As Australia heads into a COVID-19 lockdown, and the insurance industry and its regulators move to remote working, what does it all mean for the incoming raft of regulatory reforms?
Statements made by the government and regulators in the last week indicate that some of the incoming regulatory reforms may need to be delayed. That is likely to be a great relief to those in the insurance industry who are currently working hard to implement the changes and wondering how they will be delivered in a COVID-19 environment. The information currently available, though, provides little detail and no certainty on which changes will be made. Further guidance would be of significant value. As that becomes available, industry participants will need to carefully re-calibrate their implementation plans to reflect the changes, while paying close regard to the interdependencies involved.
While Parliament has been sitting this week, the position after that is uncertain. Officially, Parliament is not scheduled to sit again until 12 May. That, of course, may change – noting that the Budget has already been deferred until October.
The May dates and the subsequent sittings set down for June were presumably targeted for passing the swathe of draft legislation that Treasury released for consultation in January. The extent to which that will still happen with depend on what can be done in the meantime; by the government, regulators and the industry.
Treasury is key to much of this work. It has, quite understandably, applied its focus to the country’s economic response to the virus and to liaising closely with business regarding its impacts. It is hard to imagine that, in those circumstances, it will also be able to meet the significant workload involved in reviewing submissions received on the draft legislation released in January and finalising its content.
We have seen no clear statement from Treasury on its current views on this work, though the Council of Financial Regulators, which is made up of Treasury, the Reserve Bank, ASIC and APRA, did make the following statement last week:
Given the disruption being caused by COVID-19, Council members are examining how the timing of regulatory initiatives might be adjusted to allow financial institutions to concentrate on their businesses and assist their customers.
So, we should stay tuned for more on this shortly.
ASIC also has a significant part to play. It currently has a raft of regulatory related matters it is consulting on and a good deal more on which it will need to provide guidance (see below). In that regard, it announced yesterday that it has:
immediately suspended a number of near-term activities which are not time-critical. These include consultation, regulatory reports and reviews, such as the ASIC report on executive remuneration, updated internal dispute resolution guidance and a consultation paper on managed discretionary accounts. Stakeholders will shortly be notified of deferred consultation and publications relevant to them.
It is likely that at least a few of ASIC’s projects will be regarded as time-critical. Its Regulatory Guide on Design & Distribution Obligations, for instance, may be one. As for Treasury, more information should be provided shortly.
APRA also issued a brief release yesterday, which included a statement that it would be “suspending all substantive public consultations and actions to finalise revisions to the prudential framework”. While it says it will keep the situation under review, it stated that it does not currently expect to re-commence consultation on “non-essential” matters before 30 September 2020 – a full 6 months away.
For general insurers, APRA’s work will include its finalisation of Prudential Standard CPS 511 and its close involvement in developing the Financial Accountability Regime. An early clarification on whether all of that is to be delayed would be valuable.
The impacts for those in the Insurance Industry tasked with implementing regulatory reform will be obvious to most readers of this article. Given the priorities currently being afforded to running the core business during this challenging time, it can be expected that companies’ focus on regulatory reform projects will be impacted.
Remote working will undoubtedly have an effect. However good the technology, the regular project meetings and interactions needed to implement such complex change will be more difficult to hold. There’s also the potential for suppliers and advisers to become less accessible or to cause delays. This could be particularly pronounced when it comes to the implementation of IT changes.
While no express relief has yet been provided, it seems that these strains are being recognised.
Having regard to these points, following is a quick snapshot of where the key regulatory reforms relevant to the general insurance industry currently stand and what still needs to be done.
Next week will mark the half-way point in the two-year transition period allowed for meeting the Design & Distribution Obligations, which will commence on 5 April 2021. There is little standing in the way of its path, though the finalisation by ASIC of its Regulatory Guidance, which was released for consultation in December 2019 will be very important.
Legislation extending the application of Unfair Contract Terms to insurance contracts was passed on 6 February 2020 and is scheduled to commence at the same time as the Design & Distribution Obligations on 5 April 2021. Given its focus on product terms and customer outcomes, its commencement at the same time as the Design & Distribution Obligations is likely to be given a priority.
On this topic, it is worth noting that Treasury initiated a separate consultation process in December 2019 on some potential broad reaching changes to the overall Unfair Contract Terms regime. These include the possibility of introducing penalties for breaches and a broader range of remedies. Although the consultation period for that work concludes this week, it is not essential to the matters referred to above so may not be given the same priority. If so, the risk of the existing Unfair Contract Terms provisions being altered before next year would likely fall away.
Signatories to the General Insurance Code of Practice are preparing to comply with the revised Code from 1 January 2021 and to have a family violence policy in place by 30 June 2020. We have seen nothing to suggest that this will change.
As to the proposal that some the Code provisions be enforceable under the Corporations Act, consultation has closed on the draft legislation released by Treasury in January 2020. If passed, that will allow ASIC to designate Code provisions as “enforceable”, as part of its Code approval process, so as to attract civil penalties for their breach. The legislation remains to be finalised and ASIC has also indicated that it will be issuing guidance on its approach. Delays in this regard will not affect insurers’ obligations to meet the revised Code requirements, though would defer the application of heavier regulatory outcomes for breach.
ASIC has not yet finalised its Regulatory Guide for use of the Product Intervention Power, which it consulted on in June 2019. While important, that will not prevent it from using the Power where it considers it appropriate to do so.
Businesses with a minimum annual consolidated revenue of $100 million are due to report on the risks of modern slavery in their operations and supply chain, along with the steps taken to respond to those risks, within 6 months of the end of their financial year. That’s 31 December 2020 for entities with a 30 June financial year and 6 months later for those working to a calendar year. The report, of course, is only the last piece of the work involved. The risk assessment, review of supplier arrangements, making any necessary changes to those arrangements, training and associated actions will all need to be completed ahead of time. This is unlikely to change.
The Proposals paper released by Treasury in January 2020 envisages a significant role for APRA and ASIC in prescribing and providing guidance on a wide range of matters. That will include the content of accountability maps and statements, detail regarding the classification of entities, the responsibilities of accountable persons and notification timeframes and the criteria for seeking exemptions. Having regard to this, progress on the FAR seems heavily dependent on the regulators ability to give it continued priority. Further information on this significant reform would be valuable.
APRA commenced its consultation on proposed Prudential Standard CPS 511 on Remuneration in July 2019. It stated in January that it planned to finalise the Prudential Standard before 30 June 2020 with a view to its commencement on 1 July 2021. That process now looks particularly exposed to delay, though is likely to follow a similar path the FAR.
The draft Bill for extending financial services laws to insurance claims handling received a broad range of submissions, which are likely to result in some changes being made. ASIC guidance, for instance to clarify who is required to apply for an AFS Licence or authorisation, the process for applications and practical aspects of meeting the new obligations, will also be a very important component for an effective implementation. The proposed transition period, which requires licence applications and authorisations by 31 December 2020, has already raised concerns. That may now come under more pressure.
Consultation has closed on Treasury’s draft Bill for introducing a Deferred Sales Model to Add-on insurance. That attracted strong submissions from a number of quarters and, accordingly, remains uncertain. ASIC will also need to provide guidance on these reforms, in particular regarding the proposed Information Statement to be provided to clients and the process relating to obtaining product exemptions. In the current circumstances, this looks like a lot of work still to do.
If the legislation is delayed, it may still be the case that a Deferred Sales Model will be applied to the motor dealer channel. ASIC proposed using its Product Intervention Power to do so, with respect to Add-on insurance and warranty products, in October 2019. It is possible that that will go ahead in the meantime.
Consultation on draft legislation to ban the hawking of financial products closed on 28 February 2020. The proposal to have the legislation commence on 1 July 2020, which has already been the subject of strong submissions, now looks particularly challenging given that questions that remain on some key points.
The draft Bill to give ASIC the power to set caps on commissions paid on insurance and warranty products distributed through the motor dealer and novated lease channels is also waiting on the next step from Treasury. That legislation needs guidance from ASIC on how it intends to exercise its new power, and it can be expected to consult on that. If the legislation does pass, it will have no effect until ASIC actually uses its power.
ASIC’s consultation in May 2019 on changes to Regulatory Guide 165, regarding complaints handling and internal dispute resolution, remains subject to finalisation. The proposed changes, particularly to broaden the definition of a complaint and to reduce the timeframe for a response, have the potential to require a good deal of preparation, including in relation to IT systems.
ASIC originally proposed that most of the changes would commence on 30 June 2020, which was beginning to look unrealistic in any case. Its media release yesterday identified this reform as an example of matters that it has suspended. Complaint handling will, though, remain an important part of other reforms, most notably as a core component of implementing the Design & Distribution Obligations.
Consultation has also closed on draft legislation to replace the current duty of disclosure applicable to eligible contracts of insurance with the new duty to take reasonable care not to make a misrepresentation. While a few key elements of the change remain to be finalised, its scope is reasonably clear. Treasury has proposed that the new duty would apply from 5 April 2021, to align with the commencement of the Design & Distribution Obligations and the application of Unfair Contract Terms to insurance. While there are benefits in having these changes commence on that date, it does not seem to be critical that that occur.
Finally, the consultation period for draft legislation to reform the breach reporting obligations under the Corporations Act has also closed. Concerns had already been raised with meeting the proposed commencement on 1 April 2021, given the complexity of the new test. That pressure is likely to be exacerbated in the current circumstances.
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.