BROMWICH J:
1 These are reasons for the penalties that I have concluded should be imposed for contraventions of civil penalty provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) which proscribe:
(a) conduct in relation to financial services that was misleading or deceptive, or likely to mislead or deceive: s 12DA; and
(b) undue harassment or coercion in connection with the supply or possible supply of financial services or the payment for financial services: s 12DJ.
For the reasons that follow, a civil penalty is only payable in respect of the contraventions of s 12DJ of the ASIC Act.
2 The plaintiff is the Australian Securities and Investments Commission (ASIC). The defendant is A&M Group Pty Ltd trading as Debt Negotiators. An important part of Debt Negotiators' business involves administering registered debt agreements entered into between debtors and their creditors under Part IX of the Bankruptcy Act 1966 (Cth), especially and typically consumer debtors with multiple creditors and few assets. Such debt agreements are an important and innovative alternative to bankruptcy. Debt Negotiators is the second largest registered debt agreement administrator in Australia, being one of 34 such administrators. It administers some 5,000 debt agreements, being approximately 14% of the market as at October 2021. Its contravening conduct was directed towards debtors who were failing to comply with the debt agreements they had entered into. The penalty response to Debt Negotiators' conduct is important in relation to its future behaviour and that of the other registered debt agreement administrators, in their dealings with a highly vulnerable part of our society operating with the licence and sanction of the State.
3 On 16 November 2021, ASIC commenced this proceeding against Debt Negotiators in relation to its conduct towards six debtors during the period 30 January to 19 February 2020 (relevant period). As will be seen, the way in which ASIC brought its case is of some importance in determining the penalty response formulation. The proceeding was commenced by an originating application and concise statement. Initially, Debt Negotiators denied all of the allegations by a concise statement in response dated 25 February 2022.
4 Subsequently, after a successful mediation on 17 May 2022, Debt Negotiators filed an amended concise statement in response admitting to the contraventions alleged by ASIC about its conduct towards the six debtors, but still denying two allegations which go to the characterisation of those contraventions. Debt Negotiators also implemented substantial remedial changes to the way in which it conducts the administration of debt agreements and dealings with debtors under those agreements. This took place after the contravening conduct was detected. ASIC fairly acknowledged they were robust changes, appropriately tailored to address the contravening conduct.
5 Debt Negotiators agrees to the declarations of contravention sought by ASIC and to pay an agreed sum towards legal and investigation costs. The live issues remaining in dispute concern:
(a) the quantum of the penalties necessary to meet the dual objectives of specific and general deterrence; and
(b) a related dispute as to whether ASIC has a sufficient basis for certain characterisations it gives for the contravening conduct going beyond the pleaded admissions and agreed facts which, if accepted, elevate the seriousness of the contraventions.
6 In the final analysis, the admissions of contravention and the remedial program introduced by Debt Negotiators have been highly influential in determining the level of penalty required for both specific and general deterrence. The penalties would have been considerably higher if either of those steps had not been taken and much higher again if both had not been taken. In short, that ultimate response, well before any trial had been listed, constitutes the right kind of sorry and thus reduced risk of repeat contraventions. But it does not remove the continued need for a substantial, albeit much reduced, penalty. The objective of the exercise is to eliminate this sort of behaviour from the registered debt agreement administration industry.
7 The parties have furnished an agreed statement of facts made pursuant to s 191 of the Evidence Act 1995 (Cth), tendered by ASIC without objection. Additionally, ASIC has tendered a bundle of documents without objection, including materials apparently obtained in the course of the investigation, being training materials, a list of questions to be asked of debtors, a sample of an impugned communication to a debtor by email, and financial documents for the financial years ended in 2019 to 2022 as a forecast, as well as the email sent to my chambers on 2 May 2022 recording the settlement that had been reached and attaching draft short minutes of order to reflect that and to prepare the matter for the penalty hearing.
8 Debt Negotiators read two affidavits without objection, sworn by Mr Ahmed Ibrahim, the director of Debt Negotiators and by Mr Mahdy Dennaoui, the director of MD Group of Companies Pty Ltd, the registered accountant for Debt Negotiators.
9 Mr Ibrahim deposes to:
(a) the extensive remedial steps that he took on behalf of Debt Negotiators to address the contravening conduct, and to prevent it recurring, as detailed further below;
(b) the cooperation with ASIC;
(c) the absence of profit made from the contraventions in relation to all six debtors, as opposed to profit made from the transactions, of which the contraventions were only a part; and
(d) the absence of any prior conduct by Debt Negotiators amounting to allegations of the kind raised in ASIC's concise statement.
10 As to the point at above, there is a dispute between the parties, but its seems to me to be of little real moment. ASIC submits that this is not a case in which the contravener made a very significant profit directly from the contravening conduct, referring to just over $20,000 in revenue from the six debtors, less $7,500 paid in compensation to one of the debtors from whom just over $2,000 was obtained, producing a net figure of just over $14,000. Debt Negotiators submits that ASIC does not say how much of that sum is profit attributable to the contraventions, being only a part of the conduct in administering the agreements, such that the Court cannot be satisfied that any profit or benefit can be attributed to the contraventions. What matters in the end is that in this case, the actual profit derived is not a useful measure of the seriousness or otherwise of the contraventions.
11 As submitted by ASIC, the appropriate framework in a case like this was described in viagogo AG v Australian Competition and Consumer Commission [2022] FCAFC 87 (Yates, Abraham and Cheeseman JJ) at [161]:
First, while there are authorities which, in assessing penalty, relate specific deterrence to the profit derived from contravening conduct, they should not be construed as laying down an immutable principle that the appropriate penalty to secure specific deterrence is necessarily pegged to, or limited by, the amount of profits derived from the contravening conduct. Nor should the authorities be construed as requiring, in point of principle, that there be some linear relationship between the appropriate penalty and profit or that the penalty should only exceed the profit by a certain amount: VW [Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49; 151 ACSR 407], 431 at [148] - [149]. Profit is merely one factor that may be relevant among many others: ABCC v CFMEU [Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; 254 FCR 68], 89 at [103]. In many cases, including the present, reported profit may not reflect the objective seriousness of the contravention. Objective seriousness is frequently more a function of the character of the conduct, the harms caused (monetary and otherwise) by the conduct, and the deliberateness of the conduct. Indeed, reported profit may not even be the most useful measure of benefits accruing to the contravener and such benefits may include growth of business, market recognition, advancement over competitors, and savings in compliance costs.
12 Mr Dennaoui deposes to Debt Negotiators' current financial position in the lead up to the penalty hearing, as detailed below.
13 The contravening conduct was initially detected by the Australian Financial Security Authority (AFSA) investigating an anonymous tip off. But for that taking place, it is unlikely that the contravening conduct would have been detected. Debt Negotiators had no regime in place either to detect or to prevent such conduct. It does now.
14 ASIC contends that an appropriate penalty necessary to give effect to the objective of deterrence is $3.25 million. Debt Negotiators submits that this amounts to an attempt to drive them out of business, and contends that the penalty should be no more than $190,000, based on a $2,000 penalty for each of 95 of the 149 communications with debtors or persons close to them relied upon by ASIC. For the following reasons, I have decided that the appropriate penalty in all the circumstances is $650,000, arrived at by a penalty of $100,000 for each of five of the debtors, and $150,000 for the sixth debtor. With the agreed payment towards legal and investigative costs of $150,000 ($80,000 to be ordered to be paid by order of this Court for legal costs, and $70,000 ordered to be paid by order of ASIC under s 91 of the ASIC Act for investigation costs), the overall cost to Debt Negotiators will be $800,000. This means that neither side's position has substantially prevailed over the other, being much more than Debt Negotiators sought, and much less than ASIC sought. In explaining that sum, after resolving several disputes in some detail below, it is important to expose my reasoning.
15 First, I do not accept that that a penalty per communication as urged by Debt Negotiators is a defensible approach. The conduct was directed, over time, to each of the six debtors, and the penalty imposed needs to reflect that, as it is the debtors who were meant to be protected from such conduct. Secondly, this has the collateral effect that the resolution of a dispute as to the effect of a change in the legislation, addressed in some detail below, ends up being of little practical importance, given the focus on deterrence that is required. Thirdly, I have taken into account the differential impact on the object of deterrence, both specific and general, of the counterfactual scenario of Debt Negotiators either not admitting to the contraventions, or not implementing a serious and genuine remedial program, or not doing either of those things.
16 Had Debt Negotiators done neither of those things and taken the case to trial, and ASIC had succeeded in proving most if not all of its case, it is likely that the penalty required to deter it and to deter other registered debt administrators determined to take the same approach would have been a high proportion of the $3.25 million sought by ASIC. Indeed with the usual additional preparation and investigation that takes place in the lead up to the trial, it is possible an even worse picture could have emerged, and the penalty might even have been higher.
17 Had Debt Negotiators either only admitted the contraventions, but not implemented the remedial program, or maintained a denial of the contraventions, and ASIC succeeded in proving most if not all of its case, but still implemented the remedial program, the overall penalty would have been less, based on a penalty less than the $3.25 million sought by ASIC. But it would have been at least $1.3 million, and likely quite a bit more if the matter had gone to trial and Debt Negotiators' defence had failed, with a working basis for calculation of $200,000 for each of five debtors and $300,000 for the sixth debtor, plus agreed legal costs ordered by the Court of $80,000 and agreed investigation costs ordered by ASIC of $70,000. The total bill to be paid by Debt Negotiators would have been no less than $1.45 million, and potentially quite a lot more.