Federal Court of Australia

Australian Securities and Investments Commission v Union Standard International Group Pty Ltd (No 4) [2024] FCA 1481

ORDERS

THE COURT ORDERS THAT:

1.    The matter be listed for a further case management hearing at 9.30 am 19 February 2025, or such other date that is agreed by the parties and suitable to the Court.

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

REASONS FOR JUDGMENT

WIGNEY J:

1    This case concerns the conduct of three Australian companies that operated on the fringes of the financial services market between about 2017 and early 2020. Those three companies provided their customers, many of whom had little or no prior investment or securities trading experience, with a market and trading platform through which they could trade in highly risky over-the-counter derivative products known as contracts for difference (CFDs) and margin foreign exchange contracts (Margin FX Contracts). One of the companies, Union Standard International Group Pty Ltd (USG) held an Australian Financial Services Licence (AFSL). The other two companies, Maxi EFX Global AU Pty Ltd (EuropeFX or EFX) and Bright AU Capital Pty Ltd (TradeFred) were USG’s corporate authorised representatives. Many, if not most, of the day-to-day operations of EuropeFX and TradeFred were outsourced and performed by entities or individuals who were located overseas.

2    USG, EuropeFX and TradeFred profited handsomely from their derivatives trading business. Most of their customers did not.

3    The Australian Securities and Investments Commission (ASIC) commenced an investigation into the conduct of USG, EuropeFX and TradeFred in 2019 and in due course commenced this proceeding. ASIC alleged that each of the companies contravened various provisions in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

4    Specifically, ASIC alleged that EuropeFX: contravened s 911A of the Corporations Act on numerous occasions by providing personal advice to its customers in circumstances where it was only permitted to provide general advice; contravened ss 12DA and 12DB of the ASIC Act and ss 1041E and 1041H of the Corporations Act on numerous occasions by making false or misleading representations to its customers, or engaging in misleading or deceptive conduct, in connection with the provision of financial services; contravened s 12CB of the ASIC Act (by virtue of s 12CB(4)(b) of the ASIC Act) by engaging in a system of conduct or pattern of behaviour which was unconscionable; and contravened s 12CB of the ASIC Act on multiple occasions by engaging in unconscionable conduct in relation to certain identified customers. ASIC ultimately did not press the Court to make findings in relation to the alleged contraventions of ss 1041E and 1041H of the Corporations Act.

5    In relation to TradeFred, ASIC alleged that it: contravened s 911A of the Corporations Act on numerous occasions; contravened ss 12DA and 12DB of the ASIC Act on numerous occasions; and contravened s 12CB of the ASIC Act, both by engaging in a system of conduct or pattern of behaviour which was unconscionable, and by engaging in unconscionable conduct towards certain identified customers.

6    In relation to USG, ASIC alleged that it: contravened ss 12DA and 12DB of the ASIC Act on numerous occasions; separately contravened s 911A of the Corporations Act and ss 12DA and 12DB of the ASIC Act in respect of each of EuropeFX’s and TradeFred’s contraventions of those provisions on the basis that EuropeFX and TradeFred were acting as USG’s agents when they made the impugned statements and representations; contravened s 12CB of the ASIC Act in respect of each of EuropeFX’s and TradeFred’s contraventions of that provision, again on the basis that EuropeFX and TradeFredwere acting as USG’s agent when they engaged in the impugned conduct; and contravened s 912A(1)(a) of the Corporations Act by failing to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly.

7    The proceeding was actively and vigorously defended by EuropeFX, though EuropeFX did ultimately admit some of the alleged contraventions of s 911A of the Corporations Act and ss 12DA and 12DB of the ASIC Act.

8    USG and TradeFred did not actively defend the proceeding insofar as the allegations against them were concerned. That is because both companies were wound up before the matter proceeded to trial. The Court granted ASIC leave to proceed against USG and TradeFred pursuant to ss 471B and 500(2) of the Corporations Act respectively: see Australian Securities and Investments Commission v Union Standard International Group Pty Ltd (No 2) [2020] FCA 1871. Submitting notices were filed on behalf of both companies. The Court did, however, hear submissions by amicus curiae in respect of the allegation that USG contravened s 912A of the Corporations Act.

9    ASIC’s case against EuropeFX, TradeFred and USG was large and complex. ASIC adduced a huge volume of evidence. The evidence included, in summary: affidavit evidence from several customers of EuropeFX and TradeFred; affidavit evidence from two former employees of EuropeFX; expert opinion evidence from a person with specialised knowledge in respect of derivative markets in Australia; and voluminous documentary evidence, including business records of the three companies in question and hundreds of recordings and transcripts of telephone conversations between USG, EuropeFX and TradeFred sales and account representatives and their customers.

10    ASIC’s case in respect of the alleged contraventions of s 911A of the Corporations Act by EuropeFX and TradeFred mainly hinged on the characterisation of statements made by representatives of EuropeFX and TradeFred during their telephone conversations with the customers. The critical issue was whether those statements, considered in context, were made in circumstances where a reasonable person might expect the representatives to have considered the customers’ circumstances, financial situation and needs. ASIC initially alleged that EuropeFX, TradeFred and USG contravened s 911A on thousands of occasions. Ultimately, however, it agreed to narrow its case and require the Court to make findings only in relation to just over a hundred statements by EuropeFX (in addition to those that it admitted constituted personal advice) and twenty statements by TradeFred.

11    ASIC’s case in respect of the alleged contraventions of ss 12DA and 12DB of the ASIC Act also largely hinged on the characterisation of statements or representations made by representatives of EuropeFX, TradeFred and USG during their telephone conversations with customers. ASIC alleged that the representatives made well over a thousand representations that fell within various defined categories, many of which related in some way to the profits or income that customers might expect to earn by trading in CFDs and Margin FX Contracts, or the nature and extent of the risks involved in such trading, or the circumstances or manner in which the companies conducted their business. ASIC’s case was that representations that fell within those defined categories were false, misleading or deceptive for various reasons. ASIC initially alleged that the false, misleading or deceptive representations not only constituted contraventions of ss 12DA and 12DB of the ASIC Act, but also ss 1041E and 1041H of the Corporations Act. ASIC ultimately agreed to limit its case to contraventions of ss 12DA and 12DB of the ASIC Act. It also agreed to press the Court to make findings in relation to a much smaller number of representations.

12    Perhaps the most contentious and complex aspect of ASIC’s case was its allegation that EuropeFX engaged in unconscionable conduct, both by way of a system of conduct or pattern of behaviour and in respect of certain identified customers. ASIC relied on affidavit evidence from eight individual customers of EuropeFX. Those customers, who were referred to during the proceeding as the EFX8, were extensively cross-examined. ASIC tendered all the recordings and transcripts of telephone conversations between EuropeFX representatives and the EFX8, and all the transcripts and recordings of telephone conversations between EuropeFX representatives and another 22 customers (the EFX22), that had been produced to it during its investigation. ASIC did not adduce affidavit evidence from any of the EFX22 and they were not called or made available as witnesses in the proceeding. The EFX8, together with the EFX22 customers, were referred to during the proceeding as the EFX30. ASIC relied on the evidence of and relating to the EFX30 both in relation to its systemic unconscionability case, and its case of unconscionable conduct in respect of the customers themselves.

13    As has already been noted, ASIC adduced expert opinion evidence from a witness with specialised knowledge in respect of derivative markets in Australia, including the markets for CFD and Margin FX Contracts. EuropeFX also adduced expert opinion evidence from a person who had specialised knowledge in respect of securities trading. The expert evidence addressed several questions and issues relevant to ASIC’s case of unconscionable conduct. It also addressed questions relevant to some of the allegedly false or misleading representations.

14    ASIC also adduced evidence from two former Australian-based employees of EuropeFX. Those employees did not engage directly with EuropeFX’s customers, but rather were involved in monitoring the conversations between EuropeFX representatives and their customers for the purposes of quality control. EuropeFX ultimately did not adduce evidence from any of its representatives who dealt with the EFX30 or were otherwise involved in the conduct of its business.

15    EuropeFX vigorously maintained that ASIC had failed to prove that it had engaged in an unconscionable system of conduct or pattern of behaviour, or that its conduct in respect of the EFX30 was unconscionable.

16    ASIC’s principal case was that EuropeFX engaged in unconscionable conduct by way of its system or systems of conduct and patterns of behaviour. It initially claimed that EuropeFX engaged in unconscionable conduct in relation to each of the EFX30, but ultimately agreed to narrow its case in respect of the identified customers to the EFX8, at least if the Court found that EuropeFX had engaged in systemic unconscionable conduct.

17    ASIC’s case that TradeFred engaged in unconscionable conduct was similar to its case against EuropeFX. It was, however, slightly narrower in scope and not as contentious, particularly given that TradeFred filed a submitting appearance.

18    The parties agreed, and the Court ordered, that issues concerning liability be heard and determined separately and before any issues relating to relief. This judgment accordingly only addresses whether USG, EuropeFX and TradeFred contravened the Corporations Act and ASIC Act as alleged by ASIC.

19    I will address the multitude of complex issues that are thrown up by ASIC’s case in the following manner.

20    I will first provide a short summary of the facts and evidence concerning the general nature of the businesses conducted by USG, EuropeFX and TradeFred. It will, in that context, be necessary to provide a short description of the nature of CFDs and Margin FX Contracts, including the risks involved in trading in derivatives of that nature. I will then provide a short outline of ASIC’s case against EuropeFX, TradeFred and USG and the key issues that must be addressed and determined in respect of the alleged contraventions.

21    After providing an overview of the evidence adduced by the parties, I will then summarise the key features of the evidence of and relating to the EFX8. I will then summarise the evidence relating to the EFX22, though in considerably less detail than the evidence of the EFX8. It is necessary to consider the evidence of and relating to the EFX30 at the outset because it is relevant to most of the alleged contraventions. It will, however, be necessary to revisit some of the evidence relating to both the EFX8 and the EFX22 in the context of the specific alleged contraventions by EuropeFX, particularly the unconscionable conduct allegations.

22    Having considered the evidence of the EuropeFX and TradeFred customers, I will then briefly address the evidence of the other lay witnesses called by ASIC in its case against EuropeFX. I will also provide an overview of, and make some general findings concerning, the evidence of the expert witnesses called by ASIC and EuropeFX. Specific aspects of the evidence of the expert witnesses will also be considered in more detail when addressing the specific alleged contraventions.

23    The first group of alleged contraventions which will be considered will be the personal advice contraventions by EuropeFX and TradeFred. The second group of alleged contraventions which will be considered will be the misleading or deceptive representation contraventions by EuropeFX, TradeFred and USG. It is necessary to consider those groups of contraventions first because some of the factual findings made in the context of those alleged contraventions are likely to be relevant to the allegations concerning unconscionable conduct. ASIC alleged, for instance, that the indicia of unconscionable conduct on the part of EuropeFX included the making of many personal advice statements and misleading or deceptive representations to customers. The alleged personal advice and false or misleading representations contraventions by TradeFred will be dealt with in brief terms given that it did not file a defence or adduce any evidence.

24    I will then address the allegations of unconscionable conduct. I will first address the allegation of systemic unconscionability on the part of EuropeFX. In addressing that allegation, it will be necessary to consider, among other things, whether the evidence as a whole, including the of and relating to the EFX8, and the evidence relating to the EFX22, supports a finding that EuropeFX engaged in patterns of behaviour and systems of conduct that were, in all the circumstances, unconscionable. Having addressed ASIC’s case of systemic unconscionability, I will then consider and address whether ASIC made out its case that EuropeFX engaged in unconscionable conduct in respect of each of the EFX8. The allegations of unconscionability on the part of TradeFred will then be addressed, though again fairly briefly given the absence of any defence on the part of TradeFred.

25    Finally, I will address ASIC’s allegation that USG was liable in respect of contraventions by both EuropeFX and TradeFred, as well as ASIC’s allegation that USG contravened s 912A(1) of the Corporations Act by failing to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly.

26    To assist the comprehension of these reasons a list of defined or technical terms and abbreviations is provided in appendix A, and a list of relevant individuals and entities is provided in appendix B.

27    References in these reasons to a dollar amount refers to Australian dollars, unless an alternate currency is specifically referenced.

USG, EUROPEFX AND TRADEFRED AND THEIR BUSINESSES

28    It is useful at the outset to provide a brief outline of the nature of the businesses carried on by USG, EuropeFX and TradeFred and how they went about conducting those businesses. Some more contentious aspects of EuropeFX’s business will be addressed in more detail later in the context of the allegations concerning unconscionable conduct.

USG

29    USG was a corporation incorporated and registered in Australia. Its directors at various times during the period from 2017 to 2019 were Mr James Clinnick, Mr Anthony Alexander, Mr John Martin, Mr Darren Burns, Ms Anya Victoria and Mr Soe Hein Minn. The evidence indicated that its Chief Executive Officer during that period was Mr Shay Zakhaim. Mr Martin was USG’s Responsible Manager and Head of Compliance.

30    USG obtained an AFSL on 1 February 2016. The AFSL authorised USG, in relation to retail and wholesale clients, to: provide general financial product advice for derivatives and foreign exchange contracts; to deal in those financial products; and to make a market in relation to those financial products. The AFSL did not permit USG to provide personal financial advice. The meaning of personal financial advice, in that context, is discussed in more detail later.

31    USG authorised EuropeFX and TradeFred to provide certain specified financial services on its behalf. A company who is so authorised is generally called a corporate authorised representative (or CAR). It is unclear precisely when EuropeFX and TradeFred were appointed as USG’s CARs, though it appears that TradeFred was appointed between about July and September 2017, and EuropeFX was appointed by at least March 2018.

32    The business conducted by USG included dealing in derivatives by issuing and making a market for CFDs and Margin FX Contracts. It was common ground that, in conducting that business, USG dealt (within the meaning of s 766C of the Corporations Act) in financial products (within the meaning of Pt 7.1 Div 3 of the Corporations Act and s 12BAA of the ASIC Act) and carried on a financial services business.

33    The nature and features of CFDs and Margin FX Contracts are discussed in more detail later. It suffices at this point to note that USG was the principal and counterparty to all positions opened not only by its own customers, but also EuropeFX’s and TradeFred’s customers, by reason of, and pursuant to the terms of, Product Disclosure Statements (PDS) issued by it, EuropeFX and TradeFred. As the counterparty to all the positions, and by virtue of its arrangements with EuropeFX and TradeFred, USG generated revenue when its customers and EuropeFX’s and TradeFred’s customers made losses as a result of closing positions that had moved against them. The basis upon which USG, EuropeFX and TradeFred generated revenue and profits is discussed in more detail later.

EuropeFX

34    EuropeFX was a corporation incorporated and registered in Australia. Its director at the time of its registration on 28 March 2018 was Mr Pedro Sasso. ASIC’s records indicated that Mr Sasso resigned as a director on 20 September 2018 and Mr Martin was appointed a director in his stead. Mr Martin subsequently resigned as a director on 20 April 2019 and Mr Sasso was reappointed a director on the same day. The sole shareholder of EuropeFX was Addnet Solutions Pty Ltd. Mr Sasso was the sole director and shareholder of Addnet Solutions, though Mr Sasso held his shares in Addnet Solutions on trust for Maxiflex Global Investments Limited (later named Maxiflex Limited), a company based in either Cyprus or Israel. While Mr Sasso was EuropeFX’s sole director, he took instructions in relation to the conduct and management of EuropeFX’s business from a man named Mr Gal Amar, who was said to be an adviser to Maxiflex. Mr Sasso considered Maxiflex to be the true owner of EuropeFX. Mr Sasso’s responsibilities at EuropeFX appeared to be largely limited to accounting or financial recording.

35    It should be noted in this context that, despite having filed an affidavit sworn by Mr Sasso, EuropeFX ultimately did not call Mr Sasso as a witness in its case. Nor did it call Mr Martin or adduce evidence from Mr Amar or any other person who was involved in the day-to-day business of EuropeFX.

EuropeFX’s business – overview

36    As noted earlier, by at least March 2018 USG had appointed EuropeFX to be one of its CARs. As USG’s CAR, EuropeFX was authorised to provide, on USG’s behalf, the financial services that USG was authorised to provide under the terms of its AFSL. Shortly after its appointment as USG’s CAR, EuropeFX commenced its business of offering CFDs and Margin FX Contracts to its customers through an online trading platform known as MetaTrader4 (MT4). That trading platform was accessed via EuropeFX’s website. There was essentially no dispute that, in conducting that business, EuropeFX dealt (within the meaning of s 766C of the Corporations Act) in financial products (within the meaning of Pt 7.1 Div 3 of the Corporations Act and s 12BAA of the ASIC Act) and carried on a financial services business.

37    It is of some relevance that, while EuropeFX was an Australian registered corporation, and was only able to deal in financial products as a result of it being a CAR of USG, also an Australian registered corporation and the holder of an AFSL, EuropeFX outsourced virtually all aspects of its day-to-day business to entities or individuals who resided outside Australia. The activities or functions that EuropeFX outsourced to foreign corporations included marketing and promotions, the sourcing or “onboarding” of customers in Australia and elsewhere, and the engagement with, and provision of advice to, customers, including customers in Australia.

Marketing and promotions

38    EuropeFX outsourced its “e-marketing” to a company called Affilimedia Global Ltd, a company apparently based in Belize. Affilimedia operated websites and EuropeFX agreed to pay it a fee for every person who, as a result of interacting with an Affilimedia website, ended up interacting with EuropeFX’s website and becoming a EuropeFX customer. EuropeFX also entered into agreements with BAFF Affiliate Networks Ltd and Bolacom Ltd, both being companies incorporated in Cyprus, which involved the provision, by those companies, of platforms or services aimed at attracting new EuropeFX customers by way of online “traffic”.

39    As discussed in more detail later in the context of the unconscionability allegations, the evidence indicated that the initial contact that many customers had with EuropeFX occurred shortly after they had interacted with, or responded in some way to, online “pop-up” advertisements, promotions or other marketing devices. Those advertisements or promotions were often on social media platforms such as Facebook. The evidence indicated that the pop-up advertisements or promotions that many EuropeFX customers initially responded to or interacted with related to what was said to be an automated Bitcoin or cryptocurrency trading platform which had supposedly generated profits or wealth for several well-known businesspeople or celebrities. Those advertisements or promotions were, it may be inferred, generated or operated by Affilimedia, BAFF or Bolacom, or both. They were intended to, and did, direct “traffic” – prospective customers – to the likes of EuropeFX. Once a prospective customer interacted with one of those advertisements or promotions, they were generally contacted by telephone by someone acting on behalf of EuropeFX.

Sourcing and “onboarding” of customers

40    EuropeFX also outsourced the sourcing and registration of new customers to a company called Global Win Solutions Ltd, a company based in Belize, which provided call centre services. The evidence indicated, or supported the inference, that it was sales representatives employed or retained by Global Win who first interacted by telephone with prospective customers of EuropeFX. They were responsible for the process of registering or “onboarding” new customers.

41    The evidence concerning the on-boarding and registration process will be considered in more detail later in these reasons in the context of the unconscionability allegations. As has already been noted, the evidence suggested that prospective customers who had clicked on or otherwise responded to online or social media advertisement or promotions operated by Affilimedia, BAFF or Bolacom, subsequently received a telephone call from someone who said they were from EuropeFX. It may be inferred that such persons were sales representatives employed or retained by Global Win. Those representatives generally endeavoured to persuade prospective customers to register with EuropeFX and to deposit funds for the purpose of trading.

42    If the customer was persuaded to register and open a trading account, the online registration process required the customer to complete an online questionnaire. That questionnaire required the customer to provide information concerning their personal and financial circumstances, including their income, their financial resources and their experience, if any, in respect of trading in various financial products, including CFDs. The questionnaire also required the customer to tick a box indicating that they had read a risk disclosure notice and had read and understood various other documents, including EuropeFX’s PDS and Terms of Business.

43    The evidence concerning the completion of the online questionnaire by prospective EuropeFX customers will be considered in detail later in these reasons. Suffice it to say at this point that the evidence concerning the “onboarding” of prospective customers by Global Win sales representatives, acting on behalf of EuropeFX, supports the inference that the representative rushed the customer through those parts of the questionnaire which involved the customer acknowledging that they had read and understood the risk disclosure notice and PDS. Indeed, the evidence supports the inference that the customer was often discouraged from reading, or at least not encouraged to read, those documents. Rather, they were encouraged to simply tick the boxes and were told that a EuropeFX account manager would later explain everything to them. The overall inference that was available from the evidence was that the onboarding process was intended to encourage, or at least not discourage, prospective customers to open a trading account, even if they had no prior knowledge of or experience trading in CFDs, Margin FX Contracts, or any similar financial products. At the very least, the process was undiscriminating in that regard.

44    As will be seen, virtually none of the EFX8 or the EFX22 had any relevant knowledge of, or relevant experience in relation to, CFDs, Margin FX Contracts, or any similar financial products. Indeed, most had no, or very little, financial or investment experience at all. They were all nevertheless encouraged to open EuropeFX trading accounts.

Trading and account managers

45    Perhaps most significantly, the evidence indicated that EuropeFX outsourced all trading and trading account interactions with its customers to a company called XYX Media Technologies Ltd, a company based in Israel which provided call centre services. The overwhelming inference available from the evidence was that it was employees of XYX, mostly residents of Israel, who performed duties as “account managers” in respect of EuropeFX’s customers. Among other things, they spoke with EuropeFX customers over the telephone about their trading and trading activities. As has already been adverted to, much of the evidence tendered by ASIC in its case against EuropeFX comprised recordings and transcripts of telephone conversations between account managers and customers. It may be inferred that those account managers were employees of XYX who were acting on behalf of EuropeFX pursuant to the agreement between EuropeFX and XYX. EuropeFX did not adduce any evidence to counter or rebut that inference. While the account managers may have been employed by XYX, they will generally be referred to throughout these reasons as EuropeFX representatives or account managers given that they were acting for and on behalf of EuropeFX in their interactions with EuropeFX customers.

46    The evidence concerning the interactions between the account managers and EuropeFX customers, in particular the EFX8 and the EFX22, will be addressed in considerable detail later in these reasons. It suffices at this point to note that the account managers interacted extensively with the customers about their trading throughout the period that they traded with EuropeFX. Not surprisingly, given their lack of relevant knowledge and trading experience, the customers were heavily reliant on the account managers.

47    The evidence clearly indicates that the account managers frequently and routinely gave the customers advice or recommendations about trades they should place (CFD or Margin FX buy or sell positions they should open or close), often based on information said to have been gleaned from third-party market information websites. The recommendations were frequently accompanied by promises, assurances or at least suggestions about the profits the customers could expect to earn if they carried out the recommended trade. Those recommendations often escalated to the point where the customers were effectively being pushed or pressured to open more and larger trades. The customers were also frequently pressured to deposit further money into their trading accounts, either to allow more trading, or to provide necessary margin for their existing positions. As will be seen, the recommendations in most, if not all, cases plainly constituted personal advice, even though EuropeFX was only authorised to provide general advice to its customers. As will also be seen, the account managers also frequently made false, misleading or deceptive representations to EuropeFX customers about matters relating to their trading or the financial services provided by EuropeFX.

48    The conduct of the EuropeFX account managers lies at the heart of ASIC’s case that EuropeFX engaged in unconscionable conduct, both systemically and towards the relevant identified customers. ASIC contended that the account managers, among other things: failed to take any, or any reasonable, steps to ensure that the customers had a sufficient understanding of the relevant financial services and products and the risks of trading before actively encouraging them to trade; gave each of the EFX30 personal advice in circumstances where they knew they were not permitted to do so; made misleading statements to, or engaged in misleading or deceptive conduct towards, the customers; fostered and encouraged the customers to blindly rely on them and follow their recommendations; on occasion pressured each of the EFX30 to trade and deposit more funds into their trading accounts, sometimes by employing unfair tactics and promotions; and often encouraged the customers to engage in risky trading strategies.

Remuneration of account managers

49    There was evidence that the remuneration of the account managers who were employed by XYX and who, it may be inferred, provided services for, and engaged with customers on behalf of, EuropeFX, included commission based on the amount of the deposits made by the customers. ASIC tendered an email from Mr Amar to Mr Zakhaim which attached a document that was said to be an example of an employment agreement between XYX and a person employed as a “Sales Representative – Retention”. The terms of that agreement included (at cl 10 of Appendix A) that the employee would receive “Additional Benefits” including commissions calculated on the basis of 1.5% for every deposit by a customer.

50    It may be inferred that the account managers who interacted with customers on behalf of EuropeFX were relevantly incentivised by the commission payable to them to obtain deposits from their customers. The more deposits the account managers were able to secure, the more money they received. It is perhaps not surprising in those circumstances that, as has already been noted, the account managers frequently encouraged and at times pressured their customers to deposit more funds into their trading accounts.

Compliance and dispute resolution

51    EuropeFX’s complaint and dispute resolution processes were also mostly outsourced to and managed by Mr Ari Amsalem, who appears to have been an officer or employee of Maxiflex who resided overseas. The evidence concerning the complaint and dispute resolution process will be discussed in detail in the context of ASIC’s case concerning unconscionable conduct. It suffices at this point to note that ASIC contended that process was one-sided and unfair. ASIC alleged that the evidence established that customers were almost invariably told that their complaints had no merit. They were also discouraged from engaging their own lawyers, discouraged from lodging complaints with ASIC or the Australian Financial Complaints Authority (AFCA) and pressured into entering into paltry settlements.

52    As will be seen, EuropeFX did employ at least two people in Australia who performed duties as “quality control” officers. They did not deal directly with EuropeFX’s customers or their complaints. Rather, they randomly reviewed some recordings of conversations between EuropeFX account managers and their customers for the purpose of determining whether there had been any misconduct by the account managers. They reported their findings to EuropeFX’s overseas “compliance team”. As will be seen, they regularly reported that EuropeFX account managers were engaging in misconduct, or inappropriate conduct, towards their customers.

EuropeFX’s revenue and income stream

53    ASIC submitted that the evidence established that EuropeFX’s revenue was primarily derived from and calculated by reference to the aggregate net losses incurred by its clients. I accept that submission.

54    The documentary evidence tendered by ASIC indicated that EuropeFX’s revenue from its business was primarily derived from fees payable and paid to it pursuant to the terms of its CAR agreement with USG. The CAR agreement provided, among other things, that EuropeFX was to be paid between 86% and 90% of USG’s profits derived from trades by EuropeFX customers who were allocated to USG’s B Book. Trades by EuropeFX customers in USG’s B Book were not hedged by default by USG, whereas trades in USG’s A Book were hedged with a hedging counterparty. While provision was also made for the calculation of the fees payable to EuropeFX by referance to lots traded by customers in USG’s “A Book”, the evidence indicated that the overwhelming majority (95% to 99%), if not all, of EuropeFX’s customers were allocated to USG’s B Book.

55    As noted earlier, because USG was the counterparty to all the trades, it derived profit from trades by customers in the B Book when those customers made a loss in respect of those trades. That fact, combined with the fact that, as just noted, EuropeFX received fees calculated on the basis of a very large percentage of USG’s profits derived from trading by virtually all of EuropeFX’s customers, meant that EuropeFX’s revenue was essentially derived from, or based on, the net trading losses incurred by its customers. In short, the more its customers lost, the more revenue it earned.

56    That conclusion was supported by relevant EuropeFX financial records obtained by ASIC during its investigation. An analysis of those documents indicated that EuropeFX’s monthly income invariably corresponded with the net amount lost by its customers. Conversely, in those very rare months when EuropeFX’s customers, in aggregate, made profits, USG invoiced EuropeFX, and EuropeFX paid USG, a “fee” representing those net profits. It should also be noted in this context that the losses suffered by EuropeFX’s customers, and the income derived by EuropeFX as a result of those losses, were substantial. For example, in the period from 1 August 2018 to 17 December 2019, the total net loss suffered by EuropeFX customers was $69,894,004. It may be inferred that during that period EuropeFX derived fees corresponding with those losses.

57    EuropeFX contended that the evidence did not support the proposition that its revenue was primarily derived from the losses made by its clients. It submitted that the allocation of customers between USG’s A Book and B Book was a matter for USG, that there was no evidence that EuropeFX was aware of USG’s allocation of its customers between its A Book an B Book, that the evidence did not clearly establish that all, or virtually all, if its customers were allocated to the B Book, and that it was possible that USG may have engaged in some manual or internal hedging in its B Book.

58    In my view, those submissions have no merit. There was some documentary evidence which indicated that EuropeFX was able to arrange for its customers to be assigned to USG’s A Book, but there was no evidence to suggest that it put any such arrangements into effect. I am also satisfied that the evidence supports the inference that Mr Sasso, and most likely other EuropeFX officers were well aware of the source of its revenue and how it was calculated, as one might expect. EuropeFX’s own financial records reflected the fact that most, if not all, of its customers were allocated to USG’s B Book and that EuropeFX’s revenue had been calculated on that basis. The evidence indicated that Mr Sasso was involved in producing or approving EuropeFX’s accounts and financial records. It may plainly be inferred that he was aware of what they recorded.

59    The suggestion that USG might have engaged in some manual or internal hedging in its B Book is not only somewhat beside the point, but is in any event at best speculative and unsupported by any evidence. It is also contrary to the opinion evidence of ASIC’s expert witness, Mr John Blundell, which I accept, that retail CFD businesses like EuropeFX do not have a client base sizable enough to internally hedge by offsetting and internalising client trades.

60    EuropeFX disputed that its financial records supported the inference that it derived its income from the losses incurred by its clients. It appeared to accept that its financial records indicated that the net losses of its retail clients equalled its net income or revenue, though it characterised that equivalence as an “arithmetical coincidence”. In my view, the arithmetical equivalence is no coincidence. EuropeFX also argued that if, as ASIC contended, 95-99% of its customers had been allocated to USG’s B Book, it followed that 1 to 5% of its customers must have been in USG’s A Book. It followed, so it was submitted, that the fact that its own financial records indicated that its net revenue equalled the net losses of its retail clients, meant that the financial records were either incorrect, or it had consistently been overpaid by USG. In EuropeFX’s submission, the suggestion that it was overpaid by USG was implausible. I am unable to see any merit in those submissions. The more plausible or probable inference is that either all EuropeFX’s customers were allocated to the B Book, or that for whatever reason it was remunerated on that basis. In any event, even if it was the case that 1-5% of EuropeFX’s customers were in USG’s A Book, which appears doubtful, it nevertheless still follows that the vast bulk of its revenue was derived directly from the losses incurred by its clients.

61    It should finally be noted that the inference that EuropeFX’s revenue was derived directly from the losses incurred by its client may be more safely drawn given that EuropeFX did not call Mr Sasso, or any of its other employees or agents, to give evidence concerning the source of its revenue. Mr Sasso was EuropeFX’s sole director and was an Australian resident. He was a qualified accountant and was responsible for EuropeFX’s financial statements. He could readily have given evidence concerning the sources and calculation of EuropeFX’s revenue. He was not called. EuropeFX conceded that a Jones v Dunkel inference (cf Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298) was available in respect of its failure to call Mr Sasso. In my view, the inference that EuropeFX profited from its client’s losses was overwhelming and inescapable in all the circumstances.

Termination of EuropeFX’s CAR with USG

62    EuropeFX’s CAR with USG was terminated with effect from 31 January 2020.

TradeFred

63    TradeFred was a corporation registered in Australia. Its 100 shares were initially held by Mr Sasso and at some point by BrightFX Capital Limited, a company incorporated in the United Kingdom. Its sole shareholder as at the time it entered into administration, was TradeFred Holdings Ltd. The controlling shareholder of TradeFred Holdings appears to have been Mr Alex Misiev, an Israeli citizen. Mr Sasso was TradeFred’s sole director from 12 June 2017 until he was replaced by Mr John Martin in September 2018.

TradeFred’s business

64    TradeFred and USG entered into an agreement pursuant to which TradeFred was appointed as a CAR of USG. As noted earlier, that agreement appears to have been entered some time between July and September 2017. As USG’s CAR, TradeFred was authorised to provide, on USG’s behalf, the financial services that USG was authorised to provide under the terms of its AFSL. USG and TradeFred also entered into a “White Label Agreement” in September 2017 pursuant to which TradeFred was permitted to offer a financial product using its branding through USG’s platform. TradeFred also offered CFDs and Margin FX Contracts issued by USG to its customers through that online trading platform.

65    In conducting that business, TradeFred dealt (within the meaning of s 766C of the Corporations Act) in financial products (within the meaning of Pt 7.1 Div 3) of the Corporations Act and s 12BAA of the ASIC Act) and carried on a financial services business.

66    TradeFred had a much smaller client base than EuropeFX. By the end of 2019, TradeFred had about 1,649 clients who had made at least one trade and had a positive account balance. Of those clients, 572 were Australian residents, 716 resided in the United Kingdom and the balance lived in other countries.

The way TradeFred provided its services

67    Like EuropeFX, TradeFred outsourced almost all its day-to-day business activities to offshore service providers.

68    There is evidence that TradeFred outsourced its “sales support, customer account data and marketing activities” to TradeMagnet UK Limited, a company incorporated in England and Wales. TradeMagnet was a subsidiary of TradeFred Holdings. The “marketing activities” under the agreement between TradeFred and TradeMagnet included “engaging a third party to provide sales services” on TradeFred’s behalf. A company named Capital Unit Media Limited appears to have been engaged to provide those sales services. The evidence suggested that Capital Unit was based in Israel. The sales services provided by Capital Unit included the provision of sales representatives who contacted prospective customers and encouraged them to open accounts, and account managers who engaged with those customers in respect of their trading.

69    The sales representatives who were retained to provide sales services on behalf of TradeFred received bonuses of up to US$75 per client depending on how many new clients they converted. A sales representative who signed up between 8 and 15 new clients would receive a bonus of $20 per client and a sales representative who signed up more than 60 clients would receive a bonus of $75 per client.

70    The evidence suggested that the individuals who provided account management services to TradeFred customers on behalf of TradeFred were, like the EuropeFX account managers retained by XYX, most likely based in Israel. Like the account managers who were retained to act on behalf of EuropeFX, the account managers who were retained to provide services on behalf of TradeFred earned commissions which were based on a percentage of the net deposits made by the customers with whom they engaged. They received commission of 2.5% of the customer’s net deposits if the net deposits were between $10,000 and $29,999 and up to 6.5% commission if the customer’s net deposits were between $500,000 and $749,000.

TradeFred derived income from its customers’ losses

71    Documentary evidence tendered by ASIC supported the inference that TradeFred effectively earned its income from its clients’ trading losses. The While Label Agreement between TradeFred and USG indicated that TradeFred would pay USG a fee calculated as a percentage of the losses incurred by the TradeFred customers who were assigned to USG’s B Book. That fee was between 10% and 12% depending on the size of the loss. It is implicit in the agreement that TradeFred would retain the balance of the net revenue in USG’s B Book – which meant that it effectively derived income of somewhere between 88% and 90% of the losses of its B Book clients. The agreement also provided that TradeFred would pay fees in respect of A Book customers calculated on the basis of the lots traded. The evidence, however, indicated that TradeFred had no arrangement in place with USG in respect of the assignment of its customers to USG’s A Book. The available financial records indicated that the payments that TradeFred made to USG were calculated on the basis TradeFred’s customers were in USG’s B Book.

72    TradeFred’s financial records for May and June 2019 record that the net losses of TradeFred’s customers were treated as TradeFred’s income and that TradeFred was required to pay USG fees of between 10% and 12% of that income. TradeFred’s financial report for the 2019 financial year also recorded that TradeFred paid USG about 10% of its “trading revenue” which, it may be inferred, represented its customers’ losses.

Losses incurred by TradeFred customers

73    In the period between March 2018, when it commenced trading, and November 2019, when ASIC intervened, TradeFred’s clients made trading losses of over $8 million, not including commission. Reconciliation reports prepared by TradeFred representatives indicate that, in the period between 30 August 2018 and 17 December 2019, TradeFred’s clients incurred net losses exceeding $13 million.

Termination of the CAR and appointment of liquidators

74    On 3 March 2020, USG terminated its CAR agreement with TradeFred with effect from 10 March 2020. On 10 March 2020, liquidators were appointed to TradeFred in a voluntary winding up.

CFDS AND MARGIN FX CONTRACTS

75    As has already been made clear, the businesses conducted by USG, EuropeFX and TradeFred primarily, if not exclusively, involved trading in over-the-counter derivatives known as CFDs and Margin FX Contracts. Those financial products are both complex and inherently risky in nature.

76    A CFD, put simply, is a contract between a market-maker and a trader to exchange, at the closing of the contract, the difference in price between the opening price and the closing price in the underlying asset, multiplied by the number of units of that asset specified in the contract. The underlying asset might be a commodity (such as a barrel of oil or a quantity of gold) a stock market index (such as the All Ordinaries, ASX 200 or Dow Jones) or shares traded on a securities market, or bonds. The trader does not acquire any interest in the underlying asset. Rather, the trader takes a position on whether the price of the underlying asset will increase or decrease over time.

77    The issuer or market maker for a CFD makes the market by taking the opposite position to the trader. The market maker also effectively sets the prices, known as “bid” and “ask” prices. The bid price is the price at which the market maker will sell the particular CFD to a trader. The ask price is the price at which the market maker will buy the CFD from a trader. There is generally a difference between the bid and ask prices and the price of the underlying asset on the exchange on which the underlying asset is traded. The difference is referred to as the “spread”.

78    A trader opens a position in respect of a CFD by either acquiring it at the then bid price, or selling it at the then ask price. The trader closes the position by trading in the opposite position to the original trade: selling the CFD at the new ask price (where the original trade was to acquire the CFD), or buying the CFD at the new bid price (where the original trade was to sell the CFD). The trader is thereby exposed to movements in the value of the underlying asset during the period when the trader’s position is open. If the original trade was to buy a CFD and the price of the underlying asset increases by the time the position is closed, the trader will make a profit, subject to the payment of any applicable commissions or other fees. If, on the other hand, the price of the underlying asset decreases before the position is closed, the trader will make a loss.

79    Margin FX Contracts are very similar to CFDs and operate in more or less the same way. The only material difference is that, in the case of a Margin FX Contract, instead of agreeing to exchange the difference between the opening and closing price of an underlying asset, the parties agree to exchange the difference between the opening and closing value of one currency relative to the other. Examples of common “currency pairs” that may be the subject of a Margin FX Contract are the US Dollar against the British Pound and the US Dollar against the Euro.

80    Both CFDs and Margin FX Contracts are highly leveraged. That is because the trader is only required to outlay or deposit a small fraction of the actual price or value of the underlying asset or currency to open the position. The trader, however, is exposed to the totality of the movement in the price of the underlying asset or currency. In that way, a relatively small outlay may generate a relatively large profit. Equally, however, that small outlay might generate a relatively large loss.

81    Because CFDs and Margin FX Contracts are highly leveraged, the customer is ordinarily required to deposit funds in the dealer’s trading account with the dealer which provide a sufficient margin to cover any potential losses. The amount that is required to be maintained in the trading account is generally referred to as the margin or margin level. If the market moves against the trader’s open position and the trader has an insufficient margin, the dealer may make a margin call and require the trader to deposit more funds. Worse still, if the margin call is not met, or the market moves significantly against the trader, the trader’s position may be automatically closed by the dealer and the trader’s loss crystalised. Typically, all the funds in the trader’s deposit account are exposed to adverse price movements when the trader has an open position.

82    EuropeFX’s PDS for CFDs described them in the following terms:

A Contract for Difference ("CFD") is a leveraged financial instrument that changes in value by reference to fluctuations in the price of an underlying thing such as the price of gold, silver or an index (such as the S&P500/UK 100 Index). We refer to those underlying things as “instruments”.

When trading CFDs, you and USG agree to exchange the difference in value of the CFD between when the CFD is opened and when it is closed. You will either be entitled to be paid an amount of money (if the value of the CFD has moved in your favour) or will be required to pay an amount of money (if the value of the CFD has moved against you).

You can keep a CFD trade open for as long as you are able to meet your margin requirements (including a minimum Margin Level). CFD transactions are closed by you taking an offsetting, opposite position, or by us/USG under our Forced Liquidation procedures where applicable.

83    EuropeFX’s PDS for Margin FX Contracts described them in the following terms:

Margin FX trading contracts are agreements between you and USG which allow you to make a gain or loss, depending on the movement of underlying currencies. The Contract derives its value from underlying currencies (usually referred to as a currency pair) which is never delivered to you, and you do not have a legal right to, or ownership of such underlying currencies. Rather, your rights are attached to the contract itself. The money you will receive will depend on whether the currency you choose moves in your favor. If it does, then you will make a gain and your account will be credited. If it does not, then you will make a loss and your account will be debited. The contracts only require a deposit which is much smaller than the contract size (this is why the contract is “margined” or “leveraged”).

84    While it is possible to describe CFDs and Margin FX Contracts in conceptually simple terms, there could be little doubt that they are, in practice, very complex financial products which carry a high degree of risk.

85    As for the complexity of those financial products, ASIC’s expert witness, Mr Blundell, who had relevant training and experience in relation to CFDs and Margin FX Contracts, expressed the following opinion:

Having been employed by a margin FX and CFD issuer for over the past seven years, I firmly believe that Margin FX and CFDs are complex financial products. They are derivatives that use leverage to potentially earn a high amount of profit on each transaction but are also high-risk products than can equally generate large losses on any transaction. Anyone trading Margin FX and CFDs must have a strong understanding of leverage, margin and the effect that price movements in the underlying asset have on margin level.

86    EuropeFX maintained that CFDs were not complex instruments. EuropeFX’s submission that CFDs and Margin FX Contracts were not complex appeared to be based on the proposition that CFDs can be relatively easily traded and that it is only the complex “back-end” processes that are complex. I reject that submission. If the expression “back-end” processes or operations is intended to refer to or include, for example, the identification and calculation of figures for the leverage, margin, total margin, equity and net equity referable to a CFD or Margin FX Contract or a customer’s CFD or Margin FX trading account, it can readily be accepted that the processes are very complex. Only someone with some level of training, knowledge and experience in respect of CFDs and Margin FX Contracts would be able to readily understand those processes.

87    I do not, however, accept the proposition that CFDs can be easily accessed and traded. Indeed, the evidence indicated that most of EuropeFX’s customers, and the EFX8 in particular, could not access or trade CFDs with ease, at least until they had been trading for some time. Rather, in most cases the EuropeFX account managers effectively had to tell the customers exactly what to do to “access” and open or close a position in respect of a CFD or Margin FX. That often occurred in circumstances where the account manager had access to or visibility of the customer’s trading screen and told the customer where to move the mouse, what icons to click on and what numbers to enter in fields on the trading screen. Most of the customers simply did as they were told.

88    A screenshot of EuropeFX’s MT4 trading platform was in evidence. It could not seriously be suggested that someone with little or no trading experience could readily comprehend all or the information on that platform, or could readily navigate through it. Indeed, the trading screen may as well have been in hieroglyphics. It included figures for “balance”, “equity”, “margin”, “free margin” and “margin level”. An inexperienced investor, however, would effectively have little or no ability to ascertain how those figures were calculated, or what they represented or meant. Indeed, in cross-examination, even EuropeFX’s expert witness, Mr George T Dowd III, had some difficulties identifying what the figure for “balance” took into account. He also accepted that there was no way that the figure for “margin” on the screen could be calculated using just the information on the screen and conceded that he would have needed a calculator to work out how the figure for “equity” was calculated.

89    More fundamentally, the mere fact that a customer might be able to easily access and trade CFDs does not mean that CFDs and Margin FX Contracts are not complex. The fact that a customer might be able to open or close a particular position in a CFD or Margin FX Contract does not mean that they know what they are doing, or understand exactly what the implications of opening or closing that position may be. Indeed, a customer might be able to trade in CFDs and Margin FX Contracts without really knowing what they are doing. The effect of Mr Blundell’s evidence, which I accept, is that a customer cannot knowingly, safely or successfully trade in CFDs or Margin FX Contracts unless the customer has a sound knowledge or understanding of concepts such as leverage, margin and the effect that price movements in the underlying asset or currencies have on margin level. A customer who trades without a sound understanding of those matters is, to put it colloquially, flying blind. As will be discussed in detail below, the evidence revealed that most of the EFX30 were flying blind during most, if not all, of the time that they traded in CFDs and Margin FX Contracts.

90    Mr Dowd, an experienced discretionary foreign exchange, stock index and commodity derivatives trader, expressed the view that CFDs and Margin FX Contracts were “simple products to understand and trade” and that the “associated profit and loss calculations require only simple math”. I will discuss my comparative assessment of the opinion evidence of Mr Blundell and Mr Dowd, where their opinions differ, in more detail later in these reasons. It suffices at this point to note that I do not accept Mr Dowd’s opinion concerning the simplicity of CFDs and Margin FX Contracts. His evidence in that regard was plainly given from the perspective of a highly experienced institutional investor with expertise in respect of derivatives. It may, of course, be accepted that highly educated, trained, experienced and financially sophisticated traders of derivatives, in particular institutional traders, might consider that CFDs are not particularly complex. It is, however, doubtful that persons with little or no training or experience in relation to derivatives or similar financial products would easily or quickly grasp the nature and essential features of CFDs and Margin FX Contracts. It is particularly unlikely that inexperienced or financially unsophisticated persons would be able to easily or quickly grasp fundamental concepts such as leverage and margin. A sound understanding of those concepts would be necessary to fully appreciate the nature and extent of the risks inherent in CFD and Margin FX Contract trading.

91    In cross-examination, Mr Dowd to a large extent accepted that to trade successfully in CFDs, an investor would have to understand how the profit or loss from a trade is calculated, which would require the customer to understand the effect of the change in price of the underlying asset and also the amount of commissions and fees payable in respect of the trade. Perhaps more significantly, Mr Dowd in effect accepted that, for an investor to have a sound understanding of a CFD and how it is traded, the investor would have to understand the meaning and operation of concepts of leverage, margin (including “total margin” and “margin level”) and “net equity” and how they are calculated. Those concepts are plainly not self-explanatory and would need to be learned, as Mr Dowd in effect accepted. Moreover, to successfully trade in CFDs, an investor would have to understand the relationship between margin level, net equity and total margin, and also understand what a margin call is and in what circumstances it might arise. Mr Dowd effectively accepted that to be so. He also accepted that, for an investor to successfully trade, it would be necessary for the investor to understand what a forced liquidation is and how margin calls and forced liquidation can be avoided. I do not accept that any of those concepts would be readily or easily understood by anyone with little or no prior knowledge of or experience in financial markets.

92    As for the nature and extent of the risk involved in trading in CFDs and Margin FX Contracts, in my view it is readily apparent that CFDs and Margin FX Contracts are highly risky financial products.

93    Mr Blundell’s opinion, based on his experience and observations as Head of Compliance at an Australian company that issued CFDs and provided trading services to retail clients, was that CFDs are risky financial products, particularly for inexperienced investors. His evidence was that “if a person does not have experience in successfully trading CFDs or Margin FX Contracts, and also lacks an understanding in the nature of those products and the concepts of margin and leverage, then it is more likely than not that person will lose all the funds deposited into a CFD trading account within a short period”. Even at the company where he worked, which had a strong and robust compliance structure, and did not permit inexperienced customers to trade until they demonstrated a certain level of relevant comprehension and competence, approximately 70% to 75% of the customers who traded in CFDs and Margin FX Contracts lost money over the course of the year.

94    Mr Blundell’s opinion was that the main reason that inexperienced traders lost their funds within a short period was that they did not understand the effects that leverage can have on eroding all the funds that the trader had deposited into their trading account. His evidence was that:

An inexperienced client will typically open positions that use a large proportion of their Net Equity, often in excess of half of their available funds. This means that it would only take a small adverse movement in prices to erode all of the net equity in the client’s account and cause a forced liquidation. I am aware that inexperienced clients will invariably place a lot more than 1% of their Net Equity as margin when trading CFDs or Margin FX.

95    I accept that evidence.

96    Mr Dowd’s opinion that the majority of risks associated with CFDs and Margin FX Contracts are similar to those which exist in equity markets. That view, however, appears to have been a product of his particular expertise as an institutional derivatives trader or investor. He accepted that equities trading was not his area of expertise. In any event, it is fairly obvious that the fact that CFDs and Margin FX Contracts are highly leveraged, and that the trader’s potential losses are not limited to the amount outlaid, tends to make them riskier than, for example, investments in shares. On the one hand, in the case of an open position in a CFD, even a relatively small adverse movement in the price of the underlying asset might result in a margin call, or the automatic closure of the open position, which in turn might put all of the funds in the investor’s trading account at risk. On the other hand, in the case of shares, if an investor buys shares in a company, he or she may lose money if the share price falls. It is, however, highly unlikely that the investor could or would lose all the money they outlaid to purchase the shares. That would generally only occur if the company completely failed and was wound up with debts exceeding assets.

97    I do not accept Mr Dowd’s opinion in relation to the nature and extent of the risks associated with trading in CFDs and Margin FX Contracts. It was given from the perspective of someone with considerable experience as an institutional investor in certain derivatives and leveraged financial products. Mr Dowd had little if any direct experience in respect of assessing the nature and extent of the risks of CFDs and Margin FX Contracts for retail customers. Indeed, in the United States, which was the country in which Mr Dowd acquired most of his professional knowledge, training and experience, retail customers have not been permitted to trade in CFDs since at least 2011.

98    The position taken by EuropeFX in its submissions also appeared to be entirely at odds with risk disclosure notices that appeared in some of its contemporaneous documentation. As will be seen, in its defence to ASIC’s case that it engaged in unconscionable conduct, EuropeFX placed considerable reliance on the fact that some of its communications with customers and prospective customers included a risk disclosure notice. For example, some of EuropeFX’s communications included a notice in the following terms:

* Risk Warning: ‘CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.99% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.'

99    The content of EuropeFX’s own risk disclosure notice effectively accorded with Mr Blundell’s evidence.

100    In my view it is fundamentally important to approach this case, and in particular ASIC’s allegations concerning the unconscionable conduct on the part of EuropeFX and TradeFred, on the basis that CFDs and Margin FX Contracts are, as EuropeFX’s own risk disclosure notices indicated, complex financial products or instruments, that trading in them carries a high level of risk, and that there is a high risk that retail investors, particularly inexperienced retail investors, will lose money from such trading.

OVERVIEW – ALLEGED CONTRAVENTIONS AND KEY ISSUES

101    In the following section, I propose to briefly summarise ASIC’s allegations and briefly identify what appear to be the main issues between the parties in respect of the contraventions alleged by ASIC. The issues and allegations will of course be addressed in considerably more detail later in these reasons. The relevant statutory provisions and applicable principles are also discussed in considerably more detail later.

Alleged contraventions by EuropeFX

102    ASIC alleged that EuropeFX engaged in four categories of contravening conduct: first, contraventions of s 911A(5B) of the Corporations Act as a result of EuropeFX account managers giving personal advice to each of the EFX30 in circumstances where it was only permitted, as a CAR of USG, to give those customers general advice; second, contraventions of ss 12DA and 12DB of the ASIC Act as a result of its account managers making misleading or deceptive representations to the EFX30; third, a contravention of s 12CB(1) of the ASIC Act as a result of EuropeFX engaging in a system of conduct or pattern of behaviour that was, in all the circumstances, unconscionable; and fourth, contraventions of s 12CB(1) of the ASIC Act as a result of engaging in conduct towards the EFX30 which was, in all the circumstances, unconscionable.

Personal advice contraventions

103    There was essentially no dispute that USG, and therefore EuropeFX as its CAR, was only permitted to give general financial product advice, not personal financial product advice. ASIC alleged that EuropeFX account managers nevertheless gave the EFX30 financial product advice (as defined in s 766B(1) of the Corporations Act) which was personal advice (as defined in s 766B(3) of the Corporations Act). ASIC alleged that the personal financial product advice given by the EuropeFX account managers fell into various categories defined in the Statement of Claim (SOC). Those defined categories of statements were: Position Statements, Signal Provider Statements, Deposit Statements and Trading Strategy Statements.

104    ASIC alleged that EuropeFX made over 2,000 personal advice statements and therefore contravened s 911A(5B) over 2,000 times. There was no dispute that EuropeFX account managers made the alleged statements. They are recorded in the transcripts of the telephone calls between the account managers and the customers. The issue was whether the statements constituted personal financial product advice.

105    EuropeFX ultimately admitted that it contravened s 911A on 177 occasions. It denied that any of the other statements its account managers made constituted personal financial product advice. It admitted, however, that statements made by EuropeFX account managers on a further 108 occasions had been accurately characterised by ASIC as falling within one or more of the defined categories of statement.

106    ASIC ultimately agreed to narrow its case and to press the Court to only make findings (in addition to the admitted contraventions) in respect of the statements which EuropeFX admitted were properly characterised or categorised as Position Statements, Signal Provider Statements, Deposit Statements or Trading Strategy Statements as defined. As will be seen, those categories of statements were effectively defined in such a way that any statement that fell within one or more of those defined categories effectively satisfied the definition of financial product advice in s 766B(1) of the Corporations Act.

107    In those circumstances, the central issue in respect of the alleged personal contraventions pressed by ASIC and not admitted by EuropeFX was whether those statements were made in circumstances which fell within s 766B(3) of the Corporations Act. ASIC did not press its original contention that the statements fell within s 766B(3)(a). The central issue, therefore, was whether the statements were made in circumstances which fell within s 766(3)(b) of the Corporations Act because they were made in circumstances where a reasonable person might expect the provider (the EuropeFX account manager) to have considered one or more of the recipient’s (the EuropeFX customer’s) objectives, financial circumstances and needs.

108    ASIC submitted that it was clear from the circumstances in which the relevant statements were made that a reasonable person might expect the EuropeFX account manager to have considered one or more of the customer’s objectives, financial circumstances and needs. That was mainly because the account managers, in their initial engagements with the customers, had almost invariably asked the customers about their financial circumstances, financial needs and objectives or reasons for wanting to trade with EuropeFX.

109    EuropeFX did not advance any, or any detailed or substantive, submissions in respect of this issue.

False, misleading or deceptive representations or conduct

110    ASIC alleged that EuropeFX account managers made over 1,400 representations to the EFX30 that were false, misleading or deceptive. Those representations were alleged to have fallen within one or more of a number of categories defined in the SOC. Those defined categories were: Profit Representations, Revenue Representations, Money Risk Representations, Withdrawal Representations, Loss Recovery Representations, Equities Representations, Bank Account Representations, Plan Representations, Regulation. ASIC’s case, as pleaded, was that all those representations gave rise to or constituted contraventions of ss 12DA and 12DB of the ASIC Act and s 1041E and/or s 1041H of the Corporations Act.

111    EuropeFX eventually admitted that its account managers made misleading or deceptive representations on 53 occasions. While it is somewhat unclear from the terms of its admission, it appears that EuropeFX admitted that, in making each of those misleading or deceptive representations, it contravened ss 12DA and 12DB of the ASIC Act and ss 1041E and 1041H of the Corporations Act.

112    EuropeFX denied that the balance of the representations made by its account managers gave rise to contraventions of ss 12DA and 12DB the ASIC Act or ss 1041E and 1041H of the Corporations Act. It did, however, admit that representations made by EuropeFX account managers on a further 127 occasions had been correctly or accurately classified or characterised by ASIC as falling within one or more of the ten categories defined in the SOC.

113    ASIC ultimately agreed to narrow its case and to press the Court to make findings (in addition to the admitted contraventions) the representations that EuropeFX admitted fell within the defined categories. ASIC also limited its case to alleging that the making of each of those representations constituted contraventions of either ss 12DA or 12DB of the ASIC Act. It did not press the Court to make findings as to whether they also constituted contraventions of ss 1041E or 1041H of the Corporations Act.

114    There was no dispute that EuropeFX account managers made the impugned representations. They are recorded and reproduced in the various transcripts of the telephone calls between the case managers and the various customers. Given that ASIC limited its case to alleged contraventions of either ss 12DA or 12DB of the ASIC Act, the central issue was whether the representations were false, misleading or deceptive.

115    In relation to some of the representations, the fact that EuropeFX admitted that they fell within one of the defined categories went a considerable way towards proving that the representations were misleading or deceptive. That was, or at least was likely to be the case, for example, in relation to representations that are accepted to fall within the Plan Representations, Money Risk Representations, Equities Representations, Regulation Representations and Location Representations categories. In the case of those representations, ASIC’s case was that the question whether those representations were misleading or deceptive could essentially be approached in a global fashion without delving into the precise terms of each representation.

116    Similarly, some of the defined categories of representations were, or at least arguably were, representations in respect of future matters. For example, representations that fall within the Profit Representations, Money Risk Representations, Loss Recovery Representations and Bank Account Representations categories involved, or at least arguably involved, representations as to future matters. The key issue in respect of those representations was whether EuropeFX had adduced evidence, or was at least able to identify any evidence, which was capable of establishing that it had reasonable grounds for the making of those representations. If it had not, or could not, point to any such evidence, the representations could be taken to be misleading by reason of s 12BB(2) of the ASIC Act.

117    In the case of some of those representations, for example some of the Profit Representations, EuropeFX contended that there was some evidence capable of establishing that it had reasonable grounds for the making of the representation. That evidence included opinion evidence from Mr Dowd. ASIC essentially contended that EuropeFX had adduced no such evidence, or had not identify any such evidence. ASIC also contended that, in any event, the available evidence established that EuropeFX did not have any reasonable grounds for making the representations. In the case of some of the defined representation categories, EuropeFX made no real attempt to point to any evidence that might be capable of establishing that the account managers who made the impugned representations in respect of future matters had reasonable grounds for making them.

Systemic unconscionability

118    ASIC alleged that EuropeFX employed a system of conduct, or engaged in a pattern of behaviour, that was, in all the circumstances, unconscionable. ASIC relied, in support of that contention, on evidence which it submitted established that EuropeFX: utilised online advertising or promotional material which misrepresented the nature of the financial services and financial products offered by EuropeFX; had an “onboarding” system that was indiscriminate as to whether prospective customers had any relevant knowledge or experience in respect of CFDs and Margin FX Contracts; derived its revenue, or the bulk of its revenue, from its customers’ trading losses; had a system of remuneration for the account managers which provided an incentive for the account managers to encourage and pressure customers to deposit more funds into their trading account; provided inadequate, or inappropriate training to the account managers and failed to deal with known misconduct by account managers; and had an unfair complaints resolution process.

119    The patterns of behaviour that ASIC contended could be discerned or inferred from the evidence primarily, though by no means exclusively, related to the conduct of EuropeFX account managers towards their customers. While the evidence relied on by ASIC in that regard was predominantly the evidence of the conduct of the account managers towards or in respect of the EFX30, ASIC submitted that the evidence as a whole supported the inference that the pattern of behaviour applied to all, or at least a substantial proportion of, EuropeFX’s customers.

120    EuropeFX denied that its systems of conduct, or patterns of behaviour constituted unconscionable conduct and contended that ASIC had failed to provide that it had engaged in any such systemic unconscionable conduct. It submitted, among other things, that ASIC’s sample size – by which it meant either the EFX8 or the EFX30 as a whole – was inadequate and had not been shown to be representative. EuropeFX also denied that it had engaged in any unconscionable conduct toward the EFX30 upon which ASIC sought to rely in support of its case of systemic unconscionability, and submitted that ASIC had failed to prove that it had engaged in any such conduct. It also contended that ASIC had failed to prove the other systemic features or indicia, such as the misleading Bitcoin advertising, the unfair remuneration systems, the allegedly inadequate training and disciplinary systems, and the allegedly unfair disputes resolution process. EuropeFX also submitted that it relied on USG, as the holder of the AFSL, and that USG was responsible for any such deficiencies.

Unconscionable conduct in respect of each of the EFX30

121    ASIC’s case that EuropeFX engaged in conduct towards, or in respect of, the EFX30 which was, in all the circumstances, unconscionable was based on the evidence of and relating to the EFX8, and the evidence relating to the EFX22.

122    As has already been noted, ASIC adduced evidence from each of the EFX8. It also tendered recordings and transcripts of all the recorded telephone conversations between EuropeFX and the EFX8 that had been produced by EuropeFX. Each of the EFX8 was cross-examined at considerable length. ASIC also tendered recordings and transcripts of all the recorded telephone conversations between EuropeFX and the EFX22 that had been produced by EuropeFX.

123    ASIC contended that each of the EFX30 was a person who, to the knowledge of EuropeFX, was vulnerable or disadvantaged, particularly because they had, and were known to have had, no prior relevant knowledge about CFDs or Margin FX Contracts and had no experience trading in those products or any similar complex leveraged derivatives. ASIC also contended that that EuropeFX account managers had engaged in a number of different categories of unconscionable conduct towards those vulnerable customers, including: failing to ensure that the customers had an adequate understanding of CFDs and MarginFX contracts and concepts such as leverage and margin; giving personal advice when not permitted to; making misleading or deceptive statements; encouraging the customers to rely on them and pressuring them to trade and deposit funds into their trading accounts; encouraging them to obtain money to deposit into their trading accounts from inappropriate sources, such as superannuation funds or credit cards; impeding the customer’s withdrawal of funds from their trading accounts, or dissuading them from doing so; advising or encouraging the customers to engage in inappropriate trading strategies; and dealing with their complaints unfairly. ASIC provided particulars of that conduct in Annexure E.1 to the SOC, which was a detailed and very lengthy schedule.

124    ASIC ultimately agreed to narrow its case in respect of its allegations that EuropeFX engaged in unconscionable conduct towards individual identified customers. ASIC’s ultimate position was that if the Court found that EuropeFX had engaged in systemic unconscionable conduct, it would not press the Court to make any findings in relation to unconscionable conduct towards any of the EFX30 specifically. It did, however, “ask” the Court to make findings in respect of the EFX8. For the reasons explained below, I have decided to accede to ASIC’s request to consider and make findings in respect of EuropeFX’s conduct towards the EFX8. I do not propose to specifically address or make findings in respect of ASIC’s allegation that EuropeFX contravened s 12CB of the ASIC Act in respect of each of the EFX22. As discussed earlier in the context of the overview of ASIC’s case of systemic unconscionability, it will nevertheless be necessary to consider and make factual findings in respect of the EFX22 in the context of the systemic unconscionability case.

125    EuropeFX denied that its account managers had engaged in any such conduct towards the EFX30 (including the EFX8) and submitted that ASIC had failed to prove to the requisite standard that it had. It provided a very detailed response to Annexure E.1 to the SOC to that effect. EuropeFX submitted, in general terms, that: none of the EFX30 were vulnerable or disadvantaged persons; each of them were willing participants in the “market” in respect of CFDs and Margin FX Contracts; each of them had an adequate understanding of CFDs and Margin FX Contracts; in any event there was no basis upon which EuropeFX could have foreseen that they did not have an adequate understanding of those products; and that many of the EFX30 traded independently of the account managers.

126    The key issues in respect of ASIC’s allegation that EuropeFX engaged in unconscionable conduct towards in or relation to the EFX8 are essentially factual. Were the EFX8 relevantly vulnerable or disadvantaged? Did EuropeFX account managers engage in any or all of the categories of conduct that ASIC alleged that they had engaged in? If the EFX8 were relevantly vulnerable or at a disadvantage, and it is found that the account managers did engage in some or all the alleged conduct, it is difficult to see how it could not be concluded that EuropeFX engaged in conduct that was, in all the circumstances, unconscionable.

Alleged contraventions by TradeFred

127    ASIC’s case against TradeFred essentially mirrored its case against EuropeFX. As TradeFred did not file a defence or any evidence and filed a submitting appearance, it is possible to address ASIC’s allegations, and the issues that arise in respect of them, in very short terms.

128    ASIC adduced affidavit evidence from four TradeFred customers: Mr John Fraser (TF1), Ms Dolores Goodey (TF2), Ms Mench Zdraveska (TF5) and Ms Fiona Musgrave (TF6). Those customers will be referred to in these reasons as the TF4. ASIC tendered recordings and transcripts of the telephone conversations between account managers acting on behalf of TradeFred and the TF4 that had been produced to it. ASIC also tendered recordings and transcripts of the telephone conversations between account managers acting on behalf of TradeFred and a further 16 customers. Those 16 customers will be referred to as the TF16. It is unnecessary to name them. The TF4 and TF16 will collectively be referred to as the TF20.

Personal advice contraventions

129    ASIC alleged that account managers acting on TradeFred’s behalf gave personal advice to the TF20 on 1,487 separate occasions in circumstances when they were not permitted to do so given that USG’s AFSL only permitted the giving of general advice. Ultimately, however, ASIC only pressed the Court to make findings in respect of 20 of those statements – one statement in respect of each of the TF20. As it did in its case against EuropeFX, ASIC defined four categories of alleged personal advice statements: Deposit Statements, Signal Provider Statements, Trading Strategy Statements and Position Statements.

130    There was again no issue as to whether the relevant statements were made. They are recorded in the transcripts of the telephone conversations between the TF20 and the TradeFred account managers. It will first be necessary to consider whether the 20 impugned statements were correctly classified or characterised by ASIC as falling within any of the defined categories. There generally could be little or no doubt that statements that fall within one or more of those defined categories effectively would satisfy the definition of financial product advice in s 766B(1) of the Corporations Act. In those circumstances, the key issue in respect of statements that are found to fall within one of the defined categories will be whether they were made in circumstances where a reasonable person might expect the provider (the TradeFred account manager) to have considered one or more of the recipient’s (the TradeFred customer’s) objectives, financial circumstances and needs: s 766B(3)(b) of the Corporations Act.

Misleading or deceptive representations or conduct

131    ASIC alleged that TradeFred account managers made 917 representations to the TF20 that were false, misleading or deceptive. Those representations were alleged to have fallen within one or more of the ten categories of representations defined by ASIC in the SOC. Those categories were defined in essentially the same terms as the categories of representations in ASIC’s case against EuropeFX, with the addition of another category defined as Bonus Representations.

132    ASIC ultimately pressed the Court to make findings in respect of 60 representations made to the TF20 – three representations in relation to each of the TF20. ASIC also again limited its case to alleging that the making of each of those 60 statements constituted contraventions of either ss 12DA or 12DB of the ASIC Act. It did not press the Court to make findings as to whether they also constituted contraventions of ss 1041E or 1041H of the Corporations Act.

133    There was again no dispute that TradeFred account managers made those 60 representations. They are recorded in the transcripts. The issues are whether the statements were correctly classified or characterised by ASIC and if so, does it follow that they were misleading or deceptive given the definitions. In respect of those representations that are representations in respect of future matters, that issue is relatively straightforward given that TradeFred did not adduce any evidence. Those representations may generally be taken to be misleading by reason of s 12BB of the ASIC Act.

Systemic unconscionable conduct

134    ASIC’s case against TradeFred in respect of systemic unconscionable conduct was very similar to its case against EuropeFX in respect of systemic unconscionability.

135    ASIC contended that the evidence established that TradeFred: utilised online advertising or promotional material which misrepresented the nature of the financial services and financial products offered by it; derived its revenue, or the bulk of its revenue, from its customers’ trading losses; had a system of remuneration for the account managers which provided an incentive for the account managers to encourage and pressure customers to deposit more funds into their trading account; had a purpose of maximising deposits and increasing customers’ losses; provided inadequate, or inappropriate training to the account managers; and was aware of, but failed to take adequate steps to deal with, that misconduct. ASIC also contended that certain patterns of behaviour could be discerned or inferred from the evidence primarily, though not exclusive, from the evidence relating to the conduct of TradeFred account managers towards the TF20. Those patterns of behaviour are considered in the context of TradeFred’s case of unconscionable conduct towards the TF20.

Unconscionable conduct in respect of each of the TF20

136    ASIC contended that the TF20 were each, to the knowledge of TradeFred, vulnerable or disadvantaged, primarily because they had no prior relevant knowledge about CFDs or Margin FX Contracts and had no experience trading in those products or any similar complex leveraged derivatives. It also contended that that TradeFred account managers engaged in various defined categories of unconscionable conduct towards those vulnerable customers. Those categories were similar to those alleged by ASIC in its case against EuropeFX and included that the TradeFred account managers: failed to ensure that the customers had an adequate understanding of CFDs and MarginFX contracts and concepts such as leverage and margin; gave the customers personal advice when not permitted to do so; made misleading or deceptive representations to the customers; encouraged the customers to rely on them and pressured them to trade and deposit funds into their trading accounts; encouraged the customers to obtain money to deposit into their trading accounts from inappropriate sources; impeded the customers from withdrawing funds from their trading accounts, or dissuaded them from doing so; advised or encouraged the customers to engage in inappropriate trading strategies. ASIC also claimed that TradeFred did not fairly deal with customer complaints. ASIC provided particulars of that conduct in a detailed and lengthy schedule to the SOC: Annexure E.2 to the SOC.

137    As was the case in respect of EuropeFX, ASIC’s position was that if the Court found that TradeFred had engaged in systemic unconscionable conduct, it did not press the Court to make any findings in relation to unconscionable conduct towards any of the TF20 specifically. It did, however, “ask” the Court to make findings in respect of the TF4.

138    The issues raised by ASIC’s case that TradeFred engaged in unconscionable conduct, both systemically and in respect of the TF4, are essentially factual. Does the evidence tendered by ASIC tend to establish that TradeFred engaged in the conduct alleged by ASIC. If it does, it would be difficult to avoid the conclusion that the conduct was unconscionable.

Alleged contraventions by USG

139    ASIC’s case against USG was different in various respect to its cases against EuropeFX and TradeFred. As it did in the case of EuropeFX and TradeFred, ASIC ultimately narrowed its case against USG. I propose to refer only to the case ultimately pressed by ASIC.

140    ASIC alleged that USG engaged in four categories of contravening conduct: first, sales representatives acting for USG made misleading and deceptive statements to some customers and thereby engaged in misleading or deceptive conduct; second, USG was liable for the contravening conduct of EuropeFX and TradeFred because they engaged in that conduct as USG’s agents pursuant to the CAR agreements; and third, USG failed to do all things necessary to ensure that the financial services covered by its AFSL were provided “efficiently, honestly and fairly”.

Misleading or deceptive conduct

141    ASIC alleged that sales representatives acting on behalf of USG made 30 misleading or deceptive representations to customers of USG. It classified those representations into three defined categories. The first category was defined in the same or at least similar terms to the Profit Representations in the cases of EuropeFX and TradeFred. The second and third categories were referred to as Rob Clayton Report Representations and Rob Clayton Representations. The definitions of those categories will be referred to later. It suffices at this point to note that they both concerned an analyst, Mr Rob Clayton, who prepared market reports for USG.

142    There is no issue about the fact that the 30 impugned statements were made by USG representatives. They are recorded in transcripts. The only issue is whether they were misleading or deceptive. ASIC contended that they plainly were.

Liability for the contravening conduct of EuropeFX and TradeFred

143    As already noted, ASIC alleged that USG was liable for the contravening conduct of EuropeFX and TradeFred. It relied on s 769B of the Corporations Act and s 12GH of the ASIC Act in respect of that allegation. The only real issue in relation to this category of contravention (in addition to the liability of EuropeFX and TradeFred in the first place) is whether the Court can and should conclude that, when they engaged in the contravening conduct, EuropeFX and TradeFred were acting on behalf of, and as agents of, USG, by reason of the fact that they engaged in the conduct as USG’s CARs.

Failure to ensure financial services provided efficiently, honestly or fairly

144    Section 912A(1)(a) of the Corporations Act provides that a financial services licensee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly. The essence of ASIC’s case that USG failed to comply with that requirement was that USG actively promoted itself and its CFDs and Margin FX Contracts to Chinese citizens in China. ASIC relied on expert opinion evidence to the effect that the provision by USG of CFDs and Margin FX Contracts to Chinese citizens would constitute a breach of Chinese law and that USG’s customers in China would also contravene Chinese civil and criminal law by trading CFDs and Margin FX Contracts offered by USG.

145    There does not appear to be any real issue or doubt that USG breached, or caused its customers in China to breach, Chinese law. The key issue in relation to this alleged contravention is whether USG, as the holder of an AFSL, can and should be held to have contravened s 912A of the Corporations Act by reason of it having contravened, or having caused its customers to contravene, a law of a foreign jurisdiction. That issue raises both a question of law concerning the proper construction of s 912A of the Corporations Act and a question of fact, being whether USG’s conduct fell short of the standard set by s 912A(1)(a) of the Corporations Act.

Burden and standard of Proof

146    ASIC bears the burden or onus of proving that USG, EuropeFX and TradeFred contravened the Corporations Act and ASIC Act as alleged. The standard of proof is the balance of probabilities: s 140(1) of the Evidence Act 1995 (Cth). In deciding whether I am satisfied that ASIC has proved its case in respect of each of the alleged contraventions on the balance of probabilities, I am required to take into account, among other things, the nature of ASIC’s causes of action, the nature of the subject matter of the proceeding and the gravity of the matters alleged: s 140(2) of the Evidence Act.

147    Several of the provisions of the Corporations Act and the ASIC Act that ASIC alleged were contravened by USG, EuropeFX and TradeFred are civil penalty provisions. The relief sought by ASIC includes the imposition of pecuniary penalties in respect of those contraventions. The factual allegations which underly all the alleged contraventions are also undoubtedly serious. These are considerations to which I must have, and have had, regard to in considering whether ASIC has proved its case.

148    As Mason CJ, Brennan, Deane and Gaudron JJ explained in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992)110 ALR 449 at 450-451:

The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.

(Footnotes omitted)

149    Their Honours then referred to the following well-known observations of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 (at 362):

The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved …

150    I must have, and have had, regard to those observations when considering whether ASIC has made out its case on the balance of probabilities.

THE EVIDENTIARY LANDSCAPE

151    The evidence adduced by the parties, though primarily ASIC, was vast and voluminous. It is useful to provide a short overview of the evidence and provide some preliminary observations concerning it.

ASIC’s evidence in its case against EuropeFX - overview

152    ASIC’s evidence in its case against EuropeFX fell within six broad categories.

153    First, as has already been noted, ASIC adduced affidavit evidence from each of the EFX8: Mr Ben Wilson (EFX1) Ms Lesley Love (EFX2) Mr Prasanna Kalusinghe (EFX3) Ms Deborah Elford (EFX4), Ms Jennifer Nikiforos (EFX6), Ms Sadrine Sapor (EFX8), Ms Julie Boden (EFX9) and Ms Leanne Kuhn (EFX11). ASIC tendered all the recordings and transcripts of telephone conversations between EuropeFX representatives and the EFX8 that were produced to it by EuropeFX in the course of its investigation. ASIC also adduced evidence from a prospective customer of EuropeFX, Mr Steven Parry, who deposited funds, but quickly became suspicious and did not trade. Mr Parry’s evidence was particularly relevant to the issue of whether EuropeFX utilised or took advantage of misleading promotions concerning Bitcoin trading. Each of the EFX8 and Mr Parry were cross-examined at length.

154    Second, ASIC adduced evidence from two former employees of EuropeFX, Ms May Ajaz and Mr Xu (Kidd) Liu. Ms Ajaz and Mr Liu performed duties as “quality control” officers at EuropeFX during the relevant period. Among other things, they randomly listened to recordings of telephone communications between EuropeFX account managers and their customers and reported their findings to EuropeFX management. Ms Ajaz and Mr Liu were cross-examined, and aspects of their evidence were challenged or criticised by EuropeFX.

155    Third, as has already been adverted to, ASIC adduced expert opinion evidence from Mr Blundell, who was the Head of Compliance at StoneX Financial Pty Ltd trading as City Index, an Australian company which provides over the counter derivatives, including CFDs, to retail customers in Australia. Mr Blundell’s opinion evidence addressed several questions concerning trading in CFDs and Margin FX Contracts and EuropeFX’s conduct and engagement with its customers in respect of trading in CFDs and Margin FX Contracts.

156    Fourth, ASIC adduced evidence from various other witnesses about aspects of its investigation, including the production of documents and the preparation of transcripts and translations. It is unnecessary, at this point at least, to say anything further about this category of witnesses.

157    Fifth, ASIC tendered a huge volume of documentary evidence. The documentary evidence, broadly speaking, fell into the following categories. The first category comprised the recordings and transcripts of telephone conversations between EuropeFX representatives and the EFX8. The second category comprised recordings and transcripts of telephone conversations between EuropeFX representatives and the EFX22. Only selected parts of some of the recordings were played in Court. The third category comprised business records, mostly of EuropeFX, but also USG, including: financial and accounting records; agreements between EuropeFX and other persons or entities; and correspondence and communications from, or to, or relating to, EuropeFX, including in respect of complaints lodged by EuropeFX customers. The fourth category comprised various miscellaneous documents including, for example, some paragraphs of an affidavit sworn by Mr Sasso.

158    I should emphasise that the documentary tender by ASIC was so huge that I made it clear to the parties that I would not read or consider any documentary exhibit unless it was either identified or referred to in the evidence of a witness, or I was specifically taken to it by one of the parties in their submissions. As events transpired, that did not alleviate the massive burden imposed upon the Court by the tender of such a huge volume of evidence. That is because the parties both filed extremely lengthy written submissions which attached even lengthier schedules, summaries or aides-memoire. Those documents included barcode references to many thousands of documents. It would appear from the electronic court book that the bulk tender of documents by ASIC comprised almost 10,000 documents. I have endeavoured to consider all the documents identified in the submissions, summaries and aides-memoire, though these reasons will mainly address the documents to which particular attention was drawn in the submissions.

EuropeFX’s evidence in summary

159    EuropeFX adduced evidence from four witnesses.

160    First, as has already been noted, EuropeFX adduced expert opinion evidence from Mr Dowd, an experienced discretionary foreign exchange, stock index and commodity derivatives trader, though one who had little, if any, experience in relation to trading in the markets for those or similar products in Australia. Mr Dowd provided answers to the same questions posed to Mr Blundell. Some of Mr Dowd’s evidence in his report was rejected on the basis that Mr Dowd’s had worked almost exclusively in the United States of America and essentially had no relevant education, training or experience, as a trader or otherwise, in any retail market for over-the-counter derivatives in Australia, including any retail market involving CFDs and Margin FX Contracts: see Australian Securities and Investments Commission v Union Standard International Group Pty Ltd (Trial Ruling No 2) [2023] FCA 333.

161    Second, EuropeFX adduced evidence from a database expert, Mr James Spencer Greene, who formatted EuropeFX trading data so that the trading positions of nine customers of EuropeFX were able to be reproduced in a readable spreadsheet. Mr Greene’s evidence ultimately did not feature prominently in the parties’ submissions.

162    Third, EuropeFX adduced evidence from Mr Trent Whitbourn, an expert in respect of digital forensics, who was able to forensically reproduce copies of EuropeFX’s former website using a digital library of internet sites called the “Wayback Machine”.

163    Fourth, EuropeFX adduced evidence from one of its solicitors, Ms McKenzie Moore. Ms Moore’s evidence primarily addressed the steps she took to contact various persons who appear to have had some involvement in the management of EuropeFX, including Mr Amar and Mr Zakhaim, Mr Ari Amsalem and Mr Martin. Ms Moore also unsuccessfully endeavoured to contact several other people who appear to have had some involvement with the companies to which EuropeFX outsourced the day-to-day conduct of their business. In short, Ms Moore endeavoured to explain why EuropeFX ultimately did not call any evidence from anybody who was involved in EuropeFX’s business or relevant activities.

164    I should note, in this context, that ASIC submitted that Jones v Dunkel inferences should be drawn against EuropeFX arising from its failure to call and adduce evidence from Mr Sasso and Mr Amar. As I have already noted, EuropeFX conceded that a Jones v Dunkel inference should be drawn in respect of its failure to call Mr Sasso. That concession was properly given.

165    EuropeFX submitted that no Jones v Dunkel inference should be drawn in respect of its failure to call Mr Amar. I do not propose to address this issue in detail. The relevant principles in respect of Jones v Dunkel are discussed later in the context of a submission advanced by EuropeFX concerning the fact that ASIC did not call the EFX22. While Ms Moore’s evidence in respect of her attempts to contact Mr Amar were not tested in cross-examination, I nevertheless found her evidence concerning her attempt to contact Mr Amar to be somewhat unpersuasive. In any event, I am reluctant in all the circumstances to draw Jones v Dunkel inferences against EuropeFX arising from the fact that it did not adduce evidence from Mr Amar, particularly given the rather uncertain nature of his connection with EuropeFX and his present whereabouts. That said, the reality is that the availability of inferences that may be drawn from the evidence as a whole, including in respect of facts and circumstances in respect of which the evidence revealed Mr Amar had some involvement, must be assessed on the basis that Mr Amar did not give evidence. I should also emphasise in that regard that I reject entirely EuropeFX’s suggestion that a Jones v Dunkel inference should be drawn against ASIC in respect of its failure to call Mr Amar. Among other things, Mr Amar could not possibly be said to have been in ASIC’s “camp”.

166    I am equally reluctant to draw any Jones v Dunkel against EuropeFX arising from the fact that it did not call other people who the evidence revealed were involved in one way or another in the conduct of EuropeFX’s business. That is particularly the case in respect of people who were involved with EuropeFX’s business as a result of it having outsourced activities to companies located overseas. Once again, however, it is simply a matter of common sense that the availability of inferences from the evidence as a while must be assessed on the basis that none of those people gave evidence in respect of the activities in respect of which they were involved.

167    Returning to the evidence that EuropeFX did adduce, EuropeFX also tendered some documentary evidence. Some of that evidence will be referred to, if necessary or appropriate, when considering the specific factual issues in respect of which it was said to be relevant.

ASIC’s evidence in its case against TradeFred

168    The evidence relied on by ASIC in its case against TradeFred was not as extensive as its evidence in its case against EuropeFX, but was nevertheless substantial.

169    As has already been noted, ASIC adduced affidavit evidence from the TF4 (Ms Mence Zdraveska, Ms Fiona Musgrave, Mr John Fraser and Ms Dolores Goodey), each of them being a former TradeFred customer. ASIC also tendered all the available recordings and transcripts of telephone conversations between those witnesses and TradeFred representatives. ASIC also tendered recordings and transcripts of telephone conversations between TradeFred representatives and the TF16. ASIC did not adduce affidavit evidence from those customers.

170    In addition to the evidence of and relating to the TF4, and the evidence relating to the TF16, ASIC relied on: expert opinion evidence of Mr Blundell, which was in many respect similar to the opinion evidence he gave in ASIC’s case against EuropeFX; documentary evidence, including business records, obtained by ASIC during its investigation; and affidavit evidence from ASIC officers concerning ASIC’s investigation.

ASIC’s evidence in its case against USG

171    The evidence specifically relied on by ASIC in its case against USG was far more confined than the evidence relating to EuropeFX and TradeFred – putting to one side the evidence relevant to establishing contraventions by EuropeFX and TradeFred which provided the basis for USG’s liability under s 769B of the Corporations Act.

172    In its case in respect of misleading and deceptive representations by USG, ASIC relied on recordings and transcript of telephone conversations between USG representatives and USG customers, but really only to prove the making of the relevant statements. Otherwise, ASIC relied on the opinion evidence of Mr Blundell in respect of the Profit Statements, and the affidavit evidence of Mr Clayton.

173    ASIC also relied on the expert opinion evidence of Dr Andrew Goodwin in respect of Chinese law and specifically the question whether USG breached Chinese domestic law in relation to its allegation that USG contravened s 912A of the Corporations Act. ASIC also relied on some other evidence, including in relation to the translation of Chinese documents, to which it is unnecessary to specifically refer.

THE EVIDENCE OF THE EFX8

174    It is useful to provide an overview of the evidence of the EFX8 witnesses and address some of EuropeFX’s general criticisms of that evidence. A more detailed summary of the evidence of each of the witnesses will then be given. That summary will also address the objective evidence concerning the discussions and dealings between those witnesses and EuropeFX sales representatives and account managers, mainly the recordings and transcripts of the conversations between the witnesses and the account managers.

175    I should emphasise that it is simply not feasible to provide a comprehensive account of the evidence of and relating to each of the EFX8. Each of the witnesses swore or affirmed very lengthy affidavits. Most of them were more than 150 pages long. Each of the witnesses was cross-examined at considerable length. More significantly, most of the witnesses had many conversations with EuropeFX account managers and many of those conversations were very long. The transcripts of the conversations between some of the EFX8 and EuropeFX account managers ran to hundreds, if not thousands, of pages in total. In these reasons I have referred to some selected extracts from the transcripts. It would have been impossible for me to refer to every conversation, or even every conversation referred to in the parties’ submissions. As for the recordings, I did not listen to all the recorded conversations. Nor was I invited or requested to do so. I ultimately only listened to those parts of the recordings that were played in Court, or that one or other of the parties specifically asked me to listen to, or those that are otherwise identified to in my reasons.

176    As I have just noted, the evidence in chief of each of the EFX8 witnesses was given by affidavit. Shortly before the trial, EuropeFX applied for orders the effect of which was to require the EFX to give their evidence in chief orally. That application was opposed by ASIC. The grounds for EuropeFX’s belated objection to the adducing of the EFX8’s evidence by way of affidavit were: first, there were said to be similarities in the structure and content of the affidavits which gave rise to a suspicion that the affidavits did not represent the genuine recollections of the witnesses; second, the affidavits were said to be replete with selective extracts from, or paraphrasing of, the transcripts of the telephone calls between the witnesses and EuropeFX account managers; third, the affidavits contained a good deal of inadmissible evidence and it would take a considerable amount of time to address EuropeFX’s objections to those parts of the affidavits; and fourth, the evidence of the witnesses was “largely superfluous” because of the availability of the transcripts of the telephone calls.

177    I rejected EuropeFX’s belated application. In short, I was persuaded that the issues and criticisms raised by EuropeFX concerning the affidavits could, in all the circumstances, more appropriately be dealt when hearing and determining EuropeFX’s specific objections to parts of the affidavits, or by permitting EuropeFX to cross-examine the witnesses, including in respect of the criticisms concerning the preparation of their affidavits, or in the course of the submissions concerning the admissibility and weight to be given to the evidence of the witnesses generally. I was also concerned about the lateness of EuropeFX’s application and the disruption to the orderly conduct of the trial that would have resulted if the application had been allowed.

178    As events transpired, EuropeFX objected to very large portions of the affidavits. Those objections were ruled on as the trial progressed. EuropeFX also cross-examined the witnesses at some length concerning the preparation of their affidavits and, by implication, the extent to which the contents of their affidavits reflected their genuine recollections. EuropeFX also in due course submitted that the evidence of the witnesses should be given little if any weight because of the way the affidavits had been prepared and given the existence of the transcripts. EuropeFX’s criticisms of the affidavits of the EFX8 and their evidence more generally will be addressed below.

179    It may be accepted that the affidavits sworn or affirmed by each of the EFX8 broadly followed a similar format. While that was the subject of criticism by EuropeFX, it was hardly surprising and I am unable, in all the circumstances, to accept that it reflected adversely on either the ASIC investigators who assisted in compiling the affidavits, or the witnesses themselves. The format and progression of the affidavits was logical and in my view reflected little more than that the witnesses’ experiences in respect of their engagement and dealings with EuropeFX were generally quite similar.

180    In their affidavits, each of the EFX8 witnesses first gave an outline of their personal background and prior trading experience. With the possible exception of Ms Boden, none of the EFX8 had any, or any significant, prior experience in respect of trading in derivatives or any other similar complex financial products. Indeed, as has already been observed, it would be fair to say that, for the most part, each of the EFX8 was relatively inexperienced and unsophisticated in respect of securities and investments generally. More will be said about Ms Boden and her investment experiences later.

181    After referring to their background and trading experience, each of the EFX8 witnesses then explained in their affidavits how they came to be introduced to EuropeFX. While some of the witnesses did not have a particularly good recollection of how or in what circumstances they first came into contact with EuropeFX, some of them described clicking on, or otherwise responding in some way to, an online advertisement or promotion concerning trading in Bitcoin or cryptocurrency. They were then subsequently contacted by someone representing EuropeFX. The evidence of the witnesses on that topic will be addressed in more detail later.

182    The affidavits of the EFX8 then generally referred to the process whereby the witnesses came to open an account with EuropeFX. Their evidence in that regard generally referred to a document prepared by ASIC which was said reproduce information that the witnesses provided to EuropeFX, either in response to an online account opening questionnaire or otherwise. That information generally included the witness’s employment, income, assets, trading experience and an acknowledgement that the witness had read and understood various documents, including EuropeFX’s PDS, Terms of Business and Financial Services Guide. EuropeFX did not object to, or criticise the content of, the document that had been prepared by ASIC which reproduced that information in summary form. The EFX8 witnesses were cross-examined on the basis that the information reproduced in that document had in fact been provided by the witnesses during the account opening process.

183    The affidavits of the EFX8 then contained a detailed account of each witnesses’ dealings and trading with EuropeFX. That account was often provided by reference to lengthy extracts from the transcripts of some telephone calls between the witness and a EuropeFX representative. On some occasions, the witnesses paraphrased parts of the transcript, or referred to what they understood was said or conveyed by the representative, or what they thought or felt at the time. Following objection by EuropeFX, those parts of the affidavits were generally made the subject of directions under s 136 of the Evidence Act, the effect of which was that the evidence was not admissible to prove the content of the conversation, or that the evidence was limited to being evidence of the witnesses’ state of mind at the time.

184    Each of the EFX8 was cross-examined at some length concerning the process involved in drafting and compiling their affidavit. Not surprisingly, that process generally involved extensive interviews and interactions between the witness and ASIC investigators. Also unsurprisingly, it was the ASIC investigators who were primarily responsible for preparing the initial drafts of the affidavits based on the interviews. The witnesses generally agreed that the ASIC investigators chose the extracts of their conversations with the EuropeFX account managers that were included in the affidavits. It was also apparent that some of the extracts were not complete, in the sense that some parts of the exchanges reproduced in the extracts were omitted. Those omissions were mostly, though not always, denoted by ellipses in the text. It was apparent again that the ASIC investigators who compiled the affidavits were responsible for deciding which parts of the extracted conversations should be omitted.

185    In its submissions, EuropeFX criticised the manner in which the ASIC investigators assisted the EFX8 witnesses to draft and complete their affidavits. It submitted, among other things, that the extracts that were included in the affidavits were selective and that the omissions from the extracts gave a misleading impression of the overall exchange. As already noted, EuropeFX was critical of the fact that the affidavits followed a similar format or sequence and submitted, or at least intimated, that the affidavits did not contain a fair, or true and accurate, account of the evidence of the witnesses, but rather had been the product of excessive intervention by the ASIC investigators.

186    I do not consider that the criticisms EuropeFX levelled against ASIC in respect of the affidavits of the EFX8 was justified or valid. Nor do I accept that ASIC’s role in compiling the affidavits somehow materially diminished the reliability or credibility of the evidence of the EFX8.

187    It was in my view open to ASIC to select the extracts from the transcripts that were to be shown to the witnesses or included in the affidavit. It would plainly not have been feasible to require the witnesses to read all of the transcripts of their conversations with the account managers, particularly those witnesses who had engaged with the account managers over many months. Nor would it have been feasible to include in the affidavits anything other than selected extracts from certain conversations. If the witnesses had given oral evidence in chief, it would undoubtedly have been open to counsel to select those parts of the transcript to question the witness about.

188    I am also not persuaded that ASIC was unfairly selective in choosing which extracts to include in the affidavits, or that the selectivity meant that the evidence in the affidavits were somehow misleading or unreliable. It was, of course, always open to counsel for EuropeFX to cross-examine the witness about other extracts from the transcripts. Counsel for EuropeFX did indeed frequently cross-examine the witnesses about other parts of the transcript that were not included in the affidavit. No criticism was, or could be, levelled against counsel for EuropeFX for being selective about which passages from the transcripts were the subject of cross-examination.

189    As for the omissions from the extracts that were included in the affidavits, I am satisfied that the words or passages that were omitted from the extracts were generally irrelevant, immaterial, or relatively benign or neutral. I am not persuaded that it was unfair or inappropriate in all the circumstances for the ASIC investigators to have omitted that material. I am also satisfied that most of the omissions were denoted by ellipses and that, where that was not the case, that was inadvertent and the result of oversight. In those rare instances where the omissions may not have been immaterial, counsel for EuropeFX had the opportunity to, and almost invariably did, draw that omission to the attention of the Court and cross-examine the witness in respect of the omitted material.

190    More importantly, I do not consider that the process by which the affidavits were compiled and drafted, the fact that the affidavits contained only selected extracts from the transcripts, or the fact that those extracts on occasion had words or passages omitted from them, reflected adversely on the witnesses or their credibility. Nor do I consider that any of those matters meant that the evidence of the EFX8 witnesses was unreliable or should be given little weight. It is unrealistic to suggest that, in a complex matter such as this, the witnesses themselves should draft and compile their own affidavits without any guidance or assistance, or that ASIC investigators should not be actively involved in that process. It would, of course, be inappropriate and problematic if the ASIC investigators coached or put words in the mouths of the witnesses, or crafted the affidavits such that they did not fairly represent the witnesses’ own evidence. Despite the extensive cross-examination, I am not persuaded that that was the case in respect of any of the EFX8 witnesses’ affidavits.

191    Nor am I persuaded that the selective use of extracts or omissions materially impinged on or adversely affected the reliability of the witnesses’ evidence generally. That said, it may readily be accepted that the extracts in the affidavits must all be read in context. It would be wrong to unduly focus on parts of the transcript read in isolation.