A great deal has already been written about the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Banking Royal Commission) and the scandals which emerged throughout. Commissioner Hayne’s ire (and that of the public and media) was felt by many, including the regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
In response to the criticism, ASIC has moved swiftly and decisively to set a fresh course particularly in relation to ASIC’s new “why not litigate?” enforcement stance. On the face of it, this new approach seems to be in line with community expectations of what the regulator should be doing. However, on closer consideration, the post-Hayne landscape may hold a new ethical and legal challenge for ASIC when it comes to balancing their new aggressive enforcement stance with their obligations as a model litigant.
Throughout the Banking Royal Commission, Commissioner Hayne was critical of the regulators, ASIC and APRA, and their apparent reluctance to pursue judicial remedies for misconduct, particularly, in the case of ASIC, its reluctance to pursue Court action against large financial institutions. Commissioner Hayne was evidently disappointed by ASIC’s reliance on non-judicial methods such as infringement notices and enforceable undertakings in dealing with misconduct. In his interim report, Commissioner Hayne noted that:
“When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done. The conduct regulator, ASIC, rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court.”
In the Final Report, Commissioner Hayne made several recommendations directed specifically at ASIC. Relevantly (for the purposes of this article), Commissioner Hayne recommended that ASIC should adopt an enforcement approach that:
ASIC’s response to Commissioner Hayne’s criticism was immediate and forceful. Indeed, almost immediately after the release of the interim report, ASIC publicly announced that it would embrace a “why not litigate?” approach to enforcement. ASIC committed to accelerating enforcement, conducting more civil and criminal court actions against larger financial institutions and, as a starting point for all enforcement matters, asking the question, “why not litigate?”. ASIC immediately set about implementing that strategy by obtaining increased funding from the government to accelerate enforcement outcomes and to establish a separate Office of Enforcement within ASIC which is expected to be up and running later this year.
The early indicators of the “why not litigate?” approach are already evident in ASIC’s recent enforcement update figures. In the year from February 2018 to February 2019, there was a 15% increase in the number of ASIC enforcement investigations and a 50% increase in ASIC enforcement investigations of misconduct in respect of the large financial institutions (or their employees or subsidiary companies). It seems that an increase in court proceedings commenced by ASIC will inevitably follow.
Whilst ASIC’s tougher enforcement approach post the Banking Royal Commission seems unavoidable, it does raise a potential ethical and legal conflict for the regulator. Particularly, how does ASIC balance its “why not litigate?” enforcement strategy with ASIC’s obligations as a Model Litigant?
One of the obligations imposed on governments at the Commonwealth and State levels through the Model Litigant Principles is particularly relevant to the approach taken by ASIC in the aftermath of the Banking Royal Commission. Particularly, as a Model Litigant both the Commonwealth and the State have obligations to use litigation effectively as a “last resort”.
For the Commonwealth, the statutory obligation to act as a Model Litigant includes an obligation to endeavour to avoid, prevent and limit the scope of legal proceedings wherever possible, including by giving consideration in all cases to alternative dispute resolution before initiating legal proceedings and by participating in alternative dispute resolution processes where appropriate. In Queensland, the State has a similar obligation under the Model Litigant Principles to endeavour to avoid litigation, until other means of resolving a dispute are exhausted or impractical.
How can the obligation to endeavour to avoid litigation, until other means of resolving a dispute are exhausted or impractical or, as the Honourable Justice Barker put it “where litigation is the only realistically available means of dispute resolution” be balanced with an assertive “why not litigate?” stance?
It is possible for ASIC to find a balance between the apparently conflicting positions of a litigious enforcement stance and the weighty obligations of a Model Litigant. In essence, “why not litigate?” (as the name itself implies) is merely a question to be asked; it is not an answer in and of itself. What this means practically is that the Model Litigant obligations must be a factor considered when ASIC (or any other government department in a similar position) asks the question, “why not litigate?”. If there is another means of resolution that is still open to ASIC then that may be the answer to ASIC’s question of why not to litigate at that time. That is, ASIC may answer the question “why not litigate” by deciding it is not appropriate at that time because other means of dispute resolution are still available and appropriate to pursue. As with most potential conflicts, this will be a difficult and fine line to walk. Legally and ethically, it is an important distinction which will likely not be in the contemplation of the public or the media watching ASIC’s next steps with critical eagerness.
However, importantly and reassuringly, this balance seems to be firmly in the contemplation of the ASIC Chair, James Shipton. When giving the opening address at the ASIC annual forum in May, Mr Shipton noted that,
“Last year, even before the Royal Commission issued its final report, ASIC adopted a ‘why not litigate?’ enforcement stance and publicly committed to that posture going forward. This is a very different concept to a ‘litigate first’ or ‘litigate everything’ strategy. […]
This means that once ASIC is satisfied breaches of the law are more likely than not, and the facts of the case show pursuing the matter would be in the public interest, then we will actively ask ourselves: ‘why not litigate’ this matter? (emphasis added).
Whilst a ‘litigate first’ or ‘litigate everything’ approach could not be ethically or even legally justified in the context of the government’s Model Litigant obligations, the “why not litigate?” approach can be if care is taken. When ASIC asks itself the “why not litigate” question, it will need to keep its obligations as a Model Litigant front of mind when deciding upon the answer to that question. As is often the case with ethical dilemmas, walking that tightrope will require conscious and tenacious vigilance.
The “why not litigate?” enforcement approach adopted by ASIC post the Banking Royal Commission will pose an ethical and legal challenge for ASIC in managing its obligations as a Model Litigant. However, by ensuring that ASIC considers its Model Litigant obligations when asking itself the “why not litigate” question, ASIC can find the right balance and avoid breaching its Model Litigant obligation to endeavour to avoid legal proceedings where appropriate.
The potential conflict which ASIC is currently facing is a timely reminder for all government in-house lawyers to keep ethical duties (and Model Litigant obligations) front of mind when advising on the implementation of policy.
 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Interim Report (September 2018) https://financialservices.royalcommission.gov.au/Documents/interim-report/interim-report-volume-1.pdf Vol 1 at xix.
 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Final Report (February 2019) https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-1-final-report.pdf
 Above, Vol 1 at 37.
 ASIC, ASIC update on implementation of Royal Commission recommendations(February 2019) https://download.asic.gov.au/media/5011933/asic-update-on-implementation-of-royal-commission-recommendations.pdf at 3 – 4.
 Above at 4.
 Legal Services Directions 2017 (Cth) at Appendix B (2)(d).
 Queensland Government, Model Litigant Principles (revised as at 4 October 2010) https://www.justice.qld.gov.au/justice-services/legal-services-coordination-unit/legal-service-directions-and-guidelines/model-litigant-principles
 Barker, Justice Michael, What Makes a Good Government Lawyer (FCA)  FedJSchol 26.
 ASIC, ASIC Annual Forum 2019 – ASIC Chair’s introductory comments (May 2019) https://asic.gov.au/about-asic/news-centre/speeches/asic-annual-forum-2019-asic-chairs-introductory-comments/