Out of time for crime the Full Federal Courts decision in Walker v Members Equity Bank Limited

What you need to know

• The Full Court of the Federal Court of Australia recently confirmed that criminal prosecutions of false or misleading conduct offences under the ASIC Act must be commenced within three years of alleged commission of the offence:  Walker v Members Equity Bank Ltd [2022] FCAFC 184.
• The Full Court upheld Mortimer J's decision at first instance by construing the limitation period in section 12GB(6) of the ASIC Act as a "hard" limitation period, as opposed to a "facultative or permissive" limitation (as argued by the Commonwealth Director of Public Prosecutions).
• Where the three year time limitation for criminal prosecutions has passed, ASIC may still pursue companies and individuals for potential false or misleading representations by seeking civil penalties within six years of the contravention occurring.

What you need to do

• Companies and individuals who have potentially contravened sections 12DB to 12DN of the ASIC Act (broadly, these provisions are consumer protection provisions dealing with false or misleading conduct in connection with financial services) may face accelerated investigation and enforcement by ASIC, to the extent it wishes to preserve the option of a criminal prosecution for misconduct.

Factual background

Members Equity Bank Limited (ME Bank) is an authorised deposit-taking institution that, among other things, provides banking and financial services to retail customers.  ME Bank holds an Australian Credit Licence and an Australian Financial Services Licence.

Between March 2015 and March 2018, ME Bank provided home loans to its customers by entering into credit contracts.  ME Bank offered various introductory repayment arrangements (Introductory Offers) to customers during this period.  

Each customer of ME Bank who took out a loan in this period received a letter of offer containing the details of their credit contract, including details of any relevant Introductory Offers.  

When a customer's Introductory Offer was due to expire, ME Bank sent the customer an "expiry letter" advising the customer of their new interest rate and repayment amount, and the date this would come into effect (Expiry Letter).  ME Bank also offered fixed-rate customers the opportunity to re-fix their existing rate for a further period rather than opting for the variable rate which would otherwise take effect. 

In May 2021, the Commonwealth Director of Public Prosecutions (CDPP) brought criminal charges against ME Bank in the Federal Court of Australia, alleging, among other things, that the Expiry Letters sent to customers contained incorrect rates and minimum repayment amounts. The CDPP alleged that providing these incorrect details to customers involved false or misleading representations with respect to the price of the services, in contravention of section 12DB(1) of the ASIC Act.

Issues under consideration

First instance decision

At first instance, ME Bank successfully argued that the majority of the conduct which was alleged to have contravened section 12DB(1) occurred more than three years prior to the date that criminal proceedings were commenced, with the result that those allegations were time-barred by the three-year limitation period set by section 12GB(6) of the ASIC Act. 

Section 12GB(6) of the ASIC Act is in the following terms:

"A prosecution for an offence against subsection (1) may be commenced within 3 years after the commission of the offence."

Her Honour Justice Mortimer rejected the CDPP's arguments that section 12GB(6) was "facultative" (in the sense that it only imposes a three-year limitation period in circumstances where some other statutory provision would otherwise impose a shorter limitation period, but did not impose any limitation period if the period that otherwise applied was longer than three years). She also rejected the CDPP's argument that section 12GB(6) was "permissive" because the word "may" conferred upon the prosecutor a discretion to commence proceedings or not within a three-year period.  Rather, her Honour held that section 12GB(6) "imposes a fixed outer time limit within which any criminal prosecution for contraventions of [sections 12DB to 12DN of the ASIC Act] must be brought".

Full Federal Court's decision on appeal

The CDPP appealed, pressing its argument that section 12GB(6) was 'facultative' or 'permissive'. In a unanimous judgment, the Full Court held that the trial judge was correct to interpret section 12GB(6) of the ASIC Act as imposing a "hard" three year limitation period for prosecutions of offences under sections 12DB to 12DN of the ASIC Act.  

In reaching its decision, the Full Court considered:

• The words of the statutory text. The Full Court rejected the "facultative" and "permissive" construction of section 12GB(6) contended for by the CDPP on the basis that to adopt it would "denude [the limitation period] of any real meaning or utility" as it would amount to little more than a legislative suggestion which a prosecutor could choose to ignore.  The Court found that the use of the word "may" was directed to the decision to prosecute, in the sense that the CDPP is not required to prosecute any and all instances of contraventions of sections 12DB to 12DN which fell within the limitation period.  It was not the case that the word "may" conferred on the prosecutor a discretion to prosecute outside of the limitation period.
• The legislative history of section 12GB of the ASIC Act: The Court accepted that section 12GB(6) of the ASIC Act had its origins in section 79(6) of the Trade Practices Act 1974 (Cth) (TPA).  Section 79(6) was intended to extend the one year limitation period that was, at the time, otherwise applicable by reason of section 21(1)(c) of the Crimes Act 1914 (Cth) (Crimes Act).  However, there was nothing in the text of the predecessor legislation, in its context or relevant materials which was suggestive of a legislative intention that the limitation period created by section 79(6) of the TPA would only ever apply in circumstances where a shorter limitation period would otherwise apply.
• The purpose of section 12GB of the ASIC Act. The Court did not accept submissions from the CDPP to the effect that section 12GB(6) should be construed broadly because the underlying object of the ASIC Act was consumer protection, or because Part 2 of the ASIC Act was remedial or beneficial legislation.  The Court found that section 12GB of the ASIC Act could reasonably be seen to be a provision which strikes a balance between the competing interests of facilitating prosecutions in respect of contraventions of the ASIC Act, and the interests of persons suspected of contravening the ASIC Act being investigated and prosecuted in a timely fashion. The Court emphasised the need to construe the specific provision rather than relying on the general legislative purpose of the broader Act.

Implications of the decision

Both ASIC and the CDPP will be under greater pressure to investigate and bring charges within the three year timeframe confirmed by the Full Court's decision, where they consider accused persons or corporations to be criminally liable and criminal prosecution warranted.

Businesses could expect to see:

• that ASIC may investigate more rapidly, and impose shorter, less flexible deadlines for responding to notices, where criminal contraventions of sections 12DB to 12DN of the ASIC Act are suspected.  In such cases, ASIC may seek to conclude its investigation, and make recommendations to the CDPP promptly, to allow the latter adequate time to consider whether to file criminal charges before the three year time limitation period has passed;
• a heightened emphasis on compliance with breach reporting requirements applicable to holders of Australian Credit or Financial Services licenses under sections 912DAA and 912DAB of the Corporations Act 2001 (Cth).  As the three year time limitation applicable to contraventions of sections 12DB to 12DN of the ASIC Act commences when the contravention occurred, any delays to reporting potential contraventions of those provisions (that are also 'reportable situations' for breach reporting purposes) would effectively reduce the time  ASIC has to investigate reported  matters and make recommendations to the CDPP.

Authors: Rani John, Partner; Peter Richard, Counsel; and Johnny Nguyen, Lawyer.