FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Tower Australia Ltd [2003] FCA 660 TRADE PRACTICES – misleading and deceptive conduct in the provision of financial services – declaratory relief sought pursuant to s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), s 12DA of the Australian Securities and Investments Commission Act 1989 (Cth) and s 52 of the Trade Practices Act 1974 (Cth) TRADE PRACTICES – consent orders providing for the Court to note that ASIC has accepted an enforceable undertaking in accordance with s 93AA of the Australian Securities and Investments Commission Act 2001 (Cth) – undertaking within the powers of ASIC to accept Australian Securities and Investments Commission Act 2001 (Cth), ss 12BAB, 12DA, 12GLA(2)(c), 93AA Australian Securities and Investments Commission Act 1989 (Cth), ss 12BAB, 12DA, 12GLA(2)(c) Trade Practices Act 1974 (Cth), ss 51AF, 52, 87(1) Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd [2003] FCA 530 applied AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v TOWER AUSTRALIA LTD N3025 OF 2003 SACKVILLE J SYDNEY 4 JULY 2003 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N3025 OF 2003 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF AND: TOWER AUSTRALIA LTD DEFENDANT JUDGE: SACKVILLE J DATE OF ORDER: 4 JULY 2003 WHERE MADE: SYDNEY THE COURT DECLARES THAT: 1. The Defendant contravened section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act 2001") or section 12DA of the Australian Securities and Investments Commission Act 1989 (Cth) ("ASIC Act 1989") (as to conduct occurring on or after 1 July 1998) and section 52 of the Trade Practices Act 1974 (Cth) (as to conduct occurring on or before 30 June 1998) by: (a) providing from about 1993 documents entitled "Statement of Account" in the form of or to the effect of Exhibit D (other than the last page thereof) that contained statements as to redemption or withdrawal benefits which differed from the redemption or withdrawal benefits which were payable in accordance with a proper application of the terms of the relevant policy constituting the relevant products set out in Schedule 1 to the orders ("Blue Ribbon Products") to a number of policy holders and beneficiaries of one or more of the Blue Ribbon Products; (b) delivering from about 1993 to a number of policy holders and beneficiaries of one or more of the Blue Ribbon Products a letter (either attaching a cheque or confirming a direct deposit into a nominated account), stating in substance that the cheque represents the sum total of that policy holder's or beneficiary's benefits upon such redemption which amounts differed from the redemption or withdrawal benefits which were payable in accordance with a proper application of the terms of the relevant policy constituting the relevant Blue Ribbon Products. THE COURT ORDERS THAT: 2. The Defendant shall within seven days send (unless it has already done so): (a) a notice in the Form of Part A of Schedule 2 to these orders or such other form as the Defendant and the Plaintiff may agree by ordinary mail to the persons listed in Exhibit "DC1" to the affidavit of David Callender sworn 20 June 2003 and filed in these proceedings who have fully redeemed or totally withdrawn their benefits in respect of one or more of the Blue Ribbon Products; and (b) a notice in the Form of Part B of Schedule 2 to these orders or such other form as the Defendant and the Plaintiff may agree by ordinary mail to the persons listed in Exhibit "DC2" to the affidavit of David Callender sworn 20 June 2003 and filed in these proceedings who have not fully redeemed or fully withdrawn their benefits in respect of one or more of the Blue Ribbon Products. 3. Where any notice referred to in Order 2 is returned to the Defendant as undelivered or a person is an Unlocated Member, the Defendant must take reasonable steps to have the relevant person located by lawful means and if the relevant person is located at a subsequent address, the defendant shall sent the notice in the form of whichever of Part A or Part B of Schedule 2 to these orders is appropriate, to that subsequent address. "Unlocated Member" means an Unlocated Member as defined in the Enforceable Undertakings attached at Schedule 4 to these Orders. 4. The Defendant shall by 31 August 2003 file and serve an affidavit prepared by an officer or employee of the Defendant as to the steps taken pursuant to Order 3. 5. The Defendant shall mark the notices referred to in Orders 2 and 3 with the privacy notice set out in Schedule 3 to these Orders. 6. The Defendant shall, for a period of eighteen months from the date of the notices: (a) retain any notice referred to in Order 2 which are returned undelivered; (b) retain any responses received in relation to the notices; and (c) maintain a register, open for inspection by the Plaintiff at all reasonable times during ordinary business hours, recording each returned notice. 7. The Defendant shall pay the Plaintiff's costs in the sum of $10,000 in full and final settlement of these proceedings. THE COURT NOTES THAT: 8. In addition to consenting to these Orders, the Plaintiff has accepted from the Defendant a written undertaking (the "Enforceable Undertaking") in accordance with section 93AA of the ASIC Act 2001. A copy of the Enforceable Undertaking is attached at Schedule 4 to these Orders. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N3025 OF 2003 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION PLAINTIFF AND: TOWER AUSTRALIA LTD DEFENDANT JUDGE: SACKVILLE J DATE: 4 JULY 2003 PLACE: SYDNEY REASONS FOR JUDGMENT 1 These proceedings were commenced on 15 May 2003 by originating process accompanied by a statement of claim. The plaintiff ("ASIC") sought declaratory and other relief against the defendant ("Tower") in respect of alleged contraventions of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act 2001") (and its predecessor, the Australian Securities and Investments Commission Act 1989 (Cth) ("ASIC Act 1989") and the Trade Practices Act 1974 (Cth) ("TP Act"). In particular, it was alleged that Tower, which provides superannuation and investment products to the general public, had engaged in misleading and deceptive conduct by issuing annual statements and withdrawal letters to policy holders and beneficiaries, some of which misstated the policy holders' and beneficiaries' entitlements to redemption or withdrawal benefits. 2 Tower has not filed a defence. However, the parties have submitted consent orders. These include declarations that Tower has contravened s 12DA of the ASIC Act 1989 and the ASIC Act 2001 and s 52 of the TP Act. The consent orders also contemplate that Tower will be required to send notices to policy holders and beneficiaries, the form of which will vary depending upon whether the policy holder or beneficiary has or has not fully redeemed or fully withdrawn the benefits in respect of the relevant policies. The effect of the notices is to explain that a "computer system calculation error" has caused incorrect calculations for some withdrawal values and that Tower is working towards recalculating those values by 30 September 2003. 3 The consent orders provide for the Court to note that ASIC has accepted from Tower a written undertaking in accordance with s 93AA of the ASIC Act 2001 (the "Enforceable Undertaking"). The Enforceable Undertaking is a lengthy document. In substance, however, it requires Tower to endeavour to make by 31 August 2003 the correct payments of redemption or withdrawal amounts (plus interest) where incorrect amounts have been paid to policy holders or beneficiaries. Tower is also to adjust its records to reflect the correct calculations for any other policy holders or beneficiaries who have been affected by the errors. 4 Mr Leopold, who appeared for ASIC, tendered documentary evidence in support of ASIC's claim that Tower had contravened s 12DA of the ASIC Act 2001, s 12DA of the ASIC Act 1989 and s 52 of the TP Act. Section 12DA(1) of the ASIC Act 2001 (which is in the same terms as its predecessor) is as follows: "A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive." Section 52 of the TP Act provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 5 It is not necessary to examine the evidence in detail. It is enough to say that the evidence shows that a substantial number of policy holders and beneficiaries were given incorrect information in annual statements and withdrawal letters as to the early termination benefits payable under the policies. The evidence suggests that the errors, attributable to a computer systems fault, occurred from as early as 1993. According to a report prepared by KPMG Actuaries Pty Ltd, the estimated cost of Tower rectifying the understated surrender value payments made before January 2001 is $600,000. It appears that some thousands of policy holders and beneficiaries have been affected. I am prepared to infer that many would have been misled by the incorrect information with which they were provided. (Some policy holders and beneficiaries received over-payments as the result of the same systems error, but Tower does not seek to recover the over-payments.) 6 Subject to one qualification, I think it appropriate to make the declaratory orders to which Tower has consented. The evidence establishes that Tower engaged in misleading and deceptive conduct, albeit inadvertently. It is also clear that the conduct was in relation to "financial services" as defined in the ASIC Act 1989 and the ASIC Act 2001: see s 12BAB. 7 The qualification is that the parties proposed that the declarations should refer to contravention from about 1993. While the evidence suggests that the misleading and deceptive conduct occurred as early as 1993, s 12DA of the ASIC Act 1989 came into force only on 1 July 1998. Section 12DA was introduced into the ASIC Act 1989 by the Financial Sector Reform (Consequential Amendments) Act 1998 (Cth). On the same date, s 51AF of the TP Act came into force. It provides that Part V of the TP Act does not apply to the supply of financial services, and, in particular, that s 52 does not apply to conduct engaged in in relation to financial services: s 51AF(1), (2). It follows that declaratory relief in relation to contravention of s 12DA of the ASIC Act 1989 can apply only to conduct occurring on and after 1 July 1998, while declaratory relief in relation to a contravention of s 52 of the TP Act can apply only to conduct occurring on or before 30 June 1998. 8 The proposed orders require Tower to give notices to identified policy holders and beneficiaries. These and the ancillary orders are supported by ASIC Act 2001, s 12GLA(2)(c) (and the equivalent provision in the ASIC Act 1989), at least in relation to persons to whom Tower had made misleading or deceptive representations on or after 1 July 1998. Section 12GLA(2)(c) provides that the orders that may be made against a person who has engaged in contravening conduct include: "an order requiring the person to disclose, in the way and to the persons specified in the order, such information as is so specified, being information that the person has possession of or access to". 9 It may be that some of the persons identified in the proposed orders were the subject of Tower's misleading and deceptive conduct entered into before 1 July 1998, and not thereafter. The evidence does not make it clear whether any of the named persons fell into that category. It is arguable that so far as those persons are concerned the order sought might be supported by s 87(1) of the TP Act. Given that Tower consents to the orders, I do not think it necessary to attempt to disentangle the pre-1998 and post-1998 cases. 10 In Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd [2003] FCA 530, Mansfield J held that the Court should not "note" undertakings proffered to the Commission under s 87B(1) of the TP Act unless the Court is satisfied that, prima facie, the undertaking is one which the Commission is empowered to accept. (Section 87B(1) of the TP Act is equivalent to s 93AA(1) of the ASIC Act 2001. Section 93AA(1) empowers ASIC to accept a written undertaking "given by a person in connection with a matter in relation to which ASIC has a function or power under" the Act. Section 93AA(4) empowers the Court to make certain orders against a person who has breached a term of the undertaking.) The test applied by his Honour to determine whether the Court should decline to note proffered undertakings was whether the undertakings clearly fell outside the Commission's powers – that is, whether the undertakings clearly could not be said to be "in connection with" the Commission's performance of its powers and functions. 11 In my view, it cannot be said that the undertaking given by Tower and accepted by ASIC is outside the powers of ASIC to accept. The undertaking essentially establishes a mechanism for the payment of moneys due to persons who have been misled as to the extent of their entitlements. I therefore think it appropriate to note the undertaking. 12 The orders I make are as follows: The Court declares that: 1. The Defendant contravened section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act 2001") or section 12DA of the Australian Securities and Investments Commission Act 1989 (Cth) ("ASIC Act 1989") (as to conduct occurring on or after 1 July 1998) and section 52 of the Trade Practices Act 1974 (Cth) (as to conduct occurring on or before 30 June 1998) by: (a) providing from about 1993 documents entitled "Statement of Account" in the form of or to the effect of Exhibit D (other than the last page thereof) that contained statements as to redemption or withdrawal benefits which differed from the redemption or withdrawal benefits which were payable in accordance with a proper application of the terms of the relevant policy constituting the relevant products set out in Schedule 1 to the orders ("Blue Ribbon Products") to a number of policy holders and beneficiaries of one or more of the Blue Ribbon Products; (b) delivering from about 1993 to a number of policy holders and beneficiaries of one or more of the Blue Ribbon Products a letter (either attaching a cheque or confirming a direct deposit into a nominated account), stating in substance that the cheque represents the sum total of that policy holder's or beneficiary's benefits upon such redemption which amounts differed from the redemption or withdrawal benefits which were payable in accordance with a proper application of the terms of the relevant policy constituting the relevant Blue Ribbon Products. The Court orders that: 2. The Defendant shall within seven days send (unless it has already done so): (a) a notice in the Form of Part A of Schedule 2 to these orders or such other form as the Defendant and the Plaintiff may agree by ordinary mail to the persons listed in Exhibit "DC1" to the affidavit of David Callender sworn 20 June 2003 and filed in these proceedings who have fully redeemed or totally withdrawn their benefits in respect of one or more of the Blue Ribbon Products; and (b) a notice in the Form of Part B of Schedule 2 to these orders or such other form as the Defendant and the Plaintiff may agree by ordinary mail to the persons listed in Exhibit "DC2" to the affidavit of David Callender sworn 20 June 2003 and filed in these proceedings who have not fully redeemed or fully withdrawn their benefits in respect of one or more of the Blue Ribbon Products. 3. Where any notice referred to in Order 2 is returned to the Defendant as undelivered or a person is an Unlocated Member, the Defendant must take reasonable steps to have the relevant person located by lawful means and if the relevant person is located at a subsequent address, the defendant shall sent the notice in the form of whichever of Part A or Part B of Schedule 2 to these orders is appropriate, to that subsequent address. "Unlocated Member" means an Unlocated Member as defined in the Enforceable Undertakings attached at Schedule 4 to these Orders. 4. The Defendant shall by 31 August 2003 file and serve an affidavit prepared by an officer or employee of the Defendant as to the steps taken pursuant to Order 3. 5. The Defendant shall mark the notices referred to in Orders 2 and 3 with the privacy notice set out in Schedule 3 to these Orders. 6. The Defendant shall, for a period of eighteen months from the date of the notices: (a) retain any notice referred to in Order 2 which are returned undelivered; (b) retain any responses received in relation to the notices; and (c) maintain a register, open for inspection by the Plaintiff at all reasonable times during ordinary business hours, recording each returned notice. 7. The Defendant shall pay the Plaintiff's costs in the sum of $10,000 in full and final settlement of these proceedings. The Court notes that: 8. In addition to consenting to these Orders, the Plaintiff has accepted from the Defendant a written undertaking (the "Enforceable Undertaking") in accordance with section 93AA of the ASIC Act 2001. A copy of the Enforceable Undertaking is attached at Schedule 4 to these Orders. I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 3 July 2003 Counsel for the Applicant: Mr A Leopold Solicitor for the Applicant: Australian Securities and Investments Commission Solicitor for the Respondent: Blake Dawson Waldron Date of Hearing: 20 June 2003 Date of Judgment: 4 July 2003