Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2)

[2022] FCA 786

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] FCA 786

File number:

NSD 1447 of 2019

Judgment of:

ABRAHAM J

Date of judgment:

8 July 2022

Catchwords:

CONFLICTED REMUNERATION – alleged contraventions of ss 963E, 963F and 963J of the Corporations Act 2001 (Cth) by the first and second defendants – where agents participated in certain sales incentives – whether benefits received by agents pursuant to certain sales incentives were conflicted remuneration within the meaning of s 963A – where benefits received were non-monetary benefits – where agents provided financial product advice within the meaning of s 766B(1) –– where benefits received could reasonably be expected to influence the financial product advice given – whether the volume-based presumption in s 963L applies – where the first defendant contravened s 963E when each of its agents accepted the conflicted remuneration and it was the responsible licensee – where the first defendant failed to take reasonable steps to ensure that agents did not accept the conflicted remuneration contrary to s 963F – where the second defendant contravened s 963J by giving each of the agents the conflicted remuneration – contraventions established

CONSUMER LAW – financial services – sale of insurance products – sales and retention conduct – whether agents engaged in misleading or deceptive conduct contrary to s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) – whether false and/or misleading statements were made contrary to s 12DB(1) of the ASIC Act – whether agents engaged in unconscionable conduct contrary to s 12CB(1) of the ASIC Act – whether agents’ conduct was unduly harassing or coercive contrary to s 12DJ(1) of the ASIC Act – consideration of meaning of coercion in context of s 12DJ(1) of the ASIC Act – where consumers were vulnerable and/or in a weaker bargaining position – where most pleaded contraventions are established

BANKING AND FINANCIAL INSTITUTIONS – sale of insurance products to retail clients – meaning of financial product advice – consideration of s 766B(1) of the Corporations Act – where the first defendant is the holder of an Australian Financial Services License (AFSL) – alleged contraventions of ss 912A(1)(a) and 912A(1)(c) by the first defendant – whether the first defendant, through use of its ‘Refer a Friend’ program, failed to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly contrary to s 912A(1)(a) – whether the first defendant, by contravening ss 963E and 963F, failed to comply with the financial services laws in Pt 7.7A Div 4 of the Corporations Act contrary to s 912A(1)(c) – whether the first defendant, by contravening ss 12DA(1), 12DB(1), 12DJ(1) and 12CB(1) of the ASIC Act, failed to comply with the financial services laws contrary to s 912A(1)(c) – contraventions of ss 912A(1)(a) and 912A(1)(c) established

DIRECTOR’S DUTIES – alleged contraventions by the fourth defendant of his duty of care and diligence in s 180(1) of the Corporations Act owed to the first and second defendants – whether the fourth defendant failed to take reasonable steps to prevent the first and second defendants from engaging in contraventions of ss 963E, 963F and 963J of the Corporations Act – where there was a foreseeable risk that the giving and accepting of conflicted remuneration would expose the first and second defendants to harm – breach of s 180(1) established

CORPORATIONS – attribution of conduct of directors, employees or agents under s 12GH of the ASIC Act – consideration of role of Retention Agents – accessorial liability – whether the fourth defendant was knowingly involved under s 79 of the Corporations Act in contraventions by the first and second defendants of ss 912A(1)(a) and 912A(1)(c) and ss 963E, 963F and 963J – accessorial liability established

EVIDENCE – whether certain statements are properly characterised as admissions – where admissions were made by persons in examinations under s 19 of the ASIC Act and before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – failure by the defendants to call evidence from certain witnesses – whether Jones v Dunkel inferences can be drawn 

Legislation:

Australian Securities and Investments Commission Act 2001 (Cth)

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth)

Corporations Amendment (Future of Financial Advice) Act 2012 (Cth)

Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 (Cth)

Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth)

Evidence Act 1995 (Cth)

Insurance Contracts Act 1984 (Cth)

Royal Commissions Act 1902 (Cth)

Trades Practices Act 1974 (Cth)

Cases cited:

Adams v Director of the Fair Work Building Industry Inspectorate [2017] FCAFC 228; (2017) 258 FCR 257

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; (2009) 239 CLR 27

Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465

Allianz Australia Insurance Limited v Delor Vue Apartments CTS 39788 [2021] FCAFC 121; (2021) 396 ALR 27

Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Australia) Pty Ltd (No 5) [2012] FCA 908

Australian Competition and Consumer Commission v Accounts Control Management Services Pty Ltd [2012] FCA 1164

Australian Competition and Consumer Commission v ACM Group Ltd (No 2) [2018] FCA 1115

Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 3) [2019] FCA 1982

Australian Competition and Consumer Commission v Birubi Art Pty Ltd [2018] FCA 1595

Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; (2014) 317 ALR 73

Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17

Australian Competition and Consumer Commissionv Keshow [2005] FCA 558

Australian Competition and Consumer Commission v Maritime Union of Australia [2001] FCA 1549; (2001) 114 FCR 472

Australian Competition and Consumer Commission v McCaskey [2000] FCA 1037; (2000) 104 FCR 8

Australian Competition and Consumer Commission v Panthera [2020] FCA 340; (2020) 143 ACSR 486

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40; (2021) 388 ALR 577

Australian Competition and Consumer Commission v Radio Rentals Ltd [2005] FCA 1133; (2005) 146 FCR 292

Australian Competition and Consumer Commission v Safety CompliancePty Ltd [2015] FCA 211

Australian Competition and Consumer Commission v Telstra Corporation Ltd [2021] FCA 502; (2021) 392 ALR 614

Australian Competition and Consumer Commission v Ultra Tune Australia Pty Ltd [2019] FCA 12

Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253

Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) [2020] FCA 208; (2020) 275 FCR 57

Australian Securities and Investments Commission v Avestra Asset Management Limited (in liq) [2017] FCA 497; (2017) 348 ALR 525

Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (in liq) [2012] FCA 414; (2012) 88 ACSR 206

Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209

Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020] FCA 790

Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932; (2019) 140 ACSR 561

Australian Securities and Investments Commission v Forex Capital Trading Pty Ltd [2021] FCA 570

Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291

Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1

Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373

Australian Securities and Investments Commission v MLC Nominees Pty Ltd [2020] FCA 1306; (2020) 147 ACSR 266

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1

Australian Securities and Investments Commission v Warrenmang Limited [2007] FCA 973

Australian Securities and Investments Commission v Westpac Banking Corporation [2022] FCA 515

Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) [2018] FCA 751; (2018) 266 FCR 147

Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187; (2019) 272 FCR 187

Banque Commerciale S.A., En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

Barton v Armstrong [1976] AC 104

Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142

Briginshawv Briginshaw [1938] HCA 34; (1938) 60 CLR 336

Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304

Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447

Commonwealth Bank of Australia v Kojic [2016] FCAFC 186; (2016) 249 FCR 421

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission [2007] FCAFC 132; (2007) 162 FCR 46

Construction, Forestry, Mining and Energy Union v Australian Building and Construction Commissioner [2017] FCAFC 77; (2017) 251 FCR 528

Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40

Cribb v Kingsbury (No 2) [2021] FCA 1397

EZY Accounting 123 Pty Ltd v Fair Work Ombudsman [2018] FCAFC 134; (2018) 360 ALR 261

Fair Work Ombudsman v Devine Marine Group Pty Ltd [2014] FCA 1365

Gore v Australian Securities and Investments Commission [2017] FCAFC 13; (2017) 249 FCR 167

Hodges v Webb [1920] 2 Ch 70

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

JWR Productions Australia Pty Ltd v Duncan-Watt (No 2) [2020] FCA 236; (2020) 377 ALR 467

Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361

Lisciandro v Official Trustee in Bankruptcy [1995] ATPR 41-436

Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 510

Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union; Minister for Jobs and Industrial Relations v Automotive, Food,Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29; (2020) 381 ALR 601

NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270

Paciocco v Australian and New Zealand Banking Group Ltd [2015] FCAFC 50; (2015) 236 FCR 199

Paciocco v Australian and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525

Perpetual Trustee Company Ltd v Burniston (No 2) [2012] WASC 383; (2012) 271 FLR 122

Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2016] FCAFC 78; (2016) 250 FCR 136

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355

Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; (2003) 216 CLR 53

South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; (2000) 177 ALR 611

Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 96 ALJR 271

SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 262 CLR 362

Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177

Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354: (2019) 370 ALR 191

Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85

Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389

Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155; (2018) 266 FCR 631

Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366

Walplan Pty Ltd v Wallace (1985) 8 FCR 27

Westpac Banking Corporation v Cockerill (1998) 152 ALR 267

Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3; (2021) 270 CLR 118

Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661

Division:

General Division

Registry:

New South Wales

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Number of paragraphs:

1399

Date of hearing:

31 May 2021, 1-4 June 2021, 7-9 June and 11 June 2021

Counsel for the Plaintiff:

Ms N Sharp QC with Ms G Walker, Ms P Abdiel, Ms K Grenfell and Ms M Caristo

Solicitor for the Plaintiff:

Australian Securities and Investments Commission

Counsel for the Defendants: 

Mr A Cheshire SC with Mr S Jayasuriya

Solicitor for the Defendants:

Kardos Scanlan

ORDERS

NSD 1447 of 2019

BETWEEN:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISION

Plaintiff

AND:

SELECT AFSL PTY LTD (ACN 151 931 618)

First Defendant

BLUEINC SERVICES PTY LTD (ACN 109 789 077)

Second Defendant

INSURANCE MARKETING SERVICES PTY LTD (ACN 160 307 979) (and another named in the Schedule)

Third Defendant

ORDER MADE BY:	ABRAHAM J
DATE OF ORDER:	8 JULY 2022

THE COURT ORDERS THAT:

1.The parties are to confer and provide draft orders to chambers (within a timeframe to be agreed between the parties and the Court):

(a)giving effect to these reasons for judgment in Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] FCA 786; and

(b)providing for a timetable progressing this matter to hearing on penalty.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

TABLE OF CONTENTS

Factual Background	[11]
Let’s Insure and FlexiSure products	[26]
Attribution of Call Centre conduct	[32]
Relevant legal principles	[40]
Submissions	[48]
ASIC’s submissions	[48]
Corporate Defendants’ submissions	[49]
ASIC’s reply	[55]
Financial product advice	[57]
Consideration	[61]
Evidence	[84]
ASIC’s evidence	[85]
Patrick Hoey’s evidence	[90]
Dr Diana Eades’ evidence	[110]
Defendants’ evidence	[121]
Jones v Dunkel	[123]
Preliminary observations	[138]
The number of claims	[139]
The pleadings	[141]
Conflicted Remuneration Contraventions	[148]
The Incentives	[152]
Gold Coast Cruise	[152]
Vespa Scooter	[162]
Las Vegas Trip	[174]
Hawaii Trip	[182]
Quality Assurance	[193]
Whether the Incentives are conflicted remuneration, and if so, whether there were contraventions of the conflicted remuneration provisions	[207]
Legal principles and consideration	[208]
Corporate Defendants	[238]
Accessorial liability of Mr Howden	[244]
Consumer Contraventions	[252]
Legal principles	[255]
False or misleading representations and misleading or deceptive conduct: ss 12DB(1) and 12DA(1)	[255]
Statutory unconscionability: s 12CB(1)	[266]
Coercion: s 12DJ(1)	[282]
Undue harassment: s 12DJ(1)	[288]
Consideration	[293]
The Consumers	[399]
Kathy Marika	[400]
Evidence of Ms Marika	[407]
Sales conduct	[422]
Admissions	[443]
False and/or misleading representations	[454]
Unconscionability (Sales conduct)	[471]
Coercion (Sales conduct)	[472]
Retention conduct	[479]
Undue harassment (Retention conduct)	[484]
Unconscionability (Retention conduct)	[489]
David Mirrawana	[498]
Evidence of Mr Mirrawana and Ms Armstrong	[504]
Sales conduct	[515]
Unconscionability (Sales conduct)	[541]
False and/or misleading representations	[543]
Coercion (Sales conduct)	[554]
Undue harassment (Retention conduct)	[559]
Jennifer Yalumul	[566]
Evidence of Ms Yalumul	[574]
Sales conduct	[578]
False and/or misleading representations	[592]
Unconscionability (Sales conduct)	[597]
Coercion (Sales conduct)	[605]
Retention conduct	[610]
Unconscionability (Retention conduct)	[628]
Coercion (Retention conduct)	[636]
Zondani Mtawale	[640]
Evidence of Mr Mtawale	[646]
Sales conduct	[651]
False and/or misleading representations	[678]
Unconscionability	[698]
Coercion	[707]
Teubiti Tapera	[714]
Evidence of Mr Tapera	[720]
Sales conduct	[725]
Admission	[740]
False and/or misleading representations	[744]
Unconscionability	[746]
Coercion	[760]
Dawnetta Yeatman	[768]
Evidence of Ms Yeatman	[773]
Sales conduct	[778]
Admission	[790]
False and/or misleading representations	[793]
Unconscionability (Sales conduct)	[799]
Coercion (Sales conduct)	[810]
Undue harassment (Retention conduct)	[816]
Josephine Shadforth	[828]
Evidence of Ms Shadforth	[834]
Admission	[841]
Sales conduct	[844]
Retention conduct	[855]
False and/or misleading representations	[866]
Misleading and deceptive conduct	[871]
Unconscionability (Sales conduct)	[881]
Coercion (Sales conduct)	[896]
Undue harassment (Retention conduct)	[903]
Unconscionability (Retention conduct)	[911]
Georgina Gaykamangu	[917]
Evidence of Ms Gaykamangu	[922]
Sales conduct	[929]
Admissions	[939]
False and/or misleading representations	[943]
Unconscionability	[948]
Coercion	[949]
Geraldine Campbell	[956]
Evidence of Ms Campbell	[961]
Sales conduct	[968]
Unconscionability	[972]
Coercion	[980]
Edmund Nundhirribala	[985]
Evidence of Mr Nundhirribala	[990]
Sales conduct	[995]
Admissions	[999]
False and/or misleading representations	[1005]
Unconscionability	[1009]
Coercion	[1015]
Irshad Hussain	[1021]
Evidence of Irshad Hussain and Saeed Hussain	[1026]
Sales conduct	[1034]
Admissions	[1044]
False and/or misleading representations (Sales conduct)	[1048]
Unconscionability (Sales conduct)	[1054]
Retention conduct	[1068]
False and/or misleading representations (Retention conduct)	[1072]
Undue harassment (Retention conduct)	[1077]
Unconscionability (Retention conduct)	[1078]
Freddie Lewis	[1088]
Evidence of Mr Lewis	[1093]
Sales conduct	[1100]
Misleading and/or deceptive conduct	[1107]
Unconscionability (Sales conduct)	[1121]
Coercion (Sales conduct)	[1131]
Retention conduct	[1137]
Undue harassment (Retention conduct)	[1143]
Unconscionability (Retention conduct)	[1146]
Cynthia Mirniyowan and Derek Wurrawilya	[1157]
Evidence of Ms Mirniyowan and Mr Wurrawilya	[1163]
Sales conduct	[1176]
Admission	[1186]
False and/or misleading representations	[1189]
Unconscionability (Sales conduct)	[1201]
Coercion (Sales conduct)	[1202]
Retention conduct	[1212]
Undue harassment (Retention conduct)	[1224]
Unconscionability (Retention conduct)	[1231]
Deepak Shrestha	[1236]
Evidence of Mr Shrestha	[1241]
Sales conduct	[1246]
False and/or misleading representations	[1264]
Unconscionability (Sales conduct)	[1268]
Coercion (Sales conduct)	[1273]
AFSL General Obligations Contraventions	[1277]
Section 912A(1)(a)	[1279]
Legal principles	[1281]
Consideration	[1286]
Accessorial liability of Mr Howden	[1337]
Section 912A(1)(c)	[1357]
Directors’ Duties Contraventions	[1363]
Legal principles	[1365]
Consideration	[1370]
Conclusion	[1399]

REASONS FOR JUDGMENT

ABRAHAM J:

1. In summary, the Australian Securities & Investments Commission (ASIC) alleges that during 1 February 2015 to 19 March 2018 (the relevant period), Select AFSL Pty Ltd (the first defendant or Select), held an Australian Financial Services Licence (AFSL) and through its trading names “Let’s Insure” and “FlexiSure” sold a range of insurance products. Through various contractual and financial arrangements, Select sub-contracted many of its sales and retention responsibilities to BlueInc Services Pty Ltd (the second defendant or BlueInc Services) and Insurance Marketing Services Pty Ltd (the third defendant or IMS), which in turn employed or contracted Sales Agents and Retention Agents, who at all relevant times were agents of Select. Mr Russell Howden (the fourth defendant) is the sole director, secretary and managing director of Select, BlueInc Services and IMS (together, the Corporate Defendants). The Corporate Defendants are all ultimately 100% owned by BlueInc Group Pty Ltd (BlueInc Group) (with Mr Howden also being its sole director and secretary), which in turn is 100% owned by Howden Family Holdings Pty Ltd (Howden Family Holdings). Mr Howden and his wife are the ultimate beneficiaries of that trust.

2. There are four components to ASIC’s claim.

3. First, alleged conflicted remuneration contraventions contrary to ss 963E, 963F and 963J of the Corporations Act 2001 (Cth) by Select and BlueInc Services by reason of four non-monetary benefits, being the Gold Coast cruise (the Cruise Incentive), the Vespa scooter (the Vespa Incentive), the Las Vegas Trip (the Las Vegas incentive) and the Hawaii Trip (the Hawaii Incentive), which were offered and provided to Sales Agents to incentivise them to sell products (collectively, the Incentives; each, an Incentive) (the Conflicted Remuneration Contraventions). It is alleged that BlueInc Services provided non-monetary benefits to its employees in contravention of s 963J, and that Select contravened s 963E when its Sales Agents accepted the conflicted remuneration. Select also allegedly contravened s 963F as it failed to take reasonable steps to ensure that the Sales Agents did not accept the Incentives.

4. Second, alleged consumer contraventions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by all three Corporate Defendants, relating to 14 consumers (collectively, the Consumers; each, a Consumer), 12 of whom were vulnerable consumers (of whom 10 are Indigenous) and the other two in a weaker bargaining position (the ASIC Act Contraventions or Consumer Contraventions). In relation to sales and retention conduct, it is alleged that false and/or misleading (or misleading or deceptive) representations were made contrary to ss 12DA and 12DB of the ASIC Act; that nearly all of the Consumers were coerced, contrary to s 12DJ(1); and that all were treated unconscionably, contrary to s 12CB(1). A number of the Consumers were also alleged to be unduly harassed contrary to s 12DJ(1) when they sought to cancel their policies or when Select continually sought payment of insurance premiums from them.

5. Third, alleged breaches by Select of AFSL general obligations provisions imposed upon it as the holder of an AFSL under ss 912A(1)(a) and 912A(1)(c) of the Corporations Act, on the basis that Select was not providing financial services efficiently, honestly and fairly in relation to the “Refer a Friend” program from January 2015 to May 2017, and was not compliant with financial services law in relation to: (i) the Conflicted Remuneration Contraventions; and (ii) the Consumer Contraventions (AFSL General Obligations Contraventions).

6. Fourth, alleged breaches by Mr Howden of his director’s duties, contrary to s 180(1) of the Corporations Act, as Mr Howden failed to take reasonable steps, or any steps at all, to prevent Select and/or BlueInc Services from contravening, or potentially contravening, ss 963E, 963F and 963J of the Corporations Act, and thereby exposed those entities to a foreseeable risk of harm arising from their contraventions, or potential contraventions, of the Corporations Act (Directors’ Duties Contraventions).

7. It is also contended that Mr Howden was an accessory, within the meaning of s 79 of the Corporations Act, to the Conflicted Remuneration Contraventions and the AFSL General Obligations Contraventions.

8. With very limited exception, the claims are all in issue.

9. For the reasons below:

   (1)the Conflicted Remunerations Contraventions are established;

   (2)some of the Consumer Contraventions are established, and in respect to each Consumer, at least one contravention is established;

   (3)the AFSL General Obligations Contraventions are established; and

   (4)the Directors’ Duties Contraventions are established.

10. At the outset it should it be noted for completeness that it was agreed between the parties that the legislation applicable at the time included the ASIC Act compilation No. 51 (dated 1 July 2014), Corporations Act compilation No. 72 (dated 19 March 2016) (for the Las Vegas Incentive/Hawaii Incentive) and Corporations Act compilation No. 68 (dated 19 December 2014) for all other purposes.

    Factual Background

11. An Amended Statement of Agreed Facts (ASOAF) dated 17 December 2020 between ASIC and the Corporate Defendants was tendered pursuant to s 191 of the Evidence Act 1995 (Cth). It does not bind Mr Howden, and therefore it is necessary to consider the underlying evidence.

12. Select was established on 5 July 2011, with Mr Howden as its sole director. Mr Howden has over 20 years’ experience in the insurance industry in Australia. At all material times, Mr Howden was the sole director, secretary and managing director of the Corporate Defendants and BlueInc Group.

13. At all material times, Mr Howden was the sole director and secretary of Howden Family Holdings, which owned:

    (1)50% of the ordinary shares issued in BlueInc Group in the period 10 January 2008 to 14 June 2009;

    (2)100% of the ordinary shares issued in BlueInc Group in the period 15 June 2009 to 27 June 2017 (at which point the ordinary shares were cancelled);

    (3)100% of the C and D Class shares issued in BlueInc Group in the period 27 to 29 June 2017;

    (4)100% of the C Class and 90% of the D Class shares in the period 30 June 2017 to 15 October 2018; and

    (5)100% of the C Class and 92% of the D Class shares in the period from 16 October 2018.

14. At all material times, Mr Howden was the husband to the sole shareholder of Howden Family Holdings. Mrs Howden owned all the shares in that company. Mr Howden was also a director of Integrated Event Solutions (NSW) Pty Ltd (Integrated Event Solutions).

15. Since 22 August 2011, Select has held an AFSL that authorises it to provide general financial product advice and deal in life risk insurance products to retail clients, pursuant to which it marketed and distributed various Let’s Insure and FlexiSure insurance products. Mr Howden was a Responsible Manager under the AFSL throughout the relevant period. The issuer of the insurance products sold by Select was St Andrew’s Life Insurance Pty Ltd (St Andrew’s or the Insurer). St Andrew’s paid commissions to both Select and BlueInc Services. Select ultimately sub-contracted its obligations and commission under its agreement with St Andrew’s to IMS, which in turn sub-contracted many of these obligations to BlueInc Services. The internal structuring of the entities ultimately saw IMS and BlueInc Services perform obligations and incur expenses on behalf of Select.

16. Select marketed and distributed the Let’s Insure and FlexiSure products through an in-house call centre (Call Centre), which was maintained and operated by IMS. The Call Centre was staffed by Sales Agents and Retention Agents, although I note there is an issue about the characterisation of persons as Retention Agents, and the role they played, to which I will return. Suffice to say at this stage, Sales Agents primarily made outbound telephone calls to, and answered inbound telephone calls from, potential consumers for the purpose of selling insurance products. In doing so, they provided financial product advice under Select’s AFSL.  Retention Agents dealt with existing customers. Those internally described as “retention agents” primarily addressed requests to cancel policies and dishonoured premium payments. All Sales Agents and Retention Agents were either employees of BlueInc Services or contracted by BlueInc Services or IMS from labour hire agencies.

17. There was a high staff turnover, with the majority of staff contracted on a temporary basis. A high proportion of the Sales Agents were backpackers or other temporary visitors to Australia.

18. Leads (contact details of potential consumers) came into the Call Centre from a variety of sources, including inbound and outbound telephone calls and digital streams, such as online surveys and social media engagement. Select also utilised a referral program, called “Refer a Friend”, which encouraged consumers who took out Let’s Insure Funeral Cover or FlexiSure Life Cover to provide contact details of family and friends. It did so by offering that consumer a $20 Coles Myer gift card for each person they referred to Select who went on to take out a policy. I will return to this scheme in more detail below.

19. Sales Agents were provided training on Select’s products, including by being given telephone scripts, and were subject to quality assurance (QA) processes conducted by Select. They were also provided training on handling objections and the use of sales techniques, such as appealing to a consumer’s impulses and using third party examples to influence the consumer’s decision making process. Sales Agents worked in separate sub-teams for the sale of different products, and reported to Team Leaders, who in turn reported to Sales Managers/Head of Sales. Sales Managers ultimately reported to Mr Howden and Select’s Compliance Committee, which comprised the Responsible Managers on Select’s AFSL and the head of the compliance function. Retention Agents were also provided training on Select’s products, compliance, and handling objections,and were subject to Select’s QA process.

20. The remuneration of Sales Agents was linked to the number of sales they made as, although they were paid a base salary, they earned commission on products sold and could obtain benefits as a result of sales. There were also incentive schemes in place, which are discussed in more detail below.

21. The sales team grew significantly during 2015, the time during which most of the Consumer Contraventions are alleged to have occurred. For example, the Compliance Report for December 2014 to January 2015 records 43 Sales Agents and six Retention Agents, but by October 2015, there were 74 Sales Agents and 10 Retention Agents. Select’s financial statements reflect its commission revenue also grew, from $12.729 million in 2015 to $19.058 million in 2017.

22. The evidence establishes that the sales conduct at the Call Centre occurred in a very competitive environment. Sales Agents were under pressure to meet daily sales targets, which increased over time as the business grew. The number of sales each Sales Agent made and the value of those sales, were recorded on a leader board visible to all staff and regularly updated throughout the day to rank the top performing agents. The Sales Agents who recorded lower sales on any one day would be identified in emails sent to the entire sales floor by the Head of Sales,and those who made no sales in the morning session would be ridiculed, for instance, by being required to wear an inflatable doughnut or by having their chair taken away. A bell on the sales floor was rung every time a sale was made. Each month, a “Top Dog Chair” was awarded to the top performing Sales Agent for that month.

23. Senior management developed and implemented a range of incentives, some of which were run concurrently. In addition to the Incentives, the subject of the Conflicted Remuneration Contraventions, other incentives were offered at times. This included $1000 Flight Centre vouchers for Sales Agents who became part of the “Million Dollar Club” by achieving one million dollars of sold premiums. Also on offer, during monthly “Super Sales Days”, were gift cards, $100 pre-paid VISA cards and iPads.

24. This was a competitive, sales driven culture designed to sell more products, by inter alia, rewarding the top performers. These practices were known to, and endorsed by, senior management, including Mr Howden,and set the culture of the sales environment.

25. That is the context in which ASIC contends these claims arise, and in which the Incentives were offered.

    Let’s Insure and FlexiSure products

26. During the relevant period, Select marketed and distributed insurance products issued by St Andrew’s under the brand name “Let’s Insure” and in the period 7 January 2015 to 12 August 2016 also under the brand name “FlexiSure”. Select owns the brand names Let’s Insure and FlexiSure.

27. The core Let’s Insure product was Let’s Insure Funeral Cover, which Select promoted and distributed until 19 March 2018. Although marketed as a funeral protection product, it in fact provided for a lump sum benefit. Premiums were fixed, stepped or capped. Where fixed or stepped premiums were selected, consumers could also take out optional Accidental Death Cover (ADC) of up to $32,000, optional Accidental Serious Injury Cover (AIC) of up to $32,000 or optional Household Expenses Cover (HEC) that provided for the payment of $800 per month from between three and 20 months. In 2016, consumers could also take out an optional Accidental Death Cover Booster of up to $96,000 (ADC Booster).

28. Select also sold standalone Accident Cover (Let’s Insure AC), comprising AIC and ADC of up to $600,000, with optional Children’s Cover (CC). Another standalone Let’s Insure product was Easy Life Insurance of up to $500,000, with a terminal illness benefit included, and with optional Accident Cover (Easy Life AC) of up to $500,000 and optional CC. Easy Life Insurance was guaranteed cover, meaning that the policyholder did not need to undertake medical tests and it was not underwritten. Finally, Select sold a standalone life insurance product called Let’s Insure Life Cover of up to $1.5 million.

29. The core FlexiSure product was a life insurance product marketed under the name FlexiSure Life Cover. During the relevant period, it provided for cover between either $50,000 and $750,000, or $15,000 and $500,000. Consumers could also take out optional cover for accidental death and accidental serious injury (FlexiSure AC) between either $15,000 and $500,000, or $50,000 and $500,000, and optional CC (which covered accidental death or defined trauma events), which provided for a lump sum payment of $10,000 to $50,000.

30. The Corporate Defendants did not contest that each of the Let’s Insure products and FlexiSure products marketed and distributed by Select during the relevant period were: marketed and distributed to retail clients; a “financial product” within the meaning of Ch 7 of the Corporations Act; and a “financial product” within the meaning of s 12BAA of the ASIC Act.

31. Although the Corporate Defendants had initially challenged that the Let’s Insure Funeral Cover was not a “financial product” within the meaning of Ch 7 of the Corporations Act or s 12BAA of the ASIC Act, that challenge was abandoned at the commencement of closing submissions.

    Attribution of Call Centre conduct

32. As explained above, the Call Centre was staffed by Sales Agents and Retention Agents.

33. The inter-company arrangements were such that each of the Corporate Defendants played a role in the conduct of the Call Centre. 

34. Select was the holder of the AFSL pursuant to which financial services were able to be provided. Select had no employees or contracted staff. Rather, BlueInc Services and IMS provided staff for the conduct of Select’s business. BlueInc Services was the employing entity within the BlueInc Group. IMS (and occasionally BlueInc Services) engaged temporary staff for the Call Centre through labour hire providers.

35. The Corporate Defendants admit that:

    (1)the conduct of Sales Agents in all of their dealings with potential customers is attributable to Select, both in terms of the ordinary principles of agency (as reflected in s 12GH(2)(a) of the ASIC Act and s 769B(1)(a) of the Corporations Act), and for the purposes of Pt 2, Div 2 of the ASIC Act and Ch 7 of the Corporations Act; and

    (2)the conduct of Sales Agents in respect of the Consumers is taken to have been engaged in by Select by reason of s 12GH(2)(a) of the ASIC Act.

36. As to BlueInc Services or IMS, it is also admitted that:

    (1)Sales Agents and Retention Agents who were engaged through labour hire providers by BlueInc Services were agents of BlueInc Services and their conduct is taken to have been engaged in by BlueInc Services;

    (2)the conduct of those Sales Agents and Retention Agents employed by, or engaged for, BlueInc Services towards the Consumers is taken to have been engaged in by BlueInc Services;

    (3)Sales Agents and Retention Agents who were engaged through labour hire providers by IMS were agents of IMS and their conduct is taken to have been engaged in by IMS; and

    (4)the conduct of those Sales Agents and Retention Agents engaged by IMS towards the Consumers is taken to have been engaged in by IMS.

37. The Sales Agents and Retention Agents who were employed by BlueInc Services were agents of BlueInc Services and their conduct is taken to have been engaged in by BlueInc Services. 

38. The Corporate Defendants also admit that all Sales Agents and Retention Agents were representatives of Select as a financial services licensee for the purposes of Ch 7 of the Corporations Act, regardless of whether they were employees of BlueInc Services or were engaged through labour hire agencies by IMS or BlueInc Services.

39. However, there is a live issue between the parties as to whether the conduct of Retention Agents in their dealings with customers, can be attributed to Select. In essence, this is said to be based on the nature of the role the Retention Agents undertook. It is appropriate to address this issue at the outset.

    Relevant legal principles

40. Section 12GH(2) of the ASIC Act provides:

    12GH Conduct by directors, employees or agents

    …

    (2)      Any conduct engaged in on behalf of a body corporate:

    (a)by a director, employee or agent of the body corporate within the scope of the person’s actual or apparent authority; or

    (b)by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

    is taken, for the purposes of this Division, to have been engaged in also by the body corporate. 

    …

41. Section 769B(1) of the Corporations Act is in materially identical terms to s 12GH(2) of the ASIC Act, and applies for the purposes of Ch 7 of the Corporations Act.

42. Those sections (and their statutory counterparts, for example in the Competition and Consumer Act 2010 (Cth) (CCA)), expand the concept of attribution beyond the common law which is intended to make proof of corporate responsibility easier: Perpetual Trustee Company Ltd v Burniston (No 2) [2012] WASC 383; (2012) 271 FLR 122 at [274]-[275]. The purpose of such provisions is to attribute liability to a corporation for the acts of others and to facilitate proof of corporate responsibility beyond the position which would otherwise obtain at common law: Walplan Pty Ltd v Wallace (1985) 8 FCR 27 (Walplan) at 36-38.

43. Both limbs of the sections require that the person in question engage in conduct “on behalf of” the relevant corporation. This essentially requires that the individual act in the course of the corporation’s business, affairs or activities or as the representative of the corporation, however it is “neither necessary nor sufficient” that the conduct be engaged in for the benefit of the corporation: NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270 (NMFM) at [1243]-[1244] per Lindgren J. In this context, the phrase “on behalf of” suggests some involvement by the person concerned with the activities of the corporation; it conveys a meaning similar to the phrase “in the course of the body corporate’s affairs or activities” and encompasses acts done by a corporation’s employees in the course of their employment, but it is not confined to the employment relationship: Walplan at 37. The phrase conveys that something is done “for” the company: Lisciandro v Official Trustee in Bankruptcy [1995] ATPR 41-436 at 40,903-40,904; NMFM at [1244]; Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2016] FCAFC 78; (2016) 250 FCR 136 at [78]-[80] per Davies, Gleeson and Edelman JJ. As to the second limb, in Walplan at 37, Lockhart J observed (in respect to s 84(2) of the Trades Practices Act 1974 (Cth)) that:

    …the second limb of the subsection extends the corporation's responsibility to the conduct of other persons who act at the behest of a director, agent or servant of the corporation. Hence the phrase ‘on behalf of' casts a much wider net than conduct by servants in the course of their employment, although it includes it.

1. The word “agent” is used in both limbs of the sections, and is not defined.

2. Central to the concept of agency is the proposition that the agent is representing the principal; “the agent [is] acting or having actual or apparent authority to act as representative of, or for, or on behalf of, the principal”: Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465 at [73], citing NMFM at [522].

3. There will generally be a requirement or duty not to act otherwise than in the interests of the principal: Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [177]. The formation of a relationship of agency may be constituted by either express or implied agreement. Agency is express when the principal agrees with the agent that the agent will act on behalf of the principal. Whether an implied agency arises depends on whether it is reasonable to infer from the words and acts of the parties that they intended to form a relationship of agency: Bonette v Woolworths Ltd (1937) 37 SR (NSW) 142.

4. Whether a relationship of agency exists depends not on the terminology adopted by the parties, but on the true nature of the agreement or the exact circumstances of the relationship between the alleged principal and agent. The actual incidents and content of the relationship (the ‘factual relation’) to which the parties have consented may demonstrate that, as a matter of fact, they have consented to an agency relationship. The consent of the parties need not necessarily be to a relationship that the parties understand or accept to be one of principal and agent. Rather, it is sufficient if what they have agreed to is a state of fact that amounts in law to such a relationship, notwithstanding that it may have been the subject of express disclaimers. In such circumstances, the courts may infer an agency: South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; (2000) 177 ALR 611 at [132]-[135].

   Submissions

   ASIC’s submissions

5. In summary, ASIC contended that there are three primary reasons why the conduct of the Retention Agents in relation to the Consumers is attributable to Select. First, the contractual arrangements of the Corporate Defendants establish that it was Select’s obligation to provide retention services to St Andrew’s. This stands to reason given that Retention Agents provided financial product advice and it is necessary that they did so pursuant to Select’s AFSL, and this is reinforced by the fact that retention services financially benefited Select. As such, even though Select sub-contracted the performance of retention services within the corporate group, those who performed such services did so on behalf of Select. Second, in all dealings with the Consumers, the Retention Agents held themselves out as acting on behalf of Select (through its brands Let’s Insure and FlexiSure). Third, Select consented to the Retention Agents so doing, trained them and monitored their conduct. ASIC submitted that these factors establish agency at common law, and in any event, that attribution can be made to Select pursuant to s 12GH(2) of the ASIC Act and 769B(1) of the Corporations Act (given that control over the agents was exercised by Mr Howden as its sole director). ASIC identified five strands of evidence which, it submitted, supported the contention.

   Corporate Defendants’ submissions

6. The Corporate Defendants submitted that the issue is which entity had the obligation to provide the services performed by the Retention Agents. They submitted that BlueInc Services had the obligation to provide these services to St Andrew’s. Therefore, when employees or agents of BlueInc Services were performing retention functions, they did so for and on behalf of BlueInc Services in furtherance of BlueInc Services’ obligation to provide these services to St Andrew’s. Similarly, when employees or agents of IMS were performing retention functions, they were doing so on behalf of BlueInc Services.

7. The Retention Agents were personnel who made outbound telephone calls to and answered inbound telephone calls from existing Let’s Insure or FlexiSure customers in relation to dishonoured payments, requests to cancel Let’s Insure products or FlexiSure products or to field consumer service queries. Retention Agents included: personnel whose primary functions related to providing general client services; and personnel whose primary functions related to dishonoured premium payments and requests to cancel insurance products.

8. The Corporate Defendants submitted that BlueInc Services contracted with St Andrew’s to provide the services performed by the Retention Agents by entering into an Administrative Services Agreement with St Andrew’s dated 23 April 2013 (Administrative Agreement), which was varied and restated in 2015 and 2017. They submitted that pursuant to cl 3.1 of the Administrative Agreement, BlueInc Services agreed “to provide the Administrative Services and St Andrew’s [agreed] to acquire the Administrative Services” and BlueInc Services “[agreed] to perform its obligations under this Agreement for the benefit of St Andrew’s”. Pursuant to cl 4.1(a), BlueInc Services was required to provide the Administrative Services in compliance with the Service Levels. Clause 5.1 reiterated that “St Andrew’s appoints Blue Inc [BlueInc Services] to provide the Administrative Services in accordance with this Agreement”. The “Key Service Functions” performed by BlueInc Services pursuant to the Administrative Agreement included “Cancellations” and “Lapse notice issue”. The “Contract Administration” functions they were to perform included “Cancellations”, “Lapse notice issue”, “Renewal notice issue” and “Direct debit/Credit card dishonour advices to Clients”. In relation to “Complaints & Service Issues”, specific functions included “Maintain a register of complaints”. The Corporate Defendants submitted that the functions BlueInc Services were to perform for St Andrew’s pursuant to the Administrative Agreement correspond precisely to the functions performed by Retention Agents.

9. In their written submissions in closing, the Corporate Defendants’ position appeared to change. While maintaining the above position, they accepted for the first time, that:

   … to the extent the Retention Agents provided financial product advice, they were doing so for and on behalf of Select, pursuant to its ASFL.

10. However, the Corporate Defendants submitted:

    But this is largely a false issue … Cancellations, seeking premium payments and automatically increasing premiums … are all administrative in nature. The issue, therefore, is who the Retention Agents were performing these functions on behalf of.

11. In oral submissions, the Corporate Defendants contended that in Select’s contract with St Andrew’s, they had agreed to set up the Call Centre and to provide advice pursuant to its financial services licences, and, therefore, insofar as any financial advice was given, that Retention Agent giving the advice was wearing “a Select hat”. They submitted that Retention Agents, depending on the content of the call, “may have different hats”. That is a matter that can coexist: “one can carry out two services for different organisations”. And, “otherwise, effectively, the contract between St Andrew’s and BlueInc is being given no content”.

    ASIC’s reply

12. ASIC submitted that the concession is well made, but while presented as a minor concession, it is, in fact, a large concession because that was all that the Retention Agents were doing in their attempts to persuade consumers in the circumstances to hold onto their policies rather than cancel them. ASIC also noted what it said was a further concession in oral submissions when it submitted that it was the Retention Agent’s job to encourage a person to keep their policy.

13. In this regard, ASIC referred to the observations of the Full Court in Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187; (2019) 272 FCR 187 (Westpac Securities – Full Court) at [12], [20], [217] and [241], that one must look at the whole of the conversation to discern when financial product advice is being given because, often, that advice in a sales context, is being given implicitly. I note that this issue was not the subject of appeal to the High Court: Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3; (2021) 270 CLR 118 (Westpac Securities – High Court).

    Financial product advice

14. Given the nature of this submission, and the concession made, it is appropriate at this stage to refer to the concept of financial product advice. Section 766B(1) of the Corporations Act defines financial product advice as follows:

    766B Meaning of financial product advice

    (1)For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

    (a)is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

    (b)could reasonably be regarded as being intended to have such an influence.

    …

15. The approach to assessing whether such advice is given is described in Westpac Securities – Full Court at [16]-[22] where Allsop CJ observed:

    [16]The primary judge, correctly in my view, at [83]-[93] of the reasons, considered it appropriate to give a broad interpretation to “recommendation” and “statement of opinion”, as words used in a provision intended to be, to a significant degree, protective. In particular, I agree with the approach of Sackville AJA in Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [365]-[366], referred to by the primary judge at [85]:

    365The construction of s 766B(1) must take into account that the language encompasses a recommendation or statement of opinion that is intended to influence a person in making a decision relating to a financial product or could reasonably be regarded as having such an influence. A person wishing to influence another person (the client) to make a decision relating to a financial product … may do so in ways other than by express recommendations or explicit statements of opinion. Information or other material may be presented to the client in a form implying that the presenter favours or commends a particular course of action without saying so explicitly. Similarly information or other material may be presented in a form that implies that the presenter’s view is that the contemplated course of action is likely to be beneficial to the client.

    366The authorities have accepted that the statutory language should be given a broad interpretation. Specifically, they support the proposition that a person may provide information or present material in a way that implicitly makes a recommendation or states an opinion in relation to a financial product.

    [17]The protection of people from potentially selfishly motivated advice is not advanced by making fine logical distinctions based on overly precise linguistic choices about words of a general kind employed by Parliament in furtherance of the protective purpose. Protection from assiduous, clever and subtle advancement of another’s personal interest may require a generous breadth of meaning of words that are taken from, and are intended to relate to, human relational experience, and a giving of practical flexibility in the application of those words to the reality of human experience.

    [18]The question is one of the practical application of the statute to the context in question to see whether an express or implied “recommendation” (that is, a commending something by favourable representation or presentation as worthy of confidence or acceptance or as advisable or expedient) or “statement opinion” (that is, a judgment or belief or view or estimation) was made. The two concepts are, of course, related. The opinion may be the basis of the recommendation; and the recommendation may carry with it an implied opinion.

    [19]That said, the distinction made by the primary judge at [94]-[97] of the reasons between “opinion” and “fact” or “statement of opinion” and “statement of fact”, by reference to principles of evidence, is likely to complicate the enquiry without warrant. One could well imagine a communication that was in overall terms an implied recommendation or opinion being made up of statements of interconnected facts, designed by its and their structure, to appear as a recommendation for some conduct or view. The unnecessary complexity, with respect, can be seen in [98] and [99] of the reasons.

    [20]The task is to look at the communication or exchange, in its whole context, and assess whether some express or implied recommendation or statement of opinion is made. This is unlikely to be assisted by minute examination of parts of the text of a flowing, whole, engaged human conversation with all its implicit, as well as explicit, content. One can well understand that in some contexts mere statements of fact will not qualify as recommendations or statements of opinion. That is not, however, a conclusion that is to be drawn by an abstracted distinction between statements of fact and inference or by the deconstruction of text, but rather by looking at, or listening to, the whole of the communication or exchange, in its context.

    [21]Westpac also argued before the primary judge that the words “recommendation” and “statement of opinion” were to be understood by reference to “advice”. Thus, it was submitted that the word being defined may properly influence the interpretation of the definition: Rennie Golledge Pty Ltd v Ballard (2012) 82 NSWLR 231 at [129] and the cases there cited. So, the recommendation or statement of opinion was to be seen as one which contained some element of estimation or judgment as opposed to a mere advertisement or “sales pitch”. This was reinforced, it was submitted, by the reference in s 766B(1) to a “report” of the advice. The complaint on the cross-appeal by Westpac is that the primary judge’s meaning would encompass all advertising and marketing, and such are not, and could not be, advice. Thus, it was submitted the meaning given by her Honour was too wide.

    [22]None of these provisions can be seen to be directed to what might be described or characterised as mere advertising. That, however, does not lead to the need for, or the appropriateness of, abstracted definition of categories of human behaviour or communication, outside the context of that actual behaviour or whole communication. The provisions are directed at the giving of advice that is contained in an express or implied recommendation or statement of opinion. That it may have some marketing or sales purpose is not the point. It is sterile to seek to draw a line between “advice” and “marketing” or “advertising”, or to engage in abstracted defining of those things. It is a question of characterisation in all the circumstances. Bearing in mind the view of the High Court as to the circularity that must be recognised in construing a definition by reference to the meaning of the term defined (Owners of Ship Shin Kobe Maru v Empire Shipping Company Inc (1994) 181 CLR 404 at 419 and however that case may now stand with the approach to construction laid down in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]-[71]) this submission of Westpac cannot be accepted in its terms: Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 199 FCR 226 at [100]-[107]. The question is whether, on its proper characterisation, the communication or exchange was a recommendation or statement of opinion given by someone to another for that other’s consideration in connection with making the decision in s 766B(1). I would accept that in some circumstances what might otherwise be seen to be a recommendation might only meaningfully and rationally be described or characterised as part of mere puffery in an advertisement and could not meaningfully and rationally be described or characterised as advice. That conclusion is likely, however, to be reached by an examination of the applicability of the Chapter as a whole. The proper process is to examine the communication and exchange in its whole context to ascertain whether it is a recommendation or statement of opinion to the person. One does not add to this process by considering some further limitation of advice and imbuing that limiting characteristic with some element of evaluation or degree of consideration, as Westpac’s submissions sought to do. There is certainly no bright line distinction to be made between “sales” and “advice”. The communication or exchange may have a heavy “sales” purpose. That will not mean that it does not contain a recommendation or opinion that was intended, or could reasonably be regarded as intended, to influence a person in making a relevant decision. How broad the definition may reach may be better tested in other circumstances. Here, the relational exchanges and the engagement in conversation designed to influence customers to make a financial decision constitute the very kind of context and circumstance to which the Chapter and the Division were intended to be directed.

16. Although this matter was before the High Court, the Full Court’s findings on this aspect were not in issue: Westpac Securities – High Court at [25].

17. A number of matters can be taken from those passages, and others in Westpac Securities – Full Court. A recommendation or statement of opinion necessarily involves something that is capable of influencing a person about a financial product or that reasonably could be regarded as having such an influence: Westpac Securities – Full Court at [216]. The terms ‘recommendation’ or ‘statement of opinion’ are not confined to formal advice but extend to any explicit or implicit encouragement: Westpac Securities – Full Court at [217], [240]. The terms have different meanings. A ‘recommendation’ commends or urges a particular course of action by favourable representation or presentation, and an ‘opinion’ is the expression of a belief, view, estimation or judgment. The two concepts are related, and often will be given together, although one can be given without the other: Westpac Securities – Full Court at [18], [335]-[336]; Westpac Securities – High Court at [49]. An implicit statement that the provider favours or commends a particular course of action without saying so in terms, or that the provider’s view is that the contemplated course of action is likely to be beneficial to the client, is capable of amounting to “financial product advice”: Westpac Securities – Full Court at [16], [217], and see Westpac Securities – High Court at [12]. It is not necessary for the communication to bear the character of “advice” or to be a recommendation “in the nature of advice” to constitute a recommendation: Westpac Securities – Full Court at [216]-[217]. Rather, the relevant communication in its whole context is to be considered, and an assessment of whether some express or implied recommendation or statement of opinion is to be made, rather than picking over de-contextualised parts of a whole conversation: Westpac Securities – Full Court at [12], [20], [217].

    Consideration

18. ASIC’s submission must be accepted.

19. At the outset I observe that the Corporate Defendants’ position in closing submissions, that Retention Agents in any one call may be carrying out two services depending on the content of the call, was advanced without a reference to any individual call, nor what aspect of the call was said to be on behalf of Select, and what was not. That is, the Corporate Defendants did not contend or identify, by reference to any call, that the contravention has not been established because an aspect of the call said to found the contravention was part of the retention function as opposed to the provision of advice on the part of Select. Moreover, the acceptance in closing that encouraging a customer to keep a policy is the job of the Retention Agent undercuts the submission as to the nature of the role of the Retention Agent being administrative, which underpinned its submission as to the lack of attribution.

1. Given the Corporate Defendants’ reliance on the Administrative Agreement, it is necessary to consider the relevant contracts.

2. Select and BlueInc Services had separate contracts with the policy issuer, St Andrew’s.

3. From 23 April 2013, Select and St Andrew’s were parties to a Distribution Agreement, which was varied, restated and/or renewed in 2015, 2016, 2017 and 2018, and then ultimately terminated on 4 April 2018 (Distribution Agreements).

4. Under these Distribution Agreements, Select agreed to market and distribute an agreed suite of life risk insurance policies to “maintain and operate a call centre and website to provide advice” about the products and to maintain and operate an electronic or automatic underwriting system by which all discretionary underwriting cases were referred to St Andrew’s, and where clients were sent an email with a welcome letter, PDS, Financial Services Guide (FSG) and policy schedule on the issue of a policy. As a result, consumers who acquired the guaranteed acceptance policies (being products that were not discretionary) were not referred to St Andrew’s. The telephone scripts approved by Select reflect that for the guaranteed acceptance policies, such as Let’s Insure Funeral Cover, the acquisition of the policies occurred during telephone calls with Sales Agents. The Distribution Agreements then tasked Select with sending the consumer all of the relevant policy documents. As ASIC contended, essentially, by Select taking on the obligation for the system, there was no role for St Andrew’s to play in the process of issuing the policies for guaranteed acceptance products.

5. Select and St Andrew’s acknowledged that “any financial services” provided by Select in relation to the products would be on Select’s behalf and under its AFSL. In return, St Andrew’s agreed to pay a commission on all policies sold for as long as they remained in force subject to certain clawback rights. The initial agreement had a term of four years, with renewal options. By the 2015 renewal, Select and St Andrew’s included products marketed under the FlexiSure brand and clarified that the Call Centre was to provide “general advice”.

6. As ASIC contended, the following can be drawn from the Distribution Agreements: first, Select was obliged to operate the Call Centre; second, they contemplated that the Call Centre staff would provide financial product advice, as St Andrew’s required Select to hold an AFSL and Select expressly acknowledged that financial services were provided on behalf of Select and under its AFSL; third, no distinction is made between Sales Agents and Retention Agents, and as admitted by the Corporate Defendants, both Sales Agents and Retention Agents were ‘representatives’ of Select’s AFSL; and fourth, it was in Select’s financial interest to retain or ‘save’ policies, as it was entitled to a flow of commission under the Distribution Agreements “for so long as the Policies remain in force”. As such, the Retention Agents employed or contracted by either IMS or BlueInc Services were carrying out an essential role in the course and furtherance of Select’s business, namely the retention of its products by customers (which in turn fed into the commission paid to Select).

7. Turning to the Administrative Agreements between St Andrew’s and BlueInc Services. They entered into an Administrative Services Agreement dated 23 April 2013, which was varied and restated in 2015 and 2017. As explained above, the Corporate Defendants rely on this agreement to contend that BlueInc Services had the obligation to provide these services to St Andrew’s (not to Select) and, therefore, when employees or agents of BlueInc Services were performing Retention functions, they did so for and behalf of BlueInc Services.

8. However, the submission is premised on the basis that the Retention Agents were performing administrative tasks, a premise which, at least in part, is now accepted to be incorrect. 

9. In any event, under the Administrative Agreement, BlueInc Services carries on the business of an administrator of life insurance policies. This agreement sets out the terms and conditions on which St Andrew’s appoints BlueInc Services to provide the Administrative Services. I note that there is no requirement that BlueInc Services hold a financial services licence (which it does not). Therefore, the agreement does not encompass the giving of financial product advice. Administrative services are defined. It is readily apparent considering the tasks listed that the service functions are purely administrative. For example, they include the issue of lapse notices or renewal notices or cancellations and set time frames in which the tasks are to be performed (for example, two days after the notification of the cancellation). The tasks do not include retention of a policy. That is, BlueInc Services has an administrative function of notifying cancellation and effecting that cancellation. 

10. It follows that the conduct of the Retention Agents, whose role is to persuade the customer not to cancel their policy, is not administrative within the Administrative Agreement. 

11. Contrary to the Corporate Defendants’ submission, that conclusion does not render the Administrative Agreement as having no content. Rather, such administrative tasks are no doubt undertaken, but that is not the role of a Retention Agent.

12. Other evidence also supports the conclusion that the conduct of the Retention Agents was on behalf of Select in such a way as to attribute liability to it.

13. Indeed, Select made admissions to ASIC in response to a question in an ASIC Notice of Direction under s 912C(1) of the Corporations Act (s 912C(1) Notice) dated 23 October 2018, that BlueInc Services was providing the customer retention services to Select and not to St Andrew’s, and that Select provided them to St Andrew’s. In the s 912C(1) Notice, Select was asked “to detail the services that were provided by each BlueInc Group entity in relation to the policy of each of the relevant customers during the relevant period”. In its response to ASIC, Select stated that “Select AFSL’s principal outsource agreements are with BlueInc Services Pty Limited (administration, information technology, customer retention…)”.

14. In so far as the Corporate Defendants contended that the concept of a Retention Agent was one, in effect, created by ASIC (and rather, that the tasks of such agents were administrative), that submission cannot be accepted.

15. The Retention Agent role was an established and recognised role within Select. So much is apparent from a response by Select to ASIC to a question in a s 912C(1) Notice which describes Select’s post-policy holder interaction, (including changes to Direct Life Insurance policies and enquiries by policy holders about their policy), as being done by either the customer service team or the retention team. It described the retention team as dealing mainly with inquiries relating to policy cancellations and premium dishonours. The Retention Agents were trained in dealing with complex inquiries and complaints. The team is managed by a Team Leader who reports directly to the Retention Manager. The organisational chart of BlueInc Group also treats ‘Retention’ as an established area, and separate from client services. Employment documents listed ‘Retention’ as a separate department.

16. Moreover, compliance reports for Select record, inter alia, “in accordance with the AFSL authorisations, all representatives including Retention staff are trained to follow general advice scripts, prepared and signed off by general advice accredited personnel”. It can readily be inferred this was necessary because the Retention Agents were providing financial advice to customers. The Retention Agents conduct was monitored by Select, as evidenced by the compliance reports. Such training and monitoring steps in that regard would not be required if the Retention Agents were performing administrative tasks under the Administrative Agreement.

17. The evidence also establishes that Retention Agents, like Sales Agents, were paid a commission for saving policies, and targets were set as to the percentage of policies to be saved.

18. Finally, as explained in more detail when considering the Consumer Contraventions, a consideration of the calls by the Retention Agents with the Consumers demonstrates that the Retention Agents were providing financial product advice. Indeed, the calls commenced with the Retention Agent telling the Consumer, as he or she was required to do by the script provided by Select, that “I am only able to provide general advice”. This reflects the nature of the call that followed. Indeed, it appears that so much is now conceded.

19. The ordinary common law principles of agency as reflected in s 12GH(2)(a) of the ASIC Act and s 769B(1)(a) of the Corporations Act are established in respect to the Retention Agents. I also accept ASIC’s submission that, even if that were not so, the evidence establishes extended statutory agency given that control over the agents was ultimately exercised by Mr Howden in his capacity as the sole director of Select, within s 12GH(2)(b) of the ASIC Act and s 769B(1)(b) of the Corporations Act.

20. I am satisfied that the conduct of the Sales and Retention Agents is attributable to Select. In particular, I am satisfied that the conduct of each of the Sales and Retention Agents who made telephone calls to Consumers the subject of the Consumer Contraventions is attributable to Select.

21. In relation to the Consumer Contraventions, BlueInc Services is also liable for the same contraventions as alleged against Select due to the conduct of its employees, as is IMS for contraventions due to the conduct of persons it engaged through hire labour agencies. The relevant Agents are identified when addressing the Consumer Contraventions.

    Evidence

22. Some facts were agreed between ASIC and the Corporate Defendants in these proceedings as reflected in the ASOAF, as mentioned above. It is to be recalled, however, that those facts are not agreed as between ASIC and Mr Howden.

    ASIC’s evidence

23. ASIC tendered a significant amount of documentary evidence.

24. In addition, an affidavit was read from each Consumer, subject to rulings on objections to aspects of the evidence.

25. The Consumers were not required for cross-examination. I accept their evidence. I will consider this evidence when addressing the Consumer Contraventions.

26. ASIC also relied on the following further affidavits:

    (1)Affidavit of Deborah Lilian Armstrong affirmed on 7 May 2019. Ms Armstrong is a financial counsellor in Maningrida, Northern Territory;

    (2)Affidavit of Nicole Rose Casley affirmed on 12 September 2019. Ms Casley is a Policy Advisor in the Indigenous Outreach Program at ASIC;

    (3)Affidavit of Nadyezhda Pozzana affirmed on 1 November 2019. Ms Pozzana is a Certified Interpreter with the Aboriginal Interpreter Service, which is a part of the Northern Territory Department of Local Government, Housing and Community Development;

    (4)Affidavit of Cameron Luke Villarosa affirmed on 6 February 2020. Mr Villarosa is a lawyer in the Financial Services Enforcement team at ASIC; and

    (5)Two affidavits of Dr Diane Eades affirmed on 12 August 2020, annexing an expert report and associated briefing material.

27. ASIC also relied on s 79 notices, containing transcripts from a number of examinations conducted pursuant to s 19 of the ASIC Act, which were admitted subject to objections. The Defendants did not require any of the s 19 examinees for cross-examination.

    Patrick Hoey’s evidence

28. ASIC also read an affidavit of Patrick Hoey affirmed on 10 July 2020 (subject to the rulings as to the limited objections). Mr Hoey had been an employee of BlueInc Services from about January 2013 to June 2017. He was initially hired as a Sales Consultant and reported to Renni Atwal, Head of Sales, who oversaw the sales floor. Later in July 2013, Mr Hoey commenced as Business Development Manager, reporting to both Mr Atwal and Mr Howden. From this time until January 2016, Mr Hoey was a senior member of the sales team reporting to Mr Atwal. Between February and June 2016, Mr Hoey left BlueInc Services to return to Ireland for personal reasons. In about June 2016 he came back to Australia, and returned to work at BlueInc Services in the role of Sales Coach where he reported to Adit Shah, who had taken over the role of Head of Sales. He was subject to cross-examination. I accept his evidence.

29. It is appropriate to first summarise briefly his evidence by affidavit.

30. The sales culture at BlueInc Services was very competitive.

31. Mr Hoey’s evidence was that all Sales Agents had a ‘dashboard’ on their computer screen and could see the amount of sales they and everybody else working on the sales floor had made. There was a leader board displayed on the dashboard and on televisions in the office that would be regularly updated throughout the day. During the course of a day when sales were low, the Head of Sales would send an email to the whole floor including Mr Howden setting out the number of sales made by each Sales Agent, and if a Sales Agent had made no sales, their name would be highlighted in yellow.

32. Various practices encouraged or rewarded sales, in which Mr Hoey participated. A bell attached to the wall in the middle of the sales floor was rung each time a person made a sale. If a Sales Agent had not made a sale before lunch, on more than one occasion they were told by Mr Atwal to buy the whole team doughnuts, given the number zero on the leader board resembled a doughnut. At least in 2016 and 2017, a similar practice existed whereby agents who had made zero sales were required to wear an inflatable doughnut until they made a sale. Around 2014, the top five sales agents, including Mr Hoey, also attended a ‘Wolf of Railway Street’ seminar to meet and hear from Jordan Belfort, the ‘Wolf of Wall Street’. Sales culture practices (such as Mr Atwal asking the Sales Agents to jump up, raise their hands and yell “sales, sales, sales”) inspired by this seminar were witnessed by Mr Howden in the years following that seminar.

33. Three more practices for motivating Sales Agents referred to in Mr Hoey’s evidence are notable: the ‘Million Dollar Club’, the ‘Top Dog Chair’ and ‘Super Sales Days’. If a Sales Agent reached a million dollars in premiums, they joined the Million Dollar Club (which Mr Hoey did on more than one occasion). The agent’s name was placed on a plaque, they won a $1,000 Flight Centre voucher and they received a glass trophy. The Top Dog Chair was a particular chair (at one time a big leather chair and at another a big race car chair) given to the top Sales Agent to sit in for the month until they were knocked off as ‘Top Dog’ by another Sales Agent. Mr Howden was present at various presentations of the Top Dog Chair. Super Sales Days were longer days usually held on the last day of the month, where Sales Agents collected prizes allocated to numbered balloons in the office. The prizes included coffee vouchers, Coles Myer gift cards, prepaid VISA cards of up to $100 in value, and an iPad.

34. During Mr Hoey’s employment, a number of sales incentives were offered. These included team incentives, as well as individual incentives such as the Cruise Incentive, Vespa Incentive and Las Vegas Incentive. Mr Hoey’s evidence was that these incentives motivated him to sell more. He went on the cruise offered by the Cruise Incentive and his evidence was that it was a “leisure trip” which did not involve any work or training. Mr Hoey also won the Vespa offered by the Vespa Incentive and was presented with the keys by Mr Howden in front of everyone in the office. Rebecca Dudbridge received the second place prize, which was a $2,000 cash prize. Mr Hoey agreed to sell the Vespa to one of his colleagues for $4,000. After Mr Hoey’s colleague changed his mind, the colleague then offered to sell the Vespa on Mr Hoey’s behalf and did so online. BlueInc Services paid the sale proceeds to Mr Hoey through his salary as commission, which was taxed. The Vespa remained in the office until it was sold. The relevance of this to the question of whether the Vespa was a monetary or non-monetary benefit is discussed below.

35. Mr Hoey was aware that the Las Vegas Incentive was launched in 2016, but he was in Ireland at the time this Incentive was running.

36. Mr Hoey also gave evidence about the circumstances surrounding the termination of his employment with BlueInc Services, which are summarised below.

37. Mr Hoey was purportedly given a “2^nd formal warning” dated 31 July 2015 in relation to an “unethical sale where it was unclear the customer was aware of what they had purchased”, which was signed by Mr Shah. However. Mr Hoey did not recall ever receiving or signing that document at the time or attending any meeting with Mr Shah.

38. Around late 2015, Mr Hoey recalled having a conversation with Mr Atwal and Mr Howden where concerns were raised about a number of sales in certain Indigenous areas and the use of the Refer a Friend program. I note that this spike in sales to Indigenous customers is examined in closer detail below when considering the QA system and in relation to the Refer a Friend program and the alleged s 912A contraventions. Mr Hoey’s evidence was that he was not given any formal warning at that meeting.

39. In February 2017, Mr Hoey said that he signed a Final Formal Warning, which was also signed by Mr Shah, in respect to “excessive use” of the Refer a Friend program (despite the fact that the document was dated 5 October 2015). Mr Hoey recalled that Ms Dudbridge was also asked to sign a Formal Warning, bearing the same date (5 October 2015). Copies of the warnings were tendered. Mr Hoey’s evidence was that Mr Shah gave him this letter in February 2017. He recalled that Mr Shah was not his manager in October 2015, as he reported to Mr Atwal at that time.

40. It suffices to note at this point that ASIC claims that the formal warnings given to Mr Hoey and Ms Dudbridge dated 5 October 2015 were not created contemporaneously bur rather were backdated and in fact created in February 2017. It will be necessary to return to that issue below.

41. In or around June 2017, Mr Hoey decided to leave BlueInc Services. He recalled having a conversation with Mr Howden where he told Mr Howden about his plans to move to England and that he would be resigning from the company. Shortly thereafter, Mr Hoey said that he was “sacked” in a meeting with Mr Howden and Mila Gmitrovic, Head of Human Resources. He was told that the reason his employment was being terminated was due to the calls he made in 2015 “based on the Refer a Friend program and a spike in sales to Indigenous areas”. Mr Hoey understands that Ms Dudbridge was “sacked” on the same day.

42. Mr Hoey gave evidence on the events that followed the 2015 spike in sales to Indigenous customers, which the Corporate Defendants and Mr Howden attribute to Mr Hoey’s conduct and the conduct of Ms Dudbridge, and for which Mr Hoey’s employment with BlueInc Services was apparently terminated.

43. Mr Hoey was cross-examined, including on the following topics.

44. In relation to the sales culture in which the various incentives were offered, Mr Hoey maintained that “[i]t was a hard push sales culture which was a uniform approach across the whole floor” and that it was “enforced from the top down”.

45. Mr Hoey was cross-examined on having received and given training to other Sales Agents that included training to avoid unconscionably and coercively selling policies, making misleading representations or harassing consumers. The Corporate Defendants also put to Mr Hoey that he knew what constituted misleading, unconscionable and coercive conduct, and did not need somebody to tell him not to engage in that conduct. Mr Hoey accepted that proposition, although he on occasions responded that he knew not to engage in such conduct, “generally speaking”. For some of Mr Hoey’s answers, particularly in relation to harassment, there was some hesitation because it depended on the meaning of the term. In relation to the question about unconscionable conduct, Mr Hoey’s response included that “obviously sometimes other factors play a part when it comes to the incentives and so forth.” Mr Hoey was also cross-examined on being paid a salary and commission, and the effect of a non-compliant sale on that. He was also asked about non-complaint sales in respect to the Incentives. Mr Hoey’s evidence on those topics referred to the sales culture.

1. As noted above, I do not accept any suggestion by Mr Howden in his s 19 examination that he was not aware that there had been a spike in sales to postcodes with a high population of Indigenous people, until St Andrew’s brought it to his attention in October 2016. He was aware at least in 2015 that there was an issue (even if he may not have known the full extent of the issue, as was revealed by the later investigation). As noted above, Mr Howden did not give evidence on this, and given the issue, I infer that any evidence he could give would not have assisted him.

2. I am satisfied that given Mr Howden’s positions, he had knowledge of and involvement in the scripts which were defective, and the compliance and QA processes that failed to ensure the Refer a Friend program was conducted efficiently, honestly and fairly. I am satisfied he was knowingly involved in the contravention.

   Section 912A(1)(c)

3. It is not in dispute that Select, as a financial services licensee, was required to comply with “financial services laws”.

4. The basis of this claim is twofold: first, by engaging in the Conflicted Remuneration Contraventions, Select failed to comply with financial services law and thereby contravened the general obligation it owed as a financial services licensee under s 912A(1)(c); and second, by engaging in the various Consumer Contraventions, Select failed to comply with financial services law and thereby contravened the general obligation it owed as a financial services licensee under s 912A(1)(c) of the Corporations Act.

5. Put simply, the term “financial services laws” is defined in s 761A of the Corporations Act (which is contained in Ch 7) as including: “a provision of this Chapter or of Chapter 5C, 5D, 6, 6A, 6B, 6C, 6D or 8A; or a provision of Division 2 of Part 2 of the ASIC Act”.

6. The Conflicted Remuneration Contraventions are brought pursuant to ss 963E and 963F of the Corporations Act. Those provisions are contained in Ch 7 of the Corporations Act and are, therefore, financial services laws. The Consumer Contraventions are brought pursuant to ss 12DA, 12DB, 12CB and 12DJ of the ASIC Act, which are each contained in Div 2 of Pt 2 of the ASIC Act, and are therefore financial services laws.

7. Given my conclusions in respect to each of the underlying claims, ASIC has established that Select has contravened s 912A(1)(c).

8. ASIC also contends that Mr Howden was involved in the Conflicted Remuneration Contraventions (but not the Consumer Contraventions) pursuant to s 79. For the reasons previously given at [1337]-[1356] above, I accept that submission.

   Directors’ Duties Contraventions

9. The last component of ASIC’s case is that Mr Howden breached his duties as director and officer of Select and BlueInc Services, in s 180(1) of the Corporations Act. It is contended that these breaches arise as a result of his personal involvement in each of the Incentives in which Sales Agents partook; his failure to take reasonable steps to prevent Select and BlueInc Services from engaging in contraventions, or potential contraventions, of the conflicted remuneration provisions; and exposure of Select and BlueInc Services to a foreseeable risk of harm, by virtue of their breaches, or potential breaches, of civil penalty provisions of the Corporations Act.

10. ASIC contended, as a result, the Court should find that Mr Howden failed to act with the requisite degree of care and diligence as director and officer of Select and BlueInc Services in breach of s 180(1).

    Legal principles

11. Section 180 is as follows:

    Care and diligence—directors and other officers

    (1)A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

    (a)were a director or officer of a corporation in the corporation’s circumstances; and

    (b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

    Note:    This subsection is a civil penalty provision (see section 1317E).

    Business judgment rule

    (2)A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

    (a)make the judgment in good faith for a proper purpose; and

    (b)do not have a material personal interest in the subject matter of the judgment; and

    (c)inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

    (d)rationally believe that the judgment is in the best interests of the corporation.

    The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

    Note:This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence)—it does not operate in relation to duties under any other provision of this Act or under any other laws.

    (3)      In this section:

    business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

12. The principles relevant to the application of the provision are conveniently summarised by White J in Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354: (2019) 370 ALR 191 (Meadows) at [180]-[184]:

    [180]The principles developed by the Courts concerning the duty imposed by s 180(1) were not in issue. It is convenient to adopt the summary which Brereton J gave in Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373:

    [99]The statutory duty imposed by s 180(1) reflects, and to some extent refines, that which obtains at general law. As Santow J (as his Honour then was) explained in ASIC v Adler … both the common law and equity imposes on directors a duty of care and skill … the content of which is essentially the same as the statutory duty … .  Similarly, the statutory duties imposed by s 181 and s 182 reflect, and to some extent refine, corresponding obligations of directors under the general law.

    [100]In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company's business, the composition of the board, the director’s position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case … .

    [101]Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances …  And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company …  they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance … .

    [102]The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels v Anderson (at NSWLR 504), the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. In Vrisakis v ASC (1993) 9 WAR 395, 449–50; 11 ACSR 162, 211–13; Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company - which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company - and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct [see also ASIC v Doyle (2001) 38 ACSR 606, 641]. As His Honour explained:

    Under s 229(2), however, there is no reference to damage suffered by the company, and an offence may notionally be committed under that section without any damage having been sustained. The question is merely whether the defendant director has exercised a reasonable degree of care and diligence in the exercise of his powers in the discharge of his duties. Nevertheless, a criminal offence will not have been committed if an omission to take care did not carry with it a foreseeable risk of harm to the company. No act of commission or omission is capable of constituting a failure to exercise care and diligence under s 229(2) unless at the time thereof it was reasonably foreseeable that harm to the interests of the company might be caused thereby. That is because the duty of a director to exercise a reasonable degree of care and diligence cannot be defined without reference to the nature and extent of the foreseeable risk of harm to the company that would otherwise arise.

    Further, the mere fact that a director participates in conduct that carries with it a foreseeable risk of harm to the interests of the company will not necessarily mean that he has failed to exercise a reasonable degree of care and diligence in the discharge of his duties. The management and direction of companies involve taking decisions and embarking upon actions which may promise much, on the one hand, but which are, at the same time, fraught with risk on the other. That is inherent in the life of industry and commerce. The legislature undoubtedly did not intend by s 229(2) to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity. Accordingly, the question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question.

    [181]The standard of care required by s 180(1) is objective but account must be taken of the circumstances of the company and of the particular director or officer involved. The Court enquires as to what an ordinary person, with the knowledge and experience of the director or officer, could be expected to have done in the circumstances if he or she was acting on their own behalf: Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [372]. The “corporation’s circumstances” include the type of company, the size and nature of its business, the provisions of its constitution, the composition of the Board and the distribution of the work between the Board and other officers: Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1 (ASIC v Rich) at [7201].  In Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589; (2015) 241 FCR 502, Beach J elaborated the position:

    [440]It is not in doubt that the circumstances of the particular company concerned inform the content of the duty. These include the size and type of the company, the size and nature of the business it carries on, the terms of its Constitution, and the composition of the board of directors.

    [441]It is also not in doubt that in considering the acts or omissions of a particular director, one looks at factors including the director’s position and responsibilities, the director’s experience and skills, the terms and conditions on which he has undertaken to act as a director, how the responsibility for the company’s business has been distributed between the directors and the company’s employees, the informational flows and systems in place and the reporting systems and requirements within the company.

    [442]Further, one then looks at the relevant acts, omissions and circumstances in the given case.

    [182]In ASIC v Cassimatis (No 8), Edelman J reviewed the historical basis and nature of the common law, equitable and statutory bases for the duty of directors and officers to act with due care and diligence. His Honour’s conclusions included the following:

    (a)the dominant position is that directors owe a single general law duty, recognised by both common law and equity, to take reasonable care, at [427]; and

    (b)the duty is concerned with negligence and not gross negligence, at [428].

    [183]Edelman J also concluded that the foreseeable risk of harm to be considered in relation to an alleged breach of s 180(1) is not confined to financial harm but includes harm to all of the interests of the company, including its reputation; that the question of whether a director has exercised reasonable care and diligence is to be answered by balancing the foreseeable risk of harm against the potential benefits which could be expected to accrue to the company from the conduct in question; that the balancing of the risk against potential benefits should be carried out in a way which is similar to the negligence calculus discussed by Mason J Wyong Shire Council v Shirt [1980] HCA 12, (1980) 146 CLR 40 at 47 8; and that the exercise is “forward looking” to what a reasonable person would have done, not “backward looking” at what would have avoided the injury: ASIC v Cassimatis (No 8) at [483] [487].  See also Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75 (ASIC v Drake (No 2)) at [395] [401].

    [184]The duty imposed by s 180(1) requires directors and officers to be familiar with the fundamentals of the company’s business, to keep themselves informed about the company’s activities, to monitor generally the company’s affairs, to maintain familiarity with its financial status and, in most cases, to have a reasonably informed opinion of the company’s financial capacity: ASIC v Rich at [7203]. Questions of whether a director or officer has failed to meet the required standard of care and diligence are to be assessed with regard to the circumstances existing at the relevant time, without the benefit of hindsight, and with the distinction between negligence and mistakes or errors of judgment kept firmly in mind: ibid at [7242]. Section 180(1) is not directed to mere mistakes or errors of judgment. The position was stated by Robson J in Australian Securities and Investments Commission v Lindberg [2012] VSC 332 at [72]:

    … Making mistakes does not by itself demonstrate lack of due care and diligence. The business judgment rule in s 180(2) also recognises that business judgments made in good faith and on a proper basis do not fall within s 180(1). Directors and officers of corporations are expected to take calculated commercial risks. A company run on the basis that no risks were ever taken would be unlikely to be successful. The proper taking of risk in making business decisions is entirely consistent with exercising care and diligence. The proper assessment of the risks and potential rewards is a matter that demands the exercise of care and diligence. The two concepts complement each other in the management of corporations.

13. And further at [188]-[190]:

    [188]In s 180(3) “business judgment” is defined to mean “any decision to take or not take action in respect of a matter relevant to the business operations of the corporation”.

    [189]The four elements in s 180(2) are cumulative. 

    [190]It is a person who invokes the business judgment rule who has the onus of proving that he or she falls within its terms: ASIC v Rich at [7269]; Australian Securities and Investments Commission v Fortescue Metals Group Ltd [2011] FCAFC 19; (2011) 190 FCR 364 at [197]. The business judgment rule applies only to business decisions. A failure by directors to turn their mind to a particular issue does not attract the defence: ASIC v Rich at [7271] [7284].

14. Mr Howden refers, inter alia, to Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373, where Brereton J at [100]-[101] observed:

    [100]In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company’s business, the composition of the board, the director’s position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case Re City Equitable Fire Insurance Co Ltd [1925] Ch 407, 427; (Romer LJ); Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, 125 (Tadgell J); ASC v Gallagher (1993) 11 WAR 105; 10 ACSR 43; 11 ACLC 286; Daniels v Anderson, 504-505; ASIC v Adler, [372]; Explanatory Memorandum to the CLERP Bill 1999 para 6.75.

    [101]Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances …. And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company…, they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance Re City Equitable Fire Insurance Co;Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 11 ACSR 785, 856–8; 11 ACLC 1082; (1994) 15 ACSR 1, 60–2; Daniels v Anderson (1995) 37 NSWLR 438, 502-504; 16 ACSR 607, 665–6; Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051 (QSC).

15. As to the passage at [101] in relation to relying on others, see also Cribb v Kingsbury (No 2) [2021] FCA 1397 at [77]; Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291 at [167].

    Consideration

16. ASIC submitted that its case against Mr Howden relates to the foreseeable risk of contravention by Select and BlueInc Services of the conflicted remuneration provisions and exposure to the risk of reputational harm, litigation or regulatory action. The case against him is not premised on there necessarily having been an actual breach by Select and BlueInc Services. Rather, Mr Howden’s liability is primarily established by the fact that he was personally involved in all of the Incentives offered to Sales Agents and that he knew that those Incentives were operative during sales calls with consumers. Further, far from taking reasonable steps to prevent Select and BlueInc Services from engaging in contraventions, or potential contraventions, of the conflicted remuneration provisions, Mr Howden was personally involved in all of the Incentives, was the architect of at least the Vespa Incentive, and actively promoted at least two of the Incentives to the Sales Agents. Mr Howden knowingly exposed those companies to a foreseeable risk of harm – pecuniary, reputational and harm to the potential future existence of the corporation – by the provision of the Incentives to representatives of Select and employees of BlueInc Services.

1. Mr Howden took issue with that approach, contending that ASIC’s allegation against him depends on it establishing that the Corporate Defendants breached the conflicted remuneration provisions. It was submitted that the Conflicted Remunerations Contraventions are being used as a “stepping stone” to establishing liability pursuant to s 180(1).

2. This dispute is academic, given that I have concluded that the Conflicted Remunerations Contraventions are established. No further consideration is, therefore, needed of this issue.

3. Mr Howden submitted that if the Conflicted Remunerations Contraventions are established, nonetheless ASIC has not established a breach of s 180(1). It was submitted that not every breach of the Corporations Act necessarily gives rise to a breach of the director’s duties provisions, citing Australian Securities and Investments Commission v Warrenmang Limited [2007] FCA 973 at [29].

4. It was submitted that ASIC must satisfy the Court that in this case there are particular reasons why Mr Howden breached his director’s duties because of Select and BlueInc Services’ breach of the conflicted remuneration provisions. Mr Howden submitted that reliance by ASIC on the fact that Mr Howden was personally involved in implementing the Incentives and that he failed to recognise that these Incentive scheme prizes constituted conflicted remuneration, are insufficient to establish that he breached s 180(1). It was submitted that there are two broad reasons for this conclusion. First, that Mr Howden relied on the compliance officers (Mr Hitchcock and Mr Nguyen) and second, that Mr Howden’s failure to recognise that the Incentives might constitute conflicted remuneration did not fall below the standard of care a reasonable director in his position would have exercised. ASIC have not established that Mr Howden knew, or ought to have known, that the Incentive scheme prizes constituted conflicted remuneration or that he should have made further enquiries, in circumstances where his expertise was in accounting. The provisions are complex and have not been judicially considered. A lay person cannot be criticised for not correctly predicting that the prizes for the Incentives would be characterised as conflicted remuneration. It was submitted that these provisions were not “a big deal” in the industry such that a person in Mr Howden’s position should have been aware of them, and in any event, there is no evidence from ASIC that they were.

5. Addressing that last submission first. As ASIC submitted, it does not need to prove that Mr Howden was aware of the conflicted remuneration provisions as s 180 posits an objective test. The test is what an “ordinary person, with the knowledge and experience of the director or officer, could be expected to have done in the circumstances if he or she was acting on their own behalf”: Meadows at [181], citing Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [372].

6. Therefore, the Court is required to consider the position of a director with the experience of Mr Howden in relation to being a director of a company like Select, in the position of Select. In that context, Mr Howden must exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise.

7. Before addressing Mr Howden’s position, it is appropriate to make some observations about the conflicted remuneration provisions. These provisions were inserted into the Corporations Act by Act number 68 of 2012 and took effect from 1 July 2012. These were part of reforms to the corporations legislation, consisting of the Corporations Amendment (Future of Financial Advice) Act 2012 (Cth) and Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth) (which included the best interests duty, ban on conflicted forms of remuneration, opt-in obligation and changes to ASIC’s licensing and banning powers). It can readily be inferred that such reforms were significant for any industry participant with an AFSL covering the provision of personal or general advice in relation to financial products.

8. In March 2013, ASIC issued regulatory guidance in relation to conflicted remuneration: ASIC Regulatory Guide 246 - Conflicted and other banned remuneration (RG 246). RG 246 warned industry participants that conflicted remuneration could take the form of “tickets to sporting events or concerts and subsidised travel”, as well as promotions or other ways of recognising an employee based on product recommendations or sales. ASIC warned that those are benefits that could reasonably be expected to influence the adviser to recommend that its clients purchase a financial product.

9. Select was a company which retailed life insurance products and it remunerated its sales team with commissions and with other incentives, as well as with salary. Based on RG 246, any benefits offered to Sales Agents in the course of providing financial product advice under an AFSL, therefore, ran the foreseeable risk of running afoul of the conflicted remuneration laws.

10. The evidence establishes that Mr Howden had 20 years’ experience in the insurance industry and at material times was a Responsible Manager under the AFSL.

11. Mr Howden had sole decision-making authority and effectively maintained complete control over each of the companies: see [13] above. The structure of the businesses is referred to above. It suffices to recall that Mr Howden is the sole director, secretary and managing director of all Select and BlueInc Services. Select and BlueInc Services are ultimately 100% owned by BlueInc Group, of which Mr Howden is also the sole director. That entity is 100% owned by Howden Family Holdings, of which Mr Howden and his wife are the ultimate beneficiaries.

12. Mr Howden consistently maintained compliance responsibility for Select and its AFSL during the relevant period. When the company applied for the AFSL, Mr Howden was listed as one of its two Responsible Managers. He personally attested during a s 19 examination to the fact that he was “always one of the Responsible Managers on the license”. As a Responsible Manager under Select’s AFSL, Mr Howden took responsibility for, inter alia, compliance with Ch 7 of the Corporations Act, monitoring, training and development of representatives, dispute resolution with customers, and the provision of personal and general advice to retail clients. The general obligations of Select under s 912A(1) included the obligation to take reasonable steps to ensure that its representatives comply with the financial services laws, maintain competence to provide financial services and ensure that its representatives were adequately trained. One of the conditions of the licence which was granted is that “the licensee must establish and maintain compliance measures that ensure, as far as is reasonably practicable, that the licensee complies with the provisions of the financial services laws”.

13. The Services Agreement between Select and BlueInc Services includes, under the heading “General Select AFSL Obligations”, that Select must use best endeavours to, inter alia, “comply with all applicable Commonwealth, State laws (including statutory requirements) and any relevant codes of practice, conduct or set of standards”.

14. In respect to an application to vary Select’s AFSL, Mr Howden provided ASIC in October 2012 with documents describing Select’s business and organisational competence. In the business description document, was an organisational chart which reflects that Mr Howden was the Managing Director and Responsible Manager. In the organisational competence document, under the heading “Responsible Manager Expertise”, it stated that the “required knowledge, experience and skills”, included knowledge of the relevant legislation. I note these documents record that they were prepared on 5 October 2012, a time after the conflicted remuneration provisions had been enacted. Further, in the organisational competence document, under “area of responsibility” is listed FSRA (Financial Services Reform Act) compliance, of which Mr Howden is responsible. That included the conflicted remuneration provisions.

15. The documentary evidence is replete with such references, reflecting that it was Mr Howden who held the responsibility, the level of expertise and the skills, qualifications and experience in relation to compliance matters. The above are just a few examples.

16. It may readily be inferred that Mr Howden was, or at the very least should have been, aware of the conflicted remuneration provisions.

17. That said, the test is an objective one. A person in the positon held by Mr Howden with commensurate experience and responsibilities in a company of the nature of Select (and using a business model of telemarketing with the use of incentives) should be aware of the provisions. Such knowledge would reasonably be expected.

18. Moreover, in assessing the position of a reasonable director in Mr Howden’s position, the following matters are also relevant.

19. Mr Howden was the signatory on all sales scripts, and sales training. He was in receipt of and reviewed the monthly compliance reports prepared for Select. He was present at monthly meetings to discuss the reports. As correctly submitted by ASIC, it is the unchallenged evidence of Mr Hoey, that Mr Howden was in receipt of regular emails from the Head of Sales when sales were low, highlighting the lowest-performing Sales Agents. In his s 19 examination, Mr Atwal gave unchallenged evidence (claiming privilege) that, whilst he was Sales Manager and Sales Operations Manager, he would report to Mr Howden and other senior management every Monday morning about the prior week’s results and other operational matters. Mr Shah’s also unchallenged evidence in his s 19 examination about those meetings (which he said Mr Howden attended), included that he would report on the top and bottom performing staff each week and their weekly target.

20. It is Mr Howden’s own account in his s 19 examination that he sat in an office on the same level as the Sales Agents. It was an open plan, glass office and Mr Howden’s door was always open, to anyone working under him. Mr Howden regularly interacted with staff, including Sales Agents and managers. He knew everyone individually and would routinely speak with them about sales and whether agents were meeting their targets. The inference to be drawn from the evidence (from the s 19 examinations of the agents), is that Mr Howden was a micromanager. Mr Howden was located in the same office, where posters for the Incentives and “leader board” screens were also located. Mr Howden presided over what at the very least, would be described as a very competitive, sales driven culture designed to sell more products by, inter alia, rewarding the top performers. These practices were known and endorsed by senior management, including Mr Howden, and set the culture of the sales environment.

21. As previously explained, in relation to the Incentives, Mr Howden approved the Incentives. As Mr Atwal, who was Sales Manager, described, Mr Howden had sole responsibility setting policies, targets and incentives.  Under privilege, Mr Atwal also said that Mr Howden was privy to the “rev-up” sessions of the sales teams.

22. I do not accept Mr Howden’s submission that he had either delegated his responsibilities for conflicted remuneration to others or had relied on others in this respect.

23. Reliance is placed by the Defendants on Mr Hitchcock and Mr Nguyen. As noted above, from October 2012 to September 2015, Mr Hitchcock was Head of Compliance and Quality Assurance (and Responsible Manager and Key Person on Select’s AFSL). However, during that period, Mr Hitchcock was only working one day per week or fortnight and was only present in the office on an ad hoc basis from July 2015. From January 2015, Mr Nguyen was engaged as a Compliance and Quality Assurance Team Leader and assumed responsibility from Mr Hitchcock for Select’s compliance and QA function from October 2015.  Mr Nguyen had no prior experience in a compliance role and no compliance qualifications when he commenced with Select. Mr Nguyen had only one year’s experience in another financial services institution before commencing at BlueInc Group. Even if there may have been occasions when Mr Howden sought or relied on the advice of Mr Hitchcock, there is no evidence that Mr Howden personally delegated this responsibility in relation to the Incentives to these officers or that he personally relied on them. Nothing in any of the documents, the compliance reports or directors’ reports supports the submission.

24. The only evidence relied on by Mr Howden is one brief answer taken from Mr Hitchcock’s s 19 examination, from which it is submitted that he turned his mind to the Incentives, did not identify any issues related to conflicted remuneration, was satisfied that the Incentives were compliant and from that Mr Howden was entitled to take comfort. The answer was not given in those words. There is no reference in Mr Hitchcock’s evidence to any delegation, or that Mr Howden relied on it. Moreover, there is no support for it in the evidence. Mr Howden did not give evidence of that. In all the circumstances, that does not give rise to any inference of delegation. The submission does not sit with the unchallenged evidence of Mr Hitchcock and Mr Nguyen in their s 19 examinations that Mr Howden did not even seek the advice of either compliance manager on whether the Incentives were appropriate and lawful. For example, the first that Mr Hitchcock was aware of the Vespa Incentive was seeing the Vespa on the sales floor after the promotion of the incentive. That the Incentives were launched without Mr Hitchcock’s knowledge, reflects on the position Mr Howden regarded himself in. This responsibility could not have been delegated if Mr Howden did not consider it necessary nor appropriate to inform the compliance manager of the Incentives. Given the evidence, and Mr Howden’s conduct in running Select and BlueInc Services, delegation cannot be inferred merely from the position titles of Mr Hitchcock and Mr Nguyen. I accept ASIC’s submission that Mr Howden did not rely on the advice of others and that at the time the Incentives were introduced, Mr Howden did not responsibly delegate his duties as director with the care and diligence one would expect from a person in his position.

25. Mr Howden’s submission as to delegation also fails to grapple with the role he undertook in Select and BlueInc Services and the manner in which he did so. Moreover, importantly in this instance, Mr Howden has not given any evidence of purported delegation or reliance on others for ensuring compliance. This is a topic where he could have given evidence directly on point. He chose not to do so. Mr Howden’s repeated submissions as to what he “would have known” (or not known), or that he was entitled to feel comforted, must be considered in that light. So too, given the evidence of the extent of his role, must the submission that he did not adopt, and should not have been taken to have adopted, personal responsibility for every aspect of the business. In the circumstances, I draw an inference that anything he could have said would not have assisted him in this aspect of the submission. The failure to call Mr Howden does give rise to a Jones v Dunkel inference.

26. I accept ASIC’s submission that a director in Mr Howden’s position and with his skills and experience would, at least, be expected to inform himself of his obligations under the financial services law, including the conflicted remuneration provisions; seek advice from relevant persons (legal or otherwise experts in the area) as to compliance with those provisions before implementing the Incentives; if instituted, adapt the schemes so as to reduce any risk of driving poor sales practices which would include, inter alia, ensuring before implementation, a QA process which would properly monitor its operation, and enable that to occur contemporaneously so that the scheme could be appropriately monitored for bad behaviours. There is no evidence that any of those, or similar steps, were undertaken by Mr Howden.

27. By not only failing to take such steps, but rather conceiving of and promoting the Incentives, Mr Howden exposed Select and BlueInc Services to, and failed to guard them against, a foreseeable risk of harm. I accept ASIC’s submission that in the circumstances, any reasonable director in Mr Howden’s position could have foreseen the distinct and not remote possibility that Select and BlueInc Services would receive a very public admonition for such breaches, as well as have to engage in significant remediation efforts. A foreseeable risk of a contravention by Select and BlueInc Services, with the consequences that would flow, is a foreseeable risk of harm to them.

28. I am satisfied that Mr Howden has breached his directors’ duties owed to Select and BlueInc Services under s 180(1).

    Conclusion

29. My conclusions are reflected in the reasons above. The parties are to liaise and provide a timetable for the preparation and listing of the penalty phase of these proceedings. In doing so, the parties are to provide to chambers draft orders reflecting the conclusions in these reasons.

I certify that the preceding nil (1399) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Abraham.

Associate:

Dated:       8 July 2022

SCHEDULE OF PARTIES

NSD 1447 of 2019
Defendants
Fourth Defendant:	RUSSELL HUGH HOWDEN