The Federal Court of Australia’s judgment in ASIC v Retail Employees Superannuation Pty Ltd[1] highlights that if a corporation honestly relies on advice from their lawyers that may provide reasonable grounds to defend the making of a representation that concerns the present state of affairs.

The Federal Court found that alleged representations made by Retail Employees Superannuation Pty Ltd (REST) regarding their rules and practice were opinions expressed as to the law based on reasonable grounds due to reliance on advice received from their lawyers and other trusted sources. Therefore, the representations could not amount to misleading or deceptive conduct.

Background

In 2021, the Australian Securities and Investments Commission (ASIC) commenced civil proceedings in the Federal Court of Australia against REST on the basis that REST purportedly made false or misleading representations about the ability of its members to transfer their superannuation out of the Retail Employees Superannuation Trust (Fund).

ASIC’s case concerned REST’s former practices in response to rollover request received from members for whom a major employer was required to make contributions to the Fund under a workplace determination or enterprise bargaining agreement.

ASIC alleged that REST’s rollover practises between 2 March 2015 to 2 May 2018 had the effect of limiting or restricting the members’ ability to transfer their superannuation balance to other funds.

ASIC argued that REST made four representations. REST represented that:

1. if a member remained employed by a REST employer and the REST employer was to continue to make contributions to the Fund, that the member could then only partially transfer their superannuation balance out of the Fund.

2. a member was required to maintain a minimum amount of $5,000 in their Fund account if they wished to continue to be employed by a REST employer.

3. as a pre-requisite to affecting a transfer of funds, members were required to obtain a declaration from their employer which stipulated that the member had choice of fund rights and of the date upon which the REST employer stopped making contributions to the Fund. A failure to provide the necessary declaration meant that there was a possibility that the transfer request would be refused.

4. a member must obtain a separation certificate from their employer or provided a date of termination if they wish for their request to be processed.

As a result of the representations, ASIC argued that through REST’s statements and practices to more than 31,000 members, they created a representation that was misleading or deceptive or likely to mislead or deceive (s 1041 of the Corporations Act and s 12DA of the ASIC Act) or was false or misleading (s 12DB(1)(i) of the ASIC Act).

On 18 September 2024, the Federal Court handed down its decision in favour of REST and ordered that the proceeding be dismissed with 80% of REST’s costs paid by ASIC.

Findings and Reasoning

The meaning of “member’s interest in the fund”

One of the issues for determination by the Federal Court was the meaning of the words “member’s interest in the fund” in regulation 6.35 of Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations).

6.35 When a trustee may refuse to roll over or transfer an amount

(1) A trustee may refuse to roll over or transfer an amount under regulation 6.34 if:

…

(b) the amount to be rolled over or transferred is part only of the member’s interest in the fund, and the effect of rolling over or transferring the amount would be that the member’s interest in the fund from which the amount is to be rolled over or transferred would be less than $5,000; or

(c) the trustee has, under regulation 6.34, rolled over or transferred an amount of the member’s interest within 12 months before the request is received;

…

ASIC argued that the words “member’s interest in the fund” refers to the amount in dollars that may be transferred as there is no provision of the SIS Regulations that suggests that a member might transfer non-monetary benefits, an example being the phrase “member’s withdrawal benefit” in the SIS Regulations.

ASIC relied on explanatory material from the government which state that “individuals should have the right to determine who manages their superannuation and should be free to move their benefits when they choose without unnecessary restrictions”.

REST alternatively argued that there is a distinction between a members withdrawal benefit in a fund and the broader interest that a member has in the fund and that “member’s interest in the fund” extends to beyond a member’s current account balance or withdrawal benefit.

The Federal Court rejected ASIC’s argument on the construction of “member’s interest in the Fund” on the presumption principle of statutory interpretation that where a legislature could have used the same word but chose a different word or phrase, the intention was to change the meaning.

The Court found that “member’s interest in the fund” meant that determination members would be able to rollover the amount of their benefits which exceed $5,000.

Misleading and Deceptive Conduct

Another issue for determination by the Federal Court was whether the representations made by REST were false or misleading or deceptive.

The Federal Court stated that whether conduct is misleading or deceptive or is likely to deceive, is to be determined by having regard to REST’s conduct which should be viewed in the context of all relevant facts and circumstances at the time where the conduct took place.

The Court further noted that the words ‘likely to mislead or deceive’ is an objective test and therefore does not require proof that anyone was evidently mislead or deceived.

The Federal Court then considered the advice or information REST had received from their lawyers, the Australian Prudential Regulation Authority (APRA) and the Superannuation Complaints Tribunal (SCT).

REST argued, and the Federal Court agreed, that there is no proper basis to suggest that REST should have doubted the advice from their lawyers considering a legal issue was concerned and they received advice from a leading law firm.

Further, ASIC argued that APRA’s review did not matter as the correspondence was managed by the audit, risk and compliance committee at REST and was not escalated to the board of REST.

However, the Federal Court noted that matters only known to the board are not determinative but rather knowledge that is properly attributable to the company is more relevant.

APRA and SCT had confirmed that REST’s practice was compliant with SIS Regulations.

ASIC also argued that REST as a trustee under an express trust has an obligation to be aware of the terms of REST’s trust deed and to understand the obligations that the trustees hold. ASIC argued that REST did not engage with the trust deed and as a result does not establish that REST held its opinion reasonably in all the circumstances.

However, the Federal Court found that the advice or information provided by REST’s lawyers, APRA and SCT was enough to have created a reasonable basis for REST’s opinion even though REST did not engage with the trust deed.

The Federal Court noted that the alleged representation was not false or misleading or deceptive or likely to mislead or deceive because REST correctly reflected their legal advice.

 The alleged representation was accurately conveyed to its members regarding REST’s rules and practice which was correctly advised by their lawyers.

The Federal Court held that even if ASIC had been correct on the construction questioning concerning “member’s interest in the fund’’ it still has not made out its case as to whether the alleged representation was false or that they mislead, deceived or were likely to mislead or deceive their members.

Key Take Aways

• This case highlights that a statement of opinion cannot be misleading or deceptive if it is expressed honestly with a reasonable basis to support it.

• If a corporation relies on advice from their lawyers or another trusted source, that advice may provide reasonable grounds to defend the making of a representation which later turns out to be incorrect.

• If you are unsure whether representations you intend to make are likely to mislead or deceive then seek legal advice and act in accordance with that legal advice in order to protect yourself from possible future claims.

If you need assistance with your case, please contact our specialist Dispute Resolution and Litigation Team or our Commercial Team. Contacts are below.
Alicia Hill
Principal
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E ahill@sladen.com.au

Inshani Ward
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Meagan O’Connor
Principal
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Dean Beaumont
Special Counsel 
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Phil Broderick
Principal
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Ellise Kotsu
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[1] [2024] FCA 1081