Corporations law – ‘best interests obligations’ in Corporations Act, ss961B and 961J – lack of culture of compliance – penalties

In Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd (No.2) [2020] FCA 69 (5 February 2020) the court gave its reasons for judgment concerning contraventions by AMP Financial Planning Pty Ltd (AMPFP) of the best interests obligations and related duties in ss961B, 961G and 961J of the Corporations Act 2001 (Cth) (the Act).

The court’s judgment is highly critical of AMPFP. Lee J states at [2]: “A ‘culture of compliance’ is an amorphous concept. But whatever it actually means, it must transcend simply putting in place expensive ‘systems’; or it must be more than persons, whose titles include terms such as ‘governance’ and ‘compliance’, declaiming platitudes. One might question the point of such structures and roles in a company, if the corporate will to do the right thing is absent. For generations, many successful financial institutions did not need ‘values statements’ setting out bromides; nor was it thought necessary to have an array of compliance executives with highfalutin’ titles; those responsible simply ensured their employees or representatives dealt with customers in a manner reflecting an instinctive institutional commitment to playing with a straight bat. At bottom, as I will explain, this penalty proceeding reflects a lamentable failure of corporate will to take the necessary steps to prevent greedy and unlawful conduct taking place, and a further failure to adopt a swift and proper remedial response.”

An adviser of AMPFP (Panganiban) was repeatedly engaging in a form of ‘churning’ by, rather than advising his clients to transfer their existing cover, arranging for his clients to sign cancellation letters and then, some days later, arranging for an application for new insurance to be submitted to AMP (at [4]). The motivation for this conduct, which exposed the clients to risks and other disadvantages, was that Panganiban was entitled to a substantially higher commission (at [5]). In its defence filed in September 2018, AMPFP admitted contraventions of ss961B, 961G and 961J of the Act by Panganiban but not by other authorised representatives of AMPFP (at [32]). In May 2019, AMPFP also admitted contraventions of ss961B, 961G and 961J of the Act by another five authorised representatives of AMPFP (at [34]).

The court’s judgment addresses:

  1. Certain factual matters, and most importantly the question of whether, as at 1 July 2013, AMPFP had reason to believe that the conduct was common (at [68]-[88]).
  2. The proper construction of s961L and the number of contraventions that arose (at [89]-[141]). Section 961L provides:
    “A financial services licensee must take reasonable steps to ensure that representatives of the licensee comply with sections 961B, 961G, 961H and 961J”. The court found that AMPFP engaged in six contraventions of s961L of the Act (at [140]).
  3. The appropriate pecuniary penalty (at [154]-[235]). The court held that the appropriate penalties in total were $5.175m (at [234]).
  4. The appropriateness of aspects of the remediation plan and compliance plan under s1101B of the Act (at [236]-[262]).

Human rights and anti-discrimination law – sexual harassment – whether employer took all reasonable steps to prevent sexual harassment – whether judgment unsafe because of six-year delay between trial and judgment

In Von Schoeler v Allen Taylor and Company Ltd Trading as Boral Timber (No.2) [2020] FCAFC 13 (20 February 2020) the Full Court allowed the appeal. The Federal Circuit Court judge upheld an allegation of sexual harassment against one employee (Mr Urquhart) of the employer (Boral), but dismissed the claims against Boral for vicarious liability and the claims against a second employee of Boral. The Full Court’s judgment commenced noting that a “startling feature” of the appeal was that the judgment was delivered more than six years after the trial and delivery of final submissions (at [1]).

The Full Court held that the primary judge erred in finding that Boral was not vicariously liable for the sexual harassment by Mr Urquhart which was proven (at [50]-[89]).

Section 106 of the Sex Discrimination Act 1984 (Cth) (SDA) provides for vicarious liability. The effect of s106(2) of the SDA is that an employer or principal to whom s106(1) applies will not be liable for the act of unlawful discrimination or sexual harassment if the employer or principal establishes that it took “all reasonable steps” to prevent its employee or agent from doing the relevant act (at [60]). The court noted that it is common for employers to seek to establish that they took all reasonable steps to prevent an employee from doing the unlawful act by relying on policies published and training provided in the workplace (at [65]) and that is what Boral sought to do in this case (at [67]).

After reviewing the evidence of the policies and training, Flick, Robertson and Rangiah JJ stated at [81]: “The paucity of evidence as to the steps actually taken to convey the seriousness and consequences of sexual harassment to employees, including Mr Urquhart, leads to the conclusion that Boral failed to establish that it took all reasonable steps to prevent Mr Urquhart from engaging in the sexual harassment”. Accordingly, the defence under s106(2) of the SDA failed and Boral was liable under s106(1) for the sexual harassment perpetrated by Mr Urquhart (at [88]).

The Full Court also set aside the orders of the Federal Circuit Court dismissing the appellant’s other claims under the SDA. The six-year delay in the delivery of judgment was described by the Full Court as “extraordinary and deplorable” as well as being “explained” (at [92]). Having said that, the judges discussed the authorities showing that the circumstances in which delay of itself vitiates a judgment are rare (at [93]- [96]). However, the appeal succeeded in the present circumstances. Flick, Robertson and Rangiah JJ explained at [113]: “The primary judge’s delay created requirements in respect of the reasons that would not ordinarily apply. It was incumbent upon his Honour to inform the parties of the reasons why the evidence of particular witnesses had been accepted or rejected and to say why the evidence of one witness had been preferred over the evidence of other witnesses. The primary judge was also required to explain how, despite the delay, he was able to recollect the oral testimony and demeanour of witnesses in order to demonstrate that delay did not affect his decision. The reasons do not meet these requirements. In addition, the reasons expose examples of the primary judge appearing to skirt more difficult issues and driving toward simple conclusions. Further, some aspects of his Honour’s reasoning reveal a lack of clarity which suggest that the delay has affected the decision. In addition, his Honour overlooked issues that had been squarely raised in the case. The reasons demonstrate that the primary judge was unable to satisfactorily determine the case six years after hearing the evidence. It must be concluded that the judgment is unsafe”. The matter was remitted to be heard and determined by a different judge (at [118]).

Representative proceedings – approval of settlement under s33V of the Federal Court of Australia Act 1976 (Cth) and Division 9.2 and Rule 9.70 of the Federal Court Rules 2011 (Cth) – dispensing with requirement to fix an opt out date

In Sister Marie Brigid Arthur (Litigation Representative) v Northern Territory of Australia (No.2) [2020] FCA 215 (26 February 2020) the court approved the settlement of a representative proceeding for children in detention in the Don Dale Youth Detention Centre and the Alice Springs Youth Detention Centre. The stated objective of the proceeding was the improvement of conditions in youth detention in the Northern Territory. Only public law relief (declarations, injunctions, a writ of mandamus and other orders) was sought and the case did not include claims for damages or compensation (at [3]). The settlement involved terms of the Northern Territory’s Statement of Commitments (annexed to the judgment) being negotiated between the parties and the applicant sought and obtained improvements in the proposed government initiatives (at [7]; also [63]-[68]).

To the extent it was a proceeding instituted under Part IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act), settlement approval was given under s33V of the FCA Act. The proceeding was also an ‘old-style’ representative proceeding under Division 9.2 of the Federal Court Rules 2011 (Cth) and the court approached settlement of the Division 9.2 proceeding on the same basis as the Part IVA case (at [71]-[79]).

The court’s judgment also included reasons why it was appropriate to dispense with the requirement for the court to fix a date for opt out (at [42]-[62]). Murphy J said at [58]: “In my view, in cases where no damages claim is made I consider s33ZF provides a source of power to dispense with the requirement to fix an opt out date”.

The full version of these judgments can be found at austlii.edu.au.
Dan Star QC is a Senior Counsel at the Victorian Bar, ph 03 9225 8757 or email danstar@vicbar.com.au.

This story was originally published in Proctor May 2020.

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