In Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liquidation) (No.3)  FCA 208 (26 February 2020) the court determined the liability phase of the proceeding in which ASIC alleged contraventions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
The complicated facts were summarised by Beach J at : “The present proceeding concerns the activities of the first defendant (AGM), the third defendant (OT) and the fifth defendant (Ozifin) and the promotion of derivative instruments. From the latter part of 2017 until the middle of 2018, each of the three defendants operated separate businesses in Australia that offered overthe- counter (OTC) derivative products being contracts for difference (CFDs) including margin foreign exchange contracts (FX contracts) to retail investors in Australia. They provided retail investors an online platform on which to invest in those products and also provided financial product advice to them by telephone and email (the financial services). That advice was provided by account managers (AMs) who were engaged on behalf of the defendants, but who were based overseas. The AMs engaged on behalf of AGM were based in Israel. The AMs engaged on behalf of OT were based in Cyprus and later the Philippines. And the AMs engaged on behalf of Ozifin were based in Cyprus.”
The court’s judgment primarily focused on the alleged “investor contraventions” (at - ) but then dealt with alleged “compliance contraventions” (at -). The “investor contraventions” were argued to fall within four categories:
- that the defendants, by the AMs, gave or directed personal advice to the investors within the meaning of s766B(3) of the Corporations Act despite not being licensed or otherwise entitled to do so (at -; decided in ASIC’s favour at -)
- that the AMs in making their advice statements contravened s961B of the Corporations Act by failing to take the steps necessary to ensure that the advice that they provided to the investors was in each investor’s best interest and contravened s961G by providing advice to the investors that it was not reasonable to conclude was appropriate to those clients (at -; decided in ASIC’s favour at -)
- that the AMs made statements to various investors that constituted various misrepresentations constituting misleading or deceptive conduct under s1041H of the Corporations Act and/or s12DA of the ASIC Act and/or the making of false or misleading representations in contravention of s12DB of the ASIC Act (at -; decided in ASIC’s favour at -)
- that the defendants engaged in unconscionable conduct towards certain investors in contravention of s12CB of the ASIC Act (at ; decided in ASIC’s favour at -).
In addressing the principles about “personal advice” (s766B of the Corporations Act,), Beach J analysed and discussed aspects of the judgment of the Full Federal Court in Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2019) 373 ALR 455;  FCAFC 187: see at -. As an aside, the writer notes that at the time of writing this summary, Westpac had sought special leave to appeal to the High Court from the Full Federal Court’s decision, which application has not yet been determined.
In relation to the best interests and appropriate advice obligations (ss961B and 961G of the Corporations Act), the court rejected the defendants’ submissions that Division 2 of Part 7.7A of the Corporations Act only applies in relation to the conscious or intentional provision of personal advice to a person and the relevant statutory obligations were not intended to catch situations where persons who provided general advice may have unwittingly strayed into personal advice also (at -). Beach J also construed s961Q to reject the defendants’ arguments to restrict the contraventions to the AMs and not OT and the Ozifin (at -).
The court set out the principles as to unconscionable conduct applicable to ss12CB and 12CC of the ASIC Act (at -). This included reference to the High Court decision of Australian Securities and Investments Commission v Kobelt (2019) 368 ALR 1;  HCA 18. Beach J discussed at - the concepts of “system of conduct” and “pattern of behaviour” in s12CB(4)(b) which states:
“This section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour”. The court held there was unconscionable conduct by the defendants towards 21 investors (at -). Further, the court held that the defendants also engaged in a system of conduct or pattern of behaviour that was in all the circumstances unconscionable (at -).
With respect to the conduct constituting the investor contraventions, the court held the conduct undertaken by OT and Ozifin was to be considered to be conduct undertaken by those defendants on behalf of AGM (at -, with reference to s769B(1) of the Corporations Act and s12GH(2) of the ASIC Act). However, Beach J did not accept ASIC’s case that AGM was knowingly involved in, or aided, abetted, counselled or procured, the investor contraventions by OT and Ozifin (at -).
Finally, in relation to the “investor contraventions”, the court held that AGM failed to take the steps necessary to discharge its obligations under s912A(1)
(a) of the Corporations Act to do all things necessary to ensure that the financial services it provided under its AFSL were provided efficiently, honestly and fairly, and under various other provisions of ss912A(1) and 961L to do those things necessary to properly supervise its representatives, which included both Ozifin and OT and the AMs engaged by AGM, Ozifin and OT (at -). Beach J summarised the relationship between the words “efficiently, honestly and fairly” found in s912A(1)(a).
The court is to hear from the parties on the precise form of the declaratory relief and other relief (penalties and non-party compensation orders).
Dan Star QC is a Senior Counsel at the Victorian Bar, ph (03) 9225 8757 or email email@example.com. The full version of these judgements can be found at austlii.edu.au. Numbers in square brackets refer to a paragraph number in the judgment.
This story was originally published in Proctor June 2020.