Financial Services Disputes - What's New? 

In the Courts 

There is a lot happening in the Courts besides the more high profile actions which have dominated the headlines in the past couple of months. In this edition we take a look at three recent decisions. 

Doing the maths on penalties: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113

The Full Court held that a single penalty cannot be imposed for multiple contraventions of a civil penalty provision on the basis of the "totality principle" or the "course of conduct" principle, unless specifically authorised by statute (although those principles still apply). The Full Court held that, generally, a separate penalty must be imposed for each offence. This is a departure from the approach that has sometimes been taken, and highlights some of the uncertainties in this relatively new, but increasingly important, feature of the regulatory landscape.  

When does a lead manager and underwriter in a capital raising owe a shareholder a duty of care? 

Following a capital raising, share price movements may cause investors loss. Underwriters, advisers and others involved in the transaction have always been a potential target of claims from investors who seek to make good such losses. One basis on which recovery is sometimes sought is negligence, but a significant hurdle investors face is establishing they were owed a duty of care. We look at how the the New South Wales Court of Appeal dealt with this issue in RinRim Pty Ltd v Deutsche Bank AG [2017] NSWCA 169, a negligence action by a shareholder against a company and three joint lead managers and underwriters to a capital raising by means of an Accelerated Renouncable Entitlement Offer.

Full Federal Court clarifies criminal fault position for civil penalty proceedings  

In a decision which will have come as a welcome relief to ASIC, the Full Federal Court has clarified that where a contravention of a provision of the Corporations Act may have separate civil and criminal consequences, the provisions of the Criminal Code that would apply to a criminal prosecution do not apply to a civil action.

Current Enforcement Themes and Reviews

Against the backdrop of some headline dominating regulatory activity in recent months—which has in some quarters renewed calls for a Royal Commission—it is easy to overlook other developments which could see significant changes.

These developments include:

• The ASIC Enforcement Review Taskforce recent consultation paper which proposes extending ASIC's banning order powers to senior managers.  If accepted by Government, this would mean that directors, officers or senior managers of a financial services business could be the subject of an ASIC banning order as a result of their role.  Along with the proposed BEAR (which affects a narrower range of licensees), the proposal represents another attempt by Government to increase accountability in the financial sector.

• The Taskforce's preliminary recommendation that the financial sector (or parts of it) move from a self-regulatory model (ie industry codes) to a "co-regulatory model".  According to the Taskforce's recommendation, a "co-regulatory model" would involve a combination of self-regulation, with a degree of oversight by ASIC. The Taskforce has expressly declined to call for the content of codes to be incorporated into statute or regulation, but its proposals would result in customers having increased rights of redress where a code of conduct applies. 

Editors: Andrew Carter, Partner; Tim West, Senior Associate; and Lucinda Hill, Senior Associate. 

Authors and Contributors: Valentene Asvestas, Lawyer; Matthew Taylor, Lawyer; Camilla Wayland, Expertise Counsel; and Andrew Westcott, Senior Expertise Lawyer.