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  • L Higgins and S Pettigrove

Federal Court: Block Earner dodges the chopping block and ASIC criticised for misleading media release


In a closely anticipated decision, the Federal Court has absolved Block Earner from civil penalties arising from their centralised yield product, Earner, being found to be an unlicensed financial product.


ASIC commenced proceedings against Block Earner in November 2022 despite the Earner product already having been withdrawn, alleging that both the Earner and Access products (the latter being a DeFi pass-through yield product) were financial products offered without an Australian Financial Services Licence (AFSL). On 9 February 2024, the Federal Court ruled that the Access product was not a financial product, but the Earner product was, so between March and November 2022, Block Earner had offered unlicensed financial services and operated an unregistered managed investment scheme, being the Earner product. The parties were invited to make submissions on an appropriate penalty. ASIC sought $350,000 and Block Earner argued that it should be relieved from penalties by virtue of section 1317S of the Corporations Act 2001 (Cth) and in the alternative argued the penalty should be $60,000.


Section 1317S operates as a "safety net" for honest mistakes. If a person/entity contravenes a civil penalty provision of the Corporations Act, but is found to have acted honestly and fairly in the circumstances, a court has the power to excuse them from a penalty, despite there being a finding that the Corporations Act had been breached. This includes officers or employees of corporations who may have contravened rules but acted in good faith in doing so.


Brother of Hugh Jackman, His Honour Justice Jackman's decision dated 4 June 2024 found that Block Earner had not been "careless or imprudent" to any degree as it made a genuine attempt to comply with the requirements of the Corporations Act, despite ASIC's contentions to the contrary (at [12]).

The Court noted that Block Earner had formed an "unchallenged view", after obtaining legal advice from a leading specialist law firm, that there was no identified risk that the Earner product would breach any laws or regulations (at [14]).

Block Earner submitted that it effectively did the best that it could in an uncertain regulatory environment (at [17]-[19]), and the Court highlighted an extract from a recent Australian Law Reform Commission report which called:

the legislation governing Australia's financial services industry is a tangled mess

Block Earner had received adverse media coverage as a result of the 9 February 2024 decision that had affected its legitimate and lawful business. In particular, His Honour accepted a complaint by Block Earner that a media release published by ASIC the same day as the judgment, titled "Court finds Block Earner crypto product needs financial services licence", was unfair and misleading for reasons including that Block Earner did not "need" an AFSL as at 9 February 2024 as the Earner product had been withdrawn.


Block Earner gave evidence that ASIC's media release, and the news articles that took inspiration from the release, would likely have "devastating business and reputational consequences" for Block Earner, and the title of this media release has since been changed to use the past tense (at [20]-[27]).

His Honour accepted that Block Earner's active participation in policy discussions with key industry participants and regulators concerning crypto-asset products supported a finding that Block Earner had sought to conduct its business in a lawful manner (at [29]).


Despite ASIC's contention that there was no evidence that legal advice prepared for Block Earner was actually relied upon by it or specifically drafted in relation to its Earner product, His Honour found there was an "obvious inference" for which the legal advice was obtained (at [33]).

His Honour rejected a submission from ASIC that granting Block Earner relief from liability would send a message to the industry that it need not rigorously evaluate whether their offerings are regulated financial products and that the uncertainty inherent in a lay person's understanding of the Corporations Act may give rise to a successful defence by virtue of honesty and misapplication of complex laws (at [35]).


Instead, His Honour found that the contrary was likely true, and that the complexity and uncertainty of this area of law:

heightens the imperative that such [businesses] obtain legal advice from experienced and competent lawyers before launching their products and services (at [35])

This follows the principle that a person or business who:

  1. understands there is legal uncertainty in their proposed course of conduct, and

  2. takes the time to obtain legal advice from a qualified person, and

  3. then genuinely concludes that there is no identified risk of breaching the law,

ought fairly to be excused from liability if such proposed conduct happens to be a breach of a civil penalty provision (at [39]).

Despite the importance of the provisions breached by Block Earner (at [43]), His Honour found that Block Earner should be relieved from liability for a pecuniary penalty, and even if he was to not grant relief, no penalty would have been ordered (at [47]).


His Honour also needed to set a costs order and, in finding that ASIC had essentially won half of it's initial claim and lost half of it's initial claim, the parties were ordered to bear their own costs up to the date of the decision in February. ASIC was then ordered to pay Block Earner's costs after 9 February (including for the penalty hearing) and His Honour again called out ASIC's misleading media release as a factor in that decision, but also that he would have ordered costs against ASIC even disregarding the media release.


While the decision will likely be seen as supportive of the crypto industry, and highlight ways in which projects can seek to protect themselves when operating in an uncertain environment, it is better to not be the subject of litigation in the first place. The intricate and evolving nature of financial services laws and their application, particularly when it comes to emerging technologies like blockchain gives room for an approach like Justice Jackman's decision to waive Block Earner's potentially significant penalties, despite acknowledging the severity of its contraventions. This underscores the importance of obtaining early legal advice from qualified, specialist crypto lawyers before launching products or businesses.


The case also highlights that even in an uncertain regulatory environment like Australia, businesses must make a genuine attempt to comply with the requirements of the Corporations Act. If a business obtains legal advice and genuinely conclude that there is no identified risk of breaching certain laws, it may be excused from heavy fines if such conduct happens to breach a civil penalty provision.


By L Higgins, M Bacina, S Pettigrove

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