What happened
In the period 2010 Westpac’s Group Treasury and Short Term Interest Rate Risk desk monitored the bank’s net BBSW Rate Set Exposure each day. On 6 April, 20 May, 1 December and 6 December 2010 employees including Mr Roden and Ms Johnston traded Prime Bank Bills in the Bank Bill Market inside the 9.55 am to 10.05 am BBSW Rate Set Window with the dominant purpose of moving the yield of those bills so as to influence the level at which BBSW would be set in a direction favourable to Westpac’s own exposure and therefore unfavourable to counterparties holding opposite positions in BBSW-referenced products who were not listed public companies ([1], [13]-[15], [2183]-[2199]). Those counterparties totalled 173 on the relevant dates with exposures exceeding $4.29 billion ([20]).
The liability judgment delivered on 24 May 2018 found that this conduct was unconscionable in all the circumstances contrary to the then s 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) because it exploited counterparties’ vulnerability, Westpac’s superior knowledge of BBSW’s function, its intention to profit at their expense, and the real and not remote chance that BBSW would move to their detriment ([13]-[15], [2186]-[2199]). The same conduct and the absence of adequate policies, training and monitoring also breached Westpac’s licensee obligations under s 912A(1)(a), (c), (ca) and (f) of the Corporations Act 2001 (Cth) ([1], [15], [610]-[614]).
At the penalty hearing on 8 November 2018 ASIC sought elaborate declarations, a pecuniary penalty of $58 million (calculated on the basis of 58 separate trades on three of the four dates), and a highly prescriptive compliance program order requiring external training, suspension of named and unnamed staff until retrained, fortnightly spot audits and detailed reporting to ASIC. Westpac contended for narrower declarations reflecting the originating process and the form used in the ANZ and CBA settlements, a $3 million penalty (accepting a maximum of $3.3 million for three contraventions), and a simpler order requiring it to ensure appropriate systems within six months and to obtain an independent expert report confirming compliance ([2]-[3], [16]-[17], [56]-[64]).
Beach J rejected ASIC’s multiplication of contraventions, holding that the pleaded case, the evidence (including Professor Putnins’ daily net signed volume analysis) and the liability findings all treated the trading on each date as a single course of conduct ([65]-[109]). The statutory maximum was therefore $3.3 million. Given the deliberateness of the conduct, the seniority of the traders, the systemic importance of BBSW, Westpac’s size and profitability, the low risk of detection, the absence of contrition and the need for both specific and general deterrence, his Honour imposed the entire $3.3 million maximum ([122]-[129], [172]-[177]). Declarations were made in the narrower form proposed by Westpac because ASIC’s draft was overly elaborate, partly inaccurate and went beyond the originating process ([36]-[41]). A compliance order was made in Westpac’s form, requiring systems assurance and an independent expert review, because Westpac had implemented detailed post-2012 policies, information barriers between Group Treasury and Financial Markets, daily dealer templates, lexicon-based surveillance, mandatory training and third-line audit, and because the 2018 VWAP methodology had further reduced manipulation risk; ASIC’s prescriptive draft was therefore unnecessary and over-reaching ([190]-[220]).
Westpac was also ordered to pay ASIC’s costs of the penalty hearing and (by an earlier order) 50% of ASIC’s costs of the liability trial to reflect the significant issues on which Westpac had succeeded, including the Rate Set Trading Practice case, the market manipulation claims, the conflict of interest case and several expert evidence controversies ([222]-[226]).
Why the court decided this way
Beach J began from the proposition that the task was to impose a penalty that the statute permitted on the facts found, not on the basis of what the maximum should have been ([6], [8], [45]). The pleaded case was central. ASIC had defined the Purchase Contraventions by reference to the total volume traded on each date and had alleged that only trading “in sufficient volumes” during the Rate Set Window was likely to affect BBSW and thereby disadvantage Affected Counterparties ([69]-[81]). No evidence had been led that any individual trade carried that effect; Professor Putnins’ regression relied on daily net signed volume and was in any event circular ([93]-[95]). The liability reasons repeatedly spoke of unconscionable conduct “on the four occasions” or “on the said four contravention dates” ([100]-[104]). Accordingly, treating each trade as a separate contravention was inconsistent with the case ASIC had run and the findings made ([65], [82], [109]).
Once the maximum was fixed at $3.3 million, the statutory mandatory considerations in s 12GBA(2) and the overarching deterrence object pointed to imposition of the whole amount. The conduct was deliberate, involved senior staff who were aware of BBSW’s significance and of speculation that trading could influence it, was not constrained by policy or training, carried potential gain at the expense of vulnerable counterparties, and struck at the integrity of a benchmark of systemic importance ([123]-[129], [163]-[167]). Westpac’s size and profitability meant that anything less would lack sting ([121]-[122]). The absence of admissions, apology or demonstrated contrition distinguished the position from the ANZ, NAB and CBA settlements and removed any basis for discount ([145], [171]). Although the statutory maximum remained inadequate, imposing it was the only signal available and served general deterrence by telling the market that interference with benchmark rates would attract the highest penalty the law then permitted ([122], [177]).
Declarations were required to be concise and accurate. ASIC’s drafts repeated large parts of the liability reasoning, inaccurately implied a finding of likely effect at the balance of probabilities level, and referred to artificial prices in products on which ASIC had failed ([39]-[41]). The narrower form proposed by Westpac reflected the originating process, the findings actually made, and the declarations accepted in the other BBSW cases; publication of the two sets of reasons supplied sufficient denunciation ([36], [42]).
The compliance order was shaped by the evidence that Westpac had, after the relevant period, introduced policies that addressed the very deficiencies identified in the liability judgment: separation of STLM from rate-set exposure management, strict information barriers, daily rationales for trading, lexicon surveillance, mandatory BBSW-specific training, annual attestations and third-line audit ([196]-[206]). The 2018 shift to a transaction-based VWAP over a longer window with mandatory reporting further diminished the risk the original conduct had exploited ([30]-[33]). In those circumstances a broad order requiring independent verification, with liberty to apply if deficiencies emerged, was sufficient and preferable to ASIC’s detailed prescriptive regime which assumed the absence of systems that in fact existed and which would have required, among other things, suspension and fortnightly auditing of senior executives against whom no adverse findings had been made ([211]-[213], [219]).
Costs were apportioned on the liability trial to reflect the pragmatic impression that Westpac had succeeded on a substantial number of discrete, time-consuming issues including the systemic Rate Set Trading Practice case, the market manipulation claims under ss 1041A and 1041B, the conflict case, and several expert controversies ([224]-[226]).
Before and after state of the law
Prior to the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Cth) the predecessor to s 12CC did not attract civil pecuniary penalties. The 2009 amendments introduced s 12GBA, setting the corporate maximum at 10,000 penalty units. At the time a penalty unit was $110, producing the $1.1 million ceiling applied in this judgment ([45], [114]). The second reading speech described the penalties as “serious”, yet Beach J observed that in the context of benchmark manipulation by a major bank they were seriously inadequate even at the time and remained so ([115]).
The substantive unconscionability provision itself has been amended since the relevant conduct. The current s 12CB is broader, but the Court applied the predecessor s 12CC as in force in 2010 ([1], [13]). Licensee obligations under s 912A have not altered in substance, but the regulatory expectation of robust systems and training to prevent benchmark manipulation has been reinforced by subsequent ASIC instruments and AFMA codes.
The BBSW benchmark methodology itself has been transformed. Until September 2013 the rate was essentially an average of panelists’ estimates of mid-rates based on best bids and offers. From 27 September 2013 changes were made; on 1 January 2017 ASX became administrator; and on 21 May 2018 the current waterfall was introduced: primary VWAP of actual eligible transactions in the 8.30 am to 10.00 am window, with mandatory reporting by 10.15 am, fallback to NBBO and then to other methods if volume thresholds are not met ([29]-[32]). These changes were noted as substantially reducing the susceptibility of BBSW to the type of trading found in this and the other Prime Bank cases ([33]).
Penalty unit values have since increased, and maximums for unconscionable conduct have been raised in later legislative packages, but the Court was required to apply the law as it stood at the date of the contraventions ([6], [45]).
Key passages with plain-English translation
At [45]: “At the time of the contraventions that I am dealing with, a penalty unit was $110 … Accordingly, the maximum penalty for each contravention that I am concerned with is $1,100,000 … I would also note that the penalty unit rate has since increased, but the relevant and lower rate that I am required to apply is that which was in place at the time of the relevant conduct. If there is any perceived inadequacy, that is a function of the legislative choice made at the time.”
Plain English: The judge is bound by the penalty ceiling that Parliament set in 2010. Even if everyone now agrees it is too low for serious misconduct by a bank, the Court cannot rewrite history or invent a higher ceiling.
At [115]: “Perhaps in one sense they could be said to have been ‘serious’. But in the context that I am addressing, they were seriously inadequate then and thereafter.”
Plain English: The Minister called the new penalties serious in 2009, but when applied to a major bank’s deliberate interference with a benchmark used across the entire economy they look paltry; the judge says this openly while still applying them.
At [122]: “I have no difficulty in accepting that in endeavouring to achieve specific and general deterrence a penalty should be imposed on Westpac close to or at the overall maximum penalty … If I had been permitted to do so I would have imposed a penalty of at least one order of magnitude above $3.3 million … But I am not free to do so.”
Plain English: The judge would have liked to fine Westpac tens of millions to send a real deterrent message, but the statute caps the fine at $3.3 million, so that is what was ordered.
At [38]: “The remedy of a declaration is not appropriate to record conclusions reached by the court in the course of its reasons … The most effective form of declaration will accurately reflect the impugned conduct in a concise way. Complete accuracy is essential …”
Plain English: Declarations are not an executive summary of the judgment. They must be short, precise and limited to what was actually decided, not every nuance of the reasoning.
At [208]: “In my view it is appropriate to make an order under s 12GLA(2) of the ASIC Act and s 1101B(1) of the Corporations Act in the terms proposed by Westpac … because Westpac had implemented detailed post-2012 policies … ASIC’s highly prescriptive draft … was an over-reach.”
Plain English: Westpac already fixed most of the problems after it was sued. Ordering it to do things it has largely done, verified by an independent expert, is enough; ASIC’s 30-page checklist was unnecessary.
What fact patterns trigger this precedent
This judgment will be triggered whenever ASIC or another regulator seeks civil penalties for statutory unconscionable conduct under the ASIC Act (or analogous provisions) and the parties dispute (a) the correct unit of conduct for penalty purposes, (b) whether the pleaded case and findings support treating each individual transaction as a separate contravention or the overall course on a given day as one, or (c) the form of declaratory or compliance relief.
Specifically, it applies where:
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a financial services provider trades in a benchmark-sensitive instrument during the rate-set window with the dominant purpose of moving the benchmark to its own advantage and to the likely detriment of counterparties who cannot observe or counteract that trading ([13]-[15], [2186]);
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the regulator pleads the conduct by reference to aggregate daily volumes and their collective likely effect rather than individual trades ([69]-[81]);
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the evidence (including expert regression) is directed to daily net flows rather than the isolated impact of each ticket ([93]-[95]);
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the liability reasons repeatedly describe the conduct as having occurred “on” identified dates or occasions rather than on 58 separate occasions ([100]-[104]); and
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the respondent has, by the penalty hearing, introduced or improved information barriers, training, daily reporting templates, surveillance alerts and independent audit that address the deficiencies found at liability ([196]-[206]).
It also guides the approach to declarations (concise and accurate only) and to compliance orders (no unnecessary prescription where systems are already adequate and the benchmark methodology itself has been reformed) ([36], [208]).
The emphasis on applying the maximum penalty unit value at the date of contravention, even when acknowledged to be inadequate, will apply whenever a statutory cap has been increased after the conduct ([6], [45]).
How later courts have treated it
The judgment itself carefully distinguishes the contested liability and penalty outcomes from the earlier settled ANZ, NAB and CBA matters. It treats the $10 million pecuniary penalty component accepted by Jagot J in the ANZ and NAB resolutions and the $5 million accepted in ASIC v CBA as the relevant comparators, while noting that those resolutions involved admissions, cooperation, apologies and enforceable undertakings that Westpac did not offer ([140]-[155]). It distinguishes Jagot J’s acceptance in the NAB proceeding of multiple offers on a single day as separate attempted contraventions on the basis that the pleaded case there was different and was resolved by agreement rather than contested findings ([59], [86], [156]).
The judgment applies Markarian’s yardstick approach to the statutory maximum, Cahill on the course of conduct principle, NW Frozen Foods and Commonwealth v Director, Fair Work on the primacy of deterrence, and Dataline and Forster on the proper limits of declaratory relief ([34], [38], [51], [117], [131]). It does not overrule or criticise those authorities but explains why ASIC’s attempt to extrapolate from Get Qualified (No 3) to multiply contraventions by the number of trades was misplaced on the pleadings and evidence in this case ([54]-[64], [111]-[112]).
Because the judgment was delivered in November 2018 and the deep-dive corpus is limited to the source text, no subsequent appellate treatment appears. The judgment itself records that it is likely to be the last BBSW trial-level decision, suggesting its analysis of the unit of contravention, the inadequacy of the historic maximum, and the sufficiency of enhanced internal systems backed by independent verification will be the reference point for any later regulator cases involving benchmark or reference-rate misconduct under the ASIC Act or Corporations Act ([11]).
Still-open questions
The judgment leaves open whether, under the current post-2018 BBSW VWAP methodology with mandatory transaction reporting, a similar trading strategy could still produce a real and not remote chance of influencing the published rate sufficiently to constitute unconscionable conduct ([33]). It also leaves open the precise boundary between trading for genuine liquidity purposes and trading with the dominant purpose of influencing the benchmark, noting only that Westpac’s new policies prohibit the latter and require contemporaneous rationales ([200], [203]).
The Court expressly reserves liberty to apply in relation to the compliance order, signalling that if the independent expert or ASIC later identifies material deficiencies in Westpac’s systems the Court may impose more prescriptive requirements ([7], [209]). The judgment does not decide whether an internal training provider is inherently inferior to an external one; it simply holds that on the evidence Westpac’s internal legal and compliance teams were better placed to tailor training to Westpac’s specific business ([211]).
A broader open question is the interaction between the historic $1.1 million cap and the current higher penalty regime for later conduct. The judgment makes clear that each case must be judged under the law as it stood at the time, but does not address how a court would reconcile very different maximums when assessing parity across a series of related benchmark cases spanning the legislative change.
Finally, the judgment leaves unresolved the exact weight to be given to a respondent’s post-contravention remediation when the regulator still contends that only an external, highly prescriptive program will suffice. It holds that where the evidence shows the remediation is comprehensive, the onus is on the regulator to demonstrate ongoing deficiency before a court will impose detailed external controls ([219]). How that evidentiary onus will operate in future contested cases is not further elaborated.