Westpac Securities Administration Ltd & Anor v ASIC  HCA 3
ASIC v Westpac Securities Administration Ltd & Anor  FCAFC 187
In a case which financial services lawyers have been watching with interest, the High Court has vindicated ASIC’s position on what constitutes personal financial advice, unanimously dismissing Westpac’s appeal.
The High Court decision, and that of the Full Court below, are significant in clarifying some fundamental questions under Chapter 7 of the Corporations Act 2001 (Cth):
1. What is financial product advice?
2. What is the demarcation between general advice and personal advice?
3. How does that demarcation bear on the best interests duty under s 961B?
4. When will an Australian financial services licensee have breached its duty to do all things necessary to ensure that the financial services provided under its licence are provided efficiently, honestly and fairly (s 912A)?
Each of those issues are addressed in this casenote.
A Westpac’s superannuation consolidation campaign
The facts in question concerned a campaign by Westpac’s ‘Super Activation Team’, to contact existing members of its BT super funds and encourage them to roll any external super funds into their existing BT funds.
Firstly, Westpac wrote to its existing BT members with an offer to conduct a free search for any other super funds they might hold.
Subsequently, Westpac made further phone calls, offering to arrange the rollover of any external super funds into their existing BT super funds. The staff members making the calls were given training on the difference between general advice and personal advice, with the intention of ensuring that they only gave general advice. In particular:
- they were not to make any express recommendations;
- they were to offer a general disclaimer at the beginning of the call, saying that they could only provide general advice;
- if they were asked to make an express recommendation, they were instructed to say that they could only give general advice, and to refer the client to a financial advisor.
However, the Westpac script also:
- asked the clients questions about their personal and financial circumstances;
- asked the clients questions about what benefits they might see in consolidating their super, how much money they had in their super funds, etc;
- engaged in ‘social proofing’ – by statements such as ‘I understand where you are coming from, and many customers are also in a similar situation’ – with a view to influencing them to roll over their super;
- articulated the features of rollover as benefits to the clients; and
- required that staff seek to overcome the clients’ objections and obtain their commitment to a rollover.
ASIC brought a civil penalty proceeding, alleging:
- that Westpac’s campaign had involved the giving of financial product advice;
- that the advice was personal advice, which Westpac was not licensed to give;
- that Westpac had failed in its duty to act in the clients’ best interests in relation to that personal advice (s 961B); and
- that Westpac had breached its obligation to do all things necessary to ensure that the financial services provided under its licence were provided efficiently, honestly and fairly (s 912A).
B Decisional history
At trial before Gleeson J, her Honour held that the campaign did involve financial product advice, but that the advice was not personal advice, and therefore the best interest duty was not enlivened. However, Westpac had failed to do all things necessary to ensure that the financial services provided under its licence were provided efficiently, honestly and fairly.
Both ASIC and Westpac appealed to the Full Court. That appeal was a comprehensive win for ASIC, the Full Court (Allsop CJ, Jagot and O’Bryan JJ) finding that:
- Westpac had provided personal advice;
- Westpac had failed in its duty to act in the clients’ best interests in relation to that personal advice; and
- Westpac had breached its obligation to do all things necessary to ensure that the financial services provided under its licence were provided efficiently, honestly and fairly.
Subsequently, Westpac appealed to the High Court on the question of whether its advice had been personal advice (conceding at this point that the campaign had at least involved general advice). Upholding the Full Court decision, the High Court (Kiefel CJ, Bell, Gageler, Keane and Gordon JJ) held unanimously that Westpac had given personal advice.
C Did Westpac provide financial product advice?
Both the trial judge and the Full Court unanimously held that the Super Activation team had provided the clients with financial product advice. This was subsequently accepted by Westpac, and was not contested in the High Court.
Defined in s 766B(1), financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b) could reasonably be regarded as being intended to have such an influence.
In the Full Court, Allsop CJ considered that it was appropriate to give a broad interpretation to “recommendation” and “statement of opinion”, where used in a context that was intended to be protective of consumers: . In particular, the purpose of the financial advice regime was ‘not advanced by making fine logical distinctions based on overly precise choices about words of a general kind’: .
There was not any bright line distinction to be made between sales and advice – rather, communications with a heavy “sales” purpose could still be advice, in the sense that it contained a recommendation or opinion that was intended to, or could reasonably be regarded as intended, to influence a person in making a relevant decision: .
Justice Jagot made similar observations at -, also stating that a recommendation or a statement of opinion could be made implicitly – it did not need to be express: .
Justice O’Bryan observed at  that marketing or promotional material in relation to financial products did not necessarily, or even ordinarily, involve the making of recommendations (in the sense of commending a particular product or course of action as advisable) or statements of opinion (eg in relation to their future returns). However, if they did so, and the definition of financial product advice was otherwise met, there was nothing anomalous about regarding that material as financial advice.
D Did Westpac provide personal advice?
This was the key issue before the High Court. Before the trial judge, Westpac had successfully argued that the Super Activation campaign did not involve personal advice. In contrast, the Full Court held that Westpac had provided personal advice. The High Court unanimously agreed.
Under the financial services regime in Chapter 7 of the Corporations Act, there are two types of financial product advice: personal advice and general advice. The former is more strenuously regulated.
Personal advice is financial product advice that is given or directed to a person in circumstances where:
(a) the provider of the advice has considered one or more of the person’s objectives, financial situation and needs; or
(b) a reasonable person might expect the provider to have considered one or more of those matters.
In the High Court, the plurality of Kiefel CJ, Bell, Gageler and Keane JJ noted at  that the trial judge had concluded the advice was not personal advice for substantially three reasons: firstly, that the calls began with a disclaimer that “everything discussed today is general in nature, it won’t take into account your personal financial needs” (the general advice disclaimer); secondly, that the advice was offered free of charge; and thirdly, the callers revealed a lack of knowledge about the member’s financial situation, that was inconsistent with a capacity to properly consider their objectives, situation and needs. The High Court considered, and rejected, each of these points.
General advice disclaimer
In relation to the general disclaimer, the plurality noted at  that the calls were personal communications to the members, and specifically related to their personal super accounts. The general advice disclaimer alone did not alter the character of the recommendations made, or the expectations as to quality of advice that the calls would have otherwise engendered. Rather, the disclaimer was immediately followed by an enquiry as to the members’ personal objectives, the callers’ validation of those objectives, and an offer to assist with a rollover.
At  –  in a detailed separate judgment, Gordon J substantially agreed. Further, her Honour observed that:
- The subject matter of the calls (consolidating super funds) was a significant financial decision.
- Where the members already had existing superannuation funds with Westpac, their pre-existing relationship was one of trustee and beneficiary. A reasonable person would expect that the Westpac staff were acting in their best interests, as part of that pre-existing relationship, and that they would have access to all of the member’s relevant information held by Westpac.
- The tone and tenor of the calls had a repeated emphasis on helping and assisting the member in relation to their super.
- Members were not encouraged to seek any personal advice before deciding whether to accept Westpac’s rollover service.
In relation to the advice being free, the plurality stated at  that this factor was neutral at best. In particular, the members had already paid fees to Westpac for services relating to their super. Further, Westpac’s interest in obtaining yet more fees by increasing its funds under management was both real and obvious. At , Gordon J substantially agreed.
Lack of comprehensive knowledge
In relation to the callers revealing a lack of any comprehensive knowledge of the members’ financial affairs, the plurality held at  that this was not inconsistent with an expectation that the members’ objectives were taken into account, particularly in light of the callers’ enquiries, and use of ‘social proofing’ techniques to suggest that a rollover would be consistent with conventional financial wisdom.
At , Gordon J rejected Westpac’s submission to the effect that it could not have been expected to provide personal advice in the absence of more comprehensive information, stating that this was contrary to the text and the purpose of the definition, and was practically ‘unworkable’.
As to the meaning of considered, the plurality stated at  that this should be understood as meaning “took account of”. Like the Full Court, the High Court rejected a submission by Westpac that the definition of personal advice contemplated ‘an active process of evaluation and reflection’: .
Gordon J substantially agreed, at . Further, her Honour stated at  that s 766B was a consumer protection provision in which the notion of “considered” included not only circumstances involving a certain type, level or duration of consideration, but also where an adviser provided a prompt or immediate response. Accordingly, an adviser could not avoid the more strenuous obligations associated with personal advice (contrasted with general advice), simply by to failing to consider one or more of their clients’ objectives, financial situation and needs.
‘One or more of the person’s objectives, financial situation and needs’
As to the consideration of “one or more of” a person’s objectives, financial situation or needs, the High Court rejected a submission by Westpac that the definition of personal advice contemplated that an advisor would consider each of those categories in turn, agreeing with both the trial judge and the Full Court.
Rather, the definition of personal advice merely contemplated that an adviser had considered at least one of those things: see the plurality at  –, Gordon J at .
Objective nature of the test
Gordon J observed at  that the definition of personal advice poses an objective test, assessed at the time the advice was given, and having regard to the circumstances. It refers to a reasonable person’s expectation, where the reasonable person is standing in the shoes of the client. Her Honour held at  that the reference to what a reasonable person might expect had a wider meaning than what a reasonable person would expect: ‘The standard is one of reasonable possibility, not reasonable probability.’ (emphasis added)
E Did Westpac breach its duty to act in the clients’ best interests in relation to that personal advice?
Under s 961B, a provider of personal advice must act in the best interests of the client in relation to the advice (best interests duty).
The Full Court held unanimously that the best interests duty had been breached. This issue was not considered by the High Court.
Allsop CJ held that the best interests duty had been clearly contravened: at . The structure of the calls was inconsistent with the callers taking any steps to determine whether the rollover was in the customers’ best interests. In practical terms, because the Super Activation team had assumed that they weren’t giving personal advice, they hadn’t even tried to comply with this obligation: .
At  and -, Jagot J and O’Bryan J made substantially similar observations.
This matter stands as a warning: if a person gives financial product advice on the assumption it is general advice only, and not personal advice, and they end up being wrong about that, there are likely to be two consequences:
- firstly, there is a significant risk that they will have breached their best interests duty, in respect of that personal advice; and
- secondly, if their licence or authorisation is limited to general advice only (as Westpac’s was), they are operating on an unlicensed basis.
F Did Westpac breach its obligation to do all things necessary to ensure that the financial services provided under its licence were provided efficiently, honestly and fairly (s 912A)?
An Australian financial services licensee is obliged to do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly: s 912A(1)(a).
The Full Court held unanimously that Westpac had breached this duty. The issue was not considered by the High Court.
ASIC did not put its case on the basis that the conduct was misleading or deceptive, or dishonest. Rather, ASIC alleged that the conduct was self-interested and unfair.
In general terms, Allsop CJ stated that s 912A formed part of the Corporations Act’s legislative policy to require social and commercial norms or standards of behaviour to be adhered to: .
Chief Justice Allsop described the Super Activation campaign, and the instructions that were given to the callers, as having a ‘a degree of calculated sharpness’: at . At best, Allsop CJ observed that the aim was to get a customer to make a decision after only receiving general advice, where the decision was such that it could only be prudently made by considering the customers’ own personal circumstances. Further, the calls gave the intended impression that Westpac was there to help the customers, when in fact it was there to help itself: .
Justice Jagot held that the conduct was ‘sufficiently egregious’: . In particular, Westpac was trying to do indirectly what it could not do directly (ie encourage the customers to roll over their super funds), because that would involve giving personal advice – which gave rise to the best interests duty, and was outside the scope of Westpac’s licence. Her Honour described the conduct in question as ‘systemic sharp practice about what must have been one of their clients’ major financial concerns, their superannuation’: at .
Justice O’Bryan held that the Super Activation campaign was inherently unfair to those customers – in that it involved giving them personal advice, while disregarding their best interests: . Further, there was an asymmetry of knowledge between Westpac and its customers, particularly in light of their pre-existing relationship, and Westpac took advantage of that asymmetry: at .
On 13 March 2019, the provision for licensee obligations under s 912A was amended, so it now attracts civil penalties. Accordingly, that section is likely to be litigated more extensively in future.
This note is intended for informative and educational purposes only. It does not constitute legal advice.