Many of our clients are grappling with the vexed issue of whether information contained in investment and insurance disclosures constitutes misleading or deceptive conduct, where the information is affected by transactional errors.
For example:
- where an account charge has been incorrectly made or applied; or
- an error has been made in the crediting of an investment return,
such that the error carries through to the reporting of the client's benefits or account balance. Most typically, we see this issue arise where a client's account balance is affected by an error and disclosure of the account balance or relevant charges/returns is provided in an annual (or other periodic) statement.
While factual context may well be determinative here, we consider it is helpful to flesh out some general principles.
What is the potential misrepresentation?
At first blush, one could argue that the disclosure of an account balance connotes a representation that the amount disclosed is, in fact, the correct account balance.
So far, so good – but what do we mean by "correct" account balance? Is it the balance that is actually sitting in the account, or is it the account balance as it "should" be, i.e. without the impact of any transactional errors?
It is necessary to drill down into the nature and effect of the account balance statement. Our view, as a general principle, is that the account balance statement is the amount that is actually sitting in the client's account at a specified point in time. It follows that if the account balance, as disclosed in a statement, is affected by a transactional error (such as the debiting of an incorrect charge), this is unlikely to constitute a misleading or deceptive representation. This is principally because, at the point in time of the disclosure, the amount stated as the account balance is accurate. (We note that the debiting of an incorrect charge may well give rise to a different issue, such as potential breach of product terms.)
A contrary view (inevitably) exists which is:
- that such a representation is not just a representation as to the actual account balance; but
- it is also a representation that the stated account balance is the correct account balance/actual entitlement of the client.
In other words, it constitutes a representation that the account balance is the true entitlement of the client as if the error had not occurred or had been rectified.
On balance, we do not consider this to be the better view. Until the error is corrected, then the stated account balance is the actual account balance. The core purpose of an annual or other periodic statement is to provide clients with information on the debits and credits to their account – this is a summary of the actual transactions (pursuant to the content requirements in section 1017D of the Corporations Act) and not the transactions as they should be. This position is also supported by some recent case law, set out below.
Where the specific deductions are not disclosed
On whether displaying an "account balance" (but not the specific transactions/deductions) can convey an implied representation the amounts were properly deducted, see Derrington J in ASIC v NAB1:
246 NAB submitted that the mere act of incorrectly charging fees to the accounts of its customers when not permitted by the account terms or merely charging more than it was entitled to, did not amount to misleading or deceptive conduct. Without more, the mere charging of a fee constituted by the debiting of an account was said to be incapable of conveying any representation to the customer who would not even be aware of its having occurred.
247 The submission should be accepted. The "charging" occurs when NAB deducts the purported fee from the balance of the amount which it records in its ledger as being owed to the customer. Before that deduction is communicated to the relevant customer it cannot amount to a representation, nor can it mislead that person. This was largely accepted by Mr Couper QC for ASIC in the course of oral argument, with the result that attention was focused on that part of the claim based on the narrations.
Importantly, this conclusion was not predicated on the existence of any ameliorating disclaimers.
Where the specific deductions are disclosed
Where specific transactions/deductions are disclosed, see the following further comments in ASIC v NAB (emphasis added):
The representations to be derived from the narration
255 By their very nature, bank statements received by customers merely record the dealings which the bank claims have occurred in relation to the account, whether they be debits, credits, transfers or the deduction of fees. There is no a priori assumption that each of the recorded transactions had in fact or in law occurred in accordance with the customer's authority or in accordance with the terms and conditions of the account. For example, it may well be that the person who had caused a particular transaction to occur had fraudulently secured access to the account for that purpose. The bank statement does no more than record and inform the customer of the bank's understanding of the existence of the transactions identified and, perhaps, of their conformity to the terms of the agreement. It does not purport, nor may it be implied to be, an absolute warranty of these things. Such an implication could not reach the standards of clarity required by a penal statute.
257 The critical issue is whether, in the circumstances, the statement impliedly asserts the legitimacy of the transaction. It is clear that there is no express assertion to that effect. There is also nothing in the language of the narration to justify any such implication. Whilst the reference to a "fee" suggests that it is an amount that is due from the customer, it is not necessarily an assertion that it was correctly debited by the bank to the account. No submissions, other than by way of broad assertions, were made by ASIC that any implication arose from the terms of the narration.
258 As the narrations themselves contain no express or implied statements of NAB's contractual entitlement to charge PP Fees, a proposition justifying such an implication must find support from other sources in order to be sustained. The only possible factor would be the extraneous circumstantial context and no suitable submission has been made in that respect. The necessary conclusion is that the narrations only recorded that the fee had been charged to the customer's account in respect of the particular transaction. That same analysis can be expanded to cover all the narrations in respect of all recorded transactions such that the statement can be taken only as a record of the actual transactions which NAB understood to have occurred on the account.
The dominant message conveyed
280 The "dominant message conveyed" by the narrations in the statements of account was that the PP Fees were amounts which were deducted by NAB for effecting the periodic payments requested by the customer in accordance with its claim of its contractual right. Even if it can be said that they reached the level of representing that NAB believed that the fees were payable, which is doubtful, they did not amount to a statement that they were so in fact. The terms and conditions of the contract and of the notices on the statement as well as the practicalities of the circumstantial context defeats any inference that the narrations carried an assertion as to their veracity and accuracy.
See also ASIC v CBA2, at [89]:
88 The members of those classes of customers who entered a contract with CBA in relation to the relevant accounts are likely to be taking reasonable care of their own interests. They are also likely to have had their own personal experiences of, or otherwise be aware that there is at least some prospect of, computer systems malfunction, software design errors, and human error in relation to data input. They would be aware that CBA's systems are computerised and that CBA's processes involve human interaction with those systems. They would understand that customer account statements are generated by CBA's computerised systems and, having regard to the size of CBA's operations, are unlikely to have been reviewed by any of CBA's personnel before being issued. They would also be aware that the systems and processes within large organisations such as banks are not and cannot be expected to be perfect all of the time; that all organisations (even banks), and the people within them, sometimes make mistakes and that, for a variety of reasons, a contractual promise by CBA to waive a fee otherwise payable in relation to their account might not translate into that fee being waived for reasons which may not involve any intentional conduct by CBA.
89 Further, the ordinary and reasonable customer would not view a customer account statement as an invoice, but as a record of transactions that have occurred on the account. The ordinary and reasonable customer understands that a customer account statement is sent to customers so that they may acquaint themselves with those transactions and satisfy themselves that no disputed transactions have occurred, either by error of the bank, or mistake or malfeasance by third parties.
The first judicial statement above is helpful in a more general way.
The second judicial comment is helpful in a very specific way, relevant to the case study we have outlined.
Of course, as always, several factual qualifications can be made.
First, if the investment or insurance statement contains a separate line item which records the relevant charge incorrectly, then this will likely constitute a separate misleading or deceptive disclosure. For example, a particular insurance premium or investment charge is stated to be $100 when in fact it is really $150. Here, there is a mismatch between the actual transaction and the disclosure.
Second, if the account balance is accurately stated, in the sense that it is reflective of a transaction error which has not been reversed at the time of disclosure, but the error is subsequently reversed, then that original disclosure can become misleading or deceptive, unless a further disclosure is provided. This would be the case where, for example, the disclosure is not provided as at a point in time, such as certificate of insurance setting out insurance premiums payable. In contrast, an annual statement disclosure is typically provided at a point in time such that subsequent correction of an error would not cause the original statement to become misleading or deceptive.
These two conclusions lead to some practical suggestions.
First, the desirability of including relevant disclaimers into the disclosure material. We have previously discussed the advantages of disclaimers which can, or can go towards, neutralising an otherwise potentially misleading or deceptive statement.
Second, aligning the timing of the rectification of a transactional error with a concurrent updated disclosure to the client indicating the error in the original disclosure. This can prevent the original disclosure becoming misleading or deceptive once the transactional error is rectified (which would render the original disclosure potentially misleading or deceptive if such disclosure is not provided at a specific point in time).
Footnotes
1. Australian Securities and Investments Commission v National Australia Bank Limited [2022] FCA 1324.
2. Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1422.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
