Westpac Securities Administration Ltd & Anor v Australian Securities and Investments Commission

[2020] HCATrans 157

[2020] HCATrans 157

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S69 of 2020

B e t w e e n -

WESTPAC SECURITIES ADMINISTRATION LTD

First Appellant

BT FUNDS MANAGEMENT LTD

Second Appellant

and

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Respondent

KIEFEL CJ
BELL J
GAGELER J
KEANE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION TO BRISBANE AND MELBOURNE

ON THURSDAY, 8 OCTOBER 2020, AT 10.00 AM

(Continued from 7/10/20)

Copyright in the High Court of Australia

____________________

KIEFEL CJ:   Yes, Mr Bannon.

MR BANNON:   Thank you, your Honour.  Just to complete what I wanted to say in relation to the normative element, I was not going to say anything more other than just direct your Honours to paragraph 8 of our oral outline and paragraphs there, some of which I have taken your Honours to, anyway, which we say demonstrate that the Full Court did not make the error suggested by our learned friends.

Could I then just make some brief submissions in relation to some of the construction issues which arise.  Firstly, and harking back to a matter your Honour the Chief Justice raised in relation to the purpose of section 766B, within the materials is the second explanatory memorandum, which was the last one.  That appears in volume 5 of the authorities.

The memorandum commences at page 1082, but the relevant paragraphs are 1090 and paragraphs 3.20 down to 3.22.  I think these paragraphs have been referred to in support of the proposition that there is clearly no need for there to have been a consideration of cumulative objectives, financial situation and needs, one or more.  But if one just looks at 3.20, so it says:

As currently drafted –

so that this memorandum was dealing with an early draft, 766B had not yet been enacted:

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’ –

Then 3.21 indicates that the proposed amendment, which was how it was enacted, that is the amendment of the draft, was to change that to say, “one or more of the person’s objectives, financial situation and needs”.  Then 3.22 is the part I wanted to focus on where they said:

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 . . . when advising a retail client that a particular financial product . . . is appropriate to them as an individual.

That is an encapsulation which is reflected in the legislation, we respectfully submit, of the purpose of the additional protections which are engaged when one crosses the line from general advice to retail advice, to put it colloquially, if one presents that advice as appropriate for you, customer A in particular, having regard to your situation. 

We respectfully submit that that vice was the vice – sought to be guarded against was the vice in which Westpac engaged on the basis of the uncontested findings that the recommendations were indicated to the individuals that a particular product was suitable for those particular people, having regard to the matters that were identified by those individuals at the request of the callers.

Then, secondly, in terms of the legislation and in further support of the Full Court’s approach to the meaning of “consider” in 766B, if I can invite your Honours to look at volume 1 of the authorities where section 949A appears, which your Honours have been taken to, and that appears at page 364. Just by way of background, section 949A(1) and subsections (2)(a) and (b) were introduced at the same time as 766B, pursuant to the Financial Services Reform Act 2001, which is Act No. 122 of 2001. Section 961B, on which my learned friend has placed some emphasis, was introduced in 2012, pursuant to the Corporations Amendment (Further Futureof Financial Advice Measures) Act 2012, No. 68 of 2012.

So at the time that 766B was introduced, 949A was introduced, including subsection (2)(a) and (2)(b), and the language deployed in (2)(a), says:

The providing entity must, in accordance with subsection (3), warn the client that:

(a)the advice has been prepared without taking account of the client's objectives, financial situation or needs –

Now, it is not unreasonable to think that that was regarded as the counterpoint to what would otherwise be personal advice referred to in 766B and using language which a customer would likely understand.  On one view, the effect of Westpac’s submission is that a customer could be told that the adviser has taken account of their personal circumstances, but that customer, having been told that, could not reasonably conclude that the adviser has considered those circumstances because they load the word “consider” with a higher degree of evaluation, and we say that would be a slightly odd outcome.  Just lastly on that 949A - I am sorry, two points at 949A, subsection (b) says:

because of that –

This is the additional warning:

the client should, before acting on the advice, consider the appropriateness of the advice –

Now again, the use of the word “consider” might be regarded as the words which the warning should carry, so in other words if you use the word “consider” in your warning, one would think one would satisfy the requirement, and it is used in a way which it might be thought that the customer would understand, which would be its ordinary meaning rather than some loaded meaning of evaluative judgment. 

Then lastly on 949A, the original explanatory memorandum, which is not before the Court, contained paragraph 12.60.  If I could just read out - and I will read it out because it might provide some additional support to the view that it is a counterpoint - the warning is a counterpoint to how “considered” is used in 766B.  It says:

Where general advice is provided to a retail client, no SoA is required –

which obviously is referring to a statement of advice, which is only triggered by personal advice:

However, at the time of giving the general advice and by the same means as the general advice is given, the providing entity must warn the client that the advice has been prepared without taking account of the client’s objectives, situation and needs and the client should therefore consider the appropriateness of the advice to their situation before acting on the advice -

So, we draw that to your Honours’ attention as well.  If I could then take your Honours to 961B, which is in volume 2 of the materials.  In 961B – and there is some danger in trying to coordinate every use of “considered” here, adopted 10 years later, with what appears in 766, but we say one can do it but I think it is a task which is perhaps distracting.  But on the question of objectives 961B(2) says:

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 . . . that were disclosed to the provider by the client through instructions ‑

There is the use of “the objectives”, which is not used in the sense of the whole of the objectives and, in particular, Justice O’Bryan’s reasons in the Full Court, where his Honour says the fact that you use “the objectives” does not carry with it the whole of the objectives.  There his Honour is obviously talking about 766B.  And then in (b) it says:

identified:

. . . 

(ii)the objectives . . . that would reasonably be considered as relevant to advice sought on that subject matter –

and that seems to correlate to where our learned friends have landed as to how the objectives should be understood in 766B, namely, those which are relevant.  But the effect of that is to say that part of the duty is to consider those objectives which would be reasonably considered as relevant, but you only have to satisfy that duty, or the obligation to satisfy that duty arises, on one view, when you have done that. 

The fundamental problem of any attempt to put too high a burden on “consider” or “the objectives” in 766B is, as the members of the Full Court indicated ‑ there is too much of a loophole for an adviser to say, well, I did not consider all of the objectives or even all the relevant ones.  I just considered some of them, so I did not – there was no personal advice and I was not obliged to do it.  So it is a construction which we submit is antithetical to the legislative purpose and does not arise on the language.

Then, finally, your Honours, my learned friend took your Honours to sections which indicated that superannuation clients – sorry, clients who are dealing in the case of superannuation products, effectively, all clients were retail clients.  And perhaps further amplification of that, could I take your Honours to section 761GA in volume 1 of the materials.

At page 72, there is a distinction drawn in 761GA between retail clients and sophisticated investors, and if you are a sophisticated investor you fall out of the category of retail client.  Paragraph (b) excludes, consistently with the provision my learned friend took your Honours to, that “the financial product is not”, inter alia, “a superannuation product”.  It is

worth noting, we respectfully submit, at (d) that, but for that exclusion, if the licensee was satisfied on reasonable grounds that the client in effect was experienced, then they would otherwise not be a retail client. 

So the effect of the protections are that the protections must be complied with for people who would otherwise be sophisticated investors if it is, by way of example, a super product and therefore one of those matters, as my learned friend pointed out, which have to be disclosed to such persons include the material in 947D at page 361 ‑ 947D(2) which your Honours were taken to which is additional information to be contained in the statement of advice where there is a roll over of a product or a change of product which includes information about the charges that they would incur – that is in (2)(a)(i), (2)(a)(iii) and (2)(b). 

So that, even in relation to people who would otherwise be sophisticated investors, they have to be told this material in writing.  It would not matter if the person was saying, “Don’t worry about it, I know that, I know that”.  That is the care, we submit, that in relation to certain product which includes super products, the legislation is concerned to take to ensure persons have this sort of information.

In other words, they are not presumed to have this sort of information, and the fact of the matter is superannuation products can be quite complicated and, as my learned friend says, they are often in a sense imposed on people by employment regimes because – not imposed – for the benefit of employment regimes, the full understanding of which may or may not exist in any client, be they sophisticated or otherwise.  Those are the initial matters I wish to address this morning, your Honours.

KIEFEL CJ:   Yes, Mr McHugh.

MR McHUGH:   Your Honours, there is one substantial point I want to take up from what emerged in exchanges with my learned friend yesterday, and the Court, and that is what is the nature of the recommendation at the end of the call and is that personal advice, for the reasons that were discussed in some of the questions that were asked yesterday.  I want to come into it – does the Court have available the transcript from yesterday?

KIEFEL CJ:   Not yet.

MR McHUGH:   The way I was proposing to come into it was at page 84 of the transcript where at the top of the page your Honour the Chief Justice asked my friend:

But what I am interested in at the moment is how would you describe the recommendation, the implied recommendation arising from what is said after the objectives of the customer are ascertained and it is said, well, other people share that.

Then your Honour made another comment and my friend summarised his answer in this way - he said at line 3765:

It varies in each case, but fundamentally it is, yes, good, this is the product for you –

That is the way my friend summarised it.  Elsewhere he said something similar to that – “this is the product for you”.  So the first submission about that is that is not the recommendation that was pleaded or particularised or found.  The only recommendation that was found and, indeed, I accept was conveyed, but it is the only recommendation, is “You should roll over”. 

My submission is that my friend’s proposed recommendation “this is the product for you” was not in fact made on the calls at all, particularly in circumstances where the customers had already had a search done for them, and wanted to roll over into BT.  The product had already been identified effectively by the customer in engaging in that process and the implied recommendation “this is the product for you” I submit just does not arise.  But there is a more fundamental point relevant to the question of construction and the way the Act operates, which is that any recommendation that came out of this call was based on the social proofing, the eliciting of the questions and the answers that were given to that.

That was fundamentally saying other people think this is a good idea, other people, not this is the right product for you because of anything specific to you or personal to your circumstances.  If there is any recommendation that you should roll over, it is purely based on the idea that it is a general - it is generically a good idea and ‑ ‑ ‑ 

KEANE J:   No, no, it is not generically a good idea.  It is a good idea for everybody.  It is a good idea for all the individuals who are holders of these products.  It is a good idea for everybody, each of them.

MR McHUGH:   Well, your Honour, I was about to come to what your Honour put, which was on the same page that we were just dealing with, where your Honour went through a process of reasoning that is similar to the one that your Honour has just described to me.  I was going to analyse it by reference to what is on that page.  At line 3781, your Honour characterised the recommendation as being:

that there is no reason why you would not do this now.

Again, my submission is that the only recommendation is you should roll over, admittedly now, but you should roll over ‑ ‑ ‑ 

KEANE J:   Yes, that is right.  The recommendation is you should roll over now.  There is no reason - there is no reason to stay.  It is overwhelmingly clear.  Everyone thinks - all those people out there all think it is a good idea to roll over.

MR McHUGH:   Based only on the general recommendation in the sense of the two identified benefits of manageability and saving on fees.

KEANE J:   But this is a difficulty with your argument, I think, Mr McHugh, because you are wanting to say that the objectives are general and, therefore, because they are general - because they are generally recognised as being important, they cannot be personal to each investor.

MR McHUGH:   No.

KEANE J:   That seems to me to be a leap which simply cannot be justified in terms of the language of the statute.

MR McHUGH:   No, your Honour, that is not my submission.  My submission is not that because the objectives are general, they cannot be personal.  My submission is that because the objectives are general, and the way in which they are put by way of advice to the client is general, they are not based on the personal circumstances of any particular client, and would not be understood in that way, and that is a different point.  So if I can take up what your Honour put in the transcript at the bottom of page 84, your Honour said this:

It might even be suggested that all that social proofing is directed to convincing the customers that the answer is overwhelmingly obvious, and whatever their personal circumstances might be in terms of insurance or fees the generic, the general benefits are so overwhelming and so universally recognised that you would not stay to consider anything else.

Now, if that is the way to approach it, my submission is that very much reinforces my point.  That is, if that was what was conveyed, it shows that there is no personal advice.  That is saying, “There is no need to consider your personal circumstances.  Your personal circumstances do not come into this equation, because the general benefits are so strong”, and if that is the case, my submission is it cannot be personal advice.

KEANE J:   If you say to someone, “Whatever your other personal circumstances are, in terms of insurance or fees, whatever they are, these considerations, the ease of manageability and the avoidance of multiple management fees, are plainly, as everyone recognises, such a good idea that you would not stay to consider anything else”, you are necessarily saying something about the individual circumstances of the customer.  You are saying that whatever your individual circumstances are, this is such a great idea, you would not hesitate to do it.

MR McHUGH:   But the way your Honour expressed it yesterday, with respect, is necessary to the way in which your Honour is now formulating this to me - and it finishes with the words:

you would not stay to consider anything else –

that is, you are not going to consider anything else.  To say it is not necessary to consider those things necessarily carries with it that one is not considering them, and a reasonable person would not then expect, might not expect that there had been any consideration of anything personal to the customer.  It is put on the basis, “This is generally a good idea”.

Now, that might be a good thing, it might be a bad thing if advisers say that.  But the statutory question that is posed is whether or not a reasonable person might expect that the individual’s financial situation, objectives, needs had been considered in giving the advice.  The way in which your Honour puts it to me necessarily entails that there is no consideration of the personal circumstances.

I should say as well for the purposes of this debate, I am accepting that that is what is represented, for the purposes of the debate.  I have to say it is very much not a recommendation that was pleaded, not a recommendation that was found by anyone before we got to this Court.  My submission is it does not fairly represent what happens in the calls – the way in which your Honour characterises that as saying at the end of the calls, “You do not need to have regard to your circumstances at all” because that could only arise by way of a process of implication, and the implication would only come about if somebody was thinking about their personal circumstances at all.

KEANE J:   It is not that you do not need to have regard to your personal circumstances.  It is whatever your personal circumstances might be, this is such a good idea because everyone thinks it is, that you would not bother to stay to consider them further.  It is not saying, “Do not have regard to them”.  It is saying whatever they might be, let us do this now.

MR McHUGH:   But it is necessary to that concept, whatever they might be, square brackets, I do not know what they are, but whatever they might be, one need not consider them, that does not involve any consideration of those factors.

GORDON J:   Mr McHugh, I approach this from a very simple position and that is this.  Your client, through these calls, elicited the objectives from the customers.  It offered a roll over advice, it recommended that roll over advice and, having elicited the objectives, it said yes, those objectives, your personal objectives, I have considered those and they are exactly the same objectives that were identified by other customers, and that is the reason why you should roll over.  Why is that not enough?  Why does that not fall clearly within the terms of 766B(3)(b), which is a protection mechanism to provide protection for these very types of retail customers?

MR McHUGH:   Because merely to reinforce the client’s objective by reference to a social proof, or the considerations of others, is simply to give general advice, in a robust fashion, but by reference to what other people think as well.  So, let me give an example from ASIC’s own material.  If I can invite your Honours to take up the regulatory guide that appears in ‑ it is the further materials, it is at the back, and it is at page 217.  So, this is ASIC’s own material, dealing with the idea that one can give specific advice, and as your Honours are about to see, endorsing the idea of social proof.  At the top of page 217, ASIC addresses the question ‑ this is paragraph 244.46, in the book of further materials:

If you have personal information about a client, this will not, by itself, mean that the general advice you give them is personal advice –

and then in the next paragraph:

You can use personal information about a client to give general advice that is more relevant to a client.

Then it goes on to say:

you must ensure that you do not, in fact, consider the client’s relevant circumstances –

If we come down to Example C2, there is a scenario posited:

A client calls an insurer to seek a quote for comprehensive car insurance for a new vehicle and indicates that they, their spouse and their adult children will all use the vehicle.  The insurer provides a quote.  The client indicates that the premium is more than they would like to pay and asks for advice on how to reduce the premium.  The insurer outlines that it is possible to elect to reduce the premium by increasing the basic excess payable–and that this is a popular way of reducing insurance premiums –

That is, it is a good idea because other people think so too:

and the client decides to take up this option.

It is said in the commentary in the last sentence there:

The insurer has used the personal information about the client to give general advice that is relevant to the client.

Then over the page in C3, there is a similar example about an insurance policy and the choice between third party and comprehensive cover and then in the sixth line of the paragraph:

The call centre operator says that, although they cannot provide advice about what is right for the client, generally third party property damage policies are a popular choice among people with older cars.

So that is again a social proof.  Again, as ASIC accepts, using that information in that way to identify an alternative product and provide more relevant general advice to the client is all right.  So merely reinforcing the client’s objectives or the client’s choice by reference to the considerations of others does not take it outside general advice.

I can give your Honours a very practical example from the world of stockbroking, which will illustrate the problem with the way in which both your Honour Justice Keane, with respect, and your Honour Justice Gordon have been putting this to me.  Imagine a situation where a client calls a stockbroker and says, “I want to buy shares, what are you recommending?”  So there is a very clear identification of an objective.  Certainly if manageability and saving on fees are objectives, that would have to be an objective.

The stockbroker says, “I think X, Y and Z are good value at the moment, we have got a buy recommendation out for each of them”.  At that point that is clearly an objective.  The advice is a recommendation on its face, expressly responding to the particular objective.  You have asked – you say you want to buy shares, “What do you recommend?”, “These are the shares I am recommending”.  What the stockbroker is doing is focusing the general advice by reference to the objective.  And, in one sense, that is taking account of the objective in the sense that it is responding to it.

On the Full Court’s approach, that would have to be personal advice that would encapture the whole regime we have been talking about.  And my submission is that shows why this cannot be right.  A reasonable person would not expect that the broker had considered one or more of the objectives, financial situation and needs of the customer.  The broker has not based the “buy” recommendation on anything to do with the customer’s objectives or other personal circumstances.

All that the stockbroker has done is reinforced a general message by reference to the considerations that apply to others.  And that is completely consistent with ASIC’s own position and that is why, in my submission, there is no intrinsic problem in even the way your Honour Justice Gordon formulated it a moment ago.  The way your Honour Justice Gordon formulated, at page 88 of the transcript, which is what I was considering overnight, where your Honour at line – it starts at line 3945:

A reasonable person might consider those personal objectives were considered because they were reinforced by the terms of the call giving rise to the recommendation –

that is, the social proofing, which I submit was entirely general, had nothing to do with the client’s personal circumstances. 

Then your Honour referred to Justice Keane’s language of “sealing the deal”.  Your Honour finished the recommendation with “reinforcing that what they were suggesting was good for them”.  Again, that is not pleaded, particularised, it is no part of a case that was brought against me at any stage before this Court, but even if it were conveyed it is solely based on the general advice in the general messages which were in the ASIC Moneysmart website, that were in the communications that were in writing before the calls and that were entirely generic and, indeed, in some cases, were provided by the caller to the customer before the customer was asked for an objective at all.

So nothing in the calls conveys to a reasonable person that the recommendation, even if it is being reinforced by social proofing, is in fact based on anything personal to the customer.  If I am right about the stockbroker example – your Honour Justice Gordon put it as “a simple way of reading the statute” – the stockbroker example would have to be caught as well and all of those transactions ‑ ‑ ‑

GORDON J:   The stockbroker example may include someone who is a sophisticated investor, though.  You have to distinguish between the client.  That is why we are asking about whether or not it is reasonable to - or a reasonable person might expect that the advice being given at the time was taking into account their considerations.  So I do not think you can use the stockbroker example to cover the field.

MR McHUGH:   Your Honour, I am not trying to cover the field.  I am trying to demonstrate the problem with the approach that is being put to me because not everyone who rings a stockbroker will be a sophisticated investor, particularly given the way that provision my friend went to a moment ago works.  The stockbroker has to have enough information about the customer to form the view they are sophisticated.

The point is the section cannot operate in the way in which it is being put to me in this simplistic fashion.  One has ultimately to engage with the difficulties that this construction will throw up and that it does throw up and that is what I have endeavoured to do in the submissions in‑chief and also in responding to the two examples from your Honour Justice Keane and your Honour Justice Gordon yesterday.

BELL J:   Mr McHugh, can I just clarify - the implied recommendation that you accept was consistent with the pleading and was found was an implied recommendation you should roll over your other superannuation accounts into the BT fund.  Does that capture it?

MR McHUGH:   Yes, it does.  So that is all I wanted to say about that point that emerged from the exchange yesterday.  There was only one final point I just wanted to point out to your Honours.  My friend, in his outline at paragraph 7, although he did not develop this orally, made the submission:

If the Full Court applied the correct statutory test, Westpac does not invite this Court simply to reconsider the facts applying the same test as the Full Court.

Just to make clear what the picture is on this ground, if your Honours take up the notice of appeal, the fourth ground, which is paragraph 5 in the notice, it is the last piece of paper in the book, was:

On the application of the correct statutory test, the Full Court ought to have found that the appellants did not provide personal advice to any of the relevant customers.

So I have clearly raised the question of fact about the application of the test.  Whatever it may be the court should have found in a particular way, and your Honours will have seen from - I do not need to take your Honours back to it now - but my skeleton of argument, paragraph 13, everything that I was saying about the calls yesterday was directed to this question of fact. 

At a number of points I said, whichever way you look at it, no reasonable person could think this was considered, that there were objectives that were personal that were considered, and I put that at a number of points yesterday - I can give your Honours plenty of transcript references.  The point is, whatever test your Honours find, my submission is it cannot be satisfied on the facts of these calls.  Unless there is anything further, those are the submissions in reply.

KIEFEL CJ:   Yes, thank you, Mr McHugh.  The Court reserves its decision in this matter and adjourns to 9.30 am on Tuesday, 13 October in Melbourne and in Brisbane.

AT 10.36 AM THE MATTER WAS ADJOURNED