FEDERAL COURT OF AUSTRALIA

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

JUDGMENT SUMMARY

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

The defendants, Union Standard International Group Pty Ltd (USG), Maxi EFX Global AU Pty Ltd (EuropeFX or EFX) and Bright AU Capital Pty Ltd (TradeFred), each carried on financial services businesses between about 2017 and 2020. USG held an Australian Financial Services Licence and EuropeFX and TradeFred were its corporate authorised representatives. The three companies between them provided their customers, many of whom it appeared 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).

ASIC commenced this proceeding against USG, EuropeFX and TradeFred alleging that, in conducting their respective businesses, 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).

Specifically, ASIC claimed that EuropeFX contravened s 911A of the Corporations Act on thousands of 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 over a thousand occasions by making false or misleading representations to its customers, or engaging in misleading or deceptive conduct, in connection with its 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 and patterns of behaviour which were 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 agreed to narrow its case against EuropeFX by only pressing the Court to make findings in relation to a more limited number of the alleged contraventions of s 911A of the Corporations Act and ss 12DA and 12DB of the ASIC Act, and by not pressing the Court to make findings in relation to the alleged contraventions of ss 1041E and 1041H of the Corporations Act. EuropeFX belatedly admitted some of the alleged contraventions relating to the provision of personal advice and the making of false or misleading representations.

In relation to TradeFred, ASIC alleged that it: contravened s 911A of the Corporations Act on many occasions; contravened ss 12DA and 12DB of the ASIC Act on many 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.

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 TradeFred were 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 financial services licence were provided efficiently, honestly and fairly.

EuropeFX actively defended the proceeding and denied that it had engaged in any contravening conduct as alleged by ASIC. As noted earlier, however, EuropeFX eventually admitted some of the alleged personal advice and false or misleading representation contraventions. USG and TradeFred were wound up before the matter proceeded to trial. The Court granted ASIC leave to proceed against USG and TradeFred and submitting appearances were subsequently filed on their behalf.

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

ASIC’s case against EuropeFX, TradeFred and USG was very large and complex. ASIC adduced a huge volume of evidence. The evidence included, in summary: affidavit evidence from several former 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.

For its part, EuropeFX cross-examined the eight former customers from whom ASIC adduced affidavit evidence (the so-called EFX8), adduced expert opinion evidence from a person who had specialised knowledge in respect of securities trading and tendered some other mainly documentary evidence. No evidence was adduced on behalf of USG and TradeFred.

For the detailed reasons given in the published reasons for judgment, I have found that, for the most part, ASIC had made out its case against each of USG, EuropeFX and TradeFred and that those companies engaged in the contravening conduct as alleged by ASIC. The only contraventions that I have found were not made out were a relatively small number of the alleged contraventions arising from the provision of personal advice by EuropeFX and a relatively small number of the alleged contraventions arising from the making of false or misleading representations by EuropeFX, TradeFred and USG.

Perhaps most significantly, in the case of EuropeFX, I have found that, in the conduct of its financial services business, it employed a system of conduct and engaged in patterns of behaviour that were, in all the circumstances, unconscionable. It thereby contravened s 12CB of the ASIC Act. In relation to systems, I found, in short summary, that EuropeFX: utilised or took advantage of online advertising or promotional material which misrepresented the nature of the financial services and financial products offered by it; had an “onboarding” system that was essentially 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 its account managers which provided an incentive for them to encourage and pressure customers to deposit more funds into their trading accounts; provided inadequate, or inappropriate training to the account managers; failed to deal with known misconduct by account managers; and had an unfair complaints resolution process.

In relation to patterns of behaviour, I found, in short summary, that the EuropeFX account managers engaged in the following patterns of behaviour towards their customers: failing to give vulnerable customers any adequate explanations about the relevant financial products and the risks involved in trading in them; encouraging reliance and dependance on the part of vulnerable customers; disregarding statutory and regulatory limitations, in particular in respect of the provision of personal advice; the making of misleading or deceptive representations; the employment of inappropriate, unfair or sharp practices; and pressuring vulnerable customers to trade and deposit more funds into their trading accounts.

I have also found that EuropeFX engaged in conduct towards each of the EFX8 which was, in all the circumstances, unconscionable. It thereby contravened s 12CB of the ASIC Act in respect of each of those customers. In short summary, I found that EuropeFX’s conduct was unconscionable given the cumulative effect of the following facts and circumstances: first, each of the EFX8 was relevantly vulnerable in respect of their dealings with EuropeFX, primarily as a result of their lack of experience and knowledge; second, EuropeFX failed to take any, or any reasonable, steps to ensure that each of the EFX8 had a sufficient understanding of the relevant financial services and products and the risks of trading before actively encouraging them to trade; third, EuropeFX account managers repeatedly gave each of the EFX8 personal advice in circumstances where they were not permitted to do so; fourth, EuropeFX account managers made misleading statements to, or engaged in misleading or deceptive conduct towards, each of the EFX8; fifth, EuropeFX account managers fostered and encouraged the EFX8 to rely on them and follow their recommendations, often blindly so; sixth, EuropeFX account managers pressured each of the EFX8 to trade and deposit more and more funds into their trading accounts, sometimes by employing unfair tactics and promotions; seventh, EuropeFX account managers encouraged some of the EFX8 to engage in some risky trading strategies, and on occasion gave them other questionable advice; and eighth, EuropeFX representatives engaged in other unfair conduct towards the EFX8, including persuading them not to withdraw funds, or impeding them from withdrawing funds, from their trading accounts and dealing unfairly with their complaints.

In addition to the findings concerning unconscionable conduct by EuropeFX, I have found that EuropeFX contravened s 911A of the Corporations Act on multiple occasions by providing personal advice to its customers, and contravened s 12DA(1) or s 12DB(1) on multiple occasions by making false or misleading representations to its customers.

As for TradeFred, I have found that it: contravened s 12CB of the ASIC Act by employing a system of conduct, and engaging in patterns of behaviour, that were, in all the circumstances, unconscionable; contravened s 12CB of the ASIC Act by engaging in conduct towards four of its former customers which was, in all the circumstances, unconscionable; contravened s 911A of the Corporations Act on multiple occasions by providing personal advice to its customers; and contravened s 12DA(1) or s 12DB(1) on multiple occasions by making false or misleading representations to its customers.

Finally, in relation to USG, I have found that it: contravened s 12DB(1) on multiple occasions by making false or misleading representations to its customers; is liable in respect of all of the contraventions of s 911A of the Corporations Act and ss 12DA, 12DB and 12CB of the ASIC Act by EuropeFX and TradeFred because, when acting as USG’s corporate authorised representatives, EuropeFX and TradeFred were acting as USG’s agents within their apparent authority; 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 financial services licence were provided “efficiently, honestly and fairly”.

No substantive orders will be made at this stage. Orders will be made after the Court conducts a further hearing which addresses the appropriate relief to be granted in respect of the contraventions by each of EuropreFX, TradeFred and USG. The matter will be listed for a case management hearing early in the new term next year for the purposes of fixing a date for that hearing and making appropriate case management orders.

JUSTICE MICHAEL WIGNEY

20 December 2024

Sydney