The recent decision of Justice O’Bryan in Australian Securities and Investments Commission v La Trobe Financial Asset Management Ltd [2021] FCA 1417 serves as a timely reminder that Courts will not simply endorse a penalty that has been agreed between a party and a regulator. The Court will bring its independent assessment to the matter, and satisfy itself that the making of any declarations and ordering of penalties are appropriate based on the facts and circumstances of the case.

ASIC v La Trobe summary

Background

Over the period of 1 April 2017 to August 2020, La Trobe Financial Asset Management (La Trobe) engaged in a marketing campaign in relation to two investment options. As part of the campaign, La Trobe published information on its website and in newspaper advertisements relating to the features of the investment options, including that customers could withdraw funds in specific time periods.

In 2017, the Australian Securities and Investments Commission (ASIC) raised concerns with La Trobe over its marketing. As a result of ASIC’s concerns, La Trobe altered its marketing campaigns and understood that ASIC had no further concerns in relation to the advertising as ASIC took no further steps.

ASIC, however, commenced proceedings in the Federal Court in December 2020 alleging that La Trobe contravened ss 12DA(1) and 12DB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) and s 1041H of the Corporations Act 2001 (Cth) by making misleading and deceptive representations in relation to customers’ rights to withdraw funds through advertisements:

  1. on La Trobe’s website and in newspapers in respect of an investment option offered by La Trobe for the period 1 April 2017 to 21 August 2020; and
  2. on La Trobe’s website and in newspapers in respect of a second investment option offered by La Trobe for the period 24 June 2019 to 21 August 2020.

La Trobe admitted the conduct and agreed with ASIC that a suitable penalty would be $750,000.

Decision

ASIC and La Trobe sought that the Court make declarations that La Trobe contravened the relevant provisions and order that La Trobe pay an aggregate penalty of $750,000.

In considering the penalty, Justice O’Bryan expressed reservations in relation to the appropriateness of the agreed penalty, particularly in relation to whether the proposed penalty would meet the objective of general deterrence.

His Honour considered that a big factor in assessing the appropriateness of a penalty was general deterrence, particularly having regard to the size of La Trobe and the public interest in ensuring that the marketing and promotion of financial products is accurate and not misleading. In his Honour’s view and in the ordinary course, the conduct would warrant a penalty well in excess of the penalty proposed by ASIC and La Trobe, being $750,000.

However, his Honour noted that ASIC had previously raised concerns with La Trobe over its advertising material, La Trobe made attempts to fix the material and ASIC did not raise any further concerns. Justice O’Bryan considered that this was a strong mitigating factor which warranted a potentially lower penalty. With “considerable hesitation”, Justice O’Bryan accepted that, given the circumstances, a penalty of $750,000 was appropriate.

Key Takeaways

The decision highlights the importance of the role of the Court in ordering penalties. That is, the Court will not simply endorse an agreement between the parties in relation to the quantum of penalties. Rather, the Court will bring its independent assessment to the matter, and require evidence as to why the size of the penalty is appropriate.

Even where agreed, the task of imposing civil penalties is notoriously subjective and involves the exercise of a significant degree of discretion by the Court. There is no formula or prescribed test, nor one single factor that will be decisive. While consideration of the maximum potential penalty is a relevant consideration, that rarely should be the starting point. Further, it has been made clear that amounts imposed in even analogous cases are often of little value to calibrate the appropriate penalty, although they offer another yardstick.

The factors considered by the Court and the weight given to those factors will depend on the circumstances of the case and the Court. Depending on the facts, the Court may give little to no weight to factors identified by either party. As noted in the decision, the key factors in assessing penalties often include:

  1. specific and general deterrence;
  2. the seriousness of the contravening misconduct;
  3. conduct of the entity since identifying the issue, including remediation;
  4. so called ‘courses of conduct’; and
  5. similar penalties imposed in analogous cases (at least as a yardstick).

These factors will be assessed on a case by case basis. The decision serves as a reminder that care should be taken when agreeing penalties, as they may not always be accepted by the Court.