heard a great deal of evidence and the decision was taken not to call those people to elaborate on their submissions but they are simply tendered as part of the record and providing, for the most part, further background material against which the terms of reference can be approached. So I tender the three volumes; that is, 16, 17 and 18, of submissions. THE CHAIRMAN: I suppose they had better have separate numbers. MR CHANEY: I think if the volumes are separately numbered I don't think it's necessary to separately number the submissions within them. THE CHAIRMAN: No, no, I didn't mean that. MR CHANEY: Although we could conveniently do it. There is an index - no, it's not convenient. THE CHAIRMAN: But I mean as exhibits. They had better have a separate exhibit number. MR CHANEY: Yes, with respect, Mr Chairman. THE CHAIRMAN: So it will be 212. MR CHANEY: 212 is the next number, as I understand it. 1-3/2/rmo 2 MR CHANEY 7/8/00

THE CHAIRMAN: Yes, 212, 13 and 14. EXHIBIT 212-214 Three volumes of submissions MR CHANEY: Thank you. Perhaps I might deal with the contents of a couple of those submissions before dealing with the final volume. The first submission to which I wish to draw your attention is one which is contained in volume 18, a submission by Mr McLernon of Countrywide Home Loans Ltd. That submission arose as a result of concerns on the part of that organisation, of which Mr McLernon is a director, of evidence given to the inquiry concerning a qualified audit certificate received in respect of Countrywide Home Loans. The submission sets out the background to the qualification to the audit, how it arose and what was done about it. The matter received some publicity and was a matter of extreme concern to the organisation because of the potential damaging effect of the inferences which might have been drawn from the evidence which was given. I won't go through the submission in great detail, other than to say that it identifies the source of the problems which led to the qualification in 1996 in its audit in relation to the 1995 year and that was that the broker introduced a system of electronic banking which was used in conjunction with a cash flow guarantee which that broker provides to its lender clients. What the submission explains is that the use of an electronic banking system enabled the broker to actually pay interest to investors on money held in the trust account because of the ability of an electronic system to actually identify the interest attributable to the particular balances within the trust account. Problems arose and were foreseen as potentially arising because of potential failures in the electronic system to have funds available when they were anticipated to have been available or being dishonoured after finding their way into an account but that dishonour occurring after the funds had electronically been transferred out of the account to the borrower who was entitled to the interest, and to cover that eventuality what the broker did was put in money into the trust account of its own money in a separate fund to ensure that at no time did the trust account in fact fall into overdraft, even though individual ledger cards may do so. There was a problem with that, in that that float proved to be inadequate and that was the subject of the qualification. What the submission explains is that in order to overcome that problem the auditors and the brokers worked together and indeed the ministry partook and had its input - sorry, the board had its input through the relevant officer at the ministry so as to create a system where if there were a dishonour of some incoming funds, 1-3/3/rmo 3 MR CHANEY 7/8/00

whether by cheque or electronic transfer, that dishonour, instead of being debited against the account of the party in respect of whom there was a dishonour, it would be debited against an account outside the trust account of Countrywide, so that at no time did any individual ledger within the trust account actually go into debit and Countrywide was by virtue of that system honouring its cash flow guarantee. So that is the system which arose and Mr McLernon was anxious that it should be brought to the committee's specific attention in view of the evidence that had been given so as to make it clear that the problems arose out of what he would say were an attempt to ensure the fact that there was no risk to any investors' funds and that the cash flow guarantee given by the company was honoured. What one might say about that - well, indeed there are some issues which arose and that was the reason that this matter arose in evidence in the first place, and that is the whole issue of any overdrawn ledgers is a matter of significant concern and that remains an issue to be addressed and I will address it in my closing submissions. Also indeed the particular purpose of the evidence being adduced in the first place was to examine the way the qualification was dealt with at the board level and the adequacy of that treatment. So that is that submission. The second submission in relation to which I wish to make some comment is simply to draw your attention to the fact that there has been a supplementary submission received from Mr Ogilvie, the regional commissioner of the ASIC, which is also in volume 18, which simply addresses three issues which have arisen in evidence as a result or subsequent to Mr Ogilvie giving evidence. They were responses in relation to three issues. One was the question of funding of liquidators by the ASIC, which was the subject of some comment by both Mr Walker and Mr Shave, the issue of enforcement action taken by ASIC against Blackburne and Dixon and the impact that may have had on the board's operations in relation to that firm, and thirdly, the issue of cooperation between ASIC and the ministry or board and any impediments to full cooperation that might have been discussed. Again, those latter two issues were issues which arose from the evidence of Mr Shave and Mr Walker and I don't want to say any more. The submission speaks for itself and simply puts ASIC's response to those issues. The third document - it's really not a submission, but it's a statement of evidence, is a statement by Mr Bull, who was employed at the ministry, had an accounting background and was responsible for dealing with audit certificates. The committee will recall the 1-3/4/rmo 4 MR CHANEY 7/8/00

evidence was Mr Bull suffered some ill health, had a stroke a few years ago, and ceased working at the ministry, although remained employed for some time as a result of that. THE CHAIRMAN: Yes, the committee did ask you, Mr Chaney, to inquire of Mr Bull and/or his medical people about his appearance. What transpired? MR CHANEY: Yes, inquiries were made. I saw Mr Bull myself. The upshot of it was that his medical condition is such that his advice was against giving evidence and I took the view that the matter could be adequately dealt with for the committee's purposes by taking a statement, which Mr Bull was entirely cooperative and helpful in having prepared, but that he ought not be subjected to court proceedings or to actually coming and giving oral evidence and being cross-examined in view of his health. THE CHAIRMAN: Thank you. MR CHANEY: What the statement addresses, Mr Chairman and members, is essentially three issues: the first, he deals with his role in the pro-active compliance work which he carried out on behalf of the ministry in the audit area and the background to that, the fact that it spanned not just finance brokers but in fact principally arose in connection with real estate agents, also covered settlement agents and finance brokers, and the statement, without going into detail, in it deals with what he did in connection with that particular program. The second broad area which it covers is the Global Finance audit about which there was a deal of evidence, in particular from Mr Nicholas of Marsden Partners. There were really two issues which arose in relation to that. The first was the subject of the qualification to the audit which dealt with interest being paid on moneys invested from the trust account and then there was the issue of overdrawn ledgers which appeared in the statement of trust balances which accompanied the audit certificate showing initially one overdrawn account and then in relation to an interim audit some 14 overdrawn accounts. Mr Bull's statement deals with that issue and essentially sets out his position in respect to the overdrawn balances, and perhaps because that's a matter of particular interest I draw your attention to paragraphs 14 to 17 at page 4 of the statement. This relates to Mr Bull's attitude to the question of overdrawn ledger balances within the trust account and also his contact with the auditors in relation to that particular issue. He says at paragraph 14: 1-3/5/rmo 5 MR CHANEY 7/8/00

Nor do I recall seeing the interim audit report which Marsden sent to the board in September 96. It was my usual practice to check through the reports and identify any irregularities in the statements, marking the document as I went. I note that there are no such marks of mine appearing on the interim audit report and statement of funds which are on the ministry file. I do recall having one telephone conversation with Roger Nicholas of Marsden Partners at some stage about the issue of overdrawn balances in trust accounts. My recollection is that I viewed this practice as being acceptable so long as there were sufficient broker's or agent's own funds in the buffer account to cover any shortfalls in individual accounts and provided that the overdrawing only resulted from an error and that as soon as the error was detected the funds were immediately transferred from the agent's or broker's funds so as to remove the client's deficit by an appropriate adjustment. I believe that I had other conversations with Roger Nicholas by telephone and I went to see him on at least one occasion. I am not able to say when those conversations occurred or precisely what was discussed. If he raised with me the question of debit balances in my trust account I most probably would have told him that my attitude was as set out in paragraph 15 above -

which is the paragraph I have just read - The concept of a licensee holding its own funds in a trust account to cover clerical errors and to ensure that there sufficient funds in the trust account is quite common amongst real estate agents provided funds are immediately applied to the credit of an overdrawn ledger as soon as the error which led to the debit balance is discovered. I had no objections to the practice. The practice was acceptable only in relation to debits which occurred by accident and so long as any deficit in the client's ledger was replenished from the unclaimed commissions account. Any other debit balance in a trust account was unacceptable.

THE CHAIRMAN: Well, I think you know, Mr Chaney, that the committee have queried that practice. MR CHANEY: Yes. Well, it was important - - - THE CHAIRMAN: I'm sure we will have something to say about it in due course. MR CHANEY: Yes. The third area dealt with by Mr Bull in his statement is the question of the Countrywide audit and it deals principally with the issues which were of 1-3/6/rmo 6 MR CHANEY 7/8/00

concern when the matter was first raised, namely the way it was treated at the ministry end, and Mr Bull was the man who dealt with it. I don't want to take you through the detail of that statement, other than to draw your attention to the fact that that's where his response in relation to that issue is found. So they're the only submissions upon which I wanted to make any additional comment. Otherwise they substantially speak for themselves. There is a fourth folder in front of you which is entitled volume 19 and that's something of a miscellany of additional documents which are very much in the tidying up mode. The first of them is a general chronology which is really more in the form of an aid rather than obviously any primary evidence, but it is a document which has been prepared by the staff of the inquiry by drawing from submissions, the evidence, documents tendered to the inquiry, a chronology of significant events, starting as early as 1975, the Law Reform Commission report on mortgage brokers, through to April 2000. It just is a document which enables you when you are looking at a particular event which has occurred to see where that event fits in the context of other events that have happened from time to time. So as I say, that simply has the status, in my submission, of an aid to the committee in its deliberations. I think it might be appropriate, Mr Chairman, to actually mark these documents separately. There are only four of them. THE CHAIRMAN: Very well. MR CHANEY: I tender the chronology. THE CHAIRMAN: The chronology will be exhibit 215. EXHIBIT 215 Chronology of events THE CHAIRMAN: Yes? MR CHANEY: The next in the pile is a copy of a letter from Blackburne and Dixon to Mr and Mrs Miller. Mr Miller gave evidence - I don't have the date at hand, but early in the piece. He had invested in the Dunsborough motel resort investment. During the course of examination I asked him whether he had a copy of the letter of proposal in relation to that matter which dealt with Mr Papotto's investment. He subsequently provided this letter to the committee and I tender it in that context. It's a letter dated 12 August 1997, Blackburne and Dixon to Mr and Mrs J.W. and M.S. Miller. THE CHAIRMAN: That's exhibit 216. 1-3/7/rmo 7 MR CHANEY 7/8/00

EXHIBIT 216 Letter dated 12/8/97, Blackburne and Dixon to J.W. and M.S. Miller

MR CHANEY: The third document in the bundle is a copy of a letter from Mallesons Stephen Jaques to me enclosing a facsimile message confirmation sheet of 13 March 1998. This related to evidence given by Marsden Partners and also subject of examination of Mr Willers, in particular. There was produced by Marsden Partners a facsimile of 13 March 98 to Mr Willers. There was also a similar facsimile addressed to the secretary of the board in substantially the same terms. The board's files, you will recall did not have any record of having received the document at that time. This fax confirmation sheet has been produced by Marsden Partners confirming the transmission of at least one of those documents, it would seem, the one addressed to Mr Willers, on 13 March 1998. I tender the letter of 13 July 2000 from Mallesons Stephen Jaques to counsel assisting with its attachment. THE CHAIRMAN: Exhibit 217. EXHIBIT 217 Letter 13/7/00, Mallesons Stephen Jaques to

counsel assisting, with attachment. MR CHANEY: Finally there is a letter from Phillips Fox, again to counsel assisting, attaching a bundle of documents in relation to the volume of communications handled by the minister's office. This was produced following a request from Mr Blight, or some questions from Mr Blight, in relation to the general background picture of the operations of the minister's office. It contains a substantial amount of detail as to the quantity of inquiries and correspondence, etcetera, undertaken through the ministry's office at the relevant time. I tender the letter. THE CHAIRMAN: Exhibit 218. EXHIBIT 218 Letter, Phillips Fox to counsel assisting,

with attached bundle of documents. MR CHANEY: Mr Chairman, that now completes all of the evidence in relation to the Finance Brokers Supervisory Board aspect of the terms of reference. THE CHAIRMAN: Yes. MR CHANEY: Mr Chairman, the question now of addresses arises. I have had discussions with all of my friends appearing for others who seek to address the inquiry as to the order in which addresses should proceed. There are different approaches which one might take to the appropriate order, but the upshot, for reasons which I will explain in a moment, is that I should address first and those appearing for others will follow, but with the 1-3/8/rmo 8 MR CHANEY 7/8/00

committee's indulgence, I would reserve to myself the right to deal in reply with any issues that may arise in the context of submissions by others. THE CHAIRMAN: Have you arranged with your learned friends who should follow you in sequence? MR CHANEY: Yes, and perhaps that's worth mentioning. Mr McKerracher, the ambit of whose interest is much narrower than everybody else, will follow me. As it happens, he has commitments tomorrow which will prevent him appearing, and I have agreed with him that if despite my earnest hope I am not finished today, what I will do, and we will review this at lunchtime, is deal with those matters in which he has an interest shortly after lunch with a view to him interposing his submissions as they are of narrow compass and as you are aware, written submissions have already been filed by Mr McKerracher in relation to them. So we will be able to one way or the other facilitate Mr McKerracher's other commitments. After that it's a matter I haven't yet - I'm not aware of whether Mr Hooker or Mr Allanson propose going next, but I - - - THE CHAIRMAN: Well, they will advise you in due course. MR CHANEY: Yes, and I for my part am happy entirely to leave it to them. Mr Chairman, the terms of reference are really the starting point obviously in terms of relevance to this inquiry, and they involve a number of elements in the task which is before this committee. The first element is to review the effectiveness and efficiency of various aspects of the operations of the Finance Brokers Supervisory Board relevantly for present purposes. The second element is to report on those matters. The third element in the committee's task is to recommend administrative or legislative changes necessary or desirable to improve the administration and enforcement of legislation. The fourth element is to refer allegations of criminal, corrupt or improper conduct which warrant further investigation to the appropriate investigative and prosecuting authorities, and the fifth is to consider and recommend a mechanism for the future reporting by boards of allegations of criminal, corrupt or improper conduct to the appropriate authorities. In addressing the board in closing submissions in an inquiry such as this there are really two purposes, in my submission, which might be achieved. The first and probably the principal objective in undertaking closing submissions is to enable parties against whom adverse findings may be made or in respect of whom findings may be made which adversely reflect upon their character or 1-3/9/rmo 9 MR CHANEY 7/8/00

performance or whatever the opportunity to be heard and to put their position to the inquiry so as to ensure that the inquiry takes into account the positions of each party in full submissions and in effect extends natural justice to those parties. The second purpose of an address is that it may provide - hopefully it will provide assistance to the committee in the task which it will have to perform in writing its final submission by conveniently addressing the evidence in relation to various issues and identifying in some clear and orderly way the issues which, at least to those appearing at the bar table, ought to be addressed. It is because of that first primary purpose that following discussions with other counsel I determined that it was appropriate that I should go first, because obviously until such time as the scope of the potential findings is outlined, the scope for any submissions by others is not clear, and although they have had the benefit of being present throughout and therefore no doubt the ability themselves to identify the issues, at the end of the day the balance became better served, in my submission, by my going first and identifying those areas. In doing that there is a limit to the range of the submissions, because the area for potential adverse findings is really only in that first element of the task; that is, reviewing the efficiency and effectiveness of the Finance Brokers Supervisory Board, which involves the analysis of a whole series of transactions which have come out in evidence throughout the course of the hearing. I have sought to give some preliminary notice, albeit not very preliminary, to my friends by circulating to them on Friday evening an outline of the submissions which I will be making. So they have had some opportunity of some limited prior notice, but will obviously in the course of my submissions be able to understand hopefully fully the nature of the potential findings which in my submission are appropriate for the committee to make. In terms of how far addresses can achieve the second purpose; that is, in assisting the committee in its task, clearly the submissions which will be made will hopefully assist you in dealing with for the purpose of your report all of those issues dealing with effectiveness and efficiency. There is a limited scope to which certainly at this stage of the overall inquiry the third and fifth task, or at least all of the other elements, can actually be aided by submissions, because the recommendations as to the administrative or legislative changes which are necessary 1-3/10/rmo 10 MR CHANEY 7/8/00

or desirable and mechanisms for future reporting by boards of allegations of criminal, corrupt or improper conduct are all issues which will require the examination of the other boards and the committee which are the subject of the terms of reference so as to gain an overview as to what works in one area and what doesn't work in one area, the extent to which changes in respect of one area may impact on another, the value of economies of scale of dealing with all boards in the same manner, and so on. All of those sorts of issues can only really be determined at the end of the day. So for the purpose of submissions what I propose to limit myself to in respect of those elements is only to seek to identify those issues in respect of which recommendations may need to be made. Now, the extent to which the report which is due on 1 September can deal with those recommendations and the extent to which it may require further evidence before that can be dealt with is a matter that can only emerge as the committee undertakes its task of finalising the initial report and considering those issues. So what I have done in the outline of submissions, which I will take you to in a moment, is having gone through all of those efficiency and effectiveness issues which seem to me to be important, I then have extracted from that analysis the issues which emerge, hopefully as an assistance to the committee in saying, "Do we need to address that issue, and if so, what is our solution to the particular problem?" So that gives some indication, Mr Chairman and members, as to the approach which I propose taking. As I have indicated, I have prepared a document which I have entitled An Outline of Closing Submissions. It is probably slightly more elaborate than the classic outline of submissions, in that it's rather more than simply point form observations, but on the other hand it does not go into the detail of the various documents to which it refers. That has been provided to you, I understand, in a black binder. I take it each of you has that. There are a number of attachments to it which I will deal with as we go through. What I propose to do orally is not to take you to each of the exhibits referred to and the transcript referred to, but really simply to make some hopefully relatively brief comment on the various points which are made throughout the document and speak to the document rather than try to spend what would take several days to do what ultimately the report will do, which is to fully address these issues and explain in the full context the various observations that are made. I have arranged - I see in fact they have arrived - copies of that document to be made available to the press so as to assist them in their public function of firstly understanding what is being said and (b) hopefully reporting it accurately. 1-3/11/rmo 11 MR CHANEY 7/8/00

So if I can ask you - I will work through the document and I think it would be of assistance if you have it before you. I start by reviewing the objects and role of the Finance Brokers Supervisory Board. Really the point which needs to be made in this context is that the board's role is not just one particular function but is a combination of functions: licensing, regulation and supervision of finance brokers. It was born of - that is, the act was born of problems associated with losses suffered by investors at the hands of unregulated finance brokers prior to 1975 and clearly that prompted the Law Reform Commission report which ultimately led to the enactment of the legislation. The significant issue is the element of supervision within the act as an important function of the board against which one measures, in my submission, the tasks or the approach which the board had to issues which arose before it from time to time, and in short, the conclusion which much of the analysis reaches is that that particular aspect of the board's duties was one in which it fell down. It was, the evidence does indicate, in my submission, relatively efficient and effective in the process of licensing individuals and renewing their annual certificates, but when it came to some degree of supervision in the sense of some ongoing monitoring of the activities of the industry the board proved to be less than effective. To some extent - and in this sort of broad summary way one should also acknowledge that to some extent the provisions of the act made an effective supervision of the industry more difficult than may have been the case were additional powers given to the board, were functions expressed in a different way, were the provisions in relation to how you bring an inquiry clearer and easier to understand and so on, and the fault, if one gets to the issue of fault, does not necessarily lie with the ministry, the board or individuals in all cases. To some extent the constraints of the legislation themselves played some part. The second broad issue commented on in the submissions is the context in which the Finance Brokers Supervisory Board found itself within the Ministry of Fair Trading. The submission by the ministry gives the empirical information about the finance-broking industry and its part within the overall portfolio of the ministry, namely one of 47 acts administered by it, the board being one of 13 statutory authorities under its portfolio. Acknowledgment needs be made of the fact that 152 current business certificates in relation to licensed finance brokers existed in 1998 compared to some 10,000 apparently active real estate agents or representatives and some 300 settlement agents and complaints in relation to finance brokers being in 1998-99 some 71 out of a 1-3/12/rmo 12 MR CHANEY 7/8/00

total number of 7264 formal written complaints received by the ministry in that year. So the picture is painted by the ministry in its submission of the volume of responsibility which it had and in numerical terms the relatively small part which the Finance Brokers Supervisory Board played in that context. It gave rise to a number of consequences, whether directly or indirectly, namely that there was extremely limited resourcing of this board. There was a difficulty at times, and certainly after the review in 1996 when the Real Estate Board effectively became self-funding, in locating a place for the Finance Brokers Supervisory Board within the ministry. It was, I think, effectively somewhat homeless for a while and then was finally placed. The third thing which emerges from the evidence is that there was a very limited application of resources in particular in the investigations area, so that up until 1996 there was at all times either .5 or less of a full-time equivalent employee engaged in finance brokers' matters, from 1996 to 99 the number increased to one and only after problems really became evident were the resources put into investigations in a significantly increased way. The comment which in my submission needs to be made about that context is that it can be misleading simply to look at the numbers and to see that as some basis upon which it was reasonable to give less priority to finance-broking matters, and that is because of the serious consequences of potential losses at the hands of finance brokers compared perhaps to a vast number of other types of consumer complaints that may be received. It is clear now, certainly, with the benefit of hindsight, that the finance-broking industry was deserving of a disproportionate amount of attention relative to other areas within the ministry than it achieved and the serious question, in my submission, for this inquiry to address is whether or not that was evident or should have been evident before we had the benefit of hindsight - in other words, before early last year. It's really to that end that the examination of the efficiency and effectiveness of the board needs to be undertaken. At part 3 of the outline I deal with the question of the background of problems in the finance-broking industry against which the effectiveness and efficiency of the board should be measured. I don't want to speak at any length in relation to that. I have extracted, because it is a convenient summary, from the ASIC submission the types of problems which they have identified in respect of their inquiries 1-3/13/rmo 13 MR CHANEY 7/8/00

and investigations in relation to finance brokers and it is enough, in my submission, to say that the significant amount of evidence which this committee has taken from individuals within the investor community who have been involved with brokers, from the liquidators and supervisors of those two brokers who are under administration, from the police, that all of those problems as indicated by ASIC have been reflected time and time again and we don't need for present purposes to examine precisely what they were, but the observations which do need to be made, in my submission, is that the practices weren't confined to one or two brokers and also there is no reason to assume that the full extent of the problems have been disclosed to this inquiry. The way which this inquiry necessarily has proceeded is by virtue of people who have chosen to come forward to tell their stories, and in that sense the ability to gain a sort of global picture of the state of the industry is somewhat fettered without significant investigatory powers and going out and really trying to carry out an inquiry which identified the full extent of the problems, but what has clearly been identified from the evidence which has come forward is that problems were extensive and had been for some years and the evidence I have dealt with at paragraph 3.5 suggests that material coming before the ministry was suggestive of the sort of problems identified by ASIC in some cases as early as 1992, 93, and different problems emerging over the years until late 1997 and early 1998. But the objective which I addressed in opening, namely that the committee needs to be in a position to understand the context in which the Finance Brokers Supervisory Board was working. In other words, the activities within the industry against which its efficiency needs to be measured is more than adequately disclosed, in my submission, by the very considerable amount of evidence that has been obtained in relation to those issues from various sources. So we're in a position where we know now what the problems were. The next question is what notice did the board or the ministry have of those problems prior to 1999 when they became a matter of public notoriety and what triggers were there which either did or should have alerted the ministry to the nature and extent of problems. I say "the ministry". I perhaps should say, and I will deal with this in more detail later, the distinction between the board and ministry is something which has plagued this inquiry virtually from day one from the point of not knowing who it is that we should be asking for documents. That's something I will address later on, but when I in making submissions refer to the ministry or the board 1-3/14/rmo 14 MR CHANEY 7/8/00

many times that will be an interchangeable exercise and it's difficult to speak with absolute precision as to exactly who one is referring to in every example. So when I say, "What should the ministry have known?" equally one can say, "What should the board have known?" at a given time. That is at the end of the day an issue which is one of those which needs to be addressed; that is, the question of the distinction between the two. But the factors or the triggers which have emerged from the evidence are that there were a significant number of complaints, or a significant increase in the number of complaints, after or in 1996. Where in absolute numbers the number of complaints, which had been relatively constant with the exception of one spike in, I think, 1992, up until 1996, suddenly there were twice as many complaints. What the ministry says in relation to that is that no clear pattern of problems emerged until the latter part of 1998 and I will deal with that in a moment. What I propose doing initially is simply identifying those things which may have been a trigger. When I have listed those off I will deal with what the response was in respect of each of those triggers. In part 4 I refer to the fact that attached to the submission, and they're marked A, B, C and D, are a series of chronologies. The first is a chronology which is of complaints received, the dates of receipt of complaints, in relation to Gamel Ward, Grubb, Blackburne and Dixon and Global Finance, and it simply is designed to paint the picture in relation to those who are said to be the main players in the problems that have emerged in the evidence. The timing of the various complaints to the board paints some picture as to the extent to which the problems were emerging through the complaint process. The next three documents are simply extracted from that overall chronology so that - I'm sorry, the next two documents - sorry, three documents, extracting first the Gamel Ward complaints, second the Grubb complaints and third the Blackburne and Dixon complaints so that it's more easy to simply identify in respect of each of those brokers when the problems started to emerge in the form of complaints received. The second area of potential trigger about which there has been evidence are the PenLas complaints. There has been a deal of evidence about that. It's fair to say that up until the middle of 1998 the complaint chronology shows that there had been very little complaint in respect of Global, but at least by September 1998, if not earlier, the documents and certainly Ms Searle's evidence indicate that it was being made clear at that point that she considered and was seeking to provide support for her view that there was a serious problem with Global Finance which required urgent attention and the question arises 1-3/15/rmo 15 MR CHANEY 7/8/00

as to how that particular trigger was responded to by the board and the ministry. The third area is the Lens complaint. The evidence in that respect is that there were some communication difficulties between Mr Lens and Mr Willers. Mr Willers' chronology or his running sheet suggests that his initial attempts to investigate the matter were effectively rebutted by Mr Lens on the basis that he wanted to deal with his solicitors, and so on, but what is clear from the evidence is that by about August or September of 1998 there was correspondence being received at the ministry - admittedly correspondence largely concerned with the way in which the investigation was proceeding, but nevertheless outlining a concern about serious endemic problems with Global, and that correspondence coming mainly from the Real Estate Consumer Association or Solomon Bros. So there was potentially in that correspondence a further trigger as to the extent of problems, at least with Global and possibly wider in the finance-broking community. There is then the issue of qualified audits. There was the 1992 audit in relation to Grubb which was the subject of an inquiry. The evidence - and I will deal with this again in the context of the response to this potential trigger, but the evidence essentially was that by the time the inquiry was held all indicators were that - the immediate problem being addressed and there had been clear audit certificates provided, but the question in this context is whether or not the circumstances which led to that qualified audit and to the conviction of Grubb in relation to his trust account practices should have somehow alerted the board or the ministry to the potential for ongoing difficulties and the need for vigilance in relation to Grubb if subsequent problems were to emerge. There's a qualified audit in 95 in relation to Global. That dealt with this question of payment of interest in relation to funds invested through the trust account. In my submission, that qualification of itself was not one which could reasonably be said to potentially alert the board to serious problems, but the more interesting question is the overdrawn client ledger cards and whether that should have alerted the board or the ministry to potential problems because of the connection which we now appreciate existed between overdrawn individual accounts within ledgers and problems that investors with Global have subsequently encountered. The special audit of Blackburne and Dixon which commenced in 1995. There was a deal of material in the context of that special audit which was suggestive of problems more extensive than those which had been 1-3/16/rmo 16 MR CHANEY 7/8/00

identified by the liquidators of Gamehill Pty Ltd and Streets Ahead. There were - the references are in the written outline, but a number of documents where initially Ferrier Hodgson, the special auditors, said, "These things require some further investigation," there was a further audit received which was qualified with a qualification of similar problems to those which were the subject of the special audit, or the matters which triggered the special audit, but occurred in several years subsequent to those problems which had led to the special audit, and all of that seems to have simply been subsumed within the proceedings relating to that special audit but may well have or may arguably be seen as potential triggers for much more extensive investigation which may have led to an appreciation of the extent of problems which we now know have existed in relation to Blackburne and Dixon. There's the issue of over-valuations. In the submission I set out the various places - the annual reports, the publication of the finance brokers newsletter, the memorandums from Mr Wallace, the comments made by the industry reference group in July 1997, and Mr Castiglione's evidence that as soon as he arrived at the ministry in early 1998 he was aware that over-valuations were a serious problem. All of those issues were floating around and the question arises, what was the appropriate response to that potential trigger of knowledge as to the extent of problems within the industry. At paragraph 4.12 and 4.13 I set out a couple of passages, one from the Finance Brokers News, exhibit 92, of publications by in this case the board where the board says:

Losses for any investor are bad enough, but the social and economic consequences of losses to private lenders can be devastating.

Then in the industry reference group final report in December 1998 it's said:

Private lenders are quite often retirees who have little knowledge or experience of the finance market. These lenders are seeking to invest their life savings and any losses will have serious personal and economic consequences.

In my submission, the adequacy of the responses to the indicators of problems within the finance-broking industry need to be measured against that appreciation. What the committee has heard from a significant number of witnesses is the devastating effect which these problems 1-3/17/rmo 17 MR CHANEY 7/8/00

have had on those particular investors, and what those passages show - and it's perhaps what is blindingly obvious; that is, that the nature of the industry was such that the consequences of the risk were so serious that in my submission they ought to have prompted a vigilance in relation to potential problems beyond that which might be applied in many other areas where the consequences of inappropriate conduct are somewhat less serious. So I turn from those pointers as to potential problems to look at what was done in relation to each of them. In relation to the general increase in the number of complaints the ministry's position in its submission is that there was no particular pattern of problems which emerged with any particular broker or within the industry generally up till the Grubb issues of late 1998. In that respect, that's an analysis undertaken by the ministry for the purposes of these proceedings. I make the observation in this submission there is nothing to suggest that that sort of analysis was being undertaken at the time that the problems emerged. Regardless of whether the conclusion is well-founded or not, the question that arises is what happened when the complaint numbers went up significantly. The answer seems to be that they were dealt with individually as individual complaints and until late 1998 in relation to the Grubb matter no attempt by anybody was made to do an analysis of the sort that has now been undertaken, and that of itself, in my submission, is an issue which the committee may wish to take into account in reviewing the effectiveness and efficiency of the board who one might expect to have the responsibility of taking that overview. The next issue is the Searle-Hellens complaints. The response to those is told in some detail in Mr Willers' running sheet, exhibit 170, which shows all of the things which he did, and it may be said that if one looks at these complaints as a complaint to be dealt with by way of investigation, report to the board, subsequent inquiry, in the ordinary course of an investigation his running sheet shows that there were no large delays whilst he had responsibility for the file in the steps being taken. Where delays did occur is in the context of awaiting legal advice. At some stage I think a period of some 7 weeks passed where a point had been reached in the inquiry and Mr Willers handed over the matter for legal advice and it wasn't till about 7 weeks later that the response was achieved and then later in December 98 there was a further - admittedly over the Christmas period, but a further delay of almost 3 weeks in awaiting legal advice. 1-3/18/rmo 18 MR CHANEY 7/8/00

At para 5.7 I summarise the observations that emerge from the evidence in relation to the Searle-Hellens-PenLas complaints. The first is that the procedure adopted by the board and the ministry in dealing with complaints was incapable of addressing serious complaints requiring urgent attention in an effective way, and that is, if one looks at the two sides of the story, as it were, we have the complainant saying, "This is serious. It's not just these problems. There are more widespread problems. There's $60,000,000 of investors' funds at large," and the board - ministry response being in effect, "Yes, we will treat this the way we treat other complaints," even though it was given, I think, some degree of priority. Nevertheless, the response was to embark upon the usual procedure without, it seems, addressing what other alternatives may have been available to more speedily address what was being said to be a serious problem putting lenders' funds at risk. The second observation is that the confused roles of the board and the ministry led to frustration on the part of the complainants in terms of measuring the efficiency of any official organisation. Clarity of roles and satisfaction of the consumers of the service is an important element which seems to have been impeded by the confusion over the roles of the board and the ministry. There are issues of communication which arise. There was clearly a marked disparity between the expectation of the complainants in this case as to what could be done or what might be done and the position of the board stroke ministry in relation to what it was undertaking to do and what it saw as really the only effective option available to it. There were obviously communication problems between Mr Willers and Ms Searle and somehow in the system those communications, in my submission, on the evidence simply weren't adequately addressed, and indeed even to the point of Ms Searle giving evidence in this hearing, probably still not satisfactorily being addressed. Finally, the other aspect or perhaps feature which emerges from the evidence collectively in relation to this issue is to highlight the difficulty which flows and about which I will make some comments in due course from the board's approach to divorcing itself from any consideration of the detail of the complaint for the purpose of avoiding any bias. What that led to in this case in practice was a very detailed submission being made by a complainant but the board not reading that submission and simply saying, "We will follow our normal procedure. Give it to Mr Willers," who admittedly did read it and report on it in a timely way, but nevertheless, it prevented as a process any opportunity for the board to come to grips with the detail of the 1-3/19/rmo 19 MR CHANEY 7/8/00

complaint and be in a position to react accordingly and appropriately to address the issue if it perceived it to be one requiring urgent attention. It is worth commenting that in my submission the evidence does not support a conclusion raised by inference - or indeed probably more than by inference - raised expressly by Ms Searle that Mr Willers had colluded with Mr Margaria or anyone at Global Finance with a view to satisfying her complaint, in effect, as I understand the inference, so as to avoid having to investigate the matter and deal with it. That conclusion relies on an inference from the fact that according to Ms Searle, and I don't think this evidence was substantially disputed, Mr Willers said at a meeting on 21 July that the Searle interests through Global had all been paid out with the exception of the Rilley investment, that wasn't the case and that subsequently she received a cheque under cover of a letter dated the same day; that is, 21 July, but posted the next day, and the inference was in effect Mr Willers had got on the phone to Margaria and said, "You had better pay out this final King mortgage." That inference is a serious one. It's a serious allegation and in my submission the inference isn't reasonably open on the evidence because of the factors which I set out in the submission; that is, that the assertion had been made in the response which pre-dated the meeting from Global that all the interests of PenLas and the various mortgages had been refinanced with other lenders. Willers had had contact with Margaria in relation to the matter on 20 July for the purposes of obtaining permission to release the response to the complainant. Subject to what Mr Willers had to say in evidence, and I will deal with that in a moment, it's reasonable from that scenario - and accepting Mr Willers had not read the Global response, but one might have expected in a conversation between Margaria and Mr Willers Margaria to say something to that effect. Now, Mr Willers in fact denied that was the case. He said he didn't know anything about the position and for that reason wouldn't have said that she was out of all of the investments. What the response from Global does indicate is that it intended and indeed talks in terms of having already achieved the payment out of all of her interests and although it wasn't as at 21 July entitled, or at least the borrower wasn't entitled, to repay the money at that time, the inference is equally open that Global were taking steps on receipt of the complaint in the preparation of their response to actually pay out the money. 1-3/20/rmo 20 MR CHANEY 7/8/00

The timing of the correspondence, although the evidence suggests that the actual posting of the letter post-dated the meeting on 21 July, which according to the evidence was held at, I think, 2 pm, the rapidity with which it all happened, is more likely, in my submission, to be coincidence rather than so unlikely as to enable the inference against Mr Willers to be fairly drawn. The final issue in relation to the Hellens-Searle matter is to observe that the ministry did respond to the complaints about the way the whole thing had been dealt with by commissioning Mr Newcombe's report. He drew some conclusions about what had happened, namely that the delays that occurred were effectively systemic matters rather than failure by any individual to perform functions appropriately. That analysis is one which is relatively compelling, but the question which in my submission arises for the committee is if the conclusions reached by Mr Newcombe were right, namely that the system of investigation, review, etcetera, of complaints before you get to inquiry was necessarily attendant of delay, and in my submission the evidence supports that proposition, why was that an issue not addressed earlier by the board or the ministry so as to ensure that if serious problems did arise then the consequences of an inefficient system of investigation could be met? With respect to the response to the Lens complaint, I have addressed how it might have been that correspondence arising in relation to that may have been indicative of a serious problem. Again, the response to it, although it was to give it some degree of priority, was to treat the matter in the normal way of investigation and so on without addressing whether or not some urgent agent may be taken and that again is another example, and indeed it was dealt with in Mr Newcombe's report, as to the system of investigation not efficiently being able - not available to deal with urgent matters in a timely way. The issue which undoubtedly arises in this context is what else might the board have done, and it's accepted, in my submission, that there were limits to the extent to which the board might simply move in and shut someone down, in effect. It doesn't have the same powers as ASIC, but there's the special audit power, there's at least the ability to go in and seek to investigate. Once you have got an investigation on foot priority could have been given - resources diverted from other areas to deal with the problem urgently so as to go in, call for documents, do a thorough review of the operations of these people and take matters from there. So the scope was there if adequately resourced for greater action to be taken than simply follow the normal process. 1-3/21/rmo 21 MR CHANEY 7/8/00

Moving to the response to the Grubb complaints, the effective response was that after a period of over 12 months where there was a significant increase in the number of complaints, and the numbers are set out in paragraph 5.14 of the submissions, eventually Mr Willers thought there was a problem, told the board he thought there was a problem and the board responded by ordering a special audit. In my submission that was entirely the appropriate response, but two issues arise in relation to it. The first is the period of time it took before the matter was drawn to the board's attention, in the sense of saying, "There appears to be a problem that requires some special attention here." Given the background of the 1992 Grubb audit - essentially that was not that somebody had stolen some money from that trust account, but that Mr Grubb allowed his accounts to be out of control for a period of well over a year after he had problems with a different trust account - should have alerted the board and indeed the ministry to moving much more quickly than waiting until seven complaints in 1997 and then 18 more complaints up until the October meeting. The trigger should, in my submission, have been pulled much more early. THE CHAIRMAN: Mr Chaney, I think we will take a break for a few minutes. MR CHANEY: If it please you, sir.

____________________ 1-3/22/rmo 22 MR CHANEY 7/8/00

THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, I had reached a point which in the chronology is at the top of page 13, where I had said there were two issues which arose from the way the Grubb complaints were dealt with. The first was the time it took before the decision to have a special audit was taken. The second is what transpired after the decision to have a special audit was made, and in that respect the observation which emerges from the evidence is that the decision was initially in November 1998 to have a special audit carried out by an independent auditor engaged by the ministry, but the evidence suggests, and this is the evidence certainly of Mr Willers and Mr Urquhart, that the difficulties in engaging an independent auditor led to the decision then to just use the ordinary auditor in the end for the special audit. That whole process took some 5 months from the decision to have the special audit until it emerged. By then Grubb had been dealt with by the ASIC in a way which effectively stopped him operating, and so the consequence of all of that was that all that the board had done when they finally did react proved to be totally ineffective in terms of actually achieving any benefit in respect of - - - THE CHAIRMAN: That highlighted the fact, I think, Mr Chaney - the evidence doesn't suggest but it is certain - that the board had no finances of its own to move in any capacity. MR CHANEY: Yes. That's correct, Mr Chairman. They simply entirely relied upon the ministry taking the matter on and one side issue which arises in that connection is whether the board ought to have done something to change that position so that it was in a position where it had access to resources or was assured of ministry resources being available to do things which from time to time it may think necessary. With respect to the Gamel Ward complaints, you will recall there are really a number of groups of complaints. There were the first four that actually went to inquiry in late January 1997. One of those, the Bowman complaint, was first made in October 94, so it had taken over 2 years to get to inquiry level, and in that time the board's view was that the limitation on bringing proceedings before it had expired, although it was clear it hadn't expired at the time the complaint was made. So that in itself, if the board were right in its conclusion in relation to the application of the time provision, meant that the way the complaint had been treated effectively defeated any ability to act on it and bring in a result. In that sense the investigation, complaint, inquiry procedure was again totally ineffective. 1-3/23/rmo 23 MR CHANEY 7/8/00

Another issue which emerges from all of that evidence is what happened following the appeal to the District Court, where in fact the time period was found not to apply to the complaint, so it rendered available again the ability of the board to deal with the Bowman complaint and the other one which had been dismissed because of the time question. Nothing was done after the District Court proceedings because a subsequent appeal was made by Gamel Ward to the Supreme Court, but that appeal to this day has not been disposed of and the issue which arises there is why was there a lack of follow-up? Why did the board not seek to bring the matter back before it and deal with them on the merits rather than simply leave them completely at large? So in respect of that group the conduct of the board, with the exception of the complaint which was successful and resulted in a fine, on the others, the history of the matter shows that the board stroke ministry were entirely ineffective. With respect to those large group of complaints relating to the Gomm borrowing, those did not ever reach complaint and they were the matters which ultimately were disposed of - or some of the matters disposed of by the letter of 13 July 1998. I set out in paragraph 5.19 some of the background against which one should look at that history. There had been a huge amount of work done in relation to those complaints by Mr Wallace resulting in three volumes of material in the complaint file ready to go to inquiry which then went to the legal officers and met the fate which we all know of. When one looks at the expenditure of the limited resources of the ministry, in my submission it's open to the committee to find it unsatisfactory that those resources were dedicated to a whole series of tasks to produce a brief which ultimately was then reviewed and found to be going nowhere, as distinct from an efficient system of dealing with the legal officers at the outset so as to identify the elements of the complaint and what the investigator should be working towards. So that if, for instance, the client issue was identified at the beginning and seen as an impediment to that area of examination, a great deal of the resources of the ministry may not have been in effect wasted, as they proved to be at the end of the day. THE CHAIRMAN: Yes. That also, Mr Chaney, I can't help from making a comment now with respect to the client issue. The board never before those letters went out of 13 June 1997 - never saw or read an opinion. MR CHANEY: Yes. 1-3/24/rmo 24 MR CHANEY 7/8/00

THE CHAIRMAN: From both the ministry counsel; there were two delivered there, and one by a QC. It was only later, some 6 months or more later, they saw a final opinion, and all of them said that each case should be decided on its merit. The question of the "client" being binding nowhere appeared. It wasn't a binding finding. It was in every opinion, "Must look at the circumstances of each case." MR CHANEY: Mr Chairman, I in fact propose in due course to deal with that as a discrete issue and indeed, with respect, adopt those - - - THE CHAIRMAN: Quite often I like to voice my opinion so that counsel are aware of the way the committee is thinking and can reply as they see fit. MR CHANEY: Yes. Indeed, Mr Chairman. The second element that emerges from the review of the evidence of all the Gomm complaints is that at the end of the day - and this again goes to the client issue, or is related to the client issue - although the legal advice was to the effect that there wasn't scope for complaints being brought under clauses 4 and 7 of the code of conduct, there was scope for complaints to be dealt with under other provisions of the code and - - - THE CHAIRMAN: Would you ask somebody outside to keep quiet? Somebody can't hear what's being said. MR CHANEY: Yes. There were other avenues open to be pursued and in the end result we know they were not pursued and no really satisfactory explanation as to why they were simply disposed of, in effect, on the basis of the client issue without any great consideration being given to pursuing them in some other way has emerged. It is against the background of concern which Mr Urquhart expressed about Gamel Ward, and Mr Gamel in particular, stemming back a long time, that it is a strange thing that they were simply prepared to let these things go, and again the consequence is all of the effort of the ministry and board in relation to those matters came to absolutely nothing and had no impact, subject to this question of the condition on the licence which I will deal with in a moment. The next point made at paragraph 5.19 is that the legal officer himself identified the problems of delay associated with obtaining a successful prosecution. He said, "The passage of time will mean that we will have to go back and check to make sure people are able to give evidence, they're still available, etcetera," and so just internally the problem associated with the process of investigation and the lack of resources for investigation within the ministry was perceived by the legal officers 1-3/25/rmo 25 MR CHANEY 7/8/00

within the ministry as being a problem in actually achieving an effective outcome. There was a suggestion of alternative strategies if prosecution wasn't to proceed to assist Gamel Ward to avoid problems in the future and they seem to have been completely ignored as well, again subject to the fact that the condition had been imposed on the licence. There was also a context - and really this is much the same point as I have already made - where there were other complaints on foot which suggested that there may be a serious problem with Gamel Ward which needed to be addressed and given the outcome of those complaints simply wasn't addressed. There is an issue which arises as to the effectiveness of the way these were dealt with in the time which it took between the effective completion of the investigation stage, which was October 97, and July 98 when they were disposed of and I have set out in the outline the only evidence of what happened in that time is some consideration really on the client issue by initially Ms Davies-Taylor and then Mr Castiglione, but the simple quantum of time involved in that process points, in my submission, to inefficiencies. I have set out in paragraph 5.21 the evidence relating to the circumstances of sending the letter of 16 July 98 and the conclusion - I won't go through that in detail, but the conclusion which in my submission the committee may wish to draw from that evidence is that regardless of the detail of who authorised the letter or who drafted it or the process which led to its drafting, the preponderance of evidence leads to the conclusion that the closure of those files on the basis of the client problem occurred with the concurrence of the board. Largely that is based upon Mr Urquhart's evidence concerning the fact that the matters disappeared from the compliance report in July 98, that the board was aware of the fact that they had been closed even though they hadn't necessarily directed or resolved that they should be closed on that basis, and in that sense the responsibility in relation to the lack of follow-up on those complaints rests substantially with the board. The question of the condition imposed on Gamel Ward's licence in March 1997 arose really in the context of the suggestion on behalf of the board that that was an adequate response to the problem, that they saw a problem with Mr Gamel or Gamel Ward and that the imposition of the condition which required the firm only to deal with credit providers and not private lenders effectively removed the scope for the problem, but there were a 1-3/26/rmo 26 MR CHANEY 7/8/00

number of reasons why that, in my submission, was not an adequate response. The matter was reviewed by the board in 98. Exhibit 191, the minutes of that meeting on 10 June 98 reflect that Mr Gamel told the board at that point that where there was private mortgage business either Mr Franks did it, who was looking after Gamel Ward's practice under his own licence, or it was referred to Mr Ward, who had gone over to another firm. It's clear from the material before the inquiry that Mr Ward himself was involved in a number of these complaints as the person dealing with the investors and so in terms of addressing the true source of the problem, if some action needed to be taken, it was still entirely open for the practices which were the subject of concern to continue notwithstanding the imposition of the condition on the licence. So it wasn't, in my submission, an effective and satisfactory resolution to the problems which had emerged through the Gomm complaints and all of the other complaints about Gamel Ward. DR NEWMAN: Mr Chaney, is it correct that there have been charges laid against Mr Ward recently? MR CHANEY: Yes. DR NEWMAN: Thank you. MR CHANEY: If I can move on to the responses by the board or ministry to the qualified audits. The response in 1992, I think I don't need to add much to what I have said already. In my submission the point to be extracted from that series of events is that that conviction and the information which emerged in the course of the inquiry into that matter was such as to create in a reasonable mind a real apprehension about Mr Grubb's ability to properly perform the accounting side of his business and to maintain a good control on his trust account. Mr Grubb's own evidence in trying to explain what happened puts it largely on the basis that he simply lost control of his affairs and the trust account in particular, that his records became a mess and he wasn't able to control it. That was very much the same thing as had happened in 1992 and it's open to the committee to conclude that the board should have been in a position to move quickly if similar problems were to emerge in the future. With respect to the response to the response to the Global qualified audit, as I have indicated, the actual subject of the qualification was not of great significance. The issues which emerge from a review of the evidence on that issue are first that again there is 1-3/27/rmo 27 MR CHANEY 7/8/00

a blurring between the ministry and the board as to who is who and what their respective roles are. Mr Bull has written letters which in his statement he says he wrote in terms which suggested that the board had resolved to do things, including putting the broker to the expense of having a special audit or an interim audit, when in fact the board had never even been told of the qualification in the first place, but he did that in order to get a more speedy response and to give more authority to his request. Whether or not he was appropriately delegated to do that simply highlights this confusion of the respective roles of the two bodies. The second issue which emerges from an examination of the evidence on this general topic is the fact that the qualification was never referred to the board until 12 February 97, almost 12 months after it was received, and only then by accident. By that stage Mr Bull had taken the steps which he took without any reference to the board and it was only when it came to renewal of the annual certificate that the file was produced, the fact of the qualification came to the attention of the board and the board resolved to actually follow it up. They were concerned about it but had it not been for that accidental way that it came to their attention the action taken in relation to it would never have been addressed. The third feature which emerges is that the resolution of the question ultimately took 3 years. Having been raised as an issue in early 1996, it wasn't until 1999 that ultimately the board wrote and told Marsden Partners what the view was, and that in itself is indicative of an inefficiency. The next feature which emerges from all of that evidence is that the issue of overdrawn trust accounts doesn't appear to have been satisfactorily addressed. There clearly was discussion between Mr Bull and Mr Marsden on the issue at some point. Mr Marsden's evidence was to the effect that it started even before the first qualified audit certificate was provided to the ministry by Marsden Partners - by Mr Nicholas, I should say. Mr Nicholas says that he frequently spoke to Mr Bull about it and was reassured that it was acceptable to the ministry. Mr Bull's recollection is one of rather less frequency, but there is between the two of them sufficient consistency to suggest that there had been discussions which certainly did not give any indication to Marsden Partners that from the board's point of view - or Mr Bull's point of view, they should be adding to qualification to the audit certificate. Questions may arise about whether Marsdens should themselves have identified that as something which in the circumstances should have been the subject of qualification, but looking at it from the point of view 1-3/28/rmo 28 MR CHANEY 7/8/00

of the effectiveness and efficiency of the board, what Mr Bull has said about float accounts within trust accounts and when overdrawn ledgers may be acceptable; that is, where they occur entirely by accident and as soon as they are discovered appropriate remedial action is taken, was not an issue ever investigated in relation to these audits. In other words, when 14 overdrawn ledger balances appeared in the interim audit in 1996 no inquiry was made and Mr Bull's evidence is he thinks he mustn't have even noticed them, but nothing was done to make sure that they even fitted within the parameters of what Mr Bull thought was acceptable - in other words, that they were just accidental and that immediate steps were taken to replenish them. Indeed, the inference, of course, is that given the number of them, the vastly increased number from the earlier audit, you couldn't assume that these were simply accidental things, so that the process which was undertaken at the ministry level failed to identify these telltale symbols in any way which led to any proper review of them to see whether or not they were or weren't a problem, whatever one might think about overdrawn individual ledgers within the trust account. Finally, in relation to the Global qualified audit there is the mystery of the 13 March 1998 letter which was the subject of confirmation through the exhibit tendered this morning under cover of the letter of Mallesons. That letter to Mr Willers appears to have been sent. It can be found nowhere on the files of the ministry and the mere fact that it has gone astray and clearly has not been dealt with ever - even in February 99 when the interest issue was finally resolved by the ministry it has never been dealt with at all, is itself indicative of inefficiency. If I can move to the response to the Countrywide qualified audit, I - - - DR NEWMAN: Mr Chaney, if I can interrupt you for a moment, I think perhaps it might be worthy of note for the record that Mr Bull's statutory declaration, if that's what it is, or affidavit, states that he had a stroke on 14 February 1998. This fax that went astray was the following month. I think it's probably reasonable to assume that it may have been misplaced because of Mr Bull's illness. MR CHANEY: Except, Dr Newman, that I think by that stage Mr Bull had ceased being responsible for finance-broking matters because of the restructure statement. DR NEWMAN: That is correct, but I think he was referred to from time to time. 1-3/29/rmo 29 MR CHANEY 7/8/00

MR CHANEY: Yes. I think that whole question - the inference may well be available. What emerges from all of this is a lack of some sort of system that made sure this didn't happen. The filing system, the follow-up system, is all unsatisfactory, where now only 2 years after the event it can't be worked out what on earth happened about this letter and that wherever it went it wasn't appropriately dealt with. THE CHAIRMAN: By the bye, Mr Chaney, who replaced Mr Bull after he left? MR CHANEY: Nobody. The responsibility in relation to the review of audit certificates fell to Mr Dowling who had accounting qualifications, but I'm not aware and - we haven't heard from the real estate side. I'm not sure what happened at that end, but certainly from the finance brokers side of things, when Mr Bull ceased to be responsible for the audit side of things audit queries went to Mr Dowling. If I can move to the Countrywide qualified audit, I have indicated the response and the explanation as to how all of that arose in respect of Countrywide. In a sense what the evidence in relation to that matter indicates, both Mr McLernon's submission and the file itself, which was examined. I think it's exhibit 186 - is that actually this is an example of the audit process working well from the point of view of relationship between the three parties, where the problem is identified, it's identified to the broker by the auditor, the broker and the auditor work up a solution, report to the board on that, qualify the audit appropriately, the board has some input which leads to further changes, and in the end an outcome satisfactory to everybody is resolved. That clearly reflects exactly how the audit provisions under the act should work. The issues though which arise from the point of view of reviewing the efficiency and effectiveness of the board are again the fact that the matter wasn't actually referred to the board until 8 January 97 and the board then referred the matter off for legal advice because it wanted the issue addressed. In fact I think I have - yes, I was in error in referring to the Global matter as only coming to the attention of the board as a result of the renewal of the business certificate. That in fact is the Countrywide situation that came in that way. The Global one rather came, I think, because it was ultimately referred to the board by Mr Bull following some legal advice from Mr Travers - not Travers, Wells. It used to be Travers and Wells when I was a young practitioner. Mr Wells. I'm still a young practitioner. Yes, but it was the Countrywide matter that came to the attention of the board by accident and I'm sorry, I 1-3/30/rmo 30 MR CHANEY 7/8/00

withdraw those earlier submissions in relation to Global to that effect, but the same submission is made in relation to Countrywide as to what that indicates. So that again we have a situation where the matter was being dealt with entirely by Mr Bull without recourse to the board and then the board having seen the matter in January 97 said they wanted a legal opinion as to whether or not the whole situation was satisfactory. The request for legal advice was made on 17 March 97, over 2 months later, and the advice then emerged on 9 May 97, again almost 2 months later. So it took 4 months for the board, concerned about an audit matter, to get the advice which they saw as necessary before taking the matter any further, and that delay in itself is suggestive of some inefficiency in the process and it's open to the committee to reach the view that that inefficiency results from the inadequacy of resourcing of the legal section of the ministry, which you have heard from many sources was overstretched. The Blackburne and Dixon special audit, the evidence is that when that matter came to the attention of the board; that is, problems as to the misuse of funds borrowed for a particular borrower in relation to project A occurring as a result of the use of those funds for project B, the board's response was one rightly of concern and it resolved to have an investigation proceed urgently and the exhibit references are found at paragraph 5.34. That urgency was reconfirmed several times and then ultimately there was an inquiry which commenced in April 1996. So that was some 10 months after the matter was thought to be urgent, not completed till 28 August 96 and a decision delivered on 8 January 97, this process of investigation and inquiry again demonstrating an excessive period of time to deal with something appropriately identified as being urgent, and in the meantime, as I have already indicated, the scope of the inquiry once the inquiry got underway was limited only to those matters which had been identified at the outset, notwithstanding that along the process, along the way to inquiry, the need for a much broader inquiry was indicated but never pursued. That has significance, in my submission, in terms of what we now know about or what the inquiry has been told about problems with Blackburne and Dixon and in particular the mixing of funds available for particular borrowers between different projects for which the funds were not initially earmarked. It clearly goes back to 1992, which is when the transactions identified by Mr Read in his capacity as liquidator of Gamehill and actually occurred right through. So the board has been, in my submission, ineffective in identifying and acting 1-3/31/rmo 31 MR CHANEY 7/8/00

upon what now with the benefit of hindsight we know to have been serious problems which have led potentially to very substantial investor losses. In relation to over-valuations I have set out a number of references in the evidence at paragraph 5.36 and to indicators that the board was well aware going back as far as 94, 95 from the annual report in relation to problems of over-valuation. In 97, 98 the board reported in its annual report that it would be closely monitoring finance brokers' compliance. Mr Urquhart was asked about that. He thought that meant the ministry was closely monitoring compliance but he didn't know what had been done to that end and indeed knew very little about - or seemed to have not addressed the question at the time and there is no evidence, of course, that anything was done which might be categorised as close monitoring of valuation issues. The only action that seems to have been taken is the reference of a particular matter, Mr O'Connor's matter, to the Land Valuers Licensing Board. In my submission that is not an adequate response in the context of the finance brokers regulations because of a clear suggestion made by the board itself in its own publications that finance brokers have a role to play in relation to the valuation issue or disclosure of valuation issues to clients and that was simply not investigated or dealt with other than - well, in effect not dealt with at all. It was being dealt with in an incidental way in the context of Gamel Ward complaints, but as we know, they came to nothing. Moving to review the responses which were taken once the crisis started to become evident in late 1998, I have mentioned the decision to have a special audit in relation to Grubb Finance. In short what the board did proved to have no bearing on the outcome of the Grubb issues other than that at the end of the day Mr Conlan had the power and authority of a supervisor to add to his role as liquidator to perhaps cover other ways of administration, but in terms of any sort of notion of prevention of problems or bringing the business to an end so as to avoid ongoing losses, in my submission it would have made no difference at all whether or not the board existed, because in the end, although it was doing things, it was the action of the ASIC which ultimately - or at least which brought the Grubb operation to a close. Much the same can be said in relation to Global Finance. Herbert and Read were appointed voluntary administrators of Global on 19 February 99. At that stage the board had resolved to have an inquiry into Global but no date had been set. The administrators were appointed liquidators on 20 April, again after ASIC intervention, and it wasn't until 12 May 99 that a 1-3/32/rmo 32 MR CHANEY 7/8/00

decision to appoint a supervisor occurred at board level and the appointment itself was effected by District Court order in July. So again we have a situation where if one asks the question, despite whatever the board may have been doing about Global Finance from the time that complaints came in in mid 1998 what difference did it make to the ultimate outcome, the answer, in my submission, is none, other than again to invest the powers of a supervisor to Mr Herbert to then work in conjunction with the liquidation. In respect of Blackburne and Dixon there was some issue on the evidence which I won't go into in detail, but it dealt with in the supplementary submission by ASIC which I referred to this morning as to precisely where responsibility as between ASIC and the board rested in terms of pursuing Blackburne and Dixon. It is true that a special auditor was appointed by the board and that was dealt with during July and September 1999, the report completed at the end of October 1999, but nothing in terms of interfering with or affecting the operations of Blackburne and Dixon occurred as a result of the activities of the board which resolved on 8 December 99 not to appoint a supervisor. Contrasted against that it was ultimately the action of ASIC in February 2000 which brought the activities of Blackburne and Dixon to a halt. So that whilst the board did in fact take some action in relation to Blackburne and Dixon by engaging a special audit, nothing came of that and one can't identify any action by the board which has produced a result and in terms of the effectiveness of the board the conclusion has to be drawn that its actions had no effect. THE CHAIRMAN: Do you say the board and/or ministry there, Mr Chaney? MR CHANEY: Yes, I do, Mr Chairman. It's one of those areas of fuzziness, but I think one can say within the scheme of the act that certainly by 1999 the board was well appraised of concerns about Blackburne and Dixon and at least should in theory have been taking the lead role in relation to that action. THE CHAIRMAN: Yes, but it also applied to the ministry officers and that's where we come into this grey area again of the board and the ministry. MR CHANEY: Yes, and Mr Buchholz's evidence is an illustration of that. He was asked what his responsibility as registrar was and it was effectively a completely administrative thing. When he was asked whether he had any responsibility in relation to overview of the industry, he said, "Yes, as a manager - that is, with my ministry hat on I had that responsibility." So 1-3/33/rmo 33 MR CHANEY 7/8/00

there was clearly a level of responsibility at the ministry level. DR NEWMAN: Mr Chaney, would it not be correct though that the only party which could appoint a supervisor would have been the board? Even if the ministry recommended the appointment of a supervisor was it not the board's role and responsibility to make the decision? MR CHANEY: Yes. THE CHAIRMAN: Yes. DR NEWMAN: So even if the ministry had recommended it would have had to have been the board that made the appointment. MR CHANEY: Yes, that's undoubtedly correct. THE CHAIRMAN: Mr Chaney, we will adjourn now, but, look, before I forget, following up one of Dr Newman's observations about the arrest of somebody or other - Mr Ward - we have also - this has happened again with another gentleman, Mr O'Connor, who gave evidence before us. The next day he was arrested. As it is a possibility, although it has got nothing to do with this committee, our report may be published before, I'm sure, any court proceedings get to trial. Would you ask the fraud squad, as we have close liaison with them, to let us know who exactly has been arrested, etcetera, and of course confidentially what they propose doing about some others, because if we start making recommendations it may affect the procedures in other jurisdictions. MR CHANEY: Yes, Mr Chairman, we will certainly get updated information on that front. THE CHAIRMAN: Thank you. We will adjourn till 2.00.

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THE CHAIRMAN: Yes, Mr Chaney? MR CHANEY: Mr Chairman, I had reached paragraph 5.44 on page 20 of the submissions prior to the break. That paragraph deals with the establishment of a finance and valuations industry task force, and I don't want to say any more really in relation to that matter than is said in the submission. Essentially it's a commendable initiative to address problems and the functions of those particular committees may provide some guidance to the committee in terms of considering what is appropriate in the future. I then move to section 6 of the outline which deals with a whole basket of different issues which arose in the context of the evidence to the committee. They are in no particular order but really just have the status of largely stand alone issues. The first issue on which I make some general observations is the process of allocation of complaint files and investigations and the resources provided to the board. I think probably what I have said to date in relation to particular matters illustrates the point which is made in paragraphs 6.1 to 6.3, namely that really the process, whilst looking at theoretical obligations of the board to properly investigate, establish a prima facie case, extend natural justice, etcetera, necessarily take time. What seems to have been the case is that that process was adopted universally, with the effect that the board was really excluding any practical possibility of using its powers on any sort of urgent basis to deal with problems that required urgent redress, and in that respect, as has been illustrated with a number of particular matters to which I have already referred, the board rendered itself substantially ineffective in relation to dealing with any urgent problems on a timely basis. I deal then with investigators' qualifications and expertise. Again, I don't want to add a great deal to what is said in the written submission other than to highlight really the central point, that the question of appropriate training, not only for investigators but for others - for instance, a registrar coming to the job or even a manager coming to a job with some responsibility in respect of a particular industry was, it seems, expected simply to pick up things on the run and learn from some process of osmosis or learn from others he or she was dealing with in order to gain the necessary background knowledge to appropriately fulfil their tasks. It seems that no systematic process of ensuring that people were appropriately trained and qualified was in place and I deal in the written outline with the particular qualifications of the investigators and it 1-3/35/rmo 35 MR CHANEY 7/8/00

demonstrates a very varied series of qualifications in each case, but there is no evidence at all of any systematic attempt to make sure they have got the appropriate qualifications. I make reference in paragraph 6.9 to the fact that the way the board operated, namely avoiding getting into the detail of complaints until such time as an inquiry was actually heard, had the effect of rendering ineffective the presence of industry representatives on the board for the purpose of guiding investigations. One of the advantages which might be thought to exist by having industry representatives on the board is that they can assist to identify problems, give direction to investigators, and so on, as to what they should be looking for, but where the board actually sets out not to find out about the complaints in the first place, then it's effectively depriving itself of that potential advantage of industry representation. Moving to confusion as to the respective roles of the ministry and board, again this is a topic that I have touched on in connection with particular matters before lunch and not a great deal needs to be added, save to comment, as I do, at clauses 6.10 and 6.11, about the process of separation of functions that was adopted by the board. It's clear from the evidence of Mr Urquhart which is actually set out in the outline that he was most emphatic that this distinction should exist and be strictly enforced; that is, the separation of the investigatory and inquiry functions, and one can well understand the underlying rationale for that, namely the anxiety to avoid suggestions of bias which might vitiate the inquiry process, but in my submission what that approach ignores, and indeed I think this was acknowledged by Mr Urquhart, is that that is not what is contemplated by the act. The act, as I said at the outset, contemplates some ongoing supervision, and that is not an uncommon regime in industry-regulating legislation. There is authority - and I haven't gone into great detail but I have attached as annexure E reference to some authority for the proposition that where the legislation which establishes some disciplinary tribunal implicitly excludes rules of natural justice, then those rules do not apply. That doesn't mean, of course, that the board can simply go ahead willy-nilly and form views in advance of giving an opportunity to be heard to the other side, but it does, in my submission, permit the board to be involved, as these sorts of organisations commonly are, in inquiring, directing investigations, drawing the complaint, instructing a prosecutor, etcetera, as part of the process so long as they avoid reaching premature conclusions and retain an open mind and provide an 1-3/36/rmo 36 MR CHANEY 7/8/00

opportunity to be heard to the subject of the complaint before forming any views. In my submission this legislation contemplates that and the process which was adopted by the board and the ministry was overly conservative and had the result that it effectively deprived the board of the ability to properly supervise the industry and to respond in a timely way to issues which arose within the industry. I then move in the outline to the issue of the secrecy provisions. I don't think there's anything - no, there's nothing more I want to add in relation to the separation of functions. In relation to secrecy provisions, likewise I rely on what is said in the written outline. There is a recommendation in the ministry's submission as to a way of providing an exception to the secrecy provisions so as to enable the efficient cross-flow of information to appropriate organisations or bodies where necessary to properly enforce the legislation and that is an appropriate recommendation, in my submission. Industry participants as board members. The ministry's submission again, with respect to it, identifies alternative arguments against industry membership, that either the members are inclined to be too favourable to the industry because of their involvement in it, or alternatively, because of competitive issues there seemed to be bias against particular people and there are problems of perception, at least, which arise from that. Against that is the advantage which Mr Urquhart gave evidence of, namely the value to the board of being able to draw on experience from within the industry to perform the functions which the board has to address. In my submission, all of those arguments for and against have some merit and it's an issue in respect of which any determination - that is, whether there is to be a recommendation for or against industry involvement in the regulation of the industry, will turn very much on the ultimate consideration which this inquiry will give to the structures appropriate for industry regulation as a result of hearing the evidence on all of the other boards which come within the terms of reference. In the isolated purview of the Finance Brokers Board it may not be a question which can be sensibly answered at this point in time. Procedures and general functioning of the board. There's a short point made in the submissions in relation to that, and that is that the monthly meeting regime, although entirely understandable given the nature of the engagement of these very part-time members effectively doing this work as a public service, is nevertheless an 1-3/37/rmo 37 MR CHANEY 7/8/00

inefficient regime if one is looking to the objective of timely supervision of the industry. What is clear is that where the board, as one might expect on reading the act it might, becomes involved in the hands-on approach to any issue which arises within the industry, it's obviously necessary that there be an ability of the board to act more frequently than once a month, and I acknowledge in making that submission that the board has in fact met more frequently in more recent times, but the whole issue throws up, in my submission, the issue of whether a board which is set the task of regulating an industry, including performing an effective supervisory function, can in fact be expected to do that on the basis that it has a number of part-time members for all intents and purposes doing the job as a public service, given the very nominal remuneration paid. The expectation which would underlie all of the comments I have made so far about the failings of the board to properly supervise may in fact be unreasonable in that context. Having said that, what is clear is that whatever may have been the circumstances of engagement of the individual members of the board, the fact is the act, in my submission, did require them to perform certain functions, and if the establishment as it existed was inadequate to perform those functions, then the expectation may have been for the board to take appropriate steps to obtain whatever resources were necessary to obtain funding or some sort of control of funding so as to be able to do what's necessary, and if necessary press for legislative amendment to give powers that were necessary. The evidence is, however, that the board really simply accepted their lot as though there were nothing that could be done about it and did not certainly effectively do anything to put itself in the position to be able to fulfil all of its statutory obligations. I will comment in due course in relation to the issue of amendment of the legislation, which in my submission in large part goes to other issues rather than provides an answer on the part of the board for saying, "Well, we did try to amend the act but we couldn't and therefore that's why we simply accepted our lot and we all went to other issues." I move to the term "ministerial inquiries", or "ministerials". At paragraph 6.2 I make the submission that the evidence from a number of witnesses from within the ministry concerning the process undertaken in the event of an inquiry coming from a member of parliament or a minister is nothing more than the democratic system in action and part of the appropriate role of the public 1-3/38/rmo 38 MR CHANEY 7/8/00

service and the parliament respectively in attending to concerns of members of the community. In my submission that position is self-evident, that it would be obviously unacceptable to suggest that any minister or any member of parliament should be precluded from approaching a government department on behalf of their constituents to seek to attend to some problem that the constituent had brought to their attention, and indeed that's how the whole system works. So the only issue which really arises, in my submission, in relation to this, is whether or not within the ministry there was in place a system which dealt with such inquiries in an inefficient way so as not to allow them to unduly delay whatever it was that was happening in relation to the matter of inquiry. That is the question to be answered. The evidence, in my submission, in short is that it cannot be said that there is within the Ministry of Fair Trading inefficiency in that regard. The general process which was described by a number of witnesses was to the effect that the process, whilst it may hold matters up for some time, did not unduly interfere with the prosecution of various complaints, and in my submission that is the conclusion most appropriately drawn from the evidence. The evidence to the contrary, or the proposition to the contrary, that there was undue delay, substantially or perhaps exclusively arose - I shouldn't say exclusively, because I think there was some support from Mr Morgan initially, but substantially arose from the evidence of Mr Wallace. In particular he illustrated the point by his reference to the A1 Realty inquiry and in broad terms put the matter on the basis that he had been directed to stop an inquiry as a result of a letter or an inquiry being received from a local member, Mr Shave, who at that time, of course, was not the relevant - or a minister at all. The examination of the file relating to that matter and the evidence given on it by Ms Bunbury and Mr Rossi in my submission simply does not support that proposition and I have set out the transcript references at paragraph 6.23. Mr Wallace maintained his position in that regard when recalled and asked further questions in light of the evidence which had been assumed, but in my submission the documentary evidence which emerges from the file simply does not support Mr Wallace's inquiry and indeed the position is that what it does disclose is that Mr Wallace had been the subject of what he took to be defamatory remarks by Mr Gough or Mr Avey. Although he said in evidence that didn't worry him because that was part of the job, he had said in a memorandum that in fact he was taking legal advice about 1-3/39/rmo 39 MR CHANEY 7/8/00

taking action on it and an issue does arise, in my submission, as to whether it was appropriate - or would have arisen as to whether it was appropriate to leave him involved in the inquiry during those months in any event when obviously there was personal friction between him and the subject of the complaint. So in all those circumstances and more particularly just by a simple review of the file and the chronology relating to events, Mr Wallace's evidence that intervention from Mr Shave on that occasion caused him to cease the inquiry should not be preferred. The other issue which arose in relation to ministerial intervention dealt with the matters concerning Mr T and Mr G and the intervention by the minister's office in relation to those particular complaints concerning Blackburne and Dixon. This is a matter on which the committee has received detailed submissions in writing from Mr McKerracher identifying the transcript references upon which he would rely in asserting firstly that there is no basis upon which it could be said that Mr Shave could be found to have directed or asked Mr Mitchell to say to Mr Dowling or anyone at the ministry that the minister wanted someone to lean on Blackburne and Dixon, and second, in Mr McKerracher's submission, to say that the evidence did not support the proposition that Mr Mitchell in fact said what Mr Dowling had said was said and recorded in his note. It's unnecessary for me to repeat that side of the account which is more than adequately set out in Mr McKerracher's submissions; that is, all those matters upon which it might be said those conclusions should not be drawn, nor do I wish to comment upon them. It's a matter in the end for the committee to assess, save to say this, that I acknowledge that on the basis of the evidence before the committee, the finding that Mr Shave told Mr Mitchell that he wanted someone to lean on - somebody from the ministry to lean on the trader in the interests of Mr G or Mr T is not supported by the evidence. It's the subject of an express denial, of course, by the parties to any - or by Mr Mitchell and by Mr Shave, so to make that finding would require an inference from a finding that Mr Mitchell in fact said those words to Mr Dowling and it would only be first if that finding were made obviously that the inference could be drawn, but in my submission - well, I withdraw that. Even if that finding were made the inference would not necessarily follow, and in the face of the express denial of the party and any independent evidence which would support that inference, in my submission it could not in fairness be a conclusion drawn by inference against Mr Shave. 1-3/40/rmo 40 MR CHANEY 7/8/00

The question then becomes whether there should be a finding that Mr Mitchell in fact did say to Mr Dowling that he should lean on the ministry. As I have said, Mr McKerracher - sorry, whether Mr Mitchell did say to Mr Dowling that somebody from the ministry should lean on the trader and that the minister was looking at the matter, or whatever the words were. In that respect, as I say, Mr McKerracher has indicated a number of matters which in my submission can be properly taken into account to argue that that finding should not be made. To balance the scales, I point out at paragraph 6.25 some of the issues which might lead to a conclusion which supports Mr Dowling's account of that conversation, namely the fact that Mr Dowling had a note which he said supported it, or which he said recorded the words used, second, that the meeting with Blackburne and Dixon attended by somebody from the minister's office was of a different character than any meeting to which Mr Mitchell had gone representing the minister in the past. Mr Mitchell's evidence was to the effect that he went to lots of meetings on behalf of the minister - was asked to go to lots of meetings. He said, and the transcript reference is in the outline, that - I think he accepted the proposition that this was a meeting of in effect a unique character, in that it was with a person who was the subject of the complaint made by the constituent of the minister and the ministry rather than a meeting with the person who was making the complaint to the minister and - it was either people like the supervisor or, I think, the Builders Registration Board, some party for which the minister was actually responsible. So that it was in that sense - there were no other examples of such meetings and that therefore sets it apart as an event which was at least unusual. The third issue, or the third argument, against Mr McKerracher's propositions is the slightly unsatisfactory state of the evidence as to Mr Skepper's involvement. Mr Skepper was very keen to say - well, I will withdraw that. Mr Skepper said that he did not know anything about Mr T's involvement in these matters until after the meeting, or until somebody mentioned it at the meeting, but before he went he didn't know anything about it and thought he was only going in relation to the Mr G matter. Mr Mitchell, on the other hand, couldn't recall anything. He couldn't recall the conversation where he asks Skepper to go and that is simply a surprising fact. Mr Skepper's evidence is surprising, given that the object of the exercise was to attend on behalf of the two constituents, that he should not be told about one of them. It simply wasn't satisfactorily explained and I make the observation in the written outline that no 1-3/41/rmo 41 MR CHANEY 7/8/00

distinction between G and T is made in Mr Mitchell's subsequent record of the events relating to Blackburne and Dixon in particular where he recorded the fact of the meeting, that on 21 August Dowling and Skepper met with Blackburne at Blackburne and Dixon's regarding G and T. So he mentions both of them consistently with what he had spoken to Dowling about and there is the mystery as to why Skepper knew nothing about it. I say no more than make those observations and at the end of the day it's a matter to some extent of accepting the evidence either of Dowling on the one hand as to precisely what was said in the conversation, or Mitchell on the other as to whether he would have and did say the words that Dowling said he did. I make the observation as well, paragraph 6.28, although I think there has been no suggestion of this, I note in Mr McKerracher's submissions a concern that the committee ought express a clear finding that neither Mr G nor Mr T themselves sought to have the minister act other than appropriately or acted other than to approach their local member to deal with a problem on their behalf and there was absolutely nothing inappropriate in the action which they took, and with respect, I think that is an arguably correct proposition. Clearly there can be no inference of any even vaguely inappropriate action on behalf of either Mr G or Mr T. I move to the fast-track system. Again this became an issue of concern during the course of the hearing as a result of Mr Wallace's evidence to the effect that this was introduced, to use his words, to try and find a loophole and close files. In my submission that criticism by Mr Wallace is not supported by the evidence. Mr Morgan's evidence in particular explained the fast-track process as one which everybody accepted was designed to try and cope with the strain on resources and do nothing other than to identify simple problems which didn't require lengthy investigation so as to enable them to be disposed of quickly and allow investigators to get on with the matters of more concern or more complexity. In my submission that is not an inappropriate step to take in the light of the obvious strained investigative resources within the ministry and the colourful way in which Mr Wallace described the matter was in the light of the subsequent evidence somewhat misleading. The evidence in particular to which I refer is Mr Morgan's analysis in connection with finance-broking matters which showed that in fact the number of fast-tracked files was minimal indeed and an examination of the subject matter of those files shows that it could not be said that anything surrounding the treatment of those files could be said to have resulted in an outcome which might have assisted in dealing with problems within the finance-broking industry if they had 1-3/42/rmo 42 MR CHANEY 7/8/00

been dealt with separately. In other words, they were appropriately minor matters apparently of little significance. What was an issue in respect to the fast-track system, by the accounts of several of the witnesses, and accepted by several witnesses, was that the danger was that on the face of a particular complaint there may seem to be a minor matter which deeper investigation might reveal and that that opportunity was lost where the fast-track system was embarked upon. Undoubtedly there is some merit in that proposition and it might be expected that it was for that reason that the system in fact was abandoned in 1996 following the restructuring of the ministry, but one can put it no higher than that, in my submission, and it's not a matter which currently poses on the evidence before the committee a problem at all within the ministry or for the board. In relation to the meaning of "client" in the code of conduct, Mr Chairman, you mentioned this earlier and the submissions I think substantially reflect the observations which you made. Perhaps it's unnecessary for me to deal with it at much length. The points which emerge in relation to this issue is that as you have observed, Mr Chairman, all of the legal advice was to the effect that every case depended on an examination of its own facts, and the issue is not whether or not the advice is right or wrong. It's not, in my submission, the job of this committee to second-guess the legal advice that was obtained either within the ministry or from senior counsel, but whether the advice as received was appropriately applied to the matters in respect of which it was seen to be relevant, and when one looks at how it was dealt with within the ministry there does appear, both on the part of Ms Davies-Taylor and on the part of Mr Castiglione, to have been an assessment in each case at least of those in respect of which a record can be found; that is, the Gamel Ward matters, to have been an examination of the facts and the brief with a view to reaching the conclusion as to whether in each given case the investor concerned was a client. So that process, in my submission, was appropriate, whatever one might personally think about what might have been the appropriate legal conclusion reached. The issue though does become one of the board's involvement in relation to that opinion and as the chairman has observed, Mr Urquhart did not and nobody on the board, it seems, actually read any of the opinions until well after Mr Barker's opinion, and indeed that was the only one Mr Urquhart has read, which was obtained at the end of 1998 and it was some time in 1999 that 1-3/43/rmo 43 MR CHANEY 7/8/00

Mr Urquhart read that, presumably in connection with the rewriting of the amendment to the code of conduct. That, in my submission, does raise an issue for this committee to deal with, because as a matter of process and the efficiency and effectiveness of the board, the manner in which the board permitted the opinion to be used effectively to simply close down the Gamel Ward files - not only the Gomm ones but it seems several others - without satisfying itself as to the substance of the opinion, left the board playing absolutely no role in the supervision of the industry. In my submission the appropriate step for the board to have taken would have been to review the opinions and if unsatisfied with them to seek further advice, or alternatively simply somehow seek to have the matters brought on so that the board could itself deal with the complaints notwithstanding the ministry's view of the law, or alternatively, and perhaps more realistically, to understand that other avenues were open - in other words, if they had looked at the Davies-Taylor or in particular the Castiglione opinion in March 1998 to understand the full context of the advice and to then assess whether or not some of the other action recommended by Castiglione could appropriately be taken, rather than simply allowing the matters to be closed down with, it seems, giving serious consideration to either whether that was appropriate or if it was appropriate whether there was some other way of dealing with what was patently a serious situation with Gamel Ward in particular. I move to the action on audit reports received. I have already made the observation that an issue which arises from the process which existed during Mr Bull's time in relation to finance-broking matters where he simply undertook the follow-up to qualified audits - the board's view seemed to have been that if there was a qualification it would be brought to its attention quickly and that was its expectation, but the qualified audits which the inquiry has looked at suggest that in fact it took some time for the matters to actually be brought before the board and there was, in my submission, an inefficiency or ineffectiveness in that regime, in that the board did not put itself in a position in a timely way of knowing about qualifications to audits and taking appropriate action. The second issue again is one which I have touched on and I perhaps don't need to elaborate on, and that is the problems with the logistics of engaging an auditor, which is something which will need to be addressed, in my submission, in the recommendations of the committee so as to enable whoever it is who decides on a special audit, if that's an appropriate process, to be in a position to 1-3/44/rmo 44 MR CHANEY 7/8/00

have somebody move in very quickly and circumvent the need to follow processes which result in several months passing before an auditor actually gets into place. With respect to the enforcement of the legislation generally, in my submission the issue which arises for consideration by the committee is simply the question of whether or not - or two questions: whether some formal program of pro-active enforcement is called for, first, and second, if so, whether the legislation is appropriately drawn to enable that to happen, or whether, as has been suggested by Mr Newcombe in his evidence with some force, that section 17(2) of the act has the effect of limiting the occasions on which the ministry could have in fact undertaken pro-active enforcement action or compliance action consistent with its rights under the act. So there may be some need, if some form of program is thought desirable, to consider appropriate amendment to the legislation. I move to the failure to amend and update the legislation and code of conduct. That was a complaint made by several witnesses early in the proceedings - Mr Brunton, Mr Weir, Mr Barr, similarly made and repeated by Mr Urquhart, as it had been made by him in the whole time that he had been chairman of the board. To some extent the amendments being sought may not have greatly assisted in the prevention of the problems which we now know to have occurred in the industry. For instance, there was never any suggestion of increasing powers of the board to deal with the pro-active compliance program. That seems to have been an issue not addressed. Perhaps the closest one comes to a suggested amendment over the years which might have impacted on the ability to enforce the legislation is the suggestion for some broadening of the definition of "finance-broking" which might have given greater scope for amendments to the code of conduct or for prosecutions in the light of mortgage management type practices as distinct from simply the establishment of mortgages, but otherwise perhaps the significant issue in respect to the failure to amend the act is the absence of a bonding requirement - or, I'm sorry, the inadequacy of the bonding requirement and the absence of a fidelity fund or professional indemnity insurance. To some extent it has to be said that the board and the industry representatives could be forgiven for losing their enthusiasm for pushing for those amendments given the lack of response which, as the evidence suggests, goes back as early as 1979. One issue which does arise in this connection is the delay which has been occasioned over the last three or so years in any efforts to amend the act and in particular the delay in amendment to the code of conduct which 1-3/45/rmo 45 MR CHANEY 7/8/00

occurred as a result of the decision in March 1998 because of the existence of the industry reference group. It seems, in my submission, clear that once the industry reference group was formed in 1996 until it delivered its final report in December 1998, the general view within the ministry was that there was no great point in doing anything about either pushing for amendment of the legislation or amending the code of conduct because the activities of the industry reference group should run their course and those recommendations would ultimately point the way forward. One might well understand that approach in the context in which the industry reference group was formed, but in terms of the effectiveness of the board the question arises as to whether or not given the emergence of problems during that period it was appropriate for the board in particular to take that view rather than to take the view which it was repeating in the annual reports each year, namely that if the act was there then the board would perform its duties, but if it was taken away then so be it. Therefore while the act was still in operation and the board remained responsible for the supervision of the industry, in my submission it was inappropriate for the board to in effect use the existence of the industry reference group as a reason for not diligently pursuing any necessary amendments to the code of conduct or its activities generally. The upshot of the fact that the act remained unamended from the time that amendment was first identified as being necessary in 1979 until today had the result that given the limited interpretation which was put on the definition of "finance broker" and the limited range of activities which that definition occasioned to the application of the act, the result was that at the end of the day the act was substantially ineffective in coping with the problems, particularly the problems associated with mortgage management which emerged during 1998 and 1999. I don't want to say any more about multiplicity of proceedings before different boards than is contained in the written outline, and finally, in relation to the role of ASIC in the regulation of finance brokers, there are some issues which are dealt with by ASIC in their responding submission which I tendered this morning concerning particular events and responsibilities. The extent to which the committee may need to make findings in respect of those matters, in my submission, is limited. The committee should, in my submission, look to questions of broad policy and recommendations which cope with the existence of the Managed Investments Act and the need or otherwise for a coexistence of regimes between state and federal authorities with a view to identifying for the future systems which will work and result in 1-3/46/rmo 46 MR CHANEY 7/8/00

efficient regulation to the extent that regulation is seen to be necessary. I make the point in paragraph 7.1 of the submission that there seems little point in existing regulation of finance brokers who are also caught under the regime of the Managed Investments Act regulated by the ASIC. Some concern, I think, was expressed by Ms Searle in her evidence as to whether or not there are not still problems with the ASIC or the managed investments regime and the regulatory processes which it establishes. Whatever one may think of that, the position, in my submission, is that sensibly the state regime ought not seek to plug holes which may be perceived in the federal regime in respect of those cases to which the federal regime applies. In other words, taking the brokers who are covered by the Managed Investments Act and who file the necessary prospectuses with ASIC and come within that scheme, it would be unworkable for the state legislation to be based on a proposition that there's a concern that there's a hole in that scheme somewhere and so some supplementary or complementary regulatory process should be put in place, because it simply creates conflict and again creates the confusion which has existed as to who is responsible for what or the danger that - and I'm not suggesting this has necessarily been a significant problem in respect of these matters, but there is a danger of the respective regimes standing back and expecting the other one to deal with a particular problem. It's much more preferable, in my submission, if once an operator is regulated by either the state legislation or the Commonwealth legislation, for that to be the applicable regulation. So one needs, in my submission, to look at what coverage there is under the Managed Investments Act and identify the areas not covered. The obvious area is brokers who may deal with less than 20 investors or have less than $500,000 under management. They are currently not regulated under the ASIC scheme and the committee will need to address whether there is a need for regulation of those people, for example, and if so, what form of regulation exists. It is, in my submission, a challenge for this committee to find a regime of regulation, or to make recommendations in relation to a regime of regulation, which can coexist with the ASIC scheme in a way that clearly defines the roles of each regulating body, clearly defines who is caught within that regulation and introduces a system which somehow ensures that so far as the state is responsible, it can efficiently and effectively deal with problems which may arise. 1-3/47/rmo 47 MR CHANEY 7/8/00

One of the particular concerns which emerged in the evidence was the extent of cooperation between the two bodies. I don't want to say any more in relation to that matter than that the suggestion which on the evidence of Mr Walker is in fact being actively pursued, namely the establishment of a memorandum of understanding between the two organisations, is a suggestion or an initiative which should be pursued in a timely way. That brings me, Mr Chairman, to the end of the submissions which I wish to make in relation to particular issues which have arisen concerning the efficiency and effectiveness of the board and the ministry. Part 8 of the submissions sets out a series of questions which I think number 23 in total of issues which arise from the totality of the evidence taken by the inquiry over the 40 sittings days which it has held. I don't propose to go through them or comment on them, other than to say that they are designed to provide a prompt for the committee so that the process undertaken is to look at a particular issue. The committee may agree or disagree as to whether or not it is in fact an issue requiring some attention. If it is an issue then it's a convenient way in which one can then identify potential solutions to the problem that is identified by that list, but in my submission there's no advantage to be gained by any discussion of those particular issues, nor, particularly given the comments I made at the outset concerning the need in respect of many of these issues to review the evidence at the end of the inquiry as to appropriate recommendations, is it now appropriate for me to make any suggestions as to what recommendations may ultimately appear in the committee's report. If it please the committee, they are my submissions. THE CHAIRMAN: Thank you, Mr Chaney. Yes, Mr McKerracher? MR McKERRACHER: May it please. Mr Chairman and members, our submissions - we haven't described them as an outline. Our submissions have been filed and I trust that the committee has had an opportunity to examine them. That being so, I don't intend to repeat them. If I could make just a few brief supplementary remarks orally and also indicate that the written submissions will be available for circulation to the media after my brief remarks. Of course, the submissions that we make are both on behalf of the minister and on behalf of Mr Mitchell, and may I say to the committee at once that in relation to the topic of ministerial interference causing delay we firmly submit that there is not the flimsiest wisp of evidence to support that and indeed that there should be a positive finding to the contrary. The only source of 1-3/48/rmo 48 MR CHANEY 7/8/00

it came from the postulation by Mr Wallace, which was, with respect to him, nothing more than wild conjecture and completely unsubstantiated by any evidence. Just to flesh out slightly something to which my learned friend Mr Chaney referred, namely an examination of the file and the chronological history, one can see that the two letters from Mr Shave as a local member were sent on 14 December 1993 and 10 February 1994 respectively. It is to be noted that the witness who advanced the theory was in fact away on leave in January and December; that is to say, in December 1993 and January 1994, and so it was impossible for the letter of December to have delayed anything whatsoever. Indeed, it was only 5 days after receipt of the second letter in February that he indicated that he was now resuming investigation into the matter. That, of course, was a letter which urged speed, not delay. There is really nothing more to say on that topic, members, and I will leave it. I will be equally brief, members, in relation to the submissions concerning Messrs T and G insofar as the minister is concerned. Again, we would respectfully submit that there is not the slightest hint of any impropriety whatsoever in relation to the minister and again we submit, for all the reasons contained in the written outline, that there should be a positive finding not only for the minister but also, of course, for Mr T and Mr G, who despite every attempt by the inquiry are people, certainly in the case of Mr T, whose identities have slipped out. It is perfectly clear that insofar as Mr T's dealings with the minister were concerned, he acted in nothing less than impeccable normality. Can I move then to Mr Mitchell, and still on the topic of T and G? Again, Mr Chairman and members, my learned friend Mr Chaney has referred - without repeating our written submissions, but has raised four new points. I have read those this morning and I propose replying to those points and saying one or two other matters, if I may. The first of the points raised by Mr Chaney which might be considered by the committee in relation to the written submissions that we have advanced on behalf of Mr Mitchell is that there was in fact a positive recollection of actual words used on the part of Mr Dowling. This is at page 26 of my learned friend's submissions. THE CHAIRMAN: Thank you. MR McKERRACHER: Indeed, we submit, with respect, to the contrary. When the evidence is fully analysed it's clear that in fact what was recorded at the time does not even purport to be verbatim and clearly is not. The evidence given by Mr Dowling was that he made a handwritten note 1-3/49/rmo 49 MR CHANEY 7/8/00

as he spoke on the phone and when he had finished that he would type it up into his computer. That's at 33.5 of the transcript. That is an interesting process, because if it is indeed what occurred here, as he has clearly suggested, that means that he has typed into the computer the words, "BM asked," and left it blank, which would be an absolute nonsense. If he was purporting to record verbatim something that was said, there would be absolutely no point in typing in, whether it be for the G matter or the T matter, the words, "BM asked." It's left up in the air and it goes nowhere. So one can see at once when one looks at the text itself it is not the case that it is a verbatim account of what was said on the telephone. The second point to make when one looks at that particular entry is that there's not the independent recollection on the part of Mr Dowling - and I'm not sure my friend is advancing that there is an independent recollection, but let me make it quite clear that there is not an independent recollection, because when Mr Chaney asked him immediately following that passage of the evidence, "Are you able to fill in what appears to be missing, what BM asked?" and he said no. He does not remember what was said in the phone conversation. It is abundantly clear to anyone hearing the evidence, and indeed it was the way the evidence was adduced, that he was simply relying upon what appeared in his file notes. So the evidence we have is that he took a handwritten note. There's no handwritten note produced and presumably it has been destroyed. He took a handwritten note and then transcribed from that handwritten note to the computer what he took the conversation to be. Now, that involves a process of summary of a conversation. We know already from the lack of completion of the phrase "BM asked" that it's not verbatim, but we also know that the nature of the evidence is that he has summarised what took place in the conversation from his handwritten notes onto the computer record. Now, one of the difficulties in doing that is that it's a natural process to adopt your own language when you do so summarise a phone conversation, but insofar as the T issue is concerned, which is really the one which has generated the most interest, we also know that the note which is recorded is singularly inappropriate and unreliable on the T matter because it contains three fundamental errors. It refers to a "complaint already lodged", which there hadn't been, to a "complaint being lodged this week", which there hadn't been, and to a "meeting being set up", which there hadn't been. So that insofar as the T account records what took place in relation to T, it is clearly just a 1-3/50/rmo 50 MR McKERRACHER QC 7/8/00

transcription of Mr Dowling's interpretation of the communication on the G file. There is not a basis, we would submit, for a conclusion to be drawn that somehow Mr Dowling's recollection of actual words used is to be preferred to that of Mr Mitchell. The second point raised by my learned friend Mr Chaney is that this was an unusual sort of meeting, or indeed I think my learned friend used the words "unique sort of meeting". That submission, for it to have any power, requires a proper analysis of the style of work Mr Mitchell conducts on an overall basis. Mr Mitchell wasn't asked any questions on that topic, but if he was taken through the exhibit which he produced which showed a significant number of personal meetings conducted at the request of the minister, it would be evident, even without his evidence, that a good number of those meetings involved one-off exercises. They were all unique, and indeed when one comes to consider the matter sensibly, it would be inappropriate to have an officer of his standing and experience conducting run of the mill sorts of meetings. This was a meeting of an unusual nature, but then most of his meetings were of an unusual nature. But there's another important aspect about this submission which may be troubling the inquiry, and that is this: it would be one thing to consider a circumstance in which someone from the minister's office had attended a meeting branding himself or herself as the minister's representative and that the minister was taking very deep interest in this particular matter. That would be one thing, but that, of course, is not what happened in this case at all. Every indication is precisely to the contrary. Starting with the chain of events, Mr Mitchell communicates with Mr Dowling. Nothing happens from Mr Dowling to suggest any leaning on or to suggest a personal interest of the minister. Mr Dowling operates as normal. That is independently corroborated and confirmed by Ms Blackburne who said that she has no recollection at all of being informed that someone from the minister's office was coming. It is also confirmed by the actual events of the meeting, when it's particularly clear that Mr Skepper, who had to fill the void when Mr Mitchell went away with the minister, was not introduced as being from the office of the minister and was simply introduced by name and sat and listened, said nothing, observed and took no other participation. Of course, in our submission that was the whole purpose of this meeting and it is not really surprising that Mr Skepper had not been told anything of Mr T prior to the meeting, because the meeting's nature was one in which it was simply a requirement for Mr Mitchell in the 1-3/51/rmo 51 MR McKERRACHER QC 7/8/00

first instance, then Mr Skepper, to go along and see what was happening, and having done that and having learnt that Mr T, like all other investors, was being paid out - all other investors in that investment. All other investors who wanted their money back were being paid out - there would be very little for him to do. It's quite interesting that the matter was not treated with any great intensity or urgency. From the outset the minister communicated with Mr Mitchell at 9 o'clock in the morning after Mr T came in to see him. It's later in the afternoon when Mr Mitchell mentions it in passing with Mr Dowling. It's not something on which he acted with great haste and urgency and top priority. To the contrary, it just followed in the natural course. There was to be a G meeting being set up anyway and there was an opportunity to look at the T issue on the way. So we would say it's most important that when one looks at the role played by Mr Skepper at the meeting and the role of the minister as mentioned at all by Mr Dowling prior to the meeting, there's not the slightest hint of any special preferential treatment for Mr T or for Mr G. As I say, it would be an altogether different consideration if the officer from the minister's office had sought to invoke some sort of particular coercion or pressure at that meeting. One can see, we would submit, from Mr Mitchell's demeanour in the witness box, that he is not that sort of oppressive character for a moment, and indeed was anxious not to suggest that the words might have been used and meant something else but to firmly deny that the words would be used and to be horrified at the prospect that anyone could construe the communication as containing those words. That responds, I think, to the four points raised by my learned friend Mr Chaney in the course of his written submissions. Broadly speaking, the matters we stress on behalf of Mr Mitchell is that every act taken by every person involved in the exercise following the 13 August telephone conversation is wholly inconsistent with any possibility of leaning on Blackburne and Dixon or of stressing that the minister was personally involved. Not one single person had those matters communicated to them or conveyed in any shape or form, all of which constitute a collection of facts which would make it most unlikely that the words were used in the telephone conversation. There is a total absence of any evidence of leaning on and any evidence of a reference to the minister, and as already submitted, there is, of course, absolutely no evidence whatsoever that the minister knew about this phone conversation at all. It is important to remember, of course, that Mr Mitchell is dealing with an intensive workload and a 1-3/52/rmo 52 MR McKERRACHER QC 7/8/00

wide range of matters at the shoulder of the minister. The turnover in his office is very significant and it is highly improbable that he would record a run of the mill, totally benign conversation if there was nothing of significance to note in relation to it. One other point, if I may pick it up from the written outline, is of course that the account given by Mr Dowling of the words used in the phone conversation, as distinct from its effect, which he took to be totally normal, but his account of the words used are wholly inconsistent with the contemporaneous handwritten note of Mr Mitchell which has gone into evidence in which the minister was at pains not even to reveal the former relationship that he had had with Mr T. If there was the slightest hint of impropriety in this communication, Mr Dowling has stressed that he, who knew his rights in the public sector, would have exercised them, and he was the one who also agreed that Mitchell had been straight-shooter of 25 years' experience in the public service. We would submit that it is inherently improbable and defies all sensible experience to think that a person of Mr Mitchell's demeanour, office and experience would use those actual words in the telephone communication. Finally, Mr Chairman and members, it is singularly appropriate, in our respectful submission, that the inquiry has not sought to have evidence adduced from Mr T or from Mr G, whereas of course if there was the slightest hint of any concern about the way either of them had acted one would want to hear from them. The conduct of Mr T, as I have said, was entirely appropriate and normal in the circumstances, as indeed was the conduct of the minister and Mr Mitchell. Mr Chairman and members, unless there are any matters the committee wishes to raise, those are our supplementary oral submissions. THE CHAIRMAN: Thank you very much, Mr McKerracher. MR McKERRACHER: Thank you, Mr Chairman. THE CHAIRMAN: Mr Allanson and Mr Hooker, you're both available tomorrow? MR ALLANSON: With respect to that, Mr Chairman, my preference - I have a written submission which I would like to supplement slightly with regard to what has been said today, but again, as Mr McKerracher has said, mine is a submission, not an outline. It's not the sort of matter where one develops an argument. There's a basket of things, as Mr Chaney said. My preference would be to lodge the written submission and not make an oral submission but be available, of course, should there be 1-3/53/rmo 53 MR McKERRACHER QC 7/8/00

any questions that the committee wishes to raise and Mr Chaney, of course, we have discussed with him to what extent he may wish to reply to anything that I have put in. So if tomorrow morning I can lodge a written submission and then at some later time, when you have had a chance to read it, if you wish to have the opportunity to query me as to particular matters, I would of course be available, but that would be the way I would prefer to proceed, if that's acceptable. THE CHAIRMAN: That's quite acceptable. Thank you, Mr Allanson. Mr Hooker? MR HOOKER: If it please the committee. My position is similar. I likewise have a document of some length which is substantially complete but I would wish to finetune this evening in light of what has fallen from Mr Chaney. There are some issues on which I need to get final instructions as to the nature of submission which my client wishes me to put. Likewise I envisage getting final instructions on the extent to which my client wishes me to supplement that orally. It seems to me there are two options. We can either, depending on the committee's preference, provisionally adjourn will 10.30 tomorrow morning and I can advise Mr Chaney if my client wishes me not to at this stage provide any oral elaboration. Alternatively, in line with what Mr Allanson has just suggested, that relisting could occur somewhat later. THE CHAIRMAN: Well, we will adjourn to hear from you at 10.30 in the morning. MR HOOKER: If it please the committee. THE CHAIRMAN: Thank you. We will adjourn.

____________________ 1-3/54/rmo 54 MR HOOKER 7/8/00

GUNNING COMMITTEE OF INQUIRY INTO FAIR TRADING BOARDS AND COMMITTEES MR I.R. GUNNING, Chairman DR D. NEWMAN, Member MR D. BLIGHT, Member TRANSCRIPT OF PROCEEDINGS AT PERTH ON TUESDAY, 8 AUGUST 2000 Transcription by - SPARK AND CANNON PTY LTD 3rd Floor International House 26 St Georges Terrace PERTH WA 6000 Telephone: 9325-4577 1/1/ces 1 8/8/00

THE CHAIRMAN: Mr Chaney? MR CHANEY: I have nothing to add, thank you, Mr Chairman. THE CHAIRMAN: Thank you. Mr Allanson? MR ALLANSON: If the committee please, I have handed up a written submission. I don't intent to speak to it other than there are two things to mention which appear on the last page of the submission. They are matters which didn't appear in evidence because they were decisions that were only made in the last week or so, but the committee will see that we mention there two decisions made by the ministry. One is to appoint a full-time registrar of the board. That is mentioned in paragraph 66 in relation to (b) and (c). There has been that decision made and also a decision to engage the services of an auditor on contract so as to have - - - THE CHAIRMAN: Paragraph? MR ALLANSON: 66. THE CHAIRMAN: Still in 66. MR ALLANSON: Yes, still in 66. The decision has been made to engage the services of an auditor on contract so as to have more ready availability to that expertise, but those are the only matters which I wish to mention simply because they are in the submission but weren't the subject of evidence. THE CHAIRMAN: Thank you, Mr Allanson. Of course we don't know what is in it yet. MR ALLANSON: No, and, as I say, if there are questions which arise out of it - - - THE CHAIRMAN: If required, we will call on you. MR ALLANSON: I would also mention that while I'm not speaking to it, we have brought copies across so it will be available to the press. THE CHAIRMAN: Thank you very much. MR ALLANSON: I am simply not speaking to it because it is not a document that I think at this stage I can add much to. THE CHAIRMAN: Thank you. Mr Hooker? 1/2/ces 2 MR ALLANSON 8/8/00

MR HOOKER: May it please the committee. We likewise have a set of written submissions that has hopefully found its way to members of the committee. THE CHAIRMAN: Yes. MR HOOKER: The document deals with both some general themes that are significant to a consideration of the evidence in the context of the board and some specific themes. We rely on the entirety of the document, of course, but I propose to focus orally this morning on the themes which, in our submission, emphasise the systemic and structural constraints that the Finance Brokers Supervisory Board faced at relevant times. THE CHAIRMAN: Excuse me, Mr Hooker, before you go any further. MR HOOKER: Yes. THE CHAIRMAN: Mr Allanson, I suppose it would be easier if we made this an exhibit. MR ALLANSON: It is more in the nature of a submission on the evidence. THE CHAIRMAN: Very well; we will leave it at that. MR ALLANSON: I am entirely in your hands. THE CHAIRMAN: The submission of the ministry, thank you. Yes, Mr Hooker, sorry? MR HOOKER: That is quite all right, Mr Chairman. The initial point I was making is that there are a number of structural and systemic constraints which the board faced which, as a guiding theme in the board's submissions, rendered this statutory authority ill-equipped to deal with grievances, particularly increased grievances that a number of lenders plainly experienced as to the unethical, if not dishonest, conduct of finance brokers in the state. There are two preliminary points we make at the outset of our written document that I will expand on a little because they are of primary importance, in our respectful submission, for a proper contextual appreciation of the evidence with respect to the point of view of the board. The first preliminary point we make is that it cannot be said, in our submission, that there is any single cause for the primary grievance which has given rise to the existence of this committee, namely, a number of investors losing a considerable amount of money. 1/3/ces 3 MR HOOKER 8/8/00

There is a primary cause in the sense that, as we say at paragraph 1(a), there is a relatively small number of finance brokers of the overall number licensed in this state that, on the evidence, have engaged in conduct which is at the very least unethical and professionally irresponsible and in some cases, it would appear, dishonest and/or criminally fraudulent. Undoubtedly that is the primary cause of the grievances of investors and the fundamental reason for the existence of this committee. There are a number of other causes which we say overlap and create an amalgam, a complexity, of causes which have given rise to the extent of investor loss. We say also that there was a regime for detection, investigation and supervision of the industry that was outdated and constrained. There was a blurred and overlapping structure of the board and the ministry which was at all material times seriously under-resourced and there were necessary steps imposed by the legal system, in particular the principles of natural justice - and I will speak to this in some detail shortly - which inevitably take time for their observance and discharge. The related preliminary point we make, if it please the committee, at paragraph 2 is one of perspective. The submissions that Mr Chaney has made, both in his written document and as he spoke to them yesterday, quite naturally take a perspective which is really that of the investors are looking in at the problem and, in effect, Mr Chaney has, in our submission, stood in their shoes and quite rightly assisted this inquiry so it can ask questions like, "What happened here? What did happen? What should have happened? What should the regime of statutory regulation have been doing? How should it have gone about it? As a consequence of that, what are the inefficiencies and ineffectiveness within the system?" As a consequence of that, it cannot be doubted a variety of systemic inefficiencies have been uncovered and they will undoubtedly give rise to a series of recommendations from this board. That is what happens, in our submission, when one takes the natural perspective of looking at the evidence from the point of view of the wronged investors. The point we make which infuses the entirety of our submissions at paragraph 2 is that there is an equally important perspective of the board. It was at all materials times, we submit in paragraph 2, a statutory authority which had limited powers. It was comprised of semi-volunteers. It was inadequately resourced and it was structurally ill-equipped to exercise its all important disciplinary function. 1/4/ces 4 MR HOOKER 8/8/00

It will be one thing, in our submission, for the committee in due course to arrive at a set of recommendations to improve the system - and that is plainly indicated on the evidence - but it is entirely another thing, in our submission, to arrive at a series of findings which are necessarily adverse to the board, the corporate entity that was this particular board suffering and struggling amongst those constraints that we summarise at paragraph 2. In our submission, if one steadily keeps in mind the perspective of the board as well as the primary perspective of the investors, it by no means inevitably follows that there are many material findings that can be made contrary to the interests of the board at all. To go on to develop some of those systemic constructural issues which we say are important to an appreciation of context, some of those we say are plainly present on the evidence and there is little doubt as a matter of fact that findings can be made by this committee of those structural inefficiencies. The first one we point to is a little more subtle, however, and it is the issue we develop under heading B in our outline and the paragraphs that follow concerning the true characterisation or what might necessarily be implied as the characterisation of the function of this board and in particular the extent to which it can be said with any confidence that the legislation enacted as it was in 1975 in a particular environment, which environment has changed substantially - whether it can be truly said that a hands-on, particularly involved supervisory role was really envisaged in the legislation from its enactment. I don't need to speak chapter and verse to the submissions that we develop under paragraph B, but the key points are these: there is certainly no express statement in the legislation that this board was intended as a matter of parliamentary will to have a truly hands-on supervisory role and to be equipped to exercise a disciplinary function in the same way that are courts and disciplinary tribunals that meet on a much more frequent basis with adequate resourcing. The point we make, if it please the committee, at paragraphs 9 and 10 of our outline is that there are good reasons to suppose that parliament did not intend in the 1975 environment that this board was intended to have a hands-on particularly involved supervisory role. It is not uncommon for legislation to expressly advert to is members necessarily being required to acquaint themselves with the subject matter with which they are concerned by definition. Such a provision is absent in the Finance Brokers Control Act. 1/5/ces 5 MR HOOKER 8/8/00

It is also material, as we say in paragraph 10, that the environment in which the legislation was enacted in the first place was radically different both in terms of structure and the extent to which there were perceived difficulties, extent to which complaints were made by aggrieved investors, and the system as it evolved was one that was acquiesced in by both the legislative and executive functions of the state government. The system as it evolved was one of meeting monthly and very much existing on a part-time basis with members being paid a nominal amount. It can't be doubted, in our submission, that that system as it evolved rendered the board suitable for dealing with its licensing function and to some extent the policy issues that it confronted from time to time, but to deal with a disciplinary function, in our respectful submission, the system as it evolved which government acquiesced in against the context of the act as it was enacted in 1975 was simply ill-equipped to exercise that sort of disciplinary function and to have some sort of hands-on monitoring role. Similarly also there seems to have developed almost an expectation that the chairman, the person in Mr Urquhart's position, was someone who ought to be on a regular basis well apprised of the detail, the nature, the extent of complaints, patterns of complaints within the industry, trends with which those complaints are disposed of, making regular recommendations as to what the act should or shouldn't contain and the extent to which it should be adequately resourced. Those sort of expectations of someone like Mr Urquhart are fine, in our respectful submission, but not whilst he is practically a volunteer doing it almost pro bono and holding down a full-time job at the time. They are the sort of expectations that we can legitimately make of the chair of the ACC, for example, or the ACCC or ASIC, persons who are occupying that position full-time and who are remunerated accordingly. Of course Mr Ogilvie in his evidence some time ago referred to the fact, as one would expect, that an entity like ASIC has its members occupied accordingly and remunerated accordingly commensurate with what we would expect for persons with the expertise, the experience and the knowledge of those who exercise those very important roles. Such expectations that seem to have evolved for someone like Mr Urquhart and to a lesser extent the ordinary members of the board are, in our submission, unfair and unrealistic given the situation as it did evolve against a limited statutory background. Similarly also to the extent that it was expected that this board 1/6/ces 6 MR HOOKER 8/8/00

was to properly exercise a disciplinary function in the context of extraordinary meetings and plainly couldn't do it within the structure of its ordinary monthly meetings, that too, in our submission, was an unrealistic expectation. To illustrate the point with respect to the PenLas complaint is illuminating, in our respectful submission. There are a number of reasons, a number of factors, why there was a delay in dealing with Ms Searle's complaint which quite justifiably gave rise to real grievances for her. Firstly there were the numerous ramifications of the policy adopted by the board of not becoming involved in the merits, the detail, of a complaint whilst it was being investigated, that it would only do so when it actually elected to have an inquiry, what I have referred to in our outline on a number of occasions as the investigation inquiry dichotomy. I will talk a little bit more about that shortly, but that is one important reason why there was substantial delay in dealing with Ms Searle's complaint. Another reason is the proposition that the investigation within the ministry took too long. That is not an issue I want to concern myself with other than to note that broadly speaking Mr Chaney didn't place a great deal of emphasis on that yesterday. It wasn't asserted other than that Mr Willers was reasonably diligent in his actual investigation of the complaint. Another reason - and this is the point I'm getting to in this context - why Ms Searle's complaint was delayed much beyond what was desirable was that when the application for inquiry was put before the board in January of 1999, it determined straightaway to have an inquiry because there was plainly a prima facie case indicated, but the first mention didn't occur until April. That is an undesirable delay in any event, but particularly on top of the other factors to which I have referred. That is something that wouldn't happen in a Court of Petty Sessions, particularly if there was a plea for urgency in dealing with the complaint. It wouldn't happen in a regime like the Industrial Relations Commission, in our respectful submission. It wouldn't happen in an entity such as a broad based administrative appeals tribunal style model which has been advocated from time to time during the course of this inquiry and which is a model which indeed my client supports and which the ministry supports as dealing with some of the inefficiencies and difficulties that in a systemic way evolved during the course of these unfortunate events. 1/7/ces 7 MR HOOKER 8/8/00

This delay between January and April in actually getting to first base with the inquiry, only a mention rather than a trial of the complaint itself, whilst unfortunate, was hardly something that was surprising given the structure that had evolved and the fact that the "disciplinary function" this board was exercising hadn't changed both in terms of its legislative backing, its structural backing and its resource based backing since 1975. It could not reasonably be expected, in our submission, that these semi-volunteers doing effectively a public service had any other option open to them other than list the complaint for a first mention when was convenient to all concerned for these people running full-time employment at the same time. So the PenLas complaint illustrates well, in our respectful submission, this difference in perspective and how important it is to the findings that this committee can ultimately make. When we look from Ms Searle's perspective or from the perspective of investors generally, we can say there was an extraordinarily long time in this complaint being dealt with and that is unacceptable and there ought be recommendations of this committee to improve the system to ensure that that doesn't happen again, but when one takes a different perspective, the perspective of the board and its statutory structural and resource based backing, that perspective is also an important one. It doesn't deny the fact that appropriate recommendations can be made for the future, but it emphasises that there is no logical or legitimate basis, in our respectful submission, to make findings that are adverse to the particular corporate entity which was this board. So I have put that as an illustration of some of the ramifications that arise, in our submission, from the real doubt that exists when one construes the legislation as to what was the intention in the first place behind the creation of this board and whether it could be said that there was ever a sufficient statutory and structural basis for this entity to be exercising an ongoing and regular disciplinary function. That is the structural aspect which we say is not as straightforward as some of the others. What is more straightforward is the reality of the real lack of resourcing that this board had. At page 14 of our submissions, if it please the tribunal, we deal with that issue and we do it largely by summarising the evidence which was in abundance before the committee as to that resourcing issue and which plainly allows that sort of factual finding to be made and it is not necessary for me to recapitulate that. 1/8/ces 8 MR HOOKER 8/8/00

We go on to speculate at paragraph 32 as to how things might have been different, the sort of regime that the board might have been facing, if the sort of resourcing that now exists and has existed since late 1999 in backing up this statutory tribunal had been there at material times. The point is made against the board that perhaps it should have done more to provide a voice behind this lack of resourcing and make claims for something more. We deal with that at paragraph 30 of our outline. It is not entirely correct to say that the board was completely silent on the issue. It did note with some specificity in a rather pointed way back in March 1999 at the difficulties that were being faced by Mr Willers shouldering the burden effectively alone. There is also a memorandum or the registrar Mr Milford to Mr Walker in November of 1999 which dealt with that issue in some detail and it was certainly the case in the evidence of Messrs Urquhart, Weir and Brunton that although they weren't necessarily making any formal requests or demands for more resourcing, they perceived the difficulties that the lack of resourcing was causing and they were genuinely aggrieved by it and they regularly made comments from meeting to meeting at the time that was being taken for complaints to filter through the investigative system. It is important to give some context, in our submission, to that particular criticism that is made against the board in that respect. In our submission, even beyond that, it is pretty tenuous to say that because the board, despite perceiving the difficulties the lack of resourcing was creating, didn't complain about it often enough and loudly enough, therefore there is some sort of responsibility there or some sort of causative connection to all of the difficulties that eventually occurred. It is drawing something of a long bow, in our respectful submission, and it highlights the fact that every regulatory board has some sort of peril as to whether the subject matter with which it is dealing might blow up if circumstances pan out a particular way. Every regulatory board that is not resourced as well as it might can be looking at the board in the context that it is now in and saying, "There but for the grace of God go us," and with the benefit of hindsight it is very wonderful to say, in our submission, that these board members ought to have said as regularly as they did with respect to the legislative amendments issue that the resourcing was insufficient and there should have been more, but to necessarily make some sort of adverse finding on that issue does, in our respectful submission, draw too long a bow. 1/9/ces 9 MR HOOKER 8/8/00

The other structural issues, in our respectful submission, as to which there can be no doubt on the evidence before the committee is this difficulty that the board constantly faced as to the legislative constraints in the 1975 legislation which simply did not keep pace with changing time. Similarly to what we have done with respect to resourcing and in fact directly before that in our outline under heading D, we summarised the clear and unchallenged evidence which is before the tribunal as to the attempts that were regularly made. The committee is well aware of the fact that more than 20 years ago there were representations made as to the inadequacies within the legislation particularly and importantly with respect to the narrow definition of "finance broker" in section 4. Regular reference has been made to that letter from Mr McComish then on the board in 1984 to Minister Dowding and the regular repetition of the point in the annual reports which Mr Urquhart went through in his statement which were elaborated on during his evidence-in-chief and which I certainly don't need to recapitulate. The submission was put to some degree that there was a weakening or a lessening of that constant repetition after the industry reference group was in existence, but against that background of the history of the requests that had been made, the clear terms in which they existed in the annual reports - these are, of course, annual reports that are required as a matter of statutory requirement to go to the minister; presumably they are being read by each successive minister - to say a decade down the track after an industry reference group has been made, has been functioning, that there should have been still further almost ad nauseam repetition of what the board was saying is a submission that lacks any real cogency, in our respectful contention, and it provides no legitimate contribution towards any possible finding adverse to the board. We summarise at paragraph 26 the particular constraint of the definition of "finance broker" in section 4. The ramifications of that have been visited from a number of perspectives during the course of evidence. As the committee is well aware, the real doubt that that created and which was sought to be addressed by Mr McComish back in 1984 was the fact that it wasn't clear as to whether it covered the lender's side of the transaction as well as the borrower's side and the complications and the difficulties that they gave rise with respect to the code of conduct have been addressed in a number of ways. 1/10/ces 10 MR HOOKER 8/8/00

What is also important, as we say in paragraph 26, is the issue that was addressed back in 1990 in exhibit 197 which was a proposed amendment which could have improved the definition to cover issues of mortgage management as well and that was on top of the lender-borrower, consequently client "difficulty" - on top of that, that was a further important limitation under which the board was obliged to operate. Plainly, of course, amendments to the act are the province of parliament and there was only so much that the board could do in respect of that. To a large extent amendments to the code are the province of the board itself, although it ought be noted - and this is something we don't say expressly at paragraph 27 there - that section 81 does provide that the board is to approve "the code of conduct", so implicitly amendments that are deemed necessary to the code of conduct as well. So again in a regime where we have a board comprised of semi-volunteers structurally ill-equipped to be in any regular hands-on way dealing with the finance-broking industry and supervising it and monitoring it, to have an expectation that Mr Urquhart should carry the can and design, conceptualise and draft any series of amendments is questionable in the first place, but on top of that, for the reasons that we develop at paragraph 27, it is submitted that there is no justifiable criticism of Mr Urquhart or the board generally for electing in early 1998, as it did, not to amend the code at that time. It was perceived then that there was a real possibility that the regulatory environment was going to change. It was not an environment in which there was the degree of complaints and the attention, the focus, on the finance-broking industry as there is now. Had the amendments been drafted by the board or someone representing it, someone within it, it would have been for either Mr Urquhart himself or probably Mr Lynn as the legal representative. There was no apparent assistance from parliamentary counsel who we might reasonably suppose would provide that sort of assistance and it was going to be a love job. It was part of his effectively voluntary pro bono contribution to such supervision of the industry as he could provide. The other point, of course, is that the difficulties with particular norms of conduct, standards of conduct, being reflected in the code weren't going to go away unless and until section 4 was sufficiently broadened to make it clear that finance brokers were those who dealt with both lenders and borrowers and people who engaged in the conduct of mortgage management, not just negotiation of the loan in the first place. 1/11/ces 11 MR HOOKER 8/8/00

This is, of course, a manifestation of the point that we make at the outset in our outline and we repeat a number of times which also Mr Urquhart touched on in his evidence. It is one thing, of course, to say that it would have been a most desirable thing for the legislation to be broader and to provide the regime of protection to investors in particular that is warranted, but that is a comment on what the law might have been or should have been or ought to have been. The reality with which the board was faced is what the law was at the particular time and that had a number of ramifications which we have developed in our outline. In this particular context what it meant, as we say at 27(d), was that even if the code was going to be amended in 1998, there was still the real risk that these expanded standards or norms of conduct were going to be ultra vires because the code can't rise above what is in the act in the first place, being delegated legislation. For all of those reasons, in our respectful submission, the criticism that is put pretty strongly against the board and Mr Urquhart in particular for not making those amendments in 1998 is an unfair and unjustified criticism. When Mr Urquhart did ultimately amend the code as well as the other interim steps that were taken - we summarise the evidence there at the top of page 14 of the outline - it was done quickly and expeditious but, of course, for no recompense. It was part of Mr Urquhart's and to a limited extent Mr Lynn's public service to the community in such supervision and monitoring of the finance-broking industry as was feasible given the constraints that those gentlemen faced. I propose to turn now to this important issue which I have already foreshadowed which I touch on at paragraph 1(d) of the outline initially and refer to in a number of other contexts. That is the reason behind and the importance of the general position taken by the board, particularly through Mr Urquhart, of not becoming involved in the detail of investigations, only becoming involved in the detail of complaints when they manifested themselves in an inquiry. The submission is put against us by counsel assisting that that position was too broad, too generalised, didn't have adequate regard to the specifics of certain circumstances and perhaps to some extent was too precious. For the reasons we develop in some detail at paragraph 18 we strenuously oppose that submission put by counsel assisting. It is important to take the issue step by step, as we do in paragraph 18. 1/12/ces 12 MR HOOKER 8/8/00

The law is quite clear that any board or tribunal exercising a disciplinary function where there is a capacity to deprive an individual of his her or its livelihood must observe the principles of natural justice. In particular with respect to sometimes what is known as the bias limb of the rule of natural justice it must conduct itself in a way so that a fair-minded person would not entertain a reasonable apprehension that it might exercise its disciplinary function with a fair and unprejudiced mind. This is all supported by High Court authority. It is not in doubt. What we submit flows from that is that that test which is talking about apprehensions and what might arise, not what necessarily would arise, is satisfied, in our submission, where a tribunal delves into the merits of a complaint, becomes aware of material that might not necessarily be relevant to any inquiry ultimately before it and is aware of extraneous matters that might give rise to prejudice or irrelevancies but aren't the focus of an inquiry in due course. To go even further and play some sort of role in directing the course of an investigation which is an option advocated by counsel assisting, in our submission, heightens that risk. There is a case cited against us which my learned friend Mr Chaney referred to in his closing submission yesterday as support for the proposition that the policy that this board chose wasn't necessary or constituted too broad or generalised application of these principles of natural justice, that is, Builders Registration Board v Rauber, a 1983 decision of the High Court. What that decision on a proper reading indicates though is that simply because a tribunal has involved itself in a non-disciplinary function like an insurance-related function, which is what the High Court was concerned with in that case, or a licensing function, more appropriately to this board, doesn't preclude its subsequent exercise of a disciplinary function after that non-disciplinary function has ended on similar facts. What is important is that the investigation inquiry dichotomy which is so important, which Mr Urquhart said a number of times in his evidence he wasn't going to resile from, is all within the scope of the disciplinary function. So we are not within the realm, in our submission, of the key finding, the ratio, if you like, of Rauber's case. The extract cited there from Brennan J in Rauber's case reinforces the fact that once we are in the realm of the exercise of disciplinary jurisdiction, those difficulties to which we refer at subparagraphs (b) and 1/13/ces 13 MR HOOKER 8/8/00

(c) loom large. So ultimately, in our respectful submission, that authority is of no assistance to the proposition being put against us that Mr Urquhart's general policy which he applied consistently and without discrimination was inappropriate. It is only to that limited degree that Rauber's case stands as authority for that we have an implied exclusion of the principles of natural justice and it is clear from relatively recent High Court authority - and this is an area of the law which is developing in a relatively dynamic way and in a way, it must be said, towards expansion of the principles of natural justice rather than a contraction of them. Save for the limited extent that Rauber's case does, there needs to be plain words of necessary intendment to impliedly exclude the operation of natural justice to the sort of policy decision the board had to make. So we submit where a practitioner of 35 years' standing such as Mr Urquhart with a particular involvement in professional ethical matters adopts such a position, his views simply must be accorded substantial weight. All of that, of course, is concerned with the bias limb of the principles of natural justice. There is the equally important limb which Mr Urquhart referred to in his evidence, particularly on the last day, which is known as the hearing rule which, in our submission, little attention and inappropriately little attention was given by counsel assisting, with respect, in the proposition he put on this issue. It is well accepted that in any disciplinary hearing, particularly where the allegation is of a broad based nature such as a "fit and proper" type inquiry, there have to be sufficient particulars to enable the inquiry to get off the ground so that the person charged knows what he, she or it is faced with and so a proper adversarial-type tribunal hearing can be conducted. That is another reason why, in our respectful submission, the investigation inquiry dichotomy was quite appropriate and to not adopt it as a general policy would have run the real risk that not only would there be unfairness in the conduct of the disciplinary function but it simply wouldn't have functioned effectively. There would have been inquiries commencing which would necessarily have been adjourned because there was no particularisation. There would have been respondents who didn't understand what was going on and it would have been a recipe for confusion and unfairness. To expand on that a little bit, in our respectful submission, we say it is in situations like this where there is an apparent increase in criminality of a 1/14/ces 14 MR HOOKER 8/8/00

particular kind that the response of government must be particularly vigilant to ensure that fundamental rights and freedoms are maintained. History does show, in our respectful submission, that if regulatory authorities respond to increases in criminality in a knee-jerk manner or a way that is not measured, there can be real unfairness. To take an example, without wanting to be necessarily dramatic, which provides a useful analogy, in our submission, there was the sort of criminality which exploded in the UK in the 1970s of a terrorist kind said to be at the behest of the IRA. It is well known how the UK parliament responded to that. It responded by enacting legislation which took away fundamental rights and freedoms so that people could be detained for lengthy periods, they weren't entitled to consultation, they weren't entitled to sleep or eat and confessions were extracted accordingly. History now shows that that was an inappropriate way to respond to that sort of criminality and the sort of injustices that were perpetrated were wholly unacceptable in a civilised society. As I say, I don't want to be unduly dramatic in drawing that sort of analogy and this is a very different sort of criminality with which were are faced, but it highlights, in my respectful submission, the need for that particular vigilance to ensure that fundamental standards within any justice system are observed and in particular the two twin pillars of natural justice are observed even in a situation where there is an apparent increase, dramatic increase, in criminality. It can't be doubted, as we say at subparagraph (i) on page 9, that these principles of natural justice take time. It is understandable from the point of view of a complainant that that is annoying, that that is aggravating, but it was something that Mr Ogilvie, the most senior person in Western Australia of ASIC, didn't dispute. The way around that, in our respectful submission, is to provide in the enabling legislation for a power to obtain urgent injunctive relief. As we have said in a number of different perspectives in our outline, that was an important power with the Finance Brokers Supervisory Board never had. Under a code of conduct with the Fair Trading Act regime there is that power. Plainly there is that power for most Commonwealth regulatory tribunals. It was referred to on a number of occasions in the evidence of Mr Ogilvie and Ms Vamos with respect to the regime under the Managed Investments Act, but the fact that there was that absence of power for the board and, further, a lack of sufficient foundation in terms of resource to back that power up was 1/15/ces 15 MR HOOKER 8/8/00

not only an important constraint on the board but it exacerbated the sort of delays that occurred because of the policy of the board to satisfy the principles of natural justice. This a very important systemic difficulty which, in our submission, the committee is quite entitled to recommend be dealt with in a number of ways, but crucially it doesn't provide a foundation for an adverse finding with respect to the corporate entity that was this board. So, in our respectful submission, the argument that is put against the board with respect to the investigation inquiry dichotomy ought be rejected for the reasons that I have advanced. That has two consequences. It means that there is no basis for an adverse finding with respect to the board for the position it took and it has the more indirect consequence, in our respectful submission, that it infuses the context with which the evidence relating to and surrounding the board is looked at and once it is accepted, which, in our submission, it should be for the reasons we advance that Mr Urquhart properly cognisant of the constraints of natural justice and applied them, it takes us back to the preliminary propositions we put at 1(d) and, two, necessary steps that the legal system imposed were part of the causative amalgam, if you like, which causes grievances to investors and it is an important part of the perspective which we say is vital in paragraph 2 of our outline, the perspective through which the board's conduct must be viewed before any adverse findings at all are made. If we return again briefly to the PenLas complaint which, as I have said before, is a useful vehicle for this point we make as to different perspectives, the very first causative reason why there was from the point of view of an investor unacceptable delay, perhaps from the point of view of society generally an unacceptable delay, was the ramifications of the position the board took as to not getting involved in the investigation of complaints. When one adopts the board's perspective, however, it is plain that there is no valid basis for an adverse finding to it in respect to the way the PenLas complaint was treated. I have already said when one gets to one of the other causative reasons why that complaint took so long to deal with, it was for structural reasons. There was a system that had evolved whereby there was this board of part-timers doing work effectively pro bono which was ill-equipped to deal with disciplinary matters. It meant that once the investigation had occurred, which by reason of the board's perfectly proper policy it hadn't become involved in, when it got to the board, 1/16/ces 16 MR HOOKER 8/8/00

there was then a 3-month delay because of the fact that here was an entity that wasn't structurally equipped to deal with disciplinary matters. It doesn't deny for 1 minute the sense of grievance that Ms Searle and other investors feel in the time that was taken to deal with their complaint, but the perspective of the board is equally important, in our respectful submission, and what it does demonstrate is that the inefficiencies and ineffectiveness were systemic and structural but they can't be driven home to this corporate entity that was this Finance Brokers Supervisory Board. I have dealt with that specific issue concerning Ms Searle's complaint because not only was it something that loomed large at regular intervals during the course of this inquiry but also because it illustrates that issue of perspective which we say is so important. There are not many other specific issues I need to deal with because they are dealt with in our outline and they were the subject of considerable treatment during the course of Mr Urquhart's evidence. We do have a particular comment we wish to make concerning the board's treatment of Graeme Grubb and the complaints that developed in particular in mid and late 1998 concerning him. The proposition that is put against us is that because the issue arose that arose in 1992 concerning the ineffective and improper way he was dealing with his trust accounts which gave rise to a disciplinary inquiry, that, so the submission goes against us, should have put the board on notice in a particular way, in an emphatic way, with respect to its ongoing monitoring of Grubb throughout the 1990s. There are several reasons, in our submission, why that is an unduly harsh and inappropriate perspective to take against the board. It must be remembered that Grubb and Rowena Nominees received a succession of clean audit reports through the mid-1990s. They probably shouldn't have been, but on the system that was in place that was the information that the board received. It was only in 1998 and really in the second half of 1998 that the complaints did increase. The board reacted in November of 1998 by appointing a special auditor and by calling Mr Grubb in and asking him to explain the situation. There was at that stage no basis put before the board for an inquiry, again by reason of the position it took as a matter of policy with respect to investigations, vis-a-vis, inquiry. Viewed in that context, if one wants to be particularly cynical, particularly critical, perhaps it can be said, "Should they have responded a month or two 1/17/ces 17 MR HOOKER 8/8/00

earlier?" With the benefit of hindsight maybe that would have been a desirable thing, but does it really form the basis for a finding adverse to the board that in an ideal world they should have responded earlier than November 1998 to the increase in complaints, given the history of clean audit reports through the mid-nineties, just because of that earlier disciplinary inquiry in 1992-93? That didn't show anything of a serious nature. It showed that Grubb was slack at the time, that he should have been running a tighter ship within his office, seemingly for a reason that an employee had stolen funds with respect to another trust account, but to extrapolate that as requiring a particular degree of monitoring and supervision in 97 and 98 before things blew up, in our submission, does draw too long a bow. We get back to the proposition that we are developing particular expectations of that board and perhaps particularly the chairman that are appropriate if you have got a full-timer who is being paid accordingly, a la the ACC and the ACCC, but again against the background and the structure as it has evolved it is an expectation, in our submission, that was unrealistic. There is a short point we wish to make specifically about the Gamel Ward issue which I have dealt with in the outline and I don't need to expand on in detail. The submission is put against that when the investigation with respect to Gamel Ward was finally disposed of in July 1998, that was a disposal, a resolution, that the board concurred in and should accept responsibility for, therefore, so the argument goes, there is a real adverse finding that can be made against the board in that respect. It is a proposition which, in our submission, requires a close reading of the evidence. The first point to be made, as we do at paragraph 23, is that it certainly was the case that in early 1998 the board did read the memoranda of Ms Davies-Taylor and Mr Castiglione concerning the so-called "client issue". We are loathed to call it the "client issue" because it was a series of advices received ultimately concerning the limitations in section 4 of the act. That had a particular consequence in terms of what "client" did or didn't mean in the code but, more appropriately, that series of advices is described in our submission as opinions with respect to what is a finance broker and what is finance-broking activity. So the board was cognisant of that advice in early 1998. That led into, among other things, the decision not to amend the code, which we say is not a legitimate source of criticism for the reasons I have developed, but it was 1/18/ces 18 MR HOOKER 8/8/00

against that background that the consideration of the Gamel Ward matter ultimately occurred in the middle of 1998. We refer at paragraph 23 to this being the subject of Mr Urquhart's evidence on 20 July at 29 to 33 and we do commend to the committee a careful reading of that and we develop its importance further on in our outline at paragraphs 55 to 59. What we do accept - and this is the most limited basis for what might conceivably be called an adverse finding - is that there was an issue which wasn't properly followed up and which seemed to just sit in limbo when the Gamel Ward investment was ultimately written off and that was the clear recommendation that Mr Willers put for consideration in May of 1998 for a potential inquiry into a breach of clause 16 of the code. This was a much less serious sort of inquiry than what has been put as should have occurred as perhaps a clause 7 inquiry in any event or a fit and proper-type inquiry. Those possibilities had been considered within the ministry. Mr Castiglione in April had looked at the possibility of a general unfitness inquiry in his memorandum which appears in exhibit 160 and he had rejected that. The so-called client issue had infused the consideration of a possible clause 7 of the code inquiry. So what the board was then faced with was the recommendation that Mr Willers put in May 1998 which appears at tab 14 of exhibit 160. Admittedly it was that issue which seemed to just disappear into limbo. This is, of course, against the context that the board had taken some action. I know this is also the subject of criticism, but the board had taken some action back in April of 97 with its "credit providers only" condition. It is against that background, but when one carefully reads those contents of exhibit 160, in our respectful submission, it is clear that the so-called concurrence of the board in writing this matter off is a much more limited thing than the way it has been put against the interests of the board by counsel assisting, with respect. The only conceivable criticism that can legitimately be made is the fact that the more limited recommendation into the less serious inquiry to a possible breach of clause 16 seemed not to be properly considered. It is fair to say, of course, at the end of it all that there had been a great deal of work done within the ministry which seemed, at the end of the day, to be to no avail, but that is where we get back to the proposition that certainly there were inefficiencies and there was ineffectiveness within the system but that was for a 1/19/ces 19 MR HOOKER 8/8/00

variety of systemic reasons; in this particular context sourced in the difficulties that the narrowness of the definition in section 4 occurred. It might be found at the end of the day that the considerable work done within the ministry was ultimately to no avail, but save for that very limited issue which we accept wasn't adequately explained on the evidence, save for that very limited issue, it is not a finding which we submit can be sheeted home to the board, rather it is a finding of systemic or structural inefficiency which can be the subject of recommendations by this committee to ensure that that sort of thing doesn't happen again, but we do commend, as we have said, a careful reading of the evidence of Mr Urquhart and exhibit 160 before any conclusions at all with respect the resolution of the Gamel Ward matter are made. If it please the committee, the only other specific issue I want to deal with which I don't touch on in our outline is something that is in the most recent set of submissions which were tendered yesterday. It is a submission by Mr Douglas, a finance broker, who was the subject of an inquiry several years ago which did proceed to a conviction for a disciplinary offence against him and there was a penalty imposed. He puts a written submission which appears at number 49 at volume 3 which I don't propose to go into in any detail because it wasn't something Mr Chaney saw as necessary to address and I don't need to take the members of the committee to it save to make these observations: it is said by Mr Douglas that the board's conduct of the inquiry against him was wrongly motivated and at its heart had some sort of political foundation not sourced in good faith. The submission we make is that that is entirely speculative and on a full reading of what Mr Douglas put is the product of someone with an axe to grind as a result of being someone who was the subject of disciplinary proceedings that did proceed to a conviction. There are specific claims he makes against a particular board member which were not tested in evidence and that board member was not given an opportunity to respond to them. It is not necessary, in our respectful submission, that the board make any findings with respect to Mr Douglas's contentions within its terms of reference and ultimately the short submission of the board is that there is simply no evidentiary foundation beyond speculation for the claims that Mr Douglas makes. In summary then, if it please the committee, we get back to the two preliminary propositions which I put at the outset. There is no doubt that the evidence before 1/20/ces 20 MR HOOKER 8/8/00

this committee has given rise to bases for a variety of findings as to structural and systemic inefficiencies that ought give rise to remedial action. It doesn't follow as a matter of logic or on a full appreciation of the evidence that any such findings ought be adverse to the board. For any such finding to be actually driven home to the corporate entity which is the board it requires a proper appreciation of the perspective which we summarise at paragraph 2 of our outline and as I have developed this morning. At the end of the day there was a complexity of causes aside from the primary cause of the difficulties faced by investors which the board and the ministry were caught up in. If anything, at the end of the day there ought be a positive finding that the corporate entity that was the board and its members did the very best they could to deal with the situation in what was an adverse environment of highly restrictive legislative backing, resource based support and structural foundation. It is that perspective at the end of the day which the board submits ought remain heavily in the mind of the committee as it makes its findings and ultimate recommendations. Unless I can be of further assistance to the committee, those are our submissions. THE CHAIRMAN: Thank you, Mr Hooker. Again, would you give us the reference to that Mr Douglas? MR HOOKER: It is submission number 49 in volume - - - THE CHAIRMAN: Is that exhibit 49? MR HOOKER: No, it is an exhibit number in about the 210s. DR NEWMAN: Could I perhaps help? It is volume 18 that we have here and it is not numbered but it is about a third of the way in and it is just above McLernon's and just after Peterson. MR HOOKER: Yes. MR CHANEY: Exhibit 214, I think it is. THE CHAIRMAN: Thank you. MR HOOKER: May it please the committee. THE CHAIRMAN: Again, Mr Hooker, if on reading the submission the committee wished to speak to you again, we will make those arrangements in due course. 1/21/ces 21 MR HOOKER 8/8/00

MR HOOKER: Certainly. THE CHAIRMAN: Thank you very much. Mr Chaney? MR CHANEY: Thank you. There is just one matter arising from Mr Hooker's submissions for which a brief reply is appropriate and that is the issue which he deals with in some detail in relation to the application of the principles of natural justice and how those principles justify the approach taken by Mr Urquhart in particular and the board generally as to the separation of the investigative and the hearing function by the board. There is no dispute, in my submission, as to the application or as to the fact that the rules of natural justice apply in relation to a board such as this in relation to disciplinary proceedings. The issue is to what extent are those rules modified by the statutory context within which the board operates. It was on that point that Rauber's case was cited in the written outline of submissions. Mr Hooker draws the distinction between that case and the board's situation in respect of this act by pointing out quite correctly that Rauber's case on its facts turned on a consideration of the way the board in that case had dealt with initially a set of facts in the context of dealing with insurance requirements with respect to which it had responsibility under its act and then went on to deal with a disciplinary matter which involved a consideration of some of the same facts as it needed to consider in the context of its earlier function. He draws the distinction from the situation to which my earlier submissions relate, namely, the relationship between the investigative function and the hearing function, both of which are elements of the disciplinary function under the act, and it is accepted that both of those activities, that is, investigation and inquiry, fall broadly within the disciplinary function prescribed for the board within the act, but that, in my submission, is not a basis for distinguishing the principles outlined in Rauber's case and that is because the principle which emerges from the case simply is, broadly speaking, that the legislation under which a board operates may modify the application of the rules for natural justice. In this case you have a board which by section 13 is charged with the responsibility or at least cloaked with the power to direct a registrar or an inspector to make an investigation or inquiry which it considers necessary or expedient for the purpose of inter alia determining whether finance brokers are acting in conformity with special conditions of their licences and are complying 1/22/ces 22 MR CHANEY 8/8/00

with the requirements of this act and for detecting offences against this act. In my submission, what that contemplates in a sense or at least implies is an obligation on the part of the board in appropriate circumstances to give consideration to the nature of complaints and issues which may arise and which may require investigation. In that sense the legislation does create an ability at least impliedly on the board to become involved in the factual situations giving rise to matters requiring investigation to an extent greater than it would be able to applying the rules of natural justice in the strict sense. The other powers which I refer to in paragraph 1.3 of my outline as to the role in respect of audits and so on add, in my submission, to the proposition that the very strict and narrow view taken by the board in respect of its ability to get into the detail, as it were, of complaints went too far within the context of the act. Having said that, it is accepted that it is a matter of degree one has to find within the act the extent to which the act does permit the transgression of the rules that might otherwise apply. With respect, I accept that views may differ on the extent to which the implications which I have suggested can be drawn from the act may be drawn and it is clear that the board has taken a view in a sense borne of strict propriety, but whether or not in the circumstances that was appropriate is really the issue for the committee. The second point in relation to the same broad heading is that Mr Hooker suggests that the hearing rule requiring the particularisation of complaints is itself a basis upon which it might be said that the board should have divorced itself from any of the investigative function. With respect, in my submission, that doesn't follow. Without disputing for a moment that the requirement for particularisation of any complaint does exist in respect of this board at the time of hearing, that doesn't mean that the particularisation may not be actually undertaken by the board itself in the light of materials which come before it. In other words, all that needs to be done to comply with the rule is to ensure that the board is in a position where at the time it goes to hearing what it is hearing and what it is effectively charging a broker with is clearly set out for the broker to enable him or her to answer, but it doesn't. What it goes to is the suggestion that there is a need for proper investigation by somebody so as to be able to particularise the complaint and in a sense justifies the board because it itself couldn't investigate or at least the members couldn't themselves investigate, referring the matter to an investigator 1/23/ces 23 MR CHANEY 8/8/00

within the ministry or an officer of the board within the ministry to do the investigation, but it doesn't, in my submission, lead to the proposition that in directing the investigation to be undertaking the board had to remain ignorant of the substance of the complaint. Other than that, Mr Chairman and members, there is nothing upon which I wish to reply. THE CHAIRMAN: Thank you, Mr Chaney. The committee, of course, now has to retire. The reason for that is that we have undertaken, as everybody knows now, to give a report with respect to the Finance Brokers Supervisory Board to the premier by 1 September. As everybody knows, we have over 40 days of transcript to consider and over 200 exhibits so of necessity we have to now cease any hearings until we have completed that task and then we will resume hearings on the next board under our consideration, I think to be the Real Estate Institute Board, so for that reason we will now adjourn and consider these matters and do our report. I think the date that we will resume hearings will be 4 September. If I am right, that is a Monday. Very well. Thank you, counsel, for your assistance and we will adjourn.

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