Australian Securities and Investments Commission v Union Standard International Group Pty Ltd

Background 2 USG, Maxi EFX and BrightAU Capital Pty Ltd (in liquidation) were in the business of providing financial services, which included the provision of electronic platforms and associated trading tools for the trading of derivatives known as "contracts for difference". USG held an Australian Financial Services Licence (AFSL). Maxi EFX and BrightAU were both corporate authorised representatives of USG and relied upon USG's AFSL in providing clients with access to trading in contracts for difference. 3 In December 2019, ASIC commenced proceedings against USG, Maxi EFX, BrightAU and various other persons. In April 2021, ASIC filed a further amended originating application and statement of claim alleging, relevantly, that USG, Maxi EFX and BrightAU contravened various provisions of the Corporations Act 2001 (Cth) in the operation of their respective businesses. It is unnecessary for present purposes to detail the precise nature of the allegations that provide the basis for ASIC's case. It suffices to note that the nature of ASIC's allegations, and Maxi EFX's pleaded responses to them, are such that issues are likely to arise at trial about the actions of Mr Martin in the conduct of the business of both USG and Maxi EFX. 4 In particular, issues may arise at trial about Mr Martin's implementation and enforcement of such compliance or quality control policies and procedures that USG may have had in place. In its defence, Maxi EFX contends that it relied on USG's quality control systems, and was unaware of any failings in the operation or implementation of those systems: see in particular Maxi EFX's defence at [97]. 5 At some point before June 2021, ASIC took administrative action against Mr Martin pursuant to ss 206F and 920A of the Corporations Act. Section 206F of the Corporations Act empowers ASIC to disqualify a person from managing corporations if it is satisfied that disqualification is justified. ASIC is also empowered by s 920A of the Corporations Act to make "banning orders" against a person on certain specified grounds or in certain specified circumstances. A "banning order", in general terms, prohibits a person from providing financial services or controlling or carrying on a financial services business: s 920B of the Corporations Act. Proceedings by ASIC under ss 206F and 920A are administrative rather than judicial proceedings or processes: see Visnic v Australian Securities and Investments Commission (2007) 231 CLR 381 at [28]. 6 In both cases, ASIC is required to first provide the person with the opportunity to be heard, which in turn generally requires ASIC to conduct a hearing as provided for in Part 3 Division 6 of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act): see s 206F(1)(b)(ii) and s 920A(2) of the Corporations Act; s 57(1) of the ASIC Act. Such a hearing is "not an investigation or inquiry, as such, but rather an opportunity given to the person to be heard and to make submissions": Laycock v Forbes & Australian Securities Commission (1997) 150 ALR 186 at 192. 7 On 1 June 2021, ASIC issued a media release in respect of the outcome of the administrative proceedings it had commenced against Mr Martin. The release included the following: ASIC has banned John Carlton Martin, a director and former responsible manager of Union Standard International Group Pty Ltd (Union Standard) (in liquidation), from providing financial services for 10 years. ASIC has also disqualified Mr Martin from managing corporations for five years. ASIC found Mr Martin's lack of understanding or regard for compliance was so serious it justified the making of significant banning and disqualification orders. Banned from providing financial services Union Standard was a retail over-the-counter (OTC) derivatives issuer offering clients opportunities to trade in contracts-for-difference (CFDs). Union Standard and its former corporate authorised representatives, Maxi EFX Global AU Pty Ltd (also known as EuropeFX) and BrightAU Capital Pty Ltd (also known as TradeFred) (in liquidation) operated under Union Standard's Australian financial services (AFS) licence. ASIC found that Mr Martin was involved in Union Standard's failures to: • do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly; and • take reasonable steps to ensure that its representatives, TradeFred and EuropeFX, complied with financial services laws. ASIC also found Mr Martin failed to implement and enforce compliance policies and procedures. Mr Martin failed to: • address misconduct by EuropeFX and TradeFred representatives when alerted to instances including: • representatives providing personal advice to clients when not licensed to do so; and • representatives making representations to clients that were likely to mislead, including about the level of risk clients' funds were exposed to and expected profits. ASIC found the financial products issued by Union Standard were high risk financial products, with features that may not be understood or appreciated by retail clients. With complex products, there is a significant need to ensure compliance, especially when corporate authorised representatives are located overseas. In making the banning order, ASIC also found Mr Martin is not adequately trained or competent and is not a fit and proper person to provide financial services. Disqualified from managing corporations Mr Martin's disqualification follows the appointment of liquidators to three companies of which Mr Martin was a director: • Union Standard; • TradeFred; and • Direct FX Trading Pty Ltd In addition to the findings of Mr Martin's banning, ASIC also found Mr Martin failed to take reasonable steps to ensure that Union Standard and TradeFred complied with the Corporations Act requirement to keep written financial records. These records explain transactions, financial position and performance and help enable true and fair financial statements to be prepared and audited.

The discovery order 8 On 29 November 2021, the Court ordered that ASIC give discovery to Maxi EFX in respect of the categories of documents contained in an annexure to the order. That annexure contained an extensive list of categories of documents that the parties had agreed ought to be discovered by ASIC. Categories 37 and 38 were in the following terms: For the period 1 March 2018 to date, all Documents recording or referring to USG's quality control, quality assurance, compliance or call monitoring policy or procedure, insofar as it is applicable to EuropeFX or a CAR of USG. For the period 1 March 2018 to date, all Documents recording the carrying out of quality control, quality assurance, compliance or call monitoring tasks, in respect of activities of EuropeFX or its customers. 9 The acronym "CAR" that is used in category 37 is a reference to a "corporate authorised representative". As noted earlier, Maxi EFX was a corporate authorised representative of USG.

The SPECIFIC documents sought by Maxi EFX 10 Maxi EFX contends that a number of documents that must have been created by ASIC or its delegate in the course of ASIC's administrative proceedings against Mr Martin fall within the description of documents in categories 37 and 38 of the annexure to the discovery order. ASIC's discovery, however, did not include any such documents. Maxi EFX's solicitors wrote to ASIC and demanded that ASIC discover those documents. ASIC maintained, however, that the documents Maxi EFX claimed were discoverable were not in fact discoverable. Maxi EFX's response was to file an interlocutory application which sought, inter alia, the following order: Within 7 days of this order, the Plaintiff give discovery to the Second Defendant of the following documents in compliance with Order 4 and categories 37 and 38 in Annexure A to the orders of Wigney J dated 29 November 2021: (a) the notice of hearing (and its annexures including any "Areas of Concern" document) issued by ASIC to Mr John Carlton Martin pursuant to section 920A(2) of the Corporations Act 2001 Cth (Act) and all documents cited or referred to in that notice of hearing and its annexures; (b) the statement of reasons issued by ASIC to Mr Martin pursuant to section 920F of the Act and all documents cited or referred to in that statement of reasons; (c) the "show cause" notice issued by ASIC to Mr Martin pursuant to section 206F(1)(b) of the Act and all documents cited or referred to in that notice; (d) the notice of disqualification issued by ASIC to Mr Martin pursuant to section 206F(3) of the Act and all documents cited or referred to in that notice; and (e) the reasons for decision of the ASIC delegate who determined that Mr Martin be disqualified from managing corporations pursuant to section 206F(1) of the Act and all documents cited or referred to in those reasons for decision. 11 The documents sought by Maxi EFX may conveniently be referred to as the Martin proceeding documents.

ASIC's opposition to production of the Martin proceeding documents 12 ASIC contended that it was not obliged to, and should not be required to, discover or produce the Martin proceeding documents. That was said to be because those documents could not be considered "directly relevant to the issues raised by the pleadings or in the affidavits" as required by r 20.14 of the Federal Court Rules 2011 (Cth). 13 Rule 20.14 of the Rules provides as follows: 20.14 Standard discovery (1) If the Court orders a party to give standard discovery, the party must give discovery of documents: (a) that are directly relevant to the issues raised by the pleadings or in the affidavits; and (b) of which, after a reasonable search, the party is aware; and (c) that are, or have been, in the party's control. (2) For paragraph (1)(a), the documents must meet at least one of the following criteria: (a) the documents are those on which the party intends to rely; (b) the documents adversely affect the party's own case; (c) the documents support another party's case; (d) the documents adversely affect another party's case. … 14 Because the discovery order made in this proceeding involved discovery by categories of documents, it is doubtful that the discovery order could be said to be standard discovery. Importantly, however, r 20.15 of the Rules provides as follows: 20.15 Non-standard and more extensive discovery (1) A party seeking an order for discovery (other than standard discovery) must identify the following: (a) any criteria mentioned in rules 20.14(1) and (2) that should not apply; (b) any other criteria that should apply; (c) whether the party seeks the use of categories of documents in the list of documents; (d) whether discovery should be given in an electronic format; (e) whether discovery should be given in accordance with a discovery plan. (2) An application by a party under subrule (1) must be accompanied by the following: (a) if categories of documents are sought - a list of the proposed categories; and (b) if discovery is sought by an electronic format - the proposed format; and (c) if a discovery plan is sought to be used - a draft of the discovery plan. (3) An application by a party seeking more extensive discovery than is required under rule 20.14 must be accompanied by an affidavit stating why the order should be made. (4) For this Division: category of documents includes documents, or a bundle of documents, of the same or a similar type of character. 15 In Clifton (Liquidator) v Kerry J Investment Pty Ltd [2020] FCAFC 5, the Full Court (Besanko, Markovic and Banks-Smith JJ) held that where an order for non-standard discovery, including discovery by categories, is made, the requirement in r 20.14(1)(a) continues to apply unless an application is made to have that criterion excluded. It is common ground between the parties that no such application was made in the present case. Nor do the discovery orders in their terms exclude the operation of r 20.14. 16 ASIC contended that the Martin proceeding documents were not "directly relevant" within r 20.14 because they are neither documents upon which ASIC intends to rely in the present proceeding, nor documents which could either support or adversely affect any party's case in the proceeding. That was said to be so for a number of reasons. 17 First, in ASIC's submission, the Martin proceeding documents could have no probative value in the proceeding because it is clear that they are likely to contain little, if anything, more than hearsay assertions or statements of opinion by ASIC staff formed long after the events in question. 18 Second, it was submitted that the existence or content of the banning and disqualification orders against Mr Martin could also not be admitted into evidence against Maxi EFX in this proceeding: see Sage v Australian Securities and Investments Commission [2005] FCA 1043. 19 Third, the Martin proceeding documents could also not be admitted to prove any of the factual findings made by ASIC in the administrative proceedings. That is because s 91 of the Evidence Act 1995 (Cth) provides that "[e]vidence of the decision, or of a finding of fact, in an Australian or overseas proceeding is not admissible to prove the existence of a fact that was in issue in that proceeding". An "Australian or overseas proceeding" is defined in the dictionary of the Evidence Act to mean "a proceeding (however described) in an Australian court or a foreign court", and an "Australian court" is defined in the dictionary to include, relevantly, "a person or body authorised by an Australian law, or by consent of parties, to hear, receive and examine evidence". 20 ASIC drew the Court's attention to a decision of the Court of Appeal of New South Wales in which it was held that s 91 of the Evidence Act 1995 (NSW) (which is in the same terms as s 91 of the Evidence Act) did not apply to exclude evidence of administrative proceedings conducted by ASIC: see Panayi v Deputy Commissioner of Taxation (2017) 319 FLR 228; [2017] NSWCA 93, [35] - [36]. Unfortunately, however, it would appear that the Court of Appeal was not taken to the very broad definition of "Australian court" in the definitional provisions, which, again, are in the same terms as in the Evidence Act. It is clear that when ASIC conducts an administrative hearing a banning or disqualification order should be made, ASIC is authorised by the Corporations Act and the ASIC Act to hear, receive, and examine evidence, and is therefore, as curious as it may seem, an "Australian court" for the purposes of the Evidence Act. 21 It would appear, therefore, that the decision in Panayi in respect of the operation of s 91 of the Evidence Act is plainly wrong. 22 It should be emphasised at this point that ASIC has assured both Maxi EFX and the Court that it has discovered all of the source or primary documents that were before the decision-makers in the relevant administrative proceedings and that fall within the categories of discovery. While Maxi EFX accepted that assurance, it maintained that ASIC was also required to produce what it characterised as the "analysis documents"; that is, the documents which contained ASIC's analysis of the issues and the material that was before it in the administrative proceedings.

MAXI EFX'S contentions AND THE AMENDED INTERLOCUTORY APPLICATION 23 Maxi EFX maintained that the Martin proceeding documents were or may be directly relevant to the proceeding for the purposes of r 20.14 of the Rules. It submitted that the documents might be admissible despite s 91 of the Evidence Act. It relied, in support of that submission, on the judgment of Lander J in Australian Competition and Consumer Commission v Prysmian Cavi E Sistemi Energia S.R.L. (Formerly Pirelli Cavi E Sistemi Energia S.P.A.) & Ors (No 4) (2012) 298 ALR 251; [2012] FCA 1323. 24 In Prysmian, the ACCC commenced proceedings against the respondents for various contraventions of the then-Trade Practices Act 1974 (Cth) and obtained leave to serve the respondents outside the jurisdiction. The respondents subsequently sought to have the service of the originating process in accordance with that leave set aside on grounds including that the ACCC did not have a prima facie case. After the hearing, the respondents applied for leave to reopen so that they could tender further evidence, including a judgment of a judge of this Court, Murphy J, in another matter. The ACCC opposed the grant of leave on various grounds, including that the judgment was inadmissible by reason of s 91 of the Evidence Act. Lander J, it seems, disagreed. His Honour held (at [178]) the judgment could be "received for the purpose of understanding the issues which were before Murphy J and the evidence by which the issues were addressed". His Honour made it clear (at [179]), however, that he would not "treat anything found by his Honour as a finding of fact on these applications". 25 The significant point to note is that Lander J accepted that the judgment was not admissible to prove the existence of any fact that was in issue in the proceeding. His Honour appears to have "received" the judgment on the basis that it was relevant for another purpose. That other purpose was said to be the purpose of "understanding the issues which were before Murphy J and the evidence by which the issues were addressed". It is, with respect, somewhat difficult to ascertain or understand why, in the case before Lander J, it was relevant to understand the issues, or the evidence by which those issues were addressed, in the judgment in the other matter. It may perhaps be inferred that the other matter was related in some way. 26 What is tolerably clear is that the circumstances in which the judgment was admitted in Prysmian were fairly unique and the case turns on its own facts. Prysmian should not be considered to be authority for the general proposition that a judgment will always be relevant and admissible for the purpose of understanding the issues and manner in which those issues were dealt with in the separate matter, even if that matter is somehow related. That will depend on the particular facts and circumstances of the case at hand. The issue in this case is whether the Martin proceeding documents might be relevant or admissible in the substantive proceeding because it might be relevant to understand the issues which were before ASIC in the administrative proceedings or the evidence by which those issues were addressed. 27 Maxi EFX submitted that it might be relevant in this proceeding to have regard to the issues that were before the decision-maker in the administrative proceedings and the way that those issues were addressed by reference to the material that was before the decision-maker. It was submitted, in particular, that it may be relevant to determine whether the position taken by the decision-maker in the administrative proceedings was in some way inconsistent with the way ASIC put its case in this proceeding. 28 Maxi EFX also sought to circumvent, as it were, the requirement that the documents in question be directly relevant to the proceeding. In an amended interlocutory application, it sought the following additional or alternative orders: 1A. Leave to file in Court this amended interlocutory application. 1B. Leave for this amended interlocutory application be heard instanter at 9.30am on 28 July 2022. … 1C. Alternatively to prayer 1, pursuant to rule 20.13(1) of the Federal Court Rules 2001 [sic] (Cth) (FCR) the Plaintiff give non-standard discovery of the documents stated in prayer 1(a) to (e) above, such discovery to be given as if the criteria in rules 20.14(1)(a) and (2) of the FCR were not applicable. 1D. In the further alternative to prayers 1 and 1C, above, pursuant to section 37P of the Federal Court of Australia Act 1976 (Cth), the Plaintiff comply with the notice to produce in the form annexed to this amended interlocutory application within 5 business days of this order. (Underlining in original) 29 The notice to produce annexed to the amended interlocutory application sought the production of the Martin proceeding documents. 30 ASIC did not oppose the filing of the amended interlocutory application. It submitted, however, that whatever way one looked at it, Maxi EFX was merely "fishing" and had no legitimate forensic purpose for seeking the Martin proceeding documents. ASIC maintained that the suggestion that ASIC might have taken a different position in the administrative proceedings to the position it has taken in this case is speculation upon speculation. Nor, in ASIC's submission, could any understanding of the issues and evidence which may have been before the ASIC decision-maker in the administrative proceedings could possibly be relevant in the substantive proceeding in this matter. 31 It followed, in ASIC's submission, that there was no basis for making the alternative orders sought by Maxi EFX. In particular, any notice to produce would be liable to be set aside as an abuse of process on the basis that it involved "fishing" in the metaphorical sense. There was, it was submitted, no legitimate forensic purpose in seeking to have the documents produced and no legitimate or reasonable basis to expand the scope of the discovery order by requiring the discovery of documents which are not directly relevant.

THE MARTIN PROCEEDING DOCUMENTS ARE NOT DISCOVERABLE 32 ASIC's opposition to the orders sought by Maxi EFX, including the additional or alternative orders sought in the amended interlocutory application, should be upheld. That is because the documents sought by Maxi EFX are plainly not directly relevant for the purposes of r 20.14 of the Rules. 33 Moreover, Maxi EFX's attempt to circumvent that requirement either by way of an order stating that the criterion in r 20.14(1)(a) and (2) of the Rules not apply to ASIC's discovery, or that the documents be produced pursuant to a notice to produce, should not be permitted. That is because Maxi EFX has no legitimate forensic purpose for seeking the discovery or production of the documents in question. 34 Maxi EFX has not demonstrated that there is any reasonable or realistic prospect that any of the Martin proceeding documents might be relevant or admissible on the basis articulated by Lander J in Prysmian. There is, at least at this stage of the proceeding, no basis for thinking that it may be relevant in this proceeding to have regard to the issues that were before the decision-maker in the ASIC administrative proceeding, or the material that was before the decision-maker by which those issues were addressed. The central issue in this proceeding will be whether the evidence tendered at trial is capable of establishing the contraventions alleged by ASIC. The way in which different issues may have been addressed on the basis of different evidence in fundamentally different administrative proceedings will almost certainly be entirely irrelevant. Maxi EFX failed to demonstrate otherwise. 35 Maxi EFX has also not demonstrated that it is legitimate to seek to have the Martin proceeding documents discovered or produced so as to ensure that ASIC is not taking a different approach in this proceeding to the approach it took in the administrative proceedings. It is, as ASIC submitted, entirely speculative to suggest that the approach taken by the decision-maker in the administrative proceedings might be different to the approach taken by ASIC in this proceeding. 36 In any event, ASIC is not in any relevant sense bound by the approach it took in an entirely different proceeding at a different point in time based on different materials. While no doubt some of the source documents that were before the decision-maker in the administrative proceedings may ultimately be tendered in this proceeding, those relevant source documents have already been discovered. Perhaps more significantly, is readily apparent that the ASIC decision-maker in the administrative proceedings did not have before him or her much, if any, of the affidavit evidence which is to be relied upon by ASIC in this proceeding. That affidavit evidence may alone justify any different approach ASIC might take in this matter. 37 The administrative proceedings were fundamentally different to this proceeding. They involved, in essence, the question of whether Mr Martin was a fit and proper person to provide financial services or manage a corporation. They had a different purpose, which was essentially a protective purpose. They involved different issues, different standards of proof, and were conducted at a different time and involved different materials. The manner in which the decision-maker dealt with the different issues and the different material will almost certainly be irrelevant to this proceeding. The approach taken by ASIC in the administrative proceedings, and the findings and reasons of the decision-maker, will also almost certainly be irrelevant. 38 Perhaps the most that could be said is that the Martin proceeding documents might put Maxi EFX on a "trail of inquiry", though even that is somewhat speculative. It is in any event tolerably clear that documents that have no more than a possible "trail of inquiry" relevance are not directly relevant for the purposes of r 20.14 of the Rules. Nor are such documents ordinarily required to be discovered, perhaps other than in exceptional circumstances. There are no such exceptional circumstances in this case. 39 It should finally be noted that ASIC relied to a limited extent on the fact that there may be confidentiality issues surrounding the production of the ASIC Martin proceeding documents, given that such administrative proceedings are conducted in private. It is unnecessary to consider that issue given the findings that have been made. If such confidentiality issues arose, they most likely could have been dealt with by appropriate confidentiality orders or undertakings. Nevertheless, for the reasons already given, there is no proper basis to require ASIC to discover or produce the documents in question.

DISPOSITION 40 Maxi EFX's interlocutory application as amended must be dismissed with costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wigney.