Westpac Securities Administration LTDFirst AppellantBT Funds Management LTDSecond AppellantandAUSTRALIAN Securities and Investments COMMISSIONRespondent

[2020] HCATrans 155

[2020] HCATrans 155

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 WEDNESDAY, 7 OCTOBER 2020, AT 10.02 AM

Copyright in the High Court of Australia

KIEFEL CJ:   Mr McHugh, I will read out the appearances so that we do not have too many crossovers at the lectern.

For the appellants, MR R.G. McHUGH, SC appears with MR J. R. WILLIAMS, SC and MS E.R. DOYLE‑MARKWICK.  (instructed by Allens)

For the respondent, MR A.J.L. BANNON, SC and MR J.G. RENWICK, SC appear with MR T.J. KANE and MR M.S. KALYK.  (instructed by Australian Securities and Investments Commission)

Yes, Mr McHugh.

MR McHUGH:   Your Honour, I would say Mr Williams lately of senior counsel.

KIEFEL CJ:   Thank you.  I do not think that was on the appearance slip.

MR McHUGH:   It would not have made it, your Honour. 

KIEFEL CJ:   Right.  Thank you.

MR McHUGH:   Your Honours, I am proposing to work closely from the skeleton that was provided.  If I could invite the Court to take up first, please, the book of authorities, the first volume of the joint book, and to turn there to page 39. 

GORDON J:   I am sorry, Mr McHugh, could you explain to us what you are actually looking at by reference to the title of the case or whatever you are taking us to, or the legislation.

MR McHUGH:   So, page 39.  It is the start of Chapter 7 of the Corporations Act and it is section 760A which sets out the object of the chapter.

GORDON J:   Thank you.

MR McHUGH:   As your Honours would be aware, this is a chapter that goes on for very many sections.  The objects are expressed at a high level of generality and they are more than one in number.  But I was going to point particularly to paragraph (a) which strikes a balance or refers to the two competing sides of what I would say require a balance.  That is:

confident and informed decision making by consumers of financial products and services –

and, on the other hand:

facilitating efficiency, flexibility and innovation in the provision of those products and services ‑

Then also paragraph (b) is important:

fairness, honestly and professionalism –

No doubt we will come back to those throughout the course of the argument and in construing the provisions.

The proposition that is in paragraph 2 of the skeleton from this morning is not only that it is necessary to strike a balance, but that the chapter is really predicated on consumer autonomy.  It runs through the whole chapter, and that will inform various aspects of my argument.  But one thing that is important, right from the start, is that nowhere in the whole chapter does anybody find any requirement that consumers have to receive a particular standard of advice before making a particular decision.  We will see a little bit later the way the advice regime works, but it is not necessary even that there be any advice at all before making a decision, and that is contrary to something that we see very much emerging in the Full Court judgments about the need for advice and decision‑making on an informed basis before making a particular decision, so, as I say, I will return to that a little bit later.

So, the scheme of the chapter, in at least one important dimension, starts with what is a financial service, and if your Honours take up section 766A, which is at page 85 of the book.  Financial service is important because, as we see in subsection (1)(a), what is included within provision of financial services is:

provide financial product advice –

which is what this case is about.  I will come to 766B in a moment, but you will see from (a), (b) and (c) that financial services are defined in important respects by reference to financial products, so I should take your Honours to where they are defined.  If your Honours come back to section 763A, which is on page 74 of the book, there is a somewhat opaque generalised definition in subsection (1), that is:

a financial product is a facility through which, or through the acquisition of which, a person does one or more –

of various things, including:

manages financial risk –

So, it is a very abstract definition.  One gets a much more concrete content to the concept of financial product a few pages further over at 78 in the book, at section 764A and that one gives definitions by reference to particular kinds of products.  And your Honours see in subsection (1)(a) that the first is “a security”.  I will not take your Honours back to the definition of that, but it is a very broad definition indeed – shares, things of that nature.  Paragraph (b), interests in registered schemes.  Paragraph (ba), unregistered schemes – that is, managed investment schemes, interest where they had not been subject to the registration regime.

Paragraph (c), derivatives.  Paragraph (d), contracts of insurance that are not life policies, which is a distinction drawn.  Then (e) is life policies of certain kinds.  Of particular importance for the present case is paragraph (g):

a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993.

And that is what we are dealing with here, the interests in the BT funds that we are concerned with, of that kind.  And then over the page, paragraph (h), an RSA – that is, a retirement savings account, and then various other kinds of facilities, including in paragraph (l), margin lending facilities.  So financial products are very broadly defined.

And then in 765A your Honours see there are certain exclusions from the definition, including paragraph (c), which excludes health insurance, for example.  And paragraph (g), reinsurance.  I do not need to dwell further on that, but that is the scheme of the approach to financial product.

If we turn then to section 766B, which is on page 86 of the book and we just start with subsection (1):

For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion . . . 

(a)is intended to influence a person or persons in making a decision in relation to a particular financial product –

So here, relevantly, superannuation.  And then your Honours see in paragraph (b), or:

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

The Full Court gave that a very broad interpretation, the concept of recommendation or statement of opinion.  It includes implied recommendations and implied opinions and as we will see when we come to the facts that they can be, on the Full Court’s approach, somewhat indirect indeed.  That is, it is the nature of the conduct that gives rise to an implied recommendation, as I will develop when we come to the particular calls.

This was, in a significant respect, a marketing activity, what was going on here.  Westpac was calling people who had already said they wished to have a search conducted for their superannuation in almost all of these cases and offering a service of rolling over.  And the approach taken in the Full Court, and at first instance, was that merely by doing that in the circumstances in which it occurred, there was a recommendation that it was a good idea to roll over one’s superannuation from external accounts into the BT accounts. 

So, the recommendation arose fundamentally by way of implication and, as I say, it was given a very broad interpretation.  It is difficult to think of very many forms of advertising that would not come within the approach taken in the Full Court.  So, the effect of it is that really as soon as one is saying something positive about a particular financial product, with an intention or in reasonable apprehension an intention of getting someone to make a decision about it, one is already within the advice regime.  And that is why the distinction that we come to in subsection (2) is very important between “personal advice and general advice”.  I will come back to general advice in a moment, but just dealing with subsection (3):

personal advice is financial product advice –

within subsection (1):

that is given or directed to a person . . . in circumstances where:

(a)      the provider of the advice has considered ‑

which is an important word in this case:

one or more of the person’s objectives, financial situation and needs ‑

And as we will see, those should be treated as categories, or:

(b)a reasonable person might expect the provider to have considered one or more of those matters –

in paragraph (b).  Just stopping on paragraph (a) for a moment, ASIC ran its case at first instance and on appeal below on the basis of paragraph (a) and paragraph (b).  It lost on paragraph (a), and there is no cross‑appeal or notice of contention in relation to that.

So the case turns entirely on paragraph (b), which I submit posits a factual inquiry.  It is hypothetical by reference to a reasonable person in the shoes of the customer, but it is what would a reasonable person expect had in fact occurred.  It is not what would a reasonable person expect should have occurred in any normative sense.  And it seems that there is now common ground between ASIC and the appellants on those issues.

The purpose of the provision, I submit, is very clear.  It is to make sure that a person who would reasonably expect to be getting personalised advice will actually get personalised advice, and that is because of the way the personal advice regime picks up a vast number of obligations on providers of advice that I am coming to next.  That is the purpose of this. 

And one of the problems with the construction given to it in the Full Court is at a number of points that purpose gets lost, gets left behind in the analysis, because the approach becomes, we have established that there was a recommendation, even though it was by this process of implication, and there is then reasoning from the recommendation as advice at a very high level of generality.

And one finds out that the objectives in issue are at such a generic level, in this case they are objectives in the nature of wanting one’s superannuation to be more manageable by having it in one place, or wanting to reduce fees, which one would think every single person would have to believe was a good idea, and an objective that everyone would have to have – those are the only objectives that are really identified in the case.  And yet because of the approach taken by the Full Court, one ends up with a situation where the whole panoply of obligations of personal advice are engaged on the basis of what are really generic and not personal objectives of that kind.

So subsection (4) then says that general advice is everything that is not personal advice.  The exclusions in subsection (5) are not presently relevant and that means we can probably turn next to the general advice regime and section 949A which your Honours should find at page 365, still in the first volume.  So, where general advice is given, the only requirement in the Act as to the content of the advice is the one that you see at 949A(2), and you see in subsection (1) that it is general advice that we are dealing with.  Subsection (2):

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 –

and that taking account is obviously part of the content of consideration that we saw back in the definition in 766B(3):

(b)because of that, the client should, before acting on the advice, consider the appropriateness of the advice, having regard to the [particular] objectives, financial situation and needs –

of the client.  Then:

(c)if the advice relates to the acquisition, or possible acquisition, of a particular financial product—the client should . . . 

obtain a Product Disclosure Statement ‑

and it goes on.  This subsection is subject to an ASIC ‑ or was subject to an ASIC class order.  We have given you the references to that.  The class order simplified what had to be given by way of warning in situations of oral communication.  It simplified down what it is that has to be said, and we have given your Honours the reference to that.  There is no issue in this case about whether or not 949A was complied with.  It was never part of ASIC’s case that was particularised below that there was non‑compliance with section 949A. 

As well as that my friend, Dr Renwick, disavowed any case based on a complaint that the warnings that were actually given did not comply with 949A.  So the only relevance of the warnings that argued it ‑ which I will take your Honours to very shortly in the cause – but the only relevance of those is what effect they have on reasonable apprehension of consideration of personal circumstances because the warning is to the effect, we are not going to take into account anything personal to you, and it is highly material from that point of view.  So your Honours do not need to be troubled by the general advice regime in section 949A.  What I do need to do ‑ ‑ ‑

GORDON J:   Can I ask two questions about that, Mr McHugh. 

MR McHUGH:   Yes, your Honour.

GORDON J:   The first is, in relation to the ASIC order, which was not the subject of discussion as far as I could see in either the trial judge’s reasons or the Full Court, is it the position ‑ and you say it was not part of ASIC’s case – that your warning complied with the class order?  In other words ‑ ‑ ‑

MR McHUGH:   I just did not hear your Honour’s question, I am sorry.  Was it part of ASIC’s case that it did comply or that it did not comply?

GORDON J:   As I understood it, it was not ASIC’s case that there was any question about 949A.  My question though is, in the context of looking at 766B(3), is it your contention that your warning complied with the class order itself?

MR McHUGH:   No, your Honour ‑ sorry, I should say, first of all, the contention is that in substance it was complied with, and that was accepted below by ASIC, but for the purpose of the premise of your Honour’s question, which is in connection with 766B(3), the question whether there was compliance with 949A is completely irrelevant one way or the other.  The words that were spoken are highly relevant to 766B(3), that is, would a reasonable person expect, or might a reasonable person expect that personal circumstances were taken into account.  But as relevant to that statutory inquiry, the question whether or not there was compliance with 949A or with the class order insofar as they are concerned with general advice, is legally irrelevant.  So the submission ‑ ‑ ‑ 

GORDON J:   So, the second part of my question then is, if that contention is right does that also extend to not taking into account the fact that the callers did not comply with their own training?

MR McHUGH:   Well ‑ ‑ ‑ 

GORDON J:   In relation to warning.

MR McHUGH:   So far as ‑ your Honour, I am not sure I accept necessarily the premise that your Honour has put about not complying with their own training, but relevantly, whether or not they were trained to do anything is completely irrelevant to the inquiry under paragraph (b) of subsection (3), because that is, what would a reasonable person expect, or might a reasonable person expect, and it was accepted in the Full Court, and it is not challenged by either party in this Court, that for the purposes of that inquiry, one has regard only to what would be apparent to an observer of the call, that is, the interaction between the parties.  I put it too narrowly to say an observer of the call, it is the interaction between the customer and BT or Westpac, in this case that involved some prior correspondence, but a reasonable person is not going to be aware of anything to do with the training that the caller has received.  That was a question that might be relevant to paragraph (a), which was did they in fact consider anything, but the training ‑ ‑ ‑ 

GORDON J:   The reason why I asked the question is because in (b) it is “a reasonable person might expect the provider to have” done certain things.  So, I ask it in that context, and especially given subsection (4) – I withdraw that – I think it is subsection (6), is it not, where you look at it each time the advice is given.

MR McHUGH:   Well, your Honour, the provider acts through its servants or agents or representatives, in this case it is the callers, and the universe of information that is relevant is whatever emanated by way of documents from the provider, and whatever was said by the provider in the course of the calls through its servants or agents or representatives.  And beyond that, what might have happened in training, or what otherwise might have happened so far as systems are concerned, or for example in relation to the QM Framework document, as it was described below, is, with respect, all irrelevant to the question that is posed by subsection (3)(b).  That is the submission, and I must say, your Honour, so far as I understand it, there is no dispute between the parties in this Court that that is the correct approach to paragraph (b).

So, I was turning then next to what happens under the personal advice regime, which is very, very onerous indeed.  If I could ask the Court to turn to volume 2 of the joint materials, and first to section 961, which appears on page 392 at the start of the volume.  Your Honours, there dealing with Division 2 of Part 7.7A, which is headed “Best Interests Obligations”, and section 961(1) provides that:

This Division applies in relation to the provision of personal advice (the advice) to a person (the client) as a retail client.

In order to explain what a retail client is, I need to take your Honours back into the first volume of the joint materials, and to section 761A, that is at page 53.  I am sorry, the definition is in section 761A and your Honours see towards the top of page 53:

retail client has the meaning given by sections 761G and 761GA.

If we then turn forward to page 65, your Honours will find 761G and it provides, relevantly in subsection (1), for the meaning of a retail client.  Subsection (1):

For the purposes of this Chapter, a financial product or a financial service is provided to a person as a retail client unless –

various sections provide otherwise.  So presumptively, services are provided to retail clients, and the person to whom they are provided is referred to throughout as a “retail client”.  If we then turn through to subsection (6)(b) on page 67:

For the purposes of this Chapter:

 . . . 

(b)if a financial service (other than the provision of a financial product) –

so relevantly here it is the advice:

provided to a person who is not covered by subparagraph (c)(i) or (ii) relates to a superannuation product or an RSA product, the service is provided to the person as a retail client –

Relevantly, paragraph (c) is dealing with, for example, a fund that holds over $10 million – not presently relevant.  So all that being so, we come back to page 392 in volume 2 of the joint materials, the joint authorities and we are relevantly within the application of the division under section 961(1).  If we then turn over to page 393, there is a very significant provision in the Act in 961B.  The duty in subsection (1) is that:

The provider must act in the best interests of the client in relation to the advice.

So just stopping there, if it is general advice that is being given, all you have to do is give the 949A warning.  On the other hand, if you are giving personal advice, you now have to act in the best interests of the client and, although subsection (2), which is sometimes described as a safe harbour, sets out a lot of things that one can do as the provider to establish that one has acted in the best interests of the client, it is difficult to see, in light of the way in which the scheme of this part works or this division works, how one can avoid doing all of these things.  So first of all in paragraph (a) one has to identify:

the objectives, financial situation and needs –

Then in (b) have:

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) –

That becomes important in my argument later on because where those words “objectives, financial situation and needs” appear in section 766B(3), my submission is that they should be given the same meaning as one sees here, that is, so much as are relevant to the advice sought and one cannot just have some tiny, generalised objective such as manageability of superannuation.  It has to be the whole of the category insofar as it is relevant to the advice sought.

Then we see in paragraph (c):

where it was reasonably apparent that information . . . was incomplete –

there is an obligation to make reasonable enquiries or at least, if one does that one will have satisfied the best interest obligation, then (e):

if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product -

then what one should have done is:

conducted a reasonable investigation into the financial products that might have achieved 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 -

So that is giving content to what is meant by consideration and my submission will be a little later on that “consider” has to have the same meaning in these provisions as it does in 766B(3), and then we see in (e)(ii):

assessed the information gathered in the investigation -

and then (f):

based all judgments in advising the client on the client’s relevant circumstances -

that is, so much as was relevant to the subject matter.  Now, that whole regime, I submit, gives a lot of content to the nature of the consideration that is being contemplated by this chapter.  The consideration is an actual intellectual engagement with the subject matter so as to allow one to give proper advice.  One sees the words “assess”, “judgments”, “considering” all as part of what one is required to do in order to act in the best interests of the client.  Paragraph (g) then provides that:

any other step that, at the time the advice is provided, would reasonably be regarded as being in the interests of the client, given the client’s relevant circumstances.

That phrase, “client’s relevant circumstances”, is the one we see defined in italics and bold on the preceding page.  Subsection (3) provides that in respect of basic banking products – and that is its own definition that goes on for pages that I will not take your Honours to, but in respect of such products the duty is modified, so that all that is required to satisfy the duty is what is in 2(a), (b) and (c) of 961B.  But even that, as we see, involves the client’s relevant circumstances as relevant to the advice sought.  Then there is a similar provision in subsection (4) in relation to what is called a “general insurance product”, that is something other than life insurance.  So that is the 961B duty. 

What your Honours then find in 961C through to 961F is elaboration on some of the concepts that have already been seen in 961B.  So 961C, for example, refers to a “reasonable level of expertise” in assessing the subject matter.  Again, my submission is that gives some content to what is meant by “considering”.  Then we see again in 961E further references to, in the second line, “reasonable level of expertise”, and in the fourth line:

exercising care and objectively assessing the client’s relevant circumstances -

Then when we come to 961G there is another substantive provision of some significance on those who provide personal advice:

The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client. 

So 961B, as we have seen, itself turns on exercising judgment in considering the advice and the client’s objectives and this is now saying there is an obligation to give advice which is appropriate in the circumstances.  Section 961H is a warning provision – again, one of substance:

(1)If it is reasonably apparent that information relating to the objectives, financial situation and needs of the client on which the advice is based is incomplete or inaccurate, the provider must –

give a particular warning and, again, your Honours see in paragraph (a) there that:

the advice is, or may be, based on incomplete or inaccurate information relating to the client’s relevant personal circumstances –

That is itself defined back – I will show your Honours where that is in a moment.  But your Honours will see the phrase is “relevant personal circumstances”, which is slightly different from what we saw in 961B(2)(b)(ii), which was a defined term:  “client’s relevant circumstances”.

The term that we were just looking at in section 961H is defined on page 52 of the first of the volumes.  So if we return to the definition section, which is 761A, and to page 52 in volume 1 we see at the foot of the page a very similar definition to the one that we were looking at internally in 961B.  That is at the foot of the page:

relevant personal circumstances, in relation to advice provided or to be provided to a person in relation to a matter, are such of the person’s objectives, financial situation and needs as would reasonably be considered to be relevant to the advice.

So it is a very similar concept to the one that we were looking at internally within 961B.  I might explain a little bit later how that came into the Act.  It came in at the same time as 766B, at the time when a section that has now been expanded upon and repealed – 945A is the section, but I will come back to that later.  I do not want to confuse matters now.

So that was the defined term, “relevant personal circumstances”, that is picked up in 961H, in volume 2, and that is the nature of the warning that has to be given, but it does not take up, effectively, relevant material from the point of view of the particular client.

And then, if we come to 916J – this is on page 397 of the second volume of joint materials, 961J(1):

If the provider knows, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of –

the provider and various others, then:

the provider must give priority to the client’s interests when giving the advice.

So it is not an equity solution to that problem, it is a different statutory solution to the conflict problem but, nevertheless, it is a very significant one in the way in which the personal advice regime works.

Then, if we stay on that same page, at the foot of the page, section 961K provides that each of those substantive provisions I have been taking your Honours to:  961B, 961G, 961H and 961J, are all civil penalty provisions.

If we then turn to – where to go next ‑ the next substantive set of obligations that land on somebody giving personal advice is in connection with a statement of advice.  I should take your Honours there.  That is in volume 1 of the book of joint materials, section 944A, and your Honours should find that at page 349 of volume 1.

GORDON J:   To 946A?

MR McHUGH:   944A is the start of the division that engages the personal advice regime.  So, if we start on page 349, 944A:

This Division applies in relation to the provision of personal advice –

Which is what we are dealing with under 766B(3), and the relevant circumstances are (a)(i), provided:

by a financial services licensee –

Which, of course, my clients are, and then paragraph (b):

the advice is provided to a person (the client) as a retail client.

And that is the issue under section 961G that I took your Honours through earlier in connection with the best interest obligations.  So then, in the middle of the page, 946A:

The providing entity must give the client a Statement of Advice in accordance with this Subdivision and Subdivision D.

And if I take your Honours to those requirements, first to 947B, which is on page 357, and in subsection (2) the main requirements of a statement of advice are set out.  Your Honours see at (2):

(a)       a statement setting out the advice, and

(b)information about the basis on which the advice is or was given –

information about “the providing entity”, and then in (d) and following, information about renumeration, fee structures, that sort of thing.  And then there is the reference in paragraph (f) to the 961H warning.  Then under subsection (3) the amount of detail required is by reference to what:

a person would reasonably require for the purpose of deciding whether to act on the advice –

And then if we turn through to 947D on page 361, this, in subsection (1) addresses the situation where the recommendation is to ‑ this is paragraph (1)(a) ‑ to “reduce the client’s interest” in one product and increase it in another, and substantially a rollover situation that we are dealing with in superannuation, which is saying, take yourself out of MLC and come over to BT, would be engaged as a result of subsection (1).  Subsection (2), the additional information includes (a):

(i)any charges the client will or may incur in respect of the disposal or reduction ‑

Or, I would interpolate, roll over, and then over the page, (iii) at the top:

any pecuniary or other benefits that the client will or may lose –

And again, I would interpolate, for example, insurance, and then (b):

any other significant consequences –

and so on.  So, the regime, in respect to statements of advice, is a very onerous one, and just so that your Honours are not losing where I am going with all of this, the result of what was said in the Full Court was, because of what happened on these calls, my clients were obliged to do all of the things that I have been taking your Honours through in order to meet the statutory requirements, in light of what happened on these calls.

The only way they could have complied with the Corporations Act was to do all of the things that I am showing your Honours as we go through.  So, there is one final, important, dimension to what falls on a provider of personal advice under the statute, and that is the requirement to give a PDS, a product disclosure statement.  Your Honours will find that in volume 2 of the joint materials in section 1012A, which is on page 485, and in particular, subsection (3) on page 486:

A regulated person –

And if we go back a page to section 1011B, which is definitions, regulated person is defined to include financial services licensees, such as my clients.  So coming back to 1012A(3):

A regulated person must give a person a Product Disclosure Statement for a financial product if:

(a)the regulated person provides financial product advice to the person that consists of, or includes, a recommendation that the person acquire the financial product; and

(b)      the person would acquire the financial product by way of:

(i)     the issue of the product to the person –

And then you see at the end:

(d)      the financial product advice is personal advice to the client.

That would appear to be engaged in this situation as well, because my clients had been found in the Full Court and at first instance to have recommended the roll over, which would be in part an acquisition of the BT Fund, and the issuing of interests in the fund, so it seems that would be engaged.

In general, in any event, whenever one is in subsection (3), one has to provide a PDS in respect of the product.  Now, that may not have been such an issue here, because these people were all members  – all of the customers that are the subject of this case were existing customers of BT, so they presumably already would have had a PDS but, in general terms, that is what the regime requires.

So there is one last feature of the statutory scheme that I should take your Honours to that is relevant to the way the case proceeded below, and that is section 912A, which your Honours will find in volume 1 of the joint materials.  That will be at page 279.  So this is a general obligation that falls, as your Honours see in subsection (1), on a financial services licensee.  It is not an obligation that is directly affected by personal as opposed to general advice.  As soon as one is given any advice at all as a regulated, licensed person, one is within this section.  So, I am not saying this only falls on people who are giving personal advice, but there is an important point about the fact that one is giving personal advice.  If we look at subsection (1)(a), the first of these obligations is to:

do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly –

“The financial services” are relevantly either personal advice or general advice and it is obvious, I submit, that the nature of the advice being given has a real bearing on the specific content of whether or not those particular financial services are being provided efficiently, honestly and fairly.

Now, one thing very important about this section is at the time of the conduct in this case, this was not a civil penalty provision.  It now is, as a result of amendments made, I think a year or two ago.  But as I understand it, they are currently in force.  So there are a few things I wanted to say about the section.  The Full Court accepted that the case that was made by ASIC at trial, and to which the Full Court held ASIC, was one that was predicative on a finding of personal advice.

What had happened at trial was that the trial judge was with me that there was no personal advice, but nevertheless found against me on section 912A(1)(a), on the basis of general advice.  And the Full Court held, Chief Justice Allsop gave the reasons with which the other two members of the court agreed, that that was outside the case that ASIC had brought and that ASIC was not entitled to do that.  ASIC has not challenged that in this Court.  So the only way that we come within a contravention of 912A is on the footing that there was personal advice given within the meaning of 766B(3) – that is the first point.

Now, I should make this clear in this Court.  My client is not challenging in this Court that if it gave personal advice within the meaning of 766B(3), that it breached this section because it would have had to have breached the best interest duty at 961B.  It was required to do that under 961B, it did not do that, it did not set out to comply with the best interest duty, and for that reason it would have to have breached 912A.  It would not have provided the services efficiently, given that it failed to act in the best interest of the client.

But Westpac makes this submission in this Court.  If only general advice was given, which is the issue in this case, I certainly do not concede that there was any breach of 912A(1)(a) in the way in which the trial judge had found and, more importantly, it is just not open in this Court for ASIC to contend – and as I understand it, it is not contending – for a finding that there was a 912A(1)(a) breach in the absence of a finding of personal advice.  So essentially your Honours do not really need to be troubled by 912A because I accept if there was personal advice there was a contravention of 912A(1)(a); if there was not personal advice then it is not open to the Court to inquire into the question.

I should just point out two other provisions or paragraphs of 912A while I am on this page.  Paragraphs (b) and (c) ‑ compliance with the conditions on the licence and compliance with the financial services laws – were also found to have been contravened and although they do not add anything of substance, they follow as a matter of logic from the earlier contraventions, in particular because my clients were licensed to provide general advice but not personal advice, and so there is a licence contravention if in fact they had provided personal advice.  But your Honours need not be troubled further in relation to that at this point.

So that brings me away from the scheme of the statute in overview and to the particular facts of the case.  I am not proposing to take your Honours through all of these calls, but I do need to take your Honours through one closely to illustrate the way they work, and I will point out a few features that emerge from one of the others.  I think at trial Justice Gleeson was taken through all of them.  I think my friend, Dr Renwick, ended up having to do that.  I am certainly not going to try to impose that on the Court because relevantly the issues that are important for the analysis of what the Full Court did in relation to 766B(3) are illustrated in the customer 1 call, and also the earlier correspondence.

Before I get started on the correspondence, I will point out one thing in the Chief Justice’s judgment below.  So if your Honours take up the core appeal book, Chief Justice Allsop’s decision at page 195 of the core book, paragraph 62, what his Honour was addressing there was what the primary judge had said in relation to the correspondence that preceded the calls.  Her Honour’s approach was that the preceding correspondence was not relevant, and the Chief Justice said at paragraph 62:

No submission was put that this approach was in any way wrong.

My submission is that is not right.  The way I have conducted this case from the start, including in the Full Court, was that the correspondence was relevant contextual material.

KIEFEL CJ:   I am sorry, Mr McHugh, would you mind restating that submission, I did not quite follow it.

MR McHUGH:   Sorry.  So, what the Chief Justice is saying here is that no submission was put in the Full Court that the approach that Justice Gleeson had taken was wrong.  Justice Gleeson’s approach was effectively to say the prior correspondence did not really have any bearing on the call.  Your Honour will see that at 244 and 245 just immediately above 62 in the quotation from Justice Gleeson.  Her Honour had said:

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.

Or:

that the state of mind of an individual caller . . . was affected by the contextual correspondence ‑

Now, all I want to point out is, to the extent that the Chief Justice Allsop seems to be saying at paragraph 62 that I was not making a case that involved the correspondence, that is not right.  I took the Full Court to the correspondence, I took the primary judge to the correspondence.  So, I just ‑ ‑ ‑ 

GORDON J:   Can I ask a question about that?  I had understood what his Honour was saying was, I can look at the correspondence and that is the context in the sense that has occurred, but that the Act requires me to consider whether or not personal advice has been given each time the advice is given, and as a result of that I can park the correspondence, at least in part, because the Act requires me to look at the advice at the time the advice is given, and that is the cause. 

MR McHUGH:   If that is the way to read it, then I certainly accept what your Honour puts to me, and I accept what your Honour puts to me that it is necessary to determine whether advice is given on each occasion that it is given, to determine whether or not it is personal or not.  My submission is only that for the purpose of answering that question in respect of these calls the earlier material is relevant contextually.  And I will go to that now and show your Honours how that is so. 

GORDON J:   Can I ask one more question and then I will not ask any more.  I had understood from your notice of appeal that you did not challenge the ultimate findings by the Full Court which upheld the primary judge’s findings both about the recommendations having been made in terms of their content and also the accompanying statements of opinion.  Am I right about that?

MR McHUGH:   That is correct. 

GORDON J:   Thank you. 

MR McHUGH:   I fought that issue very hard at first instance.  I fought it very hard in the Full Court, I have lost twice, and I have accepted that I have lost that issue.  But it is important to bear in mind the width of the way in which the reasoning led to the implication of those recommendations and opinions, because it has a bearing on what a reasonable person might expect under subsection (3), given the context in which the recommendation was said to have been made.

So, I need to go to the appellant’s book of further materials.  They are in an order that – it may be – I am not sure if it is chronological, but in any event, customer 1 starts in the middle of the book.  If I could take your Honours first to page 34 of the book and your Honours will see in the covering page at 34 this was a letter to customer 1 dated 23 July 2014.  In order to preserve the privacy of the customers they have not been named throughout the proceedings; we have just been referring to them as customer 1.

But this is a letter dated 23 July 2014, and as your Honours see it is addressed to someone in particular, as opposed to some of the other documents that are generic because that is all that was left within the system.  But just dealing with this one on page 35, this encloses the annual super statement for the year, ending 30 June 2014, and your Honours, I think it might be all but one – virtually all of the customers received a letter of this character.  If your Honours look in the second paragraph, in the third line there is a sentence that begins:

However, if you combine your super into one account, you could save on administration fees –

So there is the potential saving of administration fees:

and enjoy the convenience of having all your super in one place –

which is the concept of manageability that runs throughout these interactions.

To help you get 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.

Now, patently, this is rolling over into BT is what is being offered here, in a letter from BT to the customers.  Then under the heading, “Let us help you find all your super”:

Did you know that there’s $18.2 billion in lost and ATO‑held super in Australia and some of it could be yours?  With your consent we can search for any other super you may have on a regular basis.

Then there is an invitation to visit BT’s website and enter a particular security code individual to the customer:

We’ll search for any other super you may have on a regular basis.  It’s that easy, so why not get started today?

The first thing I would say about that is almost all of these customers had responded to this invitation to do a search and BT or Westpac had conducted a search on their behalf to find other super.  That is the case in respect of, I think, all but two of the calls.  I will be corrected if I am wrong about that.

Clearly, that is the provision of a service to these customers, the offer to do that and it is clearly helpful from the point of view of a customer because helpfulness is a theme that runs through the Full Court’s decision.  But just as clearly the help that is being offered there is to roll over into the BT fund.  BT is doing this so that the customer will go on to roll over money into BT.  That would have been obvious to anybody who was receiving this letter – any reasonable person.

Then, over the page, your Honours see there is a heading, “We’re here to help” – that is, to give good customer service, obviously.  Your Honours see in the second line of that paragraph, line 10 on the page, the reference to “any general questions you may have”.  That is then distinguished from what happens in the next paragraph:

if you have a Financial Adviser, then we recommend you speak to them for personal advice tailored to your specific financial situation, objectives and needs -

because clearly this communication is not doing that – this is general.  At the foot of the page your Honours see a disclaimer and a warning – I am not going to suggest that anyone would have been particularly remembering this disclaimer.  I am giving it as an example of the 949A warning.  Your Honours see about six lines or five lines from the end, in the fine print, there is a sentence that begins:

This letter doesn’t take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.

So that is an example of the 949A warning on the footing that what was happening here with general advice.

If your Honours turn through to page 37, or turn across the page, which is the actual super statement itself, your Honours see that in this case in the blue box in the bottom right‑hand corner as it happens there was a financial adviser noted on the file.  Under the heading “Your adviser” there is the name of a particular financial adviser who was involved in that case.  If we then turn through to page 67, we get a generic document, because that was what was on the Westpac systems, but there is a record somewhere within the system showing that this was a thing sent to customer 1. 

So your Honours see on page 66 of the book this is the form of a letter sent on 29 September 2014 to customer 1 providing the results of the superannuation search, and that means your Honours should ignore the date on page 67 because that is just a generic date, and the reference to Mr Adam Sample, that again is all generic.  But this was personalised to customer 1 with her details put in and then this was the content of what was sent.  Your Honours will understand this was after she had responded to a search. 

There is a finding in the primary judge’s judgment.  I do not need to take your Honours to it.  It is at paragraph 153 where her Honour found that there was a search conducted as a result of customer 1 accessing the website on 10 September.  So then two weeks later this letter is sent out:

Thank you for providing us with your consent to search for your lost super as well as other super amounts.

Below that where it says, “Type of super found”, again these are the generic results.  These are not the actual customer 1 results that we find out later when we get to the call, but they would have been the actual ones in this letter.  Then “Next steps”:

Having your super in multiple places may mean you’re paying multiple sets of fees.  By bringing it together in the one account, you could potentially reduce fees and paperwork.

So those same two messages we had seen before:

If you would like to combine your other super into your BT Lifetime Super . . . Account, complete the enclosed Rollover form and return it to us.

So clearly they are inviting the customer to do that for something that will evidently be in BT’s interests if the customer wishes to do that.  It will be more funds under management.  So it is up to the customer to choose whether or not she wants to do that, and BT is making no secret of the fact that it would very much like her to increase her investment.  So the rollover form that is referred to there is on page 70, and again this is the sample generic form of the rollover form but in the bottom right‑hand quarter of the page your Honours see “TO fund name” and again it is “BT Lifetime Super – Employer Plan”.     There were additional communications in writing, but they do not add to what I have taken your Honours to in between those two. 

I will point out one thing while we are here.  If we go to the book of further materials at page 208 there is an extract of the ASIC Moneysmart website.  This is where ASIC gives general advice to consumers about consolidating superannuation funds.  On page 209 you see at the top of the page under the heading “Consolidating super funds Reduce your super stress” the statement:

How many super statements did you receive this year?  Do you find it hard to keep track -

So that is manageability:

Have you lost some of your super over the years?  You’re not alone.

Below that:

Why you should consolidate your super -

as a statement, and then the heading a little further down to the same effect:

The benefits of putting all your small super into one account include:

·Saving costs by paying only one set of fees -

and the following two bullet points I would lump together as manageability:

·Reducing your paperwork

·Making it easier to keep track of your super -

Those are the same things BT was telling customers.  They are the same things that come up in the calls and they are also the same things that the customers identify as their objectives, to the extent that they were held to be objectives in this case, highly generic and, with respect to ASIC, obviously correct that it is a good idea.

It is a huge problem in this country that because of the compulsory superannuation regime people have many different superannuation balances.  One of the examples we come to in this case there are eight different superannuation accounts being eaten away by administration fees.  It is a good idea to consolidate.  So that at least seems to be uncontroversial.  When you come down a little further, there is a heading in the middle of the page “How to put your super into one fund” and ASIC then makes this suggestion:

Before you decide to move funds

Before you consolidate your super funds here are some things to check -

that is, it is up to you as the customer to make these decisions:

·Are there any termination fees

·Will you be able to get the same level of insurance in your chosen fund

·That your employer can contribute to your chosen fund -

that is, the new one.  There is certainly no suggestion here that you need personal advice within the meaning of section 766B(3) before you do this, because the whole ‑ ‑ ‑

GORDON J:   Is that right?  Mr McHugh, I thought in the middle of the page, at least in relation to defined benefit funds, they suggested getting advice.

MR McHUGH:   I am sorry, your Honour is quite right about that.  If you are in a defined benefit fund, which is unlikely to be most of the people that we are talking about in the context of what we are dealing with at the moment – I understand federal judges are in a different category, but the vast bulk of consumers these days are not going to be in defined benefit funds.  Your Honour is quite right:

think very carefully and get advice before leaving.

Even that does not say get personal advice, but one would probably have to interpret it that way.  Nevertheless, the point I was trying to make about the bottom half of the page was, ASIC itself is proceeding on a footing of consumer autonomy, and that there is no need to get personal advice before you do this.

Now, one of my friend’s complaints is – and, indeed, it is part of the reasoning in the Full Court, that the Full Court held across all of the judgments really that there was  problem here because it would have been appropriate to tell people to get personal advice.  That is the nub of the reasoning we get to in the Full Court decision quite shortly and my submission is that is just not found anywhere in the Act.  It is not found in the Act.  It is in fact contrary to the scheme of the Act, to add that as a normative requirement.  Even ASIC itself is not saying you have to get personal advice.  So that was the written communication.

Let us turn then to the call for caller 1.  So I think I just said to your Honours that this letter with the results of the superannuation search was 29 September 2014.  The phone call appears at page 117 in the book, and it is four days later on 3 October.  Some of them are much further apart, but in this particular case it happens that it was four days later.  The central question in this appeal is might a reasonable person expect that as a matter of fact BT had actually considered one or more of the customer’s objectives, financial situation and needs in making an implied recommendation to roll over in this call.  That is the crucial question.

If we start at the top of page 118, Alan is the name of the caller, and your Honours will see, if your Honours come to the other calls, he is the caller in, it would be close to half the calls, from recollection.  He says he is calling from BT, he is looking for customer 1.  He says hello, and she says she is at work.  He says:

okay, not a problem.  Look, it was just a quick courtesy call regarding your BT Superannuation account, we’ve just had some superannuation search results.

So, that is clearly a reference to the thing that was sent out four days earlier.  The idea of a courtesy call, it is customer service marketing and so on.  She says yes, and then he says:

Do you have a few minutes to talk or would you like us to call you at some –

and she says:

Yeah, that’d be all right, yeah, that’s okay.

He then says at line – and I will work from the transcript line references - line 13:

Not a problem at all, as I said, we’ve got some results here we’d like to help you bring them over to your account to potentially save you on fees.

So the first point is the word “help”.  That is the high point of ASIC’s case, on the facts, that there was an expression of helpfulness, but it is important to note what the nature of the help is that is being offered here.  It is help:

to bring them over to your account –

that is, to bring them over to your BT account.  That is the first part.  It is certainly not offering in any general sense to advise her, it is offering to provide a service to her that she may well want to take up, given that she has asked for a search to be conducted of her other superannuation.  The other point about this is that the implied recommendation to roll over is right here at the start of the call, that is, it is an offer:

to help you bring them over to your account –

Those words, on the reasoning in the Full Court and at first instance, are sufficient to support the recommendation on its own.  There is an implied recommendation that it is a good idea to do it and it is in respect of a particular financial product, and so therefore you have advice straight away at that point, but that is before she has said anything, the customer has said anything about her personal circumstances at all.  My submission is that is highly relevant to whether or not a reasonable person would understand there to be any recommendation based on her personal circumstances.  The second half of that sentence:

potentially save you on fees -

that is one of the two statements of opinion that were held to be conveyed.  Again, that is before the customer had said anything.  But one important point, and I might have to come back to this to expand on this later, it is very clear in Chief Justice Allsop’s decision that the opinions were not personal advice.  His Honour held that they were general advice, as opposed to the recommendation to roll over. 

I will come back to this later because I do not want to get distracted on it now.  It is paragraph 76 of Chief Justice Allsop’s judgment and the other two judges, it seems, approach it on the same basis, that is that what is relevantly personal advice in this call is the recommendation to roll over, as opposed to the opinions because they are so generic and clearly not based on anything personal to the particular customer. 

So the important thing to focus on is the recommendation to roll over.  So, she, after that introductory exchange at line 16, she says, “Yeah”, and then the caller says at line 17:

So before we continue I do need to let you know the call is being recorded and everything discussed today is general in nature, it won’t take into account your personal financial needs.  Is that okay? 

The customer responds:

All right, yeah, not a problem. 

Now, my submission on the facts here is, absent something extraordinary happening later on in this very short call, that is the end of the question so far as subsection 3(b) is concerned.  No reasonable person would expect or could expect that anything in the nature of personal advice was going to be imparted after that and one must bear in mind as well that the nature of the advice found against my clients is an implied recommendation from the nature of the call and when one is implying a recommendation one would have to do it against the background of that statement and say well, even if there is a recommendation, it certainly has been made clear to the customer that it is not going to be based on anything personal to her.  It is important that she gives her assent to that.  The customer says, “not a problem”.  So, line 21:

before we get started can I ask you a few quick questions so I can help you. 

The nature of the help was already identified back up at line 14, that is to bring the funds over to the account.  The customer says yes.  Then at line 24 the caller says:

Great, all right.  So what was the main reason you asked to look for your superannuations? 

Now, I will just interpolate here – there was evidence which was relevant to the paragraph (a) question not the paragraph (b) question about why they asked these questions.  As a matter of fact the evidence was they do it in order to built rapport with the customers.  It is a conversation starter, it is a marketing technique and they are trained to do that.  The customer is not going to know that one way or the other.  I am sorry, was your Honour Justice Gordon was about to ask a question, I am sorry. 

GORDON J:   I think that is called social proofing. 

MR McHUGH:   Well, the social proofing comes a little bit further on.  It is the invitation to the social proofing.  But your Honour is quite right, it is the introduction to the social proofing that comes further on.  So, we see he has asked the question, what was the main reason you asked us to look for them, and she says:

Because I know I’ve got a few out there ‑ ‑ ‑ 

He says yes, and she responds at line 4:

and I wanted to roll it all into one.

So that is another highly material thing from the point of view of the reasonable expectation about personal advice.  She has already decided that she wants to roll over, and clearly enough one would say into the BT fund.  That is a decision that she has already made.  Why would a reasonable person think that Westpac was giving her personal advice about a decision that she had already made and that was in Westpac’s interest?  There is no reason to think that Westpac would do that.  She has already requested a search specifically as she says she wants to roll it all into one.  So then at line 7, the caller asks:

and what did you see as the main benefits of bringing them altogether to the one place?

We will have to come back to what is meant by “objectives, financial situation and needs” in the Act.  But my submission is those words “main benefits” are not directed to the statutory concepts in the way in which the question is asked – it is part of the rapport building.  She says:

Just – well, like you said, fees, it’s the whole thing.

He murmurs assent and then she says, line 11:

Because they’re all over the place and I got little bits here and little bits there, so you lose those.

The caller says:

I see, yeah, right, right.  So it sounds like manageability and also the saving on the fees, potentially.  Is that right?

Just stopping there, these are what are held to be her objectives, for the purpose of the call, ultimately - manageability and saving on fees.  They are highly generic and my submission is, as we go through the call, no reasonable person would expect that any recommendation to roll over into the BT fund was based on those objectives as being personal to her.  They are highly generic.  As we see in what Justice Gordon rightly points out is the social proof that comes next, the caller says at line 16:

Fair enough, no worries.  Look, 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 caller was directed to relate the customer’s motivation back to what was picked up in the Gathering Requirements and to link the customer’s motivation to the features of the product/service that was found during your questioning.

Then lastly, Justice O’Bryan’s reasons at paragraph 344, firstly.  This is where his Honour in a series of paragraphs confirms her Honour the primary judge’s findings about the implicit recommendation.  Just before (a) about line 35 on that page, there is a reference to paragraph 357 – I think that should be 252 – and his Honour relies on the matters which we have emphasised. 

Then his Honour, through to 348, makes similar findings to the other judges, in particular at 347 relying on the process in the QM Framework reflecting the actual calls.  At 391 - or perhaps I can just go back to 386.  Similarly, with both of the other members of the court, each judge stated the test to be considered in the terms of the statutory language, and 386, third line:

would not expect the provider of the advice to have considered –

and then 387, again the words “to have considered” in the last few lines.  Then every one of these other paragraphs conclude, or have a reference to, as my learned friend directed your Honours’ attention to, these are factors which favour the circumstance described in paragraph (b).  It is difficult to suggest that three judges, where they set up the statutory test, repeatedly used the words “have considered” should be understood as not applying that statutory test by my friend’s interpretation of some of these paragraphs as normative.  In particular, paragraph 391, his Honour says:

during the course of the calls, the callers asked the recipients about the considerations that were relevant to them . . . 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 social proofing language would ordinarily reinforce the impression . . . that the caller was taking account of the answers given by the recipient.  The social proofing language conveyed that the answer . . . was valid or reasonable.

These are all matters relying on things which actually happened in each call.  Then lastly 397 – it is not the last thing, but at 397 her Honour says:

There is nothing strained about that conclusion.  It is consistent with and gives effect to the objects . . . 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.  The objects are promoted by ensuring that, if personal financial product advice is given to a person, the

consumer protections in Part 7.7 . . . 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.

That is part of the gravamen of the use of the personal motivations having extracted – the personal objectives, having extracted them and relied on them as influencing the decision as particularly pertinent to that particular person, and that is where it is important it is personal advice and it is important that persons receive the full protection of those provisions in relation to personal advice.

Then at 415C at page 317 there is another member of the court making that – or confirming that finding in relation that the impression conveyed was an obvious and uncontroversial decision.  Then 427 in the contravention part at page 320 one has to tease out a little bit of this.  One accepts that the contravention part about line 28:

Westpac took unfair advantage of that asymmetry.

Perhaps we do not have to concentrate on that so much, but rather:

by implementing a carefully crafted telephone campaign, reinforcing in the minds of its –

consumers – we can leave out the word “erroneous”:

that the decision to consolidate their superannuation . . . was straightforward and was likely to generate benefits . . . by saving fees ‑

which is consistent with the earlier findings of his Honour.  Those are the parts of the judgment which I wish to emphasise to your Honours.  Then I was going to proceed to address some of the legal issues.  I will be a bit longer, but not terribly long.  Is that a convenient time?

KIEFEL CJ:   Yes, it would be.  The Court will adjourn to 9.30 am tomorrow for pronouncement of orders and otherwise to 10.00 am.

AT 4.10 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 8 OCTOBER 2020