Australian Securities and Investments Commission v MLC Nominees Pty Ltd
[2020] FCA 1306
•11 September 2020
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investments Commission v MLC Nominees Pty Ltd [2020] FCA 1306
File number: NSD 1654 of 2018 Judge: YATES J Date of judgment: 11 September 2020 Catchwords: CORPORATIONS – admitted contraventions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) related to the charging and deductions of fees and representations about the right to charge fees from members of superannuation funds – imposition of penalties pursuant to s 12GBA of the ASIC Act – where quantum of penalties is contested Legislation: Australian Securities and InvestmentsCommission Act 2001 (Cth) ss 12BA(1), 12BAB, 12BAA(7)(f), 12DA, 12DB(1)(g), 12DB(1)(i), 12GBA
Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law)
Corporations Act 2001 (Cth) ss 761E, 912A(1)(a), 912A(1)(c), 1012B(3), 1013C, 1022A, 1022B(2), 1041H(1), 1041H(2)
Corporations Regulations 2001 (Cth) regs 7.9.11N, 7.9.11O
Crimes Act 1914 (Cth) s 4AA
Evidence Act 1995 (Cth) s 191
Federal Court of Australia Act 1976 (Cth) s 21
Superannuation Industry (Supervision) Act 1993 (Cth) ss 10, 52(2)
Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth)
Cases cited: Attorney-General v Tichy (1982) 30 SASR 84
Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; 254 FCR 68
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; 327 ALR 540
Australian Competition and Consumer Commission v Pental Limited [2018] FCA 491
Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682
Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; 317 ALR 73
Australian Securities and Investments Commission v Westpac Banking Corporation [2018] FCA 751; 266 FCR 147
Australian Competition and Consumer Commission v Optus Mobile Pty Limited [2019] FCA 106
Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640
Australian Competition and Consumer Commission v BAJV Pty Ltd [2014] FCAFC 52
Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25
Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3; 262 CLR 157
Australian Securities and Investments Commission v Camelot Derivatives Pty Limited (in Liquidation); In the matter of Camelot Derivatives Pty Limited (in Liquidation) [2012] FCA 414; 88 ACSR 206
Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd [2018] FCA 155
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482
Construction, Forestry, Mining and Energy Union v Williams [2009] FCAFC 171; 262 ALR 417
Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 269 ALR 1
Director of Consumer Affairs, Victoria v Alpha Flight Services Pty Ltd [2015] FCAFC 118
Finch v Telstra Super Pty Ltd [2010] HCA 36; 242 CLR 254
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
Markarian v The Queen [2005] HCA 25; 228 CLR 357
McDonald v Australian Building and Construction Commissioner [2011] FCAFC 29; 202 IR 467
Mill v The Queen (1988) 166 CLR 59
Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70; 168 FCR 383
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
Royer v Western Australia [2009] WASCA 139; 197 A Crim R 319
Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438
Setka v Gregor (No 2) [2011] FCAFC 90; 195 FCR 203
SingTel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249
Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 2; 127 FCR 170
Trade Practices Commission v CSR Ltd [1991] ATPR 41-076
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 315 Date of hearing: 16 March 2020 and 19 June 2020 Counsel for the Plaintiff: Mr T Faulkner SC, Ms J Shepard and Ms A Garsia Solicitor for the Plaintiff: Australian Securities and Investments Commission Counsel for the Defendants: Mr D Thomas SC, Ms M Ellicott and Mr M Forgacs Solicitor for the Defendants: Herbert Smith Freehills
Table of Corrections 9 October 2020 In the third sentence of paragraph 276, “service plan” has been replaced with “plan service”. 9 October 2020 In the third sentence of paragraph 278, “advising” has been replaced with “advised”. 9 October 2020 In the first sentence of paragraph 235, “that” has been inserted before “they”. 9 October 2020 In the fourth sentence of paragraph 309, “Declarations 39” has been replaced with Declaration 39”. 9 October 2020 In the list of cases cited on the cover page, the words “at [39]-[41]; ABCC v CFMEU” have been deleted. ORDERS
NSD 1654 of 2018 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Plaintiff
AND: MLC NOMINEES PTY LTD (ACN 002 814 959)
First Defendant
NULIS NOMINEES (AUSTRALIA) LIMITED (ACN 008 515 633)
Second Defendant
JUDGE:
YATES J
DATE OF ORDER:
11 SEPTEMBER 2020
THE COURT:
First Defendant (MLC Nominees Pty Ltd): no-adviser members
1.Declares that during the period 8 September 2012 to 30 June 2016, while MLC Nominees Pty Ltd (MLC Nominees) was trustee of The Universal Super Scheme, MLC Nominees failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 230702 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act 2001 (Cth) (the Corporations Act), in that:
(a)during that period, the administrator retained by MLC Nominees to administer The Universal Super Scheme on behalf of MLC Nominees, being MLC Limited, made monthly deductions from the account balances of approximately 220,000 members’ accounts in the MasterKey Product totalling over $33,620,000 (gross of any tax credits the member would have received) in respect of Plan Service Fees in circumstances where those members (no-adviser members) had no linked financial adviser (Plan Adviser);
(b)the administrator retained those deductions;
(c)it was a term of the MasterKey Product that Plan Service Fees:
(i)could only be deducted and paid to a Plan Adviser; and
(ii)could not be deducted from account balances of no-adviser members; and
(d)MLC Nominees failed to ensure deductions of Plan Service Fees were made consistently with the terms of the MasterKey Product referred to in sub-paragraph (c).
2.Declares that during the period 4 July 2012 to 12 April 2013, MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the Australian Securities and InvestmentsCommission Act 2001 (Cth) (the ASIC Act), in that MLC Nominees sent a letter to each existing no-adviser member of the MasterKey Product which:
(a)under the heading “Your new fees”, listed the Plan Service Fee as a fee that would apply to the no-adviser member’s account on and from the date specified;
(b)did not state that the Trustee was not entitled to deduct the Plan Service Fee from the no-adviser member’s account or that the no-adviser member was not obliged to pay the Plan Service Fee; and
(c)in the circumstances, represented that the Trustee was entitled to deduct the Plan Service Fee and the no-adviser member was obliged to pay it whereas there was no such entitlement or obligation.
3.Declares that during the period 8 September 2012 to 29 November 2013, MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees issued to each new no-adviser member a “welcome kit” which:
(a)listed “current fees” by type and amount/percentage including the Plan Service Fee;
(b)did not state that the Trustee was not entitled to deduct the Plan Service Fee from the no-adviser member’s account or that the no-adviser member was not obliged to pay the Plan Service Fee; and
(c)in the circumstances, represented that the Trustee was entitled to deduct the Plan Service Fee and the no-adviser member was obliged to pay it whereas there was no such entitlement or obligation.
4.Declares that during the period 8 September 2012 to 30 June 2016, MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees issued to each no-adviser member of the MasterKey Product annual statements which:
(a)listed “current fees” by type and amount/percentage including the Plan Service Fee;
(b)did not state that the Trustee was not entitled to deduct the Plan Service Fee from the no-adviser member’s account or that the no-adviser member was not obliged to pay the Plan Service Fee; and
(c)in the circumstances represented that the Trustee was entitled to deduct the Plan Service Fee and the no-adviser member was obliged to pay it whereas there was no such entitlement or obligation.
5.Declares that, by reason of the matters set out in Declarations 2, 3 and 4 above, MLC Nominees in connection with the supply of financial services made a false or misleading representation to each no-adviser member for each of no fewer than approximately 220,000 accounts with respect to the fees to be paid by the no-adviser member of the MasterKey Product, and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
6.Declares that, by reason of the matters set out in Declarations 2, 3 and 4 above, MLC Nominees in connection with the supply of financial services made a false or misleading representation to each no-adviser member for each of no fewer than approximately 220,000 accounts concerning the existence of a right of MLC Nominees, namely the right to deduct the Plan Service Fee and, further, a condition imposed on no-adviser members, namely the obligation to pay the Plan Service Fee, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
7.Declares that, during the period 8 September 2012 to 30 June 2016 MLC Nominees failed to comply with the financial services laws and thereby contravened s 912A(1)(c) of the Corporations Act, in that MLC Nominees:
(a)contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act as referred to in Declarations 2 to 4 above;
(b)contravened s 12DB(1)(g) of the ASIC Act as referred to in Declaration 5 above; and
(c)contravened s 12DB(1)(i) of the ASIC Act as referred to in Declaration 6 above.
8.Declares that during the period 8 September 2012 to 30 June 2016 MLC Nominees failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 230702 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act, in that MLC Nominees engaged in the misleading or deceptive conduct referred to in Declarations 2 to 6 above.
9.Orders pursuant to s 12GBA of the ASIC Act that MLC Nominees pay to the Commonwealth a pecuniary penalty in respect of each declared civil penalty contravention, in the sum of $22.5 million.
First Defendant (MLC Nominees Pty Ltd): linked members
10.Declares that during the period 8 September 2012 to 30 June 2016 whilst MLC Nominees was trustee of The Universal Super Scheme, MLC Nominees failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 230702 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act, in that MLC Nominees:
(a)was party to standard Licensee Remuneration Agreements with Plan Advisers in respect of distribution of the MasterKey Product, which standard agreements imposed an obligation on MLC Nominees to pay to the Plan Advisers a fee called the Plan Service Fee in respect of members of a division of the MasterKey Product called MasterKey Personal Super who had a Plan Adviser linked to their account (linked members), but did not impose any obligation on Plan Advisers to provide any services to linked members in MasterKey Personal Super;
(b)did not obtain information about any agreement between a Standard Employer Sponsor and its Plan Adviser in addition to that contained in the MLC Application Form, namely information about whether there was any agreement by the Plan Adviser to provide services to linked members after they ceased employment and, if so, what services;
(c)did not have in place an adequate system to enable it to form a reasonable belief, for the purposes of cl 4.4(a)(i) of the Licensee Remuneration Agreements, about whether Plan Advisers were providing services to linked members in MasterKey Personal Super to which the Plan Service Fee related;
(d)did not form a reasonable belief, for the purposes of cl 4.4(a)(i) of the Licensee Remuneration Agreements, upon each linked member of the MasterKey Product ceasing employment and being transferred to MasterKey Personal Super from another division of the MasterKey Product called MasterKey Business Super, that the Plan Adviser was no longer providing that member with the financial services to which the Plan Service Fee related;
(e)did not terminate payment of the Plan Service Fee for each linked member upon that member ceasing employment and being transferred to MasterKey Personal Super;
(f)made or authorised the making of monthly deductions from the account balances of 313,078 linked members’ accounts in MasterKey Personal Super for payment to Plan Advisers of Plan Service Fees totalling $59,073,846;
(g)did not inform linked members in MasterKey Personal Super at any time, including when they were transferred from MasterKey Business Super to MasterKey Personal Super, that they had the right to elect to turn off the Plan Service Fee;
(h)did not inform linked members in MasterKey Business Super at any time that they would have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super; and
(i)did not inform any linked members that they could exercise the right to elect to turn off the Plan Service Fee simply by notifying the Trustee.
11.Declares that from 10 September 2012 to 19 November 2012, MLC Nominees gave to people who became a member of the MasterKey Product a product disclosure statement dated 10 September 2012 which was defective within the meaning of s 1022A of the Corporations Act in that:
(a)the product disclosure statement contained a statement that was misleading or deceptive, namely:
“Your Plan service fee will continue under MLC MasterKey Personal Super and will be capped at 0.44%.”
whereas upon a linked member being transferred to MasterKey Personal Super the member had the right to elect to turn off the Plan Service Fee;
(b)there was an omission from the product disclosure statement of material required to be included by s 1013C(1)(a) of the Corporations Act as modified by reg 7.9.11N of the Corporations Regulations 2001 (Cth) (the Corporations Regulations) and cl 5B.2 of Schedule 10A to those regulations, namely the material specified in reg 7.9.11O and cl 8(9)(c) of Schedule 10D which required the product disclosure statement to explain how fees which may be paid to the employer’s Plan Adviser were determined, in that the product disclosure statement did not explain that:
(i)linked members in MasterKey Personal Super had the right to elect to turn off the Plan Service Fee; and
(ii)linked members in MasterKey Business Super would have the right to elect to turn off the Plan Service Fee upon ceasing employment and being transferred to MasterKey Personal Super; and
(c)there was an omission from the product disclosure statement of material required to be included by s 1013C(1)(a) of the Corporations Act as modified by reg 7.9.11N of the Corporations Regulations and cl 5B.2 of Schedule 10A to those regulations, namely the material specified in reg 7.9.11O, cl 8(5) of Schedule 10D and para 209(k)(iv) of Schedule 10 which required the product disclosure statement to set out information about all the changes in the structure of the Plan Service Fee that were dependent on a member’s change in employment, in that the product disclosure statement did not set out the following information:
(i)linked members who had ceased to be employed and were now members in MasterKey Personal Super had the right to elect to turn off the Plan Service Fee; and
(ii)linked members in MasterKey Business Super would have the right to elect to turn off the Plan Service Fee upon ceasing employment and being transferred to MasterKey Personal Super.
12.Declares that from 19 November 2012 until 1 July 2013, MLC Nominees gave to people who became a member of the MasterKey Product a product disclosure statement dated 19 November 2012 which was defective within the meaning of s 1022A of the Corporations Act for the same reasons as for the product disclosure statement dated 10 September 2012 as referred to in Declaration 11 above.
13.Declares that from 1 July 2013 until 29 November 2013, MLC Nominees gave to people who became a member of the MasterKey Product a product disclosure statement dated 1 July 2013 which was defective within the meaning of s 1022A of the Corporations Act for the same reasons as for the product disclosure statement dated 10 September 2012 as referred to in Declaration 11 above.
14.Declares that prior to 8 September 2012, MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees:
(a)sent a letter to each linked member of MasterKey Personal Super which:
(i)informed linked members of the introduction of the Plan Service Fee;
(ii)listed “your new fees” by type and amount/percentage;
(iii)provided information under the heading “How you can reduce your fees”
(iv)but did not state that the linked member had the right to elect to turn off the Plan Service Fee;
(v)in the circumstances, represented that the linked member did not have the right to elect to turn off the Plan Service Fee, whereas the linked member did;
(b)enclosed with the letter a reference guide which:
(i)stated:
“Plan service fee
Up to 1.5% pa of your account balance. It may be a dollar amount, as long as it doesn’t exceed this limit.
It is deducted monthly from your account and is paid to your adviser.
You can negotiate a lower fee with your adviser.”
(ii)by stating without qualification, expansion or explanation that “You can negotiate a lower fee with your adviser”, the reference guide represented that:
A.a linked member could not remove the Plan Service Fee unless the Plan Adviser agreed, whereas the linked member had the right to elect to turn off the Plan Service Fee simply by notifying the trustee;
B.a linked member could lower the amount he or she had to pay but would still have to pay some amount for the Plan Service Fee, whereas the linked member had the right to elect to turn off the fee altogether;
(iii)the reference guide provided information about reducing fees under the heading “How you can reduce your fees”;
(iv)but did not state that the linked member had the right to elect to turn off the Plan Service Fee;
(v)in the circumstances, represented that the linked member did not have the right to elect to turn off the Plan Service Fee, whereas the linked member did;
(c)sent a letter to each linked member of MasterKey Business Super which:
(i)informed linked members of the introduction of the Plan Service Fee;
(ii)listed “your new fees” by type and amount/percentage;
(iii)provided information under the heading “How you can further reduce your fees”;
(iv)but did not state that the linked member would have the right to elect to turn off the Plan Service Fee upon the linked member being transferred to MasterKey Personal Super;
(v)in the circumstances, represented that the linked member would not have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super, whereas the linked member would; and
(d)enclosed with the letter a reference guide which:
(i)provided information about reducing fees under the heading “How you can reduce your fees”;
(ii)stated:
“Plan service fee
This fee is up to 1.5% pa of your account balance. It may be a dollar amount, as long as it doesn’t exceed this limit.
It is deducted monthly from your account and paid to your Plan adviser. The fee is for providing financial services that are tailored to the needs of the employees in your company.
The Plan service fee is the Asset based commission plus the Employer service fee.”
(iii)further stated:
“Changes when you leave your employer
If you leave your employer, we’ll automatically transfer your super account to MLC MasterKey Personal Super.
The overall changes to your fees and costs will be:
·your Administration fee may increase as you will no longer be part of an employer Plan
·any Adviser contribution fee will cease
·any Plan service fee will be capped at 0.44%, and
·your Insurance commission will be 23.65%.
Other fees and costs will remain the same at the time of the transfer.”
(iv)but did not at any place state that the linked member would have the right to elect to turn off the Plan Service Fee upon the linked member being transferred to MasterKey Personal Super; and
(v)in the circumstances, represented that the linked member would not have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super, whereas the linked member would.
15.Declares that by reason of the matters referred to in Declaration 14 above, prior to 8 September 2012 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member in MasterKey Personal Super for each of no fewer than approximately 219,000 accounts with respect to the fees to be paid by the linked member in the MasterKey Product and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
16.Declares that by reason of the matters referred to in Declaration 14 above, prior to 8 September 2012 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member in MasterKey Personal Super for each of no fewer than approximately 219,000 accounts concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee once the linked member was transferred to MasterKey Personal Super, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
17.Declares that during the period 17 September 2012 to 12 October 2012, MLC Nominees in trade or commerce, engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees:
(a)sent a letter to each person to be transferred to MasterKey Personal Super as part of an intra-fund transfer of members from four existing corporate superannuation products (including those known as the Navigator Super Solutions – Employer Super and Personal Option) to the MasterKey Product as part of the “Encompass” project (Encompass Trade-Up), which letter:
(i)listed “your new fees” by type and amount/percentage;
(ii)provided information about reducing fees under the heading “How you can reduce your fees”;
(iii)but did not state that the linked member had the right to elect to turn off the Plan Service Fee;
(iv)in the circumstances, represented that the linked member did not have the right to elect to turn off the Plan Service Fee, whereas the linked member did;
(b)sent a letter to each person to be transferred to MasterKey Business Super as part of the Encompass Trade-Up which:
(i)listed “your new fees” by type and amount/percentage;
(ii)provided information about reducing fees under the heading “How you can further reduce your fees”;
(iii)but did not state that the linked member would have the right to elect to turn off the Plan Service Fee upon the member being transferred to MasterKey Personal Super;
(iv)in the circumstances, represented that the linked member would not have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super, whereas the linked member would; and
(c)enclosed with the letters referred to in the preceding two subparagraphs a reference guide which:
(i)provided information about reducing fees under the heading “How you can reduce your fees”;
(ii)with reference to MasterKey Business Super, stated:
“Plan service fee
The Adviser services fee will be transferred into a Plan service fee, which can be up to 1.5% pa of your account balance. It may be a dollar amount, as long as it doesn’t exceed this limit.
It is deducted monthly from your account and paid to your Plan adviser.
The fee is for providing financial services that are tailored to the needs of the employees in your company.”
(iii)with reference to MasterKey Personal Super, stated:
“Plan service fee
The Adviser services fee will be transferred into a Plan service fee, which can be up to 1.5% pa of your account balance. It may be a dollar amount, as long as it doesn’t exceed this limit.
It is deducted monthly from your account and paid to your adviser.
You can negotiate a lower fee with your adviser.”
(iv)by stating without qualification, expansion or explanation that “You can negotiate a lower fee with your adviser”, the reference guide represented that:
A.a linked member could not turn off the Plan Service Fee unless the Plan Adviser agreed, whereas the linked member had the right to elect to turn off the Plan Service Fee simply by notifying the trustee;
B.a linked member could lower the amount he or she had to pay but would still have to pay some amount for the Plan Service Fee, whereas the member had the option of turning off the fee altogether;
(v)did not at any place state that linked members in MasterKey Personal Super had the right to elect to turn off the Plan Service Fee;
(vi)in the circumstances, represented that linked members in MasterKey Personal Super did not have the right to elect to turn off the Plan Service Fee, whereas they did;
(vii)did not at any place state that linked members in MasterKey Business Super would have the right to elect to turn off the Plan Service Fee upon the member being transferred to MasterKey Personal Super; and
(viii)in the circumstances, represented that the linked member in MasterKey Business Super would not have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super, whereas they would.
18.Declares that by reason of the matters referred to in Declaration 17 above, during the period 17 September 2012 to 12 October 2012 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each person to be transferred to (and become a linked member of) the MasterKey Product for each of no fewer than approximately 38,000 accounts as part of the Encompass Trade-Up with respect to the fees to be paid by the person as a member of the MasterKey Product and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
19.Declares that by reason of the matters referred to in Declaration 17 above, during the period 17 September 2012 to 12 October 2012 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each person to be transferred to (and become a linked member of) the MasterKey Product for each of no fewer than approximately 38,000 accounts as part of the Encompass Trade-Up concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee once the member was transferred to MasterKey Personal Super, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
20.Declares that, during the period 22 March 2013 to 12 April 2013, MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees:
(a)sent a letter to each person to be transferred to MasterKey Personal Super as part of an intra-fund transfer of members of The Employee Retirement Plan to the MasterKey Product (TERP Trade-Up), which letter:
(i)listed “your new fees” by type and amount/percentage;
(ii)stated:
“Plan service fee [x] % pa of your account balance
You can reduce your Plan service fee. To discuss this please contact your adviser or call us after the move.”
(iii)by stating without qualification, expansion or explanation that “You can reduce your Plan service fee”, the letter represented that a linked member could reduce the amount he or she had to pay but would still have to pay some amount for the Plan Service Fee, whereas the linked member had the option of turning off the fee altogether;
(iv)did not state that the linked member had the right to elect to turn off the Plan Service Fee;
(v)in the circumstances, represented that the linked member did not have the right to elect to turn off the Plan Service Fee, whereas the linked member did;
(b)sent a letter to each person to be transferred to MasterKey Business Super as part of the TERP Trade-Up which:
(i)listed “your new fees” by type and amount/percentage;
(ii)stated:
“Plan service fee [x] % pa of your account balance
If you want to amend your Plan service fee please contact your Plan adviser or call us after the move.”
(iii)by referring without qualification, expansion or explanation to amending the Plan Service Fee, the letter represented that a linked member could change the amount he or she had to pay but would still have to pay some amount for the Plan Service Fee, whereas the linked member would have the right to elect to turn off the fee altogether;
(iv)did not state that the linked member would have the right to elect to turn off the Plan Service Fee upon the linked member being transferred to MasterKey Personal Super;
(v)in the circumstances, represented that the linked member would not have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super, whereas the linked member would;
(c)enclosed with the letters referred to in the preceding two subparagraphs a reference guide which:
(i)provided information about “fees you pay”;
(ii)provided information about reducing fees under the heading “How you can reduce your fees”;
(iii)stated:
“Plan service fee
0.33% pa (or 0.22% pa if your employer’s Plan used to be with National Flexi Super). It’s deducted monthly from your account and paid to your Plan adviser.”
(iv)did not at any place state that linked members in MasterKey Personal Super had the right to elect to turn off the Plan Service Fee;
(v)in the circumstances, represented that linked members in MasterKey Personal Super did not have the right to elect to turn off the Plan Service Fee, whereas they did;
(vi)did not at any place state that linked members in MasterKey Business Super would have the right to elect to turn off the Plan Service Fee upon the member being transferred to MasterKey Personal Super; and
(vii)in the circumstances, represented that linked members in MasterKey Business Super would not have the right to elect to turn off the Plan Service Fee upon being transferred to MasterKey Personal Super, whereas they would.
21.Declares that by reason of the matters referred to in Declaration 20 above, during the period 22 March 2013 to 12 April 2013 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each person to be transferred to (and become a linked member of) the MasterKey Product for each of no fewer than approximately 50,000 accounts as part of the TERP Trade-Up with respect to the fees to be paid by the person as a member of the MasterKey Product and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
22.Declares that by reason of the matters referred to in Declaration 20 above, during the period 22 March 2013 to 12 April 2013 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or a misleading representation to each person to be transferred to (and become a linked member of) the MasterKey Product for each of no fewer than approximately 50,000 accounts as part of the TERP Trade-Up concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee once the member was transferred to MasterKey Personal Super, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
23.Declares that, between 8 September 2012 and 29 November 2013, MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees issued to each person who became a new linked member in the MasterKey Product a “welcome kit” which:
(a)listed “current fees” by type and amount/percentage;
(b)did not at any place state that the member had the right to elect to turn off the Plan Service Fee once the member was transferred to MasterKey Personal Super; and
(c)in the circumstances, represented that the linked member did not have the right to elect to turn off the Plan Service Fee once the member was transferred to MasterKey Personal Super, whereas the linked member did.
24.Declares that by reason of the matters referred to in Declaration 23 above, between 8 September 2012 and 29 November 2013, MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 61,000 accounts with respect to the fees to be paid by linked members of the MasterKey Product and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
25.Declares that by reason of the matters referred to in Declaration 23 above, between 8 September 2012 and 29 November 2013, MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 61,000 accounts concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee once the member was transferred to MasterKey Personal Super, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
26.Declares that between 8 September 2012 and 30 June 2016 MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees issued a “porting kit” to each person who was a linked member in MasterKey Business Super as at 29 November 2013 and who was then transferred to MasterKey Personal Super, which “porting kit”:
(a)listed “your new account fees” by type and amount/percentage;
(b)did not at any place state that the member now had the right to elect to turn off the Plan Service Fee; and
(c)in the circumstances, represented that the member did not have the right to elect to turn off the Plan Service Fee, whereas the member did.
27.Declares that by reason of the matters referred to in Declaration 26 above, between 8 September 2012 and 30 June 2016 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 48,000 accounts with respect to the fees to be paid by linked members of the MasterKey Product and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
28.Declares that by reason of the matters referred to in Declaration 26 above, between 8 September 2012 and 30 June 2016 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 48,000 accounts concerning the existence of a right of members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee once the linked member was transferred to MasterKey Personal Super, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
29.Declares that between 8 September 2012 and 30 June 2016 MLC Nominees in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that MLC Nominees issued annual statements to each person who was a member of MasterKey Personal Super, which statements:
(a)listed “current fees” by type and amount/percentage including the Plan Service Fee;
(b)did not at any place state that the member had the right to elect to turn off the Plan Service Fee; and
(c)in the circumstances, represented that the member did not have the right to elect to turn off the Plan Service Fee, whereas the member did.
30.Declares that by reason of the matters referred to in Declaration 29 above, between 8 September 2012 and 30 June 2016 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 105,000 accounts with respect to the fees to be paid by linked members of the MasterKey Product, and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
31.Declares that by reason of the matters referred to in Declaration 29 above, between 8 September 2012 and 30 June 2016 MLC Nominees in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 105,000 accounts concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
32.Declares that during the period 8 September 2012 to 30 June 2016 MLC Nominees failed to comply with the financial services laws and thereby contravened s 912A(1)(c) of the Corporations Act, in that MLC Nominees:
(a)gave the product disclosure statements which were defective for the purposes of s 1022A of the Corporations Act as referred to in Declarations 11, 12 and 13 above;
(b)contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act as referred to in Declarations 14, 17, 20, 23, 26 and 29 above;
(c)contravened s 12DB(1)(g) of the ASIC Act as referred to in Declarations 15, 18, 21, 24, 27 and 30 above; and
(d)contravened s 12DB(1)(i) of the ASIC Act as referred to in Declarations 16, 19, 22, 25, 28 and 31 above.
33.Declares that during the period 8 September 2012 to 30 June 2016 MLC Nominees failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 230702 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act, in that MLC Nominees:
(a)gave the product disclosure statements which were defective as referred to in Declarations 11, 12 and 13 above; and
(b)engaged in the misleading or deceptive conduct referred to in Declarations 14, 17, 20, 23, 26 and 29 above.
34.Orders pursuant to s 12GBA of the ASIC Act that MLC Nominees pay to the Commonwealth a pecuniary penalty in respect of each declared civil penalty contravention, in the sum of $27 million.
Second Defendant (NULIS Nominees (Australia) Limited): linked members
35.Declares that since 1 July 2016 whilst NULIS Nominees (Australia) Limited (NULIS) was trustee of the MLC Super Fund, NULIS failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 236465 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act, in that NULIS:
(a)was party to standard Licensee Remuneration Agreements with Plan Advisers in respect of distribution of the MasterKey Product, which on 1 July 2016 had become part of the MLC Super Fund, which standard agreements imposed an obligation on NULIS to pay to the Plan Advisers the Plan Service Fee in respect of linked members in MasterKey Personal Super but did not impose any obligation on Plan Advisers to provide any services to linked members in MasterKey Personal Super;
(b)did not have in place an adequate system to enable it to form a reasonable belief, for the purposes of cl 4.4(a)(i) of the Licensee Remuneration Agreements, about whether Plan Advisers were providing services to linked members in MasterKey Personal Super to which the Plan Service Fee related;
(c)did not, upon becoming Trustee on 1 July 2016, form a reasonable belief, for the purposes of cl 4.4(a)(i) of the Licensee Remuneration Agreements, that the Plan Advisers were no longer providing linked members in MasterKey Personal Super with the financial services to which the Plan Service Fee related;
(d)did not, upon becoming Trustee on 1 July 2016, terminate the Plan Service Fee for each then linked member in MasterKey Personal Super;
(e)did not form a reasonable belief, for the purposes of cl 4.4(a)(i) of the Licensee Remuneration Agreements, upon each person who had been a linked member in MasterKey Business Super as at 29 November 2013 ceasing employment and being transferred to MasterKey Personal Super after 30 June 2016, that the Plan Adviser was no longer providing that member with the financial services to which the Plan Service Fee related;
(f)did not terminate payment of the Plan Service Fee for each such linked member upon that member ceasing employment and being transferred to MasterKey Personal Super after 30 June 2016;
(g)since 1 July 2016 has made or authorised the making of monthly deductions from the account balances of 144,033 linked members’ accounts in MasterKey Personal Super for payment to Plan Advisers of Plan Service Fees totalling $12,813,076; and
(h)did not inform linked members in MasterKey Personal Super at any time, including when they were transferred from MasterKey Business Super to MasterKey Personal Super, that they had the right to elect to turn off the Plan Service Fee.
36.Declares that since 1 July 2016 NULIS in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that NULIS issued a “porting kit” to each person who was a linked member of MasterKey Business Super as at 29 November 2013 and who was transferred to MasterKey Personal Super after 30 June 2016, which “porting kit”:
(a)listed “your new account fees” by type and amount/percentage;
(b)did not at any place state that the member now had the right to elect to turn off the Plan Service Fee; and
(c)in the circumstances, represented that the member did not have the right to elect to turn off the Plan Service Fee, whereas the member did.
37.Declares that by reason of the matters referred to in Declaration 36 above, since 1 July 2016 NULIS in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 16,000 accounts with respect to the fees to be paid by the linked member of the MasterKey Product and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
38.Declares that by reason of the matters referred to in Declaration 36 above, since 1 July 2016 NULIS in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 16,000 accounts concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee once the linked member was transferred to MasterKey Personal Super, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
39.Declares that since 1 July 2016 NULIS in trade or commerce engaged in conduct in relation to financial services that was misleading or deceptive or was likely to mislead or deceive and thereby contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act, in that NULIS issued annual statements to each person who was a member of MasterKey Personal Super, which statements:
(a)listed “current fees” by type and amount/percentage including the Plan Service Fee;
(b)did not at any place state that the member had the right to elect to turn off the Plan Service Fee; and
(c)in the circumstances, represented that the member did not have the right to elect to turn off the Plan Service Fee, whereas the member did.
40.Declares that by reason of the matters referred to in Declaration 39 above, since 1 July 2016 NULIS in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 52,000 accounts with respect to the fees to be paid by the linked member of the MasterKey Product, and by each such representation thereby contravened s 12DB(1)(g) of the ASIC Act.
41.Declares that by reason of the matters referred to in Declaration 39 above, since 1 July 2016 NULIS in trade or commerce in connection with the supply of a financial service made a false or misleading representation to each linked member for each of no fewer than approximately 52,000 accounts concerning the existence of a right of linked members of the MasterKey Product, namely the right to elect to turn off the Plan Service Fee, and by each such representation thereby contravened s 12DB(1)(i) of the ASIC Act.
42.Declares that since 1 July 2016 NULIS failed to comply with the financial services laws and thereby contravened s 912A(1)(c) of the Corporations Act, in that NULIS:
(a)contravened s 1041H of the Corporations Act and s 12DA of the ASIC Act as referred to in Declarations 36 and 39 above;
(b)contravened s 12DB(1)(g) of the ASIC Act as referred to in Declarations 37 and 40 above; and
(c)contravened s 12DB(1)(i) of the ASIC Act as referred to in Declarations 38 and 41 above.
43.Declares that since 1 July 2016 NULIS failed to do all things necessary to ensure that the financial services covered by its Australian Financial Services Licence Number 236465 were provided efficiently, honestly and fairly, and thereby contravened s 912A(1)(a) of the Corporations Act, in that NULIS engaged in the misleading or deceptive conduct referred to in Declarations 36 and 39 above.
44.Orders pursuant to s 12GBA of the ASIC Act that NULIS pay to the Commonwealth a pecuniary penalty in respect of each declared civil penalty contravention, in the sum of $8 million.
Both Defendants
45.The defendants pay the plaintiff’s costs of the proceedings to date in the sum of $834,620.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
YATES J:
INTRODUCTION
This proceeding concerns admitted contraventions of various provisions of the Corporations Act 2001 (Cth) (the Corporations Act) and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) by the first defendant, MLC Nominees Pty Ltd (MLC Nominees) and the second defendant, NULIS Nominees (Australia) Limited (NULIS). The contraventions are related to the charging and deduction of fees, and representations about the right to charge and the obligation to pay those fees, in connection with the operation of two superannuation funds (one the successor of the other) using the superannuation product MLC MasterKey Super (the MasterKey product or MasterKey).
The parties agree that Declarations should be made about each admitted contravention and that penalties should be imposed under s 12GBA of the ASIC Act in respect of the contraventions of ss 12DB(1)(g) and (i) thereof. The parties also agree that an order for costs should be made against the defendants for an agreed amount.
What they do not agree on is the quantum of the penalties that should be imposed. The parties agree on the legal principles which the Court should apply in dealing with that question, but they disagree on how those principles should be applied in the circumstances of the case at hand.
In order to deal with that question it is necessary to consider the background to the contraventions; to identify the relevant provisions of the legislation and the legal principles to be applied; and then to address the submissions of the parties.
BACKGROUND
Up until 1 July 2016, National Australia Bank Limited (NAB) operated part of its superannuation business, including that part called The Universal Super Scheme (TUSS), through MLC Limited (MLC) and MLC Nominees.
MLC was part of the NAB Group of which NAB was the ultimate holding company. MLC was responsible for, amongst other things, the day-to-day operations of TUSS for which it charged fees. This included providing staff, infrastructure and technology. In practical terms, this meant that MLC conducted all the operations of TUSS. Any resulting profits from the superannuation business were retained by MLC, which paid shareholder returns to NAB.
TUSS was established under a trust deed dated 12 May 1989 as a regulated superannuation fund under the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act). At all material times, MLC Nominees was the trustee of the fund. It was also a wholly-owned subsidiary of MLC. NAB provided the bank guarantee that was necessary in order for MLC Nominees to hold its licence as a registrable superannuation entity.
Although MLC was responsible for the day-to-day operations of TUSS, MLC Nominees, as trustee, was responsible for overseeing and monitoring MLC’s delivery of services. MLC Nominees did not itself charge fees. It was not a profit-earning entity in the NAB Group.
The MasterKey product is an MLC-branded corporate superannuation product. It was established as part of TUSS and had two divisions: MasterKey Business Super (MKBS) and MasterKey Personal Super (MKPS). MKBS was designed to enable employers to satisfy their superannuation guarantee requirements in relation to their employees. MKPS was the division to which employee members were automatically transferred (from MKBS) after ceasing employment with their relevant employer sponsor.
MKBS was distributed through financial advisers who introduced employers (and an employer’s employees) to the MasterKey product. The advisers maintained their own relationship with employers and prospective employers. MLC Nominees’ relationship with employers was primarily managed through MLC and the advisers. The terms of the MasterKey product provided that an employer could, but was not obliged to, nominate an adviser to be linked to the employer’s superannuation plan in MKBS (plan advisers).
Up until 8 September 2012, the administration fees charged by MLC included a component for an asset-based commission to be paid to plan advisers. MLC was responsible for paying that commission. In addition, an employer could agree with a plan adviser that all members within the employer’s plan would pay a fee for general advice services, called the “Employer Service Fee”. Where this fee was agreed, it was deducted from members’ accounts and paid to the plan adviser.
On 8 April 2012, MLC Nominees decided to introduce changes to the structure of fees and charges applicable to the MasterKey product, including commissions and fees paid to plan advisers. This was part of a project called “Superannuation with Fee Transparency Project”, dubbed Project SWiFT. Under Project SWiFT, a new fee was introduced, called the plan service fee. The component for asset-based commission and the Employer Service Fee were removed. MLC Nominees took on the responsibility for paying remuneration to plan advisers, as a cost or expense of TUSS. MLC Nominees (and later NULIS) authorised MLC to deduct the plan service fee from the accounts of members and to pay it to the plan advisers. Importantly to the present case, the plan service fee was only authorised to be deducted from the accounts of members with a plan adviser linked to their account (linked members). Further, the plan service fee was to be paid to plan advisers, no one else.
The new fee structure, which came into operation from 8 September 2012, and which marked a move from the commission-based structure to a fee for service structure, was designed, in part, to ensure that, on implementation, the existing services offered by plan advisers to members could continue and the fee structures in the MasterKey product would be simpler, more transparent, explicit and easier for members to understand. It was also designed to allow members to request lower fees.
From 8 September 2012, the terms of the MasterKey product provided that, if a plan adviser had been nominated by the employer, then the employer could agree with the plan adviser that all members within the employer’s plan would pay the plan service fee to the plan adviser. In exchange for the plan service fee, the plan adviser would provide group-based advice and financial services tailored to the needs of the employees of that employer. Apart from these services, members were not entitled under the terms of the MasterKey product to receive any services from plan advisers in exchange for the plan service fee. The amount of the plan service fee would be agreed between the employer and the plan adviser up to a maximum of 1.5% per annum of the account balance of members in MKBS. The plan service fee would be deducted monthly from the member’s account and paid to the plan adviser. Once again, importantly, the plan service fee could only be deducted and paid to a plan adviser.
Further, from 8 September 2012, the terms of the MasterKey product provided that, if there was a nominated plan adviser, then upon a member ceasing employment and being automatically transferred to MKPS, there was no provision for any services to be provided by the plan adviser to the member. Further, the member had the right to “turn off” the plan service fee. This right could be exercised by the member notifying the trustee—MLC Nominees and, later, NULIS. Unless the member elected to “turn off” the plan service fee, the member would continue to pay the fee capped at 0.44% per annum of the member’s account balance. However, unless “turned off”, the plan service fee would continue to be deducted and paid to the plan adviser.
While the terms of the MasterKey product did not provide for the provision of any services by the plan adviser to a linked member in MKPS, MLC Nominees (and later NULIS) provided each linked member with the contact telephone number of his or her plan adviser. The member could contact the plan adviser to obtain general advice on a range of matters. However, since 8 September 2012, MLC Nominees (and later NULIS) offered members access to a telephone, email and website-based financial advice service called MLC Direct from which all members, including linked members in MKPS, could obtain free of charge general advice on the same range of matters as generally available from plan advisers. MLC Nominees (and later NULIS) also provided, directly, some limited general advice services through a customer contact centre. The practice of the customer contact centre was to refer linked members in MKPS to MLC Direct if the member requested financial product advice and did not want to contact a plan adviser.
From 8 September 2012, it was a term of the MasterKey product that members who did not have a plan adviser (i.e., those members who were not linked members) did not have to pay the plan service fee and that plan service fees could not be deducted from the account balances of those members.
On 19 July 2012, MLC Nominees decided to implement an intra-fund transfer of members of four existing corporate superannuation products to the MasterKey product as part of a project called the “Encompass” project (the Encompass Trade-Up). The Encompass Trade-Up took effect from 8 December 2012, following which the advisers’ asset-based commission was replaced with the plan service fee deducted directly from members’ accounts.
On 5 February 2013, MLC Nominees decided to implement an intra-fund transfer of members of a superannuation plan called “The Employee Retirement Plan” (TERP) to the MasterKey product (the TERP Trade-Up). The TERP Trade-Up took effect from 24 May 2013, following which the advisers’ asset-based commission was replaced with the plan service fee deducted directly from members’ accounts
There was a change in the structure of NAB’s superannuation business on 1 July 2016. From that date, NAB operated its superannuation business through NULIS. NULIS is owned 100% by National Wealth Management Services Limited (NWMSL). NWMSL and NULIS are part of the NAB Group. NULIS does not employ staff but NAB employees have been seconded to NWMSL to provide the services and resources required by NULIS.
Further, by a deed entitled “Successor Fund Merger Deed” dated 1 July 2016, the MLC Super Fund (which was established under a trust deed dated 9 May 2016 as a regulated superannuation fund under the SIS Act) became the successor fund of TUSS. NULIS is, and has been, the trustee of that fund.
The change in structure means that the trustee of the MLC Super Fund is now a profit-earning entity within NAB’s superannuation business. Since 1 July 2016, NWMSL has administered the MLC Super Fund on behalf of NULIS pursuant to an agreement dated 30 June 2016. Since 30 June 2016, all superannuation profits have arisen within NULIS and have been paid as dividends to NWMSL, which has paid shareholder returns to NAB.
On 15 September 2016, NAB executed a share sale agreement to sell 80% of MLC to Nippon Life, resulting in the deconsolidation of MLC and MLC Nominees from the NAB Group on 3 October 2016.
The contravening conduct in this case falls into two broad categories. First, from 2012 to 2017, plan service fees amounting to over $33.62 million were deducted from approximately 220,000 accounts where there was no linked plan adviser. The parties refer to the members who held these accounts as no-adviser members. This money should not have been deducted. What is more, the money was retained by MLC who was not even a plan adviser. As I have noted, MLC was responsible for the day-to-day operation of TUSS. Throughout this period MLC Nominees represented to no-adviser members that they were obliged to pay the plan service fee, when they had no such obligation.
The second category concerns MLC Nominees and, later, NULIS, in relation to the deduction of plan service fees from the accounts of linked members in MKPS. As I have recorded, both the trustee of TUSS, and later the MLC Super Fund, and linked members in MKPS, had the right to turn off the plan service fee. The respective trustees (MLC Nominees and then NULIS) did not exercise this right. They represented that the linked members in MKPS did not have that right. Further, MLC Nominees represented in various documents that linked members in MKPS were able to negotiate a lower plan service fee with the linked plan advisers. This, however, was false or misleading because linked members in MKPS had the unilateral right to turn off the plan service fee, not merely the opportunity to negotiate a lower fee with the linked plan adviser. The plan service fee continued to be deducted from these members’ accounts. While MLC Nominees was trustee, it deducted or authorised the deduction of a sum in excess of $59 million from 313,078 linked members’ accounts and paid this sum away to plan advisers. While NULIS was trustee, it deducted or authorised the deduction of $12,813,076 from 144,033 linked members’ accounts and paid away this sum to plan advisers.
EVIDENCE
The parties prepared a Statement of Agreed Facts and Admissions (the SAFA) from which the above account has been taken. The statement was prepared pursuant to s 191 of the Evidence Act 1995 (Cth) which, so far as relevant, provides:
(1) In this section:
“agreed fact” means a fact that the parties to a proceeding have agreed is not, for the purposes of the proceeding, to be disputed.
(2) In a proceeding:
(a) evidence is not required to prove the existence of an agreed fact; and
(b) evidence may not be adduced to contradict or qualify an agreed fact;
unless the court gives leave.
(3) Subsection (2) does not apply unless the agreed fact:
(a)is stated in an agreement in writing signed by the parties or by Australian legal practitioners, legal counsel or prosecutors representing the parties and adduced in evidence in the proceeding; or
(b)with the leave of the court, is stated by a party before the court with the agreement of all other parties.
There are a number of documents exhibited to the SAFA.
The parties agree that the facts, matters and circumstances recorded in the SAFA and in the exhibited documents may be used by the Court to draw inferences of fact.
Apart from the SAFA and its exhibited documents, the parties tendered a large number of documents. The exhibited and other documents are which now included in Exhibits A and B. The parties’ written submissions refer to some of these documents as well as to some of the documents exhibited to the statement. I was taken to some of these documents during the course of oral submissions.
The defendants also read two affidavits. The first affidavit was made by Peter John Promnitz on 6 November 2019. At the time he made the affidavit, Mr Promnitz was an independent non-executive director, and the Chairman, of the Board of NULIS. He made the affidavit on behalf of both defendants. In the affidavit he said:
12.In this proceeding, the Trustees have made admissions of liability with respect to contraventions of sections 912A(1)(a), 912A(1)(c) and 1041H(1) of the Corporations Act 2001 (Cth) and sections 12DA and 12DB of the Australian Securities and Investments Commission Act 2001 (Cth) in relation to conduct concerning the Plan Service Fee.
13.On behalf of the Trustees, I wish to apologise to the Court and to our members for these contraventions.
14.The Trustees recognise that the admitted contraventions are a very serious matter. The Trustees deeply regret that these contraventions occurred.
15.The Trustees and National Australia Bank Limited have also previously publicly apologised for errors concerning the implementation of the Plan Service Fee in media releases dated 27 October 2016, 2 February 2017 and 26 July 2018, and in letters to members from the Trustees. …
Mr Promnitz annexed copies of the media releases referred to in paragraph 15 of his affidavit. I will refer to some aspects of these media releases in later paragraphs of these reasons.
The second affidavit was made by Jonathan James Albion Bennett on 21 May 2020. Mr Bennett is the General Manager, Financial Control Wealth Finance at NAB. In this affidavit, Mr Bennett provided high-level financial information extracted from NAB’s general ledger in respect of the half-yearly financial results for 2020 for NULIS and NWMSL. Once again, I will refer to this evidence in later paragraphs of these reasons.
CONDUCT OF THE HEARING
It is appropriate at this point to record some matters about the conduct of the hearing.
Following mediation, this proceeding was listed for hearing on 16 March 2020, with an estimated duration of one day, to hear the parties on the disputed question of penalties and the question of the appropriateness of the other orders on which the parties had reached agreement. The hearing commenced as appointed but did not conclude on that day. I adjourned the proceeding for further hearing on 19 March 2020. However, on the afternoon of 17 March 2020 all listings at the Court were vacated because of the COVID-19 pandemic.
Having been satisfied that the further hearing could be conducted appropriately using remote access technology and, after liaising with the parties, I listed the proceeding for further hearing on 31 March 2020. At the commencement of the hearing on that day, ASIC applied for an adjournment, having foreshadowed such an application the previous afternoon. The basis for the adjournment was explained by senior counsel for ASIC as follows:
MR FAULKNER: … I am instructed to apply to have today’s hearing vacated. The reason for the application is that the plaintiff, ASIC, wishes to consider whether it wants to make any further submissions about the quantum of the penalty, having regard to the recent economic upheaval and the implications of the upheaval for the participants in the financial system, including the banks.
It may be that, after that consideration has been given, ASIC will not want to make any further submissions, and its overall provision will remain the same. However, as the regulator, under ASIC’s constituent statute, when exercising its powers, it has to give consideration to its objective, which include maintaining, facilitating and improving the performance of the financial system, and the entities within that system. And it has to have regard to the interests of commercial certainty, reducing business costs and the efficiency and development of the economy.
Now, we live in uncertain economic times, your Honour, and ASIC considers that it is obliged, having regard to those objectives, to give careful consideration to pursuing – to whether there are matters it needs to have taken into account in its conduct of this case. And, therefore, I’m instructed to apply for the vacation of today’s hearing.
Now, I’ve already said – but it’s important that I emphasise – that it may be that after ASIC’s had some time, that the position will be no different, and with hindsight, we could have proceeded today. However, it’s very fluid, and having considered the matter carefully, ASIC feels that it needs more time to think about whether it needs to make some further submissions.
So that’s – those are my instructions. I make that application. I apologise that it wasn’t foreshadowed before yesterday to your Honour and also to my friend. If – I think, where we were sitting last week, I probably would not have been making this application. But there’s daily announcements of new developments, and that’s the position we are in today. The defendants consent.
We had originally thought that, perhaps, the allocation – if today was vacated, the allocation of a new hearing date in some time in June might be efficient. But we’re now wondering whether it might be better if the matter was brought back merely for directions in about three weeks, with a view to ASIC then being better placed to know about timing going forward. Either that it needs less time or that it needs more time.
In any event, that’s my application, your Honour.
I granted the adjournment and listed the proceeding for case management on 20 April 2020.
When the proceeding came before me on 20 April 2020, I made orders by consent which provided for certain steps to be taken before any further hearing of the matter. The parties also sought a date after 11 June 2020 for the further hearing. I listed the proceeding for further hearing on 19 June 2020. The further hearing took place on 19 June 2020, at which time I reserved judgment.
RELEVANT PROVISIONS
The defendants’ respective contravening conduct involves “misleading or deceptive conduct”, and “false or misleading representations”.
As to “misleading or deceptive conduct”, s 1041H(1) of the Corporations Act provides:
(1)A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
The reference in s 1041H(1) to engaging in conduct in relation to a financial product includes “dealing in a financial product” which, in turn, includes a trustee of a superannuation entity (within the meaning of the SIS Act) dealing with a beneficiary of that entity as such a beneficiary, and carrying on negotiations, or making arrangements, or doing any other act, preparatory to, or in any way related to, dealing with such a beneficiary: s 1041H(2)(a) and s 1041H(2)(b)(vi) and (x).
Also, s 12DA(1) of the ASIC Act provides:
(1)A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
Section 12BAB of the ASIC Act answers the question: when does a person provide a financial service? A number of acts are referred to, including “deal in a financial product”: s 12BAB(1)(b). The expression “deal in a product” is given meaning by s 12BAB(7) to include applying for or acquiring a financial product (s 12BAB(7)(a)); issuing a financial product (s 12BAB(7)(b); and varying a financial product (s 12BAB(7)(d)).
A “financial product” is defined to include “a beneficial interest in a superannuation fund” (as defined by s 10 of the SIS Act): s 12BAA(7)(f). Section 10 of the SIS Act provides that a “superannuation interest” means a beneficial interest in a “superannuation entity”. The definition of “superannuation entity” includes a “regulated superannuation fund”.
Another act in relation to providing a financial service within the meaning of s 12BAB is “provide a service … that is otherwise supplied in relation to a financial product …”: s 12BAB(1)(g). “Services” are defined in s 12BA(1):
"services" includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce but does not include:
(a)the supply of goods within the meaning of the Competition and Consumer Act 2010; or
(b)the performance of work under a contract of service.
As to “false or misleading representations”, s 12DB(1) relevantly provides:
(1)A person must not, in trade or commerce, in connection with the supply or possible supply of financial services, or in connection with the promotion by any means of the supply or use of financial services:
…
(g)make a false or misleading representation with respect to the price of services; or
…
(i)make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including an implied warranty under section 12ED); …
The expression “financial services”, as used in this provision, has the same meaning and application discussed immediately above with respect to s 12DA(1).
Although the contraventions involved “misleading or deceptive conduct” and “false or misleading representations”, the cases establish that there is no material difference between these expressions in terms of their legal application: Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 at [14]; Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; 317 ALR 73 at [40]; Australian Securities and Investments Commission v Westpac Banking Corporation [2018] FCA 751; 266 FCR 147 at [2263].
The contravening conduct also involved the obligations imposed on financial services licensees. Section 912A(1) of the Corporations Act provides:
(1) A financial services licensee must:
(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and
…
(c)comply with the financial services laws; and …
It is accepted that MLC Nominees and NULIS are financial services licensees.
The parties accept that the meaning of the expression “efficiently, honestly and fairly” as used in s 912A(1) is settled. Its scope is illustrated by the Court’s acceptance in Australian Securities and Investments Commission v Camelot Derivatives Pty Limited (in Liquidation); In the matter of Camelot Derivatives Pty Limited (in Liquidation) [2012] FCA 414; 88 ACSR 206 (Camelot) at [69] – [70] of the following propositions:
69In support of the relief which it seeks based upon s 912A(1)(a) of the Corporations Act, ASIC made the following submissions:
(a) The words “efficiently, honestly and fairly” must be read as a compendious indication meaning a person who goes about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty: Story v National Companies and Securities Commission (1988) 13 NSWLR 661 at 672.
(b) The words “efficiently, honestly and fairly” connote a requirement of competence in providing advice and in complying with relevant statutory obligations: Re Hres and Australian Securities and Investments Commission (2008) 105 ALD 124 at [237]. They also connote an element not just of even handedness in dealing with clients but a less readily defined concept of sound ethical values and judgment in matters relevant to a client’s affairs: Re Hres and Australian Securities and Investments Commission (2008) 105 ALD 124 at [237].
(c) The word “efficient” refers to a person who performs his duties efficiently, meaning the person is adequate in performance, produces the desired effect, is capable, competent and adequate: Story v National Companies and Securities Commission (1988) 13 NSWLR 661 at 672. Inefficiency may be established by demonstrating that the performance of a licensee’s functions falls short of the reasonable standard of performance by a dealer that the public is entitled to expect: Story v National Companies and Securities Commission (1988) 13 NSWLR 661 at 679.
(d) It is not necessary to establish dishonesty in the criminal sense: R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93 at 110. The word “honestly” may comprehend conduct which is not criminal but which is morally wrong in the commercial sense: R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93 at 110.
(e) The word “honestly” when used in conjunction with the word “fairly” tends to give the flavour of a person who not only is not dishonest, but also a person who is ethically sound: Story v National Companies and Securities Commission (1988) 13 NSWLR 661 at 672.
70The submissions which I have extracted at [69] above are correct and I accept them.
(Emphasis in original.)
The defendants stress that a finding of contravention of s 912A(1)(a) does not import, or necessitate, a finding of actual dishonesty. As made clear in Camelot, the provision covers conduct that is not necessarily criminal in nature but morally wrong in a commercial sense. Such conduct does not rely on any proof or finding of intent. Rather, it is determined by reference to objective circumstances. Therefore, a finding of contravention of s 912A(1)(a) can be made even though it is not shown that the contravener engaged in intentional wrong-doing. In the present case, ASIC accepts that the facts before the Court do not permit a finding that MLC Nominee’s or NULIS’ conduct was deliberate.
At the time of the contravening conduct, “financial services laws”, as understood by s 912A(1)(c), included a provision of Chapter 7 of the Corporations Act (which includes ss 912A, 1013C, 1022A and 1041H) and a provision of Div 2 of Pt 2 of the ASIC Act (which includes ss 12DA and 12DB).
Further, the contravening conduct involved the issue of product disclosure statements. The parties accept that when an employee became a “member of the MasterKey product”, the trustee (here, MLC Nominees or NULIS) issued a financial product within the terms of s 761E of the Corporations Act. By dint of ss 1012B(3) and 1013C, each trustee was required to give a product disclosure statement each time it issued a financial product, with the product disclosure statement containing certain statements and information. Given the agreement between the parties as to how the relevant provisions operated at the time of the contravening conduct (including certain regulations in the Corporations Regulations 2001 (Cth), it will suffice for me to say that a product disclosure statement in respect of the MasterKey product had to explain what fees may be paid to the employer entity’s financial adviser and how the fees were determined, and include information about any change in fee structure that was dependent on a person’s employment.
Section 1022B(2) of the Corporations Act provides a civil action for loss or damage should, amongst other things, one person give another person a product disclosure statement that is “defective”. At times relevant to the contravening conduct in this case, s 1022A(1)(a)-(b) provided that such a statement would be “defective” if it contained a misleading or deceptive statement or an omission of material required by s 1013C.
OVERVIEW OF THE CONTRAVENING CONDUCT
Introduction
Linked members have, of course, been fully remediated for the deductions that were made. This is a very important feature of this group of contraventions because the remediation did not simply involve the disgorgement of funds retained by MLC or some other entity within the NAB Group. The plan service fees were, in fact, paid away to plan advisers. As I have said, the remediation appears to have been funded from within the NAB Group. I accept MLC Nominees’ submission that this remediation not only negates the existence of loss or damage, but also stands as a significant mitigating circumstance in relation to the assessment of penalty.
In relation to the involvement of senior management in the contraventions, I repeat the observations I made at [210] – [212] above.
I reject MLC Nominees’ characterisation of its contravening representations as “incomplete”. There is a disturbing persistence by MLC Nominees and NULIS (see below) in advancing this contention. It relies on the fact that MLC Nominees and, later, NULIS advised linked members that they could negotiate the plan service fee with their plan advisers. As the argument runs, by informing linked members that they could negotiate the plan service fee with their plan advisers, linked members were empowered to control the amount of fees they paid, including by negotiating a “zero” amount for such fees. This argument finds expression in correspondence between the defendants and ASIC and, regrettably, persists to the present time in the submissions made in this case.
The simple answer to this contention is that “turning off” the plan service fee was not a matter of negotiation between a linked member in MKPS and his or her linked plan adviser. It was an unrestricted right that members in MKPS could exercise unilaterally, simply by notifying the trustee. That is why the representations that MLC Nominees and NULIS made in this regard were false or misleading: whatever else they told the linked members about the plan service fee, they did not tell them that they (the linked members) had the right to “turn off” that fee when transferred to MKPS. The fact that MLC Nominees and NULIS persist with this contention leads me to conclude that they do not truly comprehend the nature and seriousness of the representations they each made in this regard. Indeed, the defendants’ reliance on this contention causes them to submit that the contraventions involving linked members in MKPS are not as serious as the contraventions involving no-adviser members. I do not accept that submission. In fact, I reject it.
My concerns in this regard carry over into other aspects of the submissions, in particular the submissions advanced on the question of contrition. Here, the defendants rely, in part, on the media release of 26 July 2018 (dealing with the deduction of plan service fees from the accounts of linked members in MKPS) as conveying contrition. The media release (on MLC letterhead, with MLC clearly and explicitly shown as an NAB company) includes the following statement:
As advisers moved away from the commission-based remuneration, the Plan Service Fee allowed us to make the fee structure in MKPS simpler, more transparent and easier to understand. It gave members greater visibility of their adviser fees, replaced commission payments that had previously been bundled into administration fees and allowed members to agree the level of fee with their adviser.
I pause to note once again that the position of linked members in MKPS was not that they could agree upon the level of fee with their adviser, they could simply “turn off” the fee.
The media release continues:
MKPS members regularly received the contact details of their financial adviser through communications such as their annual statements, but where we let our members down is that we did not clearly explain that they could elect to not have this service and they could turn off the fee. That is why we will fully refund MKPS members for any Plan Service Fees paid while in the product.
The difficulty with this paragraph of the media release is that it links the fee, which could be “turned off”, to a service which the linked member could elect not to receive. But, as I have recorded (at [15] above), upon a linked member ceasing employment and being automatically transferred to MKPS, there was no provision for any services to be provided by the plan adviser. Although each linked member was provided with a contact number for his or her plan adviser, and the member could contact the plan adviser to obtain general advice on a range of matters, MLC Nominees and NULIS, at the same time, offered the MLC Direct service from which all members, including linked members in MKPS, could obtain free of charge general advice on the same range of matters as generally available from plan advisers.
The defendants suggested that there may have been value to members in retaining contact with a plan adviser based on a pre-existing relationship. Arguably this might be so, but there was no evidence of that fact and I doubt that that would have been the case for a great many linked members. Indeed, it is an agreed fact that, while it was trustee, MLC Nominees did not obtain any information about whether there were any agreements by plan advisers to provide services to linked members after those members ceased employment (i.e., transferred to MKPS).
I am not persuaded that linked members in MKPS would have seen any value in paying a plan service fee to a nominated plan adviser when the same advice, if sought, could be obtained free of charge from MLC Direct. In my view, the linking in the media release of a plan service fee, which did not have to be paid, to a service for which no provision was made in the MasterKey product and which could be obtained free of charge from MLC Direct, is illusory, especially when it is not known as a matter of fact whether any plan advisers actually provided any services to linked members in MKPS. The fact that within the NAB Group it was decided that there should be full remediation for the plan service fees deducted from the accounts of all linked members in MKPS suggests that, as a matter of commercial reality, those responsible for making the remediation decision within the NAB Group recognised, and fully appreciated, that lack of value.
Further, while I have already recorded my acceptance that the apology given through Mr Promnitz’s affidavit is genuine, the brevity of that apology does not assuage my concern that the defendants still do not truly comprehend the nature and extent of the seriousness of the contraventions of s 12DB that occurred with respect to linked members.
Without derogating from these observations, I nevertheless accept, once again, that, as MLC Nominees is no longer an RSE licensee and acting as a superannuation trustee, the need for specific deterrence is less relevant than it might otherwise have been had it remained such a licensee.
I also accept, once again, that MLC Nominees has provided considerable cooperation in dealing with its contraventions generally. However, I repeat my observation at [218] above that, on the evidence before me, I do not see how there could have been a cogent argument that contraventions of s 12DB were not involved, especially when the elision involved in treating an asserted right to negotiate the amount of plan service fees as tantamount to the right to “turn off” those fees is exposed. Nevertheless, MLC Nominees has worked cooperatively with ASIC in relation to this proceeding, and this must be taken into account.
As with the contraventions involving no-adviser members, I accept that MLC Nominees has demonstrated that, at the time of the contravening conduct, it had a corporate culture conducive to compliance. However, MLC Nominees did not have in place an adequate system to enable it to form a reasonable belief about whether plan advisers were providing services to linked members in MKPS to which the plan service related. Indeed, the parties agree that, had such a belief been formed, MLC Nominees should, itself, have “turned off” the plan service fee. Most importantly for present purposes, there was an abject failure on the part of MLC Nominees to recognise the clear difference between linked members having the ability to negotiate fees and their right to terminate the plan service fee on being transferred to MKPS, without negotiation.
Finally, for completeness, I record that, when discussing the circumstances of the case, ASIC’s submissions tended to stray into other contraventions which MLC Nominees has admitted. As I stressed above, in assessing the pecuniary penalty that should be imposed, the focus must be the admitted contraventions of s 12DB.
Conclusion
MLC Nominees’ contraventions of s 12DB of the ASIC Act in respect of linked members in MKPS are also very serious. As I have explained, these contraventions are also more extensive than its contraventions in respect of no-adviser members. I am not persuaded, however, that a pecuniary penalty of the magnitude sought by ASIC ($50 million - $60 million) is warranted. On the other hand, the penalty for which MLC Nominees contends ($8 million) does not recognise the seriousness of its contraventions or the extent to which the representations were made. Further, it would not achieve the objectives of deterrence.
I am satisfied that the appropriate pecuniary penalty for these contraventions is $27 million. I have arrived at this penalty by adopting, once again, a course of conduct approach in which the contraventions can be grouped appropriately as six courses of conduct warranting penalties as follows: for the contraventions covered by Declarations 15 and 16, $6 million; for the contraventions covered by Declarations 18 and 19, $4 million; for the contraventions covered by Declarations 21 and 22, $4 million; for the contraventions covered by Declarations 24 and 25, $4 million; for the contraventions covered by Declarations 27 and 28, $4 million; and for the contraventions covered by Declarations 30 and 31, $5 million. Each component amount takes into account the extent to which the contravening representations were made on the occasion in question. Each component also takes into account the significant sum paid to effect remediation, recognising that the deductions made for plan service fees were not retained by MLC Nominees, MLC or any other entity within the NAB Group. But for the payments for remediation, a greater overall penalty would have been warranted. I do not think that the overall amount of $27 million otherwise requires adjustment. I am satisfied that a pecuniary penalty of this order, seen with the payments for remediation, is appropriate to achieve the objectives of deterrence.
NULIS – DEDUCTION OF PLAN SERVICE FEE: LINKED ADVISER
ASIC’s submissions
ASIC submits that the appropriate penalty for the contraventions of s 12DB(1)(g) and s 12DB(1)(i) of the ASIC Act covered by Declarations 37 and 38, and 40 and 41, in respect of linked members, is in the range of $10 million – $12 million. The false or misleading representations made by NULIS were in substantially the same form as those made by MLC Nominees to linked members. Once again, ASIC relies on the analysis and reasoning which informs its case in respect of the contraventions concerning no-adviser members and aspects of its submissions in respect of MLC Nominees’ contraventions relating to linked members. There are, however, some differences between its case against NULIS and its case against MLC Nominees in relation to linked members.
ASIC accepts that, in every respect, NULIS’ conduct was less extensive. NULIS commenced as trustee on 1 July 2016 when the structure through which NAB conducted its superannuation business changed. The plan service fee was discontinued by September 2018. Fewer types of documents were issued containing false or misleading representations; the conduct involved 144,033 account-holders; and $12,813,076 was deducted for plan service fees. Of the total amount deducted, just over $9 million was paid to external plan advisers, with the rest paid to plan advisers who were employed in or aligned with the NAB Group. Of the sum paid to remediate all linked members, $16,897,241 (according to ASIC) should be taken as referable to the case against NULIS. However, the cost of remediating linked members arising out of NULIS’ conduct has not been paid from its assets.
NULIS was a profit-earning entity in its own right. For the 2017 and 2018 financial years, it earned profits of approximately $217.66 million and $268.63 million, respectively. The revenue contribution to those profits from the MasterKey product in each year was approximately $170.77 million and $166.81 million, respectively. In each of those financial years, NULIS’ immediate parent, NWMSL earned profits of $152.65 million and $178.53 million, respectively. It received revenue referable to the MasterKey product of approximately $13.7 million and $9.4 million, respectively. As at 30 June 2018, NULIS had 16.33% market share of the managed funds in Australia’s retail superannuation section and 5.73% market share of the managed funds in Australia’s entire superannuation section, with over $101.4 billion funds under management.
Once again, ASIC accepts that the statements and admissions made in the SAFA do not permit a finding that NULIS’ false or misleading representations were made deliberately. Nevertheless, ASIC submits that, when NULIS succeeded MLC Nominees as trustee, it had a fresh opportunity to consider and form a reasonable belief about whether linked members in MKPS were receiving services to which the plan service fee related. ASIC points to the fact that NULIS accepts that, upon becoming trustee, it did not form a reasonable belief that plan advisers were no longer providing linked members in MKPS with the financial services to which the plan service fee related. ASIC submits that this is a reason why linked members were in need of accurate information about their own right to turn off the plan service fee.
ASIC submits that there has been no relevant cooperation by NULIS with ASIC’s investigation in relation to linked members. NULIS has not lodged a breach report in respect of its own conduct. It only made admissions in respect of its own conduct in May 2019. ASIC submits that NULIS’ conduct does not indicate a resolve by it to comply with the law.
In its written submissions, ASIC summarised the justification for the penalty it seeks:
319. Although less extensive, the case against NULIS is serious and warrants a significant penalty. As with MLC Nominees, a significant penalty is also necessary in order to achieve the object of deterrence having regard to the highly profitable superannuation business on the largest scale which is conducted through NULIS and the significant benefits which NULIS stood to gain from the contraventions. For the reasons outlined in Part G above, NULIS stood to receive commercial and financial benefits from Plan Service Fees being paid to Plan Advisers just as MLC Nominees had previously. The benefits NULIS stood to receive were no less valuable than the $12,813,076 which was paid for it.
320. Whilst some discount is warranted for the admissions now made by NULIS in these proceedings, no discount is warranted for co-operation with ASIC’s anterior investigation.
321.ASIC submits that a penalty in the range of $10m to $12m is an appropriate penalty in the case against NULIS. Again, a penalty in that range may seem relatively low because of all the matters referred to above and a comparison with the potential gains to NULIS from the contravening conduct, but the deterrence value of the penalty needs to be considered in the light of the cost of remediation which NAB has already incurred.
322.A penalty of $12m would correspond to a penalty of only $83 for each of the 144,033 contraventions which occurred in this case. This comparison supports the conclusion that a penalty of $12m is not excessive.
NULIS’ submissions
NULIS submits that the appropriate penalty for these contraventions of s 12DB is $2 million. It identifies, correctly, that these contraventions are, effectively, a continuation of the linked member conduct engaged in by MLC Nominees, involving standard form communications to linked members containing false or misleading representations in substantially the same form. For this reason, NULIS submits that the submissions made with respect to MLC Nominees’ conduct affecting linked members have equal application, except for some distinguishing features.
In relation to NULIS’ contraventions, the communications fall into two categories: “porting kits” in respect of members transferring from MKBS to MKPS, and annual statements. NULIS submits that it is open to the Court to recognise the commonality of the contraventions by characterising them as one course of conduct. NULIS also recognises, however, that the contraventions could be grouped as two, separate courses of conduct. If so grouped, NULIS submits that each course should attract a lesser penalty which, it argues, should be close to the maximum penalty for a single contravention.
NULIS stresses ASIC’s acceptance that, in every respect, its conduct was less extensive than MLC Nominees’ conduct in connection with linked members. Further, the quantum of plan service fees deducted from linked members in MKPS was $12,813,076.
The defendants supplemented the evidence concerning NULIS’ financial position so as to show NULIS’ and NWMSL’s revenues and profits, and the NAB Wealth segment’s income and profits, for the 2019 financial year and the first half of the 2020 financial year. The defendants submitted that, if in assessing penalties the Court were to have regard to the scale of profitability of the wider business group in which MLC Nominees and NULIS functioned, it should take into account the most recent financial information of the relevant entities and business segments. The defendants highlighted these features: NULIS’ profit before income tax expense has declined from $268.63 million in the 2018 financial year to $77.17 million for the first half of the 2020 financial year (a decline of approximately 42% if the figure for the first half of the 2020 financial year is annualised); and NAB Wealth’s cash earnings before tax and distributions have declined in the period 2012 to 2020 from a peak of $732 million in the 2012 financial year to $58 million for the first half of the 2020 (a decline of approximately 84% since 2012 and 66% since 2018 if the figure for the first half of the 2020 financial year is annualised).
NULIS submits that the penalty sought by ASIC is manifestly excessive for the purposes of deterrence, particularly when viewed with the fact that full remediation has been undertaken in respect of the affected members. It submits that it is very unlikely that a penalty of $2 million, taken with remediation of some $16 million, would be viewed as an acceptable cost of doing business.
In its written submissions, NULIS summarised the justification for a penalty of $2 million:
302. Having regard to all of the relevant factors addressed in Part E and in this Part F above, NULIS respectfully submits that a pecuniary penalty of $2 million is an appropriate penalty in the circumstances of this case. In particular:
a)a penalty of $2 million is a significant penalty with substantial deterrent effect, which appropriately recognises the gravity of the conduct, including its nature, extent and duration;
b)whilst NULIS’ position as a superannuation trustee is relevant, for the reasons canvassed above, this is not a matter which of itself justifies the substantial augmentation in penalty for which ASIC contends;
c)the nature of the contravening conduct was less serious than the contravening conduct in relation to no-adviser members, in light of the following:
i.NULIS did expressly inform members that they could negotiate a lower fee or that the fee could be reduced;
ii.NULIS had an entitlement to deduct the PSF from member accounts in the absence of a determination under the equivalent LRA that PSFs should be switched off;
d)no member has suffered loss, as all members have been remediated with interest;
e)none of the PSFs deducted from linked members were retained by NULIS or by any other entity in the NAB Group. Rather, the PSFs were transferred to individual Plan Advisers;
f)by reason of the payment of remediation in circumstances where NULIS did not retain the PSF revenue, a significant financial disadvantage has been suffered;
g)NULIS has not previously been found by a court to have engaged in similar conduct;
h)the conduct was not deliberate, nor is there any allegation that it was reckless or negligent;
i)there is no evidence before the Court that the making of the false or misleading representations was the consequence of deliberate or reckless conduct by any member of the Board or senior management;
j)NULIS co-operated with ASIC’s investigation, including by remediating members on the basis requested by ASIC, and has co-operated with ASIC in the conduct of these proceedings;
k)NULIS has shown contrition and remorse;
l)the Court should afford credit to NULIS for the systems, processes and frameworks in place which evidence a culture of compliance;
m)as the PSF is no longer deducted from member accounts, the need for specific deterrence is less relevant here than in other cases; and
n)there is substantial commonality in the legal and factual elements of the contraventions with respect to linked members and the Court may have regard to the course of conduct principle as a useful tool of analysis.
Analysis
The contraventions of s 12DB of the ASIC Act by NULIS with respect to linked members corresponds to MLC Nominees’ contraventions discussed at [229] – [292] above, as recognised in the parties’ submissions. NULIS’ conduct was, effectively, a continuation of the conduct engaged in by MLC Nominees in that regard. Therefore, the observations I have made about MLC Nominees’ conduct apply equally to NULIS. I will, however, draw attention to some particular matters.
I accept that the evidence does not justify a finding that NULIS’ conduct was deliberate in the sense I have discussed. Further, ASIC does not allege, and has not established, that NULIS acted with any other particular mental element. I also accept that NULIS’ conduct in respect of linked members was less extensive than MLC Nominees’ conduct. However, the observations I have made above at [280] – [288] concerning cooperation and contrition apply equally to NULIS. So, too, do the observations I made about the involvement of senior personnel in the conduct: see [277] above with reference to [210] – [212]. Nevertheless, despite its failings, I am satisfied that NULIS has a corporate culture that is conducive to compliance: see, in that regard, the matters I have noted at [289] above.
Unlike MLC Nominees, NULIS remains a superannuation trustee holding an RSE licence. However, like MLC Nominees, NULIS has not been found by a court to have engaged in similar conduct previously.
Contrary to ASIC’s submissions, I am satisfied that a course of conduct approach is warranted. Although NULIS had argued that its conduct involves one course of conduct, the better view for the purpose of assessing an appropriate penalty is that two courses of conduct were involved—the sending of the “porting kits” and the sending of the annual statements. On each separate occasion, the false or misleading representations were made.
Conclusion
NULIS’ contraventions of s 12DB of the ASIC Act in respect of linked members in MKPS are very serious. Those contraventions should attract a pecuniary penalty commensurate with the penalty to be imposed for MLC Nominees’ similar contraventions. I am satisfied that the appropriate pecuniary penalty is $8 million. I have arrived at this penalty by adopting, once again, a course of conduct approach in which I have determined that $4 million should be attributable to the contraventions covered by Declaration 36 and $4 million should be attributable to the contraventions covered by Declaration 39. Each component takes into account the extent to which the contravening representations were made on the occasion in question. Each component also takes into account the fact that payments have been made by way of remediation. Once again, but for the payments for remediation, a greater overall penalty would have been warranted. I am satisfied that the overall amount of $8 million does not otherwise require adjustment. I am satisfied that it is a pecuniary penalty which, when seen with the payments for remuneration, is appropriate to achieve the objectives of deterrence.
OTHER OBSERVATIONS
There are two further observations I wish to make.
The first concerns the updated financial information that the defendants have placed before the Court. The defendants submit that, while it might be too early to reliably assess the impact of the COVID-19 pandemic on the financial position of NULIS, and more broadly on the financial position of NAB Wealth, it is appropriate for the Court to assess penalties that would be sufficient to act as an effective deterrent in light of the unprecedented upheaval caused by the pandemic and the consequent uncertain economic outlook.
ASIC takes issue with the significance of the updated financial information that the defendants have placed before the Court. It submits that the additional evidence has been presented at a high level of generality and disputes the fact that it shows any material change in the financial position of NULIS or NAB Wealth. It submits that the financial position which the defendants have projected is likely to be more complex, and has provided various examples of why that is so.
I am not persuaded that the updated financial information alone shows any material change in financial circumstances that would warrant any different view on the pecuniary penalties that should be imposed. MLC Nominees operated, and NULIS operates, as a superannuation trustee in a very large business within the MLC Wealth segment of the NAB Group. In setting the appropriate level of penalty, this fact must be recognised.
The second observation I wish to make concerns the large number of cases arising under the ASIC Act and the Australian Consumer Law which the defendants, in particular, have drawn to my attention for the purpose of illustrating the quantum of pecuniary penalties that have been imposed by the Court for contraventions involving the making of false or misleading representations. As I have previously remarked, because of the variety of facts and circumstances presented, the analogical value of such cases can be very limited or even non-existent. I have found that to be the case here. The facts and circumstances of the present case are unique.
DISPOSITION
For the reasons I have given, I will order that MLC Nominees pay a pecuniary penalty of $22.5 million for its contraventions of s 12DB of the ASIC Act in respect of no-adviser members and a penalty of $27 million for its contraventions of 12DB in respect of linked members. I will order that NULIS pay a pecuniary penalty of $8 million for its contraventions of s 12DB in respect of linked members. I will grant the declarations and make the other orders that the parties, by agreement, propose.
I certify that the preceding three hundred and fifteen (315) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates. Associate:
Dated: 11 September 2020
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