“[I]f a submission is to be put then counsel should be in a position to explain it, or at least give it some paraphrasable meaning”

In Australian Securities and Investments Commission v American Express Australia Limited [2024] FCA 784 (19 July 2024), Jackman J – upon a penalty hearing, requiring construction of the Corporations Act 2001 (Cth) – made observations concerning the obligations of counsel in making submissions in respect of the competing constructions which may be apt in respect of legislation in contest.  His Honour wrote:

[1]  This case concerns what are described as the “design and distribution obligations” in Part 7.8A of the Corporations Act 2001 (Cth) ( Act ) ( DDO ), specifically those contained in ss 994C(4) and 994C(5) of the Act. The proceedings were originally fixed for a 5-day contested hearing commencing on 11 March 2024. On 5 March 2024, I vacated that hearing at the request of the parties and made directions for the preparation of joint submissions on liability and penalty, and fixed the hearing for 27 May 2024. During the course of that hearing, it became apparent that the parties wished to have the opportunity to supplement their joint submissions and requested a further hearing on 1 July 2024.

[2]  The defendant ( American Express ) admits two contraventions of s 994C(4) of the Act and two contraventions of s 994C(5) of the Act in the period between 25 May 2022 and 5 July 2022 ( Contravening Period ) (amounting to four contraventions in total). The contraventions relate to two co-branded credit cards (the DJs Amex Card and the DJs Amex Platinum Card ) (together, the DJs Cards ), which were primarily distributed to customers in David Jones stores, and the target market determination ( TMD ) for each card.

[3]  In broad terms, the DDO seek to improve consumer outcomes by ensuring that financial services providers have a customer-centric approach. In accordance with the DDO in the Act, American Express made a TMD for each of the DJs Cards which were in place at the commencement of the DDO scheme on and from 5 October 2021. However, American Express admits that subsequently, in the Contravening Period, it knew that there was a circumstance in respect of each of the DJs Cards, being a circumstance that reasonably suggested that the TMDs for the DJs Cards were no longer appropriate, although American Express did not know that the circumstance had that characteristic. American Express also accepts that it ought reasonably to have known by 11 May 2022 that the cancelled application rates for the DJs Cards were a circumstance that would reasonably suggest that the TMD for each of the DJs Cards was no longer appropriate. Despite this, American Express did not cease issuing the DJs Cards in the Contravening Period and, during that same period, did not take all reasonable steps to ensure that David Jones was informed that it must not continue distributing the DJs Cards. While American Express admits that it contravened ss 994C(4) and 994C(5), I must satisfy myself as to the correctness or otherwise of those admissions before making declarations and granting other relief.

[4]  The plaintiff ( ASIC ) and American Express join in seeking:

(a) declarations of contraventions in the form of either Annexure A or Annexure B to the Supplementary Joint Submissions on Penalty dated 25 June 2024;

(b) on the basis of the admitted contraventions, orders pursuant to s 1317G(1) of the Act that it pay a total pecuniary penalty of $10,800,000 (Agreed Penalty A) if I find that both ss 994C(4) and (5) were contravened, or $8,000,000 (Agreed Penalty B) if I find that only s 994C(4) was contravened; and

(c) an order that American Express pay ASIC’s costs of and incidental to the proceeding in the agreed sum of $200,000.

…

Construction of subss 994C(4) and (5)

[52]  There are two issues which arise in these proceedings concerning the proper construction of the provisions which the parties agree have been contravened. The first concerns the extent to which the matters in para (ii) in each of subss 994C(4)(c) and (5)(c) must be known or (in the case of s 994C(4)(c)) ought reasonably to be known. The second concerns the knowledge which is required in order to trigger the response imposed by s 994C(4). The first of those issues was raised by the parties and, contrary to their joint submissions, I regard the matter as so obvious that it does not raise a real issue of construction at all. The second issue was not raised by the parties at the initial hearing on 27 May 2024, but does raise a genuine issue of construction.

The knowledge requirement in para (c)(ii)

[53]  A plain reading of s 994C(4)(c) conveys that the relevant condition for the operation of s 994C(4) is that the person knows, or ought reasonably to know, that the elements of subpara (i) or subpara (ii) are satisfied. In the case of subpara (i), the person must know, or ought reasonably to know, that a review trigger for the determination has occurred. In the case of subpara (ii), the person must know, or ought reasonably to know, that an event or circumstance has occurred that would reasonably suggest that the determination is no longer appropriate. It is obvious from the structure and syntax of subparas (c)(i) and (ii) that the relevant knowledge must be of all of the elements of (i) or all the elements of (ii). The same reasoning applies to s 994C(5), except that s 994C(5)(c) is confined to actual knowledge, in that it does not pick up the concept of constructive knowledge denoted by the expression “ought reasonably to know” as used in s 994C(4)(c). Confirmation that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act is provided by the Revised Explanatory Memorandum at [1.91], which stated relevantly:

Issuers are prohibited from engaging in retail product distribution conduct in relation to the product, from as soon as practicable (but no later than 10 business days) after they knew or ought to have known that the determination may be inappropriate, until they have reviewed the determination and, if necessary, made a new determination.

Consideration may be given to that material pursuant to s 15AB of the Acts Interpretation Act 1901 (Cth) (Interpretation Act ).

[54]  To my surprise, the parties jointly submitted that that obvious construction is wrong. Their submission is that para (c) in each of ss 994C(4) and (5) has two relevant components:

(a) that the person knows (or alternatively, in the case of s 994C(4), ought reasonably to know) that an event or circumstance “has occurred”; and

(b) the event or circumstance “would reasonably suggest” that the TMD is no longer appropriate.

The parties submit that only (a) and not (b) is the subject-matter of the knowledge requirement. That is (putting to one side the “ought reasonably to know” aspect of s 994C(4)), it is necessary that the person possesses the requisite knowledge that the event or circumstance has occurred. That subjective knowledge being established, it is then to be objectively determined that the event or circumstance reasonably suggests that the TMD is no longer appropriate, but (so the parties submit) the person need not know that the event or circumstance reasonably suggests that the TMD is no longer appropriate. This submission was developed at some length in the parties’ initial joint written submissions, but oddly the parties did not then provide any reasons or submissions as to why their argument may be wrong. Given that there was no contradictor in the case, this was a dereliction of the duties of counsel to the Court, as senior counsel for both parties ultimately accepted (T26.16–33, 39.17–40.6). Quite apart from the duties of counsel to the Court, barristers owe it to themselves in all proceedings (irrespective of whether there is a contradictor) to consider the opposing point of view, if only to spare themselves and the Court from the kind of insubstantial arguments that rise like bubbles to the surface and disappear. At the end of the initial hearing, the parties requested a further month to consider their respective positions, and they did file further written submissions which set out arguments for the competing construction. The submissions made jointly by the parties in favour of their rather odd construction are as follows.

[55]  First, the parties jointly submitted that their construction is supported by the text, context and purpose of ss 994C(4) and (5). The parties submitted that the question of whether the event or circumstance suggests that the TMD is no longer appropriate is an objective one (namely, whether the event or circumstance would reasonably suggest that it is no longer appropriate). That was said not to require the person to know that the event or circumstance reasonably suggests that TMD is no longer appropriate (again, putting to one side the “ought reasonably to know” aspect of s 994C(4)). The parties submitted that if the correct construction was that the person must know that the event or circumstance “reasonably suggested that the TMD was no longer appropriate”, there would be little or no work for the words “reasonably suggest” to do, and a high degree of uncertainty would be introduced in relation to the scope of the provision and the nature of the obligation it imposes. (ASIC also submitted that the alternative construction would require the words “to the maker of the determination” to be inserted after “reasonably suggest” (T14.36–39), but American Express did not appear to join in that submission, and the significance of the submission escapes me.)

[56]  I do not understand this first submission. It is true to say that the question whether the event or circumstance would reasonably suggest that the TMD is no longer appropriate is an objective one, but it is hardly surprising that the draftsperson referred to an objective matter as the subject matter of the required knowledge. One cannot know something which is not true. Other mental states (such as belief) may be apt for matters which are not necessarily true. The element of reasonably suggesting that the TMD is no longer appropriate is an essential component of the requirement of knowledge, because without it one does not know what event or circumstance is required to be known. The terms “event or circumstance” are so open-ended that they require some specification of the characteristics of the “event or circumstance” in order to give the provision a sensible operation. That is obviously why the draftsperson has clearly indicated by the punctuation and structure of the provision that the requisite knowledge must be of all the elements of either para (i) or para (ii).

[57]  In what appeared to be an adjunct to the first line of argument, ASIC submitted in writing for the resumed hearing on 1 July 2024 (after a further month’s deliberation) that the word order of para (c)(ii) supported its construction, in that it was said that if the provision were intended to require the person to know that an event or circumstance of a particular quality has occurred, one would expect the words “has occurred” in para (c)(ii) to follow after the word “appropriate”, rather than after the words “an event or occurrence”. When I told senior counsel for ASIC that the point was far too subtle for my mind, and requested some elaboration, senior counsel replied that there was nothing further she could say beyond what had been put in writing (1.7.24 at T9.40–10.8). That may be so, but if a submission is to be put then counsel should be in a position to explain it, or at least to give it some paraphrasable meaning. The word order is entirely natural and does not indicate that the knowledge requirement extends to anything less than all the elements of para (c)(ii).

[58]  Second, the parties jointly submit that the correctness of their construction is supported by the greater certainty afforded by that construction, such certainty being warranted in the context of a civil penalty provision, with reference to Construction, Forestry, Mining and Energy Union v Mammoet Australia Pty Ltd [2013] HCA 36; (2013) 248 CLR 619 at [48] (Crennan, Kiefel, Bell, Gageler and Keane JJ); and Qantas Airways Ltd v Transport Workers Union of Australia [2023] HCA 27; (2023) 412 ALR 134 at [40] (Kiefel CJ, Gageler, Gleeson and Jagot JJ). As those authorities indicate, like the imposition of criminal liability, the imposition of a civil penalty should be certain and its reach should be ascertainable by those who are subject to it.

[59]  I accept the general principle which is the subject of that submission, but I regard the principle as operating strongly against, rather than in favour of, the parties’ construction. As I have indicated above, in my view, the provision is clear in requiring the relevant knowledge to extend to the relevant event or circumstance reasonably suggesting that the determination is no longer appropriate. Certainty and ascertainability are enhanced by a construction which is consistent with that text. The parties’ construction introduces uncertainty and a lack of clarity where none exists in the language actually used.

[60]  Third, the parties jointly submit that it is difficult to conceive how a level of knowledge which included the element of “would reasonably suggest that the determination is no longer appropriate” could be established or how the provision would be enforced. The parties submit that such a construction would be unwieldy, requiring proof that the person:

(a) knew the event or circumstance; and

(b) applying the definition of “appropriate” in s 994B(8), knew that the event or circumstance reasonably suggested that the TMD was such that it would not be reasonable to conclude that if the product were issued:

(i) to a retail client in accordance with the distribution conditions — it would be likely that the retail client is in the target market; or

(ii) to a retail client in the target market — it would likely be consistent with the likely objectives, financial situation and needs of the retail client.

[61]  I accept that the language of the provisions is “unwieldy”, in the sense that when one has to insert a definition of “appropriate” which includes the lengthy sentence in s 994B(8) into what is already a lengthy phrase in subss 994C(4)(c) and 994C(5)(c), the result places demands on the reader’s powers of concentration. That, however, is the case on either construction. The cumbersome nature of the statutory language is simply a feature of the drafting technique which has been adopted. As to the submission that knowledge of all of the elements of para (c)(ii) creates difficulties in establishing a contravention or enforcing the provision, I simply do not understand the submission. I do not regard it as a particularly difficult factual issue to ascertain in the circumstances of a particular case whether the person knows (or ought reasonably to know) that an event or circumstance would reasonably suggest that the TMD is no longer appropriate in the defined sense. In the present case, the parties were able to reach agreement on those factual issues. When I suggested to senior counsel for ASIC that the parties’ agreement as to the facts in the present case showed the issue is not that hard, I was simply told that the submission could not be put any higher (1.7.24 at T9.27–38).Why then, one may ask, was the submission ever made? There may, of course, be borderline and contested cases, but that is true of almost all factual issues which courts resolve routinely. ASIC is armed with very extensive investigative powers, and enjoys the rights to pre-trial discovery of documents and the cross-examination of witnesses which are available to any litigant. As ASIC ought to be aware, those processes are routinely used to establish questions of actual and constructive knowledge on the part of those whom ASIC suspects of (or alleges have engaged in) contraventions.

[62]  Fourth, the parties submit that the consequence of requiring knowledge of all the elements of para(c)(ii) would be that only the most serious or egregious conduct would be caught by the provisions, which is said to run counter to the express legislative intention of requiring a “customer-centric approach” in implementing the DDO regime. The parties submit that on the alternative construction (which I regard as the obviously correct construction) if a person in the organisation that has made the TMD, being the person responsible for monitoring review triggers, had no knowledge or understanding of the DDO regime, the organisation may be liable for a contravention of s 994C(4) (by reason of the “ought to have known” requirement), but could wholly avoid contravening the corresponding obligation to inform relevant product distributors imposed by s 994C(5). The parties submit that such a result runs counter to the discernible legislative intent in establishing the DDO regime. The parties submit that ss 994C(4) and (5) are complementary: subs (4) is concerned with ensuring that the issuer stops selling the product when a review has been triggered, and subs (5) requires the issuer to take steps to ensure that other persons involved in the distribution conduct cease engaging in that conduct, unless the TMD has been reviewed and there is a new TMD (if required). The parties submit that an approach that imposes significantly divergent knowledge requirements in respect of subss (4) and (5) is therefore inconsistent with a purposive approach to statutory construction and the DDO regime generally. Further, the parties submit that in circumstances where the legislation is consumer-focused and is a form of consumer protection legislation, a beneficial construction should be preferred to one that limits the operation of the scheme and captures only the most serious conduct.

[63]  I reject those submissions. It is obvious that subss 994C(4)(c) and (5)(c) have divergent knowledge requirements. Subsection (4)(c) is satisfied where “the person knows, or ought reasonably to know” the specified matters. Subsection (5)(c) is confined to actual knowledge, by requiring that “the person knows” the relevant matters. It is obvious that the legislation intends to create a situation where a person may contravene subs (4) without actual knowledge of the relevant matters, but would not be liable under subs (5) because the person did not have that actual knowledge. That corresponds to a consistent pattern in the drafting of s 994C, whereby the provisions which create an offence (namely subss (3), (5) and (6)) require actual knowledge of the relevant matters, whereas the provisions which do not create an offence but which are civil penalty provisions are satisfied where the person either knows or ought reasonably to know the relevant matters (subss (4) and (7)). The fact that the provisions which create criminal offences are concerned with conduct which is more serious or egregious than provisions which merely give rise to civil penalties is an entirely natural and reasonable approach to legislative drafting. I do not see anything contrary to the legislative purpose in adopting that approach. While the overall legislative purpose may be described at a high level of generality as consumer protection, the particular purpose of subss 994C(4) and (5) is to impose a regime of remedial responses in circumstances where the person knows (or ought reasonably to know in the case of subs (4)) of certain matters which give rise to the need for a remedial response. It is fundamental to that purpose that the provisions should specify the nature and elements of the knowledge which trigger the requisite remedial response. There is no reason why the legislation should adopt a uniform standard as to the degree of knowledge (i.e actual or constructive) which is required in different provisions calling for different responses, with different consequences for contravention in terms of the civil and criminal law.

[64]  Fifth, the parties jointly submitted in their written submissions that there was nothing in the Revised Explanatory Memorandum that expressly assists the Court in interpreting these particular provisions, but submitted that the overarching legislative intention of a “customer-centric approach” assists in resolving what the parties referred to as the constructional choice. In developing that submission, the joint written submissions referred expressly to the Revised Explanatory Memorandum at [1.91]. It was at this point (if not earlier) that the parties’ submissions completely lost contact with any form of rationality. I have quoted from that paragraph above. It is obvious that the very paragraph referred to by the parties in their joint written submissions did expressly deal with the very matter of construction raised by the parties, and did so in a manner which is plainly contrary to their submission. While senior counsel for American Express had the good sense to withdraw the submission upon [1.91] being drawn to his attention (T40.8–13), senior counsel for ASIC maintained the submission (T21.40–22.35), but ultimately withdrew it after I had provided the parties with an adjournment of over two hours to give proper consideration to the arguments that they were putting, and accepted that [1.91] meant the opposite of what ASIC had earlier submitted (T41.4–15).

…

(emphasis added)