ASIC’s report on financial services disclosure1, prepared in conjunction with the Dutch Authority for Financial Markets (AFM), concludes that disclosure is not enough. The real value of the report, though, lies in the insights it gives into what else should be done.
In their report, ASIC and AFM provide a detailed and well-researched assessment of disclosure’s effectiveness in informing consumers about financial products, enabling them to make good purchasing decisions and for driving competition. Their overall finding, that disclosure is necessary and contributes to better financial markets but that it has distinct limitations, is consistent with previous reviews2.
The Report is particularly interesting, though, due to its depth of analysis and the insights that may be drawn from them; insights which will be relevant to:
ASIC’s commentary on the Report included an express reference to that last point. Commissioner Danielle Press noted:
Tweaking disclosure is not the answer… The upcoming design and distribution obligations (DDOs) provide an opportunity to prioritise consumer needs – to design and offer products and services that deliver value (not surprises) and are sold fairly. I encourage you all to read this report and look at what you need to do in your own organisations to monitor consumer outcomes and prepare for DDOs3.
The Report sets out five bases for its conclusion that disclosure alone is not sufficient. Let’s look at what they say and what we can draw out of each.
Financial products are complex and that is no less the case for insurance. Even those products which are relatively standard and well understood, such as comprehensive motor and home insurance, will normally contain several dozen pages which set out the scope of cover, its exclusions, the conditions that apply and the rules for making a claim. The Report notes the difficulties that this creates for consumers in determining whether any particular product is right for them and in comparing it to competing products.
With the best will in the world, this cannot be resolved through simpler disclosure while the product itself remains complex. The home insurance Key Facts Sheet is a good example of that. The compromises that had to be made in order to summarise the home product into two standard-form pages meant that the resultant document had very limited value.
More critically, the Report observes that some firms unnecessarily add to product complexity. Examples given include:
There may be good intent in some of these situations. Many consumers would value the addition of reward points and complimentary insurance to credit cards. However, they also pose a challenge, in that the complexity they add can make understanding the product and comparison with other products difficult.
The Report also refers to examples of what it considers bad intent. This it refers to as “sludge”. That’s a relatively new term which grew out of the work led by Richard Thaler on “nudge theory”. Whereas a “nudge” should be used for good, “sludge” involves use of the same behavioural science tools against the interests of those being nudged.
The Report cites a number of examples of this – describing “strategically complex” products, unfair sales tactics and high friction claims handling processes as examples of “sludge”.
The Report provides further support for the need to simplify insurance products where at all possible. That will not only allow for simplified disclosure and improve the prospects of customer understanding; but will likely also simplify the terms of the Target Market Determination and the Distribution Obligations needed to support it, for implementation of the DDOs.
Product issuers should also consider whether there are any aspects of the product, having regard to the context in which it is sold, that have the potential to be identified as “sludge”. Conversely, it should consider whether aspects of the product or its distribution could be re-cast to nudge customers towards more positive decisions, consistent with the intended target market.
The second point made by the Report is that disclosure cannot overcome advertising and sales practices made to attract, distract and influence consumers. It refers to an increasing use of “sophisticated marketing and sales techniques”, in some cases using valuable data analytics, to influence purchasing decisions.
Disclosure documents, on the other hand, are often long and complex, so not easily digested. As has been found by the Insurance Council in its reviews on this subject4, many customers do not access the Product Disclosure Statement (PDS) at all or, at least, skip large parts. Without something more, the disclosure documents cannot compete.
Technology is also playing an increasingly important part in all of this. The delivery of products and services online, and through mobile phones, is bringing valuable convenience to consumers, but it can also enable poor decisions to be made more easily.
To the extent they have not already done so, product issuers should consider the marketing and sales techniques they use in connection with retail products with a view to identifying aspects that may not align with positive customer outcomes. In the immediate term, those might need to be varied or removed if they carry a risk of breaching the fairness obligation or causing “significant customer detriment”. In the (slightly) longer term, they may also need adjustment or augmentation to meet the requirements of the DDOs. Technology should be harnessed in a way which leads customers towards good decisions, in support of these obligations.
The Report notes that “one-size-fits-all” disclosure rules are not easily adapted to consumers’ different decision-making processes and styles. Some consumers, for instance, prefer to rely on documented information; others prefer advice. Some are cautious; others will trade that off for convenience. Some like words; others relate better to pictures and diagrams.
Similarly, some situations allow for better consideration of disclosure materials. Reading them online in the peace and quiet of an office, for instance, will likely be more effective than reviewing a hard-copy document during a face-to-face meeting.
As the Report says:
While some forms of disclosure are undoubtedly useful for some consumers in some contexts, no one disclosure will suit the needs of all consumers.
The effectiveness of disclosure can be improved by:
As to the first of these points, there may be improvements that can be made to the PDS, though there are limitations in that area. It is not possible to have more than one PDS for a single product, for instance to cater for different preferences, and the document needs to comply with the prescriptive requirements of the Corporations Act. What can be done, though, is to augment the PDS with additional disclosure in various forms, such as diagrammatic representations, video explanations and the like. While care needs to be taken to make sure that this additional disclosure accurately describes the cover in the PDS, they could prove a potentially valuable aid for some consumers.
As to the delivery of disclosure material, it may be that improvements could be made to existing processes to improve the way it is presented to consumers prior to purchase. That will vary by product and distribution channel and may require some lateral thinking. That thinking should be done within the context of setting the Distribution Obligations needed to meet the incoming DDO requirements and having regard, if applicable, to the potential application of a deferred sales model.
In both regards, consumer testing may help with clarifying what will be of assistance in practice. That testing will also be useful in assisting product issuers to establish that “reasonable steps” have been taken in the implementation of the DDOs5.
The Report observes that disclosure can, in some cases, actually produce negative outcomes for customers. By way of example, the Report states that:
In reviewing the PDS and, possibly more importantly, collateral documentation and explanatory material, it will be important to consider whether any of the various elements of disclosure might have the potential to be interpreted negatively and, if so, whether other steps should be taken to minimise the risk of that happening. Using an insurance example, ASIC noted in its recent report on consumer credit insurance6 that sales staff were highlighting the cooling-off period to consumers during the sales process. The cooling off period is an important consumer right which should be clearly explained and yet, in that situation, ASIC found that the disclosure was being used to encourage consumers to purchase a product they were unsure about. It was leading to poor purchasing decisions and consumer outcomes.
The Report’s last point is a relatively simple one; that the use of warnings in disclosure material relating to the risks and features of financial products will not always be effective. Studies carried out on warnings used in the Netherlands and the United Kingdom show that those have rarely resulted in changed behaviours. In Australia, the Report refers to the General Advice Warning as an example of one that is not well understood by consumers and to a warning relating to the costs of short-term loans as one that proved ineffective in changing behaviours.
Consumer risks associated with financial products are unlikely to be materially reduced through the inclusion of warnings in disclosure material. More substantive steps will need to be taken if those risks are to be mitigated in practice.
The central message of the Report is neatly summarised in its conclusion.
Firms that are proactive in aligning their product design, distribution and communications with consumer needs, capabilities and expectations will build customer trust and minimise regulatory costs.
The joint Report provides further useful guidance on the substantive change that is required in order to meet that expectation.
For more information on disclosure, product design and the distribution of insurance, please contact insurance advisory principal, Mathew Kaley.
1 ASIC and AFM, Disclosure: Why it shouldn’t be the default, 14 October 2019
2 For instance, the Financial System Inquiry report, issued in December 2014 found that product disclosure plays an important role but is not, of itself, sufficient.
3 ASIC Commissioner Danielle Press, the National Insurance Brokers Association (NIBA) Convention, 15 October 2019
4 For instance, Insurance Council of Australia, Too long; Didn’t read, October 2015
5 As per sections 994E and 994F(3) of the Corporations Act.
6 ASIC Report 622, Consumer credit insurance: Poor value products and harmful sales practices, 11 July 2019
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. 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 , 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 , 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 : "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 dictionary.com 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.
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  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. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.