Analysis
36 I will first address the mandatory considerations of s 12GBA(2) of the ASIC Act, followed by considerations of general and specific deterrence.
37 ASIC submitted that it is significant that the contraventions occurred with respect to superannuation products, and that the contraventions were committed by BT acting in its capacity as trustee, and Asgard acting in its capacity as custodian, of such products. ASIC submitted that because of the special nature of superannuation products, being a financial product of fundamental public importance, members of superannuation funds have particular pressing interests in the proper management and administration of the funds. ASIC appeared to submit that some distinguishable approach to assessing penalties should be taken in connection with superannuation products as opposed to other financial products. BT and Asgard disputed this characterisation and the emphasis placed on the relevance of the superannuation products. I prefer the approach advocated by the defendants, that s 12DB of the ASIC Act reflects a policy that all financial services providers must provide accurate information to their customers, including as to fees. In the context of the ASIC Act's proscription on false or misleading statements, the obligation does not arise in some special way in connection with superannuation products compared to other products, nor for trustees or custodians of superannuation products. Nor does the language of s 12GBA suggest as much. For this reason, labelling the financial services as the provision of superannuation products is not in itself a significant factor going to the assessment of a penalty. Rather, what is relevant are the underlying circumstances, and in this way I accept ASIC's submissions that attention should be given to the nature of the relationship between the defendants and their customers. The nature of the relationship between the defendants and their customers in relation to the superannuation products placed the defendants in a position of relative control, and the customers to whom the contravening conduct was directed were vulnerable in that they were not able to control the defendants' systems, and they were entitled to rely upon the defendants for the provision of information that was not misleading. I accept ASIC's submission that there was an asymmetry of knowledge between BT and Asgard on the one hand, and their customers on the other, and that as a result customers likely placed a high level of trust in the defendants with respect to the administration of their funds. These features of this case may arise in many other circumstances involving conduct in relation to the provision of financial products or services, and are not unique to superannuation. For instance, in relation to banks, Allsop CJ observed in Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited (No 3) [2020] FCA 1421 at [13] and [17], that the relationship between banker and customer is founded upon trust and good faith in a commercial sense in which there is a degree of customer vulnerability in dealing with banks. Furthermore, the statutory norms of conduct in s 912A of the Corporations Act, including the obligation to do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly, and fairly, are imposed on all financial services licensees.
38 I note, for completeness, that the ASIC Act now provides for specific consideration of the impact that the penalty under consideration would have on the beneficiaries of a superannuation entity where the contravention is committed by a trustee, which is a different consideration: see s 12GBB(5)(e) of the ASIC Act as currently in force; Commonwealth of Australia, House of Representatives, Explanatory Memorandum to the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 at [9.169]-[9.173], and [9.185].
39 I have had regard to the confined number of affected products, being six, and the number of customers affected, being 404, which though not insignificant, is relatively low in the context of retail financial services. The contraventions for which penalties are to be imposed occurred for approximately two and a half years without being identified, during which time four customers' accounts were, on six occasions, sold down so that the unauthorised adviser fees could be deducted. Whilst the penalties in question are for the false or misleading representations made, it is pertinent that but for the misrepresentations, customers may have been in a better position to identify the deduction of unauthorised fees and potentially avoid the sell down of their accounts. It is also relevant that, as ASIC submitted, though the total amount of overcharged fees was relatively low, the individual impact on customers was significant, as was the negative impact on consumer trust in financial services providers, including those who provide superannuation services.
40 It took close to a year from the first notification in October 2016 of the overcharging, for BT and Asgard to rectify the errors causing the contraventions. Remediation of customers was commenced some months later, in December 2017, which included notifying affected customers of the unauthorised charging of fees and compensation in the sum of the unauthorised fees that had been charged and interest. Though the conduct had the potential to expose customers to loss, following remediation undertaken by Westpac, BT and Asgard, most customers holding affected products did not suffer loss or damage, but for the small group who did not receive remediation, referred to at [22] above. Conversely, whilst Asgard initially retained the overcharged fees, following remediation neither of the defendants profited from the contraventions. The amount owing to the customers who were not the subject of remediation was applied to the fund, and thus for the benefit of all members, as distinct from the defendants.
41 It is agreed between the parties, and I accept, that the conduct giving rise to the contraventions was inadvertent, not deliberate, and the result of system errors and inadequacies. The cause of the contraventions had many strands, and the errors arose at multiple points in the totality of BT and Asgard's operations, with no adequate system in place to identify the errors. At the same time, it is relevant that the inadvertent conduct did not involve, and was not sanctioned by, senior management.
42 BT and Asgard submitted, and I accept, that neither of the defendants, nor Westpac, has been found to have previously contravened s 12DB of the ASIC Act.
43 Inadvertent system errors which have the capacity to cause undetected losses of the kind that occurred here are serious. That is particularly so when during the period relevant to this proceeding the errors went undetected for a period of over two years until one customer challenged the charging of an adviser fee. Financial services providers in the position of the defendants should not be able to take the benefits which arise from automated and offshore processes and systems, which it may be inferred contribute to substantial profits, without also undertaking the burden of ensuring that those systems work, and that they promptly identify occasions where they do not. An appropriate penalty should have the effect of deterring the defendants, and financial services providers generally, from maintaining defective systems, and conversely, providing an incentive to establish and maintain systems that are reliable.
44 ASIC submitted that a penalty should reflect the very substantial resources of Westpac. On the other hand, counsel for BT and Asgard submitted that Westpac's size is not a sensible yardstick for an appropriate penalty, nor does it warrant a higher penalty than would otherwise be imposed, especially where Westpac did not seek to take advantage of its strong financial position to pursue a course of conduct which it knew to be contrary to the ASIC Act. A number of Westpac's recent annual reports were in evidence before the court, showing a market capitalisation of $61 billion with $912 billion of total assets as at 30 September 2020 and a net profit after tax of $2.29 billion in the year ending 30 September 2020, and stronger financial results in the years prior. I consider Westpac's size and financial position relevant to both specific and general deterrence. The significance of any penalty calculated to have a deterrent effect should in this case have regard to the defendants' financial circumstances and capacity to pay.
45 It is also important to take account of the fact that Westpac made a timely disclosure of the errors to ASIC, albeit that the information initially provided to ASIC later had to be corrected in relation to some of the details. It is also relevant that remediation was undertaken, both of affected customers and the systems which led to the contraventions; that Westpac cooperated with ASIC; that liability was admitted at the earliest opportunity; and that Westpac issued an announcement to the ASX admitting the contraventions alleged by ASIC on the same day that the proceeding was commenced. In relation to this proceeding, the resources of the regulator and the court have been employed to the minimum degree necessary, thus saving public expense, and making those resources available for other purposes. I have taken these matters into account in a way favourable to the defendants in reaching a view as to appropriate penalties.
46 Though regard should normally be had to the maximum penalty, in this case that is of very limited assistance. Amongst other things, reference to the maximum penalty for each contravention would not be possible, because the number of online contraventions cannot be established. Further, having as a reference point an accumulation of maximum penalties in relation to the 487 contraventions by the production of hard copy statements would be liable to result in a distorted and therefore inappropriate response to a series of contraventions that should be addressed in their totality.
47 As I mentioned, the parties made submissions in relation to the course of conduct principle. ASIC submitted that there were two courses of conduct, namely representations made in hard copy statements, and representations made online. On the other hand, counsel for the defendants submitted that there is no reason to distinguish between different forms of communication. The defendants' submissions in this regard should be accepted. The division between hard copy and electronic communications into separate courses of conduct as advocated by ASIC is artificial and lacking in utility. There is a danger in civil penalty proceedings that the relevant guiding principles are overanalysed or applied in a way that diverts attention from the primary question that is raised by the statute, which is to ask what is an appropriate penalty, having regard to the object of deterrence, and having regard to all relevant matters as required by s 12GBA(2) of the ASIC Act. Some statutes may require that attention be directed to whether there was a single course of conduct for the purposes of aggregating what otherwise might be multiple contraventions: eg, Fair Work Act 2009 (Cth), s 557. That is not the case here because there is no express statutory requirement to aggregate the defendants' conduct. Nonetheless, it is appropriate to stand back from the individual contraventions and look at the picture painted by the accumulation of detail in order to evaluate an appropriate penalty.
48 I have had regard to all the circumstances that I have summarised in these reasons. While the penalty to be imposed is for the making of false or misleading misrepresentations in contravention of the ASIC Act, rather than the unauthorised overcharging of fees, significant regard should be had to that latter feature of the case. That is for two related reasons. The first is that the misrepresentations to the customers in the account statements, which omitted the line items for adviser fees and increased the administration fees, had the effect of suppressing the errors that had occurred. If the misrepresentations had not been made, then there was a greater likelihood that more than one customer would have detected the errors, and would have done so much earlier than October 2016. The second reason is that looking at the question of an appropriate penalty through the prism of the object of deterrence, it is proper to have regard to the underlying causes of the misrepresentations, because the causes of the conduct must be deterred.
49 I approach the question of penalty taking account of all the matters in the defendants' favour to which I have referred, including the absence of deliberate conduct, the absence of any question of dishonesty, the timely self-reporting to ASIC, the remedial action that was taken, the high level of co-operation in this proceeding, and the defendants' express acknowledgments of wrongdoing and regret. These features of the defendants' conduct bear upon the level of deterrence required. Taking account of these matters, the main consideration to which I have had regard in arriving at an appropriate penalty is to fix a figure which puts a price on the defendants' non-compliance with statutory norms that is sufficiently high as to induce the defendants and others to put the necessary resources into developing and maintaining sound systems and controls that will ensure such contraventions do not occur, and that when they do occur, remedial action is taken with due dispatch. In viewing the matter in this way, I have sought to give attention to the underlying causes of the conduct that is to be deterred, and to take a global view of the contraventions. Approached in this manner, the totality principle is really the starting point in assessing appropriate penalties, because I have put to one side any idea that separate penalties should be assessed for individual contraventions: see, Tax Practitioners Board v Caolboy [2020] FCA 1559 at [65].
50 I consider that an appropriate penalty for the defendants, which are part of the Westpac group, is $3 million. The case was not conducted on the basis that there was any reliable way of apportioning responsibility for the contravening conduct between the defendants. The appropriate penalties are, therefore, that each defendant should pay a penalty to the Commonwealth in the sum of $1.5 million. Each penalty is a significant sum that is calculated to have the intended deterrent effect to which I have referred above.