FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Westpac Banking Corporation [2017] FCA 1331 File number: VID 282 of 2016 Judge: BEACH J Date of judgment: 8 November 2017 Catchwords: PRACTICE AND PROCEDURE – corporations and securities – financial markets – prime bank bills – bank bill swap reference rate (BBSW) – alleged financial market manipulation concerning artificial prices – ss 1041A and 1041B of the Corporations Act 2001 (Cth) – application to amend originating process and statement of claim – application allowed Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB, 12CC Corporations Act 2001 (Cth) ss 1041A, 1041B Federal Court of Australia Act 1976 (Cth) s 37M Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Cropper v Smith (1884) 26 Ch 700 Ketteman v Hansel Properties Ltd [1987] AC 189 Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) (2016) 332 ALR 199; [2016] FCAFC 2 Date of hearing: 8 November 2017 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Category: Catchwords Number of paragraphs: 50 Counsel for the Plaintiff: Mr PW Collinson QC, Mr PD Crutchfield QC, Mr M Borsky QC with Mr C Archibald, Ms C van Proctor and Mr CJ Tran Solicitor for the Plaintiff: Johnson Winter & Slattery Counsel for the Defendant: Mr MJ Darke SC with Mr JRV Williams and Mr J Burnett Solicitor for the Defendant: Allens ORDERS VID 282 of 2016 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: WESTPAC BANKING CORPORATION (ACN 007 457 141) Defendant JUDGE: BEACH J DATE OF ORDER: 8 NOVEMBER 2017 THE COURT ORDERS THAT: 1. The Plaintiff has leave to file and serve the affidavits of: (a) Michelle Anne Burton affirmed on 6 November 2017; (b) Graeme Alexander Bell sworn on 3 November 2017; (c) Jonathan Richard Hensler sworn on 3 November 2017; (d) Jeffrey David Weiss sworn on 3 November 2017; and (e) Sonia Richards affirmed on 1 November 2017. 2. The Plaintiff has leave to file and serve: (a) the Second Further Amended Statement of Claim; and (b) the Third Further Amended Originating Process, substantially in the form provided to the Court and the solicitors for the Defendant on 6 November 2017 with necessary modifications to paragraphs 1B and 2B of the Third Further Amended Originating Process. 3. The Plaintiff file and serve: (a) the Second Further Amended Statement of Claim; and (b) the Third Further Amended Originating Process, by 4.15 pm on 9 November 2017. 4. The Defendant has leave to file and serve a Further Amended Defence to the Second Further Amended Statement of Claim by 4.15 pm on 10 November 2017. 5. The Plaintiff pay the Defendant's costs of the amendment application and any costs thrown away by reason of the amendment. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (revised from transcript) BEACH J: 1 ASIC has applied for leave to file and serve a Second Further Amended Statement of Claim and a Third Further Amended Originating Process. Relevant background is set out in my reasons in Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited [2017] FCA 459 at [3] to [58]. 2 Apart from inconsequential and formal amendments, ASIC has sought to make the following changes or to clarify the following matters: (a) First, it has sought to clarify its case concerning statutory unconscionability as pleaded against Westpac under ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth). At the least, an issue has arisen as to the scope of the pleading in this respect. (b) Second, it has sought to make changes to its case concerning Westpac's alleged contravention of s 1041B of the Corporations Act 2001 (Cth) dealing with conduct having the effect or likely effect of creating a false or misleading appearance with respect to the market for or price for trading in financial products on a financial market. 3 A principal question underlying these amendments relates to what I would describe as ASIC's systems case against Westpac. In addition to ASIC's specific case concerning specified contravention dates when Westpac is said to have bought or sold prime bank bills and engaged in the rate setting practice, it is currently pleaded (see paragraph 62 of the statement of claim) that Westpac engaged in the Rate Set Trading Practice (as defined) from time to time during the relevant period (defined as from 6 April 2010 to 6 June 2012). It will be recalled that the Rate Set Trading Practice is identified to mean the practice of Westpac to trade Prime Bank Bills, including negotiable certificates of deposit in the Bank Bill Swap Rate Set Window (as defined) with the sole or dominant purpose of influencing the level at which the BBSW was set in a way that was favourable to its BBSW rate set exposure and therefore resulting in yields which did not reflect the forces of genuine supply and demand. It is said that it engaged in the Rate Set Trading Practice throughout the relevant period. 4 In relation to the systems case, being the existence of this Practice throughout the relevant period, not just on the specified dates, ASIC seeks to advance a case that: (a) First, the non-disclosure of such a practice to relevant counterparties amounted to statutory unconscionable conduct. (b) Second, it seeks to advance a case that Westpac in contravention of s 1041B of the Corporations Act on each Sydney business day during the relevant period omitted to inform the financial markets for traded BBSW Referenced Products (as defined) of its Rate Set Trading Practice. 5 Let me deal with the unconscionable conduct claims first, before dealing with the amendments to the s 1041B case. During the course of argument I have previously indicated my views concerning the unconscionable conduct claims, but it is convenient to say something about these first in relation to the systems case, as they have relevance to what I propose to say concerning the systems case proposed to be advanced concerning s 1041B and conduct having the effect or likely effect of creating a false or misleading appearance with respect to the market for or price for trading in financial products. 6 ASIC has pleaded claims against Westpac under s 12CA of the ASIC Act and s 12CB (for post-1 January 2012 conduct) and s 12CC (for pre-1 January 2012 conduct). Accordingly, ASIC is pursuing both claims of unconscionability within the meaning of the unwritten law and claims of statutory unconscionability. The unconscionable conduct is said to have been connected to various counterparties. 7 As to the categories of counterparties they are in the following categories: (a) One category is Affected Counterparties, being counterparties to Westpac on BBSW Referenced Products in respect of which a payment was required to be made by reference to the BBSW on a Sale Contravention date or Purchase Contravention date, such that the counterparty had an exposure opposite to Westpac's net BBSW Rate Set Exposure on that date. These counterparties are comprised of both listed companies and counterparties that are non-listed companies or individuals, and include counterparties that are not participants in the Bank Bill Market. I will put to one side other affected counterparties for the moment. (b) Another category is At Risk Counterparties, being counterparties (comprised of listed and non-listed companies and individuals) to Westpac on BBSW Referenced Products entered into during the Relevant Period, irrespective of whether they relate to a Sale Contravention date or Purchase Contravention date. 8 The contravening conduct of Westpac is said to fall into two broad categories: (a) First, Westpac is said to have entered into or carried out obligations in relation to BBSW Referenced Products whilst also carrying out its Rate Set Trading Practice, on the dates of each of the Sale and Purchase Contraventions, and from time to time throughout the relevant period, as part of a system of conduct or pattern of behaviour. This conduct ASIC describes in its pleading as the "Impugned Conduct". (b) Second, Westpac is said to have entered into BBSW Referenced Products knowing or believing that it had engaged, and was likely to continue to engage, in the Rate Set Trading Practice and that doing so would be likely to, or would, cause loss to the counterparty to the relevant product, without disclosing this practice to the relevant counterparty. This conduct is described by ASIC in its pleading as the "Risk Exposure Conduct". 9 So, in respect of each Sale Contravention date and Purchase Contravention date ASIC alleges that Westpac engaged in the Impugned Conduct and thereby breached: (a) section 12CA, being unconscionable conduct within the meaning of the unwritten law; and (b) sections 12CB or 12CC, being statutory unconscionable conduct. 10 Further, in respect of the whole of the relevant period, ASIC alleges that Westpac engaged in the Impugned Conduct, comprised of a system of conduct or pattern of behaviour. 11 Further, in respect of each Sydney business day of the relevant period, ASIC alleges that Westpac engaged in the Risk Exposure Conduct in circumstances which included the existence and non-disclosure of the Rate Set Trading Practice coupled with Westpac's knowledge that such practice was not known to the counterparties to those products, and thereby contravened ss 12CA, 12CB and 12CC. 12 As ASIC has described it, in relation to the Impugned Conduct the essence of the unconscionable conduct claims is that Westpac's implementation of the Rate Set Trading practice so as to influence the BBSW on particular dates was unconscionable in circumstances where doing so would affect payment obligations on BBSW Referenced Products to Westpac's actual or possible advantage and to the detriment of relevant counterparties. 13 And as ASIC has also described it in relation to the Risk Exposure Conduct, the essence of the claims is that it was unconscionable for Westpac to enter into BBSW Referenced Products with At Risk Counterparties knowing that it would or might engage in the Rate Set Trading Practice to the actual or possible detriment of those counterparties without disclosing that practice. 14 In relation to the systems case involving unconscionable conduct, a number of matters are apparent. 15 First, on the current pleading dealing with the Risk Exposure Conduct it was always apparent that Westpac had to meet this case not just on the specified contravention dates for the specific buying and selling trading dates but over the entire relevant period. 16 Second, on the current pleading it was also apparent that on the Risk Exposure Conduct part of the unconscionable conduct claims, ASIC did not seek to establish the relevant effect or likely effect on price or market on other non-specified contravention dates throughout the relevant period. It was sufficient for its case that: (a) the Rate Set Trading Practice was systemic; (b) it created a risk to those contracting with Westpac; and (c) the trading practice and the correlative risks were not disclosed to counterparties before they contracted with Westpac. 17 Further and to be clear, ASIC's case to the effect that the relevant risk embraced by the Risk Exposure Conduct was not disclosed to counterparties at or prior to the inception of the relevant products does not require any identification of the date or dates in futuro of effect or likely effect. 18 Generally, as I have indicated to counsel during the course of argument, in my view the existing pleading at paragraphs 127A to 127J in combination with the definition of Westpac's Rate Set Trading Practice at paragraph 62, including the phraseology "from time to time in the Relevant Period", well embraced the case that ASIC has sought to run on this point. And to be clear, the specific dates referred to in Schedule M of ASIC's particulars to the current statement of claim do not limit its systemic case based upon the omission to disclose the Risk Exposure Conduct or the Rate Set Trading Practice. 19 Let me now turn to the amendments sought to be made concerning ASIC's case against Westpac under s 1041B of the Corporations Act. 20 ASIC's case for some time has pleaded two limbs to its s 1041B allegations against Westpac. 21 The first limb is that Westpac did not prior to or at any time in the relevant period inform participants in the financial markets for traded BBSW Referenced Products of the conduct engaged in on the specific contravention dates involving the relevant identified sales or purchases of prime bank bills. This first limb is identified in paragraph 104A(a) of the current statement of claim. 22 The second limb is that Westpac did not prior to or at any time in the relevant period inform participants in the financial markets for traded BBSW Referenced Products of Westpac's Rate Set Trading Practice. This second limb is identified in paragraph 104A(b). 23 Now let me pause here for a moment and observe several matters. First, in a sense there is a forensic overlap with the systems case for unconscionability involving the non-disclosure of the Risk Exposure Conduct. In both cases one is talking about such a Rate Set Trading Practice over the entire relevant period in terms of each trading day. Further, one case involves the omission to disclose the Practice to actual or potential counterparties to Westpac, although Westpac accepts that it did not disclose this more broadly. The other case involves the omission to disclose the Practice more generally to participants in the financial markets for traded BBSW Referenced Products. The former is the unconscionability case. The latter is the s 1041B case. Now Westpac's principal defence to both such cases is that there was no such Rate Set Trading Practice. And consistently with that denial, it appears to be accepted that if it is found, contrary to Westpac's case, that there was such a Practice, then: (a) it was not disclosed to actual or potential counterparties to Westpac; and (b) it was not disclosed to participants in the relevant financial markets. 24 Let me return to the pleading of the s 1041B case. 25 As I have said, paragraph 104A has two limbs, the second being as I have described being the systems case (for want of a better expression) involving the non-disclosure of the Rate Set Trading Practice. This two-limbed structure is carried over to paragraph 104B. There is an allegation in paragraph 104B(b) which mirrors the second limb. 26 So far so good. But the problem arises with paragraph 104C, and the corresponding prayers for relief in the originating process. The allegation in paragraph 104C constituting the principal conclusion of Westpac's contravention of s 1041B collapses the two limbs that I have earlier identified, and confines the case only to non-disclosure to the participants in the relevant financial markets of the conduct engaged in on the specific contravention dates. 27 ASIC confesses to this being a drafting infelicity. It seeks to amend the statement of claim and originating process to properly reflect the two-limbed structure of its s 1041B case. Westpac opposes the amendment. It says that it came to meet the narrower case, that the amendment is too late, and that it will suffer significant prejudice if I allow the amendment. Moreover, it put a textual argument concerning paragraphs 62, 104A and 104B of the statement of claim designed to persuade me that on a proper reading of the pleading there was not, in fact, two separate limbs but rather there was only the first limb that I have identified, with the second limb being more contextual to support the first limb. And as so read, the pleading was harmonious with paragraph 104C being confined as its current text reflects. 28 In my view, it is apparent that ASIC made an error in the drafting of its s 1041B case. In my view, it is appropriate that ASIC be given an opportunity to rectify this error. Moreover, I do not consider that Westpac will be substantially forensically prejudiced by the amendment. 29 Westpac has been given the opportunity to identify any real forensic prejudice, but in my view it has failed to do so. I will address the affidavit of Westpac's instructing solicitor in a moment. 30 First, Westpac has always had to deal with the relevant forensic landscape concerning the systemic practice and its failure to disclose it under the unconscionable conduct case in any event. 31 Second, Westpac has already put on evidence that the Rate Set Trading Practice, objectively analysed, could not have had the actual or likely effect on price (or the relevant market) of the type contended for in any event. In other words, the evidence adduced to oppose the s 1041A case will also be available to oppose the s 1041B case, although not exhaustively I accept. 32 Third, ASIC has already stated that in relation to dates identified outside the specified contravention dates it will not be seeking to establish the requisite "infringing" sole or dominant purpose for trading on non-specified dates. 33 Fourth, Westpac has not identified at all any new witness that it would seek to call on the amended case that it has not already otherwise proposed to call. But if it had done so, I may have allowed it to supplement its witness list. 34 In summary, the modified s 1041B case may have added a new legal dimension. But if it has done so, the forensic contest has not substantially altered. 35 It is appropriate to make some observations concerning the affidavit of Westpac's instructing solicitor only affirmed and served this morning. 36 First, it is at a level of generality that is not particularly probative. Moreover, this question was raised last Thursday. One would have thought that if there was real prejudice, Westpac would have descended to a level of detail greater than what has been provided to me this morning. 37 Second, absent any level of specificity in paragraphs 14 and following of the affidavit, it is not unfair to conclude that the forensic investigations Westpac says that it may have to engage in if I allow the amendment are, in some respects, overstated. 38 Third, prior to this trial starting and given ASIC's position pressing the cross-admissibility of evidence concerning one bank against all others, Westpac may have been expected to have looked at the matter more broadly in terms of its defence, not just confining itself to the specified contravention dates. 39 Fourth, the assertion that additional statistical evidence may have been necessary seems misplaced at a number of levels. There is already evidence in some respects although not complete relevant to objective effect or likely effect. Moreover, the assertion seems questionable when one considers the terms of s 1041B. That is dealing with the likely effect of creating a false or misleading appearance as to market or price. The section refers to appearance, not the reality. 40 Finally, as to the need for further lay evidence, I will say this: (a) First, if Westpac seeks to adduce further evidence from its current lay witnesses to deal with the so-called new case, then I will permit it. (b) Second, if Westpac seeks to call a new lay witness to deal with this so-called new case, then I may allow this as well. 41 In summary, I reject Westpac's assertions through its legal advisers, whether solicitors or counsel, that it will be substantially prejudiced by the amendment. 42 Let me now turn to some general matters. 43 I have given some consideration to the principles enunciated in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 and the more recent discussion of these principles by a Full Court of this Court consisting of Gilmour, Perram and Beach JJ in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) (2016) 332 ALR 199; [2016] FCAFC 2. Having considered those principles, I would note the following. 44 First, greater prejudice would flow to ASIC and the public interest if I refuse the amendments than would flow to Westpac if I granted the amendments, although I do accept Westpac's point that the prejudice to it must be considered in the context that this is a pecuniary penalty proceeding. 45 Second, the nature of the amendments and their timing has been adequately explained by ASIC, although I do agree with Mr Darke, senior counsel for Westpac, that the statements made to me by ASIC's then senior counsel in April 2017 raise some cause for doubt. 46 Third, allowing the amendments will ensure that all substantive questions are properly litigated at the one time, and is also consistent with s 37M of the Federal Court of Australia Act 1976 (Cth). 47 Fourth, there is no real prejudice to Westpac that cannot be cured in costs or an opportunity to file further lay evidence if it so desires. 48 Now as to costs I accept that as French CJ observed in Aon at [25], the House of Lords decision in Ketteman v Hansel Properties Ltd [1987] AC 189 manifests a marked departure from the approach of Bowen LJ in Cropper v Smith (1884) 26 Ch 700 that a costs order is a cure-all. Lord Griffiths in Ketteman said at 220 that: … justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other … Another factor that a judge must weigh in the balance is the pressure on the courts caused by the great increase in litigation and the consequent necessity that, in the interests of the whole community, legal business should be conducted efficiently. Further, the plurality in Aon also departed from the view expressed by his Lordship in Cropper v Smith (at 711) that, in the context of an application to amend, an order for costs is the panacea that heals all. Nevertheless I consider, as I have said, that any prejudice that Westpac may suffer by reason of the amendment can be cured either in costs or by being provided with an opportunity to file such further lay evidence as it is advised. 49 In summary, I will grant leave to ASIC to file and serve by 4.15 pm on 9 November 2017 its Third Further Amended Originating Process and Second Further Amended Statement of Claim in substantially the form provided to me, but subject to ASIC making further modifications to paragraphs 1B and 2B of its originating process as I have discussed with it. 50 I will also order that ASIC pay Westpac's costs of the amendment application and any costs thrown away by reason of the amendment. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. Associate: Dated: 8 November 2017