Federal Court provides important guidance on misleading or deceptive conduct

The importance of characterising statements correctly 3 min read

A recent Federal Court judgment¹ has provided very helpful guidance on the proper characterisation of representations where they reflect opinions about the law.

In this Insight, we explain the decision and its significance for misleading statements as well as for the superannuation industry. 

Key takeaways

• The judgment confirms that statements to consumers about a practice will not necessarily be misleading even if (which was not the case here) the practice is unlawful.
• It is also important for the superannuation industry, in confirming that a member's interest in a superannuation fund may extend beyond their current balance in that fund.

Overview

The proceeding concerned historical rollover practices of Retail Employees Superannuation Pty Ltd (Rest) in relation to members whose employers were required to make contributions to it under a workplace determination or enterprise bargaining agreement (determination members). The Australian Securities and Investments Commission (ASIC) alleged that the practice was unlawful and that, therefore, Rest's representations about it were misleading or deceptive.

The court found that Rest's practice was, in fact, lawful. It further held that, even if the practice had been unlawful, the representations were not misleading, because they were true representations about it; or, in the alternative, were statements of opinion about the law that were honestly and reasonably held. This is important because ASIC took the view that statements about a practice were necessarily misleading if the practice was unlawful.

Meaning of 'members' interest in the fund

The first issue for the court was a highly technical one as to whether determination members retain an interest in a fund after rolling over their entire balance. Justice Beach agreed with Rest that there is a distinction between a member's withdrawal benefit in a fund and the broader interest that a member has in the fund. In this context, a determination member had an interest in the fund because:

• Rest had contractual rights to compel employers to continue making contributions to the fund; and
• these rights were held on trust for the benefit of determination members (and therefore could be indirectly enforced by those members).

Rest's representations

ASIC alleged that:

• in the period leading up to May 2018, Rest made representations to determination members as to when it would permit transfers of their entire balance to a new fund;
• these representations were not consistent with members' actual legal entitlement; and
• the representations were therefore misleading or deceptive.

As noted above, the court held that Rest's representations were, in fact, consistent with the correct legal position. Importantly, however, it went on to consider whether the misrepresentations would have been misleading if Rest's practice had been unlawful.

The findings

Justice Beach ruled that, even if he had found that Rest's practices were unlawful, the various representations would not have been misleading or deceptive because they were accurate representations of its practice.

His Honour further held that, even if the statements could be construed as statements of members' rights under superannuation legislation (rather than about Rest's practice), they would be understood as statements of Rest's opinion as to those rights. They would therefore only be misleading if those opinions were not honestly and reasonably held. Justice Beach found that Rest's opinion of the law was reasonably held because (whether or not he had found the opinion to be correct), it reasonably relied on external legal advice when forming its opinion.

These findings provide important confirmation that if an entity has a practice that is later found to be unlawful, it does not automatically follow that statements about it will be misleading. They might instead be construed as accurate representations of a practice, or of an opinion that is honestly and reasonably held.