Australian Securities and Investments Commission v Layaway Depot Pty Ltd

Australian Securities and Investments Commission v Layaway Depot Pty Ltd - [2023] FCA 1685 - FCA 2023 case summary — Zoe

[17]

The legislation 7 Section 9 of the Credit Code provides, relevantly: 9 Goods leases with option to purchase to be regarded as sale by instalments (1) For the purposes of this Code, a contract for the hire of goods under which the hirer has a right or obligation to purchase the goods, is to be regarded as a sale of the goods by instalments if the charge that is or may be made for hiring the goods, together with any other amount payable under the contract (including an amount to purchase the goods or to exercise an option to do so) exceeds the cash price of the goods. … (2) A debt is to be regarded as having been incurred, and credit provided, in such circumstances. (3) Accordingly, if because of subsection 5(1) the contract is a credit contract, this Code (including Part 6) applies as if the contract had always been a sale of goods by instalments, and for that purpose: (a) the amounts payable under the contract are the instalments; and (b) the credit provider is the person who is to receive those payments; and (c) the debtor is the person who is to make those payments; and (d) the property of the supplier in the goods passes under the contract to the person to whom the goods are hired on delivery of the goods or the making of the contract, whichever occurs last; and (e) the charge for providing the credit is the amount by which the charge that is or may be made for hiring the goods, together with any other amount payable under the contract (including an amount to purchase the goods or to exercise an option to do so), exceeds the cash price of the goods; and … (4) For the purposes of this section, the amount payable under the contract includes any agreed or residual value of the goods at the end of the hire period or on termination of the contract, but does not include the following amounts: (a) any amount payable in respect of services that are incidental to the hire of goods under the contract; (b) any amount that ceases to be payable on the termination of the contract following the exercise of a right of cancellation by the hirer at the earliest opportunity. … 8 Section 29(1) of the Credit Act provides, relevantly: 29 Prohibition on engaging in credit activities without a licence Prohibition on engaging in credit activities without a licence (1) A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity. Civil penalty: 5,000 penalty units. 9 Section 32A(1) of the Credit Code provides, relevantly: 32A Prohibitions relating to credit contracts if the annual cost rate exceeds 48% Entering into a credit contract (1) A credit provider must not enter into a credit contract if the annual cost rate of the contract exceeds 48%. Criminal penalty: 50 penalty units.

[19]

Relief: Relevant principles 13 ASIC sought declaratory relief, injunctions and pecuniary penalties. 14 The matter was listed for hearing on 29 May 2023. On 26 May 2023, the parties filed joint submissions and a Statement of Agreed Facts (SOAF) whereby LAD had admitted it contravened the Credit Act and the Credit Code. The parties also provided agreed proposed orders. 15 The proper approach to civil regulatory orders which are sought on an agreed basis was explained in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 (Cth v FWBII). The plurality emphasised, at [46], the "important public policy involved in promoting predictability of outcome in civil penalty proceedings" which "assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention". As a result, there is "very considerable scope" for the parties to civil proceedings to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy: at [57]. Their Honours went on to state, at [58]: 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 … highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty. 16 A further reason for courts acting upon such submissions is that they are advanced by a specialist regulator able to offer, "informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance", albeit that such submissions will be considered on the merits in the ordinary way: see at [60]-[61]. 17 These principles are not confined to agreed submissions on pecuniary penalties, but apply equally to agreement on other forms of relief. The High Court's conclusions as to the desirability of acting upon agreed penalty submissions were made in the context of its broader recognition that civil penalties were but one of numerous forms of relief which a regulator could choose and pursue as a civil litigant in civil proceedings including by making submissions as to that relief: see at [24], [57]-[59], [63], [103] and [107]. This is consistent with the long-standing judicial support for agreed positions on declarations, injunctions and the like in civil regulatory proceedings, having regard to the public interest explained in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (ACCC) (1996) 71 FCR 285 (NW Frozen Foods) at [291].

[22]

Civil penalty 26 The Court may order payment of a penalty under s 167 of the Credit Act in relation to contraventions of a civil penalty provision. 27 The Court may also order payment of a penalty in relation to breaches of a key requirement by a credit provider under s 113(2) of the Credit Code. 28 The maximum penalty for a corporation for the contravention of s 29 of the Credit Act and s 32A(1) of the Credit Code is 50,000 penalty units. 29 During the Relevant Period, a penalty unit was $210 until 30 June 2020 and $222 from 1 July 2020. Accordingly, the maximum penalty for a contravention of the relevant provisions was $10.5 million to $11.1 million. 30 Section 167(3) of the Credit Act provides that in determining the appropriate pecuniary penalty, the Court must have regard to all relevant matters including: (a) the nature and extent of the contravention; (b) the nature and extent of any loss or damage suffered because of the contravention; (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 a foreign country) to have engaged in similar conduct. 31 Further to the matters above, other factors (in some respects overlapping with the express matters) that have been identified as being potentially relevant in setting a pecuniary penalty in relation to a body corporate include: (a) the extent to which the contravention was the result of deliberate or reckless conduct by the corporation, as opposed to negligence or carelessness; (b) the number of contraventions, the length of the period over which the contraventions occurred, and whether the contraventions comprised isolated conduct or were systematic; (c) the seniority of officers responsible for the contravention; (d) the size and financial position of the contravening group of which the corporation forms part (taking into account capacity to pay) and the degree of power it has, as evidenced by its market share; (e) the existence within the corporation at the time of the contraventions of compliance systems; (f) remedial and disciplinary steps taken after the contravention and directed to putting in place a compliance system or improving existing systems and disciplining officers responsible for the contravention; (g) whether the directors of the corporation were aware of the relevant facts and, if not, what processes were in place at the time or put in place after the contravention to ensure their awareness of such facts in the future; (h) the degree of the corporation's cooperation with the regulator, including any admission of an actual or attempted contravention; (i) the impact or consequences of the contravention on the market or innocent third parties; (j) the extent of any profit or benefit derived as a result of the contravention; (k) whether the company has disgorged any profit or benefit received as a result of the contravention, or made reparation; and (l) whether the corporation has been found to have engaged in similar conduct in the past (see ASIC v Westpac Banking Corporation (No 3) (2018) 131 ACSR 585; [2018] FCA 1701 at [49]; Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152-52,153; [1990] FCA 521 at [42]; NW Frozen Foods at 292). 32 The appropriateness of the amount of a penalty must be assessed by reference to the specific civil penalty provision which has been contravened in light of its context and purpose, and the objects of the relevant statute as a whole: see Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157; [2018] HCA 3 at [116], citing Cth v FWBII at [55].

[24]

Course of conduct and totality principles 35 Where there are multiple contraventions, with multiple acts and omissions, occurring over a particular period, the Court may group the contraventions together as a single course or courses of conduct. 36 There are several principles relevant to the determination of penalties in such circumstances. 37 First, while contraventions arising from separate acts ordinarily attract separate penalties, where there is an inter-relationship between the factual and legal matters of two or more contraventions, the Court may consider whether it is appropriate to group them as a single course of conduct, so as to avoid double punishment in respect of the relevant acts or omissions that comprise the multiple contraventions: ASIC v AGM Markets Pty Ltd (in liq) (No 4) (2020) 148 ACSR 511; [2020] FCA 1499 at [50]; Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1; [2010] FCAFC 39 (CFMEU v Cahill) at [39], and [42]; see also Singtel Optus at [53], citing ACCC v Telstra Corporation Ltd (2010) 188 FCR 238; [2010] FCA 790 (ACCC v Telstra) at [231]-[235]. 38 The "course of conduct" principle was explained by Middleton and Gordon JJ in CFMEU v Cahill at [39]: ...It is a concept which arises in the criminal context generally and one which may be relevant to the proper exercise of the sentencing discretion. The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is "the same criminality" and that is necessarily a factually specific inquiry. Bare identity of motive for commission of separate offences will seldom suffice to establish the same criminality in separate and distinct offending acts or omissions. 39 In ACCC v Yazaki Corporation (2018) 262 FCR 243; [2018] FCAFC 73 (Yazaki) the Full Court stated at [234] that "the 'course of conduct' …. principle means that consideration should be given to whether the contraventions arise out of the same course of conduct or the one transaction, to determine whether it is appropriate that a "concurrent" or single penalty should be imposed for the contraventions". 40 However, the "course of conduct" principle is no more than a tool of analysis and does not restrict the Court's discretion as to the amount of the penalty to be imposed. In Yazaki the Full Court cautioned at [227] that "[i]t is not appropriate or permissible to treat multiple contraventions as just one contravention for the purposes of determining the maximum limit dictated by the relevant legislation": see also ACCC v Get Qualified Australia Pty Ltd (in liq) (No 3) [2017] FCA 1018 at [37]. 41 Secondly, where there have been discrete episodes, each involving deliberation, then such a grouping may be inapposite, even if each episode reflects a common theme, strategy or model: ASIC v Commonwealth Bank of Australia [2020] FCA 790 (ASIC v CBA) at [74]. 42 Thirdly, even a single strategy involving a single or substantially consistent form of conduct might deny such a grouping where the conduct is directed towards numerous recipients: ASIC v CBA at [75]. Further, it is not necessarily the case that a "failure of process" which has an impact at different times, upon different people, at different locations or involving different staff of a defendant must be treated in a global way, though the totality principle may still apply: ACCC v Telstra at [225]-[226]. 43 Fourthly, in determining the appropriate penalty for a large number of contraventions, the Court will generally have regard to the "totality" principle, as a final consideration of whether the cumulative total of the penalty is just and appropriate and in proportion to the contravening conduct considered as a whole. The totality principle will not always or necessarily result in a reduction of the penalty that would otherwise be imposed. It enables the Court to consider whether the final penalty is in proportion to the nature, quality and circumstances of the conduct involved. In this respect, the totality principle is distinct from the course of conduct principle. The Court may apply the principle to "alter the final penalties to ensure that they are just and appropriate": CEO of AUSTRAC v Westpac Banking Corporation (2020) 148 ACSR 247; [2020] FCA 1538 at [69], citing ACCC v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238, 145 ALR 36 at 53. 44 Fifthly, the Court is not obliged to apply the course of conduct or totality principles if the resulting penalty fails to reflect the seriousness of the contravention: ASIC v Westpac Banking Corporation (No 3) (2018) 131 ACSR 585; [2018] FCA 1701 at [132] (Beach J); CFMEU v Cahill at [42].

[32]

Civil penalty comparatives 65 As noted above, differences in the facts and circumstances of different cases mean there is a limit to what may be gained by comparing the penalties imposed in other regulatory proceedings. However, some broad level guidance may be obtained from an assessment of other civil penalty decisions. To the extent that it is of assistance to the Court, set out below is a summary of civil penalty cases relating to breaches of consumer credit legislation. 66 ASIC v Make it Mine Finance Pty Ltd (No 2) [2015] FCA 1255 concerned contraventions of disclosure requirements, unlicensed credit activity and responsible lending obligations under the Credit Act. The contraventions were admitted and related to 24,377 contracts entered into between 1 July 2010 and 1 March 2013. Beach J ordered penalties of $500,000 for the disclosure breaches, $250,000 for the licensing breaches and $500,000 for the responsible lending breaches. 67 In ASIC v Fast Access Finance Pty Ltd (No 2) [2017] FCA 243, Dowsett J found that two credit providers, Fast Access Finance (Beenleigh) Pty Ltd and Fast Access Finance (Burleigh Heads) Pty Ltd had, in relation to three and 14 contracts respectively, engaged in credit activity without an ACL, and the "mother company", Fast Access Finance Pty Ltd, was knowingly concerned in those 17 infringements. The case involved an attempt to evade the credit legislation by adopting a sham business model, whereby the credit providers charged interest to consumers at a rate higher than the maximum 48%. The Court adopted the approach of imposing a penalty many times greater than the excess interest charged. The Court imposed penalties of $80,000, $250,000 and $400,000 respectively against the three respondents. The reasons for judgment include adverse criticisms and findings in relation to the conduct of the respondents. The findings of contraventions followed a six-day contested trial. 68 ASIC v Channic Pty Ltd (No 5) [2017] FCA 363 dealt with two credit providers (Channic Pty Ltd and Cash Brokers Pty Ltd) who provided credit in the second-hand car market. Before the Court were 10 cases concerning the failure to assess consumers' suitability for credit. Greenwood J observed that had the contraventions not occurred, the probability was that the consumers would not have entered into these contracts. Penalties were $278,000 for each of Channic Pty Ltd and Cash Brokers Pty Ltd, and $220,000 for their director (an individual). 69 ASIC v Rent 2 Own Cars (No 2) (2022) 159 ACSR 528; [2022] FCA 491 concerned contraventions of three key requirements of credit contracts in respect of 232 credit contracts for the purchase of used cars. For 140 of these contracts, this included exceeding the 48% maximum annual cost rate. The total amount charged to those 140 customers exceeded the 48% rate by $196,576.07. By the time penalty was handed down, the corporate respondent had been deregistered. Greenwood J stated at [203] that, if the corporate respondent was not deregistered, he would have imposed a penalty of $200,000 for the contraventions of each key requirement, being a total penalty of $600,000. 70 In ASIC v GoGetta Equipment Funding Pty Ltd [2021] FCA 420, an agreed penalty of $750,000 was ordered for engaging in credit activity without an ACL. The conduct concerned agreements with ten consumers who hired motor vehicles, pursuant to which payments were made on 295 occasions. 71 In ASIC v Financial Circle Pty Ltd [2018] FCA 1644, a penalty of $420,000 was ordered for engaging in credit activity without an ACL. There were 51 contraventions and the 51 clients paid, on average, $8,084 in advice fees and upfront commission, totalling $412,284. 72 Given the outcomes of cases noted above, I am satisfied that the agreed penalty is appropriate.

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