FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v AustralianSuper Pty Ltd [2025] FCA 102

ORDERS

THE COURT DECLARES THAT:

Declarations pursuant to s 196(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act)

1.    Between 6 April 2019 and 11 May 2023, in respect of each of 42,551 affected beneficiaries who had active multiple accounts in the AustralianSuper Fund on or after 6 April 2019, by:

(a)    failing promptly to identify and merge that beneficiary’s multiple accounts; and

(b)    failing promptly to remediate that beneficiary,

AustralianSuper:

(c)    did not exercise, in relation to the interests of that beneficiary, the same degree of care, skill and diligence as a prudent superannuation trustee would have exercised, and thereby contravened ss 52(2)(b) and 54B(1) of the SIS Act in relation to that beneficiary; and

(d)    did not perform its duties and exercise its powers:

(i)    in the best interests of that beneficiary, between 6 April 2019 and 30 June 2021; and

(ii)    in the best financial interests of that beneficiary, between 1 July 2021 and 11 May 2023,

and thereby contravened ss 52(2)(c) and 54B(1) of the SIS Act in relation to that beneficiary.

2.    Between 6 April 2019 and 11 May 2023, in respect of each of 48,237 affected beneficiaries who ceased to have active multiple accounts in the AustralianSuper Fund prior to 6 April 2019, by failing promptly to remediate that beneficiary, AustralianSuper:

(a)    did not exercise, in relation to the interests of that beneficiary, the same degree of care, skill and diligence as a prudent superannuation trustee would have exercised, and thereby contravened ss 52(2)(b) and 54B(1) of the SIS Act in relation to that beneficiary;

(b)    did not perform its duties and exercise its powers:

(i)    in the best interests of that beneficiary, between 6 April 2019 and 30 June 2021; and

(ii)    in the best financial interests of that beneficiary, between 1 July 2021 and 11 May 2023,

and thereby contravened ss 52(2)(c) and 54B(1) of the SIS Act in relation to that beneficiary.

Declaration pursuant to s 1317E of the Corporations Act 2001 (Cth) (Corporations Act)

3.    By each of the following failures:

(a)    between 13 March 2019 and 20 June 2022, failing to establish rules which set out a procedure to identify and merge multiple accounts of members in accordance with s 108A of the SIS Act;

(b)    between 13 March 2019 and 11 May 2023, failing promptly to identify and merge beneficiaries’ multiple accounts in the way that such rules would have required; and

(c)    between 13 March 2019 and 11 May 2023, failing promptly to remediate those beneficiaries,

AustralianSuper did not do all things necessary to ensure that financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly, and thereby contravened ss 912A(1)(a) and 912A(5A) of the Corporations Act.

THE COURT ORDERS THAT:

4.    Within 30 days of this order, AustralianSuper pay to the Commonwealth a pecuniary penalty of $27 million in respect of AustralianSuper’s contraventions of ss 52(2)(b), 52(2)(c) and 54B(1) of the SIS Act and 912A(5A) of the Corporations Act.

5.    Pursuant to s 1101B of the Corporations Act, within 14 days of this order, AustralianSuper publish, or cause to be published, a notice in the form of Annexure A to this order (the Notice) on AustralianSuper’s website located at www.australiansuper.com (Website) and on the webpage which appears after a person uses credentials to log in to the secure online service via the member login page (Members’ Landing Webpage) (in each case, whether accessed by PC or mobile device) such that:

(a)    the Notice shall be viewable by clicking a “click through” banner located on the Website and the Members’ Landing Webpage;

(b)    the “click-through” banner is to be:

(i)    located in the top half of the Website and the Members’ Landing Webpage; and

(ii)    not obscured, blocked or interfered with by any operation of the Website or Members’ Landing Webpage, other than during periods of IT outages or maintenance;

(c)    the “click-through” banner shall contain the words “Notice ordered by the Federal Court of Australia – Failure to identify and merge duplicate member accounts” in at least size 12, bold, black and sans-serif font centred on a white background;

(d)    the “click-through” banner is to operate in the form of a one-click hyperlink to the Notice;

(e)    the Notice shall occupy the entire webpage that is accessed via the “click-though” banner;

(f)    the Notice shall be in size 12, bold, black and sans-serif font that is on a white background and in a black bordered box;

(g)    the “click-through” banner is to remain on the:

(i)    Website for a period of no less than 90 days; and

(ii)    on the Members’ Landing Webpage for each member until the earlier of:

A.    the date the relevant member first logs in to the Members’ Landing Webpage or the mobile application controlled by AustralianSuper (Application); and

B.    a period ending 180 days from the date that the Notice is first published on the Website;

(h)    the Members’ Landing Webpage and Website are to be maintained or otherwise kept active for the period during which the Notice is required to remain on the Website and Members’ Landing Webpage, other than during periods of IT outages or maintenance; and

(i)    the Website shall not have in place any mechanism which would preclude search engines from indexing the pages or scanning the pages for links to follow.

6.    Pursuant to s 1101B of the Corporations Act, within 14 days of this order, AustralianSuper publish, or cause to be published, the Notice on the Application such that:

(a)    the Notice shall be viewable by accessing a link displayed in a “pop-up message” appearing in the Application after a person has used credentials to log into the member services part of the Application;

(b)    the “pop-up message” shall contain the words “Notice ordered by the Federal Court of Australia – Failure to identify and merge duplicate member accounts – tap here for more information about an important recent Federal Court decision. No action is required”; and

(c)    the “pop-up message” is to display in the Application for each member until the earlier of:

(i)    the date the relevant member first logs in to the Members’ Landing Webpage or the Application; or

(ii)    a period of no less than 180 days from the date that the Notice is first published on the Website.

7.    Within 30 days of this order, AustralianSuper pay ASIC’s costs of and incidental to the proceeding reasonably incurred up to and including 8 October 2024 to be assessed if not agreed, and not to exceed $500,000.

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

ANNEXURE A

Publicity Notice

The Federal Court of Australia has ordered AustralianSuper Pty Ltd (ACN 006 457 987) (AustralianSuper) to publish this notice.

Following action by the Australian Securities and Investments Commission (ASIC), on [insert], the Federal Court of Australia ordered that AustralianSuper pay total pecuniary penalties of $[insert] to the Commonwealth for failures in handling members’ multiple superannuation accounts within the AustralianSuper Fund.

The Court found that AustralianSuper:

    between 13 March 2019 and 20 June 2022, failed to establish rules which set out a procedure to identify and merge members’ multiple accounts in accordance with section 108A of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act);

    between 13 March 2019 and 11 May 2023, failed to promptly identify and merge affected members’ multiple accounts in the way that the SIS Act would have required; and

    between 13 March 2019 and 11 May 2023, failed to promptly remediate affected members,

and, by that conduct, did not:

    exercise, in relation to the interests of its beneficiaries, the same degree of care, skill and diligence as a prudent superannuation trustee would have exercised;

    perform its duties and exercise its powers in the best interests and best financial interests of its beneficiaries; and

    do all things necessary to ensure that financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly.

Failing to merge duplicate accounts can have significant financial consequences for members including paying multiple sets of fees eroding their superannuation balance.

ASIC expects that superannuation funds will put their members first and promptly address issues that cause members to face multiple sets of fees and insurance premiums. It expects these issues be identified and rectified quickly, including compensating members if a trustee has failed to comply with its obligations.

AustralianSuper self-reported its conduct to regulators, admitted the contraventions and the orders of the Federal Court of Australia were made by consent.

The Federal Court took into account that AustralianSuper had taken significant steps to remediate the harms caused by its failures and that it has, since identifying its misconduct, significantly uplifted its obligations and incident management systems and processes in an effort to ensure this conduct does not recur. Between May and June 2023, AustralianSuper paid approximately $69 million to 90,000 affected members as part of its remediation program in respect of losses caused by the multiple accounts issue since 1 July 2013.

Further information

AustralianSuper’s conduct contravened the following financial services laws:

    sections 912A(1)(a) and 912A(5A) of the Corporations Act 2001 (Cth); and

    sections 52(2)(b), 52(2)(c) and 54B(1) of the SIS Act.

For further information about the conduct, see the following links:

    Justice Hespe’s judgment [to be hyperlinked]; and

    ASIC’s media release [to be hyperlinked].

REASONS FOR JUDGMENT

HESPE J:

1    AustralianSuper Pty Ltd is the trustee of Australia’s largest superannuation fund (the Fund).

2    From 1 July 2013, AustralianSuper was required by s 108A of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) to establish rules which set out a procedure to identify and merge multiple accounts of members and which require the trustee to carry out that procedure at least once each financial year.

3    AustralianSuper admits that between 1 July 2013 and 19 June 2022, it failed to establish rules as required by s 108A of the SIS Act. During that period, AustralianSuper had 90,788 members with multiple accounts within the Fund that would have been identified and merged if AustralianSuper had taken the steps which such rules would have required. This meant that those members incurred approximately $69 million in losses through multiple administration fees and insurance premiums and lost investment earnings on those amounts.

4    Despite the failures occurring from 1 July 2013, the application before the Court in these proceedings concerns the periods commencing on 13 March 2019 or 6 April 2019 and ending on 20 June 2022 or 11 May 2023 (penalty period). That is because:

(a)    s 912A(1)(a) of the Corporations Act 2001 (Cth) was made a civil penalty provision from 13 March 2019;

(b)    ss 52(2)(b) and (c) of the SIS Act were made civil penalty provisions from 6 April 2019;

(c)    AustralianSuper did not establish the necessary rules until 20 June 2022; and

(d)    AustralianSuper did not complete its remediation until 11 May 2023.

5    The breaches alleged by ASIC, and admitted by AustralianSuper, are that AustralianSuper contravened:

(a)    ss 52(2)(b), 52(2)(c) and 54B(1) of the SIS Act between 6 April 2019 and 11 May 2023 by failing promptly to:

(i)    identify and merge the accounts of affected members; and / or

(ii)    remediate affected members; and

(b)    ss 912A(1)(a) and 912A(5A) of the Corporations Act:

(i)    between 13 March 2019 and 20 June 2022 by failing to establish rules that complied with s 108A of the SIS Act; and

(ii)    between 13 March 2019 and 11 May 2023 by failing promptly to:

(A)    identify and merge the accounts of affected members in the way that such rules would have required; and

(B)    remediate members.

6    ASIC and AustralianSuper join in seeking declarations of contravention, as well as pecuniary penalties, adverse publicity orders and costs orders. The parties jointly filed a Statement of Agreed Facts and Admissions on 16 February 2024 (SAFA) and a Supplementary Statement of Agreed Facts and Admissions on 12 June 2024 (SSAFA), setting out facts agreed between the parties pursuant to s 191 of the Evidence Act 1995 (Cth) and admissions made by AustralianSuper for the purposes of this proceeding. This case thus proceeded on an agreed basis as to the facts, the legal characterisation of those agreed facts and the statutory contraventions alleged by ASIC.

7    The parties jointly submit that the following relief be granted:

(a)    declarations of contravention of ss 52(2)(b), 52(2)(c) and 54B(1) of the SIS Act and ss 912A(1)(a) and 912A(5A) of the Corporations Act;

(b)    pecuniary penalties of $27 million;

(c)    an adverse publicity order, requiring AustralianSuper to publish a notice in the agreed form at Annexure A to these reasons; and

(d)    an order requiring AustralianSuper to pay ASIC’s costs of and incidental to this proceeding up to and including 8 October 2024 in a lump sum to be assessed if not agreed, such sum not to exceed $500,000.

8    For the reasons set out below, the Court is satisfied that the making of the orders and declarations in the form agreed by the parties is appropriate.

MULTIPLE ACCOUNTS AND S 108A

Super System Review

9    On 29 May 2009, the Government commissioned the Super System Review into the governance, efficiency, structure and operation of Australia’s superannuation system to make recommendations to ensure that the superannuation system had a sharper focus on operating in members’ best interests. On 30 June 2010, the Super System Review Panel delivered its final report to Government. The report stated:

In some cases, members can have multiple accounts and be paying multiple fees within the same fund. This can happen, for instance, when the member has had a succession of different jobs within a certain industry and has been enrolled into the same default fund on different occasions, perhaps with different home addresses or other identifying details. In cases like these, the loss of insurance is not likely to be a relevant factor, because the member would generally retain insurance cover through the account that was currently receiving contributions.

However, it is obviously detrimental to the member, and a source of significant inefficiency across the industry, that members in this situation are having multiple sets of fees deducted through inertia and/or an inability to use a common identifier to consolidate them into a single account. The Panel recognises that there will be cases where the member has positively elected to hold multiple accounts within the same fund — for example, as is now reasonably common for example with members utilising a transition to retirement facility — but at an overall industry level the vast majority of duplicate accounts appear to have arisen from the administrative inertia described above, not from positive choices exercised by members.

Consequently the Panel considers that a reduction in multiple account holdings will strip unnecessary costs out of the system and, all else being equal, will lead to a reduction in administration costs as a percentage of assets under administration. It acknowledges, however, that spreading fixed administrative costs over a smaller number of accounts may lead to an increase in the weekly amount needing to be charged to those remaining accounts.

Recommendation 9.12

Necessary legislation should be enacted to permit the trustee to auto‐consolidate accounts without prior reference to the member, where multiple accumulation accounts within a single fund share a common TFN and member surname and the multiple accounts have not been established by deliberate elections by the member concerned.

10    Section 108A of the SIS Act was enacted in response to the recommendations made by the Super System Review and came into effect on 1 July 2013. From that date, s 108A required the trustee of a superannuation fund to ensure that rules were established which:

(a)    set out a procedure to identify when a fund member has more than one account in the fund, and to carry out that identification procedure at least once each financial year;

(b)    merge the accounts of any member with two or more accounts in the fund — without needing first to obtain the member’s consent — if the trustee reasonably believes that merger to be in the member’s best interest, unless it is not practicable to merge them in the circumstances; and

(c)    do not permit the trustee to charge fees for any merger of multiple accounts as a result of such rules.

11    A contravention of s 108A(1) is a strict liability offence: s 108A(5) of the SIS Act. In addition, compliance with s 108A is a condition imposed in a superannuation trustee’s registrable superannuation entity licence, so that non-compliance with s 108A may result in cancellation of the registrable superannuation entity licence by APRA: ss 29E(6E) and 29G(2)(c) of the SIS Act.

Productivity Commission

12    In 2017 and 2018, the Productivity Commission conducted an inquiry to assess the efficiency and competitiveness of Australia’s superannuation system and delivered its final report to the Government on 21 December 2018. The Productivity Commission found that there were “too many unintended multiple accounts” and its final report stated:

Over a third of all super accounts are ‘unintended multiples’ — created when a new default account is opened for a member when they change jobs or industries, and the member does not close their old account or roll over their existing balance. Much of this account proliferation appears early in adulthood and persists well into middle age (figure 8).

These unintended multiples collectively cost the members who hold them $1.9 billion a year in excess insurance premiums and $690 million in excess administration fees. Over time, the foregone returns compound to unnecessarily erode their retirement balances, and can leave a typical full-time worker 6 per cent (or $51 000) worse off at retirement (cameo 4). Even worse, the effects are regressive, affecting younger and lower-income members the most.

Scale of multiple account issue across the industry

13    As at 30 June 2023:

(a)    over 13.3 million Australians had one superannuation account;

(b)    around 4 million Australians held two or more superannuation accounts (an increase from 3.9 million as at 30 June 2022); and

(c)    the percentages of accounts held by an individual were:

AUSTRALIANSUPER IN CONTEXT OF THE SUPERANNUATION INDUSTRY

14    Superannuation is a core part of Australia’s retirement income system.

15    As at the end of June 2023, in Australia:

(a)    there were 13.4 million superannuation accounts held in a total of 22 industry funds;

(b)    AustralianSuper had over 3.2 million member accounts;

(c)    total assets held by industry funds were approximately $1.2 trillion;

(d)    the Fund had total assets of approximately $311 billion.

16    AustralianSuper has the largest market share in Australia with responsibility for 14.6% of member accounts in Australia and 12.6% of total superannuation funds under management. There is a considerable difference in size between it and its next largest competitor, Australian Retirement Trust, which has almost 920,000 fewer members (2.33 million in total) and around $47 billion less funds under management ($264 billion).

17    AustralianSuper’s turnover was:

(a)    $467 million for the 12-month period ending on 31 March 2019;

(b)    $486 million for the year ended 30 June 2019; and

(c)    $555 million for the year ended 30 June 2020.

18    As the trustee of Australia’s largest superannuation fund, AustralianSuper has an important role in the superannuation system. AustralianSuper promotes itself as being recognised as the “most trusted superannuation brand” for 11 years in a row.

CONTRAVENING CONDUCT

19    Although the penalty period commenced no earlier than March 2019, the contraventions are to be understood in the context of a failure to comply with s 108A of the SIS Act that extended back to July 2013. As will be seen, AustralianSuper’s breach of its covenants to members during the penalty period was a result of its failure to have rules that complied with s 108A and to perform the processes those rules would have required. AustralianSuper’s failure to remediate promptly during the penalty period related at least in part to losses that had accrued prior to the penalty period.

AustralianSuper’s business rules

20    Between 1 July 2013 and 19 June 2022, AustralianSuper’s business rules did not comply with s 108A of the SIS Act.

21    Throughout that period, AustralianSuper’s business rules had separate “duplicate account” and “dual account” processes that were directed to identifying and merging multiple accounts. In broad terms:

(a)    The duplicate account process applied where a member had more than one active accumulation account and where one of those accounts was less than 12 months old, had no member-led changes to insurance, was in the same division of the Fund as another account of that member, had default member investment choice only and, from at least 23 November 2015, was not created for a “special employer arrangement” employer. Following identification, the accounts would be merged without consultation with members.

(b)    except between 5 March 2014 and 29 November 2015, a dual account process applied where a member had multiple active accumulation accounts in the same or different division of the Fund, where one of those accounts was more than 12 months old, and that account was not otherwise an “excluded account”. The merger of accounts under the dual account process was performed:

(i)    on either an opt-out or opt-in basis (for different cohorts of members), until 30 June 2017; and

(ii)    only in response to member requests, from 1 June 2018 until 19 June 2022.

22    The business rules for the dual account process did not comply with s 108A, in that they did not require that process to be conducted at least once each financial year and did not require AustralianSuper to merge multiple accounts where the trustee reasonably believed merger to be in the member’s best interests, without member opt-in or consent, unless it was not practicable to merge them in the circumstances.

23    AustralianSuper was aware of s 108A at the time the section commenced. Around that time, there were employees within AustralianSuper who were aware that its business rules needed to be amended in order to comply with s 108A and that processes should be implemented to effect those changes. However, no procedures for updating the business rules were created. AustralianSuper had no formal processes or controls in place that required someone in the compliance or legal teams to review changes to the business rules to ensure regulatory compliance or to document that relevant sections in the rules were related to compliance with s 108A.

24    From 2013 to June 2022, AustralianSuper’s business rules relating to the dual and duplicate account processes were amended a number of times, but not for the purpose of ensuring compliance with s 108A of the SIS Act. For example:

(a)    On 20 February 2014, the dual and duplicate account processes in the business rules were amended to require that reports on duplicate / dual members “will be done on a frequency … as a minimum at least once a month”.

(b)    On 5 March 2014, the dual account process was removed from the business rules “for the time being” because, as noted by a representative of the Fund’s administrator, the process was “yet to be agreed and approved and has not yet been bedded into any internal administration process”.

(c)    On 24 November 2014, the duplicate account process was amended to insert a definition of “duplicate member” and require that confirmation be issued to a member post-merge.

25    There is no evidence of any formal processes or controls in place at AustralianSuper at the time the business rules in relation to the dual and duplicate account processes were amended in 2014 that required:

(a)     someone in the compliance or legal teams to review and / or approve changes to the business rules to ensure that they met the relevant legislative requirements;

(b)    someone to document or record in the business rules (or elsewhere) the fact that the relevant sections in the business rules were connected or related to compliance with s 108A of the SIS Act; or

(c)    someone to assess any future changes to those sections of the business rules to ensure that the changes did not affect AustralianSuper’s compliance with s 108A.

26    On 29 April 2015, Mr Patrick Gordon (an analyst within AustralianSuper) asked Mr Tim Cheney (Senior Management Accountant, Corporate Services) “what’s the financial benefit of us merging dup accounts now rather than letting them hang around”. Mr Cheney replied, “it benefits the member by stopping the $1.50 charge on their dup acct but for us it means less revenue (and if we stupidly back date it for years then we lose more revenue) i dont [sic] see what benefit it has for us other than goodwill to the member and so we dont [sic] lose them to the ato [sic] if the account is inactive and small”.

27    On 30 November 2015, the business rules were amended to reintroduce the dual account process in largely the same form as it was prior to its removal in March 2014.

28    On 29 November 2016, as part of the negotiation of the commercial arrangements with AustralianSuper’s incoming administrator Link Group, employees within AustralianSuper considered that details with respect to the frequency with which the administrator was required to undertake the dual account process would need to be captured in the business rules and were aware that the then current business rules did not specify the frequency with which the process was required to be undertaken. There is no evidence that any action was taken to address this omission in the business rules.

29    The dual account process was run as part of ad-hoc campaigns in 2013 and 2016, with low member response rates of less than 10% for each campaign. There is no evidence that anyone at AustralianSuper considered compliance with s 108A at the time those campaigns were run.

30    While the dual and duplicate account processes resulted in the merger of at least 100,000 member accounts (relating to at least 70,975 members) in financial years 2013 to 2023, it remained the case that 90,788 members still had duplicate accounts by 2023. The multiple accounts of those 90,788 members would have been identified and merged if AustralianSuper’s business rules had complied with s 108A and AustralianSuper had carried out the processes such rules would have required. Those members incurred approximately $69 million in losses through multiple administration fees and insurance premiums, and lost investment earnings on those amounts (which have now been fully remediated).

Awareness of multiple accounts prior to the penalty period

31    Prior to the penalty period, employees and officers of AustralianSuper had recognised that there were members with multiple accounts but AustralianSuper failed properly to address the issue.

32    In around March 2016, at least some employees within AustralianSuper were aware that “[a]s at October 2015, AustralianSuper had 110,000 Dual Accounts equating to an estimated ≤55,000 affected individual ‘Dual Members’… A dual member holds at least one additional account with complexities that prevent the accounts from being [merged under the Duplicate Account Rules]”, and that AustralianSuper intended to conduct a dual account merge campaign to address the fact that members were paying multiple sets of fees and holding different insurance amounts that they may not necessarily want or need.

33    On 10 April 2018, Ms Kelly Shay (Fund and Stakeholder Relationship Manager) and Mr Tyrone Ko (Head of Service Transformation) prepared a memorandum titled “Current State – Duplicate Accounts”, the purpose of which was to provide information to the Productivity Commission, in connection with its inquiry into the efficiency and competitiveness of Australia’s superannuation system. The memorandum identified that, as at 28 February 2018, AustralianSuper had at least 43,605 members who had more than one accumulation account within AustralianSuper.

34    The memorandum noted that the figure of 43,605 members did not exclude those who had been flagged as having chosen to have more than one account and also identified reasons why members would want to have more than one account. The memorandum also identified that a number of improvements aimed at identifying and consolidating multiple accounts were being investigated.

35    On 13 April 2018, Ms Shay provided the memorandum to Mr Ian Silk (then CEO), Mr Paul Schroder (then Group Executive, Product Brand and Reputation) and Ms Rose Kerlin (then Group Executive, Membership). Ms Shay’s covering email stated “[w]e need to improve the system so we can track and report who has intended duplicate accounts. Once we have improved our capacity to track and report on this we need to run a campaign to reduce unintended duplicate accounts”.

36    In emails to Ms Shay dated 13 and 18 April 2018, Mr Schroder observed “[m]aybe the first step is to fix this appalling problem?” and asked if it was within AustralianSuper’s power to “act unilaterally in favour of combining these accounts”. In response, Ms Shay advised that she believed that consent was required.

37    On 27 April 2018, Ms Shay sent the three executives (Messrs Silk and Schroder and Ms Kerlin) a draft report for a project to reduce multiple accounts. The first page of the executive summary noted that “[u]nintended multiple accounts are regressive and have the greatest impact on those who are least well off”. Following a meeting of the three executives in early May 2018, the identification and consolidation of multiple accounts was “nominated as a priority”.

38    In June 2018, work began on a potential account merge campaign, with the intention of it being implemented in July or August 2018.

39    In July 2018, AustralianSuper made a submission to the Productivity Commission in which it noted that the excessive number of unintended multiple accounts was a “fundamental problem” in the superannuation system. AustralianSuper acknowledged the costly “current arrangement of having a new default fund each time employment changes”, and in this context AustralianSuper was “concerned about the regressive nature of multiple accounts” and agreed that “more must be done to reduce current and future account proliferation”.

40    On 23 October 2018, Mr Jeremy Bond (Senior Business Analyst) sent an email to compliancereview@australiansuper.com in which he noted a possible overlap between the planned account merge campaign and the “CRN merge” project (being planned by AustralianSuper’s Project Team, designed to consolidate multiple member records under a single record with a unique customer reference number).

41    On 29 October 2018, Mr Nicholas Ooi (Regulatory Compliance Analyst) sent an email to Messrs Bond and Gordon in which he extracted s 108A and stated (among other things) that “[c]an you please look into this with the Operations team (or whomever is best to answer this) and confirm our current process and also historically what we’ve done in regards to merging accounts? As I understand it, we have not done [a dual account campaign] for about 2 years now and as we don’t merge accounts for [members] but instead ask them for express consent, we may have breached our legislative requirements”. Mr Bond replied, “looks like we’ve opened a can of worms, but a can that’s in the best interest of the members”.

42    On 30 October 2018, Mr Bond forwarded Mr Ooi’s email to Ms Katie Le Cras (Head of Operations).

43    On 7 November 2018, Ooi sent an email to Mr Bond and Ms Kirsten Surridge (Operations Delivery Lead), in which he noted his view that “the dual account process is short of meeting the SIS requirements and think our business rules should be reviewed to ensure there is a procedure to identify dual accounts and merge them”.

44    Between 7 November 2018 and early December 2018, Mr Ooi gathered further information from AustralianSuper employees in relation to the historical dual account campaign and the total number of members with potential dual accounts.

45    On 4 December 2018, Mr Ooi sent another email to Ms Surridge and Messrs Bond and Gordon and copied to Ms Le Cras, which reiterated his concerns and indicated that he would need to raise an incident in AustralianSuper’s Governance, Risk and Compliance system (GRC system). On 6 December 2018, Mr Ooi forwarded that email to cscompliance@australiansuper.com. Mr Ooi then raised incident INC-2106 in the GRC system with Ms Surridge designated as the “incident owner” and the incident described as “key issues with not meeting the requirements of s 108A”.

46    On 10 January 2019, Mr Ooi met with Ms Surridge, Mr Theodore Prodromou (Operations Specialist), Mr Gordon and Ms Laura Sheahan (Operational Risk Officer) to discuss the process to address merging duplicate accounts and next steps to address the gaps in meeting AustralianSuper’s requirements under s 108A of the SIS Act. Those employees met on four further occasions between February and April 2019.

47    In early February 2019, Ms Maria Milosevic (Senior Regulatory Compliance Analyst) reviewed INC-2106 and assessed (incorrectly) that AustralianSuper had appropriate business rules in place to comply with s 108A of the SIS Act. Ms Milosevic forwarded her conclusions to Ms Diane Spaul (General Manager, Compliance) and Ms Narelle Smith (Head of Governance and Company Secretary) on 6 and 7 February 2019.

48     On 6 March 2019, Ms Milosevic re-sent her conclusions to Ms Spaul, who then approved Ms Milosevic’s assessment (incorrectly), and Ms Milosevic updated INC-2106 in the GRC system as “complete” and noted (incorrectly) that a review of the business rules confirmed that the Fund did have appropriate business rules in place to comply with s 108A.

49    As a result of the incorrect compliance assessment of INC-2106 in February and March 2019, between March 2019 and November 2021, INC-2106 was not properly identified by AustralianSuper within its incident management system to be a potential regulatory breach and not prioritised for resolution.

Conduct during the penalty period

50    On 29 March 2019, Mr Ooi circulated a memorandum that he had prepared entitled “Multiple Account Merge Process – Compliance Considerations” to Ms Sheahan and other members of the Operations team. The memorandum again set out the s 108A requirements and noted the “gaps” in the dual account process as follows:

1.     The previous Dual Account campaigns to merge duplicate accounts greater than 12 months old required members [sic] express consent. However, where it is in the member’s best interest to merge duplicate accounts, (for instance where the duplicate accounts are in the same division and there are no adverse impacts to insurance or other benefits), we should be merging these accounts for members, rather than seeking their consent to do so. Of the 72,056 Dual accounts (under the Dual Account Criteria of having a matching TFN and a primary/secondary criteria match), 58,582 of these accounts were in the same Industry division.

2.     There is a requirement to carry out the procedure to identify duplicate members at least once each financial year however this was last conducted in May/June 2016 and therefore, we missed the 2017/18 financial year. I understand this is an ad hoc process (initiated by AustralianSuper) however this should be a BAU process conducted at least once per financial year.

51    On the same day, Mr Ooi forwarded his memorandum to Ms Smith and told her that the internal working group had decided to escalate the issue further, and that it had been raised with Ms Le Cras. Over the following days, Mr Ooi also told Ms Smith that, after he had raised this issue in the GRC system, Ms Milosevic had determined that AustralianSuper’s previous process had not breached s 108A. Mr Ooi added that he was going to do additional research into the question and, if required, reconvene with Ms Milosevic. Ms Smith replied to Mr Ooi that she would be “keen to know the outcome” of his review as “it seems like there may be a problem”. Despite this issue being raised with Ms Smith, no specific action appears to have been taken at the time to address the concerns raised by Mr Ooi.

52    On 11 April 2019, Mr Ooi sent an email to Ms Sheahan, copied to Mr Prodromou and Ms Surridge, in which Mr Ooi stated that he had concerns that the process had only been done on an opt-in basis, and that, regardless of the previous 2016 campaign, AustralianSuper would need to undertake a dual merge process in the 2019 financial year without requiring member consent if the accounts could be merged in the member’s best interests.

53    On 12 April 2019, Mr Ooi asked Ms Sheahan to let him know when she discussed the issue with Ms Le Cras. On 12 April 2019, Mr Ooi then forwarded Ms Smith his email to Ms Sheahan dated 11 April 2019 and asked that Ms Smith follow up with Ms Le Cras, as he felt that “greater traction” was needed on both “implementing the Dual Merge process for this current financial year and ensuring the 2016 campaign had been completed appropriately, as per SIS requirements S108A”. Ms Smith did not appear to follow up Mr Ooi’s concerns with Ms Le Cras.

54    On 12 April 2019, Ms Sheahan exchanged emails with Ms Surridge to discuss the proposed dual merge campaign. Ms Surridge noted that Mr Ooi had advised that an opt-out process should be used but that Ms Le Cras was not keen on that option. Ms Sheahan replied that she agreed with Mr Ooi’s approach, as “it doesn’t seem like the process works correctly unless we do an opt out approach”.

55    On 30 April 2019, Mr Ooi emailed Ms Sheahan to follow up whether she had discussed the matter with Ms Le Cras. Ms Sheahan did not appear to contact Ms Le Cras to follow up Mr Ooi’s concerns.

56    Mr Ooi forwarded his email to Ms Smith dated 12 April 2019 to:

(a)    Ms Kate Densley (Senior Regulatory Compliance Analyst) on 29 April 2019;

(b)    Ms Richard Brazenor (Regulatory Compliance Analyst) on 30 April 2019; and

(c)    Ms Spaul on 13 May 2019.

57    None of those persons appears to have taken any action in response to Mr Ooi’s email.

58    On 2 May 2019, Ms Sheahan forwarded Mr Ooi’s email to her dated 30 April 2019 to Ms Georgina Burke (Senior Operations Risk and Assurance Manager) and asked if they could discuss it the next day. On 7 May 2019, Ms Sheahan sent a further email to Ms Burke, in which she again asked to discuss and noted that there was “currently a risk that will cause a breach”.

59    On 8 May 2019, Ms Sheahan asked Ms Surridge and Mr Prodromou to confirm what action would be taken in response to Mr Ooi’s email dated 11 April 2019, and whether the matter needed to be escalated. Ms Sheahan added, “[i]t is outstanding for quite some time and we’re in the position where we may breach”.

60    On 15 May 2019, Ms Sheahan asked Ms Surridge how she was progressing with the multiple account merge, and further questions including “[a]re we breaching?”, “[w]hat is the timeframe for implementation”, and “[w]ho will take ownership?”. On 17 May 2019, Ms Surridge told Ms Sheahan that she did not have capacity to take on tasks including the “dual/duplicate merge”, adding “not that they will be happy about that, and a risk to the business”.

61    Mr Ooi ceased employment with AustralianSuper on 16 May 2019.

62    On 5 June 2019, the s 108A obligations were added as “obligation M10.24” in AustralianSuper’s “obligations library”.

63    On 7 June 2019, Ms Milosevic emailed Ms Sheahan to notify her that four new compliance obligations for which there were no documented controls (including obligation M10.24) had been identified for Ms Sheahan’s teams and asked Ms Sheahan to identify any current controls that would be suitable to ensure compliance. On 12 July 2019, Ms Burke asked Ms Sheahan whether she had done anything with that request, and Ms Sheahan replied that it was on her list to do the following week.

64    On 10 July 2019, Ms Burke replied to Ms Sheahan’s email of 7 May 2019, apologised for her delay in responding, and asked “[d]id we ever move forward on this as per your memory or was it with me for action?”. Ms Sheahan responded, “I have heard no update on this. There is different opinions of what should be done. It is sitting with [Ms Surridge] to action. At this stage I suspect we have breached”. Ms Sheahan then emailed Ms Surridge and asked for an update. Ms Surridge replied that she was working on a project plan which she was due to complete by the end of the week, and which would then be circulated to other teams for their input.

65    On 15 August 2019, Ms Sheahan asked Ms Surridge whether there was any update to the project plan.

66    On 27 August 2019, Ms Le Cras emailed Ms Surridge and identified that two action plans, including AP-1481 linked to INC-2106, were significantly overdue (as AP-1481 had been scheduled for completion in May 2019) and had triggered reporting to the Executive. She added that she understood that Ms Sheahan had also been trying to seek an update from Ms Surridge, but without success. On 28 August 2019, Ms Surridge explained that the delay was the result of “time and priorities”: while she had been able to “chip away” at the task, she had not dedicated the time needed to “just knock this out”. Ms Surridge also noted in her email that “[Ms Sheahan] did send reminders, I failed to reply but they did prompt me to action, however, again I failed to reflect this in GRC”.

67    On 28 August 2019, Ms Sheahan emailed Ms Surridge regarding the appropriate controls for obligation M10.24 and asked what process existed in relation to the legislative requirements. Ms Surridge responded with an overview of the processes for merging duplicate and dual accounts and noted that she had updated action plan AP-1481 to reflect that a project plan had been developed for the merging of dual accounts. She added “[t]here is probably a case for yearly control… I am hoping to have something in the next couple of weeks back from [Ms Angela Apostolopoulos (Operations Manager)] to confirm how we as a team will manage this”.

68    On 28 August 2019, Ms Surridge sent Ms Apostolopoulos a draft dual merge campaign project plan. Ms Surridge noted that, while the dual merge campaign “is something that must be done as we are in breach”, she was concerned about the resourcing impact on her team “as I can’t see how we would have available resourcing at this time”. Ms Surridge sent Ms Apostolopoulos an updated version of the project plan on 3 September 2019.

69    On 13 September 2019, Ms Le Cras sent Ms Surridge a further request for an update on the outstanding action plans (including AP-1481), for inclusion in Ms Le Cras’s report for the October Executive Committee meeting. On 15 September 2019, Ms Surridge sent Ms Le Cras further information about steps that had been completed and outstanding next steps for both of the outstanding action plans.

70    On 13 September 2019, Ms Apostolopoulos told Ms Surridge that she was “very concerned” about these requests (i.e. the request from Ms Le Cras for an update), and asked what the Operations Delivery team was doing to support her. Ms Apostolopoulos told Ms Surridge that another operations specialist, Ms Andrea Collins, would be assigned to assist her. On 16 September 2019, Ms Surridge replied that her team needed help and additional staff and was “at huge risk of becoming a bottle neck”.

71    On 30 September 2019, an internal meeting was held to discuss aligning the planned dual merge campaign with an existing CRN merge project. On the same day, Ms Collins updated the GRC system to include a note that she would take “[n]o further action” until she heard back from the CRN project team on whether the planned dual merge campaign could be “incorporated into” the CRN merge project. After Ms Collins was assigned as a resource to assist Ms Surridge, Ms Collins took over primary responsibility for the campaign.

72    On 22 November 2019, representatives of AustralianSuper (including Ms Surridge and Ms Collins), attended a meeting with representatives of Link Group to discuss the CRN merge project and planned dual merge campaign. It was noted that the CRN merge project should be run first, in order to provide cleaner data for the planned dual merge campaign; that no firm project plan was in place yet for the planned dual merge campaign; and that AustralianSuper and Link Group were tentatively aiming for an opt-out, rather than opt-in approach (subject to confirmation).

73    From around late March 2020, the planned dual merge project was placed on hold in response to the COVID-19 pandemic which required AustralianSuper to transition its entire workforce to remote working arrangements and to take steps to ensure the ongoing liquidity of the Fund in consequence of the Australian Government’s significant expansion of the eligibility criteria for early release of superannuation in April 2020. No substantial progress on the dual merge project had been made by that time. The CRN merge project was not identified as a project that should continue. Consequently, neither it nor INC-2106 was progressed at this time.

74    In April 2020, AustralianSuper obtained a new “obligations library”, in which the s 108A obligation was added as “obligation 30851” in place of former obligation M10.24. No control requiring periodic attestation of compliance with s 108A of the SIS Act was inserted until February 2022.

75    In around July 2020, Mr Chris Hope (Acting Operations Delivery Lead) replaced Ms Surridge as the “incident owner” of INC-2106.

76    On 18 September 2020, Ms Collins and Ms Apostolopoulos contacted Mr Hope about the dual merge project, noted that the CRN merge project was on hold, and suggested that they should restart work on the dual merge issue by obtaining a data extract and developing a project plan. On 20 September 2020, Mr Hope replied that he had inherited an action plan from Ms Surridge, and agreed that they should “get stuck into and agree analysis and project plan will be key given the potential size and moving part[s]. This could have a significant impact on LINK depending on the outcomes/actions we take which we will need to navigate through. This could be a one that leads to issues we can avoid if we don’t get stuck in and get a good feel for the problem and what its [sic] going to take to fix it. Once we know this we can then prioritise further”. On 22 September 2020, Ms Collins emailed Link Group to request a data extract of members affected by the dual accounts issue.

77    On 24 September 2020, Ms Le Cras asked Ms Apostolopoulos and Ms Collins for an update on INC-2106 because it had come up at an executive meeting. On 29 September 2020, Ms Collins replied, describing the dual account issue as a “legacy item dating back to 2016”, and noting that AustralianSuper did not have any new members affected by it as the duplicate merge process identifies new members within 12 months. Ms Collins added that she had agreed with Ms Apostolopoulos and Mr Hope that AustralianSuper should recommence investigations into this issue. On 5 October 2020, Ms Collins created a number of new action plans in the GRC system in relation to INC-2106.

78    On 5 October 2020, Ms Le Cras asked Ms Collins whether the dual account issue was “actually an incident” or “just a worthwhile ‘membership consolidation’ exercise that may be worthy of doing?”. If it was the latter, Ms Le Cras suggested that they close the incident and “then plan to do as a BAU exercise when priorities allow”.

79    On 25 November 2020, Mr Hope referred INC-2106 for closure within the GRC system. On 11 December 2020, Ms Karen Young (Assurance Manager, Member Experience) determined that the identified compliance issues had not yet been resolved and the incident should not be closed. Ms Collins expressed surprise that the incident had been closed. After he was notified that the incident had been reopened, Mr Hope replied that the closure had occurred as a result of his misunderstanding.

80    Between November 2020 and September 2021, no material action was taken to progress INC-2106. On 16 March 2021, Ms Collins updated the GRC system to include a note that there were competing organisational priorities, and limited resourcing to assist her.

81    On 27 August 2021, Ms Le Cras asked Mr Hope to “see what is going on with [INC-2106]… Given its [sic] ageing, I don’t want it to become an unintended issue and get unnecessary attention”. Mr Hope replied that he would “review and get this one moving”.

82    On 6 September 2021, Mr Prodromou emailed the Member Experience Risk and Compliance team, asking for somebody to review INC-2106 “from a SIS Act perspective (108A)”. Mr Prodromou referred to Ms Milsoevic’s prior determination in February 2019 that no breach had occurred, and added “[w]e need to make a decision if this is correct and look to either close the incident or confirm why we are keeping it open and what the next steps are”. Over the following weeks, Ms Young and Ms Lou Carnovale (Compliance Manager) replied to Mr Prodromou, explaining (by reference to Mr Ooi’s memorandum of March 2019) that the issue could not be closed off, because the business rules did not appear to be compliant with s 108A of the SIS Act. Ms Carnovale stated (emphasis in original):

I don’t feel the Fund is compliant with the SIS Act requirements. Yes we are performing the duplicate merge function weekly however the duplicate merge function only checks an active account against other accounts which are less then [sic] 12 months old and in the same division. The dual merge function which hasn’t been performed matches an active account against other accounts more than 12 months old. So, if we haven’t been doing this at least once every 12 months, how can we say we are compliant with the SIS Act requirements?

83    On 26 October 2021, Ms Young and Ms Carnovale met to discuss INC-2106. Following that meeting, Ms Young and Ms Carnovale documented the background to INC-2106, so that they could “get some traction on actions and divert from a circular conversation”. Ms Carnovale told Ms Young that the obligation to merge multiple member accounts is a core obligation that a superannuation trustee must comply with and that AustralianSuper clearly was not meeting that obligation “when it comes to members with accounts older than 12 months via the dual merge process”.

84    On 5 November 2021, Messrs Hope and Prodromou, Ms Carnovale and Ms Young met to discuss next steps for resolving INC-2106. Ms Young then provided Ms Burke with a summary of the issue and agreed actions from the meeting. Ms Young added “[y]ou mentioned this one will need to go to [the Incident Review Group (IRG)] – if you decide not to refer to IRG, please confirm preferred next steps”.

85    On 9 November 2021, Ms Burke circulated an agenda for a meeting of the Member Experience IRG on 10 November 2021, and a paper summarising INC-2106.

86    At the Member Experience IRG meeting on 10 November 2021, INC-2106 was raised for discussion as a “low impact incident by exception”, for committee members to ascertain if an investigation was required in accordance with “the new breach reporting regime”. Further relevant considerations discussed at the IRG meeting included that a “huge amount of work and resources would be required to work back to identify dual accounts and merge them where trustee believes it’s in the member’s best interest”. The Member Experience IRG resolved to commence an investigation on the basis that AustralianSuper had potentially not complied with s 108A since 2016 and having regard to the number of members impacted. The members of the IRG at the meeting were Ms Burke, Ms Le Cras, Mr James Nott (Manager, Incident Management) and Mr Eric Keser (Senior Manager, Technology Services Advisory).

87    At the next Member Experience IRG meeting on 24 November 2021, INC-2106 was again discussed, and the IRG determined that it be referred to the Breach Reporting Panel. On 26 November 2021, Mr Hope provided information to the Member Experience IRG, from his initial analysis, that the dual account issue affected 10,687 members.

88    On 3 December 2021, the BRP considered INC-2106 and concluded that the incident was reportable but referred the incident for external legal advice. The materials considered by the BRP included the following commentary:

While it appears to be a unique situation – we have not implemented relatively clear regulatory requirements that require the trustee to establish and execute rules to support acting in the member’s best financial interest. In turn, we have been on notice of compliance gaps that remain unaddressed since 2017 despite being understood from April 2019. Tighter more focused obligations regarding the member’s best financial interest have also been introduced over this time. We also identified in December 2020 that steps taken to close the incident were not sufficient to address the known gaps. the matter was reconsidered in September 2021 before escalation to IRG in November 2021.

89    On 17 December 2021, the BRP determined to report INC-2106 to Australian Prudential Regulation Authority (APRA) and ASIC. The members of the BRP at the meeting were Ms Smith (as Head of Governance, Group Risk) and Ms Marilyn Mather (as Head of Legal, Finance and Operations). AustralianSuper lodged breach reports with ASIC on 22 December 2021, 22 June 2022, and 5 August 2022. The two later breach reports stated that AustralianSuper’s analysis to date showed that since 1 July 2013, approximately 47,282 members had been affected, with a financial impact of approximately $16.1 million.

90    Between 7 March 2022 and May 2022, AustralianSuper carried out a gap analysis of the business rules’ compliance with s 108A of the SIS Act for the purpose of preparing amendments to the business rules to rectify the compliance issues identified. Those amendments were subject to a process of internal stakeholder approval between 7 April and 11 May 2022.

91    On 20 June 2022, AustralianSuper amended its business rules to:

(a)    insert a statement that the purpose of the dual account process was to comply with s 108A of the SIS Act;

(b)    require the dual account process to be undertaken at least once each financial year and required accounts to be merged (without needing member consent);

(c)    insert a definition of the circumstances in which AustralianSuper considered that it would be in the best financial interests of a member to merge multiple accounts;

(d)    provide guidance regarding various processes including merging accounts pursuant to the member’s best financial interests; and

(e)    require AustralianSuper to write to members who did not meet the best financial interests test so that they might provide instructions on whether or not their accounts should be merged.

92    On 26 June 2023, AustralianSuper disclosed to ASIC the final numbers of members impacted and financial impact, as set out at [93] below.

HARM TO MEMBERS

93    The parties agreed that as a consequence of AustralianSuper’s failure to promptly establish rules which set out a procedure to identify and merge multiple accounts in accordance with s 108A of the SIS Act and to promptly identify and merge multiple accounts in the way that such rules would have required, affected members were exposed to the following avoidable financial losses:

(a)    From 1 July 2013 until 31 March 2023, approximately 90,700 members had multiple accounts that would have been identified and merged if AustralianSuper had established rules in accordance with s 108A and implemented systems to give effect to those rules. Those members incurred approximately $69 million in losses through multiple administration fees, insurance premiums and lost investment earnings on those amounts.

(b)    From 13 March 2019 until 31 March 2023:

(i)    approximately 43,000 affected members had multiple accounts at a time on or after 13 March 2019, and incurred approximately $12 million in losses through multiple administration fees and insurance premiums, and lost investment earnings on those amounts (the numbers of members and loss are subsets of the figures at paragraph (a)).

(ii)    the remaining approximately 47,700 affected members ceased to have active multiple accounts before 13 March 2019. These affected members did not incur multiple fees and insurance premiums on or after 13 March 2019 but continued to incur losses of lost investment earnings on the multiple fees and insurance premiums that had been charged while the member had active multiple accounts.

BENEFITS TO AUSTRALIANSUPER AND DETRIMENT AVOIDED

94    As a result of its contravening conduct, AustralianSuper:

(a)    avoided the time and costs of establishing rules in accordance with s 108A and resourcing a system (or systems) to ensure compliance with those rules including the merger of members’ multiple accounts;

(b)    charged administration fees to members who held multiple accounts that should have been merged;

(c)    avoided the time and costs of promptly remediating affected members.

95    Because AustralianSuper is a public offer industry fund, it does not retain, or pass on to shareholders, the benefits of avoiding costs or charging excessive fees. Such costs and benefits are ultimately covered or received by members.

REMEDIATION

96    Between the first breach report to ASIC in December 2021 and May 2023, significant preparatory work was undertaken by AustralianSuper to commence remediating affected members, including:

(a)    identifying the appropriate time period for remediation;

(b)    identifying with a sufficient level of assurance affected members;

(c)    engaging external consultants to advise on the appropriate methodology for returning impacted members as closely as possible to the position they would have otherwise been in had their accounts been merged (including calculating lost investment earnings and foregone interest);

(d)    engaging with ASIC, APRA and the Australian Taxation Office (ATO) on the proposed remediation methodology and approach;

(e)    drafting relevant member communication documentation; and

(f)    engaging with third parties such as the Fund’s insurance provider and administrator.

97    The formulation of the remediation methodology was complex due to the significant variation in members’ specific circumstances with respect to their accounts, including their insurance status, investment choices and products over the duration of the remediation period.

98    In August 2022, AustralianSuper established the Multiple Member Accounts Remediation Steering Committee to provide strategic direction, oversight, and support for the remediation program. The Steering Committee first met on 2 September 2022, with the terms of reference requiring subsequent meetings to be held on at least a fortnightly basis. The final meeting of the Steering Committee occurred on 25 October 2023. During that time, AustralianSuper directed extensive resources towards the remediation program, including by:

(a)    assigning senior executives to the Steering Committee. One of those senior executives was devoted to working on the remediation program on a full-time basis from approximately July 2022 until approximately June 2023;

(b)    engaging external remediation specialists to advise on the proposed approach to remediation; and

(c)    setting up a dedicated “remediation program team” to implement the remediation program.

99    In May 2023, AustralianSuper began remediating affected members for the financial harm quantified above. The remediation program was 96.14% complete by 18 May 2023, and 98.65% complete by the end of June 2023.

100    On 12 May 2023, AustralianSuper issued a media release concerning the contravening conduct and the remediation of members.

101    By 3 July 2023, AustralianSuper issued 106,234 notification letters to affected members.

102    As at October 2023, there were:

(a)    660 members eligible for remediation and from whom AustralianSuper required instructions to merge their accounts pursuant to the updated business rules; and

(b)    126 members whose multiple accounts had been merged automatically in accordance with the established remediation methodology and approach but who have subsequently advised that they do not want their accounts merged.

103    At the same time as undertaking the remediation process, AustralianSuper also undertook the “business as usual” merger of multiple accounts for the financial year ending June 2023 in compliance with s 108A of the SIS Act.

104    It was agreed that AustralianSuper has comprehensively remediated affected members through its remediation program by restoring affected members to the position they would have been in had AustralianSuper established rules in accordance with s 108A and complied with those rules from 1 July 2013. AustralianSuper has remediated affected members for the losses that were incurred through multiple administration fees, insurance premiums and lost investment earnings on those amounts from 1 July 2013 until 31 March 2023. A breakdown of the remediation is set out in the following table:

OTHER CORRECTIVE ACTION

105    In October 2020, AustralianSuper commenced a detailed review of its incident management processes. Subsequently, in March 2021 AustralianSuper determined it would take a number of actions to address deficiencies identified in the Fund’s management of incidents, including enhancing the incident and breach reporting policy to include required reporting to the Board, Board Committees and executives. The actions were tracked and were marked as having been completed by 29 September 2021.

106    In 2021, AustralianSuper undertook an assessment of the Fund’s response to regulatory change. As part of this review, the Fund identified that while there was a process to identify and triage new regulatory changes across the Fund, there were no mechanisms in place to authorise ongoing monitoring of regulatory changes.

107    In late 2021, AustralianSuper implemented a “Regulatory Change Forum”. The Chair of the Regulatory Change Forum is accountable (amongst other matters) for determining regulatory change impacts, overseeing the progress of regulatory change implementation, and escalating issues to the accountable executive or Chief Risk Officer as appropriate. The Regulatory Change Forum is required to meet at least monthly, and the Chair of the Regulatory Change Forum presents a regular “regulatory change dashboard” to the Risk and Compliance Committee to enable it to note the status of regulatory change program delivery.

108    AustralianSuper has also updated its “project portfolio management” tool to require the project team to complete a “compliance impact assessment” for sign-off as part of future projects, which includes consideration of regulatory requirements, associated obligations, controls and business rules.

109    The establishment of IRGs and the BRP has reduced the vulnerability of AustralianSuper to human errors in incident assessment through increased oversight of the incident assessment process.

110    AustralianSuper now also requires reporting on ageing incidents to the Member and Employer Services Committee (a subcommittee of the Board) and to the Chief Operating Officer. In addition, and although not a formally documented requirement, Group Risk regularly presents an incident management dashboard (including details of ageing incidents) at meetings of the Board, the Risk and Compliance Committee (another subcommittee of the Board) and Executive Committee. Group Risk also presents a paper on the management of incidents at each Risk and Compliance Committee and Executive Committee meeting. The regular reporting of ageing incidents is intended to improve the oversight and monitoring of incidents by the Board and senior executives within the Fund.

111    On 20 June 2022, AustralianSuper amended its business rules such that those rules were, on and from 20 June 2022, compliant with s 108A of the SIS Act. The business rules in relation to the dual and duplicate account processes were amended in June 2023, with those amendments having been reviewed by AustralianSuper’s internal and external lawyers. The amendments to the dual account process included removing the requirement that the secondary (and other) account(s) be more than 12 months old; inserting a requirement that dual members will be identified yearly on 31 March, unless an alternative date is agreed (provided that such date must be within a year of the previous identification process); and inserting tables identifying the circumstances in which it would be in a member’s best interests to automatically merge their accounts and other circumstances in which AustralianSuper will be unable to form a reasonable belief that it is in a member’s best interests to do so.

112    Since 26 September 2021, all material business rule amendments have been required to be reviewed by compliance personnel prior to being provided to the Fund’s administrator.

CO-OPERATION WITH REGULATORY AGENCIES

113    AustralianSuper provided genuine co-operation with ASIC during its investigation, including by:

(a)    providing ASIC with a copy of its root cause analysis, which was prepared by AustralianSuper’s external lawyers (and in so doing, waived any claim for privilege it might have had in respect of that report). The provision of the root cause analysis report, including the production of contemporaneous documents referred to therein, assisted ASIC to complete its investigation faster than it otherwise would have.

(b)    providing ASIC with file notes of interviews of AustralianSuper staff conducted by AustralianSuper’s external lawyers for the purposes of preparing the root case analysis. The provision of the file notes to ASIC reduced the number of examinations that ASIC was required to conduct.

(c)    engaging constructively with ASIC in relation to several voluntary requests for information and documents, which shortened the length of ASIC’s investigation.

114    AustralianSuper also provided genuine co-operation with ASIC during the course of the proceeding, in particular by indicating at the earliest opportunity (in its Concise Statement in Response) that it did “not controvert” that it contravened ss 912A(1)(a) and 912A(5A) of the Corporations Act in respect of conduct between March 2019 and May 2023 and ss 52(2)(b) and (c) and 54B(1) of the SIS Act in respect of conduct between April 2019 and May 2023, and cooperating with ASIC to agree a detailed SAFA and detailed SSAFA.

STATUTORY FRAMEWORK

Section 108A

115    With effect from 1 July 2013, s 108A of the SIS Act provides:

(1)     Each trustee of a superannuation entity (other than the trustee of a pooled superannuation trust or a self managed superannuation fund) must ensure that rules are established, which:

 (a)     set out a procedure for identifying when a member of the superannuation entity has more than one superannuation account in the superannuation entity; and

 (b)     require the trustee to carry out the procedure to identify such members at least once each financial year; and

…

116    As a registrable superannuation entity, it is a condition on AustralianSuper’s registrable superannuation entity licence to ensure that the rules required by s 108A to be established are complied with: s 29E(6E) of the SIS Act.

Section 52(2)(b) of the SIS Act

117    At all relevant times, ss 52(1), 52(2)(b) and 52(3) of the SIS Act provided:

Governing rules taken to contain covenants

(1)    If the governing rules of a registrable superannuation entity do not contain covenants to the effect of the covenants set out in this section, those governing rules are taken to contain covenants to that effect.

…

General covenants

(2)    The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

…

(b)    to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as a prudent superannuation trustee would exercise in relation to an entity of which it is trustee and on behalf of the beneficiaries of which it makes investments;

…

Superannuation trustee

(3)    In paragraph (2)(b), a superannuation trustee is a person whose profession, business or employment is or includes acting as a trustee of superannuation entity and investing money on behalf of beneficiaries of the superannuation entity.

118    Since 6 April 2019, s 54B(1) of the SIS Act has provided that a person must not contravene a covenant that is to the effect of a covenant set out in s 52 and is contained (or taken to be contained) in the governing rules of superannuation entity. Section 54B(3) makes s 54B(1) a civil penalty provision.

119    The “prudent superannuation trustee” standard was introduced into the s 52(2)(b) covenant with effect from 1 July 2013, as a heightening of the “ordinary prudent person” standard that had previously been expressed in s 52(2)(b): Explanatory Memorandum, Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 (Cth) [1.46], [1.61]–[1.65]. As set out in the parties’ joint submissions, the heightened standard was introduced to bring superannuation trustees into line with the existing State and Territory legislation applying to professional trustees. But, unlike those obligations under State and Territory legislation, the s 52(2)(b) deemed covenant:

(a)    applies to all the acts and decisions of a superannuation trustee, and not only in relation to its investment activities; and

(b)    overrides, rather than being subordinate to, any inconsistent express covenant: s 7 of the SIS Act.

120    It was not disputed that the covenant does not convert a superannuation trustee into a surety of no loss, nor does it impose strict liability. It was not disputed that the question of whether a superannuation trustee has breached the s 52(2)(b) covenant is always to be answered with regard to the particular circumstances of the alleged breach. It was also accepted by the parties that the question must be determined “prospectively rather than with the benefit of hindsight”: Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; 138 ACSR 459 at [38] (Jagot J). This second proposition seeks to capture the statement of the High Court in Elder’s Trustee & Executor Co Ltd v Higgins [1963] HCA 48; 113 CLR 426 at 448 (Dixon CJ, McTiernan and Windeyer JJ):

In considering whether the trustee duly performed its duty we must take our stand at the end of 1944 or in January 1945, and look at the position as it would then have appeared to a prudent man acting as trustee of the testator's estate. We are not to judge what the trustee then did or failed to do by the light of later events that could not then have been surely foreseen.

121    The trust deed that governs the Fund does not contain express covenants in the form of those in s 52(2)(b) of the SIS Act. Clauses 1.1 and 1.2 provide that the trust deed is to be read and construed on the basis that the “relevant requirements” are incorporated into the trust deed to the extent that they apply to the Fund, and that those relevant requirements shall prevail in the event of any conflict with an express provision of the trust deed. The “relevant requirements” include any standard, covenant or other requirement imposed on AustralianSuper as trustee.

122    AustralianSuper admits that between 6 April 2019 and 11 May 2023, in failing promptly to identify and merge each affected member’s multiple accounts and / or in failing promptly to remediate each affected member, it did not exercise the degree of care, skill and diligence in relation to that member that it was required to exercise under the s 52(2)(b) deemed covenant. As explained below, the admission is supported by the summary of contravening conduct set out above.

Section 52(2)(c) of the SIS Act

123    At all relevant times until 30 June 2021, s 52(2)(c) of the SIS Act provided that:

(2)     The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

….

(c)     to perform the trustee’s duties and exercise the trustee’s powers in the best interests of the beneficiaries.

124    From 1 July 2021, that deemed covenant was amended to require the trustee to perform its duties and exercise its powers “in the best financial interests of the beneficiaries”. The purpose of that amendment was to clarify that the financial interests, and not the non-financial interests, of beneficiaries must be the determinative factor for trustee decision-making, in order to comply with the trustee’s obligations.

125    The parties accepted that on the facts of this case, nothing turns on the difference between the “best interests” and the “best financial interests”. AustralianSuper did not seek to justify its failures promptly to identify and merge multiple accounts, and promptly to remediate affected members, on the basis of some non-financial interest of the affected members.

126    To determine whether there has been a breach of the s 52(2)(c) covenant on the facts of any specific case, it is first necessary to identify what powers and duties the trustee exercised (or failed to exercise).

127    It was agreed that the relevant powers and duties of AustralianSuper in the present case include:

(a)    its power under the trust deed to make and amend the business rules of the Fund, coupled with its statutory obligations to establish rules as required by s 108A and then to comply with those rules;

(b)    its power under the trust deed to establish sub-accounts to distinguish between different members;

(c)    its power under the trust deed to deduct administration expenses and insurance costs from “section accounts”;

(d)    its general power under the trust deed to do all things necessary, desirable or expedient for the proper application, administration, maintenance and preservation of the Fund or any part of the Fund, subject to the “relevant requirements”; and

(e)    its general power under the trust deed to do all things as in the opinion of the trustee are necessary in order to comply with or satisfy any “relevant requirements”, which includes s 108A of the SIS Act.

128    AustralianSuper failed to establish business rules that complied with s 108A prior to 20 June 2022. Notwithstanding that its business rules did not contain the rules required by s 108A, at all times since 1 July 2013 AustralianSuper had the power (and was subject to an obligation) to merge a member’s multiple accounts where it reasonably believed that to do so was in the member’s best interests because:

(a)    s 108A required AustralianSuper to ensure that such rules were established, and s 29E(6E) obliged AustralianSuper to ensure that it complied with the rules that s 108A required it to establish;

(b)    that obligation to comply with the rules it was required to establish was a “relevant requirement” within the meaning of the trust deed; and

(c)    the trust deed was therefore to be read and construed on the basis that the rules required by s 108A, and the s 29E(6E) obligation to comply with those rules, were incorporated into the trust deed.

129    Both ss 52(2)(c) and 108A of the SIS Act are in furtherance of the protection of the interests of members:

(a)    as a consequence of s 108A, AustralianSuper was required to have, and comply with, rules that required the trustee to merge member accounts, if the trustee reasonably believed that to do so was “in the best interests of the member”; and

(b)    the s 52(2)(c) deemed covenant required AustralianSuper to perform its duties and exercise its powers “in the best [financial] interests of the beneficiaries”.

130    AustralianSuper admits that in failing promptly to identify and merge each affected member’s multiple accounts and in failing promptly to remediate each affected member, it did not perform its duties and exercise its powers:

(a)    in the best interests of that beneficiary, between 6 April 2019 and 30 June 2021; and

(b)    in the best financial interests of that beneficiary, between 1 July 2021 and 11 May 2023.

131    This admission is supported by the summary of contravening conduct set out above.

Each of the ss 52(2)(b) and (c) covenants was breached once for each affected member

132    The parties contend that, by AustralianSuper’s:

(a)    failure promptly to identify and merge the accounts of 42,551 affected members who had multiple accounts in the Fund on or after 6 April 2019; and / or

(b)    failure promptly to remediate 90,788 affected members,

AustralianSuper committed a separate breach of each ss 52(2)(b) and (c) deemed covenant in respect of each affected member.

133    The parties contend, in relation to s 52(2)(c), that the trustee’s powers to merge an affected member’s multiple accounts, and to pay remediation to an affected member, are powers exercisable in respect of each member individually. It follows that AustralianSuper breached the s 52(2)(c) covenant by its failure promptly to merge the accounts of, and to remediate, each member individually.

134    That contention is accepted. It results in a harmonious reading of ss 108A and 52(2) and recognises that the powers to merge accounts under the trust deed were exercisable in respect of each beneficiary individually. Recognising a contravention in respect of each individual member who is affected by the conduct concerning member accounts results in a greater penalty the more affected members there are of a fund. In so far as the covenant in s 52(2)(c) required the trustee to act in the best interests of members when deciding whether to merge accounts, that covenant is being applied to a decision that affects each individual member and requires the trustee to act in the best interests of that particular member. In breaching that covenant, the trustee failed to advance the interests of each affected member.

135    In relation to s 52(2)(b), the parties contend that “the key textual integer is that the trustee must exercise care, skill and diligence ‘in relation to all matters affecting the entity’”. Where a trustee’s powers are to be exercised in respect of each member individually, each discrete exercise (or non-exercise) of the powers is a “matter” affecting the registrable superannuation entity (that is, the Fund). Such a construction promotes the protective object of s 52(2)(b).

136    As civil penalty provisions, ss 52(2)(b) and (c) are intended to secure a public protective purpose by ensuring that wrongdoers, and would-be wrongdoers, are adequately deterred: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; 274 CLR 450 at [15]–[18] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ). As the parties submitted, this requires putting a price on contraventions that is sufficiently high to ensure that the penalty cannot be seen as an acceptable cost of doing business, and that contraventions will be seen as an economically irrational choice: Pattinson at [17] and [66]. It may therefore be inferred that Parliament intended to provide for penalties of sufficient value to deter a wide range of contraventions in relation to funds of different sizes. As set out above, recognising a contravention in respect of each individual member who is affected by the relevant conduct results in a greater penalty the more affected members there are of a fund. If the maximum penalty were capped by construing the provisions as providing for only a single breach, the maximum penalty for a breach of s 52(2)(b) (in this case, $504,000 to $660,000) might fail to have the necessary deterrent effect in respect of a breach by a large superannuation trustee affecting tens of thousands of members. Parliament can be fairly taken to have not intended such a result.

137    I am satisfied that the forms of declarations 1 and 2 proposed by the parties (extracted at [150]) reflect the enumeration of the breaches of ss 52(2)(b) and (c). I am satisfied that it is appropriate for relief to have been agreed on the basis that there was a separate breach for each affected member.

Section 912A(1)(a) of the Corporations Act

138    Section 912A(1)(a), within Ch 7 of the Corporations Act, requires a financial licensee to do all things necessary to ensure the financial services covered by its license are provided efficiently, honestly and fairly. Since 13 March 2019, a breach of s 912A(1)(a) is a contravention of s 912A(5A), which is a civil penalty provision (s 1317E(3) of the Corporations Act) in respect of which the Court can make a pecuniary penalty order (s 1317G of the Corporations Act).

139    AustralianSuper has been licensed to provide the following categories of financial services:

(a)    providing financial services advice for superannuation, at all times since 13 March 2019;

(b)    dealing in a financial product, namely superannuation, including by varying or disposing of superannuation on behalf of another person, at all times since 13 March 2019; and

(c)    providing a superannuation trustee service to retail clients, since 23 August 2021.

140    The phrase “efficiently, honestly and fairly” in the context of s 912A of the Corporations Act was considered by Beach J in Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) [2020] FCA 208; 275 FCR 57 at [506]–[515], where his Honour made the following observations:

[506]     First, the words “efficiently, honestly and fairly” are to be read as a compendious indication requiring a licensee to go about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty.

[507]     Second, the words “efficiently, honestly and fairly” connote a requirement of competence in providing advice and in complying with relevant statutory obligations. They also connote an element not just of even handedness in dealing with clients but a less readily defined concept of sound ethical values and judgment in matters relevant to a client's affairs. I have emphasised here the notion of connotation rather than denotation to make the obvious point that the boundaries and content of the phrase or its various elements are incapable of clear or exhaustive definition.

[508]     Third, the word “efficient” refers to a person who performs [their] duties efficiently, meaning the person is adequate in performance, produces the desired effect, is capable, competent and adequate. Inefficiency may be established by demonstrating that the performance of a licensee's functions falls short of the reasonable standard of performance by a dealer that the public is entitled to expect.

[509]     Fourth, it is not necessary to establish dishonesty in the criminal sense. The word “honestly” may comprehend conduct which is not criminal but which is morally wrong in a commercial sense.

[510]     Fifth, the word “honestly” when used in conjunction with the word “fairly” tends to give the flavour of a person who not only is not dishonest, but also a person who is ethically sound.

141    Although some have expressed views to the contrary (see, for example, Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187; 272 FCR 170 at [426] (O’Bryan J)), the predominantly prevailing view is that the words “efficiently, honestly and fairly” are to be read compendiously. The parties were agreed that it is unnecessary to resolve that issue for the purposes of this case.

142    Because the obligation to provide financial services efficiently, honestly and fairly may not correspond with, but may overlap with, a licensee’s other legal obligations, a breach of s 912A(1)(a) of the Corporations Act may, but need not, overlap with a breach of a licensee’s s 912A(1)(c) obligation to comply with other financial services laws (including the SIS Act). Section 912A(1)(c) is not a civil penalty provision.

143    The mere fact that errors occur does not mean the standard imposed by s 912A(1)(c) is breached. Section 912A(1)(a) does not impose a standard of absolute perfection; it imposes a reasonable standard of performance: Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1422 at [152] (Downes J). Section 912A(1)(a) is concerned with a forward looking obligation being the taking of steps to achieve compliance (“to do all things necessary to ensure”) with the statutory norm before any specific instance of non-compliance has arisen: Commonwealth Bank of Australia at [156].

144    Section 912A(1)(a) requires the identification of the “things” that it was necessary for the licensee to do, but which it omitted to do. AustralianSuper’s contraventions of the provision arise from the distinct “things” that it did not do to ensure that it provided financial services to its members efficiently, honestly and fairly.

145     I am satisfied that declaration 3 (extracted at [160]) identifies three discrete things that AustralianSuper failed to do, each of which it was necessary for AustralianSuper to do to ensure that it provided financial services efficiently, honestly and fairly — namely:

(a)    between 13 March 2019 and 20 June 2022, failing to establish rules which set out a procedure to identify and merge multiple accounts in accordance with s 108A of the SIS Act. This breach overlaps with the breach of s 108A of the SIS Act;

(b)    between 13 March 2019 and 11 May 2023, failing promptly to identify and merge members’ multiple accounts in the way that those rules would have required. As explained further below, the breach of s 912A(1)(a) occurred not because of a failure to identify and merge every multiple account but because AustralianSuper failed to have in place a system that was capable of promptly identifying and merging members’ multiple accounts in a manner that would give effect to AustralianSuper’s legal obligations. To the extent that AustralianSuper had systems in place, they were deficient and AustralianSuper implemented no steps to address deficiencies that staff had flagged prior to November 2018; and

(c)    between 13 March 2019 and 11 May 2023, failing promptly to remediate the affected members. As explained further below, the breach of s 912A(1)(a) occurred not because of a failure to promptly remediate every last affected member but because AustralianSuper failed to have in place a system that was capable of promptly remediating affected members.

146    Each of these failures involves qualitatively different conduct which supports three distinct contraventions of s 912A(1)(a) of the Corporations Act.

PROPER APPROACH TO AGREED RELIEF

147    As the High Court recognised in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 at [58] (French CJ, Kiefel, Bell, Nettle and Gordon JJ):

Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty.

148    The same principle has been applied to agreed proposals for other forms of relief: see for example, Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [70] (Gordon J). A Court will not refuse to give effect to an agreed position by refusing to make orders where they are within the Court’s jurisdiction and are otherwise unobjectionable. The relevant principles were summarised by Gordon J in Coles Supermarkets at [70]–[73] as follows:

(1)    There is a well-recognised public interest in the settlement of cases.

(2)    The orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it.

(3)    When deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate.

(4)    Once the Court is satisfied that the orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement.

(5)    In deciding whether agreed orders conform with legal principle, the Court is entitled to treat the consent of the defendant as an admission of all facts necessary or appropriate to the granting of the relief sought against it.

149    In relation to the quantum of pecuniary penalties, the High Court observed in Fair Work Building Industry at [57] that the Court should be satisfied that the penalty proposed by the parties is “an appropriate” remedy in the circumstances. There is no single appropriate penalty. The agreed penalty need not equate to the penalty amount the Court may have been disposed to select; it is sufficient if the agreed penalty is within a range the Court considers appropriate: Fair Work Building Industry at [47].

DECLARATIONS

SIS Act contraventions

150    The parties jointly seek the following declaratory relief from the Court in relation to the contraventions of the covenants in ss 52(2)(b) and 52(2)(c):

1.     Between 6 April 2019 to 11 May 2023, in respect of each of 42,551 affected beneficiaries who had active multiple accounts in the AustralianSuper Fund on or after 6 April 2019, by:

(a)     failing promptly to identify and merge that beneficiary’s multiple accounts; and

(b)     failing promptly to remediate that beneficiary,

AustralianSuper:

(c)     did not exercise, in relation to the interests of that beneficiary, the same degree of care, skill and diligence as a prudent superannuation trustee would have exercised, and thereby contravened ss 52(2)(b) and 54B(1) of the SIS Act in relation to that beneficiary; and

(d)     did not perform its duties and exercise its powers:

(i)     in the best interests of that beneficiary, between 6 April 2019 and 30 June 2021; and

(ii)     in the best financial interests of that beneficiary, between 1 July 2021 and 11 May 2023,

and thereby contravened ss 52(2)(c) and 54B(1) of the SIS Act in relation to that beneficiary.

2.     Between 6 April 2019 and 11 May 2023, in respect of each of 48,237 affected beneficiaries who ceased to have active multiple accounts in the AustralianSuper Fund prior to 6 April 2019, by failing promptly to remediate that beneficiary, AustralianSuper:

(a)    did not exercise, in relation to the interests of that beneficiary, the same degree of care, skill and diligence as a prudent superannuation trustee would have exercised, and thereby contravened ss 52(2)(b) and 54B(1) of the SIS Act in relation to that beneficiary;

(b)    did not perform its duties and exercise its powers:

(i)     in the best interests of that beneficiary, between 6 April 2019 and 30 June 2021; and

(ii)     in the best financial interests of that beneficiary, between 1 July 2021 and 11 May 2023,

and thereby contravened ss 52(2)(c) and 54B(1) of the SIS Act in relation to that beneficiary.

151    At all relevant times, s 196 of the SIS Act has provided:

(1)     This section applies if the Court is satisfied that a person has contravened a civil penalty provision, whether or not the contravention also constitutes an offence because of section 202.

Note:     Section 220 provides that a certificate by a court that the court has declared a person to have contravened a civil penalty provision is conclusive evidence of the contravention.

 (2)     The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified superannuation entity, but need not so declare if such a declaration is already in force under Division 4.

 (3)     The Court may also make against the person an order that the person pay to the Commonwealth a monetary penalty of an amount specified in the order that does not exceed 2,400 penalty units.

 (4)     The Court is not to make an order under subsection (3) unless it is satisfied that the contravention is a serious one.

 (5)     The Court is not to make an order under subsection (3) if it is satisfied that an Australian court has ordered the person to pay damages in the nature of punitive damages because of the act or omission constituting the contravention.

152    Since its introduction with effect from 6 April 2019, s 54B(3) of the SIS Act has made s 54B(1) a civil penalty provision. By force of s 196 of the SIS Act, where satisfied that a person has contravened s 54B(1), a Court must make a declaration that a person has by a specific act or omission contravened s 54B(1).

153    In the present case, the Court is required to make a declaration that AustralianSuper has contravened s 54B(1) if satisfied that AustralianSuper has contravened the covenants deemed by s 52(2)(b) and / or s 52(2)(c).

154    I am satisfied that these declarations should be made. The proposed declarations relate to conduct that in fact occurred and that conduct contravenes the SIS Act. The conduct has been identified and particularised with precision and the declarations indicate sufficiently how and why the relevant conduct is a contravention of the SIS Act (see BMW Australia Ltd v Australian Competition and Consumer Commission [2004] FCAFC 167 at [35] (Gray, Goldberg and Weinberg JJ) in the context of the Australian Consumer Law).

155    As the SAFA demonstrates, AustralianSuper was aware that beneficiaries had active multiple accounts and that having multiple accounts imposed a financial detriment on affected members. There were no rules, processes or procedures which required AustralianSuper as trustee to consider on a regular basis whether the merging of multiple accounts would be in the best interests of members and if so, to merge those accounts if practicable.

156    As the SAFA also demonstrates, AustralianSuper had no rules, processes or procedures for the prompt remediation of affected members who had had multiple accounts in place prior to 6 April 2019 and had suffered financial detriments as a result. Those members who had had multiple accounts when their best interests had required the trustee to merge those accounts continued to suffer detriment.

157    Although the declarations do not relate to the contravention of s 108A, the failure to have rules compliant with s 108A and to implement the systems as required by such rules was inextricably related to AustralianSuper’s contraventions of the deemed covenants in ss 52(2)(b) (due care, skill and diligence) and 52(2)(c) (best interests of members). The purpose of s 108A was to require the implementation of steps to ensure trustees acted in members’ best interests in relation to the merger of multiple accounts.

158    Between 1 July 2013 and 19 June 2022 (nearly nine years), AustralianSuper’s business rules did not comply with s 108A. The business rules failed to set out a procedure to identify when a fund member has more than one account and to carry out that procedure at least once each financial year. Rules were not established to require the accounts of any member with two or more accounts to be merged if the trustee reasonably believed that merger to be in the best interests of the member (unless it was not practicable to do so). Instead, the business rules AustralianSuper did have had separate duplicate account and dual account processes. The dual account process did not require the process to be conducted at least once each financial year and required a member to opt-in or consent to the merger rather than requiring the merger where the trustee reasonably believed the merger to be in the best interests of the member.

159    It is an agreed fact that AustralianSuper was aware of s 108A at the time that section came into force and was aware that it needed to amend its business rules to comply with that section. AustralianSuper failed to make those amendments for nearly nine years. It failed to have systems in place to implement changes to rules as required by legislation. There were no formal processes or controls in place at AustralianSuper that made someone in the compliance or legal teams responsible for the review and / or approval of changes to the business rules to ensure that they met the relevant legislative requirements. The absence of such a process meant nobody was responsible for ensuring compliance with legislative requirements and resulted in no resources being dedicated to that task. The failure to implement changes to the business rules was the inevitable consequence of a failure to have systems and processes to identify the need for changes to be made.

Corporations Act contraventions

160    The parties jointly seek the following declaratory relief from the Court in relation to the contraventions of s 912A of the Corporations Act:

3.     By each of the following failures:

(a)     between 13 March 2019 and 20 June 2022, failing to establish rules which set out a procedure to identify and merge multiple accounts of members in accordance with s 108A of the SIS Act;

(b)     between 13 March 2019 and 11 May 2023, failing promptly to identify and merge beneficiaries’ multiple accounts in the way that such rules would have required; and

(c)     between 13 March 2019 and 11 May 2023, failing promptly to remediate those beneficiaries,

AustralianSuper did not do all things necessary to ensure that financial services covered by its Australian Financial Services Licence were provided efficiently, honestly and fairly, and thereby contravened ss 912A(1)(a) and 912A(5A) of the Corporations Act.

161    At all relevant times, s 1317E of the Corporations Act provided:

(1)     If a Court is satisfied that a person has contravened a civil penalty provision, it must make a declaration of contravention.

(2)     The declaration must specify the following:

 (a)     the Court that made the declaration;

 (b)     the civil penalty provision that was contravened;

 (c)     the person who contravened the provision;

 (d)     the conduct that constituted the contravention;

…

162    From 13 March 2019, s 912A(5A) has provided that a contravention of s 912A(1)(a) is a contravention of s 912A(5A). Section 912A(5A) is a civil penalty provision.

163    Section 1657 of the Corporations Act is the transitional provision relating to the insertion of s 912(5A) by the enactment of Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth). It provides:

Subject to this Part, the amendments made by Schedule 1 to the amending Act apply in relation to the contravention of a civil penalty provision if the conduct constituting the contravention of the provision occurs wholly on or after the commencement day.

164    It is only conduct occurring wholly on or after the commencement date which results in the contravention of s 912A(5A) and which attracts the civil penalty provision. However, the fact that contravening conduct commenced occurring prior to the commencement date and continued after the commencement date does not prevent a determination of a contravention in respect of the conduct that occurred after the commencement date. Such an outcome is consistent with the approach adopted in Australian Securities and Investments Commissioner v Westpac Banking Corporation [2022] FCA 515 at [409]–[412] (Beach J) and in Australian Securities and Investments Commission v Macquarie Bank Limited [2024] FCA 416 at [69] (Wigney J).

165    I am satisfied that these declarations should also be made. The proposed declarations relate to conduct that in fact occurred on and after 13 March 2019. The conduct has been identified and particularised with precision and the declarations indicate sufficiently how and why the relevant conduct is a contravention of the Corporations Act (see BMW Australia at [35] (Gray, Goldberg and Weinberg JJ) in the context of the Australian Consumer Law).

166    The failures described in (b) and (c) of declaration 3 are of the same kind as those the subject of the SIS Act declarations in declarations 1 and 2. The observations made above at [155]‍‍‍–‍[159] in respect of declarations 1 and 2 apply with equal force in relation to s 912A of the Corporations Act.

167    The first failure in declaration 3(a) is not the subject of a separate SIS Act declaration because s 108A is not a civil penalty provision under the SIS Act. As explained above, the failure to comply with that requirement in the SIS Act was at least part of the cause of the failures described in declarations 3(b) and 3(c). The failure to comply with s 108A was the result of a lack of systems within AustralianSuper which made identifiable individuals responsible for the identification and implementation of business rule changes necessary to meet legislative requirements.

168    It is not necessary for ASIC to establish dishonesty on the part of AustralianSuper in order to demonstrate that AustralianSuper did not act “efficiently, honestly and fairly”: AGM Markets at [509] (Beach J). The failure on the part of AustralianSuper to establish rules in compliance with a legislative requirement imposed by the legislative regime governing superannuation was not consistent with the requirement of competence embedded in the “efficiently, honestly and fairly” standard when applied to the trustee of Australia’s largest superannuation fund. Inefficiency is demonstrated in the present case because AustralianSuper’s failure to establish rules as expressly required by the SIS Act fell far short of a reasonable standard of performance that the public is entitled to expect of a trustee of Australia’s largest superannuation fund.

169    It is not surprising that a failure to comply with s 108A of the SIS Act should overlap with a breach of s 912A of the Corporations Act given that s 108A of the SIS Act was enacted to ensure that trustees of superannuation funds establish rules to promote the interests of beneficiaries in relation to multiple accounts. In those circumstances, it may be expected that a breach of s 912A would not be consistent with a trustee doing all things necessary to ensure that it acts “efficiently, honestly and fairly” in the performance of its duties as the provider of superannuation services.

PECUNIARY PENALTIES

170    Sections 196(3) and (4) of the SIS Act provide:

(3)     The Court may also make against the person an order that the person pay to the Commonwealth a monetary penalty of an amount specified in the order that does not exceed 2,400 penalty units.

(4)     The Court is not to make an order under subsection (3) unless it is satisfied that the contravention is a serious one.

171    At all relevant times, s 1317G(1)(a) of the Corporations Act provided:

(1)     A Court may order a person to pay to the Commonwealth a pecuniary penalty in relation to the contravention of a civil penalty provision if:

 (a)     a declaration of contravention of the civil penalty provision by the person has been made under section 1317E; and

172    The parties jointly submit that, in the circumstances of this case, pecuniary penalties totalling $27 million are appropriate. There is some disagreement as to whether it is necessary to apportion that amount in any way.

173    I am satisfied that the agreed total pecuniary penalty is an appropriate penalty in all the circumstances, in the sense that I consider that it is within the range of possible penalties that the Court could reasonably impose in all the circumstances of the case.

174    The principles applicable to the discretion to impose pecuniary penalties have been discussed in numerous cases. The principles were summarised by Moshinsky J in Australian Competition and Consumer Commission v Trivago N.V. (No 2) [2022] FCA 417 (Trivago (No 2)) at [60]–‍[72] and in Australian Securities and Investments Commission v AMP Financial Planning [2022] FCA 1115 at [103]–[114].

175    Civil penalties are imposed primarily, if not solely, for the purpose of securing deterrence. Civil penalties are not concerned with retribution, denunciation or rehabilitation: Pattinson at [15]–‍[16]. In furtherance of the objective of civil penalties, the penalties “must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business”: Pattinson at [17].

176    As explained above, superannuation is a pillar of Australia’s retirement income system. Participation in the superannuation system is not voluntary. It is of critical public importance that members of industry superannuation funds have confidence that trustees will take steps to ensure that decisions are made and actions are taken in the best financial interests of the members and that trustees comply with their statutory obligations, both general and specific.

177    Fees and costs reduce retirement savings. Both the Productivity Commission and the Super System Review recognised multiple accounts as a source of unnecessary fees and charges (and the consequential loss of earnings on amounts paid away in those unnecessary fees and charges). As a general matter, potentially those costs are disproportionately borne by those with lower balances (generally those on lower incomes) and those who are in the system for the longest (being the young), although it was not submitted that in this case there was such a disproportionate effect.

178    Particularly having regard to the role superannuation trustees perform, the penalties in this case need to be large enough to deter other superannuation fund trustees from failing to diligently discharge their duties to act in members’ best financial interests and to ensure that they provide financial services efficiently, honestly and fairly.

179    Specific measures (including s 108A of the SIS Act) were introduced to impose specific duties on trustees to establish rules and implement procedures to consolidate multiple accounts. In so doing, the legislature may be seen to have sent a strong signal as to the conduct expected of a trustee acting with the same degree of care, skill and diligence that a prudent trustee would exercise; acting in the best financial interests of the beneficiaries; and the type of “things” that are expected to be done to ensure that a trustee is providing its services “efficiently, honestly and fairly”.

180    AustralianSuper is Australia’s largest industry superannuation fund. It is inexcusable for it to not have had processes and systems in place to ensure compliance with a specific legislative requirement (such as s 108A of the SIS Act) imposed expressly and directly on trustees of superannuation funds. Its systems also failed to ensure that repeated human errors in relation to the failure to merge the multiple accounts were prevented or promptly identified and corrected.

181    AustralianSuper’s failures to comply with s 108A for almost nine years after the section came into effect, to identify its non-compliance and to take steps to remedy that non-compliance were systemic failings and as explained above, were the result of failing to have appropriate systems and processes in place. The failures should not have happened. The failures are serious and highly concerning.

182    Failures of this kind involving a failure to have processes and procedures in place to make individuals responsible and accountable for ensuring regulatory obligations are complied with warrant substantial penalties. A failure to put in place systems and processes to ensure duties are performed efficiently, honestly and fairly and that trustees act in the best financial interests of the members cannot be regarded as a commercially acceptable option. Setting up such processes and systems is not a cost to be weighed against a benefit (whether in the form of some cost or time saving or otherwise). A civil penalty cannot be regarded in this context as merely a cost of doing business: Pattinson at [17].

183    I am satisfied that AustralianSuper is unlikely to engage in this contravention again given the remedial action it has taken and its acceptance of its wrongdoing. The emphasis of the civil penalty in this case is on general deterrence. To the extent that there is a need for specific deterrence it is in conveying the message to AustralianSuper that acting in the best financial interests of members is not a slogan; it is a legal obligation and within that organisation cannot be regarded by individuals as someone else’s responsibility.

Maximum penalties

184    A relevant factor is the statutory maximum penalty. That maximum is but one yardstick: Pattinson at [53]–[54].

185    The maximum penalty for a contravention of a civil penalty provision in the SIS Act is 2,400 penalty units. The value of a penalty unit increased over the penalty period as follows:

(a)    from 1 July 2017 to 30 June 2020: $210;

(b)    from 1 July 2020 to 31 December 2022: $222; and

(c)    from 1 January 2023 to 30 June 2023: $275.

186    Over the relevant period, the maximum penalty for a single contravention of the s 52(2)(b) or (c) deemed covenants therefore ranged from $504,000 to $660,000.

187    As declarations 1 and 2 recognise, AustralianSuper committed a separate breach of each of the ss 52(2)(b) and (c) deemed covenants in respect of each member: that is, 90,788 breaches of each of ss 52(2)(b) and (c). In cases involving a very large number of contraventions, calculating a maximum aggregate penalty by reference to such a number may be unhelpful because it raises an aggregate maximum penalty to a number well beyond what this Court would ever impose: AMP Financial Planning at [108] (Moshinsky J); Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 at [18] and [82] (Allsop CJ); Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; 254 FCR 68 at [143] (Dowsett, Greenwood and Wigney JJ).

188    For the breaches of ss 912A(1)(a) and 912A(5A) of the Corporations Act, under s 1317G(4) of the Corporations Act the maximum pecuniary penalty for a contravention of a civil penalty provision by a body corporate has, at all relevant times, been the greatest of:

(a)    50,000 penalty units;

(b)    if the Court can determine the benefit derived and detriment avoided because of the contravention — that amount multiplied by 3; and

(c)    either:

(i)    10% of the annual turnover of the body corporate for the 12-month period ending at the end of the month in which the body corporate contravened, or began to contravene, the civil penalty provision; or

(ii)    if the amount worked out under subparagraph (i) is greater than an amount equal to 2.5 million penalty units — 2.5 million penalty units.

189    It is not possible to quantify the benefit derived or detriment avoided by AustralianSuper’s contravening conduct. AustralianSuper did not derive a benefit in the form of a profit for itself or its shareholders. The detriment it avoided was in the form of the time and costs of establishing rules required by s 108A of the SIS Act, processes and systems to ensure compliance with those rules and promptly remediating members affected by non-compliance. The costs of establishing the requisite processes and systems has not been quantified. The Court cannot determine on a quantified basis the detriment avoided.

190    AustralianSuper’s turnover for the 12-month period ending on 31 March 2019 was $467 million. Taking 10% of that turnover results in a maximum penalty of $46.7 million per contravention. As the declarations recognise three contraventions of s 912A(1)(a) of the Corporations Act as a result of three different failures, the total maximum penalty is $140.1 million.

Multiple contraventions

191    There are a large number of admitted contraventions of ss 52(2)(b) and (c) of the SIS Act (consisting of separate admitted contraventions for each affected member) and s 912A(1)(a) of the Corporations Act (consisting of three separate contraventions). Because discrete conduct gave rise to multiple contraventions, three principles are relevant to consider.

192    First, it is not appropriate to impose separate penalties for the same wrongful act. This principle is engaged where the conduct to be penalised under two provisions is the same conduct (see Chief Executive Officer of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation [2020] FCA 1538; 148 ACSR 247 (CEO of AUSTRAC) at [62] (Beach J)). As explained further below, in this case, it is not appropriate to impose penalties for both the SIS Act contraventions and the Corporations Act contraventions to the extent that those contraventions are constituted by the same conduct. Although there is no provision before me that has the same form as s 224(4) of the Australian Consumer Law (as there was before the Court in Trivago (No 2) – see [59] and [114]) or s 175(6) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (as there was in CEO of AUSTRAC), to impose penalties for the breaches of ss 52(2)(b) and (c) of the SIS Act and 912A(1)(a) of the Corporations Act for the conduct described in declarations 1 and 2 and declaration 3(b) and (c) (to the extent that conduct occurred over the same period of time) would be to penalise the same conduct twice over. So much is consistent with the approach of Beach J in Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 4) [2020] FCA 1499; 148 ACSR 511 (AGM Markets (No 4)) at [49].

193    Second, where closely related conduct has given rise to multiple contraventions, the course of conduct principle is a useful tool in the determination of appropriate civil penalties. As the Full Court said in ACCC v Cement Australia Pty Ltd [2017] FCAFC 159; 258 FCR 312 at [424] (Middleton, Beach and Moshinsky JJ):

As we have already indicated, the principal object of the penalties imposed by s 76 of the [Trade Practices Act 1974 (Cth)] is that of specific and general deterrence. With this in mind, in a civil penalty context, the course of conduct principle can be conceived of as a recognition by the courts that the deterrent effect in respect of a civil penalty (at both a specific and general level) is measured by reference to the nature of the conduct for which it is imposed. It is therefore of paramount importance to identify whether multiple contraventions constitute a single course of conduct or separate instances of conduct, so as to ensure that an appropriate deterrent effect is achieved by the imposition of the penalty or penalties in respect of that particular conduct.

194    The course of conduct principle does not convert multiple contraventions into a single contravention and it does not follow that the application of the principle results in the maximum penalty for the course of conduct being limited to the maximum penalty for a single contravention: ASIC v Murray Goulburn Co-operative Co Ltd [2018] FCA 1964 at [29] (Beach J). It is a tool to assist in arriving at an appropriate penalty.

195    The course of conduct principle may be engaged where there is an interrelationship between the factual and legal elements of two or more contraventions: AGM Markets (No 4) at [50]. The question of whether multiple contraventions should be treated as being a single course of conduct is a factual inquiry.

196    Third, the totality principle may also apply where legally distinct contraventions involve overlap in wrongdoing. The totality principle requires the Court to review the aggregate penalty to ensure it is just and appropriate: CEO of AUSTRAC at [69]. The principle is intended to ensure that the cumulative penalty is appropriate having regard to the nature, quality and circumstances of the conduct involved.

Application of the principles relevant to multiple contraventions

197    Although the parties were agreed that it was not appropriate to penalise the same conduct twice under the first principle, the parties were not agreed as to the approach to be taken to the application of the course of conduct principle in the present case.

198    AustralianSuper accepted that it engaged in three courses of conduct:

(a)    failing to establish rules required by s 108A of the SIS Act to identify and merge multiple accounts;

(b)    failing to promptly identify and merge multiple accounts in accordance with a procedure that complied with s 108A of the SIS Act; and

(c)    failing to promptly remediate members whose multiple accounts were not merged as required by s 108A of the SIS Act.

199    AustralianSuper submitted that the course of conduct principle is a tool of analysis to reach the final appropriate penalty. It does not require that a separate penalty be assigned to each course of conduct where there has been no agreement as to the basis on which such an assignment might occur.

200    ASIC submitted that the course of conduct principle ought to be applied by reference to the affected groups of members. Thus:

(1)    The first course of conduct relates to the members for whom AustralianSuper failed to both promptly identify and merge the member accounts and failed to promptly remediate. (This is the subject of declaration 1.)

(2)    The second course of conduct relates to the members who ceased to have active multiple accounts prior to 6 April 2019 but whom AustralianSuper failed to remediate promptly after that date. (This is the subject of declaration 2.)

(3)    The third course of conduct is not directed to a group of members but is directed to AustralianSuper’s failure to establish rules in compliance with s 108A of the SIS Act. (This is the subject of declaration 3.)

201    ASIC agreed that where the same conduct constituted separate breaches of different provisions, it was appropriate to penalise that conduct once. ASIC accepted that it was not appropriate to penalise the conduct the subject of declarations 3(b) and 3(c) because those breaches arise from the same conduct as the breaches of the SIS Act identified in declarations (1) and (2).

202    Having regard to the facts agreed between the parties and the admissions of AustralianSuper, it is difficult to group the contraventions by reference to the form of the proposed declarations for the purposes of applying the course of conduct principle. The course of conduct principle is concerned with conduct. The declarations do not in my view provide a clear demarcation between courses of conduct. Whilst I accept that there are three courses of conduct, the declarations are not framed by reference to those three courses of conduct. Declarations (1) and (2) are framed by reference to the effect on members. To distinguish courses of conduct based on the consequences of the conduct rather than the actions or inactions of AustralianSuper does not appear to me to be appropriate. The conduct the subject of declarations (1) and (2) overlap, at least to the extent that both concern a failure to remediate. There was a group of members affected by two courses of conduct and a group of members only affected by one course of conduct. Declarations (3)(b) and (c) overlap with, but do not mirror, declarations (1) an (2).

203    In the circumstances in Trivago (No 2), Moshinsky J considered “it appropriate to determine a separate penalty for each relevant sub-period (rather than determining a single penalty for all of the contraventions during the Relevant Period)” because:

This is consistent with the structure of the Liability Judgment, which described the form of the website during each relevant sub-period… and considered whether the ACCC’s case was made out separately in respect of each relevant sub-period… It is also consistent with the form of the declarations made on 28 February 2020, which comprised a separate declaration for each of the four relevant sub-periods.

204    The analysis adopted in Trivago (No 2) does not readily translate to the present circumstances. The declarations made in Trivago (No 2) reflected three distinct courses of conduct. That is not the case here. The declarations in the present case have taken the form they have because the penalty period is part of a longer period during which the conduct was engaged, even though that conduct did not amount to contravening conduct subject to a civil penalty over that broader period. The declarations are based on the different consequences of the conduct rather than the conduct itself. I do not consider it appropriate to determine a separate penalty by reference to the form of the separate declarations.

205    ASIC referred to Cement Australia in support of its contention that separate penalty amounts be attributed to each of the declarations. In that case, the Full Court considered that the primary judge had erred in characterising the making of, and giving effect to, one particular contract as a single course of conduct. At [431]–[432], the Court stated:

We consider that the course of conduct principle must be informed by the particular legislative provisions relevant to these proceedings. In particular, we consider that weight must be given to the fact that the legislature has deliberately and explicitly created separate contraventions for each of the making of, and giving effect to, a contract, arrangement or understanding that restricts dealings or affects competition: ss 45(2)(a) and 45(2)(b).

This statutory structure is relevant because it will often be the case that the making of, and giving effect to, a contract, arrangement or understanding will involve overlapping or homogenous conduct. The Court should be wary that it does not undermine this explicit distinction by applying the course of conduct principle too liberally in such circumstances.

206    It is important to understand the context in which that observation was made. The primary judge had drawn a distinction in respect of one contract by applying the course of conduct principle in respect of the making of and giving effect to that contract but not applying that principle in respect of the making of and giving effect to other contracts. The Full Court was not satisfied that the making of, and giving effect to the contract in that case could be justified as constituting a single course of conduct. The Court reasoned at [435]–[439]:

[435]     However, as we read the primary judge’s judgment, the basis for the different treatment is that entering into the Amended Millmerran Contract on 28 July 2004 had no effect on competition, and the respondents obtained no benefit by giving effect to it, given that any effect on competition had dissipated by 31 December 2003. That appears to be the basis upon which his Honour analysed it as, in effect, one course of conduct.

[436]     We do not consider that the ultimate consequence of the giving effect to the contract provides any justification for treating that as a single course of conduct with the making of that contract. It does not point to any significant interrelationship between the legal and factual elements of the two contraventions. It does not relate to any link in the elements of the contraventions, or any temporal or other relevant circumstances: Royer v WA at [22].

[437]     Not only is there a lack of justification for the distinction, but we consider there are compelling reasons why the primary judge erred in characterising the making of, and giving effect to, the Amended Millmerran Contract as a single course of conduct.

[438]     From a temporal perspective, the act of exercising the option to extend the relevant contract, and the subsequent acts needed to ensure compliance with the terms of the extended contract, were markedly separate in time. Specifically, the period in which the Amended Millmerran Contract was given effect was nine months.

[439]     Furthermore, this is not a case where the conduct of making, and giving effect to, a contract, arrangement or understanding was the same. It may be the case that in some circumstances, the same act may be relied upon as evidencing both the “making of” and “giving effect to” contraventions, especially in proceedings involving informal arrangements: see, eg, J McPhee at [181]. This was not such a case. The pleaded conduct was different for each contravention.

207    The present case is distinguishable for the following reasons:

(1)    The parties’ joint submissions did not distinguish the factual circumstances surrounding each course of conduct.

(2)    From a temporal perspective, the contraventions of the SIS Act giving rise to the penalty occurred over the same period of time and that period overlapped almost entirely with the period over which the contravention of the Corporations Act to be penalised occurred.

(3)    The legal and factual elements of the contraventions of the SIS Act and the Corporations Act were significantly intertwined. It was the same systemic failings which gave rise to each of the failures identified in the three courses of conduct. The underlying conduct informing the contraventions of one provision overlaps significantly with the underlying conduct informing the other contraventions.

(4)    The only act which the Corporations Act may be seen to penalise by civil penalties which is not the subject of a civil penalty under the SIS Act is the failure to establish rules required by s 108A of the SIS Act. However, the Corporations Act does not create a separate express contravention for a breach of s 108A of the SIS Act. The breach of the Corporations Act was the breach of the standard of efficiently, honestly and fairly. The breach of s 108A had a consequence which resulted in financial services not being provided efficiently, honestly and fairly and was a step that was necessary to ensure that consequence did not eventuate. The breach of s 912A of the Corporations Act cannot be readily divorced from the consequences of the breach of s 108A of the SIS Act in this case.

(5)    In the circumstances of the present case, where the total penalty had been agreed without agreed apportionment, there seems to me to be artificiality, if not a danger, in using the agreed total penalty as a predetermined figure to be apportioned across intertwined co-terminus contraventions that were the result of systemic failures. It was not suggested by either party that the Court does not have power to impose a pecuniary penalty by reference to a global sum. Indeed, it appears to me to not be entirely consistent with the totality principle to suggest otherwise.

208    In being satisfied that the total penalty is appropriate in the present case, I have had regard to the course of conduct principle as a tool of analysis and recognised that there are three courses of conduct as identified by AustralianSuper at [198] above.

209    The application of the course of conduct principle must be tailored to the circumstances of the contraventions I am considering. Here, there were many acts of contravention affecting a very large number of consumers. To describe the conduct as involving three courses of conduct is useful in understanding the circumstances of the contraventions but is of otherwise of limited utility in the present case.

Consideration of relevant factors

210    I accept that the agreed penalty of $27 million will have the appropriate specific and general deterrence effects, taking into account the courses of conduct, the interrelated nature of the conduct and the totality principle.

211    At all relevant times, s 1317G(6)(a) to (d) of the Corporations Act has provided that:

(6)     In determining the pecuniary penalty, the Court must take into account all relevant matters, including:

(a)     the nature and extent of the contravention; and

(b)     the nature and extent of any loss or damage suffered because of the contravention; and

(c)     the circumstances in which the contravention took place; and

(d)     whether the person has previously been found by a court (including a court in foreign country) to have engaged in similar conduct.

212    Since 1 January 2021, s 1317G(6)(e) has provided that:

(e)     in the case of a contravention by the trustee of a registrable superannuation entity—the impact that the penalty under consideration would have on the beneficiaries of the entity.

213    The following factors articulated by French J in Trade Practices Commission v CSR Ltd [1991] FCA 762; ATPR ¶41-076 at 52,152–52,153 were endorsed by the High Court in Pattinson at [18] as relevant to consider in determining an appropriate penalty:

The assessment of a penalty of appropriate deterrent value will have regard to a number of factors which have been canvassed in the cases. These include the following:

1.     The nature and extent of the contravening conduct.

2.     The amount of loss or damage caused.

3.     The circumstances in which the conduct took place.

4.     The size of the contravening company.

5.     The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.     The deliberateness of the contravention and the period over which it extended.

7.     Whether the contravention arose out of the conduct of senior management or at a lower level.

8.     Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.

9.     Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.

214    In Australian Securities and Investments Commission v Westpac Banking Corporation (No 3) [2018] FCA 1701, Beach J at [49] augmented the list of factors to include:

(a)     the extent to which the contravention was the result of deliberate or reckless conduct by the corporation, as opposed to negligence or carelessness;

(b)    the number of contraventions, the length of the period over which the contraventions occurred, and whether the contraventions comprised isolated conduct or were systematic;

(c)      the seniority of officers responsible for the contravention;

(d)     the capacity of the defendant to pay, but only in the sense that whilst the size of a corporation does not of itself justify a higher penalty than might otherwise be imposed, it may be relevant in determining the size of the pecuniary penalty that would operate as an effective specific deterrent;

(e)      the existence within the corporation of compliance systems, including provisions for and evidence of education and internal enforcement of such systems;

(f)     remedial and disciplinary steps taken after the contravention and directed to putting in place a compliance system or improving existing systems and disciplining officers responsible for the contravention;

(g)      whether the directors of the corporation were aware of the relevant facts and, if not, what processes were in place at the time or put in place after the contravention to ensure their awareness of such facts in the future;

(h)    any change in the composition of the board or senior managers since the contravention;

(i)      the degree of the corporation’s cooperation with the regulator, including any admission of an actual or attempted contravention;

(j)     the impact or consequences of the contravention on the market or innocent third parties;

(k)      the extent of any profit or benefit derived as a result of the contravention; and

(l)      whether the corporation has been found to have engaged in similar conduct in the past.

215    The lists are not a rigid catalogue of matters. They assist in identifying matters that are relevant to the contraventions and the circumstances of the defendant and therefore assist in carrying out the task of determining what is an appropriate penalty in the circumstances of the case. The consideration and weighing of all relevant factors involves a process of intuitive synthesis rather than an arithmetical application of predetermined rules.

Nature, extent and circumstances of the contraventions

216    AustralianSuper has admitted to:

(a)    90,788 contraventions of ss 52(b) and (c) of the SIS Act; and

(b)    three contraventions of s 912A the Corporations Act.

217    The contraventions involved a breach of the fundamental duties and obligations AustralianSuper owed to its members. As the parties jointly submitted, the scale and importance of superannuation in Australia makes it imperative that trustees have the proper and effective systems in place to ensure compliance with laws that are directed to promoting the interests of members. As Australia’s largest industry superannuation fund, compliance with those duties and obligations by AustralianSuper has particular importance.

218    That AustralianSuper failed to establish rules, and systems to give effect to those rules, in compliance with s 108A of the SIS Act is extraordinary. AustralianSuper’s contraventions occurred in circumstances where there were numerous opportunities to prevent, detect and rectify the non-compliance. There were no systems in place to make individuals responsible for identifying when regulatory changes required changes to the business rules and for implementing such changes. The compliance policies and frameworks were entirely inadequate. These included inadequate incident management and breach reporting procedures. When issues of potential fundamental non-compliance were raised, they were not prioritised and were, to use the language of the parties “misdiagnosed”. Issues were not escalated and senior management oversight was absent, resulting in the dereliction of a fundamental regulatory obligation intended to further the best interests of members. Under-resourcing and a failure to prioritise compliance with s 108A of the SIS Act resulted in unacceptable delays. This included subsuming the merger of multiple accounts into a larger CRN merge project. Some of the internal correspondence (such as the email from April 2015) suggested that some within AustralianSuper lost sight of the fact that AustralianSuper was required to act in the best interests of individual members when considering the merger of multiple accounts, rather than seeking to hold on to as many accounts as possible. Such correspondence is demonstrative of a lack of appreciation of the gravity of the conduct and a fundamental lack of understanding of the obligations and duties of AustralianSuper.

219    There were numerous opportunities for AustralianSuper to identify its non-compliance with s 108A of the SIS Act and to rectify it. Senior management within AustralianSuper was made aware of potential compliance issues in relation to s 108A from at least 2018. An incident report had been logged in the system and left to languish. Due to its age, the incident report was elevated to the Executive Committee in a meeting held in September 2020 and still no action was taken. AustralianSuper had made external representations which had recognised that the existence of multiple accounts was an industry problem but internally did nothing to prioritise the rectification of the issue before September 2021.

220    The contraventions were the result of systemic deficiencies extending over a long period of time. The contraventions were very serious. As a result of the unidentified and unrectified issues over such a long period, there was significant harm to members. It may be readily accepted that mistakes happen and humans err. It is not accepted that an organisation of the size of AustralianSuper, performing its functions properly, should have had such inadequate systems in place for the identification and rectification of errors for such an extended period, even making some allowance for the disruption caused by the COVID-19 pandemic.

221    The nature, extent and circumstances of the contraventions explained above demonstrate the need for a sufficient penalty to deter such conduct by reinforcing to superannuation trustees (and financial service providers more generally) the need to implement, maintain and continuously improve their compliance systems. As operators in a regulated industry, it is incumbent on trustees of superannuation funds to have systems in place which identify the changes that are required to be made to rules and systems in response to changes in the legislation and regulations which govern that industry. It is incumbent on trustees of industry superannuation funds to implement systems which ensure that as far as reasonably possible, compliance issues are identified and addressed promptly. The fact that the contraventions in this case were not deliberate does not detract from the necessity for a substantial penalty given the serious nature of the contraventions in this case.

Loss and damage caused by the contraventions

222    Between 1 July 2013 and 31 March 2023, over 90,000 members had multiple accounts that would have been merged had AustralianSuper established rules in accordance with s 108A of the SIS Act and implemented systems to give effect to those rules. The losses incurred by those members has been calculated to be approximately $69 million, as a result of the incurrence of multiple administration fees, multiple insurance premiums (for no additional insurance benefit) and lost earnings on the amounts paid for those unnecessary expenses. The estimated total loss is so high because of the length of time over which the losses were not remediated.

223    AustralianSuper has been unable to determine how much of the $69 million is referable to members whose accounts were merged after 1 July 2013 but before 13 March 2019 (and therefore were members in respect of whom the only losses during the penalty period related to loss of earnings). The losses attributable to multiple administration fees and insurance premiums for the period from 13 March 2019 and earnings lost as a result of those duplicated fees has been estimated at $12 million.

224    As explained at [235] below, the losses have been fully remediated.

Benefits to AustralianSuper and detriment avoided

225    ASIC accepted that AustralianSuper did not engage in the contravening conduct in order to make a profit. AustralianSuper is an industry fund that does not retain or distribute profits to shareholders. However, the SAFA and SSAFA demonstrate that at least some within AustralianSuper perceived a benefit to AustralianSuper in having as many accounts as possible. Particularly in light of the subsequent remediation, I accept that AustralianSuper did not profit or derive financial benefit from the contravening conduct.

226    AustralianSuper did avoid time and expense by not establishing rules in accordance with s 108A of the SIS Act and implementing procedures and systems to give effect to those rules, as well as avoiding the time and expense of promptly remediating affected members. The financial impact of the contravening conduct was that the general body of members benefitted at the expense of the affected members.

Size and resources of AustralianSuper

227    The size and financial resources of AustralianSuper are relevant in determining a civil penalty, the purpose of which is deterrence. It may be necessary to impose a larger penalty on a larger company in order to achieve deterrence. As the High Court observed in Pattinson at [60]:

…it is simply undeniable that, all other things being equal, a greater financial incentive will be necessary to persuade a well-resourced contravenor to abide by the law rather than to adhere to its preferred policy than will be necessary to persuade a poorly resourced contravenor that its unlawful policy preference is unsustainable.

228    The Fund is Australia’s largest industry superannuation fund with over 1.2 million members and $311 billion in total assets as at 30 June 2023. AustralianSuper has the largest market share of the industry superannuation funds in Australia.

229    As the trustee of Australia’s largest superannuation fund, AustralianSuper has an important role in Australia’s retirement income system and in the economy more broadly. It must be held to a high standard. A penalty must be of sufficient size to not just deter it but to deter other major industry superannuation fund trustees from engaging in contravening conduct.

Effect of penalty on members

230    Section 1317G(6)(e) of the Corporations Act requires that, in the case of a contravention by a trustee of a registrable superannuation entity, the Court take into account the impact of the penalty on the beneficiaries of the entity. AustralianSuper is the trustee of a registrable superannuation entity.

231    Although AustralianSuper is the trustee of a fund run for members, AustralianSuper maintains a “trustee risk reserve”. The reserve, established by an amendment to the trust deed, does not form part of the assets of the Fund. It is funded by an annual fee payable out of the assets of the Fund in an amount determined by AustralianSuper in accordance with the trust deed.

232    To the extent that the penalty is paid from the reserve, a penalty will not affect members other than in respect of the need for future annual fees to replenish the Fund. This has the effect of spreading the impact of the penalty over the body of members over time.

233    The imposition of a pecuniary penalty in the amount of $27 million is not expected to cause a material detriment to members of the Fund. It is noted that if the Fund had been run at a profit for shareholders and thus contributed to assets owned beneficially by either AustralianSuper or its shareholders, ASIC would have sought substantially higher penalties.

Correction and remediation

234    AustralianSuper has now fully recognised and rectified the failings which led to the contraventions. It has taken corrective action to significantly reduce the prospect of like contraventions occurring in the future.