The Federal Court of Australia has recently handed down its judgment in the case of Australian Securities and Investments Commission v HCF Life Insurance Company Pty Limited (Penalty) [2025] FCA 454.
Key Learnings
The amount of a pecuniary penalty order should be lessened if the Court is satisfied that:
- the contravener had a corporate culture to proactively identify and address potential contraventions;
- the contravention was not deliberate;
- once the contravener was aware that a contravention had occurred, the contravener expeditiously rectified the contravention and notified impacted customers;
- the contravener expressed contrition and cooperated with the regulator in addressing the contravention; and
- the loss and damage sustained because of the contravention was minimal (if there was any loss and damage).
An important part of proactively identifying and addressing potential contraventions is obtaining appropriate legal advice, which may necessitate seamless multi-disciplinary advice. For example, the contravention identified in Australian Securities and Investments Commission v HCF Life Insurance Company Pty Ltd [2024] FCA 1240 (the Liability Judgment) required an understanding of both:
- the financial services regime in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act); and
- Insurance law as set out in the Insurance Contracts Act 1984 (Cth) (ICA).
Background
In the Liability Judgment, HCF Life Insurance Company Pty Limited (HCF Life) was found by the Court to have contravened s 12DF of the ASIC Act (which prohibits misleading conduct in the provision of financial services).
The crux of the Liability Judgment was that HCF Life issued Product Disclosure Statements (PDSs) for certain life insurance products, each of which contained a pre-existing condition clause (the PEC Clause) that did not reference or explain the existence or effect of s 47 of the ICA.
The Principles for Pecuniary Penalties
Jackman J considered that the ‘primar[y], if not sol[e]’ purpose of a civil penalty regime is to promote compliance with the relevant Act by deterring further contraventions. His Honour considered that the penalty imposed should therefore be large enough such that the penalty cannot be regarded as a ‘cost of doing business‘, but not so large that it is oppressive.
The Court will ‘… engage in an “intuitive or instinctive synthesis” of all the relevant matters by weighing together all relevant factors, rather than engage in a sequential, mathematical process‘: [14]. His Honour affirmed that salient principles for the assessment of pecuniary penalties include:
- factors pertaining to the character of the contravening conduct and the character of the contravener may be considered, but there is ‘no legal checklist‘ and the task is to ‘determine the appropriate penalty in the circumstances of the particular case‘;
- it is appropriate to consider whether the conduct involved a ‘deliberate flouting of the law‘ or whether the contravener was aware of the law; and
- ‘[s]ignificant weight‘ will usually be given to what the regulator considers necessary to achieve specific and general deterrence.
Moderating factors which the Court may take into account include:
- the amount of loss or damage caused;
- the deliberateness of the contravention;
- whether the contravener has a corporate culture conducive to compliance; and
- whether the contravener expressed contrition and co-operated with the regulator.
The Court’s Consideration
Loss and Damage Caused by the Contravention
His Honour observed that there was no evidence that any customers of HCF Life suffered direct loss or damage from the contravention. While his Honour accepted that there was a theoretical possibility of loss and damage due to the contravention, his Honour held that ASIC had not discharged its onus of establishing any actual loss and damage caused by the contravening conduct.
His Honour highlighted that the decision not to require HCF Life to issue corrective notices ‘… promptly after delivery of the Liability Judgment (as would seem to be generally desirable), and well before the hearing as to civil penalties, [meant that] evidence [was not] available as to whether any consumers claim to have been affected by the contravening conduct‘: [63].
Awareness of the Contravention
The Court also remarked upon HCF Life obtaining external legal advice regarding the PDSs’ compliance with financial services laws, including s 12DF of the ASIC Act. His Honour explained that: ‘…the relevance and weight to be attributed to the obtaining, by the contravener, of legal advice will necessarily depend upon all of the circumstances of the case‘: [70]. His Honour found that HCF Life had ‘acted responsibly and commendably‘ by obtaining external legal advice, even if the advice did not identify the contravention.
However, the Court considered that, by its letter dated 23 March 2023, ASIC had raised concern with HCF Life regarding the PEC Clause. The Court held that after issuing a financial condition report on or about 18 August 2023, HCF Life was aware that ‘the risk of a finding of contravention was substantial‘. The Court noted that HCF Life had been liaising with ASIC to make appropriate and sufficient disclosures regarding the contravention. However, the Court held that the delay in providing draft corrective notices, approximately 3.5 months after the Liability Judgment was handed down, was an ‘aggravating factor‘.
Culture of Compliance, Contrition and Cooperation
The Court accepted that HCF Life had a ‘… corporate will to “do the right thing” …’ (at [96]) given, for example, its obtaining legal advice or monitoring its compliance with the Life Insurance Code of Practice. The Court also accepted that HCF Life’s intention in drafting the PEC Clause was to ‘…make the clause transparent and clearer‘ (even if its drafting made the life insurance products issued appear ‘… less desirable than they actually were‘).
The Court also accepted that HCF Life had expressed contrition for the contravention and had cooperated with ASIC in redressing the contravention.
The Appropriate Penalty
ASIC submitted that a penalty of $1.47 million should be imposed, while HCF Life submitted that a penalty of $350,000 to $700,000 should be imposed.
The Court determined that the contravention was not ‘… in the higher ranges of moral culpability‘ in light of the lack of evidence of actual harm to consumers, HCF Life’s reliance on external legal advice, and the contravention leading to the life insurance products issued appearing ‘… less desirable than they actually were‘.
The Court ordered HCF Life to pay a pecuniary penalty in the amount of $750,000.
This article was written by Nicholas Matkovich, Partner, Vignesh Iyer, Senior Associate and Isabela Lawira-Fernandez, Solicitor.
