Yamaji v Westpac Banking Corporation

[1993] FCA 253

~ 5 3 1493

JUDGMENT NO. ........ .no. . . .mm . " . . . . .

IN THE FEDERAL COURT OF AUSTRALIA	1
\
NEW SOUTH WALES DISTRICT REGISTRY	i Nos. NG 363, 362, 363,
GENERAL DIVISION

BETWEEN:	TRADE PRACTICES COMMISSION
Applicant
CLARKE EATON AND COMPANY PTY LIMITED
Respondent

CORAM: Davies J.

PLACE: Sydney

-. DATE . 26 March 1993

2 9 RPR 1993

REASONS FOR JUDGMENT

EX TEMPORE

This proceeding involves a prosecution for breach of s.53(g) of the

members of the public. The general circumstance was that members of the public	Company Pty Limited, of products of the insurance company, Australian Eagle, to
either contacted Clarke Eaton or were contacted by employees of Clarke Eaton by telephone canvassing or other means and advice was given, on the basis of which consumers would apply to purchase products of Australian Eagle.
As I stated in my judgment in 1990, the whole responsibility for the circumstances which occurred does not lie with Clarke Eaton, for Australian Eagle itself appears not to have taken sufficient care in the explanation of its product. The
product with which we are concerned was called the "Australian Eagle Savings Plan"
and it was founded on s.26AH of the Income Tax Assessment Act 1936(Cth), which provided that bonuses credited to an insurance policy or paid to a person taking out
life insurance would not be taxable if the insurance pohcy was held for ten years and
would be only partially taxable if p a ~ d out or credited during a period of seven to ten years. The bonuses would be fully taxable as income if paid out or credited in the
first seven years of the existence of the insurance policy.

Practices Act 1974 (Cth). It was held on 23 August 1990 that the defendant, Clarke

Eaton & Company Pty Limited, was guilty of five of the offences charged. The

question of penalty was reserved and has now come on for consideration.

The matter anses out of the sale by an insurance broker, Clarke Eaton &

The Australian Eagle scheme sought to take advantage of that provision of the

Act and thereby to enable persons, in effect, to have a tax free investment. The

which were in evidence, did not fully clarify the fundamental nature of the savings	scheme may offer numerous benefits, but Australian Eagle, from the publications
scheme, that it was founded on the taking out of a policy of life insurance and further, did not explain the various different types of policy available.

This circumstance is not, of course, wholly the fault of Australian Eagle. As I

said in 1990:-

"In these circumstances, it is not surprlslng that persons who, inexperienced in the ~nsurance world, mlgllt not fully understand the product w~th whlch they werc dealing. That was thc start of everybody's problem "

What occurred was that Clarke Eaton had employed young, inexperienced

persons to sell the product to consumers who possessed little or no knowledge of the

product. Those sales persons, moreover, were given insufficient training as to the

nature of the Austrahan Eagle plan, notwithstanding that they received training from both by Clarke Eaton and by Australian Eagle. That training appears to have

concentrated on methods of selling the product, rather than on the complexities of the
scheme itself.

In the five cases with which we are concerned, each of the employees failed to understand that the product which they sold was an insurance policy running to the full term of thirty-four years, or age sixty five. Whereas what they explained to the

persons interested in an investment plan, was that the product was a plan for

investment for savings which would allow them to withdraw their moneys after a

limited period of time.

Therefore, the persons who were sold products in each case the subject of

information before this Court, understood themselves to be getting a product whereby

they could invest moneys and withdraw those moneys and any bonuses within a certain number of years. Moreover, the persons understood that they would get such moneys back without deduction, although in some cases, they understood that there would be a tax penalty if the withdrawal occurred within ten years.

In actual fact, a penalty applied whether the investors had in mind a ten-year

period or a more limited period, for the product which Clarke Eaton had sold to

them was a long term policy. The commission payable on a long term policy is much higher than that payable on a ten year pohcy. In each case, therefore, a person

believing that they were investing m a limited savings plan, found that if they were to

seek to withdraw their moneys within the proposed period, they could only get them back with a deduction. Such deduction was, in fact, a discount payable back to

Australian Eagle in respect of the commission which was payable up-front on the sale

of the long-term life insurance policy.

I need not go into the details of the particular representations being relied upon, but in effect what was sold to the person who took out the insurance policy was something quite different in nature from that which they were seeking. This was a deliberate course of action which was undertaken by Clarke Eaton for the financial

benefit of the company. The relevant factors were set out by Keely J. in

Practices Commission v. Oualltv Publications Ptv Limited (1990) ATPR 50,884 at

50,886 and by Wdcox J. in Adams v. Anthonv Bwant and CO Ptv Limited (1987)

ATPR 48,555 at 48,562.

It is significant that in the latter case his Honour regarded the circumstances, somewhat similar to the present circumstances, as very serious mdeed. He thought that the appropriate penalty should approach the maximum set out in s.79 of the Trade Practices Act which, at the relevant time, was $100,000 m the case of a

company. There are two other matters of fact that deserve mention. Firstly, there

has been no conviction of the directors of Clarke Eaton, so that it has not been shown

that the directors took any deliberate action in contravention of the Act. Secondly, Clarke Eaton is now is liquidation, although its financial situation is not clear, as the

liquidator has not accepted any proof of debt. It does appear, however, that there

may ultimately be some excess of funds over liabilities.

Now, we come to the crux of the matter. With respect to the remarks of

Wilcox J. in the case, three facts lead me to the proposition that the penalty in

this case need not be as high. The first is that Clarke Eaton is not entirely to blame, for an initiat~ng factor was the manner in which Australian Eagle appears to have

explained its product. The second is that the directors of Clarke Eaton have not been convicted of any offence. The third is that the company is in liquidation so that it appears that it has already suffered from the type of conduct which has been the subject of this information.

Nevertheless, I do not consider it appropriate to simply impose a nominal

penalty as Mr G. Whitehead, counsel for the directors, has suggested.	It seems to me
in all the circumstances of the case that I should Impose a penalty of some substance,
although not as high as that imposed by Wilcox J. in the a	case.

I therefore impose a penalty of $10,000 in respect of each conviction, making a total of $50,000 in all. The respondents should pay the costs of the proceedings. I

further order that the exhibits be returned. I certify that this and the 5 preceding pages are a true copy of the reasons for judgment herein of

the Honourable Mr Justice Davies.

Date:	26 March 1993
Counsel for the applicant:	Mr C.C. Hodgeluss
Solicitors for the applicant:	Director of Public Prosecutions
Counsel for the respondent:	Mr G. Whitehead
Solicitors for the respondent:	O'Connor Bellamy
Date of hearing:	26 March 1993
Date of judgment:	26 March 1993