Record-breaking penalties to conclude the GetSwift saga

“To adapt the famous remark of Ted Heath, GetSwift Limited (in liquidation) (GetSwift), and those primarily responsible for its wrongful conduct, could be described as representing the unacceptable face of start-up capitalism.”¹

The Federal Court has delivered the largest ever penalty against a company for breaching continuous disclosure laws and engaging in misleading and deceptive conduct, ordering failed tech start-up, GetSwift, to pay a whopping AUD15 million penalty.²

But the Federal Court didn’t stop there, ordering two of the highest ever penalties against GetSwift’s former directors for corporate misconduct:

1. Bane Hunter (former director, CEO and executive chairman) was ordered to pay a penalty of AUD2 million and was disqualified from managing corporations for 15 years; and
2. Joel Macdonald (former director) was ordered to pay a penalty of AUD1 million and was disqualified from managing corporations for 12 years.³

Another former director, Brett Eagle, who was considered by His Honour Justice Michael Lee as “a significantly less important player”, was also fined AUD75,000 and banned from managing corporations for two years.⁴

The penalties ordered by the Federal Court on 16 February 2023 bring an end to a five-year investigation by ASIC and civil proceedings against GetSwift and its directors commenced in early 2019.

In a scathing 868 page judgment handed down in November 2021,⁵ Justice Lee found GetSwift and its directors had made numerous misleading announcements to the ASX (in breach of sections 1041H of the Corporations Act 2001 (Cth) (Corporations Act) and 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)) and that it had breached its continuous disclosure obligations on 22 occasions between February and December 2017 (in breach of s 674 of the Corporations Act).  The Court also found GetSwift’s former directors individually liable for their actions and omissions as all three were “knowingly involved” in the breaches of both the Corporations Act and ASIC Act.⁶    

GetSwift has been heavily criticised by the Court for its approach to market disclosure in its attempts to drive up the company’s share price by making inadequate or inaccurate announcements throughout 2017.  Justice Lee described GetSwift as a company that “became a market darling because it adopted an unlawful public-relations-driven approach to corporate disclosure instigated and driven by those wielding power within the company.”⁷

In response to the Federal Court sanctions, ASIC Deputy Chair Sarah Court said “Disclosure is critical to market integrity and consumer protection. The penalties imposed by the Court demonstrate the extent and seriousness of the misconduct in this matter and the importance placed by the Court on deterring others from engaging in similar behaviour. ASIC will continue to take action to hold companies and individuals to account for corporate misconduct of this kind.”⁸

 

Key Takeaways

Increased civil penalties for individuals and companies

The GetSwift decision was based on an old civil penalty regime.  Under the new penalty provisions, the maximum civil penalty for individuals is the greater of 5,000 penalty units (currently AUD1.11 million) or three times the benefit obtained and detriment avoided.

The maximum civil penalty for companies is the greater of:

• 50,000 penalty units (currently AUD11.1 million);
• three times the benefit obtained and detriment avoided; or
• 10% of annual turnover, capped at 2.5 million penalty units (currently AUD555 million).

The value of a penalty unit is prescribed by the Crimes Act 1914 (Cth) and is currently AUD275 for offences committed on or after 1 January 2023.

Justice Lee noted that “While the maximum penalties were increased on 13 March 2019, those new maximum penalties do not apply to the contraventions established in this matter by operation of s1657. The value of the penalty unit is that at the time of the contravention.”⁹

Discretionary powers

The Court’s power to order a person to pay a pecuniary penalty under s 1317G of the Corporations Act “is a discretionary one, which must be exercised judicially, congruently with the aims and purposes of the Act”.¹⁰

Justice Lee used his own discretion to determine the appropriate penalties for each of the GetSwift directors, ordering greater/lower penalties than those sought by ASIC.

Although ASIC made submissions that Mr Hunter’s contravening conduct was the most serious, ASIC sought the same penalty and period of disqualification for Mr Hunter and Mr Macdonald (namely a penalty of AUD1 million and a disqualification period of 12 years). Justice Lee found that “Mr Hunter’s more egregious conduct and parity demand a period of disqualification and penalty for Mr Hunter somewhat higher than contended for by ASIC.”¹¹ As such, Justice Lee ordered Mr Hunter to pay a penalty of AUD2 million, which was double that of Mr Macdonald’s penalty.

In respect of Mr Eagle, ASIC sought a penalty of AUD150,000 and a disqualification period of 4 years. Mr Eagle conceded that a pecuniary penalty should be imposed as a source of personal deterrence, however he argued that the amount was well outside the range for low to mid-level serious misconduct. Mr Eagle put on evidence and made submissions against an order of disqualification, for the reasons set out below:

• the disqualification order had already been inflicted due to the publicity of the proceeding;
• as a legal adviser in similar matters he is unlikely to engage in similar conduct in the future;
• the disqualification order is unnecessary, oppressive or out of proportion to the Court’s findings in respect of his contraventions (which are at the low end of the scale);
• the conduct was unusual or uncharacteristic;
• he was “neither a full-time non-executive director nor general counsel of GetSwift” but continued to practice as a solicitor through his own company, Eagle Corporate Advisers.
• he did not personally gain from his contraventions (or they were modest amounts);
• he previously had an unblemished record as a director of several Australian companies; and
• he cooperated with ASIC in its investigations.¹²

Justice Lee accepted Mr Eagle’s submissions and considered “the period sought by ASIC for disqualification to be excessive and the fine to be disproportionate to my findings as to Mr Eagle’s conduct, particularly relative to the conduct of those primarily responsible.”¹³ As such, Justice Lee ordered Mr Eagle to pay a penalty of AUD75,000 and to be disqualified for 2 years – in each instance half of what had been sought by ASIC.

The Court’s approach to the present case

In determining the appropriate penalties for each of GetSwift’s directors, Justice Lee had regard to a number of well-established principles (summarised in the table below). However, Justice Lee stresses that “The overriding need to focus on what is necessary for specific and general deterrence is the key”.¹⁴

Justice Lee says “As will be seen, given that the task before the Court is instinctive, I have fastened upon several aspects in each conclusion ultimately reached, focussed on deterrence as the touchstone and, in the end, having appropriate regard to totality. To my mind, this approach is apposite in the light of Pattinson, and is more faithful to that decision than a “checklist-like” analysis.”¹⁵ Justice Lee’s judgment then “deal[s] with disqualification and penalty together, traversing factors relevant to both enquiries”.¹⁶

Practice good governance

This case demonstrates the importance of directors implementing and abiding by good governance practices and guidelines in order to deter the kinds of corrupt actions that took place in the GetSwift saga.

In the wise words of Justice Lee, directors should ‘think twice about adopting a strategy to influence the company’s share price by the release of strategically placed ASX announcements which omit material information that the market requires to make informed decisions… A director’s continuous disclosure obligations are to be taken seriously.”

 

Legal principle	Bane Hunter (Second Defendant)	Joel Macdonald (Third Defendant)	Brett Eagle (Fourth Defendant)
Position and personal knowledge	Executive chairman and CEO of GetSwift [86] “ringleader” and “main draftsman behind the ASX announcements” [88] “he acted with knowledge and awareness of GetSwift’s continuous disclosure obligations and material company information”	Managing director of GetSwift [14] “ad idem with Mr Hunter about the importance of imparting good news to the market at opportune times and the significance of marking ASX announcements as price sensitive”	Solicitor, non-executive director and GetSwift’s general counsel [15] “somewhat on the outer” [140] “possessed actual knowledge of the matters giving rise to the contraventions” [133] “made at least some attempts to implement (among other things) some discipline in relation to ASX announcements”
The deliberateness of the contraventions	[74] “senior officers ignored the company’s continuous disclosure policy”		[142] “took a passive role”
Motivated by financial gain	[78] Mr Hunter earned a total of AUD1,791,328 of which 46% was “performance related”	[78] Mr Macdonald earned a total of AUD1,616,019 with 51% of his remuneration being “performance related”	[141] “Mr Eagle was a beneficiary of any increase in GetSwift’s share price”
Lack of co-operation and contrition	[7] ”has not returned to Australia to defend his position and did not appear at the penalty hearing.” [103] “In short, there is no basis to conclude other than Mr Hunter is unrepentant and lacks any insight into his conduct.”	[7] After initially appearing at a case management hearing, he did not attend the hearing to defend himself. [8] “After putting ASIC to proof in every aspect of its intricate case and requiring expenditure of vast public resources, neither Mr Hunter nor Mr Macdonald have shown the slightest degree of remorse or contrition, nor have they made any acknowledgment they behaved improperly.”	[144] "while Mr Eagle attended an examination at the request of ASIC on 13 June 2018, Mr Eagle did not make any admissions as to the contraventions alleged, nor any elements of any contravention (although he has engaged constructively with the litigation at the penalty phase…).” [148] “I do not consider he has yet achieved insight into his actions sufficient to exhibit real remorse and contrition”
The nature and extent of the contravening conduct	Mr Hunter: was knowingly involved in 16 of GetSwift’s 22 contraventions (and thereby contravened s 674(2A) of the Corporations Act); engaged in 29 contraventions of both s 1041H of the Corporations Act and s 12DA of the ASIC Act; and failed to exercise his powers and discharge his duties as a director with the degree of care and diligence required (and thereby contravened s 180(1) of the Corporations Act).	Mr Macdonald: was knowingly involved in 20 of GetSwift’s 22 contraventions of s 674; engaged in 33 contraventions of both s 1041H of the Corporations Act and s 12DA of the ASIC Act; and failed to exercise his powers and discharge his duties as a director with the degree of care and diligence required.	Mr Eagle: was knowingly involved in three of GetSwift’s 22 contraventions of s 674; and failed to exercise and discharge his duties as a director with the degree of care and diligence required.
	[73] “the contravening conduct had real life consequences for investing public, and materially prejudiced GetSwift’s members." [79] “The contraventions were serious, serial and at the heart of GetSwift’s culture.”
The need for deterrence	Yes, specific and general deterrence required	Yes, specific and general deterrence required	Yes, specific and general deterrence required
The amount of loss or damage caused	[73] “The ASX announcements played a pivotal role in engendering the expectations of investors as to how GetSwift’s business was performing: Liability Judgment (at [1260]). It clearly contributed to GetSwift attracting AUD99 million from investors in two share placements between July and December 2017: August Vardy Affidavit (at [45]–[47]). The creation of a false market has caused significant loss for many people who purchased securities. These third party losses are now apparently irrecoverable.”
The period of wrongful conduct	22 months	22 months	11 months
Continuing contravention (not an isolated event)	Yes	Yes	Yes
Wrongdoing was insidious (not discoverable upon inquiry by third party)	Yes	Yes	Yes
Propensity for offenders to reform or reoffend	[103] “Finally, although Mr Hunter is not presently in Australia and holds no directorships here, there is utility in the making of a disqualification order against him because he may return here.” [104] “He should not be in charge of the affairs of a company. A long period of disqualification is necessary.”	[112] “The nature of his breaches, the extent of the losses incurred, his lack of insight and remorse, and his suggestable character taken together will, in all the circumstances, require a lengthy period of disqualification, but not quite as long as Mr Hunter.”	[120] “As an experienced solicitor who advises clients on compliance and governance issues, Mr Eagle contends that he is cognisant of the Court’s findings and reasons, and accordingly, is objectively unlikely to engage in such contravening conduct in the future.”
Character of the offenders (including honesty and competence)	[94] “Mr Hunter is a man who is presently wholly unsuited to be in a position of responsibility in a public company.” [97] “Mr Hunter was not only a bully, but also someone who had a laser-like focus on making money for himself and Mr Macdonald. If that involved breaking the law regulating financial markets, or exposing GetSwift to third party liability, that was of little concern to him.”	[111] “[Mr Macdonald] was an active and eager participant. This conduct, plainly enough, demonstrates that Mr Macdonald has little understanding or regard for his legal obligations as a director, when they get in the way of pursuing a strategy to make money.”	[132] “While I accept Mr Eagle gave his evidence honestly, it had some troubling aspects. Three matters, to my mind, loom large in the evaluative assessment.” [133] “First…Mr Eagle failed to insist on fundamental changes to GetSwift’s operations and its corporate governance or, failing those changes being implemented, to resign.” [134] “Secondly…Mr Eagle did not fully grasp the harm that was occasioned on others, including shareholders and the broader public.” [137] “Thirdly… Mr Eagle did not speak up about the culture of bullying perpetuated by Mr Hunter and Mr Macdonald at GetSwift or do anything about it.”
Disqualification and penalty sought by ASIC	Penalty of AUD1 million Disqualification period of 12 years	Penalty of AUD1 million Disqualification period of 12 years	Penalty of AUD150,000 Disqualification period of 4 years
Orders	Penalty of AUD2 million Disqualification period of 15 years GetSwift and Messrs Hunter and Macdonald should be jointly and severally responsible for 92.5% of ASIC’s costs of and incidental to the penalty hearing.	Penalty of AUD1 million Disqualification period of 12 years GetSwift and Messrs Hunter and Macdonald should be jointly and severally responsible for 92.5% of ASIC’s costs of and incidental to the penalty hearing.	Penalty of AUD75,000 Disqualification period of 2 years Mr Eagle be required to pay 7.5% of ASIC’s costs of and incidental to the penalty hearing

 

 

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¹ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [1].
² Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Orders [2].
³ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Orders [3-6].
⁴ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Orders [7-8].
⁵ Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384.
⁶ Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384.
⁷ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [2].
⁸ ASIC Media Release, ‘23-029MR Federal Court sanctions Getswift with record continuous disclosure penalty’ dated 17 February 2023.
⁹ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [55].
¹⁰ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [38].
¹¹ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [84].
¹² Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [119-130].
¹³ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [145].
¹⁴ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [40].
¹⁵ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [66].
¹⁶ Australian Securities and Investments Commission v GetSwift Limited (Penalty Hearing) [2023] FCA 100, Reasons for Judgment [84].