On 19 January 2024, in Walker v Members Equity Pty Ltd (formerly Members Equity Bank Ltd) (ME) [2024] FCA 15, the Court imposed sentences against ME for false and misleading representations and failing to provide written notices. In the first criminal prosecution of its kind, ME was fined $820,000. The Court recognised a requirement to impose a sentence “that is of a severity appropriate in all the circumstances”.
The Commonwealth Director of Public Prosecutions (CDPP) conducted proceedings on the charges laid by an officer of the Australian Securities and Investments Commission (ASIC), in respect of ME’s alleged contraventions of:
The four charges concerned multiple contraventions being:
ME admitted the offending early in the proceedings, having compulsorily self-reported, and formally pleaded guilty at the sentence hearing.
The offending under the ASIC Act, attracted a maximum penalty of $2.1 million (10,000 penalty units at the time). The contraventions under the National Credit Code, attracted a maximum penalty of 500 penalty units (albeit the unit rate was increased from 1 July 2017).
Three observations were made by the Court at the outset of the judgment:
The Court is required by section 16A(1) of the Crimes Act 1914 (Cth) to impose a sentence for a federal offence that is of a “severity appropriate in all the circumstances”. For this purpose, section 16A(2) provides what the Court described as “a non-exhaustive shopping list of matters for consideration” to the extent they are relevant and known. In particular, “general deterrence” is now explicitly required to be taken into account.
In dispute were:
The CDPP contended a substantial penalty was appropriate because of the need for deterrence. ME contended that in all the circumstances a modest financial penalty was adequate and appropriate.
The Court considered the main discrepancy between the parties’ relevant positions was correctly summarised by the CDPP as follows:
In view of the above, the Court notably observed the appropriate question to be asked where automated systems are in place is:
“what and where are the inevitable defects in such complex systems, and what is being done to find them and eliminate them, noting that changes in software are likely to create new defects from time to time. It is almost counsel of perfection, because that is what is required. Prevention is everything, and the sanctioning response must reflect this in order to ensure this is what takes place. Temptation in favour of any lesser response must be deterred.”
While there were factors weighing in ME’s favour when considering totality (i.e., no lasting harm, cooperation with ASIC, actively remedying the error), on balance, the Court could not accept that the need for general deterrence was relatively minor, nor that a modest financial penalty was adequate and appropriate. Rather, the continued need for deterrence had to be addressed. The first charge, though concerning a shorter duration, was more serious, as it involved a failure to provide information that was required and the provision of false and misleading information. Thus, the Court ordered ME pay $750,000 in respect of the first charge under the ASIC Act, and a total of $70,000 in respect of the remaining charges under the National Credit Code.
The decision is a useful signpost for the way in which the Courts will approach sentencing for similar conduct in the future. When automated systems are used, very high levels of diligence are required. The Courts have recognised that “prevention is everything and the sanctioning response must reflect this in order to assure that is what takes place”. Whilst proportionality remains important, in similar cases the Court’s focus is likely to be on deterring “inadequate or complacent levels of diligence”.
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Authored by:
Scott Couper, Partner
Carma Holland, Solicitor