Australian Securities and Investments Commission v Firstmac Limited
[2024] FCA 737
•10 July 2024
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v Firstmac Limited [2024] FCA 737
File number(s): QUD 467 of 2022 Judgment of: DOWNES J Date of judgment: 10 July 2024 Catchwords: CORPORATIONS – alleged contraventions of s994E(3) of the Corporations Act 2001 (Cth) concerning design and distribution obligations relating to financial products for retail clients – meaning of “reasonable steps” – meaning of “would have resulted in, or would have been reasonably likely to have resulted in…” – whether reasonable steps must be antecedent to retail product distribution conduct – whether distributor of financial product failed to take reasonable steps within meaning of ss994E(3) and 994E(5) of the Corporations Act 2001 (Cth) Words & phrases: “reasonably likely” Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 33
Corporations Act 2001 (Cth) ss 761A, 761G, 912C, 961L, 963F, 994A, 994B, 994E
Evidence Act 1995 (Cth) s 140(2)
Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth) Sch 1
Corporations Regulations 2001 (Cth) reg 7.1.19(2)
Cases cited: Australian Competition and Consumer Commission v MetcashTrading Ltd (2011) 198 FCR 297; [2011] FCAFC 151
Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317; [2003] FCA 1525
Australian Securities and Investments Commission v Daly (Liability Hearing) [2023] FCA 290
Australian Securities and Investments Commission v Diversa Trustees Limited [2023] FCA 1267
Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717
Australian Securities and Investments Commission v R M Capital Pty Ltd [2024] FCA 151
Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) (2021) 156 ACSR 371; [2021] FCA 877
Briginshaw v Briginshaw (1938) 60 CLR 336
Construction, Forestry, Maritime, Mining and Energy Union v Mechanical Maintenance Solutions Pty Ltd (2022) 289 FCR 508; [2022] FCAFC 15
Department of Agriculture & Rural Affairs v Binnie [1989] VR 836
Re Fenwick (2009) 76 NSWLR 22; [2009] NSWSC 530
Re The Will of Bridget [2018] NSWSC 1509
Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166
Sheen v Fields Pty Ltd (1984) 58 ALJR 93
Sportsbet Pty Ltd v State of New South Wales (No 9) [2010] FCA 31
Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 27 ALR 367
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 212 Date of hearing: 29–30 April, 1–3 & 6 May 2024 Counsel for the Plaintiff: Mr A Harding SC, Mr D Healey & Mr D Blazer Solicitor for the Plaintiff: Maddocks Counsel for the Defendant: Mr R Dick SC, Ms E Bathurst & Ms D Tay Solicitor for the Defendant: King & Wood Mallesons ORDERS
QUD 467 of 2022 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND: FIRSTMAC LIMITED (ACN 094 145 963)
Defendant
ORDER MADE BY:
DOWNES J
DATE OF ORDER:
10 JULY 2024
THE COURT ORDERS THAT:
1.The parties are to confer and prepare short minutes of order which reflect these reasons and which contain directions as to the further conduct of this proceeding, and provide these to the associate to Downes J by 4.00 pm on Wednesday, 17 July 2024.
2.If the parties are unable to agree on a form of order as referred to in Order 1, each party prepare their own version of a draft order and provide this to the associate to Downes J by 4.00 pm on Wednesday, 17 July 2024.
3.The proceeding be listed for a case management hearing at 9.30 am on Friday, 19 July 2024.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
1. SYNOPSIS
[1]
2. CONSTRUCTION OF SECTION 994E
[23]
2.1 Statutory text
[24]
2.2 Meaning of “would have resulted in, or would have been reasonably likely to have resulted in…”
[33]
2.3 Meaning of “reasonable steps”
[49]
3. INVESTMENT OBJECTIVES OF TD HOLDERS
[59]
3.1 Characterisation of ASIC’s case
[60]
3.2 Firstmac’s case
[65]
3.3 Consideration
[66]
3.4 Conclusion
[82]
4. ASIC’S FIRST LEVEL CASE
[83]
4.1 The pleaded allegations
[83]
4.2 Mr Whyntie’s expert evidence
[84]
4.3 Conclusion on first level case
[93]
5. ASIC’S SECOND LEVEL CASE
[96]
5.1 Consideration by Firstmac of whether TD Holders fell within target market
[98]
5.2 Evidence of Firstmac’s witnesses
[107]
5.2.1 The evidence of Ms Dean
[108]
5.2.2 The evidence of Ms Cunningham
[125]
5.2.3 The evidence of Mr Austin
[128]
5.2.4 The evidence of Mr Gration
[139]
5.3 Other relevant matters
[154]
5.4 Consideration of balance of alleged reasonable steps
[171]
5.4.1 Education on DDO requirements
[171]
5.4.2 Firstmac’s Investment Specialist
[177]
5.4.3 Marketing approvals
[178]
5.4.4 Complaints policy
[180]
5.4.5 Disclosures in High Livez Material (including the PDS) and website
[181]
5.4.6 PDDO Policy prepared by Ms Cunningham
[186]
5.4.7 Requiring investors to warrant and acknowledge before signing
[187]
5.4.8 Conclusion as to Firstmac’s positive case
[188]
5.5 Matters identified by s 994E(5)
[189]
5.5.1 The likelihood of the Distribution Conduct being inconsistent with the High Livez TMD: s 994E(5)(a)
[190]
5.5.2 Nature and degree of possible harm: s 994E(5)(b)
[192]
5.5.3 Knowledge of Firstmac: s 994E(5)(c)(i)
[194]
5.5.4 Ways to eliminate or minimise the likelihood and the harm: s 994E(5)(c)(ii) and (d)
[195]
5.6 Conclusion on second level case
[209]
6. CONCLUSION AND DISPOSITION
[212]
DOWNES J:
1. SYNOPSIS
The Australian Securities and Investments Commission (ASIC) alleges that, during the period 5 October 2021 to on or about 9 September 2022 (the relevant period), the defendant (Firstmac) contravened s 994E(3) of the Corporations Act 2001 (Cth) concerning design and distribution requirements relating to financial products for retail clients (DDO).
Under the DDO, the issuer of a financial product must make a ‘target market determination’ or TMD prior to the financial product being offered to consumers. A TMD must describe the class of retail clients that comprises the target market. The TMD must be such that it would be reasonable to conclude that, if the product was to be issued or sold in a regulated sale to a retail client in the target market, it would likely be consistent with the likely objectives, financial situation and needs of the retail client. There is then a separate obligation on distributors of the financial product to take reasonable steps that would, or would be reasonably likely to, result in their ‘retail product distribution conduct’ being consistent with the TMD. ‘Retail product distribution conduct’ includes, relevantly, giving a product disclosure statement or PDS to a retail client.
Firstmac is a non-bank lender, primarily offering finance loans including car loans and home loans, and it seeks to differentiate itself from other larger lenders in the market by its relatively smaller scale. This is demonstrated by the fact that Firstmac does not maintain a branch network typified by others lenders in the market.
During the relevant period, Firstmac distributed two term deposit products: the Business Term Deposit and the Stow It Term Deposit (together described in these reasons as the Firstmac Term Deposit). While both are retail financial products, only a sole proprietor, partnership, company or trust was eligible for a Business Term Deposit, whereas individuals were eligible for the Stow It Term Deposit. These term deposits were issued by BNK Banking Corporation Limited trading as Goldfields Money.
TMDs were prepared by BNK Banking Corporation Limited (as issuer of the product) for the Firstmac Term Deposit products (together described as the TD TMD), which defined the target market for these products as retail customers who need an account with a number of key attributes, namely:
(1)the ability to deposit and invest funds for a fixed term;
(2)the ability to earn interest on deposited funds;
(3)the ability to earn a fixed interest rate for a fixed term;
(4)no access to money during the fixed term subject to a seven day cooling off period from the account opening date;
(5)the requirement to deposit a minimum of $5,000;
(6)the ability to roll their funds into a new term deposit for an agreed fixed term post the maturity date.
Firstmac was also the distributor, manager and promoter of the retail product known as High Livez during the relevant period. The product is a unit trust (managed investment scheme) which is issued by Perpetual Trust Services Limited (Perpetual) as the responsible entity of the trust.
Perpetual prepared the TMD for High Livez (High Livez TMD). The High Livez TMD described the target market by means of including and excluding retail clients with particular “Consumer Attributes” based on their objectives, intentions, financial situation and needs. In relation to objectives, it excluded consumers who held a “Capital Guaranteed” investment objective (capital guaranteed objective) and consumers whose “Investment timeframe” was “Short (≤ 2 years)” (short investment timeframe objective).
In particular:
(1)the consumer attribute of “capital guaranteed” under the heading “Consumer’s investment objective” is shaded red. “Capital guaranteed” is defined in the High Livez TMD as “The consumer seeks a guarantee or protection against capital loss whilst still seeking the potential for capital growth (typically gained through a derivative arrangement). The consumer would likely understand the complexities, conditions and risks that are associated with such products”; and
(2)the consumer attribute of “Short (≤ 2 years)” under the heading “Investment timeframe” is shaded red. “Short (≤ 2 years)” is defined in the High Livez TMD as “The consumer has a short investment timeframe and may wish to redeem within two years”.
Under the heading “Investment products and diversification” in the “Description of target market” section, the High Livez TMD provides:
A consumer (or class of consumer) may intend to hold a product as part of a diversified portfolio (typically with an intended product use of satellite/small allocation or core component). In such circumstances, the product should be assessed against the consumer's attributes for the relevant portion of the portfolio, rather than the consumer's portfolio as a whole. For example, a consumer may seek to construct a conservative portfolio with a satellite/small allocation to growth assets. In this case, it may be likely that a product with a High or Very High risk/return profile is consistent with the consumer’s objectives for that allocation notwithstanding that the risk/return profile of the consumer as a whole is Low or Medium. In making this assessment, distributors should consider all features of a product (including its key attributes).
High Livez was and remains a relatively small part of Firstmac’s business. As at 9 September 2022, there were 436 investors in High Livez and approximately $66 million in funds under management. Further, only a small number of staff worked in connection with the fund, being Mr David Gration (General Manager of Sales and Operations during the relevant period, now director of Firstmac), Mr James Austin (Chief Financial Officer), Ms Celia Powell (Senior Legal Counsel), Ms Adria Cunningham (Audit and Compliance Manager), Mr Elvin Singh (Acquisition Manager), Ms Kerry Dean (also known as Ms Scutt) (Customer Relations Manager) and Ms Aimee Gorman (Lending Manager).
There were two PDSs in force for High Livez during the relevant period – the 9 April 2019 PDS (2019 PDS) and the 29 November 2021 PDS (2021 PDS).
In this proceeding, the premise of ASIC’s case is that Firstmac engaged in retail product distribution conduct by giving certain documents relating to High Livez (including its PDS) to retail clients who held (or had held) Firstmac Term Deposits (TD Holders) on 870 occasions (Distribution Conduct) and failed to take reasonable steps that would have resulted in, or would have been likely to have resulted in, the Distribution Conduct being consistent with the High Livez TMD.
The Distribution Conduct occurred in the context of Firstmac engaging in an admitted cross‑selling strategy of marketing High Livez to TD Holders.
The facts underlying the Distribution Conduct are not in dispute. It was comprised of Firstmac sending:
(1)an email in substantially the same form which attached the Firstmac Term Deposit PDS; a High Livez application form; the 2019 or 2021 PDS; an information sheet which explained the performance of the High Livez fund in the relevant month, or the month before, the email was sent; and a TD Maturity Instructions Form to TD Holders whose term deposits were nearing maturity (described as the High Livez Documents); and
(2)a hard copy letter enclosing a copy of the 2021 PDS and a High Livez information sheet by post to Australian resident TD Holders, regardless of the maturity date of their term deposits, on or around 29 August 2022 (described as the High Livez Information);
(together, the High Livez Material).
The TD Maturity Instructions Form provided options for TD Holders to either invest in a new Firstmac Term Deposit, close their existing Term Deposit and transfer the funds to a different bank account, or “[i]nvest in High Livez”.
ASIC alleges that there were 817 TD Holders who were recipients of the Distribution Conduct. However, as Firstmac submits, 37 of those TD Holders were not retail clients within the meaning of s 761A of the Corporations Act because the evidence established that their investment amount was equal to or exceeded $500,000: see s 761G(7)(a) of the Corporations Act and reg 7.1.19(2) of the Corporations Regulations 2001 (Cth). Accordingly, to the extent that the High Livez Material was sent to those 37 clients, that did not constitute retail product distribution conduct within the meaning of s 994A(1) of the Corporations Act.
In support of its case, ASIC relies on the following differences between the Firstmac Term Deposits and High Livez:
(1)Firstmac Term Deposits were ‘capital guaranteed’ by the Commonwealth government up to $250,000. By contrast, any capital invested in High Livez was not guaranteed (by the Commonwealth or by anyone else) and the unit price was subject to volatility;
(2)Firstmac only offered term deposits with periods of two years or less. By contrast, the recommended minimum investment timeframe for High Livez was three to five years.
ASIC’s case is that there was a likelihood (that is, a real and not remote chance) that some of the TD Holders may have held either or both a capital guaranteed objective and a short investment timeframe objective because they held a product (being the Firstmac Term Deposit) which had the features referred to above, with the consequence that they were outside the target market for High Livez as described in the High Livez TMD.
Pursuant to an Order dated 14 February 2023, I ordered by consent that the question of liability be heard and determined separately and in advance of any other question. The only issue which therefore arises for determination at this stage is whether Firstmac contravened s 994E(3).
As s 994E(3) is a civil penalty provision, I am required to reach a “state of satisfaction or actual persuasion, on the balance of probabilities, while taking into account the seriousness of the allegations and the consequences which will follow if the contraventions are established”, being a standard which is set out in s 140(2) of the Evidence Act 1995 (Cth) and which is the statutory expression of the principle in Briginshaw v Briginshaw (1938) 60 CLR 336: see Australian Securities and Investments Commission v Daly (Liability Hearing) [2023] FCA 290 at [37] (Cheeseman J).
For the following reasons, I am satisfied to the required standard that Firstmac contravened s 994E(3) of the Corporations Act.
On that basis, I will direct the parties to confer and prepare short minutes of order which reflect these reasons, and which contain directions as to the further conduct of this proceeding. Each party should have leave to appeal and, to the extent necessary, leave to cross-appeal.
2. CONSTRUCTION OF SECTION 994E
On 5 April 2019, Part 7.8A of the Corporations Act was inserted into the Corporations Act by Sch 1 to the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (Cth), and commenced on 5 October 2021. Another amendment which was made by Sch 1 was the addition of s 760A(aa), being an additional “main object” of Chapter 7, namely: “the provision of suitable financial products to consumers of financial products”.
2.1 Statutory text
Part 7.8A of the Corporations Act is entitled “Design and distribution requirements relating to financial products for retail clients”.
Pursuant to s 994B(1)(b), a person must make a TMD for a financial product if under Pt 7.9, the person is required to prepare a PDS for the product. The TMD must be prepared before any person engages in retail product distribution conduct in relation to the product: s 994B(2)(a). Section 994B(5)(b) requires the TMD to “describe the class of retail clients that comprises the target market (within the ordinary meaning of the term) for the product”.
During the relevant period, s 994E(3) of the Corporations Act provided as follows:
If:
(a)a target market determination for a financial product has been made; and
(b)the product is on offer for acquisition by issue, or for regulated sale, to retail clients; and
(c)a regulated person engages in retail product distribution conduct in relation to the product; and
(d)the regulated person failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the retail product distribution conduct being consistent with the determination;
the regulated person contravenes this subsection unless the retail product distribution conduct is excluded conduct.
In the present case, it is common ground that:
(1)a TMD for High Livez (a financial product) was made;
(2)High Livez was offered for acquisition by issue to 780 retail clients (being the 817 clients as alleged by ASIC minus 37 who I have found were not retail clients);
(3)Firstmac was a regulated person during the relevant period;
(4)by engaging in the Distribution Conduct, Firstmac engaged in retail product distribution conduct in relation to the product (as defined in s 994A(1));
(5)the Distribution Conduct is not “excluded conduct” (as defined in s 994A(1)).
The battleground in this case concerned whether Firstmac failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the Distribution Conduct being consistent with the High Livez TMD within the meaning of s 994E(3)(d). As to this, the parties were at odds as to the proper construction of that provision.
The statute itself provides some indicators as to the manner in which s 994E(3)(d) should be construed.
Section 994E(4) provided:
A regulated person is not taken to have failed to take reasonable steps for the purpose of paragraph (3)(d) merely because a retail client who is not in the target market for the product acquires the product.
Section 994E(5) provided:
Without limiting subsections (1) and (3), reasonable steps in relation to a person are steps that, in the circumstances, the person is reasonably able to take that will, or are reasonably likely to, result in retail product distribution conduct in relation to the financial product being consistent with the target market determination for the product, taking into account all relevant matters, including:
(a)the likelihood of any such conduct being inconsistent with the determination; and
(b)the nature and degree of harm that might result from an issue or regulated sale of the financial product:
(i) to retail clients who are not in the target market; or
(ii) that is inconsistent with the determination; and
(c) what the person knows, or ought reasonably to know, about:
(i) the matters referred to in paragraphs (a) and (b); and
(ii) ways of eliminating or minimising the likelihood and the harm; and
(d)the availability and suitability of ways to eliminate or minimise the likelihood and the harm.
(Emphasis omitted.)
Finally, s 994E(6) relevantly provided that:
A regulated person is not taken to have failed to take reasonable steps for the purpose of paragraph (3)(d) if the person engages in retail product distribution conduct that:
(a) relates to a particular retail client; and
(b) relates to a particular financial product; and
(c)is necessary to implement personal advice given to the client in relation to the product.
2.2 Meaning of “would have resulted in, or would have been reasonably likely to have resulted in…”
Section 994E(3)(d) requires the regulated person to take reasonable steps “that would have resulted in, or would have been reasonably likely to have resulted in,” the retail product distribution conduct being consistent with the TMD. There are therefore two components to this expression which are separated by the word “or”.
Firstmac submits that the provision postulates two alternatives and that the concept of “reasonably likely to have resulted in” imports a probabilistic assessment such that there was a “real and not remote chance” that the Distribution Conduct was consistent with the High Livez TMD.
ASIC submits that Firstmac’s construction ignores and does not give meaning and effect to the words “would have resulted in”. However, if ASIC’s construction is adopted, the addition of the words “or would have been reasonably likely to have resulted in” add little to the practical scope of the section, and for that reason, this submission does not provide a proper basis to reject Firstmac’s construction.
ASIC next submits that the first component of this expression (“would have resulted in”) refers to reasonable steps that, if taken, would inevitably result in consistency with the TMD and that the second component refers to reasonable steps that would be “reasonably likely” to have that effect, being something less than an inevitability. It submits that the words “reasonably likely” recognise and accommodate that the task of assessing the effect that reasonable steps would have had, if they had been taken, is an imprecise exercise, and it will not always be possible to demonstrate that particular steps, had they been taken, would definitely have had the effect of achieving consistency with the TMD.
ASIC summarises its position as follows:
In this way, ASIC submits that the two components should be read together and regarded as constituent elements of a compound conception. They are not two alternative standards which a distributor can satisfy by meeting the lesser of the two. Taken together, the words refer to steps that, if taken, would either definitely achieve consistency with the TMD or be reasonably likely to have that effect.
(Footnote omitted.)
The reference to “compound conception” by ASIC is derived from the use of that phrase by Buchanan J in Australian Competition and Consumer Commission v MetcashTrading Ltd (2011) 198 FCR 297; [2011] FCAFC 151, which is relied upon by ASIC.
In Metcash, the Court was considering the proper construction of s 50 of the Competition and Consumer Act 2010 (Cth) which relevantly provided:
(1) A corporation must not directly or indirectly:
(a) acquire shares in the capital of a body corporate; or
(b) acquire any assets of a person;
if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
At [40] of Metcash, Buchanan J stated:
In some (but not all) of the cases to which I shall turn shortly the perceived (but in my view non-existent) tension between the two ways of expressing the test has led to the conclusion that the first must be established on the balance of probabilities and (as a result) the second by reference to some lesser standard, often referred to as the “real chance” test. In my respectful view, that is an error of analysis and an incorrect approach to the issue of construction. The first limb of the test allows a prediction of probable (therefore likely) consequence, without account being taken of, or allowance needed for, other contingencies. The second limb concentrates on the quality of the circumstances, and the probable consequence, without permitting falsification of that probability by proof of the actual occurrence of some inherently less probable result. In other words, establishing a probable consequence will suffice, even if in fact it did not occur. In the leading case on the issue, that is what happened. Both limbs of the test, as found for example in s 50, in my view require the same standard of proof (balance of probabilities) and they should probably be regarded as constituent elements of a compound conception. As a matter of ordinary language I see no tension or inconsistency between them. As a matter of ordinary language I see no adequate foundation for concluding that the second limb of such a test imports and applies, at any stage of the process, a departure from the ordinary civil standard of proof on the balance of probabilities.
(Emphasis original.)
However, as Buchanan J recognised at [41], the “authorities against [his view] are the more influential”. Those authorities support the adoption of a construction of the second component of the relevant expression in s 994E(3)(d) in terms of a “real or not remote chance or possibility”, being the construction advanced by Firstmac: see, e.g.; Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 27 ALR 367 at 380–382 (Deane J) which was cited with approval in Sheen v Fields Pty Ltd (1984) 58 ALJR 93 at 95 (Gibbs CJ, with whom Mason, Wilson and Dawson JJ agreed); Australian Gas Light Company v Australian Competition and Consumer Commission (No 3) (2003) 137 FCR 317; [2003] FCA 1525 at [347]–[348] (French J); see also Seven Network Ltd v News Ltd (2009) 182 FCR 160; [2009] FCAFC 166 at [746]–[751] (Dowsett and Lander JJ).
Further, the decision of Metcash is of limited assistance and can be distinguished because the provision in that case did not include the word “reasonably” before the word “likely”. This is an important distinction which has been recognised by other courts, none of which have treated expressions of this kind as being a compound conception, rather than two alternatives.
In Department of Agriculture & Rural Affairs v Binnie [1989] VR 836, the Victorian Court of Appeal considered the meaning of the phrase “would, or would be reasonably likely to”, as used in s 31(1)(e) of the Freedom of Information Act 1982 (Vic). In that case, Young CJ (agreeing with Marks J) observed at page 837 that the qualifying adverb “reasonably” in the expression “reasonably likely” required “likely” to be given “a meaning less definite than probable”. At page 842 of that decision, Marks J, with whom Young CJ and Teague J agreed, stated that:
The relevant expression here is “reasonably likely” which has some analogy to “fair probability”. It suggests the mathematical approach; the word “reasonably” being a qualification of “likely”, alternatively, a measure in colloquial language of the “likelihood”.
The expression “reasonably likely” is substantially idiomatic, its meaning not necessarily unlocked by close dissection. In its ordinary use, it speaks of a chance of an event occurring or not occurring which is real – not fanciful or remote. It does not refer to a chance which is more likely than not to occur, that is, one which is “odds on”, or where between nil and certainty it should be placed. A chance which in common parlance is described as “reasonable” is one that is “fair”, “sufficient” or “worth noting”.
In Re Fenwick (2009) 76 NSWLR 22; [2009] NSWSC 530, Palmer J considered the meaning of “reasonably likely” in s 22 of the Succession Act 2006 (NSW). At [151]–[152], Palmer J discussed the meaning of “reasonably likely”:
“Reasonably” can, of course, mean “in accordance with reason”, as in the phrase “acting reasonably in all the circumstances”. It can also be used to lessen the intensity of an adjective. For example, if I were asked: “Is this action necessary”, the answer “it is necessary” would be stronger than “it is reasonably necessary”. The second answer conveys that there is some latitude, or margin of judgment, available whereas the first answer does not.
In the same way, if the Court were required to find whether a certain result is “likely” for the purposes of s 22(b), it would have to make its judgment in a “yes or no” or “black or white” fashion. However, if the Court were asked whether the result is “reasonably likely”, it does not have to be persuaded of likelihood to the same degree. It may answer “yes” if it considers that there is a fairly good chance that the result is likely. Alternatively, it may answer “yes” if it recognises that other reasonable people could regard the result as likely, even if the Court itself would differ. Thus “reasonably likely” can mean “a fairly good chance that it is likely” or “some reasonable people could think that it is likely” or “some reasonable people could think that there is a fairly good chance that it is likely”. Such are the nuances of the English language.
In the context of that legislation, Palmer J decided that “reasonably likely” meant “a fairly good chance”: see, for example, [166].
In Re The Will of Bridget [2018] NSWSC 1509, Hallen J also considered the proper construction of the Succession Act 2006 (NSW), and stated at [103]:
…The degree of satisfaction that the phrase “reasonably likely” contemplates is difficult to discern. The phrase has a different connotation from the single word “likely”. The qualifying adverb “reasonably” requires that the word “likely” be given a meaning less definite than “probable”. It is that word (“reasonably”) which governs the standard of likelihood. It lessens the intensity of the word “likely”. In other words, quantitative guidance is suggested by the word “reasonably” whilst the word “likely” requires a qualitative judgment.
At [108], Hallen J concluded that:
…Thus, it seems, what is required is to establish the chance of an event occurring (the proposed Will is one that is, or would have been reasonably likely to have been made, by the incapable person, if he, or she, had testamentary capacity) that is above mere possibility, but not so high as to be more likely than not. In other words, more is required than mere assertion, suspicion, or conjecture. A mere possible, or potential, reflection of the incapacitated person’s intentions is not enough.
The construction posited by Firstmac is aligned with these authorities, and ASIC did not explain why the reasoning in these authorities ought not be applied to the provision in this case. It follows that, applying the approach taken in these authorities, which (with respect) I accept to be correct, I consider that, to find a contravention by Firstmac of s 994E(3) of the Corporations Act, I must be satisfied to the Briginshaw standard that Firstmac failed to take reasonable steps that either would have resulted in, or would have been reasonably likely to have resulted in (i.e. there was a real and not remote chance), the Distribution Conduct being consistent with the High Livez TMD.
2.3 Meaning of “reasonable steps”
Section 994E(5) identifies that what constitutes “reasonable steps” for the purposes of s 994E(3)(d) requires a consideration of “all relevant matters” including those identified in s 994E(5)(a)–(d).
While there are no authorities considering s 994E(3), there are several other provisions in the Corporations Act which contain a “reasonable steps” obligation, some of which have been the subject of judicial consideration, such as ss 961L and 963F. Consistently with the statutory requirement to consider all relevant matters, these authorities indicate that the inquiry is not a narrow one. Some guidance is therefore provided by statements made in these authorities, which I accept would also apply to the obligation in s 994E(5). These are as follows:
(1)what is encompassed by taking all “reasonable steps” will differ depending on the entity, the complexity of the entity’s business and the procedures within the entity: see Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717 at [162] (Middleton J);
(2)it is necessary to undertake a holistic analysis, considering the full framework of the entity’s contracts, policies and procedures: see Australian Securities and Investments Commission v Diversa Trustees Limited [2023] FCA 1267 at [375] (Button J);
(3)the reasonable steps obligation does not require a person to “find and to take the optimal steps”: see Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) (2021) 156 ACSR 371; [2021] FCA 877 at [392] (Moshinsky J);
(4)the provision is not expressed as an obligation to take all reasonable steps, and nor does it require identification and performance of either the universe of possible reasonable steps, or the ‘one true path’ that must be followed: see Australian Securities and Investments Commission v R M Capital Pty Ltd [2024] FCA 151 at [73] (Jackson J);
(5)positing steps that could have been taken, but were not taken, can be helpful. It is an obvious way of testing the reasonableness of what was (and was not) done. But the focus of the inquiry must always be on whether the steps that were taken in their totality were reasonable: see R M Capital at [80].
Whether the requirement to take ‘reasonable steps’ has been met is to be determined objectively by reference to the standard of behaviour expected of a reasonable person in the regulated person’s position that is (or was) proposing to engage in the relevant retail product distribution conduct regarding the same product, and is (or was) subject to the same legal obligations.
In making its determination regarding ‘reasonable steps’, the Court is to take into account all relevant matters, including those prescribed by s 994E(5). By reference to that section, “reasonable steps” are steps that the relevant person “is reasonably able to take” and that are directed at a particular result – namely they “will, or are reasonably likely to, result in retail product distribution conduct in relation to the financial product being consistent with the target market determination for the product” (emphasis added).
To the extent that the reasonable steps must be “reasonably likely to result in retail product distribution conduct in relation to the financial product being consistent with the target market determination for the product”, the reasonable steps must result in a real, not fanciful or remote, chance that the distribution conduct will be consistent with the target market determination.
Section 994E does not impose any express temporal limitations on matters which might be regarded as relevant for the purposes of deciding whether the “reasonable steps” obligation in s 994E(3)(d) has been met. However, the selection by Parliament of the words “would have resulted in” and “would have been reasonably likely to have resulted in” in s 994E(3)(d) are forward-looking. Similarly, the words used in s 994E(5), which refers to steps that the person “is reasonably able to take that will, or are reasonably likely to”, are also forward-looking and precede the reference to the desired result, being the retail product distribution conduct being consistent with the TMD.
Thus, the focus of these provisions is primarily forward-looking, and concerns whether the regulated person had (at the relevant time) put in place adequate systems, policies, practices, and procedures – including a process of oversight and supervision – to address identified or reasonably identifiable risks of retail product distribution conduct which was inconsistent with the TMD.
Applying that reasoning and relevantly to this case, there is a contravention if the distributor gives a PDS to a retail client without first taking reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the giving of the PDS being consistent with the TMD. In other words, the relevant reasonable step must be antecedent to the retail product distribution conduct itself (in this case, the giving of the PDS) and not be taken concurrently with or after that conduct. That is because, if the step is concurrent with or occurs after the retail product distribution conduct, it can have no bearing on the likelihood that the conduct will be consistent with the TMD (which is the focus of s 994E(3)(d)) because the conduct itself will have taken place.
It follows that, contrary to Firstmac’s submissions, the nature of the retail product distribution conduct itself (such as the content of disclosures in the PDS and material which accompanies it) cannot be reasonable steps within the meaning of s 994E(3)(d), and nor are they relevant matters to be taken into account within the meaning of s 994E(5). Further, systems, policies, practices or procedures that a regulated person puts in place prior to the occurrence of the retail product distribution conduct are not relevant matters within s 994E(5) where an action taken under or pursuant to those systems, policies, practices or procedures will only be taken after the retail product distribution conduct occurs.
While steps which are concurrent with, or which occur after the retail product distribution conduct, could have an impact upon the likelihood of a person who falls outside the target market acquiring the financial product, that is not what s 994E(3)(d) and s 994E(5) are concerned with. Rather, these provisions are concerned with pre-conduct steps which impact upon the likelihood of the retail product distribution conduct being consistent with the TMD.
3. INVESTMENT OBJECTIVES OF TD HOLDERS
The likelihood of TD Holders being in the target market within the High Livez TMD was a central issue in the trial, the answer to which turned on an assessment of the likely investment objectives of the TD Holders.
3.1 Characterisation of ASIC’s case
Firstmac submits that ASIC’s case starts with an assumption that TD Holders in fact held a capital guaranteed objective and a short investment timeframe objective because they held a product (i.e. a Firstmac Term Deposit) which had these two features. It further describes ASIC’s case as follows:
In contrast, High Livez was not a product which offered a capital guarantee and had a medium investment timeframe. Accordingly, so the reasoning goes, because High Livez differed from the Firstmac Term Deposit in these two respects, it may be inferred there was a real chance that Firstmac TD Holders were outside the target market for High Livez and marketing High Livez to the Firstmac TD Holders would be, or would be reasonably likely to be inconsistent with, the TMD for High Livez…
Having described ASIC’s case in this way, Firstmac then submits that:
[T]he predicate of ASIC’s case that there was a real and not remote chance that the Firstmac TD Holders the subject of the Distribution Conduct held a capital guaranteed objective and/or a short term investment timeframe objective has not been made good, particularly having regard to the standard of proof required in civil penalty proceedings…
Firstmac submits that, when I consider ASIC’s case as a whole, this is the case which ASIC is propounding (and which, according to Firstmac, it failed to prove).
However, I disagree with this characterisation of ASIC’s case. Rather, ASIC’s case was that the TD Holders held or may have held either or both a capital guaranteed objective and a short investment timeframe objective because they held a product (i.e. a Firstmac Term Deposit) which had these two key features.
That this is ASIC’s case is apparent from, for example, [55], [168(d)], [172(b)] of ASIC’s closing submissions, [2] of ASIC’s closing submissions in reply, as well as [13] and [14] of ASIC’s Concise Statement (both original and amended) and [13(e)(iii)] of the Amended Statement of Claim. It is also the case which ASIC opened: T9/4–8; T16/30–34; T17/3–8. It is also the basis upon which ASIC instructed its expert, Mr Peter Whyntie: see [5.1.20] and [5.1.21] of the letter of instructions dated 29 March 2023.
3.2 Firstmac’s case
Firstmac accepts that there was a chance that some TD Holders held a capital guaranteed objective or a short investment timeframe objective but submits that the evidence established that that chance did not rise above a possibility.
3.3 Consideration
Investments in all Firstmac Term Deposits were ‘capital guaranteed’ by the Australian Government up to $250,000 per account. Capital invested in a Firstmac Term Deposit did not fluctuate in value, and TD Holders received the full amount of capital invested at maturity plus any return. Capital invested in High Livez, on the other hand, did not have a capital guarantee (of any kind), and the unit price of High Livez was subject to volatility. This had the consequence that unitholders may suffer a loss or gain in capital on exit from the fund.
Firstmac marketed Firstmac Term Deposits by reference to, amongst other things, the availability of the Australian Government guarantee, and it did so because it considered that feature would be of interest to term deposit holders. Further, at all relevant times, Firstmac did not offer a Firstmac Term Deposit with a term greater than two years unless an investor requested a longer term and that was agreed to by Firstmac, whereas the recommended investment timeframe for High Livez was three to five years.
It is common ground that from about 2012, Firstmac adopted a cross-selling strategy of marketing and distributing investments in High Livez to TD Holders. It is also common ground that the recipients of the Distribution Conduct were, at all relevant times, TD Holders. It follows that these recipients were investors in a financial product (namely, Firstmac Term Deposits) which had two ‘key’ characteristics – namely, a capital guarantee and a short investment timeframe.
That a group of customers invests in a particular financial product which has certain characteristics does not mean that all such customers will necessarily have particular investment objectives which are aligned with those characteristics. They might or might not have those objectives, depending on the circumstances. For example, they might have an investment in a financial product as part of a diverse portfolio, each segment of which reflects different objectives for that segment. Further, an investor’s objectives can change over time (including between the commencement date and the end date of the term associated with a term deposit). Mr Austin agreed: T370/40–44.
This conclusion accords with the evidence adduced at trial.
The TD TMD contained no reference to a “key consumer attribute” of the target market being a capital guaranteed objective or a short investment timeframe objective. If TD Holders as a market had such investment objectives, one would have expected to see that identified in those TMDs.
Mr Whyntie (ASIC’s expert) was shown the TD TMD for the Stow It Term Deposit and agreed that what the TD TMD exposed was that, just because features such as a fixed term or a government guarantee might be attributes of the financial product, it does not necessarily follow that they will be objectives of the target market for that product: T99/14–19.
Further, Ms Dean said this about the TD Holders (T163/43–44):
...just because they have a term deposit with a government guarantee does not mean that they want a government guarantee. It’s just a part of that product.
Ms Dean also agreed that just because a TD Holder held a term deposit did not mean that they had a short term investment objective: T164/25–28. She also did not know what percentage would or would not have such an objective: T164/35–38.
Notwithstanding this, there was evidence that some of the TD Holders may have held a capital guaranteed objective or a short investment timeframe objective, which proposition was accepted by Ms Dean under cross-examination (who had more direct dealings with these investors than any other person within Firstmac, including Mr Austin and Mr Gration, and which dealings occurred over many years) as well as by Ms Cunningham and Mr Austin.
While Ms Cunningham accepted that there was a chance that recipients of the High Livez Documents were outside the target market (such as at T259/41), she baulked at accepting that there was a “real chance”. It appears that she considered that the word “real” was superlative: T259/46. When senior counsel for ASIC further cross-examined Ms Cunningham, it was explained to her that “real chance” equated to “it’s possible”: T263/10–13.
Although Mr Austin gave evidence that “the capital guarantee is a feature of the product (i.e. Firstmac Term Deposit) [but] it doesn’t mean that that’s the objective of the person who holds it” (T361/31–33), he accepted there is a “likelihood” that “some” of the TD Holders would have a capital guaranteed objective but disagreed that many would have that objective (T349/20–21; T362/36–41). Mr Austin also gave evidence that it is likely that some TD Holders have a capital guaranteed investment objective, but it did not follow that all of them did (T362/27–29).
During closing submissions, I raised with Mr Dick SC who appeared for Firstmac that I did not understand the difference between a real chance (ASIC’s term) or a possibility (Firstmac’s term). He could not explain the difference, noting instead that it was a matter for ASIC.
When I asked senior counsel for ASIC to explain what was meant by “real chance”, Mr Harding SC agreed with my description of “realistic chance” and further submitted, “It’s not fanciful or far-fetched. You know, it’s a real possibility – a real chance. I mean, I think we can … equate them”.
Although much ink was spilt on this debate, it is therefore apparent that the position of both parties is that there was a real possibility that some of the TD Holders who were the recipients of the Distribution Conduct may have held either or both a capital guaranteed objective and a short investment timeframe objective.
This position appears to be the correct one, as it is consistent with the evidence of Firstmac’s witnesses who were familiar with the characteristics of their customers (as referred to above and in more detail in section 5.1 below).
3.4 Conclusion
For these reasons, there is a real chance (that is, a real possibility) that some of the TD Holders who were the recipients of the Distribution Conduct may have held either or both a capital guaranteed objective and a short investment timeframe objective and were therefore outside of the target market for High Livez.
4. ASIC’S FIRST LEVEL CASE
4.1 The pleaded allegations
By [23] and [24] of the Amended Statement of Claim, ASIC pleads a list of processes and procedures which it alleges that Firstmac “ought to have taken prior to the Distribution Conduct”. In summary, these alleged reasonable steps were that Firstmac ought to have:
(1)considered which of the consumer’s investment objectives and consumer’s intended timeframes in the TMD which the TD Holders were likely to have held;
(2)come to the conclusion that the TD Holders may have been consumers with a capital guaranteed investment objective and held an investment with a “Short (≤ 2 years)” intended investment timeframe and that an investment in High Livez may not have been appropriate to this objective and timeframe, such that there was a likelihood that they were outside the target market for High Livez as described in the High Livez TMD;
(3)recognised and come to the conclusion that it either did not have information about TD Holders to contradict such conclusions or, if it did have such information, had not considered and analysed the information to determine whether it contradicted such conclusions;
(4)not given the PDS to any TD Holder unless and until Firstmac had already:
(a)obtained information from the relevant TD Holder to the effect that they did not, then, hold a capital guaranteed objective or a short investment timeframe objective; or
(b)directly communicated to the relevant TD Holder that, generally, the High Livez product was unlikely to be appropriate for investors with a capital guaranteed objective or a short investment timeframe objective, and did so explicitly and in a manner that was reasonably likely to come to the attention of, and be understood by, the TD Holder;
(5)prepared and implemented a written “DDO Policy” specific to or incorporating the cross-selling strategy of High Livez which listed the steps outlined in subparagraphs (1) to (4) above and required Firstmac to engage in retail product distribution conduct which was consistent with the DDO Policy;
(6)prepared and implemented a written marketing and distribution strategy for High Livez;
(7)identified relevant staff to be instructed and trained in the operation of that policy and instructed and trained them;
(8)prepared and provided to relevant staff written mandatory support materials which:
(a)would include sales scripts for inbound and outbound calls with guidance on their use and which would incorporate mandatory questions, warnings and disclosures, checklists or operating guidelines, customer call centre procedures, customer complaint management procedures and processes, and a statement of governance and compliance responsibilities for each level of relevant staff involved in the distribution of High Livez;
(b)would be consistent with the DDO and the DDO Policy;
(c)would require relevant staff, in communications with potential investors, to ascertain from those potential investors their consumer attributes; and/or inform consumers that generally the High Livez product was unlikely to be appropriate for investors with a capital guaranteed objective or a short investment timeframe objective;
(9)identified which staff members ought to be instructed and trained in the operation of the written DDO Policy; and
(10)instructed and trained relevant staff members in the operation of the DDO Policy.
4.2 Mr Whyntie’s expert evidence
In support of its first level case, ASIC relied upon the expert evidence of Mr Whyntie, who provided two reports (a report dated 29 September 2023 and a supplementary report dated 23 October 2023). Mr Whyntie has a degree in economics and extensive experience in the design, implementation and management of compliance frameworks and arrangements for (inter alia) the distribution of financial products. Mr Whyntie has no legal qualifications.
For the following reasons, Mr Whyntie’s evidence concerning ASIC’s first level case is of limited assistance.
By his first report, Mr Whyntie addressed this question:
During the Relevant Period, what steps could Firstmac have taken that would have resulted in, or would have been reasonably likely to have resulted in, the PDS being given to Firstmac Term Deposit Holders who were in the target market for High Livez?
(Emphasis added.)
That is, Mr Whyntie was not asked to opine as to the steps which ought to have been taken by Firstmac, but the steps which could have been taken by it that would have resulted in, or would have been reasonably likely to have resulted in, the PDS being given to TD Holders who were in the target market for High Livez (and this is the question which he proceeded to answer).
However, this question differs from the case pleaded by ASIC at [23] and [24] of the Amended Statement of Claim wherein the steps outlined in [23] are pleaded as being steps which (inter alia) Firstmac ought to have taken. Further, Mr Whyntie was not asked the relevant question by reference to the words used in s 994E(3)(d) of the Corporations Act, and nor was he instructed to adopt ASIC’s construction of that section (including its contentions at trial as to the meaning of “that would have resulted in, or would have been reasonably likely to have resulted in” as constituent elements of a compound conception). Indeed, the manner in which Mr Whyntie construed the phrase “would have resulted in, or would have been reasonably likely to have resulted in” is not apparent from the first report and so is unknown. Further, at paragraph 49 of the first report, he refers to Firstmac “giving effect to the requirements of the DDO” but without identifying his understanding of those requirements. The same observation can be made about paragraphs 50 and 69 of the first report (for example) where Mr Whyntie expresses opinions relating to compliance with the DDO.
Mr Whyntie’s first report identified steps which, in his opinion, Firstmac “could have taken”. However, he does not provide reasons for the identification of some of these steps, which are often expressed in general terms in the first report, and nor does he explain why, in his view, such steps “would have resulted in, or would have been reasonably likely to have resulted in, the PDS being given to Firstmac Term Deposit Holders who were in the target market for High Livez”. For example, no reasons are provided for the steps identified in paragraphs 9(a)(ii)–(iv), 9(b), 21, 22, 36, 37 and 49 of the first report, and paragraph 20 refers to a compliance risk assessment which could have been conducted and implemented to identify (inter alia) “reasonable measures to ensure that no TD holder would be provided with the High Livez PDS prior to Firstmac having explicitly ascertained that the TD holder was within the target market” (emphasis added). However, the reasonable measures are not identified by Mr Whyntie.
Mr Whyntie was instructed to assume that “[t]here was a likelihood that the 817 Firstmac Term Deposit Holders who receive the PDS included retail clients who were outside the target market for High Livez”. However, what was meant by “likelihood” was not explained in the instructions and it might be that Mr Whyntie understood “likelihood” to mean something more probable than a “realistic possibility”, which was the case advanced by ASIC in closing submissions. Indeed, Mr Whyntie refers to “reasonable likelihood” at paragraph 28 of the first report, which is a different concept which potentially connotes a higher probability than “realistic possibility”: cfSportsbet Pty Ltd v State of New South Wales (No 9) [2010] FCA 31 at [4] (Perram J). The instructed assumption infects the balance of Mr Whyntie’s opinions because the degree of likelihood that TD Holders were outside the target market for High Livez affects the likelihood of the Distribution Conduct being inconsistent with the High Livez TMD, which informs the question of what reasonable steps Firstmac ought to have taken to comply with s 994E(3): see s 994E(5)(a).
On 22 September 2023, Mr Whyntie was briefed with pleadings filed in this proceeding, along with certain particulars provided by ASIC, and asked (inter alia) whether the steps pleaded in [23] of the Statement of Claim dated 14 June 2023 were likely or reasonably likely to achieve compliance with the DDO with respect to High Livez. Mr Whyntie’s responses to this question in the first report are (with respect) difficult to follow, because his report tends to focus more on whether there is any evidence in the materials briefed to him as to whether a specific step was followed, and whether that step was one which Firstmac could have taken. Although Mr Whyntie concludes at paragraph 96 of his first report that the pleaded steps were steps which, if they had been followed by Firstmac, were likely or reasonably likely to have achieved compliance with the DDO, it is not apparent from the first report what Mr Whyntie regarded as being required to achieve “compliance with the DDO” as this was not explained to him in the letters of instruction, and he did not expose his understanding of the statutory obligations imposed by the DDO.
Finally, despite being briefed with Firstmac’s affidavit evidence, Mr Whyntie’s second report did not address that evidence, nor indicate whether that evidence changed any of the opinions which he had expressed in his first report, and nor was any further supplementary report prepared. As such, his reports are based on material which is more limited than the body of evidence that was adduced at trial, which affects the utility of the opinions expressed in them.
4.3 Conclusion on first level case
Leaving aside the evidence of Mr Whyntie, upon which I place little weight, ASIC submits that the steps in [23] of the Amended Statement of Claim are “evidently reasonable”, Firstmac was reasonably able to take them at all relevant times and they are not burdensome. ASIC also relies upon evidence which shows that Firstmac did take some of these steps after the relevant period.
However, as Firstmac submits, the question in this case is whether, having regard to all relevant circumstances, Firstmac failed to take steps that would have resulted in, or would have been reasonably likely to have resulted in, the Distribution Conduct being consistent with the TMD for High Livez. The issue of whether there has been compliance with s 944E(3) is not determined by reference to identification of all of the possible steps which could have been taken by Firstmac and then a conclusion; rather, the statutory provision requires an inquiry into what Firstmac in fact did. That is because there is not one true path that must be followed in order to comply with s 994E(3), and the fact that one reasonable path is chosen over others need not result in a conclusion that all reasonable steps were not taken: see, by analogy, Construction, Forestry, Maritime, Mining and Energy Union v Mechanical Maintenance Solutions Pty Ltd (2022) 289 FCR 508; [2022] FCAFC 15 at [169] (O’Callaghan and Wheelahan JJ). Further, s 994E(3) is not expressed as an obligation to take all reasonable steps.
For this reason, I will address the steps which Firstmac alleges that it took in its defence of both the first and second level cases and assess whether there has been compliance by reference to such steps. Such an approach is expedient in any event because Firstmac asserts that the steps which it took included some of the steps which form part of ASIC’s first level case, and so the two cases overlap.
5. ASIC’S SECOND LEVEL CASE
By [25] of the Amended Statement of Claim, ASIC pleads that Firstmac did not take “any steps that would have resulted in, or would have been reasonably likely to have resulted in, retail product distribution conduct (as defined in sec. 994A) in relation to High Livez being consistent with the TMD” and “accordingly, Firstmac failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, retail product distribution conduct (as defined in sec. 994A) in relation to High Livez being consistent with the TMD”.
That there was such a breakdown of communication within such a small working group of individuals exemplified the need for a written policy which identified the steps which needed to be taken by each person within Firstmac in order to ensure compliance by Firstmac with the DDO.
Again, such a step was not an onerous one, especially having regard to the small number of people who were involved in High Livez. It is self-evident that this was a suitable and available way to eliminate or minimise the likelihood that the High Livez PDS would be sent to a person who fell outside the target market for High Livez. For these reasons and because an attempt was made to formulate a written policy, Firstmac ought reasonably to have known about it.
The following step is aligned with the step described in ASIC’s first level case at [23(i)] of the Amended Statement of Claim.
Ms Dean is the primary point of contact with investors and, during the relevant period, Ms Dean exercised a discretion concerning whether to inform potential investors in High Livez about the lack of government guarantee and the recommended investment timeframe. In those circumstances, Ms Dean (and probably also Ms Gorman) could have been trained in the DDO requirements and required to read and be aware of the content of the High Livez TMD. Such matters would have influenced the decisions taken by Ms Dean as to whether to inform the customers of these features of High Livez during their conversations and, provided such conversations occurred prior to the PDS being sent to the potential investor, would have eliminated or minimised the likelihood of sending the PDS to a person who fell outside the target market for High Livez, and either eliminated or minimised the risk of harm being suffered by such a person who invests in High Livez and who loses part or all of their investment.
Again, it is apparent that this was a suitable and available way to eliminate or minimise the likelihood that the High Livez PDS would be sent to a person who fell outside the target market for High Livez. Mr Gration conceded as much. For this reason, Firstmac ought reasonably to have known about it.
5.6 Conclusion on second level case
The steps which Firstmac took were wholly inadequate to meet the statutory obligation imposed by s 994E(3)(d). Although it recognised that there was a possibility that some of the TD Holders who would be the recipients of the Distribution Conduct may have held either or both a capital guaranteed objective and a short investment timeframe objective and were therefore outside of the target market for High Livez, the steps which Firstmac took following that recognition fell far short of the standard of behaviour expected of a reasonable person in its position. This is especially when one has regard to the steps which were reasonably able to be taken by Firstmac, as referred to above, and which steps would have either eliminated or minimised the likelihood that the High Livez PDS was sent to a person who fell outside the target market for High Livez.
It follows that I am satisfied to the required standard that Firstmac failed to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the Distribution Conduct being consistent with the High Livez TMD.
For these reasons, ASIC established its second level case.
6. CONCLUSION AND DISPOSITION
For these reasons, Firstmac contravened s 994E(3) of the Corporations Act.
I certify that the preceding two hundred and twelve (212) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Downes. Associate:
Dated: 10 July 2024
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