Reframing ASIC’s effectiveness By Daniel Calderisi

begin the civil contempt process without complying with the rules for service. In deciding whether to dispense with the service requirements, the primary factor the Court took into consideration was that the accused in both knew the judgment or order and its contents, even without being properly served. In Animal Liberation, a spokesperson for the accused told the Court in an affidavit that they were declining to comply with the order.55 In Zhao, the judgment was served on the accused’s solicitors,56 and the accused had sworn several affidavits in relation to the order.57 These decisions are clearly efficient — it would be a waste of time and money if the applicant had to restart contempt proceedings after serving the judgment or order properly when the accused was already aware. The Court currently requires a very high level of proof of the accused’s knowledge before it will exercise the discretion, which significantly reduces the chance that a person will be charged with contempt when they were actually unaware of the judgment or order. Maintaining this discretion as it stands is both just and efficient.

CONCLUSION

Ensuring that the civil contempt process is just often goes hand in hand with making sure it is efficient, but sometimes those objectives are at odds. Since civil contempt is a quasi-criminal issue with serious ramifications, when the two objects come into conflict, justice for the accused should generally prevail, but that principle should not be applied rigidly. Therefore, the standard criminal procedural rights should apply to the civil contempt process unless the accused wants to waive them. The two-stage process should stay, even if it is very inefficient, to ensure the accused is not charged with contempt when it is not warranted. While the applicant’s right to waive proceedings should mostly stay the same, since it is just and efficient for both the applicant and the accused, the public’s interest should sometimes take precedence. The judge’s discretion to dispense with the service requirements if they have a very good reason to believe the accused knows about the judgment or order is both just and efficient, and so it should be retained. Creating a civil contempt process that is just and efficient for the applicant is easy: make it fast and simple. However, what is just and efficient for the accused and the public should also be taken into account. While the applicant should be able to get a judgment or order made in their favour enforced, the severity of that enforcement mechanism means their interests should not be given priority. Successfully bringing a contempt charge will eventually be just for the applicant, but, unfortunately for them and the public, the process should prioritise the interests of the accused. B

Endnotes 1 Witham v Holloway (1995) 183 CLR 525, 530 (‘Witham’). 2 Ibid 531; Australasian Meat Industry Employees

Union v Mudginberri Station Pty Ltd (1986) 161

CLR 98, 106 (‘Mudginberri’); Hearne v Street (2008) 235 CLR 125, 136 [25] (Kirby J). 3 Uniform Civil Rules 2020 r 1.5 (‘UCR’). The UCR came into operation on 18 May 2020: South

Australia, South Australian Government Gazette, No 39, 14 May 2020, 1200; South Australia, South

Australian Government Gazette, No 41, 18 May 2020, 1391; UCR (n 3) r 1.2. 4 UCR (n 3) r 205.2. 5 Ibid rr 103.2, 182.2 6 Ibid r 205.1. 7 Ibid r 201.2(3). 8 Ibid r 205.5(1). 9 Ibid r 205.5(2). 10 Maxilift Australia Pty Ltd v Donnelly [2020] SASC 8, [11] (‘Maxilift [2020]’), quoting Mane Market Pty

Ltd v Temple (Supreme Court of South Australia,

Debelle J, 27 November 1998), [5] (‘Mane Market 1998’). 11 UCR (n 3) r 205.7. 12 Ibid r 205.7(2)(d). 13 Ibid r 205.7(3). 14 Ibid r 205.8(2). 15 Ibid. 16 Ibid r 205.8(5). 17 Australian Law Reform Commission, Contempt (Report No 35, June 1987) 299 [531] (‘ALRC

Report’); Law Reform Commission of Western

Australia, Review of the Law of Contempt (Report

No 93, June 2003) 106. 18 Supreme Court Civil Rules 2006 rr 303, 305, 306 (‘SCCR 2006’). 19 Supreme Court Civil Rules 1987 r 93. 20 UCR (n 3) r 1.5. 21 SCCR 2006 (n 18) r 3(d). 22 Naomi Burstyner and Tania Sourdin, ‘Justice

Delayed is Justice Denied’ (2014) 4(1) Victoria

University Law and Justice Journal 46. 23 Witham (n 1) 539 (McHugh J); Mudginberri (n 2) 106. 24 Australian Law Reform Commission, Contempt:

Disruption, Disobedience and Deliberate Interference (Discussion Paper No 27, April 1986) 77 (‘ALRC

Discussion Paper’); Mudginberri (n 2) 106. 25 See, eg, Witham (n 1) 532–3 (Brennan, Deane,

Toohey, and Gaudron JJ). 26 Maxilift [2020] (n 10) [15]–[16]; Mudginberri (n 2) 27 28

29 30 31

32 33

34 35

36

37

38 39 40 41 42

43 44 45 46 47 48 49 50

51

52

53 54

55 106–7; Testel Australia Pty Ltd v KRG Electrics Pty Ltd [2014] SASC 119, [6], [23]–[24]; Pelechowski v Registrar, Court of Appeal (NSW) (1999) 198 CLR 435, 485 [149]; Phillis v Szenkovics (2001) 81 SASR 202, 214 [102]; Witham (n 1) 532–3 (Brennan, Deane, Toohey, and Gaudron JJ). Director of Public Prosecutions Act 1991 (SA) s 7(1)(da). South Australia, Parliamentary Debates, Legislative Council, 13 April 1994, 410 (Kenneth Griffin, Attorney-General). Mudginberri (n 2) 109. Ibid 106; ALRC Report (n 17) 307 [520]. Witham (n 1) 533–4 (Brennan, Deane, Toohey, and Gaudron JJ). (1992) 177 CLR 292, 315. Australian Securities and Investments Commission v Reid [No 1] (2006) 151 FCR 540, 545 [21]. UCR (n 3) r 205.7(a). R v Cook; Ex parte Twigg (1980) 147 CLR 15, 25; Consolidated Press Ltd v McRae (1955) 93 CLR 325, 333; Maslen v Official Receiver (1947) 74 CLR 602, 611. John Duns, ‘The Statutory Injunction: An Analysis’ (1989) 17 Melbourne University Law Review 56, 70. Maxilift Australia Pty Ltd v Donnelly [2019] SASC 115 (‘Maxilift [2019]’); Maxilift [2020] (n 10). Maxilift [2020] (n 10) [6]–[12]. Maxilift [2019] (n 37) [7]. Maxilift [2020] (n 10) [1]. Ibid. Mane Market 1998 (n 10); Mane Market Pty Ltd v Temple [1999] SASC 271 (‘Mane Market 1999’); Registrar of the Supreme Court of South Australia v Temple [2000] SASC 26; Registrar, Supreme Court (SA) v Temple [No 2] (2000) 77 SASR 1; Registrar, Supreme Court (SA) v Temple [No 3] (2000) 77 SASR 8; Registrar of the Supreme Court of South Australia v Southern Hotels Pty Ltd (2001) 78 SASR 453 (‘Southern Hotels’). Mane Market 1999 (n 42) [3]. Southern Hotels (n 42). Mane Market 1998 (n 10) [5]. [2018] SASC 70. Ibid [83]. Ibid. Witham (n 1) 548–9 (McHugh J). ALRC Report (n 17) 312 [531]; ALRC Discussion Paper (n 24) 100–1, 102–3. Director of Public Prosecutions South Australia, Statement of Prosecution Policy and Guidelines (October 2014) 7; Geoffrey Flatman and Mirko Bagaric, ‘The Victim and the Prosecutor: The Relevance of Victims in Prosecution Decision Making’ (2001) 6(2) Deakin Law Review 238, 251; Victorian Law Reform Commission, The Role of Victims of Crime in the Criminal Trial Process (Consultation Paper, July 2015) 43 [5.7]. Law Reform Commission of Western Australia (n 17) 103. UCR (n 3) r 201.2(3). Zhao v AST Investments Pty Ltd [No 2] [2019] SASC 174, [14] (‘Zhao’); UCR (n 3) rr 12.1(1)–(2)(a). Proceedings for an Alleged Contempt of Court by Animal Liberation (SA) Inc [2002] SASC 71, [12]. Zhao (n 54) [18]. Ibid [19].

REFRAMING ASIC’S EFFECTIVENESS

DANIEL CALDERISI, BACHELOR OF LAWS STUDENT, UNISA

The role of the Australian Securities and Investments Commission (ASIC) is to administrate and ‘enforce’ Australia’s corporation and financial laws, of which its effectiveness has often been doubted.1 In a 2014 evaluation of ASIC’s performance, the Senate Economics Reference Committee stated ‘it appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing’, a pattern solidified with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry concluding ASIC must ‘alter’ its enforcement approach to meet legislative objectives.2 However, it is unclear that if one year ASIC has low litigation statistics, it performed poorly.3 A true evaluation of ‘effectiveness’ must then be an analysis of whether ASIC is acting optimally within its current framework. This is over the three regulatory levels that enforce the corporation laws in ex ante and ex post approaches.4 An important distinction to make as the Hayne Report was heavy handed in its focus of criticism of ASIC in not engaging in litigation, and for future evaluations a clearer idea of the system it operates in is required. This article considers the impediments to ASIC’s effectiveness that are mostly out of its control. FRAMEWORK OF ‘EFFECTIVENESS’

The appraisal of ASIC on a regulatory architectural level is intertwined with the Australian Prudential Regulation Authority (APRA), with the two bodies’ miscommunications limiting enforcement.5 On the level of regulatory content, the hampering of ASIC’s enforcement ability appears with prescription based laws acting as a safe haven for financial services.6 Lastly on the procedural level, ASIC has appeared to have resorted to more cost effective measures in addressing contraventions, with the judiciary struggling to implement Parliament’s intended civil penalty regime.7 Essentially, ASIC acts to its fullest extent limited by impediments outside its control.

ARCHITECTURAL ACCOUNTABILITY

Cultural Misconduct & Remuneration

The dual pillars of Australia’s regulators in the finance sector are ASIC, in its aforementioned role, and APRA, which is primarily responsible for prudential regulation.8 A ‘twinpeak structure’ that was supported by Hayne in recommendation 6.1.9 However, inefficacies were identified in recommendations 6.9-10, which revealed a lack of co-regulation communication.10 This is a grave issue considering the overlap of responsibilities between regulators, as a lack of prudential effectuality can breed misconduct (producing contraventions within ASIC’s scope).11

The propagation of misconduct under APRA can be established with the remuneration structures of financial services entities and the downward pressure it creates, that in turn generates compliance breaches.12 The structure of remuneration for executives are often set that shareholder returns are a 50% hurdle for share reward rights.13 Subsequently, high sales targets would be set for lower ranking staff, in turn creating a poor culture centred solely around return targets.14 This cultural outcome is exemplified by National Australia Bank subsidiaries knowingly charging superannuation fund members adviser fees, for essentially no service, throughout 2008-2009 with the breaches not being reported until 2014.15

That is one of many examples where APRA is slow to identify remuneration misconduct indicators and does not communicate it appropriately even with its statutory duty. Furthermore, especially given the performance of ASIC often depends on APRA, the former regulator cannot be at fault due to communication

omissions by its co-regulator. These uncontrollable informational asymmetries only serve to hamper ASIC’s effectiveness, as its not guided to areas of downstream risk and may suffer from the omissions of APRA.

Prescription Based Law

The downstream cultural issue is not solely limited to dishonest fees, it continues to the manner in which financial services interact with the ‘letter but not the spirit of the law’.16 The Hayne Report dealt with this issue holistically in recommendation 7.4, stating to ‘simplify the law so that its intent is met’.17 In particular, Kenneth Hanye AC QC correctly identifies the issue of ‘prescription based’ regulatory content in preventing the community expected enforcement outcome based legislation would achieve.18

Minimal compliance can be found with fiduciary relationships frequently becoming blurred with conflicts of interests occurring and lax statutory duty enforcement. Dr Millhouse aptly finds this in the prescriptive deficiencies of the safe harbour provision in the ‘best interest duty’.19 The current compliance practice allows advisers to simply provide a list of superannuation products to clients, having the effect of requiring no independent inquiry into more suited investment products.20 This is as ASIC, Re Golden Financial Group Pty Ltd v Golden Financial Group Pty Ltd (No 2),21 demonstrated that the duty is a simple ‘tick box’ procedure to avoid contravention.22 It is not outcome driven but rather process driven; a stark departure from the common sense equity principle that defeats the actuality of protecting the client.23

This minimal obligation is commonly not even being met, with an ASIC investigation revealing 75% of advice files reviewed likely did not meet ‘compliance’ due to ‘prioritising a related party’.24 A likely core reason for a ‘steep rise’ in ‘big 4 bank owned super fund’ sales rising by 33% in recent years.25 It is not difficult to recognise the conflict, as it would be highly unlikely an adviser would recommend a fund (after providing a list) they do not have a relationship or high fee structure with, a legislative framework failure enabling a vertically integrated model that allows relationships between product issuers and advisers.26

Essentially, flaws in legislation protect financial services, enabling them to deliver dishonest advice that is facilitated by a sanctioned vertically integrated business model where misconduct spreads through remuneration incentives. ASIC and APRA are both ineffective here due to communication discrepancies on the architectural level. Firstly, ASIC often does not cooperate on this trickle down issue with APRA, even though it raised ‘it has long been concerned about the quality of financial advice’ and ‘conflicts’.27 Secondly, only in 2016 did APRA update its payment guidelines.28 Previously, APRA followed a lax approach to limiting topdown misconduct by solely focusing on a ‘firm’s attitudes towards remuneration’.29 This approach by APRA limited ASIC’s effectiveness by not recommending greater remunerative consequences for breaches to aid in minimising misconduct. This is as the lack of minimisation likely may have caused an increase in the number of detected and undetected breaches.

However, in regard to regulatory content ASIC operates optimally within its framework. ASIC is simply limited by the inability of a lobbied government to alter prescriptive law to better impart its intent, that in turn would enable enforcement.30 Therefore, ASIC’s only flaw is with regards to architectural accountability and its inability to work collaboratively with APRA to mitigate misconduct at its source and identify where it sprouts.

JUDICIAL INHIBITORS

The last type of accountability ASIC can be assessed on is the procedural level, which is the enforcement of laws. A ‘why not litigate approach’ (Hayne Recommendation 6.2) was recommended to improve effectiveness, however it remains unclear if this is as effective as originally thought.31

The principal impediment ASIC faces when taking this alternative litigation approach is the plethora of procedural issues that the balance of ‘criminal and civil procedure’ in civil penalties create.32 Firstly, the issue of penalty privilege remains even after Rich v Australian Securities and Investments Commission,33 due to Corporations Act 2001 (Cth) s 1349 not abrogating this privilege in civil penalty proceedings.34 The penalty privilege has often been confused with the right against self-incrimination by the judiciary, even though the High Court has stated they ‘are conceptually distinct’.35 The penalty privilege rule requires a plaintiff to prove their case without the assistance of the defendant, however Justice Kirby correctly stated its ‘the over-reach of prove it’.36 This is exemplified in Macdonald v Australian Securities and Investments Commission,37 where the defendant was allowed to admit a bare pleading, enabling the altering of the defence after ASIC closed its case.38 Moreover, in Re Water Wheel Mills Pty Ltd,39 Justice Mandie denied application for the defendant to lodge a defence at all.40 This lack of disclosure ensures ASIC’s job to create a compelling case is difficult, which is only compounded with the higher standard of being ‘reasonably satisfied’ it must meet.41 This pivoting tool also causes ASIC to overspend pursuing an action, once having as many as seven senior counsel to review its pleadings to cover all possible defences.42

Essentially, the courts have substantially weakened ASIC’s enforcement ability by struggling to integrate the regulatory need of deterrence in civil penalty matters due to traditional evidentiary rules.43 In turn, demonstrating that enforceable undertakings and infringement notices are likely the most cost-effective tool for any attempt at regulatory enforcement across all breaches due to ASIC’s limited resources.44