Court of Appeal overturns High Court judgment that allowed the Luigi Wewege associated Vivier and Company to remain on NZ's Financial Service Providers Register

By Gareth Vaughan

The Financial Markets Authority (FMA) has won a key court case that helps clarify its regulation of New Zealand's Financial Service Providers Register (FSPR).

The Court of Appeal has thrown out a High Court judgment from Justice Timothy Brewer that had overturned the FMA's move to deregister Vivier from the FSPR. Court of Appeal Justices Anthony Randerson, Helen Winkelmann and Stephen Kos have restored the FMA's direction that Vivier be deregistered. Vivier has also been ordered to pay the FMA's costs.

The court victory means the FMA can embark with renewed vigour on the policing of the FSPR, something it received the power to do in 2014 after concern mounted about misuse of the FSPR.  That said, FMA CEO Rob Everett doesn't regard policing the FSPR as a particularly good use of FMA resources and is eagerly awaiting the results of a Ministry of Business, Innovation & Employment (MBIE) review of misuse of the FSPR hoping this will provide clarity to help reduce the time and resource the FMA's spends in this area. The FMA's policing of the FSPR largely involves entities registered in NZ but operating overseas.

For its part Vivier, which remains registered as a NZ company, says it can continue to provide services as it has done previously even though it'll no longer be a registered NZ financial service provider.

In their judgment the Court of Appeal justices note registration on the FSPR is required of any person who is in the business of providing a financial service and is ordinarily resident or has a place of business in NZ, regardless of where the financial service is provided. Registration does not, however, require services to be provided in or from NZ. Nor does it require services be provided to NZ clients. And it does not require that those registered actually be regulated by NZ law.

In his High Court judgment Justice Brewer ruled the FMA had insufficient evidence that Vivier's registration was misleading. And, he said, the regulator had acted in breach of natural justice.

'Alarm bells should sound'

The Court of Appeal judgment notes that an MBIE inspector found Vivier's Auckland office to be a "small internal room within a suite of serviced offices." Vivier's clients all appeared to be from Europe, notably Spain, with just one employee at the office who was "bored" and performing only minor administrative functions. Thus the judgment describes Vivier's connections with NZ as "purely nominal."

As MBIE puts it in an options paper, some offshore-controlled firms have sought to register on the FSPR in order to take advantage of NZ’s reputation as a well-regulated jurisdiction. Some such entities then misrepresent that they are licensed or actively regulated in NZ when they are merely registered here.

The Court of Appeal judgment notes that if a financial service provider like Vivier is not providing financial services in or from NZ, nor generating any associated financial activity in NZ, and can't demonstrate any intention of doing so, "alarm bells should sound." It also points out that Vivier refused to provide information about overseas regulatory compliance, which  "suggested non-compliance" and therefore risked reputational damage to NZ markets.

Irish links

The FMA's move to deregister Vivier came after an interest.co.nz article in February 2015 on how the company had been linked in an Irish TV investigation to tax fraud and money laundering, and that Vivier was poised to drop off the radar screen of NZ's anti-money laundering regulators. The 30 minute Irish report entitled The loot and the loans by journalist Conor Ryan of the RTÉ Investigations Unit, can be viewed on RTE's website.

Luigi Wewege is described on Vivier's website as its managing director and CEO. Wewege hit the headlines in media coverage of Auckland Mayor Len Brown's affair with Bevan Chuang in 2013. Vivier's chairman is currently listed as Gary Warner of Orewa, who is also listed as sole shareholder.

A second New Zealand company, City Savings Bank, which interest.co.nz has also written about, also featured in the RTE report.

NZ provides the 'advantages of an offshore financial centre'

The Court of Appeal judgment notes that Vivier had told the FMA it was incorporated in NZ because this provided the advantages of an offshore financial centre, was not a harmful tax jurisdiction, and has a stable and competent government and well developed infrastructure. No information was given about Vivier's compliance with overseas regulations with Vivier saying overseas compliance was beyond the FMA's remit to investigate.

The three justices conclude there was "ample justification" for the FMA's conclusions that Vivier's registration would likely create a false or misleading appearance of the extent to which it provides financial services from a place of business in NZ, the extent to which it's regulated by NZ law, and would likely have the effect of damaging the integrity and reputation of NZ's financial markets and NZ's law and regulatory arrangements for regulating those markets.

The judgment notes that by Vivier's own submission registration in NZ was effected to take advantage of NZ's good reputation.

"The FMA was entitled to draw on its expert knowledge of financial markets in NZ and overseas," the justices say. "It was in the best position to assess matters such as damage to the reputation of financial markets and whether registration would create a misleading appearance. These are the very tasks the legislature has given it."

Justice Brewer's conclusion that the FMA had breached Vivier's natural justice rights by failing to provide more detailed evidence and information about why the FMA was seeking its deregistration was also rejected by the Court of Appeal.

"...complaints about process cannot alter the essential conclusions as to the appropriateness of deregistration of Vivier. Vivier's appeal to the High Court should have failed on its merits regardless, and relief for now immaterial process errors would not be granted," the Court of Appeal says.

FMA welcomes decision

Not surprisingly, an FMA spokesman says the regulator welcomes the Court of Appeal’s decision to allow the appeal and its confirmation that the FMA’s direction to deregister Vivier from the FSPR should be restored.

"The Court found that the ability to remove firms from the FSPR was intended to allow the FMA to assess potential damage to the reputation of NZ’s financial markets and the misleading appearance of registration. The court concluded that in the case of Vivier there was an 'absence of any material financial services provided in or from New Zealand,' and agreed that the FMA was entitled to infer potential harm from this, and to direct Vivier’s deregistration. We welcome the finding that the FMA was entitled to 'rely on its expert knowledge of financial markets in New Zealand and overseas when assessing whether the registration was misleading or damaging.' We note also the finding that in exercising its legislative power in this case, the FMA’s processes met its natural justice obligations," the FMA spokesman says.

'Vivier & Co can continue to provide services as in the past, without FSP registration'

In an emailed response to interest.co.nz questions, Wewege said Vivier can continue doing what it does, just without being a registered NZ financial service provider. He said Vivier was taking advice and had not yet decided whether to appeal the Court of Appeal judgment. The company has 20 working days to decide whether it will file an application for leave to appeal the judgment to the Supreme Court.

"Vivier and Company’s only permanent office is in Auckland, from where it provides services to overseas clients. None of these has ever complained to the FMA. The company complies fully with the legislation, which prohibits a financial services provider from taking deposits in New Zealand. As part of that compliance, the company took the view that the legislation required it to be registered in New Zealand as an FSP (financial service provider)," Wewege said.

"Although the court time occupied by this matter demonstrates that the legislation was not clear, it has clarified certain grey areas. It also provided an opportunity for the FMA to confirm that Vivier & Co can continue to provide services as in the past, without FSP registration," added Wewege.

A new gig in South Carolina

Meanwhile, an entity named Palmetto Global Ventures LLC, based in Columbia, South Carolina, lists both Wewege and Warner among its senior leadership. Wewege is listed as managing partner of Palmetto, which says it offers investment banking, corporate finance, private equity and management advisory services. Warner is listed as partner for banking and finance. Warner's also described as general manager of Apex Capital Investments, and as managing director of Auckland-based "boutique financial services firm" Vivier & Co. Another Vivier director, Thomas Daley, is listed as a Palmetto senior partner.

Despite his role at Palmetto, Wewege said Vivier remains his main focus.

The Court of Appeal judgment said most of Vivier's clients appeared to be from Europe, notably Spain.

There's more detail on the case and background in the press release below issued by the Court of Appeal. And here's the full judgment.

This summary is provided to assist in the understanding of the Court’s judgment. It does not comprise part of the reasons for that judgment. The full judgment with reasons is the only authoritative document. The full text of the judgment and reasons can be found at www.courtsofnz.govt.nz.

The Court of Appeal (Justice Randerson, Justice Winkelmann and Justice Kós) has today released its decision in Financial Markets Authority v Vivier and Co Ltd. The respondent, Vivier, is a New Zealand company registered as a financial services provider under the Financial Services Providers (Registration and Dispute Resolution) Act 2008. In February 2015 the Financial Markets Authority (FMA) became concerned that Vivier was not providing any financial services in or from New Zealand and that its registration might be misleading to consumers or damage the reputation of New Zealand’s financial markets. The FMA directed that Vivier be deregistered.

The High Court then allowed an appeal by Vivier and cancelled the deregistration for two reasons. First, it said the FMA did not have specific evidence that Vivier’s registration was misleading to consumers or damaging to the reputation of New Zealand’s financial markets. Secondly, it said the FMA acted in breach of natural justice by not disclosing to Vivier a news article about accusations in the Irish media that Vivier was involved in tax fraud and money laundering. Subsequent to that decision a second decision of the High Court, Excelsior Markets Ltd v Financial Markets Authority [2015] NZHC 3334, reached a different conclusion on the legal requirements underlying the first of those reasons.

The Court of Appeal has now allowed a further appeal brought by the FMA and ordered that Vivier be deregistered. It found there was no requirement for the FMA to have specific evidence specific to Vivier that its registration was misleading consumers or damaging the reputation of New Zealand’s financial markets. It has held that the FMA was entitled to rely on its expert knowledge of financial markets in New Zealand and overseas when assessing whether Vivier’s registration was misleading or damaging. Such conclusions were, in context, capable of being drawn from the absence of any material financial services provided in or from New Zealand. The Court also found that the news article concerning the accusations made in Ireland against Vivier was not material to the FMA’s decision and did not need to be disclosed. Accordingly there was no breach of natural justice by the FMA.