- 1 Here are five interesting things that happened this month.
- 1.1 Criminal Cartels Making Headlines
- 1.2 A Tale of Two Covert Investigations
- 1.3 Proper particularisation of charges
- 1.4 Some wins for ASIC, but its “new regulatory approaches” disappoint
- 1.5 Regulation All-Sorts
Here are five interesting things that happened this month.
Criminal Cartels Making Headlines
Timing couldn’t be much worse for ASIC, but big sis ACCC has shown it up again, this time charging ANZ, Citigroup and Deutshe Bank (and a number of associated individuals) with criminal cartel charges. Rather unusually, ACCC announced its intention to file charges prior to completion of its investigation. As with its previous cartel prosecutions, the ACCC has filed these charges in NSW.
In other competition news, the Full Federal Court has increased the civil penalty for Yazaki Corporation, from $9.5M to $46M; squarely within the range put by the regulator at the original hearing as what was required for deterrent impact. The main reason for the huge increase was the Full Court’s broader interpretation of “annual turnover” for the purposes of quantifying the maximum civil penalty available. Allens have a useful explainer. In other proceedings, the Full Federal Court rejected ACCC’s argument that Pfizer used its market power for an anti-competitive purpose. (But it wasn’t all good news for Pfizer this month: over in the US it “agreed to pay $23.85 million to resolve claims that it used a foundation as a conduit to pay the copays of Medicare patients taking three Pfizer drugs, in violation of the False Claims Act”.)
A Tale of Two Covert Investigations
An important judgment was published this month by the Federal Court, concerning the application of s138 Evidence Act 2008 (Vic)(discretion to exclude illegally or improperly-obtained evidence) to evidence gathered in the course of a covert regulatory investigation. It’s important because covert investigations are frequently used by some regulators, and considered an essential tool for efficient and reliable fact-finding, yet there’s little judicial commentary on its propriety in a civil litigation context.
In 2016, the Federal Court (Moshinsky J) was satisfied that conduct by investigators of Consumer Affairs Victoria when conducting ‘undercover’ investigation of The Good Guys was both lawful and proper. (By way of disclosure: I had some limited involvement in this aspect of The Good Guys case: all my comments here are based on the published judgment only.) In that case, investigators attended retail stores with digital recorders and secretly recorded the conversations they had with floor staff. They made false representations and conveyed a false impression to each salesperson about their interest in purchasing a television, and thereafter asked questions about the warranties associated with such a purchase. The court was satisfied that the conduct was: a) lawful; b) not improper under s138(2)(b) (making a false statement in the course of questioning knowing the statement was likely to cause an admission); and (c) not improper within the more general meaning in s138(1)(a). The Court said:
“the CAV inspectors gave the salesperson a mere opportunity to engage in misleading and deceptive conduct …there is no causal relationship between, on the one hand, the false statements about being interested in purchasing a television and, on the other hand, the way in which the salesperson answered the questions concerning extended warranties … Although in several instances, the questions asked by the CAV inspectors concerning the position after 12 months were leading questions, it was open to the salesperson to reject the proposition that the CAV inspector was putting. Further… the conduct of the CAV inspectors did not involve a degree of harassment or manipulation which was clearly inconsistent with minimum standards of acceptable conduct for such officers.”
This month’s ruling in ACCC v Apple Pty Ltd (No 3)  FCA 617 had quite a different outcome. The Federal Court determined that part of the ACCC’s conduct was improper, under both s138(2)(b), and also, for broader policy reasons and independently of the s138(2)(b) finding, improper under s138(1)(a).
The impugned conduct in the Apple case was telephone calls made by an ACCC investigator to various Apple employees.
“In each call, the ACCC caller told the Apple Australia representative(s) responding to the call that: (A) the screen of the iPhone had been replaced by someone other than Apple Australia or an Apple-Authorised Service Provider; and (B) a fault had later developed with the speaker component of the iPhone.”
According to the Court, this was achieved by an ACCC investigator
“posing as ‘Jack’, question[ing] the Apple employee as to how Apple would seek to address the supposed problem with his iPhone and what rights or entitlements he had in that regard.”
“Jack” also advised the Apple employee that he
“lived an inconvenient distance away, thereby suggesting it was impracticable for the fictional consumer to come into the Apple Store” [19(j)].
This last falsehood, the Court found,
“reflected a general strategy in the June Calls to attempt to direct the conversation to the point of the Apple employee expressing a view about whether the fictional consumer had a right to free repair under the ACL”.
Overall, the Court was satisfied that
“A fair reading of the transcripts indicates (in each of the Relevant Calls at least) that when Mr Nicholls raised the ACL for the first time, he did so on an open basis and asked a question which permitted the Apple employees to answer as they saw fit.” 
First Basis for Finding of Impropriety: s138(2)(b)
The Court found that, as a result of “trial run” phonecalls that the ACCC investigator made, he
“considered the most likely response was that there was no right to a free repair…”  (My emphasis)
The Court then concluded,
“unlike in The Good Guys where no causal relationship existed, the statements were more than a prompt for an otherwise general discussion. [The ACCC investigator] knew that making the false statements he had honed through his ‘trial run’ was likely to cause the person who was being questioned to make an admission. It follows that evidence of the admissions made during the Relevant Calls, in accordance with s 138(2)(b) of the EA, is to be taken to have been obtained improperly.”  (My emphasis)
Second Basis for Finding of Impropriety: s138(1)(a)
The Court was also satisfied that the ACCC investigator had behaved improperly in a more general sense for the purposes of s138(1)(a) because it concluded that: the calls were not made pursuant to guidelines set by the ACCC; the ACCC had not determined that the covert calls were ‘necessary for the purposes of investigation’; the ACCC did not use the technique as a last resort “after dismissing as impracticable non-deceptive investigative techniques to obtain the same evidence” and the conduct was improper within the s138(2)(b) meaning. -
There are a few matters that, unfortunately, are unexplained or unclear from the judgment. First, it is not clear whether the ACCC investigator admitted that he “considered the most likely response was that there was no right to a free repair…” in his voir dire examination, or whether this was an inference the court drew about his state of mind, based on other comments he made.
Second, it would have been interesting to know the number of Apple call centres and call centre staff across Australia, to provide a sense of the proportion of Apple stores and staff that the ACCC investigator had contacted before he came to “consider that the most likely response” to his questions would be one way or another.
Third, the court did not explore the difference (if any) between thinking an outcome is the most likely response and knowing an outcome is the most likely response to proposed conduct. Nor did it explain why it ultimately equated “considered” (in ) with “knew” (in ).
Finally, it would have been interesting to hear what the Court made of the application of s138 to investigations of corporate as opposed to individual misconduct, given that corporations do not enjoy a privilege against self-incrimination, and protection of that privilege is among the purposes of the section. I don’t believe this matter was considered in either The Good Guys or Apple.
While the considerations in s138 were ultimately weighed to favour admission of the ACCC investigator’s evidence in this case, the finding of impropriety will have very significant impacts for covert regulatory investigations, and make it likely that we will see the propriety of regulatory investigation techniques – not just covert investigation techniques – subjected to judicial scrutiny more regularly.
Proper particularisation of charges
You may recall (if you live in Melbourne) that there was a food poisoning incident at the Langham Hotel in late 2015: some egg mayonnaise at the hotel’s popular high tea buffet led to the hospitalisation of 16 customers.
The City of Melbourne charged the hotel operator, Southgate Management Pty Ltd (Southgate), with 49 charges under the Food Act 1984 (Vic). Southgate chose to make an application for all charges to be struck out as lacking proper particulars, and argued the informant should not be allowed to make any amendment to the impugned charges. It also decided not to seek further and better particulars.
Being unhappy with the Magistrate’s assessment that the vast majority of the charges were properly drafted, Southgate applied to the Supreme Court for orders, including an order in the nature of certiorari and a declaration that the Magistrate erred in finding that the charges complied with the Criminal Procedure Act 2009.
The Supreme Court dismissed the application: the charges were sufficiently particularised.
Some wins for ASIC, but its “new regulatory approaches” disappoint
The Federal Court has ruled that Westpac did indeed engage in unconscionable conduct, on four occasions, in ASIC’s BBSW civil penalty litigation . Many of ASIC’s claims were not ultimately made out, but it was nonetheless “ecstatic” with the result. Fair enough; it doesn’t often get good news, and this was a hard-fought case. What does surprise is Westpac’s unapologetic response to the judgment: it hasn’t indicated, so far as I can tell, any contrition for engaging in unconscionable conduct. Westpac was the only bank who challenged the allegations in court: NAB, ANZ, UBS, BNP Paribas and the Royal Bank of Scotland resolved their matters as Enforceable Undertakings, while CommBank has reached an in-principle agreement, still to be approved by the Federal Court. ASIC will also have been pleased with the $2M civil pecuniary penalty handed to Thorn Radio Rentals for contravening its responsible lending obligations.
New ASIC Chair James Shipton has conceded “there is a real need for the new regulatory approaches that I mentioned earlier.” What are those new approaches? Mr Shipton listed three.
The first, “Enforcement” was too vaguely described to really explain how ASIC’s current approach is likely to change; it intends to “accelerate and expand” its “Wealth Management Project”, but does that simply mean a higher number of the same sort of enforcement responses? Or an increase in certain types of enforcement responses?
The second, “Supervisory approaches” was only briefly sketched, but the ABC’s explanation, that “ASIC now wants to embed specialist supervisors inside some of Australia’s largest financial institutions to ensure they are complying with rules and regulations” is almost distressing. Regulatory capture, anyone?
Finally, Mr Shipton wants to encourage the adoption of “regtech solutions”. If anyone knows what he meant by “just think about the potential of near real-time and augmented human judgement supervision”, please let me know.
A snap-shot of regulatory responses to corporate crime around the world.
Education: Workplace Health and Safety Queensland is running a knife sharpening webinar for abbotoirs; Commerce Commission New Zealand has posted guidance on how to comply with the unfair contract terms provisions in NZ consumer law.
Warnings: the US Food and Drug Administration and the US Federal Trade Commission “issued 13 warning letters to manufacturers, distributors, and retailers for selling e-liquids used in e-cigarettes with labeling and/or advertising that cause them to resemble kid-friendly food products, such as juice boxes, candy or cookies, some of them with cartoon-like imagery.”
Injunctions: the US Food and Drug Administration has filed a complaint seeking orders to prevent certain companies from manufacturing and distributing “adulterated food”. The FDA alleges the defendants are “processing and distributing ready-to-eat fish and fishery products, vegetable salads, and cheese products in a facility with chronic insanitary conditions”
Enforceable Undertaking: ACCC accepted an EU from Fitbit to fix its statements about consumer guarantee rights.
“Corporate Integrity Agreement”: “Pfizer has also entered into a corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG). The five-year CIA requires, among other things, that Pfizer implement measures designed to ensure that arrangements and interactions with third-party patient assistance programs are compliant with the law…”
Licence cancelation: ASIC cancelled the Australian financial services licence of Wealth & Risk Management Pty Ltd
Ban: ASIC has banned Mr Luplau from providing financial services for five years.
Civil Pecuniary Penalty: “The Federal Court has ordered Optus Internet Pty Ltd (Optus) to pay penalties of $1.5 million for making misleading representations to customers about their transition from Optus’ HFC network to the National Broadband Network (NBN).”
Prosecution: Environment and Climate Change Canada: “On May 24, 2018, the Mosquito Grizzly Bear’s Head Lean Man First Nation and band administrator, Arnold Moosomin, were sentenced in the Provincial Court of Saskatchewan for failing to comply with an environmental protection compliance order”; and An ASIC prosecution of former Australian Bight Abalone’s CEO for providing false and misleading information to the board of directors and prospective investors has resulted in a three-and-a-half year sentence of imprisonment.