Federal Court of Australia

Australian Securities and Investments Commission v Union Standard International Group Pty Ltd (Trial Ruling No 1) [2023] FCA 169

ORDERS

THE COURT ORDERS THAT:

1.    The application by the second defendant to exclude certain categories of evidence by reason of the operation of s 131(1) of the Evidence Act 1995 (Cth) is refused.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR RULING

(Revised from transcript)

WIGNEY J:

1    In this proceeding, the plaintiff, the Australian Securities and Investments Commission (ASIC), alleges that the defendants, including the second defendant, Maxi EFX Global Pty Ltd, contravened various provisions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). The alleged contraventions include, relevantly, contraventions of s 12CB of the ASIC Act. ASIC alleges that EFX engaged in unconscionable conduct in connection with EFX’s supply of financial services to its retail customers.

2    ASIC intends to call as witnesses in its case a number of customers to whom EFX supplied the relevant financial services. EFX supplied the relevant financial services in connection with the customers’ trading in certain financial products which included derivatives known as contracts for difference or ‘CFDs’. EFX objects to certain parts of the affidavits sworn or affirmed by the customers, as well as some documents referred to or identified in the witnesses’ affidavits, on the basis that the evidence comprises evidence of settlement negotiations, and therefore cannot be adduced by ASIC by virtue of s 131(1) of the Evidence Act 1995 (Cth).

3    ASIC presses the tender of the evidence in question on the basis that the evidence either does not comprise evidence of settlement negotiations or otherwise falls within one or more of the exceptions in s 131(2) of the Evidence Act. ASIC relies in particular on the exceptions in s 132(2)(b), (f), (i) and (j) of the Evidence Act.

4    Subsections 131(1), (2) and (3) of the Evidence Act provide as follows:

Exclusion of evidence of settlement negotiations

(1) Evidence is not to be adduced of:

(a)     a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or

(b)     a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.

(2) Subsection (1) does not apply if:

(a)    the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent; or

(b)    the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute; or

(c)    the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced; or

(d)    the communication or document included a statement to the effect that it was not to be treated as confidential; or

(e)    the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or

(f)    the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue; or

(g)    evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence; or

(h)    the communication or document is relevant to determining liability for costs; or

(i)    making the communication, or preparing the document, affects a right of a person; or

(j)    the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty; or

(k)    one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power.

(3)    For the purposes of paragraph (2)(j), if commission of the fraud, offence or act is a fact in issue and there are reasonable grounds for finding that:

(a)    the fraud, offence or act was committed; and

(b)    a communication was made or a document was prepared in furtherance of the commission of the fraud, offence or act;

the court may find that the communication was so made or the document so prepared.

5    The parties’ brief submissions concerning the objection based on s 131(1) of the Evidence Act were general or global in nature and did not focus on any specific evidence. In this correspondingly brief judgment, I will accordingly address EFX’s objections at a global or general level and without reference to any specific affidavit or documentary evidence. It remains open to EFX to raise objections to specific affidavit or documentary evidence on the basis that the evidence falls outside the circumstances addressed in this judgment, or is said to be objectionable on some other ground.

The evidence the subject of the global objection

6    The evidence which is the subject of EFX’s objection generally falls within one or more of the following categories: first, letters of complaint to EFX written by its customers; second, letters written by representatives of EFX which record the results of EFX’s investigation or “audit” of a customer’s complaint; third, evidence of oral communications between an EFX customer and a representative of EFX concerning the customer’s complaint and EFX’s investigation or “audit” of that complaint; fourth, communications between the customer and EFX or one of its representatives which occurred subsequent to EFX’s investigation or “audit” and which raise the possibility of a monetary settlement; and fifth, settlement deeds or agreements between EFX and certain customers.

7    I am not persuaded that EFX has made good its global objection, based on s 131(1) of the Evidence Act, to the tender of documents that fall within one or more of the above categories. That is so for a number of reasons.

Communications or documents not connected with an attempt to settle a dispute

8    First, I am not satisfied that the evidence falling within the first three categories described above could necessarily be said to be communications between persons in dispute “in connection with an attempt to negotiate a settlement of the dispute”, or documents “prepared in connection with an attempt to negotiate a settlement of a dispute”, as required by the terms of s 131(1) of the Evidence Act.

9    It may perhaps be accepted that, at least from the point at which a customer sent a letter of complaint to EFX, the customer and EFX were “in dispute”. It does not necessarily follow, however, that the customer’s letter of complaint to EFX was made “in connection with an attempt to settle” the dispute. Many of the customers’ letters simply outlined the nature and basis of the customer’s complaint and said nothing whatsoever about any possible or prospective settlement. Some letters demanded that EFX reimburse the customer, though, again, that could not necessarily be characterised as an attempt to settle a dispute.

10    Nor can it necessarily be said that EFX’s letters which responded to the customer’s complaint were made in connection with an attempt to settle the dispute. Indeed, many, if not most, of EFX’s initial responses to customer complaints were couched in terms which suggested that they were a report of EFX’s “audit” or investigation of the complaint. Many, if not most, of the responses simply rejected or dismissed the customer’s complaints. A letter which does no more than communicate the outcome of a purported audit or investigation cannot be said to be a communication made in connection with an attempt to settle the dispute.

11    The same can be said in respect of many of the subsequent written and oral communications between the customer and EFX concerning the outcome of EFX’s “audit” or investigation of the complaint. Many of the customers, perhaps not surprisingly, took issue with EFX’s claim that its audit or investigation had disclosed no wrongdoing, and again demanded that EFX reimburse them. Such communications could not fairly be said to be an attempt to settle the dispute.

Exceptions in s 131(2) are engaged

12    Second, even if some of the communications and documents which are the subject of EFX’s objection could be said to be communications or documents made or prepared in connection with an attempt to settle a dispute between EFX and its customers, one or more of the exceptions in s 131(2) of the Evidence Act are engaged in respect of that evidence. Accordingly, s 131(1) does not apply. In particular, I am persuaded that the exceptions in s 131(2)(b), (f) and (j) are engaged in the circumstances of this case.

13    I will first deal with the exceptions in s 131(2)(f) and (j) before dealing with the exception in s 131(2)(b). I will also briefly deal with ASIC’s submissions concerning the exception in s 131(2)(i).

The exception in s 131(2)(f)

14    In relation to s 131(2)(f), as has already been noted, ASIC alleges that EFX contravened s 12CB(1) of the ASIC Act. ASIC alleges, among other things, that EFX “engaged in a system of conduct or pattern of behaviour in connection with the supply or possible supply of financial services … to customers in Australia that … was in all the circumstances unconscionable”: see paragraph 69(b) of ASIC’s statement of claim. The circumstances that rendered EFX’s conduct unconscionable included what was said to be an unfair complaints resolution process.

15    Paragraph 71(n) of the statement of claim includes the following particulars of the unfair complaints resolution process:

(n)    upon customers closing their Trading Account and making a complaint to EuropeFX, Account Managers and/or representatives or agents engaged by or on behalf of EuropeFX who identified themselves as being part of the EuropeFX "Client Relations Department":

(i)    encouraged the customers not to report the matter to ASIC or AFCA;

(ii)    told the customer that no, or limited, wrongdoing had occurred;

(iii)    sought to attribute any responsibility for losses suffered by the customer to the customer;

(iv)    dissuaded the customer from taking legal action; and/or

(v)    suggested that entering into a settlement agreement with EuropeFX was the only available means, or the best means, of recovering any of the customer's money,

(together, separately or in any combination, referred to as Unfair complaint resolution process in Annexure E.1);

(Bolding in original)

16    It can be seen that the alleged unfair complaints resolution process encompasses communications between EFX and the customers who had lodged complaints which often culminated in the parties entering into a settlement agreement. Given the nature of that allegation, it could in my view fairly be said that the current proceeding is one in which the “making of … an agreement [between the persons in dispute] is in issue” within the meaning of s 131(2)(f) of the Evidence Act. The circumstances in which settlement agreements between EFX and its customers were negotiated and concluded, and the communications between EFX and its customers in that regard, are alleged to be part of the unconscionable system of conduct or pattern of behaviour engaged in by EFX.

17    EFX submitted that s 131(2)(f) of the Evidence Act was not engaged in the circumstances of this case because that exception only applies where the proceeding in which evidence is sought to be adduced is a proceeding between the parties to the dispute which was the subject of the settlement communications. In EFX’s submission, the exception in s 131(2)(f) does not apply in circumstances where the issue concerning the agreement is raised in a proceeding by a third party not being a party to the agreement. EFX also submitted that it cannot be said that the proceeding is one in which the making of the agreement is in issue unless the existence or qualitative nature of the agreement between the parties is in issue. That was said to not be the case in this proceeding.

18    I am not, however, persuaded that s 131(2)(f) should be so narrowly construed. There are, in effect, two limbs to the exception in s 131(2)(f). The first is that the proceeding in which it is sought to adduce the evidence is a “proceeding to enforce an agreement between the persons in dispute to settle the dispute”. The second is that the proceeding is one “in which the making of such an agreement is in issue”. Unlike the first limb, there is nothing in the second limb to suggest that the relevant proceeding must be between the parties to the agreement.

19    Nor is the operation of the second limb of s 131(2)(f) limited to proceedings where the existence of the settlement agreement between the parties is in issue. While a proceeding must be one in which the “making” of the agreement is in issue, it does not follow that the proceeding must be one where one of the parties denies or disputes the existence of the agreement or the nature or content of its terms. In my view, the second limb of s 131(2)(f) is expressed in sufficiently broad terms so as to encompass a proceeding where the making of the agreement is in issue because the making of the agreement is alleged to be part of a broader system of conduct or pattern of behaviour which is in issue in the proceeding. The making of the agreement might also be said to be in issue where, as appears to be the case in this matter, the circumstances in which the agreement was entered into are in issue in the proceeding.

20    On ASIC’s case, the circumstances in which the settlement agreements between EFX and its customers were negotiated and entered into form part of the system of conduct or pattern of behaviour which is alleged to be unconscionable. The making of the agreements could in those circumstances be said to be “in issue” in the proceeding. It follows, in my view, that the exception in s 131(2)(f) is engaged in the circumstances of this case.

The exception in s 131(2)(j)

21    Given the nature of ASIC’s case that EFX engaged in systemic unconscionable conduct, I am also persuaded that the exception in s 131(2)(j) of the Evidence Act is engaged. That is because there are “reasonable grounds for finding” (cf s 131(3) of the Evidence Act), based on the evidence that has been, or is proposed to be adduced by ASIC, that some of the communications and documents which are the subject of EFX’s objection were made or prepared “in furtherance of the commission … of an act that renders a person liable to a civil penalty”. The relevant “act” is the system of conduct or pattern of behaviour which ASIC alleges was unconscionable contrary to s 12CB of the ASIC Act. As already noted, the alleged system of conduct or pattern of behaviour included, as one of its elements, the unfair complaint resolution process. A person who contravenes s 12CB is liable to a civil penalty.

22    EFX submitted that the exception in s 131(2)(j) was not engaged in the circumstances of this case because ASIC does not allege that any of the individual communications between EFX and its customers concerning the customers’ complaints gave rise to unconscionable conduct or rendered EFX liable to a civil penalty. Rather, the communications were alleged to be mere constituent elements in a broader allegation of unconscionable conduct. In EFX’s submission, that was not sufficient to engage the exception in s 131(2)(j) of the Evidence Act.

23    I do not accept EFX’s submission in respect of the application of s 131(2)(j) of the Evidence Act. The submission in my view is based on an overly narrow construction of that exception. Section 131(2)(j) requires only that the communication was made, or that the was document prepared, “in furtherance” of the commission of an act that renders the person liable to a civil penalty. The communication itself does not have to directly render the person liable to a civil penalty. Nor is it necessary that the communication is the sole basis upon which it is alleged that the person is liable to a civil penalty. In the present case, it suffices that there are reasonable grounds for finding that the communications or documents in question were made or created “in furtherance” of the overall system of conduct or pattern of behaviour that is alleged to be unconscionable.

24    I should emphasise that I of course have not at this early stage of the proceeding concluded that any of the communications or documents were in fact made or communicated in furtherance of the alleged system of conduct or pattern of behaviour by EFX which ASIC alleges was unconscionable. It suffices, for the purposes of determining whether the exception in s 131(2)(j) applies, that there are “reasonable grounds” for so finding: see s 131(3) of the Evidence Act. I am satisfied that that relatively low bar has been met for the purposes of determining EFX’s objection based on s 131 of the Evidence Act. If the evidence adduced, or proposed to be adduced, by ASIC is ultimately accepted and found to be credible and reliable, there are at least reasonable grounds for finding that the relevant communications were made or prepared in furtherance of the alleged system of conduct or pattern of behaviour by EFX.

The exception in s 131(2)(b)

25    As for the exception in s 131(2)(b) of the Evidence Act, ASIC contended that the “substance of the evidence” which is the subject of EFX’s objection has already been “disclosed with the express or implied consent of all the persons in dispute”. That was said to be because many, if not most, of the documents encompassed by the objection were included in EFX’s list of documents which it intended to tender at trial. Those documents also disclosed many of the communications which are encompassed by EFX’s objection.

26    It appears to be common ground that many, if not all, of the documents that are the subject of EFX’s objection were produced to ASIC by EFX in response to notices issued by ASIC under s 33 of the ASIC Act. The documents and the communications evidenced by them have therefore been disclosed by EFX. That explains why many of the documents have been annexed to witness affidavits filed by ASIC and have been included both in the electronic court book (in Part C of the court book) and EFX’s list of documents that it proposes to tender. But were the documents and the communications evidenced by them disclosed with EFX’s consent?

27    It is not immediately apparent to me that a claim of “without prejudice” privilege, either at common law or pursuant to s 131 of the Evidence Act, would provide any, or any reasonable, ground for a person to refuse to produce documents to ASIC as otherwise required by a s 33 notice. Authority in relation to the requirement to disclose documents pursuant to s 597 of the Corporations Act would suggest that “without prejudice” privilege would not provide a sufficient ground to resist production: see Re BPTC Ltd (in liq) (1992) 7 ACSR 551 at 552. It follows that EFX was effectively compelled to produce the documents in question. Indeed, EFX may have committed an offence under s 63 of the ASIC Act if it failed to produce the documents.

28    Be that as it may, there is no suggestion that, when it produced the documents to ASIC, EFX indicated to ASIC that the documents were the subject to a claim of common law “without prejudice” privilege, or that it did not consent to the disclosure of the documents or their contents, or that any later attempt by ASIC to tender the documents would be met by an objection pursuant to s 131(1) of the Evidence Act. It is, in those circumstances, open in my view to infer that EFX at least impliedly consented to the disclosure of the relevant documents and the communications evidenced by them. The documents encompassed by EFX’s objection were produced to ASIC by EFX without any relevant objection or claim of “without prejudice” privilege.

29    The inference that EFX had consented to the disclosure of the documents to which objection is now taken is fortified by the fact that many, if not most, of the documents were, so the Court was advised, included in EFX’s list of documents to be tendered at the trial. The fact that EFX had included the documents in its tender list suggests that it no longer considered the documents to be confidential and consented to their disclosure in the proceeding. That is inconsistent with the maintenance of any “without privilege” claim or objection to the tender of the documents pursuant to s 131(1) of the Evidence Act.

30    EFX submitted that the mere inclusion of the documents in its list of tender documents is not capable of constituting its implied consent to the disclosure of the substance of the evidence in the documents. It submitted that its case did not commence until the closure of ASIC’s case and that it could not be inferred that it consented to the disclosure of the documents or the evidence contained in them unless and until it actually tendered the documents in the proceeding. I do not agree. In my view, the act of including the documents in its tender list is sufficient to support the inference that EFX at least impliedly consented to the disclosure of the documents for the purposes of s 131(2)(b) of the Evidence Act.

31    It is also open to infer that the evidence has been disclosed with the express or implied consent of the other parties to the relevant disputes with EFX, those being EFX’s customers. That is because, as noted earlier, many of the documents were annexed or exhibited to affidavits sworn or affirmed by some of the customers. The evidence also suggests that many of the customers had lodged complaints concerning the actions of EFX with ASIC and other regulators, which is entirely consistent with them consenting to the disclosure of their communications with EFX, including those concerning the settlement of their dispute with EFX. There is certainly no suggestion that any of the customers opposed the disclosure of the documents.

32    It follows that the exception in s 131(2)(b) of the Evidence Act applies to many, if not most, of the documents which are the subject of EFX’s objection

The exception in s 131(2)(i)

33    ASIC submitted that the making of the relevant communication or the preparation of the relevant documents affected a “right of a person”. In ASIC’s submission, the communications or documents affected ASIC’s right to commence a proceeding claiming that EFX had engaged in unconscionable conduct, or the right of each individual customer to bring such a claim.

34    Given the findings that I have made in respect of the exceptions in s 131(2)(b), (f) and (j), it is unnecessary to reach a concluded view in relation to ASIC’s reliance on s 131(2)(i) of the Evidence Act. It is also perhaps undesirable for me to express a concluded view given the relative paucity of the parties’ submissions in respect of this exception. It perhaps suffices to note that I doubt that s 131(2)(i) is engaged in the particular circumstances of this case.

35    The difficulty with ASIC’s reliance on s 131(2)(i) is that the exception generally only applies in circumstances where the relevant document or communication itself had legal consequences for the rights of a person. It does not generally apply where the document or communication simply constitutes evidence which may be relevant to the establishment or denial of the person’s rights: see Coastal Service Centres Pty Ltd v United Petroleum Pty Ltd [2020] NSWSC 1870 at [57]-[64] and the cases there cited. The classic examples of documents or communications which have consequences for a person’s rights are documents or communications which are alleged to constitute a defamatory publication, or an act of bankruptcy, or an illegal threat.

36    I doubt that it could be said that any of the documents or communications which are currently in issue themselves affected either ASIC’s rights, or the rights of individual EFX customers. While the documents or communications may form part of ASIC’s broader systemic unconscionable conduct case against EFX, ASIC does not allege that the documents or communications alone constituted unconscionable conduct, or gave rise to a right to commence proceedings alleging that the conduct was unconscionable. It would be more accurate to characterise the documents or communications as constituting evidence which may be capable of supporting an allegation of unconscionable conduct. As I have said, however, it is unnecessary to reach a concluded view in respect of this issue.

Conclusion

37    EFX’s global objection to ASIC adducing certain categories of evidence on the basis that the evidence constituted evidence of settlement negotiations and was therefore excluded by s 131(1) of the Evidence Act is overruled and rejected. The evidence of some of the communications and documents could not be said to be evidence of communications or documents made or prepared in connection with an attempt to negotiate the settlement of disputes between EFX and its customers. The exceptions in s 131(2)(b), (f) and (j) of the Evidence Act are also engaged in the circumstances of the case.

38    I should reiterate that this ruling relates to a general or global objection to certain categories of evidence. It does not relate to any specific evidence. It remains open to EFX to object to any specific document or item of evidence on the basis that it does not fall within, or is not directly covered by, the circumstances considered in this general ruling.

Associate:

Dated:    17 March 2023