Bain v International Capital Markets Pty Ltd [2025] FCA 599 | Case summary

Bain v International Capital Markets Pty Ltd [2025] FCA 599 | Case summary | Zoe

[93]

The application was supported by two affidavits of Mathew Chuk, a legal practitioner and director of the firm Echo Law who are the solicitors for the applicants, affirmed on 4 April 2025 and 24 April 2025. The applicants also relied on written submissions dated 24 April 2025.
In representative proceedings such as the present, there is usually a significant information disparity between the applicants and the respondents. Discovery by the respondents is a necessary procedural step. Nevertheless, discovery can be extremely burdensome and expensive and, if misdirected, can impose unnecessary costs on a respondent. In making discovery orders, the Court is acutely conscious of the overarching purpose of civil practice and procedure which is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: s 37M of the Federal Court of Australia Act 1976 (Cth).
The categories of discovery set out in Annexure A to the applicants' discovery application were lengthy. They comprised 27 categories, many of which had subsidiary categories. The length and complexity of the categories raised questions about the necessity for discovery in each of the categories and whether an order for standard discovery would enable relevant documents to be produced by ICM in a more efficient manner.
ICM responded to the discovery application with outline submissions dated 12 May 2025 supported by an affidavit of Elan Sasson, a lawyer and partner of Quinn Emanuel Urquhart & Sullivan, the solicitors for ICM, affirmed on 12 May 2025.
The parties' submissions and evidence indicated that the parties had engaged in a lengthy and productive process of conferral with respect to the discovery categories and that the areas of dispute with respect to the categories were relatively narrow (at least, compared with the breadth of the discovery categories). Neither the applicants nor ICM sought an order that standard discovery be given by ICM; rather, they sought the Court's determination of the areas in dispute.
Mr Budzinski did not contest the making of an order that he give standard discovery.
A hearing with respect to the disputed categories of discovery was conducted on 21 May 2025. At that hearing, I made rulings with respect to many of the disputed categories, with reasons given during the hearing. Those rulings are not repeated in these reasons and are recorded in the transcript of the hearing. However, in respect of a limited number of categories, I invited the parties to confer further in light of guidance given during the hearing, and to provide the Court within 7 days with a further version of the categories (revised categories) showing:

[96]

The applicable principles governing discovery can be stated briefly.
Rule 20.11 of the FCR stipulates that a party must not apply for an order for discovery unless the making of the order will "facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible". That rule reflects the overarching purpose of civil practice and procedure as stated in s 37M. The two touchstones for discovery are the tests of relevance and proportionality, as framed by r 20.11 and the overarching purpose stated in s 37M. An order for standard or non-standard discovery will not be made unless it is necessary for the just resolution of the proceeding and is proportionate in scope to the issues raised in the proceeding.
An order for standard discovery under r 20.14 requires the discovery of documents that are "directly relevant" to the issues raised in the proceeding. If non-standard discovery is sought under r 20.15 (as in the current case), the application will usually be assessed according to the same test of direct relevance: Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAFC 5; 379 ALR 593 at [172]- [173]; Ford, in the matter of Careers Australia Group Ltd (in liq) v Mansfield (No 2) [2022] FCA 1565 at [8]- [9]. The notion of "direct relevance" requires that the documents in question be directly on point, in that they tend to prove or disprove the allegation in issue_: Adelaide Brighton Cement Ltd v Concrete Supply Pty Ltd (subject to deed of company arrangement) (No 3)_ [2018] FCA 1058 at [8]- [11].
Proportionality involves a number of considerations. The documents sought must be proportionate to the nature, size and complexity of the case. Further, it includes the need, in commercial litigation, for the cost involved in making discovery to be kept in proportion to the commercial subject matter, taking account of any broader significance that may be attached to the litigation: Fuji Xerox Australia Pty Ltd v Whittaker (No 2) [2021] FCA 696 at [9]; Pleash (Liquidator), in the matter of SFG Relocations Pty Ltd v Fourie [2022] FCA 552 at [15]- [17]; Reiche v Neometals Ltd [2024] FCA 1202 at [8]- [9].

[98]

There is limited dispute between the parties with respect to the allegations concerning the business conducted by ICM during the relevant period (20 December 2017 until 23 August 2024).
It is common ground that, throughout the relevant period, ICM carried on a business in Australia that included issuing contracts for difference (CFDs) to retail and wholesale investors and providing online trading services in relation to the CFDs issued by it. ICM issued product disclosure statements which described the CFDs offered by ICM. ICM offered the CFDs through a number of online trading platforms which were accessible by retail investors on a wide variety of devices, including mobile phones, tablets and desktop computers. ICM was the counterparty to CFD transactions entered into by retail clients on the trading platforms.
Section B of the consolidated statement of claim is titled "Financial Products" and contains allegations concerning CFDs. The allegations are made in abstract terms and are not directed specifically to the CFDs issued by ICM. The relevance of such abstract allegations is questionable because each CFD is a contract governed by its terms of issue. The proceeding concerns CFDs issued by ICM, and it would be expected that the applicants would direct the allegations to the terms on which ICM's CFDs were issued. Nevertheless, ICM has responded to the allegations in its defence. ICM has also included as schedules to its defence lengthy extracts from its product disclosure statements (and other publications) which describe the contractual terms of its CFDs. The following matters can be seen to be relatively uncontroversial between the parties, despite the difficulties with the manner in which the consolidated statement of claim has framed the allegations.
A CFD can be described as a derivative the value of which is determined, derived from, or varies, by reference to, the change in the value of a reference (or underlying) asset (such as a security, rate, index or commodity) in the time period between the acquisition (opening) and disposal (closing) of the CFD. Typically, the holder of a CFD does not obtain any legal interest in the reference asset. The party that issues a CFD is typically known as the issuer, while the party who holds the CFD is typically known as the holder or the investor. During the relevant period, most CFD trading in Australia was completed "over the counter" (OTC), which means it was between two counterparties and not through an exchange or market.
A CFD is categorised as either a "long" or "short" position. A long position is a contract entered into with the expectation that the reference asset will increase in value. A long position is 'bought' at the quoted buying (or ask) price on a given date and is 'sold' (and thereby closed out) at the quoted selling (or bid) price on a later date. A short position is a contract entered into with the expectation that the reference asset will decrease in value. A short position is 'sold' at the quoted selling (or bid) price on a given date and is 'bought' (and thereby closed out) at the quoted buying (or ask) price on a later date. Typically, a CFD does not have a fixed term, but is 'closed out' by the holder as explained above. It may also be closed out by the issuer in certain circumstances (such as a default on a margin call).
Although not the subject of clear or precise allegations in the consolidated statement of claim, ICM admits that it set the buy and sell prices for the CFDs issued by it, and the buy and sell prices were determined by the market price of the underlying asset, as passed through from a liquidity provider. The buy and sell prices quoted by ICM had a 'spread'; in other words, there was a difference between the buy and sell prices, with the buy (or ask) price being higher than the sell (or bid) price.
The CFDs offered by ICM allowed an investor to take a financial position based on the predicted future value of an underlying reference asset such as an equity, a foreign currency, an index, a commodity, or a bond, where the value of the position was intended to fluctuate with the movement in the price of the reference asset. An investor could open a CFD position by either buying or selling the CFD and could close the CFD position by selling the CFD (in the case of a buy order) or buying the CFD (in the case of a sell order). Upon closing the position, the investor's profit or loss was calculated by reference to the difference between the opening price and the closing price of the CFD, less fees and charges.
ICM offered retail investors facilities to acquire CFDs on a leveraged basis. This meant that retail investors only had to provide a proportion of the value of the investment, referred to as a margin, calculated by reference to the leverage ratio (expressed as a percentage). The use of leverage magnified the potential profits from an investment transaction, but also magnified the potential losses. ICM required investors to maintain sufficient funds in their account with ICM to cover the required margin on their trading positions. If the value of the CFDs held by an investor decreased such that the funds in the investor's account with ICM ceased to cover the required margin on their trading positions, ICM was entitled to make a margin call, requiring the investor to deposit more funds to maintain the required margin. If the investor failed to do so, ICM was entitled to close out the investor's CFDs.

[116]

It can be accepted that a relevant issue in the proceedings is the likelihood of group members incurring losses when trading CFDs offered by ICM. The consolidated statement of claim alleges that, during the primary claim period, retail investors trading CFDs with ICM experienced loss rates in the range of up to 80%. However, it cannot be accepted that an issue for determination in the proceeding is the "effect of ICM's conduct in setting the pricing of its CFD products" on group members and their losses.
As summarised above, the primary claims made against ICM fall into two categories. The first category of allegations is to the effect that ICM misled retail investors with respect to the risks of trading in the CFDs issued by ICM, including by failing to warn investors of the risks. That allegation requires an assessment of all relevant disclosures made by ICM to retail investors. The second category of allegations is to the effect that ICM acted unconscionably by aggressively marketing its CFDs to retail investors knowing that the products were unsuitable for such investors and likely to cause them large losses. An element of the allegations is that the financial structure of the CFDs, including the leverage offered to investors and the effect of ICM's fees and charges on the required margin and therefore margin calls, was known by ICM to cause investors to suffer losses. That allegation requires an assessment of the information known by ICM as to the impact of the financial structure of the CFDs on the likelihood of retail investors incurring losses.
There is only one allegation concerning the manner in which ICM set the buy and sell prices of its CFD products. It is alleged that ICM set the buy and sell prices in a manner which was not "transparent to or disclosed to retail investors" and in a manner which could differ from the market price of the reference assets (para 75 of the consolidated statement of claim). Both of those allegations raise matters of objective fact. The first allegation requires an assessment of whether and to what extent ICM disclosed to investors the manner in which it set the buy and sell prices. The significance of the allegation in the proceeding is far from clear, because it is not alleged that ICM made false or misleading representations with respect to the manner in which it set the buy and sell prices, or otherwise contravened the law determining the buy and sell prices. The second allegation, if pursued, requires a comparison between the buy and sell prices quoted by ICM for its CFDs (in respect of each reference asset for which CFDs were offered) and the contemporaneous 'market' prices of the reference assets. The allegation begs the question of which market price to use as a comparator. Again, the significance of the allegation in the proceeding is unclear.
As the pleadings currently stand, I consider that there is no proper basis for the applicants to contend that an issue for determination in the proceeding is the "effect of ICM's conduct in setting the pricing of its CFD products" on group members and their losses, and there is no justification for the applicants to seek discovery with respect to that topic.

[122]

At the hearing on 21 May 2025, ICM objected to category 14 on the basis that it related solely or predominantly to the conflicted remuneration allegations and the parties had agreed to defer discovery with respect to those allegations. The reason for that agreement is that the applicants accept that neither of them have a claim based on those allegations. The applicants are seeking to identify a group member who does have a claim based on those allegations and the applicants have agreed to defer discovery until any such person is identified.
Following the hearing, the parties agreed to defer category 14, but each of them seek amendments to category 13 (which was not previously in dispute). I accept, however, that the amendments proposed to be made to category 13 arise out of the deferral of category 14.
I do not regard the disagreements with respect to category 13(1) as material. ICM seeks to narrow its scope, but I consider that the formulation proposed by the applicants largely reflects the pleaded allegations and is proportionate. The applicants seek to include reference to "incentives" in addition to "inducements". It can be doubted that there is any material difference in meaning between the two words. The word "incentive" is not, however, used in the pleaded allegations (there is only a passing use of the word within particulars). The applicants have not sought to use the word consistently in the categories. I have therefore excluded it.
With respect to category 13(2), the applicants' proposed category is formulated in vague language, referring to "documents concerning ICM offering inducements". Such vague language amplifies the burden of giving discovery. In contrast, ICM's proposed category is clear in its terms. I have adopted an amalgamation of the competing proposals.
With respect to category 13(4), the applicants seek to add a new category of documents concerning the development of, implementation of, and/or decision to change or maintain any trading inducements (and incentives) to retail clients or prospective retail clients, including but not limited to concerning the 'White Label' program. I am satisfied that the category relates to the pleaded allegations concerning the purpose and effect of inducements offered by ICM (excluding the use of the word "incentives").

[134]

Category 27 concerns the role, knowledge and involvement of Mr Budzinski in the contraventions alleged against ICM.
As initially framed, the applicants sought discovery of documents recording communications or records of communications between ICM and Mr Budzinski concerning the topics described in each of the other categories of discovery. In my view, there is no difference between a document that records a communication and a document that records a record of a communication; the latter is included within the former and the phrase "or records of communications" is redundant.
At the hearing on 21 May 2025, the applicants submitted that category 27 is relevant to the allegations of Mr Budzinski's accessorial liability in the consolidated statement of claim, which have been set out earlier. Mr Budzinski has made very limited admissions with respect to those allegations.
In respect of the allegation in para 344 (that Mr Budzinski was responsible for, and on a day-to-day basis personally exercised close and extensive control and management over, ICM's operations and business), Mr Budzinski denies the allegation other than to admit (relevantly) that he was the founder of ICM and that he was a director of ICM from 2007.
In respect of the allegations in para 345 (that Mr Budzinski knew of the regulatory obligations and regulatory materials which applied to ICM's operations in Australia), Mr Budzinski only admits that he was aware of the "existence" of the regulatory obligations and regulatory materials which applied to ICM's operations in Australia. It is not entirely clear what is meant by that admission, but it appears to be a narrow admission which does not extend to awareness of the content of any of the regulatory obligations.
In respect of the allegations in para 346 (that Mr Budzinski knew of, and authorised the implementation of, the matters alleged against ICM - with respect to the primary claims and the TMD claims - for the purposes of his generating for himself substantial profits therefrom), Mr Budzinski admits little more than that the product disclosure statements issued by ICM were approved by its board.
ICM opposed category 27 on two bases: first, Mr Budzinski is a party to the proceeding, and has agreed to give standard discovery; second, the category is excessively broad.
I do not accept ICM's first argument. It is unknown whether Mr Budzinski will have retained relevant documents. If relevant documents are in ICM's possession, custody or control, they should be discovered by it.
As to ICM's second argument, at the hearing on 21 May 2025 consideration was given to two alternative approaches to discovery on this topic. The first alternative approach is to defer discovery on this topic until ICM has completed discovery on the other categories. The applicants could then target their discovery request in respect of Mr Budzinski to significant documents. The second alternative approach is to frame category 27 by reference to the allegations made against Mr Budzinski as summarised above.
Following the hearing, ICM proposes the deferral of discovery on this topic (being the first alternative canvassed at the hearing) whereas the applicants propose a revised category reflecting the allegations made against Mr Budzinski (being the second alternative approach canvassed at the hearing).
I have given further consideration to this category in light of Mr Budzinski's defence. As noted above, Mr Budzinski has put in issue almost the entirety of the accessorial liability allegations made against him. In those circumstances, I consider that the applicant is entitled to have discovery from ICM with respect to the accessorial liability allegations made against Mr Budzinski. I accept that such discovery will be burdensome, but the issues are a legitimate part of the case brought by the applicants and the allegations are contested. Indeed, I consider it appropriate to frame the category in broad terms by reference to the pleaded allegations against Mr Budzinski.

Bain v International Capital Markets Pty Ltd

At a glance

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Judgment (141 paragraphs)

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Legislation Cited (3)