Consideration regarding penalty
48 I now turn to address the salient considerations. It should be kept in mind that no single factor is decisive in determining the appropriate penalty. Instead, "[t]he fixing of a penalty involves the identification and balancing of all the factors relevant to the contravention[s] and the circumstances of the defendant[s], and making a value judgment as to what is the appropriate penalty in light of the protective and deterrent purpose of a pecuniary penalty": Australian Building and Construction Commissioner v Construction Forestry Mining and Energy Union [2017] FCAFC 113; 254 FCR 68 (ABCC v CFMEU) at [100] (Dowsett, Greenwood and Wigney JJ), as affirmed in Pattinson at [114] (Allsop CJ, White and Wigney JJ, with whom Besanko and Bromwich JJ agreed).
49 First, having regard to the nature and extent of the acts or omissions, and the circumstances in which the contraventions occurred, it is plain that Colonial's conduct involved serious contraventions of ss 12DB(1)(h) and (i). It involved false or misleading representations made to approximately 13,000 members of the fund, in a concerted campaign which went on for more than two years; the decision to implement the campaign, and to sign off on the Letters and call script in which the misleading representations were made involved Colonial's senior management; and those representations were made in the context that Colonial was a trustee with fiduciary duties to the members of FirstChoice Personal Super.
50 Colonial does not suggest that its contravening conduct was not serious. It accepts that a pecuniary penalty of $20 million is appropriate because it reflects the gravity of its contravening conduct and sends a message that its contraventions are serious and unacceptable. It denies that its conduct involved a deliberate and concerted attempt to further its own interests; but it does not cavil with ASIC's submission that its contravening conduct involved, in effect, seeking to take advantage of members whose interests it was, as trustee of the fund, duty-bound to protect.
51 Colonial's conduct had a tendency to mislead members into believing that they were required to provide an investment direction to Colonial, without Colonial having given any proper regard to whether it was in fact in each individual member's best interests to remain in FirstChoice Personal Super, as it was required as a trustee. A decision by members as to whether their superannuation contributions should continue to be invested in FirstChoice Personal Super or in a MySuper product was obviously not a decision suitable for the kind of standard form, mass communications campaign that Colonial engaged in by sending the Letters and conducting the calls. The decision required attention to the personal circumstances of the member and the respective features of FirstChoice Personal Super in which the member was invested compared to the relevant MySuper product.
52 In addition, as ASIC submits, at the time of its misleading communications with members, Colonial knew the importance of members being provided with detailed information to enable them to make an informed decision as to whether it was in their best interest to transfer to a MySuper product. Colonial's own MySuper transition plan stated that members who had an ADA would be provided with a "clear and comprehensive communication strategy to explain what an ADA was and what was involved in the MySuper transition process", including providing members with information "that should reasonably enable the member to understand the nature of the changes resulting from the transfer". Further, Colonial's conduct was inconsistent with what it knew to be the intent of the MySuper reforms, including s 29WA, being that members who had not chosen an investment option into which their compulsory superannuation contributions were to be invested, would have their contributions invested in a MySuper product, being a no frill, low cost product specifically designed to be suitable as the default investment option.
53 Further, while only 70 Calls were found to have contravened s 12DB, it is relevant that the contravening conduct which occurred in those calls was not isolated. The 70 Calls were part of Colonial's broader call campaign which included calls to at least 12,209 members. Colonial's own analysis of its broader call campaign indicates that the same or similar misleading representations were likely to have been made in at least 5,745 calls in which Colonial sought an investment direction. Colonial says that it is not able to identify what proportion of the 70 Calls also fall within the group of 5,745 calls. While Colonial only stands to be penalised for the 70 Calls, it is nevertheless relevant that the contravening conduct in those calls was systematic in nature and likely to have been repeated in calls with thousands of other members.
54 ASIC submits that the misleading representations to members in the Letters and Calls were part of a "deliberate and considered attempt" by Colonial to further its own interests. It argues that there can be no doubt as to the ultimate purpose of Colonial's deception of its members: to maximise the prospect of the members providing Colonial with an investment direction which would enable it to retain the members in its higher fee, FirstChoice Personal Super product rather than transferring them across to its low cost, MySuper product.
55 It says that Colonial's interest in obtaining an investment direction of that kind was two-fold. First, it had an urgent need to obtain that direction so that its contraventions of s 29WA would not continue for that member. Second, it was aware that it stood to earn greater profits from members maintaining their investment in FirstChoice Personal Super rather than it being transferred to a MySuper product. ASIC notes that the yearly fees in FirstChoice Personal Super were $587 higher per member than in the relevant MySuper product in 2014, $709.10 higher in 2015 and $721.73 higher in 2016. It contends that there was an obvious commercial incentive for Colonial to obtain investment directions that would enable it to retain those members in FirstChoice Personal Super.
56 ASIC contends that, against that background, it is implausible that the features of the Letters and the Calls that rendered them liable to mislead the members, in particular Colonial's inaccurate and incomplete description of the nature of its obligations under s 29WA, were inadvertent or innocent. Rather, it submits that it is clear from the content of the Letters and the instructions Colonial gave to its call centre staff that it made a conscious decision to communicate with its members in a manner that was not candid or transparent about Colonial's breach of s 29WA and the nature of its obligation under that provision, in order to maximise the prospect that the members would provide Colonial with an investment direction.
57 In addition, ASIC submits that it is not credible that Colonial could reasonably have believed in the truth of the representations it conveyed to members in the Letters and the Calls. Colonial was plainly aware of the nature of its obligations under s 29WA at the time of those communications; indeed, the fact that Colonial had determined that it had breached those obligations is what gave rise to the need to contact members in the first place. It contends that:
(a) on no rational reading of s 29WA could it be said that it required Colonial to "hold investment directions from its members", or "applied only to future contributions paid into FirstChoice Personal Super" (as conveyed in the Letters); or required Colonial "to contact the member in relation to the investment of the member's superannuation contributions", or "to obtain an [investment direction] from the member" (as conveyed in the Calls);
(b) the slightly different representations in the Calls, referring to supposed requirements of "recent industry changes" and supposed requirements of the "regulator" were plainly inaccurate; and
(c) it could not reasonably be suggested in respect of the Calls that Colonial was not aware of the nature of the representations that were being conveyed to members. The representations arise from the express statement that Colonial's call centre staff were instructed to state to members: "Recent changes in legislation require us to confirm you are still comfortable/satisfied with the investment options your contributions are paid into"; it is implausible that Colonial could genuinely have believed that that statement represented an accurate description of the requirements of s 29WA.
58 ASIC contends that if Colonial wished to establish that the reasons for its contravening conduct were those advanced in its submissions on penalty, it should have put on affidavit evidence from one of its officers. It argues that, in the absence of such evidence and having regard to the implausibility of the explanation Colonial proffered in its penalty submissions, the Court should find that Colonial made the misleading representations without any genuine belief that they were true. At a minimum, it says that the Court should find that Colonial was reckless as to the accuracy of the representations in circumstances where, in order to maximise its prospect of obtaining an investment direction, it deliberately communicated with members in a way which was not candid and transparent and which gave rise to a real and patent risk of misleading members as to whether the provision of an investment direction was required.
59 Colonial strenuously denies the suggestion that the contraventions were part of a "deliberate and considered attempt" to further its own interests. It relies on a letter sent by Mr Sutherland, the General Manager of Wealth Risk Management and Wealth Risk Management Advice to APRA dated 6 March 2014 (the APRA letter) which said, amongst other things:
The majority of members in [FirstChoice Personal Super] became members of the Fund by completing an application form which required the applicant to make an investment selection at the time of application. These members are considered to have satisfied the requirements of section 29WA and are not within the scope of this submission. However, [FirstChoice Personal Super] also includes two further categories of members, namely those members who are transferred into [FirstChoice Personal Super] as a result of a successor fund transfer or due to the operation of an 'automatic' transfer from the [FirstChoice Employer Super] Division of the Fund into [FirstChoice Personal Super] on cessation of employment.
The letter further stated:
Moreover [Colonial] is very concerned that the application of section 29WA to 'choice' contributions to MySuper may result in adverse member outcomes including:
• The creation of dual accounts prior to ADA transition (of which members may opt-out);
• Contributions being directed to MySuper against the member's clear intention for contributions to be directed to their personal superannuation product; and
• Member's being charged two sets of administration fees.
60 It argues that the evidence establishes that the reason it sought investment directions from its members was two-fold:
(a) first, the members who received the Letters and the Calls were members who had been transferred into FirstChoice Personal Super as a result of a successor fund transfer and those who were transferred from the First Choice Employers division of the fund were transferred on cessation of employment. It says that Mr Sutherland's letter to APRA shows that it was concerned that treating contributions in FirstChoice Personal Super accounts of those members as contributions to the MySuper product would result in adverse member outcomes, including the prospect of their contributions being directed to the MySuper product against the members' intentions; and
(b) second, Colonial had an urgent need to obtain an investment direction so that its contraventions of s 29WA would not continue for that member.
61 It accepts that it was aware of the nature of its obligations under s 29WA and, for the purposes of penalty, it does not assert that it was not conscious of those obligations. But it says that the serious allegation that it intentionally or recklessly made misleading representations, made for the first time by ASIC in its submissions on penalty, is unsupported by the evidence. It argues that ASIC's submission is premised on no more than a hypothesis, which in turn is underpinned by the proposition that Colonial was aware that it stood to earn greater profits from members maintaining their investment in FirstChoice Personal Super rather than the investments being transferred to a MySuper account, because the fees in FirstChoice Personal Super were higher.
62 Colonial submits that ASIC's argument boils down to the irrationality, or implausibility, of anyone having supposed that s 29WA of the SIS Act could possibly have justified the statements that were made, including the relevant omissions, and the contention that the extra profits to be achieved were material. It argues that the margin it achieved, by a proportion of the 13,000 members who were the subject of the communications campaign not transferring to a MySuper account, was not material to its business, and it did not have the economic incentives that ASIC suggests. It also contends that the evidence is insufficient for the Court to be satisfied that ASIC has discharged its onus to show that Colonial made false or misleading representations knowing them to be so, or that Colonial was objectively reckless in relation to the misleading nature of the representations, particularly having regard to the requirements of s 140 of the Evidence Act 1995 (Cth).
63 It is uncontentious that the purpose of Colonial's communications with its members was to obtain an investment direction that would result in ceasing its continuing contraventions of s 29WA, and I have no difficulty in inferring that the senior Colonial officers who designed and/or implemented the communications campaign were likely to have understood that obtaining an investment direction was materially in Colonial's commercial interests. But I do not accept that the evidence rises to the level that it is appropriate to make findings about the state of mind of those officers; that is, as to their knowledge of the falsity of the representations or as to their objective recklessness in that regard. In my view, when one has regard to the APRA letter the seeds of the contravening conduct can be seen, which points away from a finding that Colonial plotted to contravene s 12DB by making false or misleading representations. Another piece of circumstantial evidence against such a finding is that both the Letters and the Calls' script were provided by Colonial to, and were vetted by, APRA in advance. It is no small matter to find that senior employees or officers of a corporation deliberately flouted s 12DB, or at least were objectively reckless as to its requirements, and s 140 of the Evidence Act 1995 (Cth) requires that in deciding whether a matter is proved, the Court must take into account the gravity of the matters alleged. I am not so satisfied. Nor is it necessary to reach such a conclusion when this is an application for an agreed penalty, and a penalty of $20 million is justified whether or not Colonial's conduct was deliberate or reckless as ASIC contends.
64 Second, the contravening conduct gave rise to substantial losses. Colonial was unable to provide the necessary information to enable a precise quantification of the extent of the loss likely to have been suffered as a result of the Letters and Calls, but I am satisfied that they are likely to have been very substantial. The total loss suffered by members as a result of Colonial's contraventions of s 12DB in respect of the 70 Calls was approximately $424,808 which equates to approximately $6,068 per member. Applying that average to the 8,688 recipients of the Letters who supplied Colonial with an investment direction, the estimated losses of those members are in the order of $52.718 million. The estimated loss suffered by members who provided Colonial with an investment direction in the 5,745 calls which were part of the broader campaign (but which are outside the contraventions found) is in the order of $67.028 million. The parties agreed that the Letters and the calls overall caused estimated losses in the range of $112 to $120 million, but not all of that conduct is the subject of the contraventions.
65 Third, turning to the maximum penalty, at all relevant times 12GBA(3) of the ASIC Act provided that the pecuniary penalty applicable to the contravention of a civil penalty provision by a body corporate is 10,000 penalty units. From 2014, each penalty unit had a value of $170, which increased to $180 on 31 July 2015.
66 Thus, treating each Letter and Call as a separate contravention rather than as part of a course or courses of conduct, for the 12,911 Letters sent in April 2014, the maximum penalty would be $21.948 billion, and for the 70 Calls over the period from March 2014 to July 2016, the maximum penalty is $120 million. The maximum penalty is therefore approximately $22.068 billion.
67 However, where such a large number of contraventions is involved, and the maximum penalty rises to such numbers, there is in reality, no meaningful maximum penalty. In such circumstances care must be taken to ensure that the maximum penalty is not applied mechanically, instead of it being treated as one of a number of relevant factors, albeit an important one. Ordinarily, there must be some reasonable relationship between the theoretical maximum and the final penalty imposed, but in the circumstances of the present case it is best to assess the appropriate penalty range by reference to other factors: see Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [156]-[157] (Jagot, Yates and Bromwich JJ); see also ABCC v CFMEU at [143]-[146].
68 Fourth, Colonial's size and financial resources, and the fact that it is a wholly owned subsidiary of CBA, an even larger corporation, indicates a requirement to impose a substantial penalty so as to meet the requirements of specific and general deterrence. In each of the 2014-2016 financial years, Colonial earned revenues exceeding $1 billion and net profit in excess of $200 million. In the same years, CBA had total revenues exceeding $22.4 billion and net profit exceeding $8.6 billion. A penalty of $20 million is substantial, particularly when considered in light of the approximately $112 to $120 million cost of Colonial's remediation program. The penalty puts a price on the contravention that is sufficiently high to deter repetition by Colonial and by others who might be tempted to contravene the ASIC Act. Such a penalty, on top of the expense of remediation, is unlikely to be seen as an acceptable cost of doing business.
69 Fifth, ASIC acknowledges that there is an underlying similarity in the nature of the contraventions arising from the 70 Calls such that those calls may reasonably be viewed as forming part of a single course of conduct. The same can be said in relation to the Letters which were all standard-form, and they may be seen as another course of conduct.
70 Sixth, it is relevant to my view in relation to the appropriate penalty, although not a matter of great significance, that Colonial admitted some of the contraventions alleged by ASIC (being contraventions which do not give rise to a civil penalty) before the proceeding was commenced, and it subsequently admitted the relevant contraventions for which it is liable to pay a pecuniary penalty. Colonial also made extensive admissions in respect of factual matters alleged by ASIC which has facilitated the efficient conduct of the proceedings.
71 Of more significance is the fact that since the proceedings were commenced Colonial has paid compensation to the recipients of the 70 Calls and of 5,745 other calls made as part of Colonial's calls campaign in which the same or similar misleading representations were made; which remediation program is continuing. The remediation undertaken by Colonial has been significant. It has paid $77.079 million to 7,695 member accounts in remediating its calls conduct, $67.514 million of which relates to calls that were assessed as containing statements that might reasonably be considered to be or likely be misleading; and $9.564 million of which was paid without an assessment of the nature of the calls. The remediation was undertaken on the assumption, in the case of each account, that the member would not have provided Colonial with an investment direction had the call not occurred, and is based on a comparison between the fees paid and performance of the FirstChoice Personal Super product compared to the MySuper product. Colonial has also committed to remediating customers affected by the Letter conduct, who have not already been compensated. The parties estimated that remediation of the Letter conduct will be in the range of $45 to $53 million.
72 Seventh, I must give weight to the fact that ASIC, a specialist regulator, and Colonial, a large and well-resourced corporation which has had the benefit of expert legal advice, have agreed to propose a $20 million penalty to the Court.
73 As the Full Court explained in Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49; 151 ACSR 407 at [124]-[129]:
[124] The principles that apply where the parties to a civil penalty proceeding have settled that proceeding and agreed and jointly proposed a penalty to the Court were comprehensively explained by the High Court in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482; [2015] HCA 46 and in the earlier decisions of the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 at 48,626-48,627; [2004] FCAFC 72…The key points are as follows.
[125] First, the Court must be persuaded that the penalty proposed by the parties is appropriate: Fair Work a [57]. The agreement of the parties cannot bind the Court in any circumstances to impose a penalty which it does not consider to be appropriate.
[126] Second, if the Court is persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the agreed penalty jointly proposed is an appropriate remedy in all the circumstances, it would be highly desirable in practice for the Court to accept the parties' proposal and therefore impose the proposed penalty: Fair Work at [58]. The desirability of the Court accepting a proposed agreed penalty which it is persuaded is an appropriate penalty derives primarily from a public policy consideration; the promotion of predictability of outcome in civil penalty proceedings: Fair Work at [46]. Predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation. It should be emphasised, however, that this public policy consideration is but one of the relevant considerations to which the Court must have regard and, more significantly, it cannot override the statutory directive for the Court to impose a penalty that is determined to be appropriate.
[127] Third, in considering whether the agreed and jointly proposed penalty is an appropriate penalty, it is necessary to bear in mind that there is no single appropriate penalty. Rather, there is a permissible range of penalties within which no particular figure can necessarily be said to be more appropriate than another. The permissible range is determined by all the relevant facts and consequences of the contravention and the contravener's circumstances. An agreed and jointly proposed penalty may be considered to be "an" appropriate penalty if it falls within that permissible range: NW Frozen Foods at 290-291; Mobil Oil at 48, 625-48, 626; [47], [51]. It is unlikely to be considered an appropriate penalty if it falls outside that range.
[128] It should be emphasised in this context, however, that even though the process in determining whether an agreed and jointly proposed penalty is an appropriate penalty involves or includes determining whether that penalty falls within the permissible range of penalties, having regard to all the relevant facts and circumstances, it does not follow that the Court's task can be said to amount to no more than determining whether the proposed penalty falls within the permissible range, as the Commission's submission tended to suggest. Nor can it be said that the Court is bound to start with the proposed penalty and to then limit itself to considering whether that penalty is within the permissible range: Mobil Oil at 48,627; [54].
[129] Fourth, in considering whether the proposed agreed penalty is an appropriate penalty, the Court should generally recognise that the agreed penalty is most likely the result of compromise and pragmatism on the part of the regulator, and to reflect, amongst other things, the regulator's considered estimation of the penalty necessary to achieve deterrence and the risks and expense of the litigation had it not been settled: Fair Work at [109]. The fact that the agreed penalty is likely to be the product of compromise and pragmatism also informs the Court's task when faced with a proposed agreed penalty. The regulator's submissions, or joint submissions, must be assessed on their merits, and the Court must be wary of the possibility that the agreed penalty may be the product of the regulator having been too pragmatic in reaching the settlement: Fair Work at [110].
74 I do not accept Colonial's suggestion that the Court's task is no more than to decide whether the proposed penalty falls within the permissible range; that is, whether it is manifestly too little or excessive. But having regard to the approach outlined in Volkswagen it is appropriate to give weight to the parties' agreement.
75 Eighth, turning into the last mandatory consideration under s 12GBA(2), the evidence is that Colonial has not previously been found to have made false or misleading representations in contravention of s 12DB, or other similar conduct.
76 I am satisfied that a penalty of $20 million is just and appropriate for the totality of the contravening conduct having regard to the seriousness of the contraventions, including the number of breaches and the period over which they occurred, that the conduct involved senior management, that Colonial was acting as a trustee when it committed the breaches, that the conduct caused substantial losses, the need for specific and general deterrence; and taking into account the substantial remediation program.