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21-013MR ASIC successful against Westpac subsidiaries’ appeal to High Court
The High Court has today confirmed that Westpac Bank subsidiaries, Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BTFM), breached financial services laws, including the requirement to act in their clients’ best interests and the requirement to act honestly, efficiently and fairly.
The unanimous High Court judgment today upheld the Full Federal Court decision regarding the conduct of WSAL and BTFM, dismissing their appeal and holding that they breached the Corporations Act by providing personal financial product advice in calls made to 14 customers. Neither company was licensed to provide personal financial advice.
On 28 October 2019, ASIC won an appeal in the Full Federal Court against WSAL and BTFM with respect to two telephone campaigns by the Westpac companies which recommended that customers roll out of their other superannuation funds into a Westpac-related superannuation account.
As a result of the campaigns, Westpac increased its funds under management by almost $650 million between 1 January 2013 and 16 September 2016.
The decision of the High Court, which confirms the Full Federal Court decision, clarifies the difference between general and personal advice for consumers and financial services providers.
ASIC Commissioner Danielle Press said, ‘The High Court has provided clarity concerning the differences between personal advice and general advice. Westpac were actively conducting a sales campaign aimed at rolling customers into Westpac products under the banner of general advice.
‘By clarifying the distinction between tailored, quality, personal advice in the customer’s interest, and general advice given via a sales campaign, today's judgment will provide clear guidance to those financial institutions that develop campaigns to sell financial products through direct approaches to retail clients.
‘ASIC will continue to bring enforcement action against misconduct, including advice that is not in the best interest of clients. As noted by the High Court, consumers’ decisions regarding superannuation accounts are ‘significant financial decision[s]’ and ASIC has a focus to lift standards in this area.’
In the judgment, Justice Gordon reinforced that s766B(3) of the Corporations Act, which outlines the meaning of general and personal advice, ‘is directed to the protection of the retail client’ and clarified that ‘[…] the general advice warning must be assessed in light of all the circumstances. The general advice warning was given only once, at the beginning of the telephone conversation. Members were subsequently asked directly about their personal objectives. Members were not encouraged to seek personal advice before deciding whether to accept the rollover service.’
Chief Justice Kiefel and Justices Bell, Gageler and Keane stated, ‘Each member might reasonably have expected that, given the nature of Westpac's business and its experience and expertise in relation to financial matters like superannuation, Westpac had taken the objectives it had elicited from the member into account in recommending the roll-over service. That is consistent with the recommendation of the service being presented to each member as a "no brainer" having regard to the manifest benefits to each member to be expected from rolling over into a single Westpac account. Given that Westpac's marketing was apt to create precisely that impression, it can hardly complain that it succeeded. Nor can it sensibly be suggested that the impression so created did not reasonably include an expectation on the part of the member that the recommendation was appropriate for him or her as an individual.’
The matter will now return to the Federal Court for a hearing on relief on a date to be advised. At that hearing, among other things, ASIC will seek orders for pecuniary penalties in relation to WSAL and BTFM’s conduct.
ASIC commenced civil penalty proceedings against WSAL and BTFM on 22 December 2016, alleging that WSAL and BTFM provided personal financial product advice to customers. ASIC contended that, through this conduct, WSAL and BTFM breached their Australian financial services licences which did not allow the companies to provide personal financial advice. ASIC also alleged that through this conduct, the companies breached their obligation to act honestly, efficiently and fairly. The matter was heard in February 2018 (16-460MR).
On 21 December 2018, the Federal Court initially found that WSAL and BTFM breached the Corporations Act (the obligation to act honestly, efficiently and fairly in section 912A(1)(a)) but that ASIC did not make out its case that personal advice was provided to 15 customers (19-001MR).
On 28 October 2019, the Full Court of the Federal Court of Australia reversed the decision at first instance and unanimously found that personal advice had been given in relation to 14 customers (19-293MR). The Full Court upheld the decision that WSAL and BTFM had breached s912A(1)(a).
On 24 April 2020, the High Court granted WSAL and BTFM Special Leave to appeal the decision of the Full Court. The appeal was heard by the High Court on 7 and 8 October 2020.
Following the High Court decision, the matter has been remitted to the Federal Court for a relief hearing. The matter is listed for a case management hearing on 19 March 2021.
Editor's note 2:
The Federal Court has granted the consent orders proposed by the parties vacating the case management hearing on 19 March 2021 and listing the matter for a case management hearing on 7 May 2021.
Editor's note 3:
The matter was listed for a relief hearing on 24 August 2021.
Editor's note 4:
The Federal Court has made an order listing the matter for a hearing on penalty and other relief on 23 and 24 August 2021.