Discussion of relevant principles
105 In fixing a pecuniary penalty, the Court is required to engage in an "intuitive or instinctive synthesis" of all relevant matters: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 ('ACCC v Coles') at [6] (Allsop CJ) citing Markarian v The Queen (2005) 228 CLR 357 ('Markarian'). The Court must weigh together all relevant factors rather than engage in a sequential, mathematical process: Markarian as adopted in ACCC v Coles at [6]. It is an "inexact science, not subject to rigidity in approach but guided by well-accepted factors": ASIC v AMP at [159] (Lee J).
106 The purposes for which civil penalties are to be imposed was settled by Commonwealth v DFWBII where the High Court confirmed that the object of civil penalties is to be protective in promoting compliance, through deterrence (specific and general): at [55] quoting Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52, 152.
107 In Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157 the plurality of the High Court (Keane, Nettle and Gordon JJ) emphasised that in order to civil penalties to have this deterrent effect, there should be a sufficient "sting or burden" in the penalty amount: see [113], [116], [125].
108 A civil penalty "must accordingly be fixed with a view to ensuring that the penalty is not to be regarded by the contravenor or others as an acceptable cost of doing business": Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147 at [255] (Wigney J) citing Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at [66] (French CJ, Crennan, Bell and Keane JJ) and Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2020] FCAFC 20; (2012) 287 ALR 249 ('Singtel Optus v ACCC') at [62]-[63] (Keane CJ, Finn and Gilmour JJ).
109 As Forex CT's AFSL was cancelled by ASIC with effect from 31 July 2020, I am primarily concerned with general (rather than specific) deterrence in fixing a penalty for Forex CT.
110 The need for general deterrence in the OTC derivative market is a factor in determining the appropriate penalty. Justice Beach made the following observations in ASIC v AGM Markets (No 4), emphasising the importance of general deterrence in this market:
[70] Further, the size of the market for retail OTC derivatives in Australia, and the risk of loss to clients exposed to the sort of conduct engaged in by the defendants that I found to be established, supports the fixing of a significant pecuniary penalty to advance the purpose of general deterrence. Since December 2019, there have been at least 60 holders of an AFSL who have been entitled to hold and have in fact held money on behalf of people who have invested in retail OTC derivatives. I have set out some details earlier in my reasons.
[71] Further, in addition to the Australian market, providers of OTC derivatives offer comparable products to investors in various jurisdictions. Jurisdictions such as the UK and Europe have seen an increase in recent years of the number of providers of derivatives, as well as the number of retail investors for those products, and continued consumer complaints to regulatory authorities by those retail investors. And various regulatory agencies in those jurisdictions have taken enforcement action against some providers as the result of conduct or contraventions equivalent to that in which the present defendants have engaged. Further, since 2017 at least 16 of the AFSL holders who have offered retail OTC derivatives in Australia have been or are the subsidiary or associate of an offshore company that has been the subject of enforcement action in an overseas jurisdiction. Those 16 AFSL holders as at May 2020 held about $1.34 billion in retail client funds. What all these matters reveal is, first, the prevalence of such providers in overseas jurisdictions, second, conduct on the part of some of those providers that is equivalent to the conduct at issue in this proceeding and, third, links between those that carried out that conduct and AFSL holders. The quantum of the civil penalty to be fixed in the present proceeding should also be sufficient to deter overseas providers of OTC derivatives from engaging in equivalent conduct in this jurisdiction…
[…]
[74] Further, as I discussed earlier in my reasons, the regulatory changes proposed are likely to result in a reduced risk of similar conduct being repeated in the future by other market participants or at least significantly ameliorate its scope or effect.
111 Justice Beach also stated that the pushing of derivative instruments was likely to be significantly curtailed by changes in the regulatory regime, and so "the causative effect on general deterrence of a high penalty may not have or require as much potency if the causative effect on general deterrence is produced or strengthened by regulatory changes": ASIC v AGM Markets (No 4) at [30]. His Honour took into account the likelihood of regulatory changes in determining to impose "more proportionate" pecuniary penalties. I note that on 22 October 2020, ASIC made a product intervention order imposing conditions on the issue and distribution of CFDs to retail clients, and that on 1 April 2021, ASIC made a product intervention order banning the issuing of binary options (including certain OTC derivative products) to retail clients.
112 In respect of Mr Yoshai, I am required to consider the proposed disqualification order under s 206C of the CA before assessing the appropriateness of any pecuniary penalty. Of itself, a disqualification order will protect the public and further the objectives of personal and general deterrence: see Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [48]-[49] (McHugh J) citing Australian Securities and Investments Commission v Adler [2002] NSWSC 483; 42 ACSR 80 ('ASIC v Adler') at 97-99 (Santow J). In Gillfillan v Australian Securities and Investments Commission [2012] NSWCA 370; ACSR 460 at [330], Sackville AJA (Beazley and Barrett JJA agreeing) said "a pecuniary penalty should be imposed on the appellants only if an order for disqualification is an inadequate or inappropriate remedy".
113 In determining an appropriate penalty, the Court should have regard to the prescribed statutory maximum penalties: ASIC v AGM Markets (No 4) at [38]-[40] (Beach J).
114 I accept that the applicable principles about the role of a maximum penalty in fixing an appropriate penalty are those set out in Markarian in the context of criminal sentencing. As was observed in Markarian at [31] (Gleeson CJ, Gummow, Hayne and Callinan JJ):
[C]areful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick.
115 However, it will rarely be appropriate for a Court to start with the maximum penalty and proceed by making a proportional deduction from that maximum: Markarian at [31]. The Court should not adopt a mathematical approach of increments or decrements from a predetermined range, nor assign specific numerical or proportionate values to the relevant factors: Markarian at [37] citing Wong v The Queen (2001) 207 CLR 584 at 611-612 (Gaudron, Gummow and Hayne JJ).
116 Even in cases where it might not be productive to quantify the precise number of contraventions beyond saying that they are large in number, it remains relevant to take account of the theoretical maximum penalties so that consideration can be given to the egregiousness of the conduct in question: ASIC v AGM Markets (No 4) at [40]. That said, in cases involving a very large number of contraventions and no meaningful maximum penalty, the appropriateness of a given penalty is best assessed by reference to other factors: Australian Competition and Consumer Commission v Reckitt Benckiser [2016] FCAFC 181; 340 ALR 25 at [157] (Jagot, Yates and Bromwich JJ).
117 In respect of the CA contraventions, for conduct between 1 January 2017 and 12 March 2019:
(a) the maximum penalty for a contravention of ss 961K(2), 961L, 963F and 963J of the CA was $1 million per contravention for a body corporate: s 1317G(1F)(b);
(b) the maximum penalty for a contravention of s 180(1) of the CA was $200,000 per contravention for an individual: s 1317G(1).
118 In respect of the CA contraventions, for conduct from 13 March 2019:
(a) the maximum penalty for a contravention of ss 961K(2), 961L, 963F and 963J of the CA, as prescribed by s 1317G(4), is the greatest of:
(a) 50,000 penalty units; and
(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.
(b) the maximum penalty for a contravention of s 180(1) of the CA, as prescribed by s 1317G(3), is the greater of:
(a) 5,000 penalty units; and
(b) if the Court can determine the benefit derived and detriment avoided because of the contravention - that amount multiplied by 3.
119 In respect of the contraventions of or in relation to s 12CB(1) of the ASIC Act, for conduct between 1 January 2017 and 12 March 2019, the maximum penalty prescribed by s 12GBA(3) was 10,000 penalty units for a corporation and 2,000 penalty units for an individual.
120 For contraventions of s 12CB(1) of the ASIC Act from 13 March 2019:
(a) the maximum penalty for a corporation, as prescribed by ss 12GBC and 12GBCA(2), is the greatest of:
(a) 50,000 penalty units; and
(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.
(b) the maximum penalty for an individual, as prescribed by ss 12GBC and 12GBA(1), is the greater of:
(a) 5,000 penalty units and
(b) if the Court can determine the benefit derived and detriment avoided because of the contravention - that amount multiplied by 3:
see s 327 of the ASIC Act, which provides that the amendments made by items 2 and 3 of Schedule 3 to the Treasury Laws Amendment (2019 Measures No. 3) Act 2020 (Cth) apply in relation to the contravention of a civil penalty provision if the conduct constituting the contravention of the provision occurred on or occurs wholly on or after the commencement of Schedule 2 to the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth), being 13 March 2019.
121 It is worth saying something briefly about the changing legislation. The maximum penalties for the contravening conduct changed throughout the course of the Relevant Period due to the introduction of the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth) on 13 March 2019, some 18 days before the end of the Relevant Period (as well as the retrospective operation of the Treasury Laws Amendment (2019 Measures No. 3) Act 2020 (Cth)). As a result, the maximum penalties for the contraventions of the CA and s 12CB(1) of the ASIC Act increased to at least $10.5 million for a corporation (from $1 million and $2.1 million previously, respectively). For an individual, the maximum penalty for a contravention of s 180(1) of the CA increased from $200,000 to $1.05 million. I note that there was no increase in respect of the prohibition in s 12GBA(1)(c) of the ASIC Act on aiding, abetting, counselling or procuring a contravention of s 12CB(1) because the relevant provision was repealed.
122 In addition, six months into the Relevant Period, the value of a penalty unit increased from $180 to $210: see Crimes Act 1914 (Cth), s 4AA (as amended by the Crimes Amendment (Penalty Unit) Act 2017 (Cth)). This means that in the first six months of the Relevant Period, the maximum penalty for a corporation contravening s 12CB(1) of the ASIC Act was $1.8 million, and the maximum penalty for an individual aiding, abetting, counselling or procuring a contravention of the ASIC Act was $360,000.
123 The parties' submissions as to the theoretical maximum penalty relied on the maximum penalties for the substantial part of the Relevant Period. I am satisfied with this approach as I consider that the contravening conduct by each of Forex CT and Mr Yoshai in the exact circumstances of the impugned conduct in this proceeding can properly be considered in the way suggested at [116] above.
124 ASIC and Forex CT submitted that the theoretical maximum penalty for Forex CT's contraventions of the CA was $1.946 billion, and $18.9 million for its contraventions of s 12CB(1) of the ASIC Act. ASIC and Mr Yoshai submitted that the theoretical maximum penalty was $600,000 for Mr Yoshai's contravention of s 180(1) of the CA and $420,000 for his involvement in Forex CT's contravention of s 12CB(1) of the ASIC Act.
125 However, in respect of the contravention of s 12CB(1) of the ASIC Act by Forex CT in relation to the system of unconscionable conduct, and Mr Yoshai's involvement in that contravention, it is submitted by the parties (other than Mr Yoshai) that I am not limited by the maximum penalty for a single contravention of s 12CB(1). This is said to be because the systemic conduct towards the eight identified clients (being conduct that was pleaded as a single contravention) was representative of conduct towards all clients of Forex CT, of which there were more than 4,000.
126 In Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liq) (No 3) [2017] FCA 1018, Beach J held:
[48] There is little authority on the question of multiple penalties in the context of systemic unconscionable conduct. In Australian Securities and Investments Commission v Kobelt [2017] FCA 387, ASIC claimed that the respondent had engaged in a system of unconscionable conduct in relation to the supply of financial services to at least 117 customers but contended that that part of its case did not turn on any identified individual consumer. ASIC also claimed that the respondent had engaged in unconscionable conduct in dealings with five identified consumers. ASIC did not ultimately press its allegations in relation to the five individual instances of unconscionable conduct but succeeded in its claim that the respondent had engaged in a system of unconscionable conduct. On the question of penalty ASIC contended that the systemic conduct had involved 59 separate contravening acts. The trial judge rejected this submission and held that the "system" amounted to a single contravention. His Honour said at [33] and [34]:
In the present case, ASIC pursued its "system" case on the basis that it could succeed without proving the circumstances of any particular individual. Having so succeeded, it would be inappropriate now for penalties to be imposed on the basis that ASIC had, instead, pursued a case that Mr Kobelt's conduct was, in respect of 59 customers, unconscionable.
ASIC's contention would give rise to a further difficulty. Given that the identity of the particular 59 customers (out of the total of the 117) in respect of whom ASIC seeks the imposition of a penalty is not known, the Court is not in a position to make any assessment of the extent of the unconscionability in their individual cases, or of the impact which the unconscionable conduct had on them.
[49] In my view, the present case can be distinguished from ASIC v Kobelt. First, the ACCC did not abandon its claims that GQA engaged in individual instances of unconscionable conduct. Second, the ACCC put its systems case on the basis that it was supported not just by GQA's records of its business system but by evidence relating to the experiences of thirteen of GQA's customers. This material included material relating to the particularised consumers (WJ, GF, AV and JA), affidavits from five more affected consumers (MA, DH, GD, MK and JR), and records of correspondence between four more consumers and GQA's representatives, the recordings of their telephone discussions with GQA representatives and transcripts of these calls (AS, LM, PP and VM). Accordingly, in the present case, unlike ASIC v Kobelt, it is possible to make an assessment of the extent of the unconscionability in each affected consumer's individual case, and of the impact which the unconscionable conduct had on them. More generally, it may be inferred that at least hundreds of consumers were affected, given the thousands of consumers who enrolled, the thousands of consumers who did not receive qualifications, and the at least 670 who requested a refund. In my case, I do not consider the ASIC v Kobelt limitation to be appropriate.
127 In Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544, Gleeson J held (at [47]):
Having regard to the features of Empower's system and the number of students who were enrolled but who did not complete a single unit of study, I have no difficulty inferring that the unconscionable conduct that was involved in the operation of the system affected the vast majority of the consumers enrolled during the relevant period. Therefore, I also have no difficulty in accepting the applicants' submission that the Court may impose a penalty of greater than $1.1 million in respect of Empower's systemic unconscionable conduct.
128 In ASIC v AGM Markets (No 4), Beach J again considered this question and held:
[58] As to the contraventions for which a pecuniary penalty can be imposed, I should observe the following:
[…]
(b) The s 12CB unconscionable conduct contraventions were directed towards the 21 clients identified in my declarations. Each constituted a separate contravention. Further, the nominal number of contraventions that arose from the unconscionable system of conduct in which each defendant engaged can be determined by ascertaining the number of clients of each defendant. I am prepared to infer that each of those clients was subject to the unconscionable system of conduct…
[…]
[62] …consistent with the approach adopted by me in Get Qualified (No 3), in assessing the appropriate penalties for the unconscionable systems of conduct in which each defendant engaged, I am not limited to imposing a penalty equivalent to the maximum penalty for one contravention of s 12CB. That is particularly so in a case such as the present. As I explained in my principal reasons, I was satisfied that the approach adopted by the account managers engaged by the three defendants was consistent across clients of all defendants. Further, the conduct of the account managers towards the 21 individual investors identified in my declarations was representative of the conduct towards all clients of the defendants. Moreover, it seemed to me that systems put in place were designed to identify and interact with investors in the way exemplified by the 21 specific instances of individual unconscionable conduct. Accordingly, I am satisfied that the conduct by each defendant that constituted the system of conduct determined to have been unconscionable was directed to each of the many thousands of clients of the defendants.
129 At the hearing before me on 29 May 2021, senior counsel for ASIC explained the basis for this submission as follows:
…on a proper analysis, the penalty is - it either involves multiple contraventions or deployments of that system in a way that enables the penalty to be imposed in excess of the maximum for a single contravention, and that's consistent with authority, and it has here been agreed…
130 However, both ASIC and Forex CT adopted the position that there was only a single contravention of s 12CB(1) of the ASIC Act, albeit one that may have impacted thousands of clients. In the joint submissions, ASIC and Forex CT provided a table with proposed appropriate penalties (before application of the totality principle and application of co-operation discount) for Forex CT. The table included the following entry:
[…]
131 Similarly, in the joint submissions, ASIC provided a table with proposed appropriate penalties (before application of the totality principle and application of co-operation discount) for Mr Yoshai including the following entry:
[…]
132 I am prepared to accept that the unconscionable system put in place by Forex CT was representative of the conduct towards all clients (not just the eight clients that have been identified). But it was never pleaded by ASIC, or put to me in the written submissions, that there were multiple contraventions of or in relation to s 12CB(1) arising out of this system of conduct. The Court was only ever asked to determine the appropriate penalty for a single contravention of s 12CB(1) by Forex CT, and the appropriate penalty for Mr Yoshai's involvement in that contravention. In these circumstances, and having regard to the plain language of the statute, I cannot find any support for the proposition that I am not bound by the statutory maximum penalty for a single contravention in relation to the system case as pleaded. I therefore consider the theoretical maximum penalties set out at [124] above to be the upper limit of the pecuniary penalties that I may order in this proceeding.
133 Senior counsel for Mr Yoshai submitted that, even if I were to take the view that the unconscionable system was applied or implemented many times in respect of Forex CT's thousands of clients, Mr Yoshai did not have actual knowledge of dealings with individual clients and only participated in, or was involved in, a single unconscionable system. Given my findings in relation to the application of the maximum penalty, I do not need to consider this submission.
134 I will now deal with a few preliminary matters before considering the factors that are relevant to my determination of whether the penalties proposed by the parties are within the appropriate range.