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Focus: New guidance from ASIC on its intervention in private proceedings and disclosure of documents

8 July 2013

In brief: The Australian Securities and Investments Commission has released guidance on its approach to involvement in private court proceedings, and on providing information and documents to private litigants. Partner Michael Schoenberg (view CV), Senior Associate Joel Phibbs and Lawyer Stuart Packham examine how this recent guidance is likely to impact on companies and individuals that are subject to ASIC investigations and enforcement actions.

How does it affect you?

  • The Australian Securities and Investments Commission (ASIC) will consider alternative, more cost-effective measures (such as early prevention and detection of wrongdoing) in the exercise of its enforcement powers, before turning to litigation.1
  • It is likely that the number of applications made by private litigants under section 25 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), for copies of documents ASIC has obtained in the course of its investigations, will increase.
  • Companies and individuals should be aware of their rights to object and make submissions (if necessary) where ASIC is likely to disclose sensitive documents to private litigants.2

ASIC's approach towards legal action

ASIC recognises that three kinds of legal action can promote its objectives:

  • First, it can undertake direct enforcement action. In doing so, ASIC has various enforcement tools available to it. These include punitive action (seeking a remedy to punish a person or entity in response to misconduct); protective action (seeking a remedy to protect investors and financial consumers); preservative action (seeking a remedy to preserve assets); corrective action (seeking a remedy to correct a disclosure); and compensation action (beginning a representative action to recover damages or property for persons who have suffered loss).
  • Second, in promoting its objectives, ASIC may intervene in private court proceedings, either directly as a party, in the name of a party, or as amicus curiae ('friend of the court').
  • Third, ASIC is able to indirectly support private court proceedings by assisting claimants to enforce their rights.

ASIC recently released Information Sheets 180 and 181 in relation to the second and third points above. The Information Sheets provide guidance on ASIC's approach to involvement in private court proceedings, and to the provision of information and documents to private litigants respectively.

ASIC Information Sheet 180

ASIC's powers

As noted above, ASIC has broad-ranging enforcement and regulatory powers. In relation to private court proceedings, it can, for example, seek to intervene under the Corporations Act 2001 (Cth), seek an injunction or a declaration of wrongdoing, and pursue civil and criminal action. It can also take action in the name of companies (without consent) or individuals (with written consent) under s50 of the ASIC Act (see, for instance, the recent Westpoint, Storm and Opes Prime proceedings).

ASIC's guidance on how these powers will be exercised

On 25 June 2013, ASIC released Information Sheet 180, entitled 'ASIC's approach to involvement in private court proceedings'. It sets out general information and ASIC's approach towards intervention as a party; when it may become involved in litigation as amicus curiae; and the circumstances in which it may begin or continue litigation on behalf of a company or individual under s50 of the ASIC Act.

How ASIC decides to take action

In determining whether to commence proceedings for compensation, like those brought in recent years under s50 of the ASIC Act, Information Sheet 180 states that ASIC will consider whether:

  • intervention is of strategic regulatory significance;
  • the benefits of intervention outweigh the costs of doing so;
  • issues specific to the case warrant intervention; and
  • alternatives are available, including appearing as amicus curiae or taking action itself.
Commentary

Information Sheet 180 follows a recent trend of ASIC's towards greater transparency in how it exercises its powers. ASIC's approach in recent times has seen an increase in the use of enforceable undertakings, cooperation with business, and an emphasis on preventative measures outside of litigation. The aspect of cost is also important: Information Sheet 180 specifically contemplates that ASIC will consider its 'finite resources' in determining whether to take any kind of enforcement action. We consider that Information Sheet 180 does not so much signal a change in approach towards enforcement action but a further contribution to what appears to be a more cooperative, conciliatory and transparent attitude towards corporate regulation. It is important to note, however, that Information Sheet 180 does not bind ASIC to any particular approach; and, in any event, the thresholds it needs to satisfy before it takes action are not significant.

ASIC Information Sheet 181

ASIC's powers to provide information

Under s25(1) of the ASIC Act, ASIC may release transcripts of examinations conducted under s19 of the ASIC Act. ASIC may also release 'related books', being documents directly or indirectly referred to in the record of examination.3 It should also be noted that 'related books' may be gathered by ASIC compulsorily under Part 3 of the ASIC Act and may not otherwise have been available to a civil litigant in the discovery process.

ASIC's guidance on how these powers will be exercised

On 25 June 2013, ASIC released Information Sheet 181, entitled 'Providing information and documents to private litigants'. It addresses the provision of information and documents to private litigants, including by way of requests made under s25 of the ASIC Act, subpoenas or notices to produce and via orders for non-party discovery from ASIC.

The release of information

ASIC imposes a number of restrictions on its release of transcripts and related books,4 and is also required to take reasonable measures to prevent unauthorised use and disclosure of information it receives in confidence in connection with its statutory functions.5 In determining whether to provide transcripts of examinations to a person, ASIC will consider whether:

  • it is satisfied that the person seeking the transcripts is commencing a proceeding (or has commenced a proceeding);
  • it is satisfied that the proceeding relates to a matter to which ASIC's examination relates;
  • an ASIC investigation or enforcement action would be jeopardised by the release of the transcripts; and
  • other people may be adversely affected by the release of the transcripts or related books.

Parties who may be materially affected by the disclosure of information also have a right to be heard on whether that information should be released.

ASIC may also release compulsorily acquired books to third parties for use by them in proceedings. In making a decision about release, ASIC considers how it obtained the books; whether the books are proposed to be used in a proceedings; and what conditions, if any, should be imposed on the release of the books.

Commentary

Information Guide 181 does not appear to signal a change in ASIC's approach. It refers back to previously released Information Guides and sets out very little that has not been made clear previously. What is noteworthy about this release is that it:

  • comes at a time when private litigation funding has become much easier to obtain and class actions against financial services providers are likely to rise (please see our Focus: FOFA Day One: Increased Litigation Risks for Financial Advisers?; and
  • is contemporaneous with the release of Information Guide 180, which (as discussed above) suggests that ASIC intends to consider other, more cost-effective, preventative measures before engaging in costly litigation.

The combination of the above factors suggests that ASIC appears to be readying itself for the potential increase in the number of applications under s25 of the ASIC Act. The adoption of a more cost-effective and cooperative approach also suggests that ASIC may be more willing to provide transcripts and related books to private litigants under s25 of the ASIC Act, as part of its enforcement strategy. ASIC must, nevertheless, comply with its confidentiality obligations and must observe procedural fairness in the release of any such documentation. This will be an interesting balancing act that will be watched closely.

Conclusion

Private litigants are now on notice about how, and when, ASIC will commence or intervene in private litigation. ASIC has also highlighted the mechanisms by which private litigants might obtain access to documents that ASIC holds to assist them in pursuing litigation privately. Companies should be alert to the need to make objections and submissions (if necessary) where potentially sensitive documents could be disclosed by ASIC to private litigants. In order to manage the risks of the release of sensitive and privileged material, you should seek early guidance on disclosures and productions to ASIC during investigations, as well as on exercising your rights to object and to make submissions to ASIC before ASIC produces documents to third parties.

 
Footnotes
  1. ASIC, ASIC's approach to involvement in private court proceedings, June 2013. 
  2. ASIC, Providing information and documents to private litigants, June 2013.  
  3. See Regulatory Guide 103: Confidentiality and Release of Information.  
  4. Ibid.
  5. ASIC Act, s127(1).


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