FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v iSignthis Limited [2024] FCA 669

SUMMARY

In accordance with the practice of the Federal Court in cases of public interest, importance or complexity, the following summary has been prepared to accompany the orders made today. This summary is intended to assist in understanding the outcome of this proceeding and is not a complete statement of the conclusions reached by the Court. The only authoritative statement of the Court’s reasons is that contained in the published reasons for judgment which will be available on the internet on the Court’s website. This summary is also available there.

In this proceeding, the Australian Securities and Investments Commission (ASIC) has alleged that the first defendant, iSignthis Limited breached s 1041H of the Corporations Act 2001 (Cth) and s 674(2) of that Act on two separate occasions. ASIC has also alleged that the second defendant, its former chief executive officer and managing director, Mr Nickolas John Karantzis breached ss 674(2A), 1309(2) and (12) of the Act, and directors’ duties contained in ss 180(1), 181, and 182 of the Act.

The events giving rise to these allegations arose broadly from two separate periods and sets of circumstances. The first period centres on events in about the middle of 2018. These events involved the recognition by iSignthis of approximately $3 million in revenue for one-off integration and set up services provided to clients under various integration agreements, and the achievement of certain performance milestones at the same time as the company incurred approximately $2.85 million in one-off costs for the out-sourcing services that were provided under these agreements. Certain disclosures made by iSignthis to the market and representations made by Mr Karantzis, on behalf of iSignthis, during an analyst briefing on 3 August 2018 in relation to the breakdown of one-off as opposed to recurring revenue are the focus of this first period (the One-off Revenue period).

The second set of circumstances concerns the termination by Visa Inc of its relationship with iSignthis and the disclosure (or non-disclosure) of that termination to the ASX and the market in the period April to August of 2020.

In the context of these different events, ASIC alleged that iSignthis contravened:

(a)    the duty not to engage in conduct which is (or is likely to be) misleading or deceptive in relation to a financial product, pursuant to s 1041H of the Act in relation to the One-off Revenue period in 2018; and

(b)    its continuous disclosure obligations under s 674(2) of the Act on two separate occasions (in both the One-off Revenue period and in relation to the Visa termination).

Arising out of the same series of events, ASIC alleged that Mr Karantzis contravened:

(a)    s 180(1) of the Act, being the duty of a director of a corporation to exercise their powers and discharge their duties with due care and diligence, in respect of information he gave to the market during the One-off Revenue period;

(c)    s 674(2A) of the Act by reason of his involvement in iSignthis’ contravention of s 674(2) of the Act during the One-off Revenue period;

(d)    s 180(1) of the Act in relation to the Visa termination by failing to discharge his duties with due care and diligence insofar as the disclosure of Visa’s termination of its relationship with iSignthis to the market is concerned;

(e)    ss 1309(2) and (12) of the Act, by giving information to the ASX relating to the affairs of iSignthis that was false or misleading in a material particular and, or alternatively, omitted matters that, by their omission, rendered the information misleading in a material respect on two occasions arising in the context of Visa’s termination of its relationship with iSignthis;

(f)    s 182(1)(a) of the Act, being the duty of a director not to use their position as a director improperly to gain an advantage for themselves or someone else, insofar as he caused iSignthis to enter into the integration agreements to achieve the performance milestones; and

(g)    s 181(1) of the Act, being the duty of a director to exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose, also insofar as iSignthis’ entry into the integration agreements to achieve performance milestones is concerned.

In the reasons for judgment to be published today, the Court has reached the following conclusions with regard to ASIC’s allegations against iSignthis and Mr Karantzis.

In relation to iSignthis, the Court has concluded that iSignthis has engaged in conduct that was misleading or deceptive in relation to a financial product, pursuant to s 1041H of the Act in the One-off Revenue period. The Court has also concluded that iSignthis breached its continuous disclosure obligations pursuant to s 674(2) of the Act on and from 3 August 2018 in the One-off Revenue period and in relation to the Visa termination on and from 12 May 2020.

In relation to Mr Karantzis, the Court has concluded that he has contravened s 180(1) of the Act in respect of representations he made during the One-off Revenue period and by reason of his conduct during part of the Visa termination period. The Court has also concluded that Mr Karantzis contravened s 674(2A) of the Act by reason of his involvement in iSignthis’ contravention of s 674(2) of the Act during the One-off Revenue period. Finally, the Court has concluded that Mr Karantzis contravened ss 1309(2) and (12) of the Act by giving information to the ASX that was false or misleading and which omitted matters that, by their omission, rendered the information misleading, on one occasion in May 2020 in the context of the Visa termination, but not the second occasion which was the subject of ASIC’s allegations.

Insofar as the allegations against Mr Karantzis concerning the achievement of the performance milestones on 30 June 2018 are concerned, that is to say the breaches of ss 182(1)(a) and 181 of the Act, the Court has concluded that ASIC has not made out its case against Mr Karantzis in relation to these allegations.

MCEVOY J

21 June 2024

Melbourne