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[2025] FCA 102
Federal Court of Australia
2025-02-21
Hespe J
Original judgment source is linked above.
n Competition and Consumer Commission [2004] FCAFC 167 Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation [2020] FCA 1538; 148 ACSR 247 Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 Elder's Trustee & Executor Co Ltd v Higgins [1963] HCA 48; 113 CLR 426 Trade Practices Commission v CSR Ltd [1991] FCA 762; ATPR ¶41-076
National Practice Area: Commercial and Corporations
Sub-area: Regulator and Consumer Protection
Counsel for the Plaintiff: Mr T Begbie KC with Mr T Clarke and Ms S Kipen
Solicitor for the Plaintiff: Australian Securities and Investments Commission (in house)
Counsel for the Defendant: Mr P Solomon KC with Ms S Hogan
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: AUSTRALIANSUPER PTY LTD (ACN 006 457 987) Defendant
order made by: HESPE J DATE OF ORDER: 21 February 2025
THE COURT DECLARES THAT: Declarations pursuant to s 196(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act)
Super System Review 9 On 29 May 2009, the Government commissioned the Super System Review into the governance, efficiency, structure and operation of Australia's superannuation system to make recommendations to ensure that the superannuation system had a sharper focus on operating in members' best interests. On 30 June 2010, the Super System Review Panel delivered its final report to Government. The report stated: In some cases, members can have multiple accounts and be paying multiple fees within the same fund. This can happen, for instance, when the member has had a succession of different jobs within a certain industry and has been enrolled into the same default fund on different occasions, perhaps with different home addresses or other identifying details. In cases like these, the loss of insurance is not likely to be a relevant factor, because the member would generally retain insurance cover through the account that was currently receiving contributions. However, it is obviously detrimental to the member, and a source of significant inefficiency across the industry, that members in this situation are having multiple sets of fees deducted through inertia and/or an inability to use a common identifier to consolidate them into a single account. The Panel recognises that there will be cases where the member has positively elected to hold multiple accounts within the same fund - for example, as is now reasonably common for example with members utilising a transition to retirement facility - but at an overall industry level the vast majority of duplicate accounts appear to have arisen from the administrative inertia described above, not from positive choices exercised by members. Consequently the Panel considers that a reduction in multiple account holdings will strip unnecessary costs out of the system and, all else being equal, will lead to a reduction in administration costs as a percentage of assets under administration. It acknowledges, however, that spreading fixed administrative costs over a smaller number of accounts may lead to an increase in the weekly amount needing to be charged to those remaining accounts. Recommendation 9.12 Necessary legislation should be enacted to permit the trustee to auto‐consolidate accounts without prior reference to the member, where multiple accumulation accounts within a single fund share a common TFN and member surname and the multiple accounts have not been established by deliberate elections by the member concerned. 10 Section 108A of the SIS Act was enacted in response to the recommendations made by the Super System Review and came into effect on 1 July 2013. From that date, s 108A required the trustee of a superannuation fund to ensure that rules were established which: (a) set out a procedure to identify when a fund member has more than one account in the fund, and to carry out that identification procedure at least once each financial year; (b) merge the accounts of any member with two or more accounts in the fund - without needing first to obtain the member's consent - if the trustee reasonably believes that merger to be in the member's best interest, unless it is not practicable to merge them in the circumstances; and (c) do not permit the trustee to charge fees for any merger of multiple accounts as a result of such rules. 11 A contravention of s 108A(1) is a strict liability offence: s 108A(5) of the SIS Act. In addition, compliance with s 108A is a condition imposed in a superannuation trustee's registrable superannuation entity licence, so that non-compliance with s 108A may result in cancellation of the registrable superannuation entity licence by APRA: ss 29E(6E) and 29G(2)(c) of the SIS Act.
Productivity Commission 12 In 2017 and 2018, the Productivity Commission conducted an inquiry to assess the efficiency and competitiveness of Australia's superannuation system and delivered its final report to the Government on 21 December 2018. The Productivity Commission found that there were "too many unintended multiple accounts" and its final report stated: Over a third of all super accounts are 'unintended multiples' - created when a new default account is opened for a member when they change jobs or industries, and the member does not close their old account or roll over their existing balance. Much of this account proliferation appears early in adulthood and persists well into middle age (figure 8). These unintended multiples collectively cost the members who hold them $1.9 billion a year in excess insurance premiums and $690 million in excess administration fees. Over time, the foregone returns compound to unnecessarily erode their retirement balances, and can leave a typical full-time worker 6 per cent (or $51 000) worse off at retirement (cameo 4). Even worse, the effects are regressive, affecting younger and lower-income members the most.
Scale of multiple account issue across the industry 13 As at 30 June 2023: (a) over 13.3 million Australians had one superannuation account; (b) around 4 million Australians held two or more superannuation accounts (an increase from 3.9 million as at 30 June 2022); and (c) the percentages of accounts held by an individual were: Number of accounts Total individuals 1 77% 2 18% 3 4% 4 or more 1%
AUSTRALIANSUPER IN CONTEXT OF THE SUPERANNUATION INDUSTRY 14 Superannuation is a core part of Australia's retirement income system. 15 As at the end of June 2023, in Australia: (a) there were 13.4 million superannuation accounts held in a total of 22 industry funds; (b) AustralianSuper had over 3.2 million member accounts; (c) total assets held by industry funds were approximately $1.2 trillion; (d) the Fund had total assets of approximately $311 billion. 16 AustralianSuper has the largest market share in Australia with responsibility for 14.6% of member accounts in Australia and 12.6% of total superannuation funds under management. There is a considerable difference in size between it and its next largest competitor, Australian Retirement Trust, which has almost 920,000 fewer members (2.33 million in total) and around $47 billion less funds under management ($264 billion). 17 AustralianSuper's turnover was: (a) $467 million for the 12-month period ending on 31 March 2019; (b) $486 million for the year ended 30 June 2019; and (c) $555 million for the year ended 30 June 2020. 18 As the trustee of Australia's largest superannuation fund, AustralianSuper has an important role in the superannuation system. AustralianSuper promotes itself as being recognised as the "most trusted superannuation brand" for 11 years in a row.
CONTRAVENING CONDUCT 19 Although the penalty period commenced no earlier than March 2019, the contraventions are to be understood in the context of a failure to comply with s 108A of the SIS Act that extended back to July 2013. As will be seen, AustralianSuper's breach of its covenants to members during the penalty period was a result of its failure to have rules that complied with s 108A and to perform the processes those rules would have required. AustralianSuper's failure to remediate promptly during the penalty period related at least in part to losses that had accrued prior to the penalty period.
AustralianSuper's business rules 20 Between 1 July 2013 and 19 June 2022, AustralianSuper's business rules did not comply with s 108A of the SIS Act. 21 Throughout that period, AustralianSuper's business rules had separate "duplicate account" and "dual account" processes that were directed to identifying and merging multiple accounts. In broad terms: (a) The duplicate account process applied where a member had more than one active accumulation account and where one of those accounts was less than 12 months old, had no member-led changes to insurance, was in the same division of the Fund as another account of that member, had default member investment choice only and, from at least 23 November 2015, was not created for a "special employer arrangement" employer. Following identification, the accounts would be merged without consultation with members. (b) except between 5 March 2014 and 29 November 2015, a dual account process applied where a member had multiple active accumulation accounts in the same or different division of the Fund, where one of those accounts was more than 12 months old, and that account was not otherwise an "excluded account". The merger of accounts under the dual account process was performed: (i) on either an opt-out or opt-in basis (for different cohorts of members), until 30 June 2017; and (ii) only in response to member requests, from 1 June 2018 until 19 June 2022. 22 The business rules for the dual account process did not comply with s 108A, in that they did not require that process to be conducted at least once each financial year and did not require AustralianSuper to merge multiple accounts where the trustee reasonably believed merger to be in the member's best interests, without member opt-in or consent, unless it was not practicable to merge them in the circumstances. 23 AustralianSuper was aware of s 108A at the time the section commenced. Around that time, there were employees within AustralianSuper who were aware that its business rules needed to be amended in order to comply with s 108A and that processes should be implemented to effect those changes. However, no procedures for updating the business rules were created. AustralianSuper had no formal processes or controls in place that required someone in the compliance or legal teams to review changes to the business rules to ensure regulatory compliance or to document that relevant sections in the rules were related to compliance with s 108A. 24 From 2013 to June 2022, AustralianSuper's business rules relating to the dual and duplicate account processes were amended a number of times, but not for the purpose of ensuring compliance with s 108A of the SIS Act. For example: (a) On 20 February 2014, the dual and duplicate account processes in the business rules were amended to require that reports on duplicate / dual members "will be done on a frequency … as a minimum at least once a month". (b) On 5 March 2014, the dual account process was removed from the business rules "for the time being" because, as noted by a representative of the Fund's administrator, the process was "yet to be agreed and approved and has not yet been bedded into any internal administration process". (c) On 24 November 2014, the duplicate account process was amended to insert a definition of "duplicate member" and require that confirmation be issued to a member post-merge. 25 There is no evidence of any formal processes or controls in place at AustralianSuper at the time the business rules in relation to the dual and duplicate account processes were amended in 2014 that required: (a) someone in the compliance or legal teams to review and / or approve changes to the business rules to ensure that they met the relevant legislative requirements; (b) someone to document or record in the business rules (or elsewhere) the fact that the relevant sections in the business rules were connected or related to compliance with s 108A of the SIS Act; or (c) someone to assess any future changes to those sections of the business rules to ensure that the changes did not affect AustralianSuper's compliance with s 108A. 26 On 29 April 2015, Mr Patrick Gordon (an analyst within AustralianSuper) asked Mr Tim Cheney (Senior Management Accountant, Corporate Services) "what's the financial benefit of us merging dup accounts now rather than letting them hang around". Mr Cheney replied, "it benefits the member by stopping the $1.50 charge on their dup acct but for us it means less revenue (and if we stupidly back date it for years then we lose more revenue) i dont [sic] see what benefit it has for us other than goodwill to the member and so we dont [sic] lose them to the ato [sic] if the account is inactive and small". 27 On 30 November 2015, the business rules were amended to reintroduce the dual account process in largely the same form as it was prior to its removal in March 2014. 28 On 29 November 2016, as part of the negotiation of the commercial arrangements with AustralianSuper's incoming administrator Link Group, employees within AustralianSuper considered that details with respect to the frequency with which the administrator was required to undertake the dual account process would need to be captured in the business rules and were aware that the then current business rules did not specify the frequency with which the process was required to be undertaken. There is no evidence that any action was taken to address this omission in the business rules. 29 The dual account process was run as part of ad-hoc campaigns in 2013 and 2016, with low member response rates of less than 10% for each campaign. There is no evidence that anyone at AustralianSuper considered compliance with s 108A at the time those campaigns were run. 30 While the dual and duplicate account processes resulted in the merger of at least 100,000 member accounts (relating to at least 70,975 members) in financial years 2013 to 2023, it remained the case that 90,788 members still had duplicate accounts by 2023. The multiple accounts of those 90,788 members would have been identified and merged if AustralianSuper's business rules had complied with s 108A and AustralianSuper had carried out the processes such rules would have required. Those members incurred approximately $69 million in losses through multiple administration fees and insurance premiums, and lost investment earnings on those amounts (which have now been fully remediated).
Awareness of multiple accounts prior to the penalty period 31 Prior to the penalty period, employees and officers of AustralianSuper had recognised that there were members with multiple accounts but AustralianSuper failed properly to address the issue. 32 In around March 2016, at least some employees within AustralianSuper were aware that "[a]s at October 2015, AustralianSuper had 110,000 Dual Accounts equating to an estimated ≤55,000 affected individual 'Dual Members'… A dual member holds at least one additional account with complexities that prevent the accounts from being [merged under the Duplicate Account Rules]", and that AustralianSuper intended to conduct a dual account merge campaign to address the fact that members were paying multiple sets of fees and holding different insurance amounts that they may not necessarily want or need. 33 On 10 April 2018, Ms Kelly Shay (Fund and Stakeholder Relationship Manager) and Mr Tyrone Ko (Head of Service Transformation) prepared a memorandum titled "Current State - Duplicate Accounts", the purpose of which was to provide information to the Productivity Commission, in connection with its inquiry into the efficiency and competitiveness of Australia's superannuation system. The memorandum identified that, as at 28 February 2018, AustralianSuper had at least 43,605 members who had more than one accumulation account within AustralianSuper. 34 The memorandum noted that the figure of 43,605 members did not exclude those who had been flagged as having chosen to have more than one account and also identified reasons why members would want to have more than one account. The memorandum also identified that a number of improvements aimed at identifying and consolidating multiple accounts were being investigated. 35 On 13 April 2018, Ms Shay provided the memorandum to Mr Ian Silk (then CEO), Mr Paul Schroder (then Group Executive, Product Brand and Reputation) and Ms Rose Kerlin (then Group Executive, Membership). Ms Shay's covering email stated "[w]e need to improve the system so we can track and report who has intended duplicate accounts. Once we have improved our capacity to track and report on this we need to run a campaign to reduce unintended duplicate accounts". 36 In emails to Ms Shay dated 13 and 18 April 2018, Mr Schroder observed "[m]aybe the first step is to fix this appalling problem?" and asked if it was within AustralianSuper's power to "act unilaterally in favour of combining these accounts". In response, Ms Shay advised that she believed that consent was required. 37 On 27 April 2018, Ms Shay sent the three executives (Messrs Silk and Schroder and Ms Kerlin) a draft report for a project to reduce multiple accounts. The first page of the executive summary noted that "[u]nintended multiple accounts are regressive and have the greatest impact on those who are least well off". Following a meeting of the three executives in early May 2018, the identification and consolidation of multiple accounts was "nominated as a priority". 38 In June 2018, work began on a potential account merge campaign, with the intention of it being implemented in July or August 2018. 39 In July 2018, AustralianSuper made a submission to the Productivity Commission in which it noted that the excessive number of unintended multiple accounts was a "fundamental problem" in the superannuation system. AustralianSuper acknowledged the costly "current arrangement of having a new default fund each time employment changes", and in this context AustralianSuper was "concerned about the regressive nature of multiple accounts" and agreed that "more must be done to reduce current and future account proliferation". 40 On 23 October 2018, Mr Jeremy Bond (Senior Business Analyst) sent an email to compliancereview@australiansuper.com in which he noted a possible overlap between the planned account merge campaign and the "CRN merge" project (being planned by AustralianSuper's Project Team, designed to consolidate multiple member records under a single record with a unique customer reference number). 41 On 29 October 2018, Mr Nicholas Ooi (Regulatory Compliance Analyst) sent an email to Messrs Bond and Gordon in which he extracted s 108A and stated (among other things) that "[c]an you please look into this with the Operations team (or whomever is best to answer this) and confirm our current process and also historically what we've done in regards to merging accounts? As I understand it, we have not done [a dual account campaign] for about 2 years now and as we don't merge accounts for [members] but instead ask them for express consent, we may have breached our legislative requirements". Mr Bond replied, "looks like we've opened a can of worms, but a can that's in the best interest of the members". 42 On 30 October 2018, Mr Bond forwarded Mr Ooi's email to Ms Katie Le Cras (Head of Operations). 43 On 7 November 2018, Ooi sent an email to Mr Bond and Ms Kirsten Surridge (Operations Delivery Lead), in which he noted his view that "the dual account process is short of meeting the SIS requirements and think our business rules should be reviewed to ensure there is a procedure to identify dual accounts and merge them". 44 Between 7 November 2018 and early December 2018, Mr Ooi gathered further information from AustralianSuper employees in relation to the historical dual account campaign and the total number of members with potential dual accounts. 45 On 4 December 2018, Mr Ooi sent another email to Ms Surridge and Messrs Bond and Gordon and copied to Ms Le Cras, which reiterated his concerns and indicated that he would need to raise an incident in AustralianSuper's Governance, Risk and Compliance system (GRC system). On 6 December 2018, Mr Ooi forwarded that email to cscompliance@australiansuper.com. Mr Ooi then raised incident INC-2106 in the GRC system with Ms Surridge designated as the "incident owner" and the incident described as "key issues with not meeting the requirements of s 108A". 46 On 10 January 2019, Mr Ooi met with Ms Surridge, Mr Theodore Prodromou (Operations Specialist), Mr Gordon and Ms Laura Sheahan (Operational Risk Officer) to discuss the process to address merging duplicate accounts and next steps to address the gaps in meeting AustralianSuper's requirements under s 108A of the SIS Act. Those employees met on four further occasions between February and April 2019. 47 In early February 2019, Ms Maria Milosevic (Senior Regulatory Compliance Analyst) reviewed INC-2106 and assessed (incorrectly) that AustralianSuper had appropriate business rules in place to comply with s 108A of the SIS Act. Ms Milosevic forwarded her conclusions to Ms Diane Spaul (General Manager, Compliance) and Ms Narelle Smith (Head of Governance and Company Secretary) on 6 and 7 February 2019. 48 On 6 March 2019, Ms Milosevic re-sent her conclusions to Ms Spaul, who then approved Ms Milosevic's assessment (incorrectly), and Ms Milosevic updated INC-2106 in the GRC system as "complete" and noted (incorrectly) that a review of the business rules confirmed that the Fund did have appropriate business rules in place to comply with s 108A. 49 As a result of the incorrect compliance assessment of INC-2106 in February and March 2019, between March 2019 and November 2021, INC-2106 was not properly identified by AustralianSuper within its incident management system to be a potential regulatory breach and not prioritised for resolution.
Conduct during the penalty period 50 On 29 March 2019, Mr Ooi circulated a memorandum that he had prepared entitled "Multiple Account Merge Process - Compliance Considerations" to Ms Sheahan and other members of the Operations team. The memorandum again set out the s 108A requirements and noted the "gaps" in the dual account process as follows:
HARM TO MEMBERS 93 The parties agreed that as a consequence of AustralianSuper's failure to promptly establish rules which set out a procedure to identify and merge multiple accounts in accordance with s 108A of the SIS Act and to promptly identify and merge multiple accounts in the way that such rules would have required, affected members were exposed to the following avoidable financial losses: (a) From 1 July 2013 until 31 March 2023, approximately 90,700 members had multiple accounts that would have been identified and merged if AustralianSuper had established rules in accordance with s 108A and implemented systems to give effect to those rules. Those members incurred approximately $69 million in losses through multiple administration fees, insurance premiums and lost investment earnings on those amounts. (b) From 13 March 2019 until 31 March 2023: (i) approximately 43,000 affected members had multiple accounts at a time on or after 13 March 2019, and incurred approximately $12 million in losses through multiple administration fees and insurance premiums, and lost investment earnings on those amounts (the numbers of members and loss are subsets of the figures at paragraph (a)). (ii) the remaining approximately 47,700 affected members ceased to have active multiple accounts before 13 March 2019. These affected members did not incur multiple fees and insurance premiums on or after 13 March 2019 but continued to incur losses of lost investment earnings on the multiple fees and insurance premiums that had been charged while the member had active multiple accounts.
BENEFITS TO AUSTRALIANSUPER AND DETRIMENT AVOIDED 94 As a result of its contravening conduct, AustralianSuper: (a) avoided the time and costs of establishing rules in accordance with s 108A and resourcing a system (or systems) to ensure compliance with those rules including the merger of members' multiple accounts; (b) charged administration fees to members who held multiple accounts that should have been merged; (c) avoided the time and costs of promptly remediating affected members. 95 Because AustralianSuper is a public offer industry fund, it does not retain, or pass on to shareholders, the benefits of avoiding costs or charging excessive fees. Such costs and benefits are ultimately covered or received by members.
REMEDIATION 96 Between the first breach report to ASIC in December 2021 and May 2023, significant preparatory work was undertaken by AustralianSuper to commence remediating affected members, including: (a) identifying the appropriate time period for remediation; (b) identifying with a sufficient level of assurance affected members; (c) engaging external consultants to advise on the appropriate methodology for returning impacted members as closely as possible to the position they would have otherwise been in had their accounts been merged (including calculating lost investment earnings and foregone interest); (d) engaging with ASIC, APRA and the Australian Taxation Office (ATO) on the proposed remediation methodology and approach; (e) drafting relevant member communication documentation; and (f) engaging with third parties such as the Fund's insurance provider and administrator. 97 The formulation of the remediation methodology was complex due to the significant variation in members' specific circumstances with respect to their accounts, including their insurance status, investment choices and products over the duration of the remediation period. 98 In August 2022, AustralianSuper established the Multiple Member Accounts Remediation Steering Committee to provide strategic direction, oversight, and support for the remediation program. The Steering Committee first met on 2 September 2022, with the terms of reference requiring subsequent meetings to be held on at least a fortnightly basis. The final meeting of the Steering Committee occurred on 25 October 2023. During that time, AustralianSuper directed extensive resources towards the remediation program, including by: (a) assigning senior executives to the Steering Committee. One of those senior executives was devoted to working on the remediation program on a full-time basis from approximately July 2022 until approximately June 2023; (b) engaging external remediation specialists to advise on the proposed approach to remediation; and (c) setting up a dedicated "remediation program team" to implement the remediation program. 99 In May 2023, AustralianSuper began remediating affected members for the financial harm quantified above. The remediation program was 96.14% complete by 18 May 2023, and 98.65% complete by the end of June 2023. 100 On 12 May 2023, AustralianSuper issued a media release concerning the contravening conduct and the remediation of members. 101 By 3 July 2023, AustralianSuper issued 106,234 notification letters to affected members. 102 As at October 2023, there were: (a) 660 members eligible for remediation and from whom AustralianSuper required instructions to merge their accounts pursuant to the updated business rules; and (b) 126 members whose multiple accounts had been merged automatically in accordance with the established remediation methodology and approach but who have subsequently advised that they do not want their accounts merged. 103 At the same time as undertaking the remediation process, AustralianSuper also undertook the "business as usual" merger of multiple accounts for the financial year ending June 2023 in compliance with s 108A of the SIS Act. 104 It was agreed that AustralianSuper has comprehensively remediated affected members through its remediation program by restoring affected members to the position they would have been in had AustralianSuper established rules in accordance with s 108A and complied with those rules from 1 July 2013. AustralianSuper has remediated affected members for the losses that were incurred through multiple administration fees, insurance premiums and lost investment earnings on those amounts from 1 July 2013 until 31 March 2023. A breakdown of the remediation is set out in the following table: No. of affected members $ remediation amounts Administration fees Insurance premiums Investment earnings compensation Total 90,788 $24,678,685.17 $20,107,149.66 $24,176,519.41 $68,962,354.24
OTHER CORRECTIVE ACTION 105 In October 2020, AustralianSuper commenced a detailed review of its incident management processes. Subsequently, in March 2021 AustralianSuper determined it would take a number of actions to address deficiencies identified in the Fund's management of incidents, including enhancing the incident and breach reporting policy to include required reporting to the Board, Board Committees and executives. The actions were tracked and were marked as having been completed by 29 September 2021. 106 In 2021, AustralianSuper undertook an assessment of the Fund's response to regulatory change. As part of this review, the Fund identified that while there was a process to identify and triage new regulatory changes across the Fund, there were no mechanisms in place to authorise ongoing monitoring of regulatory changes. 107 In late 2021, AustralianSuper implemented a "Regulatory Change Forum". The Chair of the Regulatory Change Forum is accountable (amongst other matters) for determining regulatory change impacts, overseeing the progress of regulatory change implementation, and escalating issues to the accountable executive or Chief Risk Officer as appropriate. The Regulatory Change Forum is required to meet at least monthly, and the Chair of the Regulatory Change Forum presents a regular "regulatory change dashboard" to the Risk and Compliance Committee to enable it to note the status of regulatory change program delivery. 108 AustralianSuper has also updated its "project portfolio management" tool to require the project team to complete a "compliance impact assessment" for sign-off as part of future projects, which includes consideration of regulatory requirements, associated obligations, controls and business rules. 109 The establishment of IRGs and the BRP has reduced the vulnerability of AustralianSuper to human errors in incident assessment through increased oversight of the incident assessment process. 110 AustralianSuper now also requires reporting on ageing incidents to the Member and Employer Services Committee (a subcommittee of the Board) and to the Chief Operating Officer. In addition, and although not a formally documented requirement, Group Risk regularly presents an incident management dashboard (including details of ageing incidents) at meetings of the Board, the Risk and Compliance Committee (another subcommittee of the Board) and Executive Committee. Group Risk also presents a paper on the management of incidents at each Risk and Compliance Committee and Executive Committee meeting. The regular reporting of ageing incidents is intended to improve the oversight and monitoring of incidents by the Board and senior executives within the Fund. 111 On 20 June 2022, AustralianSuper amended its business rules such that those rules were, on and from 20 June 2022, compliant with s 108A of the SIS Act. The business rules in relation to the dual and duplicate account processes were amended in June 2023, with those amendments having been reviewed by AustralianSuper's internal and external lawyers. The amendments to the dual account process included removing the requirement that the secondary (and other) account(s) be more than 12 months old; inserting a requirement that dual members will be identified yearly on 31 March, unless an alternative date is agreed (provided that such date must be within a year of the previous identification process); and inserting tables identifying the circumstances in which it would be in a member's best interests to automatically merge their accounts and other circumstances in which AustralianSuper will be unable to form a reasonable belief that it is in a member's best interests to do so. 112 Since 26 September 2021, all material business rule amendments have been required to be reviewed by compliance personnel prior to being provided to the Fund's administrator.
CO-OPERATION WITH REGULATORY AGENCIES 113 AustralianSuper provided genuine co‑operation with ASIC during its investigation, including by: (a) providing ASIC with a copy of its root cause analysis, which was prepared by AustralianSuper's external lawyers (and in so doing, waived any claim for privilege it might have had in respect of that report). The provision of the root cause analysis report, including the production of contemporaneous documents referred to therein, assisted ASIC to complete its investigation faster than it otherwise would have. (b) providing ASIC with file notes of interviews of AustralianSuper staff conducted by AustralianSuper's external lawyers for the purposes of preparing the root case analysis. The provision of the file notes to ASIC reduced the number of examinations that ASIC was required to conduct. (c) engaging constructively with ASIC in relation to several voluntary requests for information and documents, which shortened the length of ASIC's investigation. 114 AustralianSuper also provided genuine co‑operation with ASIC during the course of the proceeding, in particular by indicating at the earliest opportunity (in its Concise Statement in Response) that it did "not controvert" that it contravened ss 912A(1)(a) and 912A(5A) of the Corporations Act in respect of conduct between March 2019 and May 2023 and ss 52(2)(b) and (c) and 54B(1) of the SIS Act in respect of conduct between April 2019 and May 2023, and cooperating with ASIC to agree a detailed SAFA and detailed SSAFA.
Section 108A 115 With effect from 1 July 2013, s 108A of the SIS Act provides: (1) Each trustee of a superannuation entity (other than the trustee of a pooled superannuation trust or a self managed superannuation fund) must ensure that rules are established, which: (a) set out a procedure for identifying when a member of the superannuation entity has more than one superannuation account in the superannuation entity; and (b) require the trustee to carry out the procedure to identify such members at least once each financial year; and … 116 As a registrable superannuation entity, it is a condition on AustralianSuper's registrable superannuation entity licence to ensure that the rules required by s 108A to be established are complied with: s 29E(6E) of the SIS Act.
Section 52(2)(b) of the SIS Act 117 At all relevant times, ss 52(1), 52(2)(b) and 52(3) of the SIS Act provided: Governing rules taken to contain covenants (1) If the governing rules of a registrable superannuation entity do not contain covenants to the effect of the covenants set out in this section, those governing rules are taken to contain covenants to that effect. … General covenants (2) The covenants referred to in subsection (1) include the following covenants by each trustee of the entity: … (b) to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as a prudent superannuation trustee would exercise in relation to an entity of which it is trustee and on behalf of the beneficiaries of which it makes investments; … Superannuation trustee (3) In paragraph (2)(b), a superannuation trustee is a person whose profession, business or employment is or includes acting as a trustee of superannuation entity and investing money on behalf of beneficiaries of the superannuation entity. 118 Since 6 April 2019, s 54B(1) of the SIS Act has provided that a person must not contravene a covenant that is to the effect of a covenant set out in s 52 and is contained (or taken to be contained) in the governing rules of superannuation entity. Section 54B(3) makes s 54B(1) a civil penalty provision. 119 The "prudent superannuation trustee" standard was introduced into the s 52(2)(b) covenant with effect from 1 July 2013, as a heightening of the "ordinary prudent person" standard that had previously been expressed in s 52(2)(b): Explanatory Memorandum, Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 (Cth) [1.46], [1.61]-[1.65]. As set out in the parties' joint submissions, the heightened standard was introduced to bring superannuation trustees into line with the existing State and Territory legislation applying to professional trustees. But, unlike those obligations under State and Territory legislation, the s 52(2)(b) deemed covenant: (a) applies to all the acts and decisions of a superannuation trustee, and not only in relation to its investment activities; and (b) overrides, rather than being subordinate to, any inconsistent express covenant: s 7 of the SIS Act. 120 It was not disputed that the covenant does not convert a superannuation trustee into a surety of no loss, nor does it impose strict liability. It was not disputed that the question of whether a superannuation trustee has breached the s 52(2)(b) covenant is always to be answered with regard to the particular circumstances of the alleged breach. It was also accepted by the parties that the question must be determined "prospectively rather than with the benefit of hindsight": Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; 138 ACSR 459 at [38] (Jagot J). This second proposition seeks to capture the statement of the High Court in Elder's Trustee & Executor Co Ltd v Higgins [1963] HCA 48; 113 CLR 426 at 448 (Dixon CJ, McTiernan and Windeyer JJ): In considering whether the trustee duly performed its duty we must take our stand at the end of 1944 or in January 1945, and look at the position as it would then have appeared to a prudent man acting as trustee of the testator's estate. We are not to judge what the trustee then did or failed to do by the light of later events that could not then have been surely foreseen. 121 The trust deed that governs the Fund does not contain express covenants in the form of those in s 52(2)(b) of the SIS Act. Clauses 1.1 and 1.2 provide that the trust deed is to be read and construed on the basis that the "relevant requirements" are incorporated into the trust deed to the extent that they apply to the Fund, and that those relevant requirements shall prevail in the event of any conflict with an express provision of the trust deed. The "relevant requirements" include any standard, covenant or other requirement imposed on AustralianSuper as trustee. 122 AustralianSuper admits that between 6 April 2019 and 11 May 2023, in failing promptly to identify and merge each affected member's multiple accounts and / or in failing promptly to remediate each affected member, it did not exercise the degree of care, skill and diligence in relation to that member that it was required to exercise under the s 52(2)(b) deemed covenant. As explained below, the admission is supported by the summary of contravening conduct set out above.
Section 52(2)(c) of the SIS Act 123 At all relevant times until 30 June 2021, s 52(2)(c) of the SIS Act provided that: (2) The covenants referred to in subsection (1) include the following covenants by each trustee of the entity: …. (c) to perform the trustee's duties and exercise the trustee's powers in the best interests of the beneficiaries. 124 From 1 July 2021, that deemed covenant was amended to require the trustee to perform its duties and exercise its powers "in the best financial interests of the beneficiaries". The purpose of that amendment was to clarify that the financial interests, and not the non-financial interests, of beneficiaries must be the determinative factor for trustee decision-making, in order to comply with the trustee's obligations. 125 The parties accepted that on the facts of this case, nothing turns on the difference between the "best interests" and the "best financial interests". AustralianSuper did not seek to justify its failures promptly to identify and merge multiple accounts, and promptly to remediate affected members, on the basis of some non-financial interest of the affected members. 126 To determine whether there has been a breach of the s 52(2)(c) covenant on the facts of any specific case, it is first necessary to identify what powers and duties the trustee exercised (or failed to exercise). 127 It was agreed that the relevant powers and duties of AustralianSuper in the present case include: (a) its power under the trust deed to make and amend the business rules of the Fund, coupled with its statutory obligations to establish rules as required by s 108A and then to comply with those rules; (b) its power under the trust deed to establish sub-accounts to distinguish between different members; (c) its power under the trust deed to deduct administration expenses and insurance costs from "section accounts"; (d) its general power under the trust deed to do all things necessary, desirable or expedient for the proper application, administration, maintenance and preservation of the Fund or any part of the Fund, subject to the "relevant requirements"; and (e) its general power under the trust deed to do all things as in the opinion of the trustee are necessary in order to comply with or satisfy any "relevant requirements", which includes s 108A of the SIS Act. 128 AustralianSuper failed to establish business rules that complied with s 108A prior to 20 June 2022. Notwithstanding that its business rules did not contain the rules required by s 108A, at all times since 1 July 2013 AustralianSuper had the power (and was subject to an obligation) to merge a member's multiple accounts where it reasonably believed that to do so was in the member's best interests because: (a) s 108A required AustralianSuper to ensure that such rules were established, and s 29E(6E) obliged AustralianSuper to ensure that it complied with the rules that s 108A required it to establish; (b) that obligation to comply with the rules it was required to establish was a "relevant requirement" within the meaning of the trust deed; and (c) the trust deed was therefore to be read and construed on the basis that the rules required by s 108A, and the s 29E(6E) obligation to comply with those rules, were incorporated into the trust deed. 129 Both ss 52(2)(c) and 108A of the SIS Act are in furtherance of the protection of the interests of members: (a) as a consequence of s 108A, AustralianSuper was required to have, and comply with, rules that required the trustee to merge member accounts, if the trustee reasonably believed that to do so was "in the best interests of the member"; and (b) the s 52(2)(c) deemed covenant required AustralianSuper to perform its duties and exercise its powers "in the best [financial] interests of the beneficiaries". 130 AustralianSuper admits that in failing promptly to identify and merge each affected member's multiple accounts and in failing promptly to remediate each affected member, it did not perform its duties and exercise its powers: (a) in the best interests of that beneficiary, between 6 April 2019 and 30 June 2021; and (b) in the best financial interests of that beneficiary, between 1 July 2021 and 11 May 2023. 131 This admission is supported by the summary of contravening conduct set out above.
Each of the ss 52(2)(b) and (c) covenants was breached once for each affected member 132 The parties contend that, by AustralianSuper's: (a) failure promptly to identify and merge the accounts of 42,551 affected members who had multiple accounts in the Fund on or after 6 April 2019; and / or (b) failure promptly to remediate 90,788 affected members, AustralianSuper committed a separate breach of each ss 52(2)(b) and (c) deemed covenant in respect of each affected member. 133 The parties contend, in relation to s 52(2)(c), that the trustee's powers to merge an affected member's multiple accounts, and to pay remediation to an affected member, are powers exercisable in respect of each member individually. It follows that AustralianSuper breached the s 52(2)(c) covenant by its failure promptly to merge the accounts of, and to remediate, each member individually. 134 That contention is accepted. It results in a harmonious reading of ss 108A and 52(2) and recognises that the powers to merge accounts under the trust deed were exercisable in respect of each beneficiary individually. Recognising a contravention in respect of each individual member who is affected by the conduct concerning member accounts results in a greater penalty the more affected members there are of a fund. In so far as the covenant in s 52(2)(c) required the trustee to act in the best interests of members when deciding whether to merge accounts, that covenant is being applied to a decision that affects each individual member and requires the trustee to act in the best interests of that particular member. In breaching that covenant, the trustee failed to advance the interests of each affected member. 135 In relation to s 52(2)(b), the parties contend that "the key textual integer is that the trustee must exercise care, skill and diligence 'in relation to all matters affecting the entity'". Where a trustee's powers are to be exercised in respect of each member individually, each discrete exercise (or non-exercise) of the powers is a "matter" affecting the registrable superannuation entity (that is, the Fund). Such a construction promotes the protective object of s 52(2)(b). 136 As civil penalty provisions, ss 52(2)(b) and (c) are intended to secure a public protective purpose by ensuring that wrongdoers, and would-be wrongdoers, are adequately deterred: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; 274 CLR 450 at [15]-[18] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ). As the parties submitted, this requires putting a price on contraventions that is sufficiently high to ensure that the penalty cannot be seen as an acceptable cost of doing business, and that contraventions will be seen as an economically irrational choice: Pattinson at [17] and [66]. It may therefore be inferred that Parliament intended to provide for penalties of sufficient value to deter a wide range of contraventions in relation to funds of different sizes. As set out above, recognising a contravention in respect of each individual member who is affected by the relevant conduct results in a greater penalty the more affected members there are of a fund. If the maximum penalty were capped by construing the provisions as providing for only a single breach, the maximum penalty for a breach of s 52(2)(b) (in this case, $504,000 to $660,000) might fail to have the necessary deterrent effect in respect of a breach by a large superannuation trustee affecting tens of thousands of members. Parliament can be fairly taken to have not intended such a result. 137 I am satisfied that the forms of declarations 1 and 2 proposed by the parties (extracted at [150]) reflect the enumeration of the breaches of ss 52(2)(b) and (c). I am satisfied that it is appropriate for relief to have been agreed on the basis that there was a separate breach for each affected member.
Section 912A(1)(a) of the Corporations Act 138 Section 912A(1)(a), within Ch 7 of the Corporations Act, requires a financial licensee to do all things necessary to ensure the financial services covered by its license are provided efficiently, honestly and fairly. Since 13 March 2019, a breach of s 912A(1)(a) is a contravention of s 912A(5A), which is a civil penalty provision (s 1317E(3) of the Corporations Act) in respect of which the Court can make a pecuniary penalty order (s 1317G of the Corporations Act). 139 AustralianSuper has been licensed to provide the following categories of financial services: (a) providing financial services advice for superannuation, at all times since 13 March 2019; (b) dealing in a financial product, namely superannuation, including by varying or disposing of superannuation on behalf of another person, at all times since 13 March 2019; and (c) providing a superannuation trustee service to retail clients, since 23 August 2021. 140 The phrase "efficiently, honestly and fairly" in the context of s 912A of the Corporations Act was considered by Beach J in Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) [2020] FCA 208; 275 FCR 57 at [506]-[515], where his Honour made the following observations: [506] First, the words "efficiently, honestly and fairly" are to be read as a compendious indication requiring a licensee to go 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. [507] Second, the words "efficiently, honestly and fairly" connote a requirement of competence in providing advice and in complying with relevant statutory obligations. 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. I have emphasised here the notion of connotation rather than denotation to make the obvious point that the boundaries and content of the phrase or its various elements are incapable of clear or exhaustive definition. [508] Third, the word "efficient" refers to a person who performs [their] duties efficiently, meaning the person is adequate in performance, produces the desired effect, is capable, competent and adequate. 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. [509] Fourth, it is not necessary to establish dishonesty in the criminal sense. The word "honestly" may comprehend conduct which is not criminal but which is morally wrong in a commercial sense. [510] Fifth, 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. 141 Although some have expressed views to the contrary (see, for example, Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187; 272 FCR 170 at [426] (O'Bryan J)), the predominantly prevailing view is that the words "efficiently, honestly and fairly" are to be read compendiously. The parties were agreed that it is unnecessary to resolve that issue for the purposes of this case. 142 Because the obligation to provide financial services efficiently, honestly and fairly may not correspond with, but may overlap with, a licensee's other legal obligations, a breach of s 912A(1)(a) of the Corporations Act may, but need not, overlap with a breach of a licensee's s 912A(1)(c) obligation to comply with other financial services laws (including the SIS Act). Section 912A(1)(c) is not a civil penalty provision. 143 The mere fact that errors occur does not mean the standard imposed by s 912A(1)(c) is breached. Section 912A(1)(a) does not impose a standard of absolute perfection; it imposes a reasonable standard of performance: Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1422 at [152] (Downes J). Section 912A(1)(a) is concerned with a forward looking obligation being the taking of steps to achieve compliance ("to do all things necessary to ensure") with the statutory norm before any specific instance of non-compliance has arisen: Commonwealth Bank of Australia at [156]. 144 Section 912A(1)(a) requires the identification of the "things" that it was necessary for the licensee to do, but which it omitted to do. AustralianSuper's contraventions of the provision arise from the distinct "things" that it did not do to ensure that it provided financial services to its members efficiently, honestly and fairly. 145 I am satisfied that declaration 3 (extracted at [160]) identifies three discrete things that AustralianSuper failed to do, each of which it was necessary for AustralianSuper to do to ensure that it provided financial services efficiently, honestly and fairly - namely: (a) between 13 March 2019 and 20 June 2022, failing to establish rules which set out a procedure to identify and merge multiple accounts in accordance with s 108A of the SIS Act. This breach overlaps with the breach of s 108A of the SIS Act; (b) between 13 March 2019 and 11 May 2023, failing promptly to identify and merge members' multiple accounts in the way that those rules would have required. As explained further below, the breach of s 912A(1)(a) occurred not because of a failure to identify and merge every multiple account but because AustralianSuper failed to have in place a system that was capable of promptly identifying and merging members' multiple accounts in a manner that would give effect to AustralianSuper's legal obligations. To the extent that AustralianSuper had systems in place, they were deficient and AustralianSuper implemented no steps to address deficiencies that staff had flagged prior to November 2018; and (c) between 13 March 2019 and 11 May 2023, failing promptly to remediate the affected members. As explained further below, the breach of s 912A(1)(a) occurred not because of a failure to promptly remediate every last affected member but because AustralianSuper failed to have in place a system that was capable of promptly remediating affected members. 146 Each of these failures involves qualitatively different conduct which supports three distinct contraventions of s 912A(1)(a) of the Corporations Act.
PROPER APPROACH TO AGREED RELIEF 147 As the High Court recognised in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 at [58] (French CJ, Kiefel, Bell, Nettle and Gordon JJ): Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty. 148 The same principle has been applied to agreed proposals for other forms of relief: see for example, Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [70] (Gordon J). A Court will not refuse to give effect to an agreed position by refusing to make orders where they are within the Court's jurisdiction and are otherwise unobjectionable. The relevant principles were summarised by Gordon J in Coles Supermarkets at [70]-[73] as follows: (1) There is a well-recognised public interest in the settlement of cases. (2) The orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it. (3) When deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate. (4) Once the Court is satisfied that the orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement. (5) In deciding whether agreed orders conform with legal principle, the Court is entitled to treat the consent of the defendant as an admission of all facts necessary or appropriate to the granting of the relief sought against it. 149 In relation to the quantum of pecuniary penalties, the High Court observed in Fair Work Building Industry at [57] that the Court should be satisfied that the penalty proposed by the parties is "an appropriate" remedy in the circumstances. There is no single appropriate penalty. The agreed penalty need not equate to the penalty amount the Court may have been disposed to select; it is sufficient if the agreed penalty is within a range the Court considers appropriate: Fair Work Building Industry at [47].
SIS Act contraventions 150 The parties jointly seek the following declaratory relief from the Court in relation to the contraventions of the covenants in ss 52(2)(b) and 52(2)(c):
Corporations Act contraventions 160 The parties jointly seek the following declaratory relief from the Court in relation to the contraventions of s 912A of the Corporations Act: 3. By each of the following failures: (a) between 13 March 2019 and 20 June 2022, failing to establish rules which set out a procedure to identify and merge multiple accounts of members in accordance with s 108A of the SIS Act; (b) between 13 March 2019 and 11 May 2023, failing promptly to identify and merge beneficiaries' multiple accounts in the way that such rules would have required; and (c) between 13 March 2019 and 11 May 2023, failing promptly to remediate those beneficiaries, AustralianSuper did not do all things necessary to ensure that financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly, and thereby contravened ss 912A(1)(a) and 912A(5A) of the Corporations Act. 161 At all relevant times, s 1317E of the Corporations Act provided: (1) If a Court is satisfied that a person has contravened a civil penalty provision, it must make a declaration of contravention. (2) The declaration must specify the following: (a) the Court that made the declaration; (b) the civil penalty provision that was contravened; (c) the person who contravened the provision; (d) the conduct that constituted the contravention; … 162 From 13 March 2019, s 912A(5A) has provided that a contravention of s 912A(1)(a) is a contravention of s 912A(5A). Section 912A(5A) is a civil penalty provision. 163 Section 1657 of the Corporations Act is the transitional provision relating to the insertion of s 912(5A) by the enactment of Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth). It provides: Subject to this Part, the amendments made by Schedule 1 to the amending Act apply in relation to the contravention of a civil penalty provision if the conduct constituting the contravention of the provision occurs wholly on or after the commencement day. 164 It is only conduct occurring wholly on or after the commencement date which results in the contravention of s 912A(5A) and which attracts the civil penalty provision. However, the fact that contravening conduct commenced occurring prior to the commencement date and continued after the commencement date does not prevent a determination of a contravention in respect of the conduct that occurred after the commencement date. Such an outcome is consistent with the approach adopted in Australian Securities and Investments Commissioner v Westpac Banking Corporation [2022] FCA 515 at [409]-[412] (Beach J) and in Australian Securities and Investments Commission v Macquarie Bank Limited [2024] FCA 416 at [69] (Wigney J). 165 I am satisfied that these declarations should also be made. The proposed declarations relate to conduct that in fact occurred on and after 13 March 2019. The conduct has been identified and particularised with precision and the declarations indicate sufficiently how and why the relevant conduct is a contravention of the Corporations Act (see BMW Australia at [35] (Gray, Goldberg and Weinberg JJ) in the context of the Australian Consumer Law). 166 The failures described in (b) and (c) of declaration 3 are of the same kind as those the subject of the SIS Act declarations in declarations 1 and 2. The observations made above at [155]-[159] in respect of declarations 1 and 2 apply with equal force in relation to s 912A of the Corporations Act. 167 The first failure in declaration 3(a) is not the subject of a separate SIS Act declaration because s 108A is not a civil penalty provision under the SIS Act. As explained above, the failure to comply with that requirement in the SIS Act was at least part of the cause of the failures described in declarations 3(b) and 3(c). The failure to comply with s 108A was the result of a lack of systems within AustralianSuper which made identifiable individuals responsible for the identification and implementation of business rule changes necessary to meet legislative requirements. 168 It is not necessary for ASIC to establish dishonesty on the part of AustralianSuper in order to demonstrate that AustralianSuper did not act "efficiently, honestly and fairly": AGM Markets at [509] (Beach J). The failure on the part of AustralianSuper to establish rules in compliance with a legislative requirement imposed by the legislative regime governing superannuation was not consistent with the requirement of competence embedded in the "efficiently, honestly and fairly" standard when applied to the trustee of Australia's largest superannuation fund. Inefficiency is demonstrated in the present case because AustralianSuper's failure to establish rules as expressly required by the SIS Act fell far short of a reasonable standard of performance that the public is entitled to expect of a trustee of Australia's largest superannuation fund. 169 It is not surprising that a failure to comply with s 108A of the SIS Act should overlap with a breach of s 912A of the Corporations Act given that s 108A of the SIS Act was enacted to ensure that trustees of superannuation funds establish rules to promote the interests of beneficiaries in relation to multiple accounts. In those circumstances, it may be expected that a breach of s 912A would not be consistent with a trustee doing all things necessary to ensure that it acts "efficiently, honestly and fairly" in the performance of its duties as the provider of superannuation services.
PECUNIARY PENALTIES 170 Sections 196(3) and (4) of the SIS Act provide: (3) The Court may also make against the person an order that the person pay to the Commonwealth a monetary penalty of an amount specified in the order that does not exceed 2,400 penalty units. (4) The Court is not to make an order under subsection (3) unless it is satisfied that the contravention is a serious one. 171 At all relevant times, s 1317G(1)(a) of the Corporations Act provided: (1) A Court may order a person to pay to the Commonwealth a pecuniary penalty in relation to the contravention of a civil penalty provision if: (a) a declaration of contravention of the civil penalty provision by the person has been made under section 1317E; and 172 The parties jointly submit that, in the circumstances of this case, pecuniary penalties totalling $27 million are appropriate. There is some disagreement as to whether it is necessary to apportion that amount in any way. 173 I am satisfied that the agreed total pecuniary penalty is an appropriate penalty in all the circumstances, in the sense that I consider that it is within the range of possible penalties that the Court could reasonably impose in all the circumstances of the case. 174 The principles applicable to the discretion to impose pecuniary penalties have been discussed in numerous cases. The principles were summarised by Moshinsky J in Australian Competition and Consumer Commission v Trivago N.V. (No 2) [2022] FCA 417 (Trivago (No 2)) at [60]-[72] and in Australian Securities and Investments Commission v AMP Financial Planning [2022] FCA 1115 at [103]-[114]. 175 Civil penalties are imposed primarily, if not solely, for the purpose of securing deterrence. Civil penalties are not concerned with retribution, denunciation or rehabilitation: Pattinson at [15]-[16]. In furtherance of the objective of civil penalties, the penalties "must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business": Pattinson at [17]. 176 As explained above, superannuation is a pillar of Australia's retirement income system. Participation in the superannuation system is not voluntary. It is of critical public importance that members of industry superannuation funds have confidence that trustees will take steps to ensure that decisions are made and actions are taken in the best financial interests of the members and that trustees comply with their statutory obligations, both general and specific. 177 Fees and costs reduce retirement savings. Both the Productivity Commission and the Super System Review recognised multiple accounts as a source of unnecessary fees and charges (and the consequential loss of earnings on amounts paid away in those unnecessary fees and charges). As a general matter, potentially those costs are disproportionately borne by those with lower balances (generally those on lower incomes) and those who are in the system for the longest (being the young), although it was not submitted that in this case there was such a disproportionate effect. 178 Particularly having regard to the role superannuation trustees perform, the penalties in this case need to be large enough to deter other superannuation fund trustees from failing to diligently discharge their duties to act in members' best financial interests and to ensure that they provide financial services efficiently, honestly and fairly. 179 Specific measures (including s 108A of the SIS Act) were introduced to impose specific duties on trustees to establish rules and implement procedures to consolidate multiple accounts. In so doing, the legislature may be seen to have sent a strong signal as to the conduct expected of a trustee acting with the same degree of care, skill and diligence that a prudent trustee would exercise; acting in the best financial interests of the beneficiaries; and the type of "things" that are expected to be done to ensure that a trustee is providing its services "efficiently, honestly and fairly". 180 AustralianSuper is Australia's largest industry superannuation fund. It is inexcusable for it to not have had processes and systems in place to ensure compliance with a specific legislative requirement (such as s 108A of the SIS Act) imposed expressly and directly on trustees of superannuation funds. Its systems also failed to ensure that repeated human errors in relation to the failure to merge the multiple accounts were prevented or promptly identified and corrected. 181 AustralianSuper's failures to comply with s 108A for almost nine years after the section came into effect, to identify its non-compliance and to take steps to remedy that non-compliance were systemic failings and as explained above, were the result of failing to have appropriate systems and processes in place. The failures should not have happened. The failures are serious and highly concerning. 182 Failures of this kind involving a failure to have processes and procedures in place to make individuals responsible and accountable for ensuring regulatory obligations are complied with warrant substantial penalties. A failure to put in place systems and processes to ensure duties are performed efficiently, honestly and fairly and that trustees act in the best financial interests of the members cannot be regarded as a commercially acceptable option. Setting up such processes and systems is not a cost to be weighed against a benefit (whether in the form of some cost or time saving or otherwise). A civil penalty cannot be regarded in this context as merely a cost of doing business: Pattinson at [17]. 183 I am satisfied that AustralianSuper is unlikely to engage in this contravention again given the remedial action it has taken and its acceptance of its wrongdoing. The emphasis of the civil penalty in this case is on general deterrence. To the extent that there is a need for specific deterrence it is in conveying the message to AustralianSuper that acting in the best financial interests of members is not a slogan; it is a legal obligation and within that organisation cannot be regarded by individuals as someone else's responsibility.
Maximum penalties 184 A relevant factor is the statutory maximum penalty. That maximum is but one yardstick: Pattinson at [53]-[54]. 185 The maximum penalty for a contravention of a civil penalty provision in the SIS Act is 2,400 penalty units. The value of a penalty unit increased over the penalty period as follows: (a) from 1 July 2017 to 30 June 2020: $210; (b) from 1 July 2020 to 31 December 2022: $222; and (c) from 1 January 2023 to 30 June 2023: $275. 186 Over the relevant period, the maximum penalty for a single contravention of the s 52(2)(b) or (c) deemed covenants therefore ranged from $504,000 to $660,000. 187 As declarations 1 and 2 recognise, AustralianSuper committed a separate breach of each of the ss 52(2)(b) and (c) deemed covenants in respect of each member: that is, 90,788 breaches of each of ss 52(2)(b) and (c). In cases involving a very large number of contraventions, calculating a maximum aggregate penalty by reference to such a number may be unhelpful because it raises an aggregate maximum penalty to a number well beyond what this Court would ever impose: AMP Financial Planning at [108] (Moshinsky J); Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 at [18] and [82] (Allsop CJ); Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; 254 FCR 68 at [143] (Dowsett, Greenwood and Wigney JJ). 188 For the breaches of ss 912A(1)(a) and 912A(5A) of the Corporations Act, under s 1317G(4) of the Corporations Act the maximum pecuniary penalty for a contravention of a civil penalty provision by a body corporate has, at all relevant times, been the greatest of: (a) 50,000 penalty units; (b) if the Court can determine the benefit derived and detriment avoided because of the contravention - that amount multiplied by 3; and (c) either: (i) 10% of the annual turnover of the body corporate for the 12-month period ending at the end of the month in which the body corporate contravened, or began to contravene, the civil penalty provision; or (ii) if the amount worked out under subparagraph (i) is greater than an amount equal to 2.5 million penalty units - 2.5 million penalty units. 189 It is not possible to quantify the benefit derived or detriment avoided by AustralianSuper's contravening conduct. AustralianSuper did not derive a benefit in the form of a profit for itself or its shareholders. The detriment it avoided was in the form of the time and costs of establishing rules required by s 108A of the SIS Act, processes and systems to ensure compliance with those rules and promptly remediating members affected by non-compliance. The costs of establishing the requisite processes and systems has not been quantified. The Court cannot determine on a quantified basis the detriment avoided. 190 AustralianSuper's turnover for the 12-month period ending on 31 March 2019 was $467 million. Taking 10% of that turnover results in a maximum penalty of $46.7 million per contravention. As the declarations recognise three contraventions of s 912A(1)(a) of the Corporations Act as a result of three different failures, the total maximum penalty is $140.1 million.
Multiple contraventions 191 There are a large number of admitted contraventions of ss 52(2)(b) and (c) of the SIS Act (consisting of separate admitted contraventions for each affected member) and s 912A(1)(a) of the Corporations Act (consisting of three separate contraventions). Because discrete conduct gave rise to multiple contraventions, three principles are relevant to consider. 192 First, it is not appropriate to impose separate penalties for the same wrongful act. This principle is engaged where the conduct to be penalised under two provisions is the same conduct (see Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation [2020] FCA 1538; 148 ACSR 247 (CEO of AUSTRAC) at [62] (Beach J)). As explained further below, in this case, it is not appropriate to impose penalties for both the SIS Act contraventions and the Corporations Act contraventions to the extent that those contraventions are constituted by the same conduct. Although there is no provision before me that has the same form as s 224(4) of the Australian Consumer Law (as there was before the Court in Trivago (No 2) - see [59] and [114]) or s 175(6) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (as there was in CEO of AUSTRAC), to impose penalties for the breaches of ss 52(2)(b) and (c) of the SIS Act and 912A(1)(a) of the Corporations Act for the conduct described in declarations 1 and 2 and declaration 3(b) and (c) (to the extent that conduct occurred over the same period of time) would be to penalise the same conduct twice over. So much is consistent with the approach of Beach J in Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 4) [2020] FCA 1499; 148 ACSR 511 (AGM Markets (No 4)) at [49]. 193 Second, where closely related conduct has given rise to multiple contraventions, the course of conduct principle is a useful tool in the determination of appropriate civil penalties. As the Full Court said in ACCC v Cement Australia Pty Ltd [2017] FCAFC 159; 258 FCR 312 at [424] (Middleton, Beach and Moshinsky JJ): As we have already indicated, the principal object of the penalties imposed by s 76 of the [Trade Practices Act 1974 (Cth)] is that of specific and general deterrence. With this in mind, in a civil penalty context, the course of conduct principle can be conceived of as a recognition by the courts that the deterrent effect in respect of a civil penalty (at both a specific and general level) is measured by reference to the nature of the conduct for which it is imposed. It is therefore of paramount importance to identify whether multiple contraventions constitute a single course of conduct or separate instances of conduct, so as to ensure that an appropriate deterrent effect is achieved by the imposition of the penalty or penalties in respect of that particular conduct. 194 The course of conduct principle does not convert multiple contraventions into a single contravention and it does not follow that the application of the principle results in the maximum penalty for the course of conduct being limited to the maximum penalty for a single contravention: ASIC v Murray Goulburn Co-operative Co Ltd [2018] FCA 1964 at [29] (Beach J). It is a tool to assist in arriving at an appropriate penalty. 195 The course of conduct principle may be engaged where there is an interrelationship between the factual and legal elements of two or more contraventions: AGM Markets (No 4) at [50]. The question of whether multiple contraventions should be treated as being a single course of conduct is a factual inquiry. 196 Third, the totality principle may also apply where legally distinct contraventions involve overlap in wrongdoing. The totality principle requires the Court to review the aggregate penalty to ensure it is just and appropriate: CEO of AUSTRAC at [69]. The principle is intended to ensure that the cumulative penalty is appropriate having regard to the nature, quality and circumstances of the conduct involved.
Application of the principles relevant to multiple contraventions 197 Although the parties were agreed that it was not appropriate to penalise the same conduct twice under the first principle, the parties were not agreed as to the approach to be taken to the application of the course of conduct principle in the present case. 198 AustralianSuper accepted that it engaged in three courses of conduct: (a) failing to establish rules required by s 108A of the SIS Act to identify and merge multiple accounts; (b) failing to promptly identify and merge multiple accounts in accordance with a procedure that complied with s 108A of the SIS Act; and (c) failing to promptly remediate members whose multiple accounts were not merged as required by s 108A of the SIS Act. 199 AustralianSuper submitted that the course of conduct principle is a tool of analysis to reach the final appropriate penalty. It does not require that a separate penalty be assigned to each course of conduct where there has been no agreement as to the basis on which such an assignment might occur. 200 ASIC submitted that the course of conduct principle ought to be applied by reference to the affected groups of members. Thus: (1) The first course of conduct relates to the members for whom AustralianSuper failed to both promptly identify and merge the member accounts and failed to promptly remediate. (This is the subject of declaration 1.) (2) The second course of conduct relates to the members who ceased to have active multiple accounts prior to 6 April 2019 but whom AustralianSuper failed to remediate promptly after that date. (This is the subject of declaration 2.) (3) The third course of conduct is not directed to a group of members but is directed to AustralianSuper's failure to establish rules in compliance with s 108A of the SIS Act. (This is the subject of declaration 3.) 201 ASIC agreed that where the same conduct constituted separate breaches of different provisions, it was appropriate to penalise that conduct once. ASIC accepted that it was not appropriate to penalise the conduct the subject of declarations 3(b) and 3(c) because those breaches arise from the same conduct as the breaches of the SIS Act identified in declarations (1) and (2). 202 Having regard to the facts agreed between the parties and the admissions of AustralianSuper, it is difficult to group the contraventions by reference to the form of the proposed declarations for the purposes of applying the course of conduct principle. The course of conduct principle is concerned with conduct. The declarations do not in my view provide a clear demarcation between courses of conduct. Whilst I accept that there are three courses of conduct, the declarations are not framed by reference to those three courses of conduct. Declarations (1) and (2) are framed by reference to the effect on members. To distinguish courses of conduct based on the consequences of the conduct rather than the actions or inactions of AustralianSuper does not appear to me to be appropriate. The conduct the subject of declarations (1) and (2) overlap, at least to the extent that both concern a failure to remediate. There was a group of members affected by two courses of conduct and a group of members only affected by one course of conduct. Declarations (3)(b) and (c) overlap with, but do not mirror, declarations (1) an (2). 203 In the circumstances in Trivago (No 2), Moshinsky J considered "it appropriate to determine a separate penalty for each relevant sub-period (rather than determining a single penalty for all of the contraventions during the Relevant Period)" because: This is consistent with the structure of the Liability Judgment, which described the form of the website during each relevant sub-period… and considered whether the ACCC's case was made out separately in respect of each relevant sub-period… It is also consistent with the form of the declarations made on 28 February 2020, which comprised a separate declaration for each of the four relevant sub-periods. 204 The analysis adopted in Trivago (No 2) does not readily translate to the present circumstances. The declarations made in Trivago (No 2) reflected three distinct courses of conduct. That is not the case here. The declarations in the present case have taken the form they have because the penalty period is part of a longer period during which the conduct was engaged, even though that conduct did not amount to contravening conduct subject to a civil penalty over that broader period. The declarations are based on the different consequences of the conduct rather than the conduct itself. I do not consider it appropriate to determine a separate penalty by reference to the form of the separate declarations. 205 ASIC referred to Cement Australia in support of its contention that separate penalty amounts be attributed to each of the declarations. In that case, the Full Court considered that the primary judge had erred in characterising the making of, and giving effect to, one particular contract as a single course of conduct. At [431]-[432], the Court stated: We consider that the course of conduct principle must be informed by the particular legislative provisions relevant to these proceedings. In particular, we consider that weight must be given to the fact that the legislature has deliberately and explicitly created separate contraventions for each of the making of, and giving effect to, a contract, arrangement or understanding that restricts dealings or affects competition: ss 45(2)(a) and 45(2)(b). This statutory structure is relevant because it will often be the case that the making of, and giving effect to, a contract, arrangement or understanding will involve overlapping or homogenous conduct. The Court should be wary that it does not undermine this explicit distinction by applying the course of conduct principle too liberally in such circumstances. 206 It is important to understand the context in which that observation was made. The primary judge had drawn a distinction in respect of one contract by applying the course of conduct principle in respect of the making of and giving effect to that contract but not applying that principle in respect of the making of and giving effect to other contracts. The Full Court was not satisfied that the making of, and giving effect to the contract in that case could be justified as constituting a single course of conduct. The Court reasoned at [435]-[439]: [435] However, as we read the primary judge's judgment, the basis for the different treatment is that entering into the Amended Millmerran Contract on 28 July 2004 had no effect on competition, and the respondents obtained no benefit by giving effect to it, given that any effect on competition had dissipated by 31 December 2003. That appears to be the basis upon which his Honour analysed it as, in effect, one course of conduct. [436] We do not consider that the ultimate consequence of the giving effect to the contract provides any justification for treating that as a single course of conduct with the making of that contract. It does not point to any significant interrelationship between the legal and factual elements of the two contraventions. It does not relate to any link in the elements of the contraventions, or any temporal or other relevant circumstances: Royer v WA at [22]. [437] Not only is there a lack of justification for the distinction, but we consider there are compelling reasons why the primary judge erred in characterising the making of, and giving effect to, the Amended Millmerran Contract as a single course of conduct. [438] From a temporal perspective, the act of exercising the option to extend the relevant contract, and the subsequent acts needed to ensure compliance with the terms of the extended contract, were markedly separate in time. Specifically, the period in which the Amended Millmerran Contract was given effect was nine months. [439] Furthermore, this is not a case where the conduct of making, and giving effect to, a contract, arrangement or understanding was the same. It may be the case that in some circumstances, the same act may be relied upon as evidencing both the "making of" and "giving effect to" contraventions, especially in proceedings involving informal arrangements: see, eg, J McPhee at [181]. This was not such a case. The pleaded conduct was different for each contravention. 207 The present case is distinguishable for the following reasons: (1) The parties' joint submissions did not distinguish the factual circumstances surrounding each course of conduct. (2) From a temporal perspective, the contraventions of the SIS Act giving rise to the penalty occurred over the same period of time and that period overlapped almost entirely with the period over which the contravention of the Corporations Act to be penalised occurred. (3) The legal and factual elements of the contraventions of the SIS Act and the Corporations Act were significantly intertwined. It was the same systemic failings which gave rise to each of the failures identified in the three courses of conduct. The underlying conduct informing the contraventions of one provision overlaps significantly with the underlying conduct informing the other contraventions. (4) The only act which the Corporations Act may be seen to penalise by civil penalties which is not the subject of a civil penalty under the SIS Act is the failure to establish rules required by s 108A of the SIS Act. However, the Corporations Act does not create a separate express contravention for a breach of s 108A of the SIS Act. The breach of the Corporations Act was the breach of the standard of efficiently, honestly and fairly. The breach of s 108A had a consequence which resulted in financial services not being provided efficiently, honestly and fairly and was a step that was necessary to ensure that consequence did not eventuate. The breach of s 912A of the Corporations Act cannot be readily divorced from the consequences of the breach of s 108A of the SIS Act in this case. (5) In the circumstances of the present case, where the total penalty had been agreed without agreed apportionment, there seems to me to be artificiality, if not a danger, in using the agreed total penalty as a predetermined figure to be apportioned across intertwined co-terminus contraventions that were the result of systemic failures. It was not suggested by either party that the Court does not have power to impose a pecuniary penalty by reference to a global sum. Indeed, it appears to me to not be entirely consistent with the totality principle to suggest otherwise. 208 In being satisfied that the total penalty is appropriate in the present case, I have had regard to the course of conduct principle as a tool of analysis and recognised that there are three courses of conduct as identified by AustralianSuper at [198] above. 209 The application of the course of conduct principle must be tailored to the circumstances of the contraventions I am considering. Here, there were many acts of contravention affecting a very large number of consumers. To describe the conduct as involving three courses of conduct is useful in understanding the circumstances of the contraventions but is of otherwise of limited utility in the present case.
Consideration of relevant factors 210 I accept that the agreed penalty of $27 million will have the appropriate specific and general deterrence effects, taking into account the courses of conduct, the interrelated nature of the conduct and the totality principle. 211 At all relevant times, s 1317G(6)(a) to (d) of the Corporations Act has provided that: (6) In determining the pecuniary penalty, the Court must take into account all relevant matters, including: (a) the nature and extent of the contravention; and (b) the nature and extent of any loss or damage suffered because of the contravention; and (c) the circumstances in which the contravention took place; and (d) whether the person has previously been found by a court (including a court in foreign country) to have engaged in similar conduct. 212 Since 1 January 2021, s 1317G(6)(e) has provided that: (e) in the case of a contravention by the trustee of a registrable superannuation entity - the impact that the penalty under consideration would have on the beneficiaries of the entity. 213 The following factors articulated by French J in Trade Practices Commission v CSR Ltd [1991] FCA 762; ATPR ¶41-076 at 52,152-52,153 were endorsed by the High Court in Pattinson at [18] as relevant to consider in determining an appropriate penalty: The assessment of a penalty of appropriate deterrent value will have regard to a number of factors which have been canvassed in the cases. These include the following:
Nature, extent and circumstances of the contraventions 216 AustralianSuper has admitted to: (a) 90,788 contraventions of ss 52(b) and (c) of the SIS Act; and (b) three contraventions of s 912A the Corporations Act. 217 The contraventions involved a breach of the fundamental duties and obligations AustralianSuper owed to its members. As the parties jointly submitted, the scale and importance of superannuation in Australia makes it imperative that trustees have the proper and effective systems in place to ensure compliance with laws that are directed to promoting the interests of members. As Australia's largest industry superannuation fund, compliance with those duties and obligations by AustralianSuper has particular importance. 218 That AustralianSuper failed to establish rules, and systems to give effect to those rules, in compliance with s 108A of the SIS Act is extraordinary. AustralianSuper's contraventions occurred in circumstances where there were numerous opportunities to prevent, detect and rectify the non-compliance. There were no systems in place to make individuals responsible for identifying when regulatory changes required changes to the business rules and for implementing such changes. The compliance policies and frameworks were entirely inadequate. These included inadequate incident management and breach reporting procedures. When issues of potential fundamental non-compliance were raised, they were not prioritised and were, to use the language of the parties "misdiagnosed". Issues were not escalated and senior management oversight was absent, resulting in the dereliction of a fundamental regulatory obligation intended to further the best interests of members. Under-resourcing and a failure to prioritise compliance with s 108A of the SIS Act resulted in unacceptable delays. This included subsuming the merger of multiple accounts into a larger CRN merge project. Some of the internal correspondence (such as the email from April 2015) suggested that some within AustralianSuper lost sight of the fact that AustralianSuper was required to act in the best interests of individual members when considering the merger of multiple accounts, rather than seeking to hold on to as many accounts as possible. Such correspondence is demonstrative of a lack of appreciation of the gravity of the conduct and a fundamental lack of understanding of the obligations and duties of AustralianSuper. 219 There were numerous opportunities for AustralianSuper to identify its non-compliance with s 108A of the SIS Act and to rectify it. Senior management within AustralianSuper was made aware of potential compliance issues in relation to s 108A from at least 2018. An incident report had been logged in the system and left to languish. Due to its age, the incident report was elevated to the Executive Committee in a meeting held in September 2020 and still no action was taken. AustralianSuper had made external representations which had recognised that the existence of multiple accounts was an industry problem but internally did nothing to prioritise the rectification of the issue before September 2021. 220 The contraventions were the result of systemic deficiencies extending over a long period of time. The contraventions were very serious. As a result of the unidentified and unrectified issues over such a long period, there was significant harm to members. It may be readily accepted that mistakes happen and humans err. It is not accepted that an organisation of the size of AustralianSuper, performing its functions properly, should have had such inadequate systems in place for the identification and rectification of errors for such an extended period, even making some allowance for the disruption caused by the COVID-19 pandemic. 221 The nature, extent and circumstances of the contraventions explained above demonstrate the need for a sufficient penalty to deter such conduct by reinforcing to superannuation trustees (and financial service providers more generally) the need to implement, maintain and continuously improve their compliance systems. As operators in a regulated industry, it is incumbent on trustees of superannuation funds to have systems in place which identify the changes that are required to be made to rules and systems in response to changes in the legislation and regulations which govern that industry. It is incumbent on trustees of industry superannuation funds to implement systems which ensure that as far as reasonably possible, compliance issues are identified and addressed promptly. The fact that the contraventions in this case were not deliberate does not detract from the necessity for a substantial penalty given the serious nature of the contraventions in this case.
Loss and damage caused by the contraventions 222 Between 1 July 2013 and 31 March 2023, over 90,000 members had multiple accounts that would have been merged had AustralianSuper established rules in accordance with s 108A of the SIS Act and implemented systems to give effect to those rules. The losses incurred by those members has been calculated to be approximately $69 million, as a result of the incurrence of multiple administration fees, multiple insurance premiums (for no additional insurance benefit) and lost earnings on the amounts paid for those unnecessary expenses. The estimated total loss is so high because of the length of time over which the losses were not remediated. 223 AustralianSuper has been unable to determine how much of the $69 million is referable to members whose accounts were merged after 1 July 2013 but before 13 March 2019 (and therefore were members in respect of whom the only losses during the penalty period related to loss of earnings). The losses attributable to multiple administration fees and insurance premiums for the period from 13 March 2019 and earnings lost as a result of those duplicated fees has been estimated at $12 million. 224 As explained at [235] below, the losses have been fully remediated.
Benefits to AustralianSuper and detriment avoided 225 ASIC accepted that AustralianSuper did not engage in the contravening conduct in order to make a profit. AustralianSuper is an industry fund that does not retain or distribute profits to shareholders. However, the SAFA and SSAFA demonstrate that at least some within AustralianSuper perceived a benefit to AustralianSuper in having as many accounts as possible. Particularly in light of the subsequent remediation, I accept that AustralianSuper did not profit or derive financial benefit from the contravening conduct. 226 AustralianSuper did avoid time and expense by not establishing rules in accordance with s 108A of the SIS Act and implementing procedures and systems to give effect to those rules, as well as avoiding the time and expense of promptly remediating affected members. The financial impact of the contravening conduct was that the general body of members benefitted at the expense of the affected members.
Size and resources of AustralianSuper 227 The size and financial resources of AustralianSuper are relevant in determining a civil penalty, the purpose of which is deterrence. It may be necessary to impose a larger penalty on a larger company in order to achieve deterrence. As the High Court observed in Pattinson at [60]: …it is simply undeniable that, all other things being equal, a greater financial incentive will be necessary to persuade a well-resourced contravenor to abide by the law rather than to adhere to its preferred policy than will be necessary to persuade a poorly resourced contravenor that its unlawful policy preference is unsustainable. 228 The Fund is Australia's largest industry superannuation fund with over 1.2 million members and $311 billion in total assets as at 30 June 2023. AustralianSuper has the largest market share of the industry superannuation funds in Australia. 229 As the trustee of Australia's largest superannuation fund, AustralianSuper has an important role in Australia's retirement income system and in the economy more broadly. It must be held to a high standard. A penalty must be of sufficient size to not just deter it but to deter other major industry superannuation fund trustees from engaging in contravening conduct.
Effect of penalty on members 230 Section 1317G(6)(e) of the Corporations Act requires that, in the case of a contravention by a trustee of a registrable superannuation entity, the Court take into account the impact of the penalty on the beneficiaries of the entity. AustralianSuper is the trustee of a registrable superannuation entity. 231 Although AustralianSuper is the trustee of a fund run for members, AustralianSuper maintains a "trustee risk reserve". The reserve, established by an amendment to the trust deed, does not form part of the assets of the Fund. It is funded by an annual fee payable out of the assets of the Fund in an amount determined by AustralianSuper in accordance with the trust deed. 232 To the extent that the penalty is paid from the reserve, a penalty will not affect members other than in respect of the need for future annual fees to replenish the Fund. This has the effect of spreading the impact of the penalty over the body of members over time. 233 The imposition of a pecuniary penalty in the amount of $27 million is not expected to cause a material detriment to members of the Fund. It is noted that if the Fund had been run at a profit for shareholders and thus contributed to assets owned beneficially by either AustralianSuper or its shareholders, ASIC would have sought substantially higher penalties.
Correction and remediation 234 AustralianSuper has now fully recognised and rectified the failings which led to the contraventions. It has taken corrective action to significantly reduce the prospect of like contraventions occurring in the future. 235 AustralianSuper has undertaken an extensive remediation program to ensure that affected members have been fully remediated. Between December 2021 and May 2023, AustralianSuper expended significant time identifying the period for which remediation was required; identifying the affected members; engaging external consultants with specialised skills to advise on the methodology for remediating members to put those members, as closely as possible, in the position they would have been in had their accounts been merged as required by s 108A; engaging with ASIC, APRA and the ATO; engaging with service providers such as the Fund's insurance provider and administrator; and communicating with members. The remediation process was substantially completed by the end of June 2023. 236 AustralianSuper has taken comprehensive corrective action to prevent any recurrence of its contravening conduct, including by improving its systems and processes and expanding both of its group risk and legal functions. It has implemented improvements to its obligation tracking and incident management systems and increased the resources devoted to governance and compliance. Specific changes include: (a) improving oversight and management of incidents, particularly those that are reportable or ageing; (b) establishing IRGs and a Breach Reporting Panel to ensure that reportable incidents are reported, properly escalated and addressed, and reducing the vulnerability of AustralianSuper to human errors in incident assessment; (c) introducing separate risk reports into meetings of the Executive Committee, the Risk and Compliance Committee and the Board, ensuring that Fund executives are aware of ageing incidents as they emerge, with a view to increasing pressure on relevant persons to manage and close those incidents; (d) improving AustralianSuper's Incident Management and Breach Reporting Policy, more clearly defining roles and responsibilities; and (e) significantly increasing AustralianSuper's resourcing of relevant teams (in particular the Corporate Legal and Group Risk team) in both size and skill. 237 Overall, AustralianSuper has taken meaningful steps to improve its compliance culture. Employees are not only trained in compliance, but there are consequences for breaches of the compliance policy and processes are regularly reviewed to ensure they are continuously improved. More specifically, there are compliance personnel responsible for reviewing and amending the business rules. The extent of corrective action is reflective of the fundamental inadequacies that existed at the time of the contravening conduct. 238 The remediation and corrective action taken has resulted in some reduction in the penalty. However, I am satisfied that the pecuniary penalty to be imposed is sufficient to ensure general deterrence of others who might be tempted to think contravention is an acceptable cost of doing business.
Co-operation 239 ASIC accepts that AustralianSuper's co-operation in these proceedings has been of the highest order. It has cooperated fully and openly with ASIC in its investigation and enforcement action, including by making extensive admissions and agreeing to the imposition of significant penalties and other orders. 240 During the investigation, AustralianSuper provided ASIC with a copy of its detailed root cause analysis (with contemporaneous documents prepared for, and referred to in, the root cause analysis, including file notes of interviews with AustralianSuper staff conducted by its external solicitors) which assisted ASIC to complete its investigation faster than it otherwise would have and reduced the number of examinations that ASIC would otherwise have needed to undertake. AustralianSuper also provided ASIC with documents and information in response to several voluntary requests. 241 AustralianSuper indicated at the earliest available opportunity following the commencement of the proceeding that it did "not controvert" that it contravened ss 52(2)(b) and (c) and 54B(1) of the SIS Act and ss 912A(1)(a) and 912A(5A) of the Corporations Act. AustralianSuper also voluntarily provided ASIC with further documents and information upon request and, in agreeing the detailed SAFA and SSAFA, AustralianSuper provided full co‑operation, to the extent of volunteering matters contrary to its interests and providing ASIC with documents and information to allow those admissions to be examined and agreed to by ASIC. 242 AustralianSuper agreed a penalty at a level determined by ASIC to be appropriate to achieve general and specific deterrence and did not seek to reduce its penalty. 243 ASIC indicated at the hearing that the high level of co-operation warrants a very significant reduction in the penalty it would otherwise have sought (indicating a reduction in the range of 25-40%). The co-operation has meant that public resources were not diverted or consumed. 244 Co‑operation at this level is to be encouraged. I am satisfied that this co-operation warrants substantial recognition in the scale of the penalties to be imposed and that the proposed penalty of $27 million has taken the scale of co-operation into account.
Prior contraventions of the SIS Act 245 AustralianSuper has not previously been found by a court to have engaged in any contraventions of the SIS Act or the Corporations Act. AustralianSuper is a first time contravener.
Parity with other cases 246 There is significant difficulty in comparing the penalties imposed in other cases in the context of different facts and circumstances. As Beach J observed in Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020] FCA 790 at [77]: …it is conceptually problematic to look at penalties in other cases to calibrate a figure in the present case when all that one has from the other cases are single point determinations produced by opaque intuitive synthesis. Deconvolution analysis of the single point determinations in order to work out the causative contribution of any particular factor is unrealistic. 247 I am satisfied that the penalties imposed in this case are consistent with the application of established principles. I have gained little, if any substantive assistance from other cases. From the cases to which AustralianSuper made reference (Australian Securities and Investments Commission v Australia and New Zealand Banking Group [2021] FCA 502; (2022) 164 ACSR 428; Australian Securities and Investments Commission v Aware Financial Services Australia Limited [2022] FCA 146 and Australian Securities and Investments Commission v BT Funds Management Limited [2021] FCA 844), it can be seen that where extensive remediation has been made, the application of established principles may result in a penalty that is significantly lower than the loss remediated. The outcome in other cases is otherwise of limited utility.
Conclusion on penalty 248 I am satisfied that the total penalty of $27 million is appropriate. I accept the parties' submission that the total penalty is appropriate to deter both repetition by AustralianSuper and contravention by other trustees of superannuation funds. 249 I will order that AustralianSuper pay a total pecuniary penalty of $27 million in respect of the admitted contraventions.
OTHER ORDERS 250 At all relevant times, s 1101B of the Corporations Act provided: (1) The Court may make such order, or orders, as it thinks fit if: (a) on the application of ASIC, it appears to the Court that a person: (i) has contravened a provision of this Chapters, or any other law relating to dealing in financial products or providing financial services; … 251 The parties seek an order under s 1101B(1)(a)(i) requiring AustralianSuper to display a notice (in the form set out in Annexure A to these reasons) on AustralianSuper's website, members landing page and mobile application. 252 I am satisfied that such an order should be made. I accept the submission of the parties that an order for such a notice serves two purposes: (a) it assists in achieving deterrence and representing "a condign curial response to what has occurred": Australian Securities and Investments Commission v Commonwealth Bank of Australia [2021] FCA 423 at [30] (Lee J). (b) it also "protect[s] the public interest in dispelling incorrect or false impressions created by contravening conduct, alert[ing] the consumer to the fact of contravening conduct, aid[ing] the enforcement of primary orders and prevent[ing] repetition of contravening conduct": Australian Competition and Consumer Commission v Aveling Homes Pty Ltd [2017] FCA 1470 at [59] (McKerracher J). 253 I accept that the proposed adverse publicity notice is in an appropriate form to further those purposes. 254 The parties also seek an order requiring AustralianSuper to pay ASIC's costs of and incidental to this proceeding, in a sum to be agreed not exceeding $500,000. 255 I will make an order that the costs of and incidental to this proceeding reasonably incurred by the plaintiff up to and including 8 October 2024 are to be paid by the defendant, to be assessed if not agreed, and not to exceed $500,000. I certify that the preceding two hundred and fifty-five (255) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hespe.
ANNEXURE A - PARTIES' PROPOSED PUBLICITY NOTICE The Federal Court of Australia has ordered AustralianSuper Pty Ltd (ACN 006 457 987) (AustralianSuper) to publish this notice. Following action by the Australian Securities and Investments Commissions (ASIC), on [insert], the Federal Court of Australia ordered that AustralianSuper pay total pecuniary penalties of $[insert] million to the Commonwealth for failures in handling members' multiple superannuation accounts within the AustralianSuper Fund. The Court found that AustralianSuper: between 13 March 2019 and 20 June 2022, failed to establish rules which set out a procedure to identify and merge members' multiple accounts in accordance with section 108A of the Superannuation Industry (Supervision) Act 1991 (Cth) (SIS Act); between 13 March 2019 and 11 May 2023, failed to promptly identify and merge affected members' multiple accounts in the way that the SIS Act would have required; and between 13 March 2019 and 11 May 2023, failed to promptly remediate affected members, and, by that conduct, did not: exercise, in relation to the interests of its beneficiaries, the same degree of care, skill and diligence as a prudent superannuation trustee would have exercised; perform its duties and exercise its powers in the best interests and best financial interests of its beneficiaries; and do all things necessary to ensure that financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly. Failing to merge duplicate accounts can have significant financial consequences for members including paying multiple sets of fees eroding their superannuation balance. ASIC expects that superannuation funds will put their members first and promptly address issues that cause members to face multiple sets of fees and insurance premiums. It expects these issues be identified and rectified quickly, including compensating members if a trustee has failed to comply with its obligations. AustralianSuper self-reported its conduct to regulators, admitted the contraventions and the orders of the Federal Court of Australia were made by consent. The Federal Court took into account that AustralianSuper had taken significant steps to remediate the harms caused by its failures and that it has, since identifying its misconduct, significantly uplifted its obligations and incident management systems and processes in an effort to ensure this conduct does not recur. Between May and June 2023, AustralianSuper paid approximately $69 million to 90,000 affected members as part of its remediation program in respect of losses caused by the multiple accounts issue since 1 July 2013. Further information AustralianSuper's conduct contravened the following financial services laws: sections 912A(1)(a) and 912A(5A) of the Corporations Act 2001 (Cth); and sections 52(2)(b), 52(2)(c) and 54B(1) of the Superannuation Industry (Supervision) Act 1993 (Cth). For further information about the conduct, see the following links: Justice Hespe's judgment [to be hyperlinked]; and ASIC's media release [to be hyperlinked].
Australian Securities and Investments Commission
AustralianSuper Pty Ltd
[1991] FCA 762
(2015) 327 ALR 540