Australian Securities and Investments Commission v Westpac Securities Administration Ltd
[2019] FCAFC 187
•28 October 2019
FEDERAL COURT OF AUSTRALIA
Australian Securities and Investment Commission v Westpac Securities Administration Limited [2019] FCAFC 187
Appeal from: Australian Securities and Investments Commission v Westpac Securities Administration Limited, in the matter of Westpac Securities Administration Limited [2018] FCA 2078 File number: NSD 204 of 2019 Judges: ALLSOP CJ, JAGOT AND O'BRYAN JJ Date of judgment: 28 October 2019 Catchwords: CORPORATIONS – where Westpac conducted campaign to encourage customers to roll over funds held in external superannuation accounts into their existing Westpac accounts – whether Westpac’s campaign involved the provision of a “recommendation” or “statement of opinion” amounting to “financial product advice” – whether Westpac’s campaign involved the provision of “personal advice” or “general advice” within the meaning of s 766B of the Corporations Act 2001 (Cth) (the Act) – where primary judge found that Westpac provided general financial product advice – “personal advice” was given because a reasonable person might expect the callers to have considered the objectives of the customers in making the recommendation to accept the rollover service – consequent contraventions of ss 912A(1)(b) and (c), 946A, 961B(1) and 961K(1) of the Act – appeal allowed
CORPORATIONS – whether Westpac failed to do all things necessary to ensure financial services provided “efficiently, honestly and fairly” – where primary judge found contraventions of s 912A(1)(a) of the Act – Westpac did not act efficiently, honestly, or fairly in conducting a campaign with the aim of getting its customers to make a decision after the provision of only “general advice” where that decision could only prudently be made having regard to information personal to the customers and the superannuation accounts – whether, if Westpac had been found to have given only “general advice”, an alternative case on s 912A(1)(a) was run before the primary judge – no alternative case articulated because the case before the primary judge was predicated on the likelihood or fact of “personal advice” – cross-appeal dismissed
Legislation: Corporations Act 2001 (Cth), ss 760A, 766A(1), 766B(1), 766B(3), 766B(3)(a) 766B(3)(b), 766B(4), 912A(1)(a), 912A(1)(b), 912A(1)(c), 946A, 947B, 947B(2)(b), 949A, 949A(2), 961B(1), 961(B)(2), 961B(2)(b)(ii), 961C, 961D, 961E, 961G, 961J, 961K, 961K(2)
Financial Services Reform Act 2001 (Cth)
Financial Services Reform Bill 2001 (Cth)
Replacement Explanatory Memorandum Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 (Cth)
Supplementary Explanatory Memorandum to the Financial Services Reform Bill 2011 (Cth)
Cases cited: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27
Attorney-General (NSW) v The Perpetual Trustee Co (Ltd) [1940] HCA 12; 63 CLR 209
Australian Securities and Investments Commission v Avestra Asset Management Limited (In Liq) [2017] FCA 497; 348 ALR 525
Australian Securities and Investments Commission v Camelot Derivatives Pty Ltd (in liq) [2012] FCA 414; 88 ACSR 206
Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; 336 ALR 209
Australian Securities and Investments Commission v Financial Circle Pty Ltd [2018] FCA 1644; (2018) 131 ACSR 484
Australian Securities and Investments Commission v NSG Services Pty Ltd [2017] FCA 345; 122 ACSR 47
Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527
Cody v JH Nelson Pty Ltd [1947] HCA 17; 74 CLR 629
Commissioner of Taxation (Cth) v Consolidated Media Holdings Limited [2012] HCA 55; 250 CLR 503
ConnectEast Management Limited v Commissioner of Taxation (Cth) [2009] FCAFC 22; 175 FCR 110
Commonwealth v Baume [1905] HCA 11; 2 CLR 405
Daly v Sydney Stock Exchange Ltd [1986] HCA 25; 160 CLR 371
Esso Australia Resources Limited v Commissioner of Taxation (Cth) [1998] FCA 1655; 83 FCR 511
Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCAFC 154; 199 FCR 226
Independent Commission Against Corruption v Cunneen [2015] HCA 14; 256 CLR 1
Legal Services Board v Gillespie-Jones [2013] HCA 35; 249 CLR 493
Mersey Docks and Harbour Board v Henderson Bros (1888) 13 App Cas 595
Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; 236 FCR 199
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355
Public Transport Commission (NSW) v J Murray-More (NSW) Pty Ltd [1975] HCA 28; 132 CLR 336
R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) [1989] SASC 1941; 1 ACSR 93
Rennie Golledge Pty Ltd v Ballard [2012] NSWCA 376; 82 NSWLR 231
Story v National Companies and Securities Commission (1988) 13 NSWLR 661
The Owners of The Ship “Shin Kobe Maru” v Empire Shipping Co Inc [1994] HCA 54; 181 CLR 404
Date of hearing: 26–27 August 2019 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 429 Counsel for the Appellant and Cross-Respondent: Mr J Renwick SC with Mr T Kane and Mr M Kalyk Solicitor for the Appellant and Cross-Respondent: Australian Securities & Investments Commission Counsel for the Respondents and Cross-Appellants: Mr R McHugh SC with Mr J Williams and Ms E Doyle-Markwick Solicitor for the Respondents and Cross-Appellants: Allens ORDERS
NSD 204 of 2019 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Appellant
AND: WESTPAC SECURITIES ADMINISTRATION LTD ACN 000 049 472
First Respondent
BT FUNDS MANAGEMENT LTD ACN 002 916 458
Second Respondent
AND BETWEEN: WESTPAC SECURITIES ADMINISTRATION LTD ACN 000 049 472
First Cross-Appellant
BT FUNDS MANAGEMENT LTD ACN 002 916 458
Second Cross-Appellant
AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Cross-Respondent
JUDGES:
ALLSOP CJ, JAGOT AND O'BRYAN JJ
DATE OF ORDER:
28 OCTOBER 2019
THE COURT ORDERS THAT:
1.The appeal be allowed with costs.
2.The cross-appeal be dismissed with costs.
3.Order 1 made by the Court on 7 February 2019 be set aside.
4.The appellant provide to the respondents, within 7 days, draft short minutes providing for declarations and orders to be made in addition to those made by the Court on 21 December 2018.
5.The parties file, within 14 days, draft short minutes containing any agreed declarations and orders proposed by the parties or, in the absence of agreement, the appellant and respondents file competing draft short minutes containing the declarations and orders proposed by each party and accompanying submissions in support of no more than 2 pages in length.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
ALLSOP CJ:
Introduction
This is an appeal by the Australian Securities and Investments Commission (ASIC) and cross-appeal against a declaration made by a judge of this Court in relation to campaigns implemented in 2014 and 2015 by the respondents/cross-appellants to encourage their customers to roll over external superannuation accounts into existing accounts (collectively, the BT accounts) that they held with the first respondent/cross-appellant, Westpac Securities Administration Limited, and the second respondent/cross-appellant, BT Funds Management Limited (to which companies I will refer in the singular as Westpac or BT depending upon the context). The campaign comprised sending letters to customers and making telephone calls to the customers. The complaints of ASIC are directed principally to the telephone calling and the system adopted in relation thereto.
During the course of its campaign, Westpac routinely identified and emphasised particular benefits of the rollover service it was offering to customers without suggesting that they, before agreeing to the rollover, consider the particular issues which may have indicated that consolidation into their BT account was or was not the best course of action for them.
The heart of the appeal concerns whether Westpac’s campaign involved the provision of financial product advice and, if so, whether that financial product advice should properly be characterised as personal advice or general advice, in the relevant statutory sense. The primary judge concluded that the advice was general, not personal.
On the appeal, ASIC submitted that the primary judge should have found that Westpac impermissibly provided personal financial product advice to its customers during its campaign. On the cross-appeal, Westpac submits that the primary judge erred both in finding that it provided a “recommendation” or “statement of opinion” amounting to “financial product advice” (even if general) and in finding that it failed to do all things necessary to ensure that the financial services covered by its licenses were provided efficiently, honestly and fairly. In argument on the cross-appeal, senior counsel for Westpac argued that the primary judge’s conclusions went beyond the case pleaded and agitated below.
Summary of conclusions
For the reasons that follow the appeal should be allowed and the cross-appeal dismissed. In summary, Westpac’s attempts to have customers transfer funds from their external accounts with other superannuation funds into their BT accounts were carefully calculated to bring about this desired result by giving no more than general advice. It was marketing by telephone selling. The difficulty is that the decision to consolidate superannuation funds into one chosen fund is not a decision suitable for marketing or general advice. It is a decision that requires attention to the personal circumstances of a customer and the features of the multiple funds held by the customer. Westpac attempted, assiduously, to get the customer to make a decision to move funds to BT without giving personal financial product advice as defined in the legislation. It failed. It gave personal advice, because when the telephone exchanges are considered as a whole and in their context, including importantly the “closing” on the telephone by getting the decision made during the call, there was an implied recommendation in each call that the customer should accept the service to move accounts funds into his or her BT account carrying with it an implied statement of opinion that this step would meet and fulfil the concerns and objectives the customer had enunciated on the call in answer to deliberate questions by the callers about paying too much in fees and enhancing manageability. This was personal advice, for the reasons discussed later. Perhaps Westpac could have avoided this conclusion and result by the callers ensuring that the customers had the opportunity to consider their own positions and, having done so, later communicate an acceptance, if they wished. This was, however, not the intended model of the engagement. “Closing” was to take place, if at all possible, on the call over the phone.
The statutory framework
Chapter 7 of the Corporations Act 2001 (Cth) concerns financial services and markets. The main object of the chapter is set out in s 760A:
The main object of this Chapter is to promote:
(a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b) fairness, honesty and professionalism by those who provide financial services; and
(c) fair, orderly and transparent markets for financial products; and
(d) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
In Pt 7.1, dealing with preliminary matters, Div 4 concerns when a person provides a financial service. Section 766A(1) sets out various ways in which a person may do so. One way (s 766A(1)(a)) is to provide financial product advice as provided for in s 766B. Relevantly, s 766B is in the following terms:
(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.
…
(1)There are 2 types of financial product advice: personal advice and general advice.
(2)For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:
(a)the provider of the advice has considered one or more of the person’s objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or
(b)a reasonable person might expect the provider to have considered one or more of those matters.
(1) For the purposes of this Chapter, general advice is financial product advice that is not personal advice.
The consequences of the distinction between personal and general advice is important. If general advice only is given, the primary obligations on the provider of the advice are fewer. First, there are those applying to all holders of financial services licences under Pt 7.6 Div 3 and in particular relevantly here, s 912A(1)(a):
(1) A financial services licensee must:
(a)do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly[.]
Secondly, there are various obligations which apply to all financial product advice given to retail clients under Pt 7.7 Div 2 and some which apply to general advice under Div 4, including, in Div 4, the obligation in s 949A to provide a general advice warning that the advice does not take account of the client’s objectives, financial situation or needs (being the words in s 766B(3)(a)).
Where personal advice is given, there are a number of obligations which are designed to provide protection to the client. Pt 7.7 Div 3 sets out additional requirements for personal advice. For instance, there is an obligation to give a client a Statement of Advice which accords with (the detailed requirements of) the Division: s 946A; and the provider must act in the best interests of the client: s 961B. The latter provision is contained in Pt 7.7A Div 2 entitled “Best interests obligations”, which contains a detailed attempt to define what is, in effect, an obligation of good faith and unqualified faithfulness to the interests of the client. The primary obligation is simply expressed in s 961B(1) as a requirement to “act in the best interests of the client in relation to the advice”. Section 961B(2) contains seven more detailed requirements, proof of all of which will satisfy the general obligation in s 961B(1). The requirements of s 961B(2), that may be varied or added to by the regulations (s 961B(5)), are as follows:
The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following:
(a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;
(b) identified:
(i)the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and
(ii)the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances);
(c)where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;
(d)assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;
(e)if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:
(i)conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and
(ii)assessed the information gathered in the investigation;
(f)based all judgements in advising the client on the client’s relevant circumstances;
(g)taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.
Note:The matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter (the client’s relevant circumstances). That subject matter and the client’s relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought.
Section 961B(2)(b), s 961C (as to when something is reasonably apparent), s 961D (as to what is a reasonable investigation), s 961E (as to what would reasonably be regarded as in the best interests of the client), and s 961J (as to conflicts of interest of the client and the provider) contain references to the advice that has been sought by the client as an express assumption of the operation of the provision.
The distinction between general and personal advice in ss 766B(1) and (3) is assisted by the expectations and requirements consequent upon the distinction. Notwithstanding the detailed particularisation of the expectations and requirements, the distinction should, however, conform with notions readily apparent to the people involved – the provider of advice and the client. What is advice, and whether it is personal or general, are questions most readily answered by a consideration of the communication or exchange in its whole relational context. They are questions not to be answered by picking over individual and decontextualised parts of a whole communication or exchange.
The questions of statutory construction
The primary judge surveyed the relevant statutory provisions at [68]–[79] of the reasons. After a summary of principles of statutory interpretation and some general observations, her Honour dealt with the meaning of “recommendation or a statement of opinion” in s 766(1) at [83]–[105]; of “intended to influence a person in making a decision in relation to a particular financial product“ in s 766B(1) at [106]–[110]; and of the elements of s 766B(3) at [111]–[135].
The aspects of the construction of these provisions that relate to the appeal and cross-appeal concern ss 766B and 912A(1)(a). The first ground of appeal by ASIC is that her Honour erred in finding that the term “considered” in s 766B(3) required an engagement in an active intellectual process of evaluating or reflecting upon the subject matter of the advice. Secondly, as part of its notice of contention on the appeal, Westpac complains about the primary judge’s view that it sufficed for there to be a consideration of one component or aspect of the person’s “objectives, financial situation and needs.” Thirdly, again as part of the notice of contention on the appeal, Westpac complains about the primary judge’s view that the words “in the circumstances” at the end of the chapeau in s 766B(3) did not import what was referred to as a causal element in relation to the matters to be considered. Fourthly, also as part of the notice of contention on the appeal, Westpac complains about the primary judge’s construction of the objective limb of s 766B(3)(b). Fifthly, the cross-appeal and notice of contention complain that the primary judge erred in concluding that, in the communications concerned, there was a recommendation or statement of opinion amounting to advice. It was Westpac’s contention that no advice at all was given. Though this question is one of the application of the words of the statute to the facts, considerations of construction arise. Sixthly, the cross-appeal complains that the primary judge applied an incorrect test to the operation of s 912A(1)(a).
Care must be taken not to over-complicate these questions, in particular by breaking up the questions of meaning into parts of a section or sub-section to be treated separately. They are all interconnected as part of the distinction between the notions of personal advice and general advice seen through the definition of the term “personal advice”.
s 766B(1) – “recommendation or a statement of opinion”
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 ASIC v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [365]–[366], referred to by the primary judge at [85]:
365 The 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.
366 The 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.
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.
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 of 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.
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.
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.
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] NSWCA 376; 82 NSWLR 231 at 260–261 [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.
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 (The Owners of The Ship “Shin Kobe Maru” v Empire Shipping Co Inc [1994] HCA 54; 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] HCA 28; 194 CLR 355 at 381–382 [69]–[71]) this submission of Westpac cannot be accepted in its terms: Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCAFC 154; 199 FCR 226 at 256–258 [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.
One of the features of the operation of s 766B that assists in the process of relevant characterisation is the relational character of the exchange. Section 766B(3)(a) is directed to the circumstance where the provider has considered one or more subjects. Section 766B(3)(b) is directed to where a reasonable person might expect that consideration to have taken place. That is not to require any particular temporal requirement for the relational exchange; but it may help to distinguish “advice” from advertising in particular circumstances.
s 766B(3) – “considered”
The primary complaint by ASIC on the appeal was that [127] of the reasons contained an error of requiring too high a level of abstracted thought by the provider. Her Honour said at [127]:
In my view, the word “considered” refers to an active process of evaluating or reflecting upon the subject matter of the consideration, appropriate to the provision of “financial product advice”. It does not require a process that is “detailed, extensive or careful”, however, it does involve an intellectual engagement with the subject matter of the consideration. If it were suggested, I do not accept that such an interpretation will permit unscrupulous advisers to evade the scheme by failing to give the client’s personal circumstances due consideration: in my view, s 766B(3)(b) is intended to capture those cases.
The complaint of ASIC was bound up with the primary judge’s application of the provision to the facts, especially at [386], [389] and [394] of the reasons, to which I will come. However, there is force in the criticism of ASIC on appeal that the primary judge impermissibly restricted the word “considered” to something more than its ordinary meaning used in the context of a protective provision. The word “consider” in its context is ample to include elements of what is a usual or ordinary meaning: to pay attention or regard to; to view or think about with attention or scrutiny. Once again, its meaning is assisted by the structure of paras (a) and (b) of sub-s (3). Paragraph (a) is directed to circumstances where the provider has considered certain things; and para (b) is directed to the reasonable person’s expectation that the provider has considered certain things. Again, that does not necessarily require any particular temporal framework; but it having occurred, or some expectation that it has occurred, will assist the application of the words to the facts of the communication or exchange to assess whether consideration has occurred or could be expected to have occurred. I do not think that any assistance is given to understanding the meaning of the word by borrowing from its meaning and usage in another universe of discourse such as public or administrative law.
Thus, as a matter of general approach, I broadly agree with ASIC’s submission that a provider of advice may “consider” the relevant matters by making allowance for, paying attention to, or having regard to the relevant personal circumstances. But the word “considered” needs also to be understood in the context of personal advice and in the context of the whole section. The matters that one considered in the making of a recommendation or of a statement of opinion are ones to which the provider had regard or took into account in making such, and so in the giving of advice. I will return to this point below. It is important to the proper understanding of the definition in s 766B(3).
s 766B(3) – “one or more of the person’s objectives, financial situation and needs”
The difference between the parties as to this phrase was whether the phrase “one or more of the person’s” referred to the three subjects contained in the phrase – “objectives”, “financial situation”, and “needs” – or whether the phrase also referred to any aspect of one of those subjects.
A consideration of the secondary material, in particular the Senate Supplementary Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth), and the text of the singular phrase “financial situation” makes it tolerably clear that “one or more” was one or more of the person’s objectives, the person’s financial situation, and the person’s needs. It is the distributive consideration of these three matters for consideration which was important. This is plain from [3.20], [3.22] and [3.23] of the Senate Supplementary Explanatory Memorandum:
[3.20] As currently drafted, proposed subsection 766B(3) defines personal advice as financial product advice that is given or directed to a person in circumstances where the provider has considered the ‘objectives, financial situation and needs’ of the person (or where a reasonable person might expect the provider to have considered these matters).
…
[3.22] The purpose of this proposed amendment is to ensure that a financial services provider will be subject to the requirements of proposed Divisions 3 or 5 of Part 7.7 (including the requirement to provide a SOA) when advising a retail client that a particular financial product (o[r] class of financial products) is appropriate to them as an individual.
[3.23] As subsection 766B(3) is currently drafted, a financial services provider could recommend a financial product or class of financial product as being appropriate to a retail client’s individual needs and objectives, but avoid the requirements of proposed Divisions 3 or 5 of Part 7.7 because they had not considered the client’s financial situation.
(Emphasis added.)
That does not mean, however, that there can be no personal advice unless every aspect of each matter is considered. The surrounding circumstances, including the nature, content and context of the communication or exchange, will provide the answer to the question whether the provider has considered, or whether a reasonable person might expect the provider to have considered, any one or more of those subjects. It is the consideration of sufficient aspects of the objectives, the financial situation or needs of the person so as to make the conclusion that there has been a consideration of that subject appropriate (and so the advice being seen as personal to the individual).
s 766B(3)(b) – “a reasonable person might expect”
The context or frame of reference of paras 3(a) and (b) is a communication or exchange involving the giving or directing of advice (a recommendation or statement of opinion) to a person. It is therefore by reference to that communication or exchange that one assesses whether the advice is given or directed in circumstances where the provider has considered one or more of the relevant matters or a reasonable person might expect the provider to have considered one or more of the matters. Sections 766B(3)(a) and (b) are co-relatives of each other. It is personal advice if a provider has considered the relevant personal circumstances of the person in the giving of the advice; or if a reasonable person might expect the provider to have considered the relevant personal circumstances in the giving of the advice. The provision is not framed by reference to what a provider should consider if the advice is to be given reasonably or responsibly. Rather, s 766B(3)(b) calls for an enquiry as to whether, in the circumstances of the giving of the advice by the provider, a reasonable person might expect one or more of the subject matters to have been considered in the giving of that advice. In these circumstances, it is difficult to understand how s 766B(3)(b) would operate, as found by the primary judge at [135] of the reasons, by reference to circumstances that could not have been known to a reasonable person. At the trial ASIC submitted that the question was to be assessed as I have set out. That is the preferable construction. Thus, I do not think that one can imbue a reasonable person in the customer’s position with knowledge of the QM Framework. It is to a real world communication or exchange in context to which the factual questions in ss 766B(3)(a) and (b) are addressed.
The facts
ASIC’s case before the primary judge was principally based on sample calls to 15 customers (the Relevant Customers), one of which – the call to Customer 3 – is no longer relied upon on appeal.
The consolidation campaigns
The consolidation campaigns involved Westpac sending written communications to customers with an offer to conduct a free search for other superannuation accounts that those customers might hold. Follow-up telephone calls were then made to customers, who may or may not have accepted the free search offer, in which a further offer was made to arrange a rollover of any external accounts into their BT accounts. These telephone calls were conducted by a team of Westpac employees (referred to collectively as the Super Activation Team). The primary judge described the nature of the Super Activation Team and their involvement in the consolidation campaigns is at [36]–[38] of the reasons, as follows:
36 Westpac’s campaign to encourage rollovers into the BT funds involved a team of employees operated by one or more entities within the Westpac group and referred to at various times as the “Super Activation” or “Investor Solutions – Outbound” or “Investor Solutions” telephone unit (collectively, the “Super Activation Team”).
37 The parties agreed that, during the period 18 May 2013 to September 2016:
•members of the Super Activation Team contacted and actually spoke with approximately 95,682 Westpac group customers;
•approximately 31,506 customers were regarded by the Westpac group as having satisfied the following criteria:
(a)during the call from the Super Activation Team, the customer stated they intended to:
(i)roll over an external account into a superannuation account with the Westpac Group (“Westpac account”); or
(ii)contribute additional funds into their Westpac account; and
(b)funds were received into that customer’s Westpac account within 12 months of the customer’s statement of intention, noting that for “Corporate Superannuation customers”, funds over $1,000 were required to be received.
38 An amount of approximately $646,719,225.51 in FUM was generated during the period from 1 January 2013 to 16 September 2016 in respect of the customers who satisfied the criteria set out above.
Members of the Super Activation Team participated in internal training, which included a PowerPoint presentation that provided guidance as to the difference between general and personal advice and which sought to ensure that Super Activation Team members did not provide personal advice. The primary judge described the content of this training at [14] of the reasons in the following way:
14 … The evidence included a BT PowerPoint presentation dated January 2014 concerning the distinction between personal and general advice. A case study in the presentation included a response to the customer’s question whether the consultant would recommend a rollover of other funds into their BT account. The response given is:
As I am only qualified to provide general advice, I am unable to advise you as to whether you should consolidate all these funds into BT Super. This would require personal advice from a qualified financial advisor who would consider information such as:
whether you will have to pay any termination fees moving from existing funds
whether you will lose any insurance benefits
whether the fund you want to consolidate into has all the services you want
whether employer can contribute to your chosen fund
Would you like me to refer you to one of our financial advisors? If not, I can provide you with general advice regards the features and benefits of the BT Super Fund for you to consider.
At [48] of the reasons, the primary judge set out the following statements contained in the PowerPoint presentation to guide the interaction between callers on the Super Activation Team and Westpac’s customers:
·‘NOTE: If you provide/suggest or imply an opinion/recommendation in relation to the factual information you present to a client, then you are providing advice’ (page 1);
·‘The client needs to receive a general advice warning at the outset and at any time where you need to reinforce the nature of the engagement. However, be aware that providing a warning does not cover instances where you have provided personal advice (Implied or actual) to the client’ (page 2);
·‘General advice should NEVER be provided in such a way as to drive a particular outcome. Doing so is unlikely to provide a balanced view of the options available to the client and could in fact constitute personal advice i.e. the client need has been taken into consideration in recommending the preferred outcome’ (page 2);
·‘The client can volunteer personal information, yet the use of this information must be contained to what people generally consider. You should only use this information to provide more relevant general advice e.g. It is presented from what clients in a group or age bracket or life stage would generally consider’ (page 2);
·‘When comparing products, you cannot state or imply that one of the products better meets the client’s objectives, financial situation or needs e.g. you cannot state or imply that specific product features will be suitable for the client’ (page 2); and
·In ‘Case Study 6’, which involves a scenario wherein a staff member calls a customer about consolidation of their superannuation, there is a warning against making statements which involve ‘a recommendation to essentially rollover the clients [sic] existing superannuation funds’ and another warning against making statements which ‘attempted to influence the clients [sic] decision to invest further into the BT Super Fund’.
During their internal training, members of the Super Activation Team were also introduced to a “quality monitoring” document (the QM Framework), which was said to set out risk compliance obligations for the Super Activation Team and was used to monitor the quality of calls and compliance. A four-part structure for calls made by the Super Activation Team to customers was set out in the QM Framework and was comprised of the following phases: (1) Open; (2) Gather; (3) Presenting; and (4) Objection Handling/Closing. The primary judge described the elements of each phase at [55]–[57] and [60] of the reasons:
55 The “Open” phase was designed to put the customer in a positive, receptive frame of mind and to gain permission from the customer to ask them questions. For example, a staff member might introduce themselves and ask a question such as “So I can focus on what’s important to you, do you mind if I ask you a few questions?”
56 The “Gather” phase involved asking the customer questions to “gather, uncover, clarify and develop” an understanding of the customer’s requirements. For example:
(1)“What do you look for in a super fund? What’s important to you in a super fund? What do you care about in a super fund?” In the October 2013 version of the QM Framework, an equivalent question is framed: “A lot of customers that I speak to tell me that fees, investment options, online actions and insurance are important to them. Of these, which one of these is important to you?” According to the QM Framework, such questions were asked to “find out what’s important to the customer and draw the need and want to help you develop urgency to the close”. They were described as important to “help you present the features and benefits to the points of relevance to the customer. This will help you maintain rapport, ignite the thinking and emotions of the customer and uncover what will spur them to take action”.
(2)“What do you see as the benefits of combining your super? Can you tell me a little bit more about that? Is (what the customer thinks the benefit of combining is) important to you?” In the October 2013 version of the QM Framework, an equivalent question is framed “When you said that you liked … can you tell me a little more about that?” According to the QM Framework, such questions were asked to “find out more about the customer’s need and to build it through the use of questioning[“]. Such questions were said to be important to “encourage the customer to continue to talk to help you with your presentation & need what you are offering”.
(3)“How much do you have in your super accounts?” How long have you been working for?” According to the QM Framework, this was important because the “information derived through this question is going to help you to prioritise your follow up according to value of consolidation, age and number of years the customer has been working”.
57 In the “Presenting” phase, the aim was to “conduct a persuasive, interactive presentation to the customer based on what the customer told you in your questioning”. This included:
(1)“Social proofing” the customer with a statement such as “I understand where you are coming from & many customers are also in a similar situation”. According to the QM Framework, such a statement created a “space of comfort, assurance and confidence that other customers have had the same concerns and agreed to the same benefits”.
(2)“Articulating the feature(s) as benefit(s)”. In the October 2013 version of the QM Framework, the equivalent description was written as “related the motivation/benefit back to what was picked up during the Gathering Requirements”. According to the QM Framework, this was done to “link the customer’s motivation to the features of the product / service that was found during your questioning”. It was said to be important “to create an emotional connection to how a service will benefit them rather than what the service provides”.
…
60 Finally, the “Objection Handling/Closing” phase was aimed at overcoming any objections raised by the customer and seeking a “commitment for action that moves the customer closer to the sale”. This phase included:
(1)Using all relevant information to overcome any customer objection. This included trying to “find out any underlying reasons that could hold the customer back from following the next steps”. The Super Activation staff member was to be scored “zero points” if they “accepted the customer’s objection without questioning further or using a strategy to overcome it”. In the October 2013 QM Framework, staff were to overcome the customer’s objection using “the important points taken from the call to create the connection between their needs and wants and their objections”.
(2)Providing “clearly articulated next steps” to “provide direction to the customer to ensure the end outcome is achieved”.
(3)“Effectively end[ing] the call with a powerful benefit based on the customers motivation / interest”, by “link[ing] the customer’s motivation using a relevant benefit after you demonstrate your advance”. This was said to be important because it will “help you build urgency for the service. Providing this linking statement at the end of the call can help leave a lasting need in the customer’s mind”.
(Emphasis added.)
Performance was regularly assessed against the QM Framework and members of the Super Activation Team would be rewarded and penalised depending on their extent of compliance with the QM Framework and the amount of funds under management (FUM) they generated for Westpac, as set out by the primary judge at [61]–[64] of the reasons:
61 As part of their ongoing training, the calls of the staff were reviewed by a “sales coach” and scored in accordance with a scoring system set out in the QM Framework. The staff attended one-on-one meetings with their “sales coach” approximately once per week to assess how closely they were following the QM Framework and how they might more closely follow its requirements.
62 ... [T]he QM Framework set out specific techniques for which staff were scored, including questioning techniques designed to “maintain rapport, to gather the right information, and to build desire in the customer”. For example, staff received points for:
(1)Using “open questions” such as “what’s important to you?”. These were said to be important because they would:
“obtain uninfluenced responses to allow you to begin to understand what’s important to the customer and help you through the sales process. Open questions are the key to unlocking every customer’s unique requirements. Aim to uncover their problems or needs so when you present, they will pay more attention”.
(2)Using “leading” questions such as “What benefits do you see in combining your super?” These were asked because “[o]nce you’ve gathered bits of information derived from the open questions, the use of leading questions will narrow down to your customer’s need”. These were said to be important because they were “[g]ood for leading the customer in the direction you want them to go and finding out more specific information about their requirements”.
63 … [A] call would be classified as an “autofail” in circumstances which included where an operator:
(1)did not expressly warn a customer at the start of the call that the information provided on the call was general in nature and did not take into account the customer’s needs or objectives;
(2)failed the “personal advice” prohibitions;
(3)did not refer a customer to appropriate advice channels if the customer asked certain questions; or
(4)exerted undue pressure or influence on the customer.
64 When the relevant calls were made, members of the Super Activation Team were eligible for bonus payments. Approximately 15% of such payments were calculated by reference to scores that their calls were given under the QM Framework. Approximately 30% of any such bonus payment was calculated by reference to the FUM which the relevant staff member generated for Westpac on their calls. On the other hand, staff became ineligible for bonuses if they had a specified number of compliance “fails”.
The primary judge made various findings at [65] of the reasons concerned with the QM Framework and its relationship with the communications that were made, as follows:
(1) Westpac had the QM Framework in place over an extended period and used it on campaigns that were aimed at encouraging customers to roll over their superannuation. The QM Framework was updated from time to time to take into account feedback from consultants, managers and coaching staff.
(2) Staff in the Super Activation Team were trained and encouraged by coaches to follow the QM Framework.
(3) Staff were marked and assessed based on the QM Framework and a substantial part of how their performance and any bonus was assessed was their ability to follow the QM Framework and their ability to generate FUM.
(4) The calls to the 15 customers reflected the terms of the QM Framework to varying extents, including through opening by saying that they were calling about the relevant customer’s superannuation, as a “courtesy call” or to “help them potentially save on fees”, uncovering the personal motivations of the customer and then linking those motivations to influence the customer to roll over their external superannuation accounts into the customer’s BT account. The callers were encouraged to, and typically did, seek information about the customer’s personal circumstances.
(5) Based on the transcripts of the various calls, some callers attempted to personalise the calls, listen to the customers and encourage the belief that they were being listened to and that their reasons for rolling over funds into their BT account were valid and reasonable. The callers attempted to use the information provided by the customers to inform what they said subsequently.
(6) Based on the transcript of the various calls, staff apparently considered that they could seek to influence customers to roll over funds into their BT account by saying words to the effect that they “would potentially save on fees”.
(7) There is no reason to think that any of the callers knew whether it was in the best interests of the customers to roll over their external accounts into the customer’s BT account.
There can be no doubt that Westpac’s intention was to influence the customers in making a decision in relation to a particular financial product.
Further, there can be no doubt that the process and techniques involved in the QM Framework and the calls involved techniques of psychology in bringing the customer to a decision favourable to the interests of Westpac. Indeed, Westpac put below, and on appeal, that there was no advice, just marketing, and that this was plain to the customers.
The communications with the Relevant Customers
I now turn to the specific communications, written and oral, in which Westpac engaged with the Relevant Customers.
The written communications
Each of the Relevant Customers was sent various written communications, which sought to influence them into accepting an offer to search for, and roll over, any external accounts that they may have had into their BT accounts. There were six different types of written communication sent by Westpac to the Relevant Customers. The number and combinations of the communications sent by Westpac varied across the Relevant Customers.
First, all but one of the Relevant Customers (Customer 15) were sent an annual super statement letter for the year ending 30 June 2014 (annual super statement letter), which included the following text:
It’s a great time of year to review your financial situation and make sure your super is working hard for you. On average, most Australians will receive three super statements around this time of year. By having multiple super accounts you’re probably also paying multiple administrative fees. However, if you combine your super into one account, you could save on administrative fees and enjoy the convenience of having all your super in the one place. To help get you started, we’ve enclosed a Rollover form, simply complete the form and return it in the reply paid envelope and we’ll do the rest.
The annual super statement letters contained a disclaimer which, relevantly:
·disclosed a possible fee of up to 1% for accepting rollovers;
·recommended that the customer check with their other fund(s) to determine whether any exit fees applied, or if other benefits, such as insurance cover, might be lost;
·stated that the letter only provided an overview or summary and that it should not be considered a comprehensive statement on any matter; and
·stated that the letter did not take into account the customer’s personal objectives, financial situation or needs and that the customer should consider its appropriateness having regard to those factors before acting on it.
Most of the Relevant Customers responded to the offer by making an online request that a search be conducted to locate amounts held on their behalf in external accounts. Four of the Relevant Customers (Customers 1, 6, 11 and 13) then received a further letter that set out the results of the requested superannuation search (search results letter), which, relevantly, contained the following text:
Having your super in multiple places may mean you’re paying multiple sets of fees. By bringing it together in one account, you could potentially reduce fees and paperwork.
The search results letter contained a disclaimer similar to the disclaimer described at [43] above.
Secondly, four of the Relevant Customers (Customers 1, 4, 9 and 14) received correspondence with the heading “[Customer Name], let us do the legwork and you could WIN” (“let us do the legwork” letter). The “let us do the legwork” letter contained a green spot containing the words “WIN one of two $10,000 travel vouchers”, and the following text:
When your to-do list is ever growing, combining your super is left in the too hard basket. Yet in less than two minutes you can give BT your consent to search for all your other super and help sort it out for you.
Give us the OK to combine your super by 30 September and you’ll have the chance to win one of two $10,000 Flight Centre vouchers. Then you can relax knowing there’s one less thing on your to-do list.
By combining all of your super into your BT super account, you’ll pay just one set of fees, cut down on paperwork and make it easier to track your super’s performance. So take the load off and let us do the hard work for you.
The “let us do the legwork” letter contained a disclaimer to the effect of the disclaimer described above at [43] under the heading “Things you should know”, in very small pink font.
Thirdly, seven of the Relevant Customers (Customers 7, 8, 9, 11, 12, 14 and 15) received a letter picturing a person taking a selfie next to the words “There’s only one [Customer Name]” (“there’s only one you” letter), which contained the following statements:
·“If you’ve had more than one job, you probably have more than one super account. Yet multiple super accounts can be hard to keep track of and could be costing you in account keeping fees. We can help combine your other super into your BT Business Super account, leaving you with just one super account to manage. And what you could save on fees, could mean more money in your super.”
·“Give us the OK and we’ll help search for your other super accounts in order to roll them into your BT Business Super account.”
·“Give your consent to do a super search and we can help track down your other super accounts – it’s that easy!”
·“Win $20,000 cash prize.”
·“Sort your super for your chance to win. There’s only one you and only you know how you’d spend $20,000. We’re giving you the chance to do just that. Simply combine $5,000 or more of your other super into your BT super account by 30 May 2014 to go into the draw to win.”
The “there’s only one you” letter contained a disclaimer under the heading “Things you should know” to the effect of that described at [43] above.
Fourthly, two of the Relevant Customers (Customers 2 and 11) received an email that included a prominent blue box containing the words “You still have time to WIN $20,000 cash*” (“win $20,000” email). The following text appeared underneath those words:
One super account means less hassle and paper work.
There’s only one [sic], so why have more than one super account? There may be no need to. By combining all your super^ into your BT super account you could stop paying multiple account keeping fees, which is one way to help your super grow. Plus, having your money in one place can make it easier to manage.
The circumflex found after “super” is referable to text forming part of a larger disclaimer that is to the effect of the disclaimer described at [43] above.
Fifthly, four of the Relevant Customers (Customers 2, 5, 11 and 12) received an email that included a prominent blue box containing the words “Take your super out of the too hard basket” (“too hard basket” email). The “too hard basket” email contained the following statements:
·“Take your super out of the too hard basket”, which was accompanied by a checklist of items such as “Lodge tax return”, “Organise health insurance”, “Sort out super” and “Join the gym”.
·“When you’ve got a lot on your plate, your super is left in the too hard basket. We know we should combine our super, but it takes ages, right? Wrong. In just one click you can get BT to help take care of it for you.”
·“By combining^ all your super into your BT super account, you could stop paying multiple fees and help your super grow. Plus, it’s easier to manage when it’s all in one place. So sit back and let us do the hard work for you.”
·“Get sorted to win.”
·“Why combine your super?
àOnly pay one set of fees
àCut down on paperwork
àIt’s easy to track your super’s performance.”
The end of the “too hard basket” email contained a disclaimer in similar terms to the “Win $20,000” email and the disclaimer described at [43] above.
Sixthly, three of the Relevant Customers (Customers 2, 5 and 12) received an email that was substantially identical to the “too hard basket” email but which contained the following additional statement: “It’s your last chance to combine your super for a chance to win one of two $10,000 Flight Centre travel vouchers” (“last chance” email). The “last chance” email contained the same disclaimer as the “win $20,000” and “too hard basket” emails; that is, the disclaimer at [43] above.
For what it is worth, it can be accepted that those persons who received these letters would reasonably have appreciated that there was a degree of self-interest in Westpac in moving or consolidating funds held in accounts with other superannuation funds into their BT accounts. That said, the content of the calls, in conformity with the QM Framework, was to evoke the understanding or belief in the client that the caller was there to help the client or customer, not just to make a “sale”.
The telephone calls
The telephone calls to the Relevant Customers were made by six members of the Super Activation Team, anonymised as Callers AA, BB, CC, DD, EE and FF, all of whom were employed by a member of the Westpac group of companies and acting as agents for Westpac.
The primary judge described the various calls made by members of the Super Activation Team to the Relevant Customers and set out the relevant extracts from the transcripts of those calls at [149], [156]–[159], [160], [169], [176], [180], [181], [186], [187], [191], [192], [197], [198], [202], [203], [208], [209], [211], [212], [219], [220], [226], [227], [229], [230], [235], [236] and [238]–[239]. As the application of the statutory framework to the facts must occur with a full contextual appreciation of Westpac’s interaction with the Relevant Customers, the primary judge’s account of the calls is reproduced in full in an annexure to these reasons. In order to assess the calls and whether they involved giving advice (as defined) and whether they involved personal advice (as defined), it is of assistance to listen to the recording of the calls. The written word in transcribed text may not always contain the nuance or implicit content of the communication.
As there are similarities in the approach that Westpac’s callers adopted in their communications with the Relevant Customers, no doubt due, in large part, to the guidance provided by the QM Framework, I will address the appeal first by considering Westpac’s communications with Customer 1, before turning to consider Westpac’s communications with the other Relevant Customers. In many respects, the analysis with respect to Customer 1 applies generally to the other Relevant Customers; however, specific considerations that arose in Westpac’s communications with particular Relevant Customers will also be discussed.
Did Westpac’s communications with Customer 1 amount to the provision of financial product advice?
The threshold question is whether Westpac’s communications involved the provision of any financial product advice at all. Were this question to be answered in the negative, there would be no need to consider the distinction between personal advice and general advice.
What must be established is that Westpac, through its Super Activation Team, made a recommendation or a statement of opinion that was intended, or could reasonably be regarded as having being intended, to influence the customer in making a decision in relation to her BT account.
A preliminary issue raised before the primary judge concerned the significance, if any, of the written correspondence summarised above as contextual material against which the individual calls to the Relevant Customers ought to be construed. On this point, the primary judge found at [243]–[245] that the individual oral conversations should be construed separately from any written communications that had been received:
243 However I do not agree that the individual conversations were to be construed in the context of the earlier correspondence, or on a broad assumption that the relevant customers had received, read and understood the contextual correspondence without evidence directed to those matters. As Westpac itself emphasised, those materials were marketing materials. Even assuming that they were received (and at least one must have been received to instigate the request for a super search), it is far from obvious that any particular message in the contextual correspondence would have been absorbed by any given customer or remembered at the time of receipt of an unsolicited telephone call, when the customer was almost certainly doing something that did not involve thinking about their superannuation or Westpac’s marketing material.
244 In particular, there is no reason to assume that customers receiving an unsolicited telephone call would have recognised that the messaging of the call was the same as messaging they had received in prior written communications.
245 Similarly, I would not agree that the state of mind of an individual caller, which they may have expressed explicitly or impliedly, was affected by the contextual correspondence in the absence of evidence that the caller had read and understood that material.
No submission was put that this approach was in any way wrong.
Construing the conversations between Caller AA and Customer 1 in this way, the primary judge found that Westpac made one recommendation and two statements of opinion to Customer 1.
First, at [247] of the reasons, the primary judge found that Westpac made an implied recommendation that Customer 1 should roll over her external accounts into her BT account:
I accept that, in the calls to customer 1, caller AA (and Westpac) impliedly recommended that customer 1 should roll over her external accounts into her BT account. The main purpose of that call was to achieve that outcome, including by engaging in an exercise of marketing including “social proofing”. The calls were each expressed as an exercise in helping the customer to roll over their external accounts. For example, caller AA said: “…we’d like to help you bring them over to your account to potentially save you on fees” and, later, “we can actually help you bring them altogether over the phone now”. This language conveyed the message that the caller was offering to assist with an action that was likely to benefit the customer by improving the manageability of her superannuation and by creating the possibility that she would save on fees. By that language, the caller (and Westpac) implicitly recommended a rollover of the external accounts into customer 1’s BT account. The question “what did you see as the main benefits of bringing them altogether to the one place?” reinforced the idea that consolidation was beneficial, as did the social proofing statement that “they are the two main reasons our clients do like to bring their supers together, it does make a lot more sense from a management point of view, for sure.” The concluding language of the second call: “everything gets rolled over in two or three weeks, so it’s all in the one spot and nice and organised for you. How does that sound?” conveys the message that the rollover service has provided a benefit to the customer.
Secondly, at [272]–[274] of the reasons, the primary judge then found that Westpac made a statement of opinion to Customer 1 that by rolling over her external accounts into her BT account she would potentially save on fees:
272 This is a statement that the action of rolling over external accounts into the customer’s BT account would possibly (although not probably) produce a benefit for the customer...
273 Although Westpac argued that a statement to this effect is not a “statement of opinion”, it did not do so by reference to evidence about the underlying justification for the statement. Rather, it contended that the tone and context of the statements suggested a “self-interested promotional exercise”. Mr McHugh SC contended the statement does not involve any element of judgement and is nothing more than a logical possibility. However, Westpac did not suggest that I had given no consideration to the truth of the statement.
274 Although the message concerns a possibility rather than a probability, it was expressed by the various callers in positive terms, rather than as a question about whether the customer would save on fees, or an observation that the customer might or might not save on fees, or a doubt as to whether or not the customer would save on fees, or as a caution that the customer should not assume that they would save on fees because that was a mere possibility. Taking those matters into account, in my view, a statement to this effect reflected an inference by Westpac from other facts and is a “statement of opinion” within the meaning of s 766B(1).
Further, at [277]–[278] of the reasons, the primary judge found that Westpac made a statement of opinion to Customer 1 that combining superannuation accounts made a lot more sense from a management point of view:
277 This statement was made by caller AA. It expresses a view as to the merit of combining superannuation accounts. The statement appears to reflect a message contained in Westpac’s correspondence that “if you combine your super into the one account, you could … enjoy the convenience of having all your super in one place”. As a central message in Westpac’s correspondence, I infer that the message is not the product of mere speculation and it was not suggested that the message was not based on any underlying facts.
278 Accordingly, I find that this statement is a “statement of opinion” within the meaning of s 766B(1).
I do not see any error on the part of the primary judge in these findings as to recommendation or statement of opinion. Westpac argued that these conclusions were reached divorced from any question as to whether the communications could properly be understood as advice. Looking at the transcript and listening to the conversations in the context of calls plainly intended to be understood as of assistance, I do not doubt the correctness of the primary judge’s conclusion that there was an implied recommendation that customer 1 should roll over her external accounts into her BT account. An important aspect of the whole context is that the callers took the customers to the point of decision-making over the phone in the call. That consideration embeds the conclusion that the recommendation was made, and is the foundation for recognising a concomitant and interconnected implied statement of opinion that the decision will fulfil and meet the objectives and concerns of the customer about fees and manageability. Further, the partly explicit and partly implicit statements of opinion about potentially saving on fees and manageability were made. It can be accepted that there was a marketing element to the call, but that does not mean that the call was not also advisory as well. The caller was attempting to assist. There is no clear dichotomy between marketing and advising. The giving of “helpful” recommendations and statements of opinion (even of a general character) is one way of marketing. Indeed, this was the essence of the QM Framework. Certainly a service was being offered. It was accompanied by a “helpful” recommendation and proffered statements of opinion. One does not need to enter any analysis based on the difference between opinion and fact here. There were tolerably clear statements or inferences that the caller had the opinion, expressed partly as confirmation of the view from the client, that the customer could potentially save on fees and that combining accounts made sense from a management point of view or would enhance manageability. The submissions of Westpac sought to distinguish a statement of opinion from a “logical possibility” or a “truism”. These are not helpful or relevant distinctions. There were statements of opinion made, together with the recommendation, in a context of assistance being given to help the client with a useful service. Though lacking formality, they can plainly be seen as a form of advice. They were part of an approach designed to influence. That is not irrelevant. The statements of opinion and recommendation formed part of a communication or exchange designed to promote or reinforce a view of advantage to the client and of an appropriate and sensible decision being made.
Was the financial product advice given by Westpac to Customer 1 personal advice?
The primary judge dealt with the question of objectives, financial situation and needs at [375]–[382]. Her Honour found that none of the conversations contained any reference to the needs of the customer. This was not challenged on appeal.
As to financial position, there were three particular matters related to customers 2, 3 and 5 to which I will come. However, at [376], the primary judge accepted that each customer was “in the financial situation of having multiple superannuation accounts”, and such was the “financial situation” of the customer. Respectfully, I disagree. I would not characterise that one fact as sufficient to amount to that there had been consideration of the financial situation of the customer.
As to objectives, the primary judge said the following at [380]–[382] of the reasons:
380 In several cases, the customers expressed a desire to “save on fees” by rolling over their superannuation or to consolidate their superannuation into the one account “for better manageability”. I accept that these are “objectives” of those customers within the meaning of s 766B(3) because they are ends to which the customers were directing their efforts, by requesting the super searches and participating in the customer calls made to them by Westpac.
381 In several cases, ASIC alleged that the customer has an objective “to ensure that [the customer] adopted an efficient and efficacious setup of [their] superannuation to ensure [they are] receiving the greatest possible returns” On the evidence, I do not accept that any customer expressed such an objective, or could be taken to have had such an objective.
382 ASIC alleged that the customers had numerous other objectives, as evidenced by their statements during the customer calls. Applying the reasoning above, I accept that the following are “objectives” of the relevant customers:
(1) To not lose money because her superannuation was in different places (customer 1).
(2) To organise his superannuation in a manner that was most appropriate to the fact that he was retiring (customer 2).
(3) To ensure that his level of insurance with BT was at the same level as it was with MLC (customer 3).
(4) To appropriately consider any exit fees that would be payable for leaving any external accounts (customer 3).
(5) To ensure that his insurance coverage was appropriate for his particular circumstances, including that he did not have time to complete the relevant forms to increase his insurance and that he had been a type 2 diabetic for nine years but that that did not stop him from playing golf, engaging in normal activities or affect his work (customer 3).
(6) To remedy or ameliorate any issues with his superannuation fund that would mean that he was not achieving the returns that he should or could achieve (customer 5).
(7) To earn a greater return by creating one bigger pool of funds in his account (customer 7).
(8) To not lose money from his superannuation account (customer 8).
(9) To ensure that he was in the best performing fund or the best performing fund in respect of which he was a member (customer 10).
(10) To have all his superannuation in the one spot to ensure that he was not losing money in finance and fees (customer 11).
(11) To ensure that he was maximising the amount of interest he was receiving (customer 12).
(12) To achieve better performance on his superannuation (customer 12).
(13) To ensure that he was maximising the principal sum in his superannuation account and thereby obtain a better return (customer 13).
(14) To achieve a greater level of performance on his superannuation (customer 14).
(15) To ensure that he was not losing superannuation by having multiple superannuation accounts (customers 14 and 15).
(16) To ensure that he was not losing superannuation by having multiple superannuation accounts (customer 15).
(17) To increase his superannuation funds overall (customer 15).
Dealing first with customer 1, it can be accepted that she had objectives in this exercise of not losing money through fees because her superannuation was in different places, and of improving its manageability. For her, these were the relevant objectives concerned with the subject under discussion. Customer 1 no doubt had many more objectives about her superannuation. But the call concerned consolidation of multiple accounts. All her objectives relevant to the subject of discussion were saving on fees and better manageability of superannuation.
The question is whether these objectives were considered in the relevant sense by the caller or whether a reasonable person in customer 1’s position might expect the caller to have considered them in the giving of the advice, that is in the giving of the recommendation or statements of opinion that were made. The primary judge dealt with the question of the caller’s “consideration” at [383]–[393] of the reasons, and with what a reasonable person might expect at [394]–[395] of the reasons.
As to the caller’s consideration, [384]–[386] and [389] encapsulate the primary judge’s views:
384 The first basis for that conclusion was said to be that the caller knew that each customer had more than one superannuation account at the time that the call was made; in all but two cases, the caller knew that the customer had requested a superannuation search and, consequently, knew information about other funds held by the customer. ASIC argued that the calls were clearly considering each of those matters in seeking to influence the customers to accept the rollover service.
385 ASIC also contended that the evidence that callers engaged with the customers in accordance with the QM Framework “whether they listened very carefully or not”, demonstrated their consideration of the customers’ various statements about their objectives, financial situation and needs.
386 I do not accept either of these propositions. Mere knowledge of facts about customers, particularly that they held multiple superannuation accounts, and an intention to persuade the customer to accept the rollover service does not support an inference that the caller engaged in any reflection upon the customer’s position that amounted to “consideration”. Active listening does not evidence an intellectual engagement with the information provided by a customer, such as would permit a finding that the caller had “considered” that information: it simply demonstrates that the information has been heard. The use of facts, apparently identified as matters that might be used to influence the customer in the course of the call does not, without more, indicate the caller “considered” those facts.
…
389 In the case of each of the 15 customers, ASIC relied on the fact that the caller called to speak to the customer personally about the consolidation of the customer’s superannuation accounts to prove that the relevant caller had “considered” one or more of the customer’s objectives, financial situation and needs. In the context of the campaigns pursuant to which the calls were made, I do not accept that this fact evidences that there was any relevant consideration. To the contrary, the context suggests that the callers were not engaging in a process of consideration, but instead were engaged in a highly structured marketing activity requiring them to call customers directly to seek consolidation of their superannuation account.
In so far as the primary judge concluded that the expression “a reasonable person” extends beyond a hypothetical reasonable person standing in the recipient’s shoes, and extends (as ASIC submitted) to an ordinary member of the community, I respectfully disagree with her Honour. In my view, reading s 766B(3) as a whole, the expression “a reasonable person” contemplates a hypothetical reasonable person standing in the recipient’s shoes.
The function of the section is to define the circumstances in which financial product advice that is given or directed to a person is to be characterised as personal advice for the purposes of Chapter 7, thereby triggering enhanced obligations on the provider of the advice. The section describes two circumstances. The first circumstance, in paragraph (a), is where the provider of the advice has considered one or more of the recipient’s objectives, financial situation and needs. The second circumstance, in paragraph (b), is where the provider of the advice has not considered one or more of the recipient’s objectives, financial situation and needs, but where a reasonable person might expect the provider to have considered one or more of those matters. In my view, the use of the words “reasonable person” in paragraph (b) is a reference to a reasonable recipient of the advice. It is not a hypothetical person uninvolved in the receipt of the advice.
In the chapeau to the provision, the word “person” is used to refer to the recipient of the advice. In paragraph (a), the word person is used in the same sense. In paragraph (b), the word person has been qualified by the word “reasonable”, which suggests a reasonable recipient of the advice. That meaning is confirmed by the use of the phrase “one or more of those matters” in paragraph (b). That phrase incorporates by reference the phrase “one or more of the person’s objectives, financial situation and needs” in paragraph (a). Understood in that way, the circumstance described by paragraph (b) is where a reasonable person might expect the provider to have considered one or more of the person’s objectives, financial situation and needs. In my view, the words used aptly describe a circumstance where a reasonable person, standing in the shoes of the recipient, might expect the provider to have considered one or more of the person’s objectives, financial situation and needs. That interpretation of paragraph (b) is harmonious with paragraph (a). In contrast, there is no sound basis for concluding that the circumstance in paragraph (b) refers to the expectation of a reasonable bystander to the giving of the financial product advice.
It follows that the expectations of the reasonable person in paragraph (b) (being a reasonable person standing in the shoes of the recipient of the advice) will be informed by the interactions between the provider and the recipient. However, the expectations will not be limited to those matters. The expectations of a reasonable person standing in the shoes of the recipient of the advice will also be informed by other facts that are likely to be known by such a person, but which did not form part of the express interactions between the provider and the recipient.
Did Westpac consider one or more of the recipient’s objectives, financial situation and needs (paragraph (a) of s 766B(3))?
I agree with the primary judge that, during the calls, the customers conveyed various of their personal objectives within the meaning of paragraph 766B(3)(a). Those objectives were identified by the primary judge (at [382]) in respect of individual customers, but generally fell into the following four categories:
(a)to maximise the performance (in terms of financial return) of the customer’s overall superannuation;
(b)to minimise the fees payable in respect of the customer’s overall superannuation;
(c)to ensure that the insurance coverage for the customer is appropriate for the customer’s circumstances or is maintained at a particular level; and
(d)to organise the customer’s overall superannuation in a manner that is appropriate to the fact the customer was retiring.
Although each of the above aims is stated at a level of generality, in my view they are encompassed by the concept of “objectives” within the statutory provision. They are matters that are apt to be considered in providing financial product advice that is in the best interests of the customer.
I have some reservations about the primary judge’s conclusion (at [376]) that the fact that the customers had multiple superannuation accounts was a “financial situation” within the meaning of the statutory provision. It is difficult to see that the fact that a person has two assets of a particular kind, here two superannuation accounts, conveys anything meaningful about the person’s financial situation. By analogy, a statement that a person has two bank accounts can hardly be regarded as conveying any information about the person’s financial situation. Both accounts may have very little money in them, or both may have substantial amounts of money in them. The information is at too high a level of generality to answer the description of “financial situation”.
In any event, I agree with the primary judge’s conclusion (at [393]) that the evidence shows that the callers did not consider any of the customers’ objectives, financial situation and needs. I agree with the primary judge that the mere fact that the callers listened to the customer does not compel a conclusion that the caller considered the information conveyed by the customer. The evidence shows that the callers did not intend to take into account, or have regard to, the customers’ objectives, financial situation and needs; the caller conveyed a similar message regardless of the customers’ objectives, financial situation and needs. As the primary judge found (at [387]):
Accepting that each of the 15 calls was conducted in accordance with the QM Framework, I do not infer from that fact that the callers "considered" any "objective" or "financial situation" that was identified by a customer during the course of the call. To the contrary, the QM Framework did not require or engage consideration of those matters. To the extent that such information is elicited, the QM Framework encouraged the callers to use it to “drive an outcome”, as ASIC put it. That outcome was the customer’s rollover of their external superannuation accounts into their BT account.
I would therefore dismiss ground 2 of ASIC’s notice of appeal.
Might a reasonable recipient of the advice have expected Westpac to have considered one or more of the recipient’s objectives, financial situation and needs (paragraph (b) of s 766B(3))?
The primary judge also reached the conclusion that the circumstances referred to in paragraph (b) of s 766B(3) were not satisfied: that a reasonable person would not expect the provider of the advice to have considered one or more of the person’s objectives, financial situation and needs (at [398]). In reaching that conclusion, her Honour took into account a range of circumstances, some of which pointed towards the circumstance described in paragraph (b) and some of which pointed away from that circumstance.
While recognising the advantage enjoyed by the primary judge in considering the totality of the evidence, with respect I am unable to agree with her Honour’s conclusion. In my view, the content of the calls, in the circumstances in which they were made, would have led a reasonable person standing in the shoes of the recipients of the advice to expect the provider to have considered one or more of the recipient’s objectives, financial situation and needs. I consider that the following circumstances are relevant to the assessment required by paragraph (b).
First, the advice concerned superannuation and, specifically, the consequences of consolidating multiple superannuation accounts. For most customers, that is a very significant financial decision. The decision necessarily affects the future financial return on the customer’s overall superannuation, including through the payment of fees and the availability and content of insurance, particularly life insurance. It can be accepted that, for persons with very little superannuation, the decision may have little financial significance. However, abstracted to the position of a hypothetical reasonable recipient of the advice in the circumstances of this case, I consider it to be a factor that points in favour of the circumstance described in paragraph (b).
Second, the calls were made, and the advice was given, on behalf of Westpac and the recipients were customers of Westpac (in the sense that they held superannuation accounts with Westpac). Thus, there was an existing customer relationship. In my view, that factor also points towards the circumstances described in paragraph (b). The calls were not “cold calls”; the calls emanated from an existing customer relationship. Indeed, the callers identified themselves by reference to that relationship at the beginning of the call. In my view, that fact points towards the circumstance described in paragraph (b).
Third, the effect of the first two factors is cumulative. An individual that has invested superannuation with an institution would reasonably expect that institution to act for their benefit and in their interests in relation to their superannuation affairs. Such an expectation arises from the nature of the product, which is held by a financial institution on trust for the superannuation member. In my view, the combined facts that a financial institution calls and gives advice to an individual who is a member of a superannuation fund held or managed by that institution about rolling over superannuation points towards the circumstance described in paragraph (b).
Fourth, during the course of the calls, the callers asked the recipients about the considerations that were relevant to them in deciding whether to consolidate their superannuation accounts. Asking that question would ordinarily create the impression in the mind of the reasonable person receiving the call that the caller sought that information because it was relevant to the matters being discussed. In most of the calls, the questions were preceded by a statement to the effect that the caller was asking the question so as to be able to better help the recipient of the call. The social proofing language would ordinarily reinforce the impression in the mind of the reasonable person receiving the call that the caller was taking account of the answers given by the recipient. The social proofing language conveyed that the answer given by the recipient was valid or reasonable. In that way, the caller affirmed the answer given. In my view, those facts also pointed towards the circumstance described in paragraph (b).
The fifth factor is that each of the calls conveyed an implicit recommendation for the customer to act. A different expectation in the mind of the hypothetical reasonable recipient of advice may arise depending upon whether the advice conveys a recommendation or merely conveys a statement of opinion. In my view, such a person is less likely to expect the provider of the advice to have considered one or more of the person’s personal circumstances if the advice is merely a statement of opinion; for example, the expected return of a financial product in a future period. Although the opinion might be conveyed with the intention to influence a person to acquire the product, without more the statement of opinion may not cause a reasonable recipient of the advice to expect the provider of the advice to have considered one or more of the recipient’s personal circumstances. Conversely, if the advice conveys a recommendation, the expectation referred to in paragraph (b) is more likely to arise. If the provider of the advice urges the recipient to follow a particular course of action, there is a greater likelihood that a hypothetical reasonable recipient of the advice might expect the provider of the advice to have considered the recipient’s personal circumstances.
Sixth, it is relevant that the callers gave a general advice warning. By that warning, the callers expressly stated that they were not taking into account the recipient’s personal circumstances. This is an important factor that points away from the circumstance described in paragraph (b). However, the force of this factor in any given case will depend upon the manner in which the general advice warning is given in the course of the advice. In the present case, it was given at the outset of the call. There is nothing inappropriate in doing so. But by giving the warning at the outset of the call and not reinforcing the warning at any other point in the call, the caller runs the risk that a hypothetical reasonable recipient of the advice will lose sight of the warning in the course of the call.
Seventh, it is relevant that the advice was provided free of charge. This is a factor that points away from the circumstance described in paragraph (b). All other things being equal, a hypothetical reasonable recipient of the advice is less likely to expect the provider of the advice to have considered their personal circumstances if there is no fee or charge for the advice.
Eighth, it is relevant that in some cases the callers revealed a lack of knowledge about the customer’s personal circumstances. That is a factor that points away from the circumstance described in paragraph (b). It would suggest to a hypothetical reasonable recipient of the advice that the caller is not aware of the recipient’s personal circumstances, and therefore the reasonable recipient would not expect the provider of the advice to have considered those circumstances.
On balance, and having regard to all of the factors referred to above, in my view paragraph (b) of s 766(3) is satisfied in this case. The combination of those factors leads to the conclusion that a hypothetical reasonable recipient of the advice might expect the provider of the advice to have considered one or more of the recipient’s objectives, financial situation and needs. Put simply, in my view the first five factors outweigh the final three factors. The decision concerned an important financial asset of each customer; the callers were known to the customers in the sense that the calls were made on behalf of one of the customer’s superannuation funds; the callers offered to help the customers and asked the customers about matters that were important to them; the callers affirmed the answers given by the customers as being valid or reasonable objectives; the callers implicitly recommended that the customers consolidate their external superannuation accounts into their BT account. Notwithstanding the general advice warning that was given at the outset of the call; notwithstanding no fees were charged for the offer of help; and notwithstanding that it was apparent that the callers did not have information about the customer’s external superannuation accounts, in my view a reasonable person standing in the shoes of the customers might expect the callers to have considered one or more of the person’s objectives, financial situation and needs.
There is nothing strained about that conclusion. It is consistent with and gives effect to the objects of Chapter 7 of the Act, particularly the object to promote confident and informed decision making by consumers of financial services and fairness, honesty and professionalism by those who provide financial services. Those objects are promoted by ensuring that, if personal financial product advice is given to a person, the consumer protections in Part 7.7 (the requirements for a statement of advice) and Part 7.7A (the requirement to act in the best interests of the client) apply. Those obligations attach to the provision of personal financial product advice because the recipients of such advice are likely to rely and act upon the advice.
By its conduct, Westpac engendered a circumstance in which it conveyed an implicit recommendation to its customers to consolidate their external superannuation accounts into their BT account, and engendered a circumstance in which customers might rely and act on that recommendation because they might expect Westpac to have considered one or more of their personal circumstances in making that recommendation. As discussed further below, in my view Westpac’s conduct undermined informed decision making by its customers and was not consistent with the promotion of fairness, honesty and professionalism by a provider of financial services.
I would therefore uphold ground 3 of ASIC’s notice of appeal.
Did Westpac fail to act in the best interests of the customer in contravention of s 961K(2)?
Primary judge’s conclusion
Section 961B, within Part 7.7A of the Act, applies to the provision of personal advice by an individual (referred to as the provider) to another person as a retail client (referred to as the client). Subsection 961B(1) states that the provider must act in the best interests of the client in relation to the advice. Subsection 961B(2) states that the provider satisfies the duty in subsection (1) if the provider proves it has done a number of things, specified in the subsection (2), that relate to the steps taken and matters considered in giving the advice. Subsection 961K(2), which is a civil penalty provision, provides (relevantly) that a financial services licensee contravenes s 961K(2) if a representative of the licensee contravenes s 961B and the licensee is the responsible licensee in relation to that contravention.
Although the primary judge found that Westpac did not give personal advice during the calls, her Honour nevertheless considered, on the assumption that that finding was wrong, whether Westpac contravened s 961K(2) by reason that the callers contravened s 961B. Her Honour found that, on the assumption that the calls constituted personal advice, Westpac (through its representatives making the calls) failed to act in the best interests of the customers to whom the advice was given and thereby contravened s 961B(1) (at [463] and [464]). Her Honour concluded that Westpac contravened that provision because the best interests of the customers could only be served by advice as to whether the rollover service was in their best interests and Westpac did not attempt to inform the customers whether it was in their best interests to accept the advice.
Westpac’s notice of contention
By ground 6 of its amended notice of contention, Westpac contends that the primary judge should have found that, even if Westpac provided personal advice within the meaning of s 766B(3) of the Act, ASIC did not establish that Westpac had failed to act in the best interests of the customers in relation to that advice in contravention of s 961B(1) of the Act.
Westpac criticised the primary judge’s reasoning for reversing the onus of proof of contravention of s 961B(1). Westpac submitted that the error in the primary judge’s finding was to treat the possibility that advice may have been given which was contrary to the interests of customers as sufficient to establish the contravention. It submitted that s 961B(1) is directed to the substance of the advice provided and whether the provider acted in the client’s best interests in giving it.
Meaning of s 961B
The nature of the obligation in s 961B(1) was considered by Moshinsky J in ASIC v NSG Services Pty Ltd (2017) 122 ACSR 47; 35 ACLC 17-005. His Honour considered whether s 961B is concerned with the process or procedure involved in providing advice, or whether it is concerned with the content or substance of that advice. Without expressing a concluded view, his Honour considered that the statutory context, including the language of s 961G, the legislative history and the relevant extrinsic materials supported the view that s 961B is concerned with the process or procedure involved in providing advice (at [21]).
In my view, textual and contextual considerations compel a conclusion that s 961B is not concerned with the question whether the substance of the advice is in the best interests of the client and, if it was necessary to refer to it, the relevant extrinsic materials confirm that conclusion. Rather, the section is concerned with the actions taken by the provider in the formulation of the advice and the objective purpose of the provider in taking those actions and giving the advice. The following textual and contextual matters can be noted.
First, s 961B(1) states that the provider must act in the best interests of the client in relation to the advice; the section does not state that the advice must be in the best interests of the client. The section is directed to how the provider must “act” in relation to the advice and stipulates that the provider must act in the best interests of the client.
Second, s 961B(2) states the provider satisfies the duty in subsection (1) if the provider proves that he or she has done each of the following:
(a)identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;
(b)identified:
(i)the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and
(ii)the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances),
(c)where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable enquiries to obtain complete and accurate information;
(d)assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;
(e)if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:
(i)conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and
(ii)assessed the information gathered in the investigation;
(f)based all judgments in advising the client on the client’s relevant circumstances; and
(g)taken any other step that, at the time the advice was provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.
Consistently with the use of the word “act” in subsection (1), subsection (2) focuses on what the provider has “done”. It describes actions to be taken by the provider; it does not refer to the substance of the advice given. All of the actions are directed to the pursuit of the best interests of the client and describe diligent efforts directed to that pursuit through the identification of the client’s objectives, financial situation and needs; by basing judgments on those matters; and by declining to advise if the provider does not have the requisite expertise to advise. Subsection (2) states that a provider satisfies the duty in subsection (1) if the provider does the things stipulated in subsection (2). It is implicit in that language that the legislature considered that the obligation imposed by subsection (1) requires the types of actions referred to in subsection (2).
To the extent it is necessary to have regard to it, the Replacement Explanatory Memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 (Cth) affirms that conclusion. Paragraph 1.23 states:
…the requirement to act in a client’s best interest is intended to be about the process of providing advice, reflecting the notion that good processes will improve the quality of the advice that is provided. The provision is not about justifying the quality of the advice by retrospective testing against financial outcomes.
For those reasons, Westpac’s submissions directed to the content of the advice must be rejected.
Did Westpac fail to act in the best interests of the customer in contravention of s 961K(2)?
The facts found by the primary judge compel a conclusion that the callers contravened s 961B(1) and Westpac thereby contravened s 961B(1).
Westpac, through its representatives, failed to act in any of the ways referred to in paragraphs (b) to (g) of s 961B(2). The callers failed to obtain the most basic information that would have been required in order to act in the best interests of the customers. That information would likely have included the amounts held by the customers in each external superannuation fund; the investment options chosen by the customers in each external fund; the relative historical and expected future performance of the investments in those external funds compared with the equivalent BT fund option; the range, nature and scale of fees charged in each external fund compared with the BT fund; and the nature and amount of insurances provided by each external fund in comparison to the BT fund. The information was not sought because the object of the calls was not to act in the best interests of the client. The object of the calls, to influence customers to consolidate their external superannuation accounts into a Westpac account, was for the benefit of Westpac by increasing the funds under management in its superannuation funds.
I would therefore dismiss ground 6 of Westpac’s amended notice of contention
Did Westpac fail to ensure that financial services were provided efficiently, honestly and fairly in contravention of s 912(1)(a) of the Act?
Primary judge’s conclusion
Section 912A(1)(a) of the Act provides that a financial services licensee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly.
The primary judge concluded that the implementation of the QM Framework in the cases of the 15 customers the subject of the proceeding, and more generally in connection with Westpac’s campaign to encourage customers to accept the rollover service, involved a failure on the part of Westpac to ensure that the financial services covered by the licence were provided efficiently, honestly and fairly (at [443]). In support of that conclusion, her Honour referred to four matters:
(a)First, Westpac made an implicit recommendation to customers to roll over their external superannuation accounts into their BT account without informing the customers about potentially relevant considerations for a prudent customer (at [444]).
(b)Second, the QM Framework involved encouraging customers to proceed with the rollover through the use of the social proofing technique by which customers were told that their beliefs or reasons for consolidating their superannuation funds were commonly held. However, the fact that a customer’s belief or rationale was commonly held was not a matter that would have provided a sound basis for the decision (at [445]).
(c)Third, Westpac conveyed the impression to customers that the decision to roll over their external superannuation funds was an obvious and uncontroversial course of action for the customer, when that may well not have been the case (at [446]).
(d)Fourth, while the QM Framework was a course of conduct that was admittedly in Westpac’s self-interest and did not necessarily promote the best interests of the customers, the approach conveyed the impression that Westpac was assisting the customer (at [447]).
The parties’ contentions
By grounds 2 and 3 of its cross-appeal, Westpac contends that the primary judge erred in finding that Westpac failed to do all things necessary to ensure that the financial services covered by their financial services licenses were provided “efficiently, honestly and fairly” in contravention of s 912A(1)(a) of the Act. Westpac advanced three submissions in support of that contention.
First, Westpac submitted that it did not provide financial product advice on the calls and therefore did not provide a financial service during the calls, which rendered s 912A(l)(a) inapplicable. For the reasons given earlier, I reject that submission.
Second, Westpac submitted the findings made by the primary judge with respect to s 912A(1)(a) were outside ASIC’s pleaded case. Westpac submitted that ASIC’s allegation of a contravention of s 912A(1)(a) was premised on the allegation that, through the calls, Westpac provided personal advice to customers. As the primary judge found that Westpac had not provided personal advice, Westpac submitted that it was not open, as a matter of procedural fairness, for her Honour to find that Westpac had contravened s 912A(1)(a). I accept that submission for the reasons explained by Allsop CJ. However, as I have reached a different conclusion to the primary judge on the issue of personal advice, the finding of contravention of s 912A(1)(a) remains open on ASIC’s pleaded case.
Third, Westpac submitted that the matters identified by the primary judge do not establish conduct to the required level of seriousness to establish a contravention of s 912A(1)(a), being conduct capable of resulting in a conclusion of an absence of competence and lack of “sound ethical values and judgment” of the kind referred to in ASIC v Camelot Derivatives Pty Ltd (in liq) (2012) 88 ACSR 206 (ASIC v Camelot) at [69(b)] or “serious departures from reasonable standards of performance of advice” of the kind referred to in ASIC v Cassimatis (No 8) (2016) 336 ALR 209 at [673].
By its notice of contention, ASIC contends that the primary judge should have found that, by the QM Framework, Westpac adopted and implemented an approach to calls with customers in the campaign which was liable to lead to staff providing personal advice to a customer to roll over their superannuation into an account with Westpac:
(a)despite Westpac only being authorised to provide general advice; and
(b)without acting in the best interests of the customer in relation to the advice,
and Westpac thereby contravened s 912A(1)(a) of the Act.
Did Westpac contravene s 912A(1)(a)?
In my view, Westpac contravened s 912A(1)(a) of the Act by adopting and implementing a campaign, which included a telephone campaign, which was liable to lead to callers giving personal advice to customers containing an implicit recommendation to consolidate their superannuation into an account with Westpac in disregard of their best interests. Put simply, the campaign was inherently likely to result in financial advice being given to customers in a manner that was unfair to those customers, contrary to the requirement in s 912A(1)(a).
The primary judge traced the legislative history of the words “efficiently, honestly and fairly” now found in s 912A(1)(a) of the Act. As her Honour observed, the phrase appears to have its origin in the former s 60 of the Securities Industry Code of each of the States which provided that a dealer’s licence might be revoked if the National Companies and Securities Commission (a predecessor body to ASIC) was satisfied that the dealer did not perform the duties of a holder of such a licence efficiently, honestly or fairly. The phrase was considered by Young J in Story v National Companies and Securities Commission (1988) 13 NSWLR 661 (Story) at 672. His Honour concluded that:
…the group of words “efficiently, honestly and fairly” must be read as a compendious indication meaning a person who goes about their duties efficiently having regard to the dictates of honesty and fairness, honestly having regard to the dictates of efficiency and fairness, and fairly having regard to the dictates of efficiency and honesty.
As the primary judge observed, that approach to the interpretation of the words has been followed in numerous cases, including by Foster J in ASIC v Camelot at [69]-[70] and by Beach J in ASIC v Avestra Asset Management Limited (In Liq) (2017) 348 ALR 525 at [191].
Although not the subject of argument on this appeal, I have considerable reservations about the view that the words “efficiently, honestly and fairly” as used in s 912A(1)(a) of the Act should be read compendiously in the manner suggested by Young J in Story. His Honour gave two reasons for interpreting the phrase in that manner. The first is that it is impossible to carry out all three tasks concurrently. His Honour explained that conclusion by reference to the following example (at 672):
To illustrate, a police officer may very well be most efficient in control of crime if he just shot every suspected criminal on site. It would save a lot of time in arresting, preparing for trial, trying and convicting the offender. However, that would hardly be fair. Likewise, a judge could get through his list most efficiently by finding for the plaintiff or the defendant as a matter of course, or declining to listen to counsel, but again that would hardly be the most fair way to proceed.
The second is the use of the conjunction “and” rather than the disjunctive “or” in the phrase “efficiently, honestly and fairly”.
With respect, it is not apparent that either reason provides a sound basis for reading the phrase, as it appears in s 912A(1)(a) of the Act, compendiously in the manner suggested by his Honour. In particular, it is not apparent why a licensee cannot comply with each of the three obligations, efficiently, honestly and fairly, applying the ordinary meaning of each word. One of the meanings of the word “efficiently”, and the meaning well adapted to the statutory provision, is competent, capable and having and using the requisite knowledge, skill and industry: cf ASIC v Camelot at [69(c)]. The word “honestly” includes dishonesty in the criminal sense but may also comprehend conduct which is not criminal but which is morally wrong in the commercial sense: R J Elrington Nominees Pty Ltd v Corporate Affairs Commission (SA) (1989) 1 ACSR 93 at 110. The word “fair” as used in s 912A(1)(a) has not received detailed judicial consideration. However, it seems to me that there is no reason why it cannot carry its ordinary meaning which includes an absence of injustice, even-handedness and reasonableness. As is the case with legislative requirements of a similar kind, such as provisions addressing unfair contract terms, the characterisation of conduct as unfair is evaluative and must be done with close attention to the applicable statutory provision: cf Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [364]. It seems to me that the concepts of efficiently, honestly and fairly are not inherently in conflict with each other and that the ordinary meaning of the words used in s 912A(1)(a) is to impose three concurrent obligations on the financial services licensee: to ensure that the financial services are provided efficiently, and are provided honestly, and are provided fairly.
In the present case, the significant aspect of s 912A(1)(a) is the requirement to ensure that the financial services covered by the licence are provided fairly. Fairness must be assessed having regard to all relevant circumstances bearing upon the provision of the financial services in question. In my view, the facts found by the primary judge compel a conclusion that Westpac did not do all things necessary to ensure that the financial product advice given by it through the calls was provided fairly. There was an asymmetry in the knowledge held by Westpac and that held by the customer in relation to the subject of the advice, and Westpac took unfair advantage of that asymmetry. The asymmetry of knowledge arose from the facts that: Westpac knew that the decision by a customer whether to consolidate the customer’s other superannuation funds into a Westpac fund was an important decision for the customer, with potentially significant implications for the customer’s future financial position; Westpac also knew that the decision involved a range of considerations, including particularly the relative performance of the superannuation funds and the relative structure of the fees charged in the funds; and Westpac knew that a prudent customer would weigh up those matters. Westpac took unfair advantage of that asymmetry by implementing a carefully crafted telephone campaign, reinforcing in the minds of its customers an erroneous assumption that the decision to consolidate their superannuation into a Westpac fund was straightforward and was likely to generate benefits for the customer by saving fees and by reducing the burden of managing superannuation. The telephone campaign was directed to persons with whom Westpac had an existing relationship and in a real sense occupied a position of trust with respect to the customer’s superannuation fund. Despite knowing that the decision was not straightforward, Westpac did not advise its customers about the matters that they should consider before deciding to consolidate their superannuation. Nor did Westpac even suggest to its customers that they reflect on the decision or seek advice about the decision. Through the campaign, Westpac pursued its own self-interest and disregarded the best interests of its customers. That conduct can rightly be described as unfair and involved a contravention of s 912A(1)(a) of the Act.
I would therefore dismiss grounds 2 and 3 of Westpac’s cross-appeal, and uphold ASIC’s notice of contention.
Conclusion
In conclusion, I would allow ASIC’s appeal and dismiss Westpac’s cross-appeal. I agree with the orders proposed by Allsop CJ.
I certify that the preceding one hundred and twenty-six (126) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Bryan. Associate:
Dated: 28 October 2019
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