Case Note: misleading statements by financial adviser

In Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932 Justice O’Bryan of the Federal Court decided that the provision to Dover’s clients of its Client Protection Policy in conjunction with statements of advice was misleading and deceptive conduct by Dover that contravened section 1041H of the Corporations Act and sections 12DA(1) and 12DB(1)(i) of the ASIC Act and that Mr McMaster (the sole director and shareholder of Dover and a responsible manager and key person on the AFSL) was knowingly concerned in those contraventions. A further hearing will be conducted on the issue of pecuniary penalties.

ASIC’s case focussed on the introductory clause to the Client Protection Policy which, as at 25 September 2015, stated: “Dover’s Client Protection Policy sets out a number of important consumer protections designed to ensure every Dover client gets the best possible advice and the maximum protection available under the law”.

ASIC contended that the Introductory Clause was false, misleading or deceptive because the Client Protection Policy did not ensure that clients received the maximum protection available under the law. Rather, the policy contained numerous exclusions, limitations, restrictions and/or dilutions of clients’ rights in ways that were inconsistent with the requirements of the Corporations Act and which lessened clients’ protections under the general law. Many clauses of the Client Protection Policy sought instead to make the client responsible for failings and inadequacies in the advice provided to them.

Justice O’Bryan concluded:

“the title of that document was highly misleading and an exercise in Orwellian doublespeak. The document did not protect clients. To the contrary, it purported to strip clients of rights and consumer protections they enjoyed under the law. Some 19,402 clients of Dover’s authorised representatives were provided with the Client Protection Policy in conjunction with a statement of advice…

The defendants argued that … an inference can be drawn that no client had in fact been misled by the Client Protection Policy. …I regard the enquiry as to whether any individual client was subjectively misled by the Client Protection Policy as not determinative of the question whether Dover’s conduct contravened the statutory prohibitions. The question whether conduct is misleading or deceptive or contains a false or misleading representation is an objective question to be determined by the Court by reference to the impugned conduct; the fact that a client may have been misled, and may have made a complaint about being misled, is admissible on the question but is neither necessary nor determinative. In any event, I am not willing to draw the inference and make the factual finding sought by the defendants. I do not consider that the absence of client complaints establishes that no clients were misled. It is plausible that a number of clients were misled by the Client Protection Policy but that they failed to receive or did not direct their attention to the corrective notice sent by Dover. …

where proceedings are brought by an enforcement agency, the Court has frequently imposed pecuniary penalties and other forms of relief for contraventions of the prohibition of misleading or deceptive conduct while expressly recognising that the conduct may not have caused loss…

In assessing whether conduct is likely to mislead or deceive, the courts have distinguished between two broad categories of conduct, being conduct that is directed to the public generally or a section of the public, and conduct that is directed to an identified individual. … the question whether conduct in the former category is likely to mislead or deceive has to be approached at a level of abstraction, where the Court must consider the likely characteristics of the persons who comprise the relevant class of persons to whom the conduct is directed and consider the likely effect of the conduct on ordinary or reasonable members of the class, disregarding reactions that might be regarded as extreme or fanciful”.

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