Corporate Advisory

Proposed amendments to the Workers’ Compensation and Injury Management Act 1981: COVID-19 Response & removal of termination date

3 July, 2020

ASIC has confirmed its potential broad use of the Product Intervention Power in Regulatory Guide 272, released on 17 June 2020.

ASIC has moved on from the Federal Court’s recent endorsement of its first use of the Product Intervention Power, in Cigno Pty Limited v ASIC [2020] FCA 479, to issue a finalised Regulatory Guide which confirms the broad scope of its discretion for future use. In doing so, it considered submissions received from a broad range of interested parties.

ASIC’s discretion to use the Product Intervention Power

At the heart of the Product Intervention Power is ASIC’s discretion to make an order if it is satisfied that a financial product “has resulted in, or will or is likely to result in, significant detriment to retail clients”. Regulatory Guide 272 includes a good deal of detail about how ASIC will exercise that discretion and the steps it will take before doing so. The purpose of this article is to pick out a few of the more interesting aspects of that guidance.

When does detriment become “significant”?

ASIC has offered little guidance on what is required for detriment to be considered “significant” and therefore trigger its right to use the Product Intervention Power.  It notes that the Corporations Act 2001 (Cth) does not define the term and that the Explanatory Memorandum states only that:

Generally, this would require the detriment [or potential detriment] to be sufficiently great to justify an intervention, having regard to the circumstances of the case and the object of the intervention power.

Consistent with this, ASIC states only that, whether detriment is significant will “depend on the individual circumstances of the matter”. ASIC will need to consult on the detriment it believes exists in each case – so interested parties will have an opportunity to have their say on significance – however, subject to that, ASIC will retain a broad discretion on the application of this important threshold.

Can the Product Intervention Power be used when there is full compliance with the law?

Yes. The Product Intervention Power may be used even where all applicable laws have been complied with, provided that significant consumer detriment still arises. That position is, in itself, an illustration of how far regulation has moved in recent years – from a focus on disclosure and compliance to one of customer needs, expectations and outcomes. ASIC does note, though, that use of the power should become less likely once the Design and Distribution Obligations requirements have been implemented (ie. given their focus on the likely objectives, financial situation and needs of customers). However, it does not rule out its potential for use even where those requirements have been met.

Does a product need to be inherently harmful for the power to be used?

No. ASIC has confirmed that significant consumer detriment can arise as much from how and to whom a product is distributed, as from its intrinsic features. It rejected submissions that the power should only be used where consumer detriment arises from a feature of the product itself rather, for instance, than from the manner of its distribution or from a risk of mis-selling.

The Regulatory Guide makes direct reference to the Explanatory Memorandum in this regard, which refers to detriment arising from a number of sources, including not only “the product’s features, defective disclosure, poor design”, but also “inappropriate distribution”. The Guide adds to that by stating that regard can also be had to the circumstances in which the product is offered, including the way in which it is marketed and targeted at customers – as ASIC has put it in other contexts, the “choice architecture” built around the product.

While the Guide is quite clear, this issue may not be entirely closed. The Federal Court’s decision in Cigno Pty Limited v ASIC was principally concerned with whether ASIC was limited to considering detriment arising from the subject credit product alone, or whether it could also consider detriment arising from Cigno’s overall short-term lending model. While the court found that the broader interpretation should apply, Cigno appealed the decision in May 2020, so we may see more on the issue. A link to our recent article on the Cigno decision can be found here.

Does a product’s time in the market protect it from a Product Intervention Order?

No. ASIC considered submissions that there is less likely to be consumer detriment when a product has been available in the market for a long period of time, for instance because the “availability of that product reflects consumer demand and understanding of the product”. It rejected the point, though, saying that it is not necessarily the case that the age of a product will be an indicator against consumer detriment. While that’s a fair point, it also seems reasonable that ASIC should have regard to whether a product’s terms and risks have become well understood by customers over time in assessing any resulting detriment.

Will ASIC engage in confidential consultations with affected parties before going public?

No, or at least it will not commit to doing so. ASIC received submissions noting the benefits of it engaging in confidential consultations ahead of any public consultation, including that those would give ASIC an opportunity to clarify facts, work through options for addressing the detriment and avoid unnecessary reputational harm. In response, ASIC noted that it is not required to engage in confidential consultations, but that:

it would be likely that firms will be aware of our concerns through the course of our regulatory work, before we consult on a proposed product intervention order.  

While ASIC’s desire to retain flexibility on this point is understandable, in practice there are likely to be real benefits for both ASIC and the parties concerned in holding frank discussions before any use of the Product Intervention Power. That will not only assist with clarifying any facts that will form the basis for ASIC’s use of the discretion, but also provide a valuable opportunity to explore “the most appropriate regulatory solution” for addressing the identified detriment, should ASIC go ahead to use the power.

Will Product Intervention Orders be published?

Yes, and ASIC says that it will “generally” also publish a media release on its website to publicise the order.

When might ASIC next use the Product Intervention Power?

ASIC has already engaged in consultation relating to two further uses of the power (in addition to its initial use with respect to short-term lending). The first relates to OTC binary options and CFDs and the second to the sale of add-on insurance and warranty products by motor dealers.

As to the second of these, the proposed use of the power in that case is a relatively complicated one and needs also to have regard to the broader Deferred Sales Model framework currently being developed, which is itself targeted for commencement by 1 January 2022.

ASIC’s Regulatory Guide 272 can be found here.

For more information on the operation of the Product Intervention Power, please contact insurance advisory principal, Mathew Kaley

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Canadian Court elevates thumbs-up emoji to signature status

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After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. 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Published by Leighton Hawkes
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Litigation and Dispute Resolution

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