Australian Securities and Investments Commission v Commonwealth Bank of Australia

Provision of financial product advice (appeal grounds 9 and 10) 202 Within the structure and logic of the definition of conflicted remuneration in s 963A, the question whether the financial services licensee provides financial product advice in respect of a particular product naturally precedes the question whether the alleged benefit could reasonably be expected to influence the choice of financial product recommended or the financial advice given by the licensee. For that reason, it is appropriate to address ASIC's appeal grounds 9 and 10 before addressing appeal grounds 6, 7 and 8. 203 By appeal grounds 9 and 10, ASIC challenged the trial judge's conclusion that ASIC had failed to prove that CBA provided financial product advice in respect of Essential Super to retail clients. 204 As discussed earlier in the context of appeal ground 1, a benefit given to a financial services licensee cannot constitute conflicted remuneration if the licensee does not provide financial product advice to persons as retail clients in respect of the financial product in question. In the circumstances of the present case, ASIC was required to prove that CBA provided financial product advice in relation to Essential Super to retail clients. That does not require proof that CBA provided financial product advice on every occasion on which it distributed Essential Super; but there must be evidence from which the Court can conclude that financial product advice was given on at least some occasions. 205 In s 766B of the Act, the phrase "financial product advice" is defined as a recommendation or a statement of opinion, or a report of either of those things, that is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products, or could reasonably be regarded as being intended to have such an influence. Section 766B also stipulates that there are two types of financial product advice: personal advice and general advice. In broad terms, personal advice is financial product advice that is given or directed to a person in circumstances where the provider of the advice has considered one or more of the person's objectives, financial situation and needs, or a reasonable person might expect the provider to have considered one or more of those matters. General advice is financial product advice that is not personal advice. The giving of personal advice is subject to more onerous regulatory obligations in comparison to the giving of general advice. 206 The boundary between the "mere" distribution of a financial product and the provision of financial product advice in relation to the product was the subject of some discussion in Australian Securities and Investment Commission v Westpac Securities Administration Limited (Westpac Securities) (2019) 272 FCR 170. That decision recognised that there can be no "bright line distinction" between the two (at [22] per Allsop CJ; see also [218] per Jagot J and [339] per O'Bryan J), and that statements made for the purpose of promoting, selling and distributing a financial product do not necessarily (or even ordinarily) contain a recommendation or statement of opinion of the kind that constitutes financial product advice (at [22] per Allsop CJ, [238] per Jagot J and [339] per O'Bryan J). Rather, a court must seek to characterise the communication or exchange at issue in all of the circumstances (at [22] per Allsop CJ). 207 ASIC's case with respect to financial product advice given in respect of Essential Super was advanced at a high level of abstraction. In its written submissions, ASIC submitted that: ASIC's case was that financial product advice was provided as follows: (a) to individuals and employers, to become a member or Employer Sponsor of Essential Super; (b) to individuals, to take life and total and permanent disability insurance through their Essential Super accounts; (c) to individuals, to fund their Essential Super accounts once open by doing one or more of: (i) directing employer superannuation contributions to those accounts to ensure regular contributions; (ii) consolidating all superannuation interests into an Essential Super account; and (iii) making contributions from a bank account. 208 The submission identifies the broad topic or subject of the alleged financial product advice, but fails to identify the written or spoken words that were said to constitute the advice (being the recommendation or statement of opinion that was intended - or could reasonably be regarded as being intended - to influence a person to make one of the above decisions in relation to Essential Super). 209 ASIC's pleading likewise suffered from a failure to allege the written or spoken words that were said to constitute the financial product advice. The pleading contained allegations concerning the facts that: (a) only authorised staff were permitted to initiate and assist a customer sign up for an Essential Super account; (b) CBA staff were trained with respect to the distribution of Essential Super; (c) non-authorised staff were required to use approved scripts when discussing Essential Super with customers; (d) CBA had in place "standard operating procedures" for branch staff to follow with respect to Essential Super; (e) authorised staff were trained to sell Essential Super under a "general advice model"; and (f) authorised staff had approved scripts, a general advice warning and sales guides to use when discussing Essential Super with customers. 210 After pleading those matters, ASIC pleaded a bare conclusion that CBA "set in place processes" so that authorised staff would provide a recommendation or a statement of opinion to customers during branch sales that was intended to influence the customer, or that could reasonably be regarded as being intended to have such an influence on the customer, in making a decision to open an Essential Super account or to choose between investment options within Essential Super or whether to take out insurance within Essential Super. At no point in the pleading did ASIC identify specific parts of a training manual, a standard operating procedure or a script that contained words and statements that were said to constitute the recommendation or statement of opinion relied upon by ASIC. 211 The same difficulty affected ASIC's arguments on the appeal. There was a lack of attention to the identification of specific words and statements within training manuals, standard operating procedures or scripts that that were said to constitute relevant recommendations or statements of opinion. Instead, ASIC placed considerable reliance on the fact that CBA's internal documents stated that Essential Super would be distributed under a "general advice model". ASIC's submission appeared to be that an inference could be drawn from those documents that financial product advice was provided to Essential Super customers by CBA. Indeed, an impression was gained that ASIC considered it sufficient to rely on those documents to prove that CBA gave financial product advice to customers when distributing Essential Super. 212 When pressed in the course of argument on the appeal, ASIC took the Court to certain of the training manuals, standard operating procedures and scripts that were in evidence. As set out earlier in these reasons, one of the scripts included the following "approved" statements: Generally, customers find that Essential Super is a straightforward superannuation product with the convenience of on line access through NetBank. Would you be interested in taking out Essential Super? I'm letting my customers know about an exciting product called Essential Super. Essential Super is an online superannuation account which helps people to manage their super through NetBank. It also has the convenience of accepting employer contributions. Many of our customers have found that selecting their own superannuation fund, rather than using the fund their employer provides, enables them to take greater control of their super. As Essential Super is accessible through NetBank, this makes it even easier as it provides flexibility for super and banking to be managed in the one place. 213 One of the standard operating procedures titled "Essential Super Account Opening - Personal Customer" referenced a similar "approved script" which contained the text: "Would you be interested in finding out more about Essential Super, an easy to set up superannuation account that can be managed through NetBank with other CommBank accounts?". The documents also suggested the following script for the purposes of choosing a fund for compulsory superannuation payments: "Would you like to have your employer(s) pay your super into your Essential Super account?". The standard operating procedure also informed the CBA staff that: Customers are offered a pre-approved level of cover based on their age for: Death only or Death and Total and Permanent Disability (TPD). Customers can halve or double or opt-out of their pre-approved insurance. Customer can choose their own investment mix, or select the Lifestage fund which will be managed for them. 214 The respondents submitted that appeal grounds 9 and 10 should be rejected for two main reasons. First, the statements relied on by ASIC to establish the provision of financial product advice did not constitute a recommendation or statement of opinion necessary to bring it within s 766B of the Act. Second, in the case of branch sales, even if the statements relied upon could rise to the level of financial product advice, the training materials did not establish that any such statements were in fact conveyed to customers by CBA branch staff in the context of branch sales, and ASIC had failed to adduce any other evidence of interactions between CBA branch staff and customers. 215 In order to prove that CBA gave financial product advice to retail clients in respect of Essential Super, it was not sufficient for ASIC to establish that CBA instructed its staff that Essential Super was to be distributed pursuant to a "general advice model". Nor does the respondents' acceptance that branch sales were effected under a general advice model amount to an admission that general advice was given. It is apparent from the documentary evidence that CBA gave instructions to its staff about a "general advice model" in an effort to ensure that its staff did not offer personal financial product advice in relation to Essential Super. It does not follow from the instruction, however, that CBA staff did in fact provide financial product advice to customers in connection with Essential Super, whether general or otherwise. 216 In order to prove that CBA gave financial product advice to retail clients in respect of Essential Super, it was necessary to establish (on the balance of probabilities) that statements of a particular kind were made to retail clients, and that the content of those statements satisfied the definition of financial product advice. Proof of that fact does not necessarily require evidence from individual staff members or individual customers. The fact may be proved to the requisite standard by a combination of documentary evidence and inference. The evidence established that CBA developed and implemented comprehensive processes and procedures for the distribution of Essential Super by branch staff across a network of more than 1000 branches. CBA trained its staff with respect to the types of statements that were permitted to be made to customers or potential customers in relation to Essential Super, and staff were provided with scripts and guides for that purpose. The evidence also established that CBA monitored the implementation of its processes and procedures for the distribution of Essential Super, including through an external review undertaken by KPMG. CBA sought to ensure that the distribution of Essential Super was conducted in a systematic and uniform manner that minimised compliance and other risks. In these circumstances, the Court will readily infer that a large and sophisticated commercial organisation such as CBA would ensure that its processes and procedures are followed. In turn, the Court will readily infer that statements of the kind contained in training and other materials provided to branch staff are likely to have been communicated to customers who acquired Essential Super on many occasions. 217 Having reviewed the documentary evidence relied on by ASIC, I am not persuaded that the trial judge erred in concluding that ASIC had failed to prove that CBA provided financial product advice to persons as retail clients in respect of Essential Super. In my view, the statements contained in the relevant sales "scripts" for Essential Super are not of the requisite character to meet the definition of financial product advice. As defined, financial product advice must involve a recommendation or statement of opinion intended to influence a person in making a decision in relation to a particular financial product or could reasonably be regarded as being intended to have such an influence. As observed by Sackville AJA in Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [364], the dictionary definition of "recommendation" includes to commend by favourable representations and to represent or urge as advisable or expedient. 218 The statements in the relevant scripts were to the following effect: (a) that Essential Super is a straightforward superannuation product; (b) that Essential Super has the convenience of on-line access through NetBank, which means that superannuation and banking can be managed in the one place; (c) that employer contributions can be accepted into Essential Super; (d) that client can take control of their superannuation by selecting their own superannuation fund rather than using the fund their employer provides; (e) that Essential Super is a competitively priced superannuation account; and (f) that customers are able to choose their own investment mix and level of insurance. 219 None of those statements were truly a recommendation of the product within the meaning of the definition of financial product advice. Whilst recognising that statements of fact may in some circumstances constitute a recommendation (see Westpac Securities at [20] per Allsop CJ), the foregoing statements did not rise above simple statements of fact about the basic features or administrative machinery of Essential Super. They can properly be seen as mere marketing or promotional statements, in the sense of informing potential clients about the basic features of Essential Super, without containing an implied recommendation (cf Westpac Securities at [218] per Jagot J). The scripts asked the client whether they were interested in Essential Super. In my view, the scripts did not expressly or impliedly commend or urge a particular course of action, which I consider to be the ordinary meaning of the word "recommendation" (see Westpac Securities at [336]). 220 In my view, ASIC failed to establish that the trial judge's conclusion was contrary to the evidence or contrary to the weight of evidence. The limited evidence to which the Court was taken by ASIC on the appeal tended to confirm rather than undermine the trial judge's assessment. ASIC failed to discharge its burden of proving that CBA staff made statements to retail clients that satisfied the definition of financial product advice. 221 For those reasons, I would reject grounds 9 and 10 of the appeal. The rejection of those appeal grounds leads to the conclusion that the appeal must be dismissed. It is nevertheless appropriate to consider fully appeal grounds 6, 7 and 8 as the issues raised by those grounds also lie at the heart of the appeal and were fully argued.

Reasonably be expected to influence (appeal grounds 6, 7 and 8) 222 By appeal grounds 6 and 7, ASIC contends that the trial judge erred in finding that the impugned benefits were not capable of influencing and could not be reasonably expected to influence the choice of financial product recommended by CBA or the financial product advice given by CBA, and that his Honour ought to have found the impugned benefits could reasonably be expected to influence either or both of those matters. By appeal ground 8, ASIC also challenged three discrete factual findings made by the trial judge: (a) that, in 2019, when CFSIL suspended its cash transfers under the 2018 Distribution Agreement, CBA continued to distribute Essential Super (PJ [507(c)]); (b) that there was no choice to be made of financial product recommended by CBA (PJ [516]-[517]); and (c) that the nature of the financial product advice (if provided) was never going to be different from that which was provided (PJ [517]). 223 ASIC's case at trial, and maintained on the appeal, was focussed upon two matters. The first matter related to the nature of the impugned benefits. ASIC argued that the fee payable to CBA under the Distribution Agreements (the contractual promise) entitled CBA to receive a share in the net revenue earned from Essential Super accounts. As a consequence, the greater the volume of sales of the product, the more revenue CBA would be likely to receive because it would be expected that member fees and investment and administration fees would grow as more individuals acquired accounts with Essential Super. For that reason, ASIC argued that the fee could reasonably be expected to influence CBA's choice to recommend Essential Super, or to give financial product advice to the same effect. The second matter related to the circumstances in which the impugned benefits were given. ASIC argued that the Distribution Agreements were entered into following extensive consideration by senior executives of CBA and CFSIL, including the consideration of legal advice, and following extensive commercial negotiations conducted at arms-length. The Distribution Agreements formally identified the services that CBA was to provide to CFSIL, imposed minimum service standards, and contained processes and mechanisms to monitor the performance and quality of those services. The fee promised to CBA under the Distribution Agreements was significant and ongoing over a long period of time. ASIC submitted that, in 2012 and the first half of 2013, CBA set up operational processes in anticipation of distributing Essential Super: in respect of branch sales, it trained staff to create interest in and to sell the product; from 1 July 2013 (after entering into the 2013 Distribution Agreement), it implemented processes for the sale of Essential Super; and, it incurred the costs associated with its staff actually distributing Essential Super under a general advice model. ASIC argued that the impugned benefits were conferred on CBA in the context of a real contractual arrangement involving real consideration, and from these facts the Court ought to conclude that that impugned benefits could reasonably be expected to influence CBA's decision to distribute Essential Super. That the Distribution Agreements were entered into between two related entities within the same corporate group was, in ASIC's submission, of no moment. 224 On the appeal, ASIC also placed reliance on the fact that CFSIL was the issuer of nine superannuation products, including one other MySuper product, and that there were myriad other superannuation products (and MySuper products) on the market in the relevant period. ASIC relied on those facts as demonstrating that CBA chose to distribute only one superannuation product, being Essential Super. The respondents objected to ASIC advancing that argument on the basis that it did not form part of the case run at trial. For the reasons explained below, ASIC's reliance on those matters does not assist it. 225 ASIC argued that the trial judge (at PJ [502]-[503] and [505]-[512]) found that the impugned benefits could not reasonably be expected to influence the choice of financial product recommended by CBA to retail clients or the financial product advice given to retail clients by CBA for three reasons: CBA and CFSIL had incurred costs in developing Essential Super; CBA frontline staff did not know of the impugned benefits; and the impugned benefits were de minimis to CBA. ASIC submitted that these three considerations, in total or individually, did not answer ASIC's case. ASIC submitted that the costs incurred by CBA were sunk; CBA was influenced to put processes in place so that authorised staff would sell Essential Super under a general advice model; and the finding that the impugned benefits were de minimis did not engage with the circumstances ASIC relied upon (including, in particular, the careful, detailed and entity-specific negotiations in 2013), which could reasonably be expected to lead to CBA selling the Essential Super product. 226 ASIC further submitted that the trial judge erred with respect to three facts relied on in support of his conclusion as to influence: (a) First, ASIC submitted that the trial judge erred in finding that CBA continued its distribution of Essential Super after CFSIL suspended the cash transfers in 2019 (PJ [507(c)]). It was an agreed fact that the distribution of the product ceased in branches in October 2017 and via digital channels in July 2018 (SAFID [44]). (b) Second, ASIC submitted that the trial judge erred in finding that there was no choice of financial product to be made in CBA's distribution of Essential Super (PJ [516]-[517]). ASIC argued that CBA chose to distribute, and in the circumstances recommend, Essential Super. (c) Third, ASIC submitted that the trial judge erred in finding that the nature of the financial product advice was never going to be different from that which was provided (PJ [517]). ASIC argued that CBA gave recommendations to retail clients to become members of Essential Super, to fund their Essential Super funds, and to take insurance through their Essential Super accounts. This financial product advice tended to increase the amount to which CBA was entitled to be paid by CFSIL. The financial advice could have been different from that which was provided: for example, CBA may have recommended that customers become a member of another fund. 227 ASIC's submissions, as summarised above, do not establish error in the trial judge's overall evaluation of the question whether the impugned benefits could reasonably have been expected to influence the choice of financial product recommended or the financial product advice given by CBA. ASIC's arguments fail to give due weight to the totality of the factual findings concerning the circumstances in which the impugned benefits were given by CFSIL to CBA. The trial judge took into account the totality of those circumstances and, in my view correctly, concluded that the impugned benefits could not reasonably have been expected to influence the choice of financial product recommended, or the financial product advice given, by CBA. 228 The facts as found by the trial judge demonstrate that the impugned benefits had no bearing on CBA's decision to choose to develop and distribute Essential Super. The evidence showed that the decision was made by CBA in response to the MySuper reforms. CBA, as the parent entity of the CBA Group, considered that there was a commercial need for the Group to have a MySuper product. The CBA Group Executive Committee paper that recommended the development of the product observed that the product would have a range of benefits: bank customers would have the convenience of a simple superannuation product that was accessible via NetBank alongside the customer's transaction account; most Australians have simple superannuation needs and the product would allow the customer to take the same super and transaction accounts as they transfer from job to job; the product would support CBA's retention of young customers, particularly those burdened by multiple super funds due to casual work and job changes; CBA's competitors already offered competitive products and CBA needed to respond; and the commencement of the MySuper legislation would herald a new generation of MySuper-style funds. 229 It can be accepted that, in choosing to develop and distribute Essential Super, the CBA Group Executive Committee was motivated by the potential financial return that would be generated from the product. That is to be expected. However, the Business Case presented to the CBA Group Executive Committee was focussed on the financial return to the CBA Group as a whole, not the forecast earnings of one Group entity compared to another, and not the fees payable by one entity to another. Essential Super (then called Simple Super) was described as a "joint initiative of Wealth Management and Retail Banking Services". The Business Case described the "opportunities" afforded by the development of the product in terms of the CBA Group. Those opportunities included: (a) attracting new superannuation business currently held with competitors to the Group; (b) meeting more of "our" customers' needs and maximise customer share of wallet through a superannuation product that is linked to a transaction account via NetBank; (c) attain "CBA's" natural share of the superannuation market with legislated growth potential; (d) generate Group risk premium income for CommInsure; and (e) generate revenue from managed funds for CFS. 230 The financial summary contained in the Business Case, and the estimated net present value of the project, was presented on a Group basis, not an entity basis. The Business Case did not refer to a "fee" payable by Wealth Management to RBS, but stated (in a single sentence within a lengthy document): The business case assumes a 50% share of costs and benefits between RBS and CFS business units. RBS and CFS Finance teams will be engaged following business case approval to agree to allocation methodology. 231 The CBA Group Executive Committee gave its approval to the project, being the development and distribution of Essential Super, in May 2012 before any work had been done on developing a methodology for allocating costs and benefits between RBS and CFSIL. The approval was given on the basis of the expected financial return to the CBA Group. The fee payable by CFSIL to CBA under the 2013 Distribution Agreement had not been formulated when the project was approved and the internal documents reveal that the payment of a fee between CFSIL and CBA was irrelevant to the decision to develop and distribute the product. There was no evidence to suggest that at any relevant time CBA contemplated distributing a MySuper product other than Essential Super. 232 Whether or not CBA's decision to distribute Essential Super, and not one or more of the other superannuation products issued by CFSIL, can be described as a choice, the circumstances in which that decision was made demonstrate that the decision was not to any degree influenced by the fee that was ultimately agreed to be paid by CFSIL to CBA under the Distribution Agreements. If anything, the converse was true: the decision to pay the fee under the Distribution Agreements was the result of the decision by the CBA Group to develop and distribute Essential Super in response to the MySuper reforms. 233 ASIC relied heavily on the facts that the Distribution Agreement was a detailed document defining the services to be supplied by CBA, and CBA trained its staff to distribute Essential Super in compliance with its contractual obligations. ASIC's reliance on these matters was misplaced. The Distribution Agreement between CFSIL and CBA was a mandatory requirement under APRA Standard SPS 231 governing outsourcing. It is unsurprising that CFSIL and CBA took those obligations seriously. The reviews of the Distribution Agreement that occurred in 2015 and 2018, and which resulted in the amended Distribution Agreements being entered into, were also undertaken by CFSIL in compliance with its obligations under APRA Standard SPS 231. The evidence shows that the fee payable by CFSIL to CBA was irrelevant to the decisions to renew the Distribution Agreements in 2015 and 2018. Similarly, CBA was subject to a range of financial services obligations associated with distributing Essential Super, and it is unsurprising that CBA trained its staff in that respect. None of those actions taken by CFSIL and CBA have any necessary bearing upon the question whether the fee payable under the Distribution Agreements could reasonably be expected to influence CBA's decision to distribute Essential Super or any financial product advice given by CBA in relation to Essential Super. 234 The trial judge's conclusion that the fee payable under the Distribution Agreements could not reasonably have been expected to influence CBA's decision to distribute Essential Super or any financial product advice given in relation to Essential Super is further supported by the lack of awareness of the fee as between relevant employees of CFSIL and CBA and the failure to pay the fee for a considerable period of time. As set out earlier in these reasons: (a) The finance teams in CBA and CFSIL did not become aware of the 2015 Distribution Agreement (or the earlier 2013 Distribution Agreement) until September 2017. Until then, they were working on the basis of a 50:50 profit share and not the 70:30 profit share agreed in the Distribution Agreements. (b) While a payment was made between CFSIL and CBA in respect of the 2014 financial year (albeit on the basis of a 50:50 share of the net loss incurred in that financial year), no payments were made in the ensuing 2015, 2016 and 2017 financial years. (c) After the forgoing matters were discovered in September 2017, an adjustment was made in respect of journal entries made for the months of July, August and September 2017 so that the year to date for the 2018 financial year reflected the 70:30 profit share, but there was no attempt to rectify the position for previous financial years. 235 Collectively, the above circumstances demonstrate that CBA's decision to distribute Essential Super was motivated by commercial objectives that preceded the negotiation of the fee payable under the Distribution Agreements, and the payment of the fee was immaterial to that decision. That remained the case throughout the relevant period. 236 For those reasons, I would reject appeal grounds 6 and 7. 237 The specific complaints raised by appeal ground 8 do not affect the foregoing conclusions. Addressing each of those grounds in turn: (a) With respect to appeal ground 8(a), it appears that the primary judge was in error to find that, in 2019 when CFSIL suspended its cash transfers under the 2018 Distribution Agreement, CBA continued to distribute Essential Super despite the suspension of payments (PJ [507(c)]). However, that finding was not material and does not affect the correctness of the trial judge's overall evaluation. (b) Appeal ground 8(b) largely replicates appeal ground 1(e) discussed earlier. It can be accepted that the prohibition against conflicted remuneration is capable of operation in circumstances where a financial services licensee offers a single financial product (or a single financial product of a particular kind) to retail clients. Accordingly, the fact that CBA only distributed Essential Super did not preclude the prohibition against conflicted remuneration (contrary to the trial judge's finding at PJ [516] and [517]). However, whether the prohibition is applicable will depend upon the nature of the benefit and the circumstances in which it is given. For the reasons explained above, the trial judge was correct to conclude that the impugned benefits could not reasonably have been expected to have influenced CBA's decision to distribute only Essential Super as a MySuper product. (c) I reject appeal ground 8(c). The trial judge's finding that the nature of (any) financial product advice given by CBA was never going to be different from that which was provided (PJ [517]) reflected his Honour's findings concerning the commercial reasons for which Essential Super was developed and distributed as summarised above. The evidence supported that finding. 238 The rejection of appeal grounds 6 and 7 also leads to the conclusion that the appeal must be dismissed.

Overview 239 By grounds 11 and 12, ASIC appeals the trial judge's conclusion that the relevant transitional provisions were applicable so as to exempt the impugned benefits from the prohibition of conflicted remuneration in Div 4 of Pt 7.7A. The relevant transitional provisions comprised s 1528(1) of the Act and regulations made pursuant to s 1528(2) of the Act, specifically regs 7.7A.16, 7.7A.16A and 7.7A.16B of the Regulations. 240 By ground 11, ASIC challenges the trial judge's finding that, throughout the relevant period, the impugned benefits were given under an arrangement entered into prior to 1 July 2013 (PJ [545] and [546]). ASIC contends that the trial judge should have found that: (a) the 2015 Distribution Agreement was not the same "arrangement" as the 2013 Distribution Agreement; (b) further or alternatively, the 2018 Distribution Agreement was not the same "arrangement" as the 2013 Distribution Agreement. 241 By ground 12, ASIC also contends that the trial judge should have found that the impugned benefits were given by CFSIL: (a) whilst acting in the capacity as a platform operator, such that reg 7.7A.16A applied; or (b) whilst not acting in the capacity as a platform operator, such that reg 7.7A.16B applied, with the consequence (in either case) that benefits that related to persons who became members of Essential Super after 1 July 2014 remained subject to the conflicted remuneration prohibition. 242 For the reasons that follow, I consider that ground 11 should be dismissed but that ground 12 should be upheld. Arriving at that conclusion is not straightforward. The regulations that were made pursuant to s 1528(2) of the Act were complex and presented many difficult questions of construction. The complex and unclear drafting of such regulations should be deprecated. Persons conducting business within the financial services industry should be able to determine whether the law applies to them without having to undertake a difficult exercise of statutory interpretation. Given the difficulties in understanding and interpreting the regulations, it is fortunate that s 1528 was amended with effect on 1 January 2021 by the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 (Cth) and the regulations made pursuant to that section were repealed.

Section 1528 243 Throughout the relevant period, s 1528 provided (relevantly) as follows: (1) Subject to subsections (2) and (3), Division 4 of Part 7.7A, as inserted by item 24 of Schedule 1 to the amending Act, does not apply to a benefit given to a financial services licensee, or a representative of a financial services licensee, if: (a) the benefit is given under an arrangement entered into before the application day; and (b) the benefit is not given by a platform operator. (2) The regulations may prescribe circumstances in which that Division applies, or does not apply, to a benefit given to a financial services licensee, or a representative of a financial services licensee. 244 The phrase "application day" was defined in s 1528(4). It is common ground between the parties that the "application day" was 1 July 2013 (ie, one year after Div 4 of Pt 7.7A commenced). 245 It can be seen that s 1528 establishes a regime by which the transitional application of Div 4 of Pt 7.7A to a benefit is governed by s 1528(1) and regulations made pursuant to s 1528(2). Under such a statutory regime, it is permissible to have regard to both the legislative provisions and the regulations made pursuant to it in order to ascertain the nature of the legislative scheme and to assist in the interpretation of the legislative provisions: see for example Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Limited (1934) 52 CLR 85 at 89-95 (Dixon J); O'Connell v Nixon (2007) 16 VR 440 at [28] (Nettle JA, with whom Chernov JA and Redlich JA agreed). 246 Before turning to the applicable regulations, it is convenient to note the following matters with respect to the structure of s 1528. 247 It can be seen that s 1528(1) exempted benefits if they were given under an arrangement entered into before the application day by persons other than platform operators. Plainly, the converse is also true: s 1528(1) did not exempt benefits given by a platform operator, even if the benefits were given under an arrangement entered into before the application day. 248 The Revised Explanatory Memorandum explained the intended regime as follows: 2.82 The obligations in Division 4 (conflicted remuneration) generally apply from the date of commencement, 1 July 2012. However, they do not apply to benefits given to a licensee or representative if the benefit is given under an arrangement entered into before the day of commencement and the benefit is not given by a platform operator. … 2.84 The regulations may prescribe circumstances in which the conflicted remuneration obligations will or will not apply to benefits given to a financial services licensee, or a representative of a financial services licensee. 2.85 It is intended to provide for payments made by platform operators under this provision. It is also intended that the regulations will provide for conflicted remuneration with respect to both individual and group risk insurance products within superannuation to be banned from 1 July 2013, to align with the start date of the MySuper reforms. 249 At the time of the Revised Explanatory Memorandum, the form of cl 1528(1)(a) in the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 (Cth) referred to an arrangement entered into before the commencement date of Div 4 of Pt 7.7A. Hence, paragraph 2.82 refers to such an arrangement. That aspect of s 1528(1) was revised to insert the phrase "application day" and the accompanying definition in s 1528(4). Apart from that change, it can be seen that the intended regime was to exempt benefits given to a licensee (or representative) if the benefit was given under an arrangement entered into before the application day and the benefit is not given by a platform operator. In respect of benefits given by a platform operator, it was intended that the regulations would prescribe circumstances in which the conflicted remuneration provisions would or would not apply. 250 It is relevant in that context to note the statutory definition of a "platform operator", in order to understand the reason for treating benefits given by platform operators differently. At all relevant times, s 1526(1) defined "platform operator" as "the provider of a custodial arrangement, or custodial arrangements". "Custodial arrangement" was defined as having the same meaning as it has in s 1012IA(1), subject to s 1526(2). Section 1012IA(1) defined "custodial arrangement" as follows: Custodial arrangement means an arrangement between a person (the provider) and another person (the client) (whether or not there are also other parties to the arrangement) under which: (a) the client is, or is entitled, to give an instruction that a particular financial product, or a financial product of a particular kind, is to be acquired; and (b) if the client gives such an instruction, a person (the acquirer), being the provider or a person with whom the provider has or will have an arrangement, must (subject to any discretion they have to refuse) acquire the financial product, or a financial product of that kind; and (c) if the acquirer acquires the financial product, or a financial product of that kind, pursuant to an instruction given by the client, either: (i) the product is to be held on trust for the client or another person nominated by the client; or (ii) the client, or another person nominated by the client, is to have rights or benefits in relation to the product or a beneficial interest in the product, or in relation to, or calculated by reference to, dividends or other benefits derived from the product. 251 The effect of s 1526(2) is to make clear that the reference to client instructions in the definition of "custodial arrangement" includes directions given by a beneficiary of a superannuation fund in respect of amounts invested in an investment option of the fund or a strategy to be followed in relation to the investment of a particular asset class or assets of the fund. 252 Thus, it can be seen that platform operators are persons who provide a custodial arrangement to clients whereby the client can give ongoing instructions to the provider to acquire financial products and the provider of the custodial arrangement holds the financial product on trust for the client. Subsection 1526(2) makes clear that trustees of superannuation funds come within that definition. It was common ground that CFSIL, as the trustee of Essential Super, was a platform operator. As such, s 1528(1) did not exempt benefits given by CFSIL. It is therefore necessary to consider the regulations to determine whether the impugned benefits were exempt under the transitional provisions. 253 As will be seen, the word "instructions" is used in the regulations made pursuant to s 1528(2). Given the foregoing statutory context, it is tolerably clear that the word "instructions" is used in the sense of the definition of "custodial arrangement"; viz, an instruction given by a client that a particular financial product, or a financial product of a particular kind, is to be acquired or, in the context of superannuation funds, a direction given by a beneficiary of a superannuation fund in respect of amounts invested in an investment option of the fund or a strategy to be followed in relation to the investment of a particular asset class or assets of the fund.

Regulations 7.7A.16, 7.7A.16A and 7.7A.16B 254 The applicable regulations during the relevant period were regs 7.7A.16, 7.7A.16A and 7.7A.16B (which I will refer to as regs 16, 16A and 16B for ease of reference). The regulations were introduced by the Corporations Amendment Regulation 2013 (No. 5) (Cth), commencing 1 July 2013. The regulations were amended during the relevant period, but the amendments are not material to the issues that arise on this appeal and can be ignored for present purposes. 255 For completeness, reference should also be made to reg 7.7A.16C which was also made as part of the suite of regulations under s 1528(2). However, reg 7.7A.16C concerned benefits paid under a remuneration arrangement between an employer and an employee and therefore had no application to the impugned benefits. 256 The Explanatory Statement that was issued in respect of the Corporations Amendment Regulation 2013 (No. 5) (Cth) gave a description of the scheme of regs 16, 16A and 16B. In some respects, the description was inaccurate and in other respects the description was as unclear as the regulations themselves. The Explanatory Statement commences with the headline statement that the regulations outline the application of the ban on conflicted remuneration including: … for benefits paid by platform operators, the ban will apply in relation to new clients from 1 July 2014; and for non-platform providers, the ban will apply in relation to new clients and investments in new products by existing clients from 1 July 2014 … 257 The foregoing statement of the policy intent of the regulations is written with commendable simplicity and clarity. Unfortunately, the same cannot be said for the regulations that were drafted to give effect to that policy statement.

Regulation 7.7A.16 258 The starting point for understanding the regulatory regime is reg 16 which reversed the effect of s 1528(1)(b) in relation to platform operators. The regulation stated as follows: 7.7A.16 Application of ban on conflicted remuneration - platform operator (Division 4 of Part 7.7A of Chapter 7 of the Act does not apply) (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes a circumstance in which Division 4 of Part 7.7A of Chapter 7 of the Act does not apply to a benefit. Note: Subsection 1528(1) of the Act sets out a rule about when Division 4 of Part 7.7A of Chapter 7 of the Act does not apply to a benefit given to a financial services licensee, or a representative of a financial services licensee. Subsection 1528(2) of the Act permits regulations to prescribe circumstances in which that Division applies, or does not apply, to a benefit. (2) The circumstance is that: (a) the benefit is given by a platform operator; and (b) either: (i) the benefit is given under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act; or (ii) the benefit would have been given as mentioned in subparagraph (i) had it not been redirected under one or more later arrangements. (3) For subregulation (2), if a party to an arrangement changes, the arrangement is taken to have continued in effect, after the change, as the same arrangement. (4) If this regulation and regulation 7.7A.16A or 7.7A.16B are able to apply in relation to the benefit, disregard this regulation. 259 It can be seen that reg 16(2) exempted benefits given by a platform operator if the benefits were given under an arrangement entered into before the application day. However, reg 16(4) stated that reg 16 was to be disregarded if reg 16A or 16B was applicable. As will be seen, regs 16A and 16B prescribed circumstances in which Div 4 of Pt 7.7A applied to a benefit. Their effect was to carve out of the general exemptions provided by s 1528(1) and reg 16 certain types of benefits. Thus, the regulatory scheme operated such that s 1528(1) and reg 16 generally exempted benefits given under an arrangement entered into before the application day, but regs 16A and 16B reduced the scope of that general exemption. 260 The intended operation of the regulations was explained in the Explanatory Statement in the following manner: Regulation 7.7A.16 is made for the purposes of subsection 1528(2) of the Act and prescribes circumstances in which the ban on conflicted remuneration in Division 4 of Part 7.7A of the Act does not apply to a benefit given by a platform operator. That is, regulation 7.7A.16 provides for the 'grandfathering' of these payments. Consistent with the grandfathering arrangements for non-platform operators contained in subsection 1528(1) of the Act, this regulation provides for the grandfathering of any benefit given under an arrangement entered into before the application date. … A person subject to Division 4 of Part 7.7A of the Act will be a platform operator or not a platform operator. Taken together regulation 7.7A.16 and subsection 1528(1) of the Act create a consistent starting point for both platform and non-platform operators. However, in both cases it is possible for a benefit following from a pre-application date arrangement to remain subject to Division 4 if it falls within the scope of regulation 7.7A.16A or 7.7A.16B as discussed below. 261 Pausing at this point, and ignoring regs 16A and 16B, the effect of reg 16(2) was to exempt the impugned benefits given by CFSIL if the benefits were given under an arrangement that was entered into before the application day. In my view, the trial judge was correct to find that the impugned benefits were given by CFSIL under such an arrangement. The relevant arrangement was recorded in each of the 2013, 2015 and 2018 Distribution Agreements which were in materially the same form throughout the relevant period. The 2013 Distribution Agreement commenced prior to 1 July 2013 (on 27 June 2013). 262 The word "arrangement" has been used in Australian statutes regulating commercial activities for a long time, including in statutes relating to taxation, competition and corporations. In those statutory contexts, the word has been given a consistent meaning being a consensual dealing which may be informal, less than a binding contract or agreement and not legally enforceable: see for example Newton v Federal Commissioner of Taxation (Cth) (1958) 98 CLR 1 at 7-8; Federal Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434 at 444 (Gibbs and Mason JJ); Australian Competition and Consumer Commission v Australian Egg Corporation Ltd (2017) 254 FCR 311 at [95] (Besanko, Foster and Yates JJ); Country Care Group Pty Ltd v Director of Public Prosecutions (Cth) (2020) 275 FCR 342 at [60] (Allsop CJ, Wigney and Abraham JJ). That meaning of the word, which is long-standing, is reflected in the following definition of "arrangement" in s 761A of the Act: arrangement means, subject to section 761B, a contract, agreement, understanding, scheme or other arrangement (as existing from time to time): (a) whether formal or informal, or partly formal and partly informal; and (b) whether written or oral, or partly written and partly oral; and (c) whether or not enforceable, or intended to be enforceable, by legal proceedings and whether or not based on legal or equitable rights. 263 ASIC placed reliance on principles within the sphere of the law of contract to argue that each of the 2013, 2015 and 2018 Distribution Agreements constituted new agreements, not merely amendments to pre-existing agreements. From that premise, ASIC submitted that each of the Distribution Agreements constituted separate arrangements and not one arrangement. The conclusion is not supported by the premise. The use of the expression "arrangement" in s 1528(1) and the regulations made under s 1528(2) indicate that the legislation and accompanying regulations are directed to a consensual dealing between two parties, regardless of its legal form. The question raised is whether the consensual dealing was entered into before the application day. In my view, it is indisputable that the impugned benefits were given by CFSIL under an arrangement with CBA entered into before the application day. 264 However, it is necessary to consider the operation of regs 16A and 16B which apply Div 4 of Pt 7.7A to certain types of benefits and, if applicable, override s 1528(1) and reg 16.

Regulations 7.7A.16A and 7.7A.16B 265 Regulations 16A and 16B were drafted in an exceptionally complex manner. They provided as follows: 7.7A.16A Application of ban on conflicted remuneration - platform operator (Division 4 of Part 7.7A of Chapter 7 of the Act applies) (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes circumstances in which Division 4 of Part 7.7A of Chapter 7 of the Act applies to a benefit; and (c) does not apply in relation to a benefit to which regulation 7.7A.16C applies. Note: Subsection 1528(1) of the Act sets out a rule about when Division 4 of Part 7.7A of Chapter 7 of the Act does not apply to a benefit given to a financial services licensee, or a representative of a financial services licensee. Subsection 1528(2) of the Act permits regulations to prescribe circumstances in which that Division applies, or does not apply, to a benefit. (2) The circumstance is that: (a) the benefit is given by a person acting in the capacity as a platform operator; and (b) the benefit is given under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act; and (c) the benefit: (i) relates to an acquisition (including a regulated acquisition, within the meaning of subsection 1012IA(1) of the Act) of a financial product on the instructions of a person who had not given an instruction to the person acting in the capacity of a platform operator to open an account on the platform before 1 July 2014; or (ii) does not relate to a person who opened an account on the platform before 1 July 2014. (3) For subregulation (2), treat a benefit as having been given by a person acting in the capacity as a platform operator if it: (a) is given by a platform operator; and (b) relates to activities undertaken in connection with the platform as a result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform. (4) For subregulation (2), if a retail client has an interest in a financial product before 1 July 2014, treat a benefit as relating to an acquisition of the financial product whether it is paid in relation to the initial acquisition of the financial product or the subsequent holding of the financial product. (5) For subregulation (2), if a party to an arrangement changes, the arrangement is taken to have continued in effect, after the change, as the same arrangement. (6) If this regulation and regulation 7.7A.16 are able to apply in relation to the benefit, disregard regulation 7.7A.16. 7.7A.16B Application of ban on conflicted remuneration - person other than platform operator (Division 4 of Part 7.7A of Chapter 7 of the Act applies) (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes a circumstance in which Division 4 of Part 7.7A of Chapter 7 of Chapter 7 (sic) of the Act applies to a benefit; and (c) does not apply in relation to a benefit to which regulation 7.7A.16C applies. Note: Subsection 1528(1) of the Act sets out a rule about when Division 4 of Part 7.7A of Chapter 7 of the Act does not apply to a benefit given to a financial services licensee, or a representative of a financial services licensee. Subsection 1528(2) of the Act permits regulations to prescribe circumstances in which that Division applies, or does not apply, to a benefit. (2) The circumstance is that: (a) the benefit is given by a person who is not acting in the capacity of a platform operator; and (b) the benefit is given under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act; and (c) the benefit: (i) is given in relation to the acquisition, on or after 1 July 2014, of a financial product, for the benefit of a retail client; or (ii) does not relate to a financial service provided, before 1 July 2014, for the benefit of a retail client; and (d) the client did not have an interest in the product before 1 July 2014. Note: For the definition of platform operator, see subsection 1526(1) of the Act. (3) For subregulation (2), treat a benefit as having been given by a person acting in the capacity as a platform operator if it: (a) is given by a platform operator; and (b) relates to activities undertaken in connection with the platform as a result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform. Continuity of arrangement (4) For subregulation (2): (a) if a party to an arrangement changes, treat the arrangement as having continued in effect, after the change, as the same arrangement; and (b) if a retail client has an interest in a financial product before 1 July 2014, treat a benefit as relating to an acquisition of the financial product whether it is paid in relation to the initial acquisition of the financial product or the subsequent holding of the financial product. … Relationship with regulation 7.7A.16 (7) If this regulation and regulation 7.7A.16 are able to apply in relation to the benefit, disregard regulation 7.7A.16. 266 It can be seen that each of regs 16A and 16B prescribed circumstances in which Div 4 of Pt 7.7A applied to a benefit. Each applied where the benefit was given under an arrangement that was entered into before the application day. However, reg 16A applied where the benefit was given by a person acting in the capacity as a platform operator, and reg 16B applied where the benefit was given by a person who was not acting in the capacity of a platform operator.

Acting in the capacity of a platform operator 267 The phrase "acting in the capacity of a platform operator" did not appear in s 1528(1) or reg 16. Each of reg 16A(3) and 16B(3) contained the following provision concerning the phrase: … treat a benefit as having been given by a person acting in the capacity as a platform operator if it: (a) is given by a platform operator; and (b) relates to activities undertaken in connection with the platform as a result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform. 268 Three aspects of reg 16A(3) and 16B(3) require elucidation: (a) what is intended to be conveyed by the use of the verb "treat", and are regs 16A(3) and 16B(3) intended to constitute a deeming provision or an exhaustive or inclusive definition of the phrase "acting in the capacity of a platform operator"; (b) what types of activities are encompassed within the phrase "activities undertaken in connection with the platform as a result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform"; and (c) what type of relationship between the benefit and the specified activities is conveyed by the verb "relates" in this context? 269 The use of the verb "treat" in reg 16A(3) and 16B(3) is suggestive of a deeming provision. As explained by Windeyer J in Hunter Douglas Australia Pty Ltd v Perma Blinds (1969) 122 CLR 49 at 65-67, deeming provisions may have a number of statutory purposes: … the verb "deem", or derivatives of it, can be used in statutory definitions to extend the denotation of the defined term to things it would not in ordinary parlance denote. This is often a convenient device for reducing the verbiage of an enactment. But that the word can be used in that way and for that purpose does not mean that whenever it is used it has that effect. After all, to deem means simply to judge or reach a conclusion about something. A judge, or a juryman, is a deemster, although, except in the Isle of Man, that name has long been archaic. The words "deem" and "deemed" when used in a statute thus simply state the effect or meaning which some matter or thing has - the way in which it is to be adjudged. This need not import artificiality or fiction. It may be simply the statement of an indisputable conclusion, as if for example one were to say that on attaining the age of twenty-one years a man is deemed to be of full age and no longer an infant. Hundreds of examples of this usage of the word appear in the statute books. … … There is no presumption, still less any rule, that wherever the word "deemed" appears in a statute it demonstrates a "fiction" or some abnormality of terminology. Sometimes it does. Often it does not. Much depends upon the context in which the word appears … 270 In their discussion of the use of deeming provisions in legislative instruments, the learned authors of Pearce C and Geddes R, Statutory Interpretation in Australia (9th ed, LexisNexis Butterworths, 2014) observe (at [4.58]): The word 'deemed' may also be used in a definition to extend its meaning, not in a fictional sense, but to include matters that might or might not fall within the scope of the word defined. Abundant caution may suggest to the drafter that a word may be construed in such a way as not to cover the full ambit of matters desired. When 'deemed' is used in this way, the position is similar to that where the word 'includes' is used in a definition. 271 When read in context, I consider it to be clear that regs 16A(3) and 16B(3) are intended to operate as an inclusive definition. The regulations require benefits to be treated as having been given by a person acting in the capacity as a platform operator if the benefits are given by a platform operator and relates to the specified activities. As discussed below, the specified activities are clearly "platform operator" activities. The regulations do not create a regulatory fiction; rather, the regulations appear to have been drafted out of an abundance of caution. 272 It follows that regs 16A(3) and 16B(3) do not operate as an exhaustive definition of the phrase "acting in the capacity of a platform operator", but rather as an inclusive definition. The phrase "acting in the capacity of a platform operator" otherwise takes its ordinary meaning. That interpretation of the intended operation of regs 16A(3) and 16B(3) is supported by the Explanatory Statement which states (emphasis added): It is noted that it is possible for a platform operator not to be operating in the capacity as a platform operator. For example, the platform operator may also be the responsible entity of a managed investment scheme or the employer of staff. In order to fall within the scope of regulation 7.7A.16A, it is necessary for a person to not only be a platform operator, but also be acting in the capacity as a platform operator. If a person is not operating in the capacity as a platform operator, they will come within the scope of regulation 7.7A.16B or 16C. Subregulation 7.7A.16A(3) provides further clarity on when a benefit has been given by a person acting in the capacity as a platform operator as including activities that are undertaken in connection with the platform where a client has provided instructions to the platform operator, for example, setting up a cash management account that is linked to the client's account on the platform. 273 Pausing at this point, I would readily conclude that the impugned benefits were given by CFSIL in its capacity as a platform operator. CFSIL is a platform operator because it is the trustee of the Essential Super, and the benefits were given to CBA for the provision of marketing, distribution and administrative services in respect of Essential Super. The ordinary meaning of the phrase "in its capacity as a platform operator" would include benefits given to receive the services provided by CBA. On that basis, I would conclude that reg 16B did not apply to the impugned benefits, but reg 16A was capable of applying. 274 Having reached that conclusion, it is strictly unnecessary to answer the further question that arise with respect to the interpretation of regs 16A(3) and 16B(3). However, I would add the following further observations with respect to those questions. 275 It is apparent that the word "instructions" which appears in regs 16A(3)(b) and 16B(3)(b) must take its meaning from the definition of "custodial arrangement", which is central to the definition of platform operator. As explained above, the word "instruction" refers to an instruction given by a client of a platform operator that a particular financial product, or a financial product of a particular kind, is to be acquired or, in the context of superannuation funds, a direction given by a beneficiary of a superannuation fund in respect of amounts invested in an investment option of the fund or a strategy to be followed in relation to the investment of a particular asset class or assets of the fund. The activities contemplated by regs 16A(3)(b) and 16B(3)(b) are therefore activities undertaken in connection with the platform in implementing the instructions; in other words, investment activities undertaken on the instruction (or direction) of the client (or beneficiary). 276 The verb "relates" requires a connection between the benefit given by the platform operator and the investment activities undertaken on the instruction of the client. The type of connection that is required must be ascertained having regard to the legislative context and purpose. A question that arises is: what aspect of the benefit must have the required connection with the investment activities? In particular, is the relevant connection with the amount of the benefit to be given (in other words, the method of calculating the benefit)? Additionally or alternatively, is the relevant connection with the services, events or activities for which the benefit is given? In the present case, the answer to those questions produces different conclusions. 277 The amount of the impugned benefits was calculated on the basis of the net revenue earned by CFSIL from Essential Super. The net revenue was necessarily based (in part) on the revenue earned by CFSIL from Essential Super which was based (in part) on a percentage of funds under administration. Funds under administration were accumulated from investment instructions given by the account holder. It follows that, if the relevant connection is with the amount of the benefit given, it would be open to conclude that the impugned benefits given by CFSIL were in relation to the investment activities undertaken on the instruction of the client. That was the contention advanced by ASIC. 278 Conversely, the services or activities undertaken by CBA for which the impugned benefits were paid by CFSIL were defined in schedule 2 of the Distribution Agreements. The services comprised marketing, distribution and administrative services performed by CBA. None of those services involved investment activities undertaken on the instruction of the client. It follows that, if the relevant connection is with the services, events or activities for which the benefit is given, it would be necessary to conclude that the impugned benefits were not given by CFSIL in relation to the investment activities undertaken on the instruction of the client. That was the contention advanced by the respondents. 279 There are strong contextual reasons for construing the relevant relationship as being between the benefit and the activities for which the benefit is paid, rather than the activities upon which the benefit is calculated. The prohibition against conflicted remuneration is directed to benefits given to a person that influences that person's behaviour (in respect of the choice of financial product recommended or financial product advice given). The focus of the regime is on the conflict that arises for the financial services licensee (or representative) who receives a benefit which influences their financial product recommendations or advice. Having regard to the statutory context, I consider that a benefit relates to investment activities undertaken on the instruction of the client if the benefit is given in return for, or as reward for, such activities.

The requirements of reg 16A(2)(c) 280 Having concluded that the impugned benefits: (a) were given by CFSIL acting in the capacity as a platform operator for the purposes of reg 16A(2)(a); and (b) were given under an arrangement that was entered into before the application day for the purposes of reg 16A(2)(a), it is necessary to consider whether the impugned benefits satisfied either of the requirements of reg 16A(2)(c): (i) that the benefits relate to an acquisition of a financial product on the instructions of a person who had not given an instruction to the person acting in the capacity of a platform operator to open an account on the platform before 1 July 2014; or (ii) that the benefits do not relate to a person who opened an account on the platform before 1 July 2014. 281 In my view, the impugned benefits do not satisfy the circumstance described in paragraph (c)(i). For the reasons already given, and having regard to the subject matter and purpose of the legislative regime, I consider that the relevant relationship must be with the services, events or activities for which the benefit is given. In the present case, the impugned benefits were given in relation to the marketing, distribution and administrative services performed by CBA. It follows that the circumstance described in paragraph (c)(i) was not satisfied. 282 Conversely, I consider that the impugned benefits do satisfy the circumstance described in paragraph (c)(ii). The circumstance in that paragraph does not concern investment instructions and the implementation of such instructions. The circumstance is framed more broadly. It merely requires that the impugned benefits relate to persons who opened an account on the platform after 1 July 2014. The regulatory intention is stated in the Explanatory Statement as follows: Subparagraph 7.7A.16A(2)(c)(ii) is designed to ensure benefits paid by a platform operator that do not specifically relate to a person who opened an account on the platform before 1 July 2014 and otherwise would be conflicted remuneration are subject to Division 4 of Part 7.7A of the Act. An example of this may include a marketing or sponsorship payment from a platform operator to a licensee that is designed to incentivise the licensee to recommend the platform to its clients. 283 In the present case, the impugned benefits were given by CFSIL in return for marketing, distribution and administration services provided by CBA in connection with Essential Super and which continued after 1 July 2014. I consider it open to conclude that the impugned benefits related to persons who opened an account with Essential Super after 1 July 2014, because the relevant services, for which the impugned benefits were given, were aimed at such persons. The services were designed to facilitate persons opening an account with Essential Super. Reading the text of the regulation in context (which includes the extrinsic materials), the regulatory intention is to apply Div 4 of Pt 7.7A in those circumstances.

Conclusion 284 It follows from the foregoing analysis that reg 16A was applicable to the impugned benefits, with the effect that the impugned benefits were not exempted from Div 4 of Pt 7.7A by virtue of the transitional provisions. Respectfully, I consider that the primary judge erred in reaching a contrary conclusion (at PJ [549]). While ground 11 of the appeal should be dismissed, ground 12 should be upheld. That conclusion does not, however, affect the outcome of the appeal. The appeal must be dismissed because the impugned benefits did not satisfy the definition of conflicted remuneration in s 963A. 285 On the appeal, argument was also addressed to the question of onus of proof with respect to the transitional provisions. In circumstances where the relevant facts were not in dispute and the application of the transitional provision depended upon issues of construction, it is unnecessary to express any view on where the onus of proof lay and I refrain from doing so.

F. CONCLUSION 286 For the reasons given above, the appeal should be dismissed. Although I would allow certain of the grounds of appeal as set out in the above reasons, the appeal fails because ASIC has not established that, in the relevant period: (a) CBA provided financial product advice in respect of Essential Super to persons as retail clients; and (b) the impugned benefits could reasonably have been expected to influence CBA's choice to recommend Essential Super to retail clients (if any such recommendation was made), or that the impugned benefits could reasonably have been expected to influence financial product advice given by CBA to retail clients in respect of Essential Super (if any such advice was given). 287 Although ASIC succeeded in respect of a number of grounds of appeal, it failed on the ultimate issues in dispute. The grounds on which it succeeded were integers of the ultimate issues on which it failed. In those circumstances, it is appropriate that ASIC pays the respondents' costs of the appeal and that there be no change to the orders made by the trial judge dismissing the proceeding with costs. I certify that the preceding two hundred and sixty-eight (268) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.

JACKMAN J: 288 I agree with the reasons of O'Bryan J, except in relation to the transitional provisions. My reasons in that regard are as follows.

Salient Provisions of the Act 289 Section 1528 provided at the relevant time: (1) Subject to subsections (2) and (3), Division 4 of Part 7.7A, as inserted by item 24 of Schedule 1 to the amending Act, does not apply to a benefit given to a financial services licensee, or a representative of a financial services licensee, if (a) the benefit is given under an arrangement entered into before the application day; and (b) the benefit is not given by a platform operator. (2) The regulations may prescribe circumstances in which that Division applies, or does not apply, to a benefit given to a financial services licensee, or a representative of a financial services licensee. 290 The application day was relevantly 1 July 2013: subs 1528(4). Division 4 of Pt 7.7A contains the provisions dealing with conflicted remuneration. 291 The regulations as at 30 June 2013 provided relevantly in reg 7.7A.16: (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes circumstances in which Division 4 of Part 7.7A of the Act does not apply to a benefit given to a financial services licensee or a representative of a financial services licensee. (2) Division 4 does not apply to the benefit if the benefit is given: (a) by a platform operator; and (b) under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act. 292 By the Corporations Amendment Regulation 2013 (No.5) 2013 No. 151 (Cth), reg 7.7A.16 was amended, and regs 7.7A.16A and 7.7A.16B were introduced. It is convenient to set out the version of those regulations as they stood in light of subsequent amendments effective from 16 December 2014. There is no material difference for the purpose of this appeal between that version, and the earlier versions of the instrument which commenced on 1 July 2013 and 1 July 2014 respectively. 293 Regulation 7.7A.16 provided relevantly that: (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes a circumstance in which Division 4 of Part 7.7A of Chapter 7 of the Act does not apply to a benefit. (2) The circumstance is that: (a) the benefit is given by a platform operator; and (b) either: (i) the benefit is given under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act; or (ii) the benefit would have been given as mentioned in subparagraph (a) had it not been redirected under one or more later arrangements. (3) For subregulation (2), if a party to an arrangement changes, the arrangement is taken to have continued in effect, after the change, as the same arrangement. (4) If this regulation and regulation 7.7A.16A or 7.7A.16B are able to apply in relation to the benefit, disregard this regulation. 294 Regulation 7.7A.16A provided relevantly that: (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes circumstances in which Division 4 of Part 7.7A of Chapter 7 of the Act applies to a benefit; and (c) does not apply in relation to a benefit to which regulation 7.7A.16C applies. (2) The circumstance is that: (a) the benefit is given by a person acting in the capacity as a platform operator; and (b) the benefit is given under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act; and (c) the benefit: (i) relates to an acquisition (including a regulated acquisition, within the meaning of subsection 1012IA(1) of the Act) of a financial product on the instructions of a person who had not given an instruction to the person acting in the capacity of a platform operator to open an account on the platform before 1 July 2014; or (ii) does not relate to a person who opened an account on the platform before 1 July 2014. (3) For subregulation (2), treat a benefit as having been given by a person acting in the capacity as a platform operator if it: (a) is given by a platform operator; and (b) relates to activities undertaken in connection with the platform as a result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform. (4) For subregulation (2), if a retail client has an interest in a financial product before 1 July 2014, treat a benefit as relating to an acquisition of the financial product whether it is paid in relation to the initial acquisition of the financial product or the subsequent holding of the financial product. (5) For subregulation (2), if a party to an arrangement changes, the arrangement is taken to have continued in effect, after the change, as the same arrangement. (6) If this regulation and regulation 7.7A.16 are able to apply in relation to the benefit, disregard regulation 7.7A.16. 295 Regulation 7.7A.16B provided relevantly that: (1) This regulation: (a) is made for subsection 1528(2) of the Act; and (b) prescribes a circumstance in which Division 4 of Part 7.7A of Chapter 7 of the Act applies to a benefit; and (c) does not apply in relation to a benefit to which regulation 7.7A.16C applies. (2) The circumstance is that: (a) the benefit is given by a person who is not acting in the capacity of a platform operator; and (b) the benefit is given under an arrangement that was entered into before the application day, within the meaning of subsection 1528(4) of the Act; and (c) the benefit: (i) is given in relation to the acquisition, on or after 1 July 2014, of a financial product, for the benefit of a retail client; or (ii) does not relate to a financial service provided, before 1 July 2014, for the benefit of a retail client; and (d) the client did not have an interest in the product before 1 July 2014. (3) For subregulation (2), treat a benefit as having been given by a person acting in the capacity as a platform operator if it: (a) is given by a platform operator; and (b) relates to activities undertaken in connection with the platform as a result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform. (4) For subregulation (2): (a) if a party to an arrangement changes, treat the arrangement as having continued in effect, after the change, as the same arrangement; and (b) if a retail client has an interest in a financial product before 1 July 2014, treat a benefit as relating to an acquisition of the financial product whether it is paid in relation to the initial acquisition of the financial product or the subsequent holding of the financial product. … (7) If this regulation and regulation 7.7A.16 are able to apply in relation to the benefit, disregard regulation 7.7A.16. 296 Section 1526(1) defines "platform operator" as "the provider of custodial arrangement, or custodial arrangements". "Custodial arrangement" is defined as having the same meaning as it has in subs 1012IA(1), subject to subs (2). 297 Section 1012IA(1) defines "custodial arrangement" as follows: Custodial arrangement means an arrangement between a person (the provider) and another person (the client) (whether or not there are also other parties to the arrangement) under which: (a) the client is, or is entitled, to give an instruction that a particular financial product, or a financial product of a particular kind, is to be acquired; and (b) if the client gives such an instruction, a person (the acquirer), being the provider or a person with whom the provider has or will have an arrangement, must (subject to any discretion they have to refuse) acquire the financial product, or a financial product of that kind; and (c) if the acquirer acquires the financial product, or a financial product of that kind, pursuant to an instruction given by the client, either: (i) the product is to be held on trust for the client or another person nominated by the client; or (ii) the client, or another person nominated by the client, is to have rights or benefits in relation to the product or a beneficial interest in the product, or in relation to, or calculated by reference to, dividends or other benefits derived from the product. 298 Subsection 1526(2) provides that: The definition of custodial arrangement in subsection 1012IA(1), is to be read as if the reference in that definition to an instruction included a reference to: (a) a direction of the kind mentioned in paragraph 58(2)(d) or (da) of the Superannuation Industry (Supervision) Act 1993 that will involve the acquisition of a particular financial product, or a financial product of a particular kind; and (b) a direction of the kind mentioned in subsection 52B(4) of the Superannuation Industry (Supervision) Act 1993 that will involve the acquisition of a particular financial product, or a financial product of a particular kind. 299 The paragraphs of the Superannuation Industry (Supervision) Act 1993 (Cth) which are referred to in that provision are as follows. Sections 58(2)(d) and (da) refer to: (d) a direction given by a beneficiary to take up, dispose of or alter the amount invested in an investment option, where: (i) the entity is a registrable superannuation entity; and (ii) the direction is given in circumstances prescribed by the regulations for the purposes of this paragraph; or (da) a direction given by a member of regulated superannuation fund to attribute (or continue to attribute) an amount that is an accrued default amount for the member to a MySuper product or an investment option within a choice product in the fund; 300 Subsection 52B(4) refers to directions given by a specified beneficiary or a specified class of beneficiaries to give directions to the trustee where: (a) the directions relate to the strategy to be followed by the trustee in relation to the investment of a particular asset or assets of the fund; and (b) the directions are given in circumstances prescribed by regulations made for the purposes of this paragraph. 301 It should also be noted that the word "arrangement" is defined in s 761A of the Act relevantly as follows: a contract, agreement, understanding, scheme or other arrangement (as existing from time to time): (a) whether formal or informal, or partly formal and partly informal; and (b) whether written or oral, or partly written and partly oral; and (c) whether or not enforceable, or intended to be enforceable, by legal proceedings and whether or not based on legal or equitable rights. 302 Grandfathering was removed from 1 January 2021 by the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 (Cth).

Was the alleged benefit given under an arrangement that was entered into before or after 1 July 2013? 303 This question arises under each of subs 1528(1), regs 7.7A.16, 7.7A.16A and 7.7A.16B. I approach the issue on the basis that the benefit alleged by ASIC consisted of the contractual promises by CFSIL to pay a service fee of 30% of net revenue pursuant to the 2013, 2015 and 2018 Distribution Agreements, together with payments actually made by CFSIL in performance of those promises. 304 The primary judge found that the 2013 Distribution Agreement had commenced prior to the Application Date, having been entered into on 27 June 2013, and continued as the same essential arrangement: [533]. His Honour found that the same result follows if the 50:50 profit split is regarded as a separate arrangement that mistakenly operated until the relevant finance personnel became aware of the Distribution Agreement in 2017. The primary judge held that ASIC was wrong to characterise the issue as being whether the 2015 Distribution Agreement was merely a variation of the 2013 Distribution or constituted a new agreement for the purposes of grandfathering, pointing out that the grandfathering provisions operate in respect of "arrangements", which are defined in s 761A of the Act in wider terms than contracts: [545]. His Honour found that the promise to pay 30% of total net revenue of the Essential Super Fund to CBA in consideration for the services CBA was providing under the Distribution Agreements never changed from 27 June 2013: [545]. Accordingly, His Honour found that the 2013 Distribution Agreement, which commenced on 27 June 2013 prior to the Application Date, continued as one arrangement, with minor and inconsequential amendments throughout the relevant period: [546]. 305 On appeal, ASIC makes two cumulative contentions. First, ASIC relies on what it submits is the primacy of written agreements, as recognised by the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [32]-[35], and submits that there were three arrangements: the 2013 Distribution Agreement, the 2015 Distribution Agreement and the 2018 Distribution Agreement. In my view, reliance on that principle in the present context is misplaced. The point of the High Court's reasoning in that passage was to distinguish written agreements from oral agreements, saying that where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. That issue does not arise in the present case. 306 Second, ASIC submits that the issue is to be determined by a contractual analysis as to whether a later agreement merely amends the earlier agreement, or whether the later agreement brings the earlier agreement to an end and replaces it. ASIC relies upon the reasoning of the High Court in Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 at [22]-[23], that the determining factor in applying that distinction is the intention of the parties as disclosed by the later agreement. ASIC relies also on the proposition that a potentially critical factor militating in favour of a conclusion that the manifest intention of the parties, objectively ascertained, was to bring the earlier agreement to an end and replace it, is where the terms of the two relevant agreements deal with the same subject matter in different and inconsistent ways: Hillam v Iacullo (2015) 90 NSWLR 422 at [73]-[74] (Leeming JA, with whom Basten and Ward JJA agreed); Balanced Securities Limited v Dumayne Property Group Pty Ltd (2017) 53 VR 14 at [74] and [78] (Whelan and Ferguson JJA and Cameron AJA). 307 In support of the second line of argument, ASIC points out that the parties chose to execute an entirely new agreement in 2015 rather than making changes by way of an amending deed or other document. Further, ASIC points out that the terms of the two agreements deal with the same subject matter (the distribution and administration of Essential Super, and the remuneration payable to CBA) and claims that they do so in different and inconsistent ways. ASIC draws attention to the fact that the 2015 Distribution Agreement does not refer to the 2013 Distribution Agreement, it provides for a new five-year term commencing on 2 June 2015, it expressly uses the language of appointment, it amends the risk management clause, it contains an "entire agreement" provision and the service standards set out in the schedule provide for different target standards. In relation to the 2018 Distribution Agreement, a recital expressly recorded that the parties wish to "replace the Existing Agreement by entering into this new Agreement in relation to the Services", its term overlaps with the term of the 2013 Distribution Agreement and that of the 2015 Distribution Agreement and re-starts the 5-year term, it expressly uses the language of appointment, it contains a new clause dealing with anti -corruption, ethical procurement and diversity, it amends the risk management clause, it contains an "entire agreement" provision, the service standards set out in the schedule are significantly and materially different and it contains a new schedule requiring CBA to report unaccredited sales and the number of unaccredited staff members to CFSIL. 308 The respondents supported the reasoning of the learned primary judge, emphasising that the statutory definition of "arrangement" is much wider than contracts, and includes any arrangement or understanding, whether it is formal or informal, written or oral, or enforceable or not enforceable: see Norcast S.ár.L v Bradken Ltd (No. 2) [2013] FCA 235; (2013) 219 FCR 14 at [283]. The respondents criticised ASIC for wrongly framing the question by reference to principles of contractual construction when the relevant question posed by the grandfathering provisions concerns the broader "arrangement" pursuant to which the alleged benefits were given. The respondents submitted that that arrangement consisted of an intragroup agreement or understanding that CFSIL would make the stipulated payments to CBA in consideration for the services provided by CBA, as reflected in the schedule to the Distribution Agreement, and from its inception, that arrangement never changed. The respondents submitted that the 2013 Distribution Agreement continued throughout the relevant period with only minor and inconsequential amendments, and those amendments were of no relevance to the arrangement for a 70/30 split of net revenue between CFSIL and CBA. CBA drew attention to the fact that in each year from 2013 to 2017, CBA executed quarterly documents certifying its material compliance with the Distribution Agreements, and in 2015 to 2017 it did so in terms referring to the 2013 Distribution Agreement dated 27 June 2013, despite the fact that the 2015 Distribution Agreement had commenced operation on 2 June 2015. 309 CBA drew attention to some of the documents leading up to the execution of the 2015 Distribution Agreement and the 2018 Distribution Agreement as evidence of the intention of the parties to continue the arrangement which had commenced before 1 July 2013. On 22 April 2015, a board paper of CFSIL stated that, as a result of a review, it was proposed to amend the Distribution Agreement in ways which were not viewed as material. The minutes of the CFSIL board meeting on 22 April 2015 state that the Board "approved the continuation of the outsourcing arrangement with CBA and the proposed amendments to the Agreement". As to the 2018 Distribution Agreement, the CFSIL board paper dated 28 February 2018 which recommended the approval of the 2018 Distribution Agreement referred in two places to the "continuation" of the outsourced arrangement with CBA for Essential Super. In my view, if the matter were a contractual question of the kind considered in the authorities to which I have referred above, then that material would be extrinsic to the intention of the parties as disclosed by the later agreement. However, the present question is not simply a contractual one, but requires the application of the broad definition of "arrangement", which extends to the understanding between the parties, even if it is not enforceable. In that context, in my view the material is admissible on the question as to whether the parties intended an earlier arrangement to continue. 310 In my view, the respondents' argument should be accepted. The promise by CFSIL to pay CBA 30% of net revenue of the Essential Super Fund in return for services to be provided by CBA as agreed from time to time was given under an arrangement entered into on 27 June 2013 which continued thereafter throughout the relevant period. While there were changes made to the terms of the Distribution Agreements, including the specification of the services and service standards to be met by CBA, there was continuity of the arrangement to pay 30% of net revenue in return for the services agreed upon from time to time. The regulations themselves make clear that the matter is not to be treated as a contractual question as to whether a new contract has been entered into to replace the previous contract, as distinct from merely amending the previous contract. A compelling indication of that intention is provided in the language of the regulations which makes clear that if a party to an arrangement changes, the arrangement is taken to have continued in effect, after the change, as the same arrangement: regs 7.7A.16(3), 7.7A.16A(5), and 7.7A.16B(4)(a). That is to be contrasted with the relevant principle under the common law of contract, whereby a change to a party would ordinarily mean that a new contract had been entered into. The conclusion is also supported by the Explanatory Statement to the Corporations Amendment Regulation 2013 (No. 5) 2013 No. 151 (Cth) (the Explanatory Statement) which states in attachment A, page 2: "If the changes to an arrangement extend beyond a change to a party, the parties will need to give consideration to whether the changes are sufficiently material to trigger a new arrangement." In my view, the changes made in 2015 and 2018 were not sufficiently material to lead to the conclusion that a new arrangement had been entered into, as distinct from the continuation of the same arrangement. References in the CFSIL board papers and minutes to the 2015 and 2018 Distribution Agreements as amendments or continuations of the existing arrangement with CBA were, in my view, natural and appropriate descriptions of the commercial reality of a single on-going arrangement. 311 Accordingly, in my view, the alleged benefits throughout the relevant period were given under an arrangement that was entered into before 1 July 2013. 312 In relation to the 2014 payment made by CFSIL to CBA, which was calculated by reference to a 50:50 net revenue split, that benefit was made pursuant to the understanding between CFSIL and CBA which was formed in late 2012, before the execution of the 2013 Distribution Agreement.

Was the alleged benefit given by a person acting in the capacity as a platform operator? 313 It is common ground between the parties that CFSIL was a platform operator at all material times. That fact, however, is only an initial step towards the present issue concerning whether the benefit was given by a person acting in the capacity as a platform operator. A crucial distinction between regs 7.7A.16A and 7.7A.16B concerns whether the benefit is so given. Regulation 7.7A.16A(2)(a) requires that the benefit is given by a person acting in the capacity as a platform operator, whereas reg 7.7A.16B(2)(a) requires that the benefit is given by a person who is not acting in the capacity of a platform operator. Both regulations contain in subreg (3) the provision that one is to treat a benefit as having been given by a person acting in the capacity as a platform operator if it: (a) is given by a platform operator (which is satisfied by the common ground between the parties in the present case that CFSIL was a platform operator); and (b) relates to activities undertaken in connection with the platform as the result of instructions to the platform operator from a client who has set up, or is setting up, an account on the platform. 314 The primary judge held that the requirement that the benefit must relate to the acquisition of a financial product by the platform operator on the instruction of a client does not apply to the present case. His Honour reasoned that the alleged benefits related to funded Essential Super accounts, but they did not relate to activities undertaken in relation to the platform, consisting of the acquisition of a financial product by the platform operator as a result of instructions to CFSIL from members as to their investment option, as required by the extended definition of platform operator in subs 1526(2): [552]. 315 ASIC submitted that the alleged benefits were given in the capacity of a platform operator within the meaning of subreg (3) because the benefits are a percentage of CFSIL's earnings from Essential Super and therefore "relate to" CFSIL's activities in administering and investing the funds placed in Essential Super accounts, which CFSIL must invest in accordance with the client's chosen investment option. Accordingly, ASIC submits, the activities are undertaken by CFSIL in connection with the platform as a result of instructions to CFSIL from clients. 316 CBA submitted that the alleged benefits do not relate to activities by the platform operator acquiring financial products on instructions from retail clients. Rather, the payment (and promise of payment) in the present case is simply a service fee to CBA for distribution services, contacting potential members and presenting them with the option of signing up. In the process of discussing Essential Super with potential members, no activities were being undertaken on instructions from existing retail clients to the platform operator. 317 In my view, the submissions by CBA are correct. In the first place, I read subreg (3) as an exhaustive statement (expressed imperatively by the word "treat") as to when a benefit is to be treated as having been given by a person acting in the capacity as a platform operator. The circumstances set out in subreg (3) are such an obvious case of a benefit being given in that capacity that I do not see the practical point of the subreg if it were intended merely to be an inclusive definition. CBA expressly submitted that subreg (3) was exhaustive, and provided for the only way in which a benefit is given by a person acting in the capacity as a platform operator (T127.18-27). ASIC did not take issue with that construction, and its written submissions at [67] proceeded implicitly on the same basis. I therefore regard it as being common ground between the parties that subreg (3) is exhaustive, and not merely inclusive. In the second place, the alleged benefit in the present case related to the distribution services provided by CBA, which involved attracting new clients and presenting them with the opportunity to become members. The alleged benefit did not relate to the actual activities which are undertaken on clients' instructions to CFSIL once they have set up, or are in the process of setting up, an account on the platform. Although the expression "relates to" is capable of a wide operation, I regard any connection between the alleged benefit and the carrying out of the instructions of actual existing clients as too tenuous to fall within paragraph 3 of each of regs 7.7A.16A and 7.7A.16B. 318 I note that the Explanatory Statement includes the following passage: Subparagraph 7.7A.16A(2)(c)(ii) is designed to ensure benefits paid by a platform operator that do not specifically relate to a person who opened an account on the platform before 1 July 2014 and otherwise would be conflicted remuneration are subject to Division 4 of Part 7.7A of the Act. An example of this may include a marketing or sponsorship payment from a platform operator to a licensee that is designed to incentivise the licensee to recommend the platform to its clients. The example given in the last sentence is referred to only as a possibility, the operative word being "may", not "would". Moreover, the quoted passage is directed to subpara 7.7A.16A(2)(c)(ii), rather than to 7.7A.16A(3). The passage does not appear to be intended to elucidate the meaning of giving a benefit in the capacity as a platform operator. 319 The consequence of that reasoning is that reg 7.7A.16A cannot apply, because the circumstance referred to in subreg (2)(a) is not satisfied. The further consequence is that reg 7.7A.16B(2)(a) will be satisfied, because the alleged benefit was given by a person who was not acting in the capacity of a platform operator.

Does regulation 7.7A.16B apply to the alleged benefit? 320 I have set out the relevant terms of reg 7.7A.16B above. The reasoning to this point has established that the elements of paras (2)(a) and (b) are satisfied. The remaining analysis focuses then on paras (2)(c) and (d). 321 Paragraph (c) poses the question whether the benefit: (a) is given in relation to the acquisition, on or after 1 July 2014, of a financial product, for the benefit of a retail client; or (b) does not relate to a financial service provided, before 1 July 2014, for the benefit of a retail client. 322 ASIC points out that para (c)(ii) operates as an alternative to para (c)(i), such that only one of those paragraphs needs to be satisfied. ASIC then relies on a broad and literal construction of para (c)(ii) as requiring merely that the benefit "does not relate to a financial service provided before 1 July 2014, for the benefit of a retail client", and submits that those literal words are satisfied in the present case. ASIC emphasises the width of the connecting phrases "in relation to" and "relate to". ASIC also draws attention to the statement in the Explanatory Statement, Attachment A, p 5 that: "Together, regs 7.7A.16A and 7.7A.16B grandfather benefits given by platform operators and persons other than platform operators under a consistent approach. In both cases, benefits given in relation to new clients from 1 July 2014 are not grandfathered, even if the benefit is given under a pre-application day arrangement." ASIC accepted that grandfathering would apply to those persons who opened accounts before 1 July 2014. 323 As to para (c)(i), CBA submits that the alleged benefit was not given by the platform operator in relation to the acquisition of a financial product for the benefit of a retail client. CBA submits that the "acquisition" of a financial product referred to in para (c)(i) is a reference to the acquisition of a financial product by the platform operator, and thus does not apply to the retail client signing up to Essential Super, being the acquisition of a financial product by the retail client himself or herself. CBA further submits that the expression "for the benefit of a retail client", combined with a "financial product", makes it clear that the language is concerned with the circumstance where products are being acquired by the platform operator, but in some way not necessarily on the instructions of a retail client but nonetheless for the benefit of its existing retail client. Again, CBA submits that the alleged benefit was payable for the provision of services in connection with the distribution of Essential Super by CBA. The alleged benefit was not being given in relation to the acquisition of a financial product for the benefit of an existing retail client. CBA further points out that para (c) must be construed in the context of para (d), which refers to the client not having an interest in the product (noting the use of the definite article in "the client") before 1 July 2014. Accordingly, in applying the regulation, one must be able to say what the product is, when it was acquired, and the identity of the client for whom the product was acquired. 324 As to para (c)(ii), CBA submits that the "financial service" must be a financial service provided to an existing retail client of the platform operator, emphasising that para (c)(ii) must be construed in the context of para (d) which refers to existing clients. CBA submits that that is not satisfied in the present case in which the alleged benefit related to distribution services by CBA which were anterior to the potential client being an existing client of CFSIL. The alleged benefits did not relate to a financial service being provided to existing retail clients of the platform operator. 325 CBA submits that a literal interpretation of para (c)(ii) would rob para (c)(i) of any operation and that one should not interpret para (c)(ii) in a way which would destroy any purpose in para (c)(i) and be inconsistent with para (d). CBA submits that one must construe para (c)(ii) as being concerned with financial services to existing retail clients. CBA points out a passage in the Explanatory Statement, attachment A, page 4, in which an example is given of the intended application of para (c)(ii), being a marketing or sponsorship payment from a product issuer to a licensee that is designed to incentivise the licensee to recommend the issuer's products. 326 In my view, CBA's submissions should be accepted. There are two principal reasons for that conclusion. 327 First, para (c)(ii) must be construed in the context of para (d). Paragraph (d) contemplates an existing retail client, and an actual financial product (or perhaps class of financial products) in respect of which one can say definitively whether the particular client had an interest before 1 July 2014. In that context, para (c)(ii) is directed to the timing question of whether the benefit relates to a financial service which was provided to an existing retail client in relation to a particular financial product (or class of products) before 1 July 2014 or from 1 July 2014, irrespective of whether such product or products were acquired by that retail client. If the benefit does not relate to such a service provided before 1 July 2014, then para (c)(ii) is satisfied. The alleged benefit in the present case related to services by CBA to attract potential members of Essential Super, rather than relating to services being provided to existing retail clients of CFSIL. 328 The example given in the Explanatory Statement to which CBA referred (ie, that para (c)(ii) applies to a marketing or sponsorship payment from a product issuer to a licensee that is designed to incentivise the licensee to recommend the issuer's products) confirms that para (c)(ii) was intended to apply to benefits which relate to financial services for the benefit of a retail client. Accordingly, the example indicates that the word "not" in para (c)(ii) is intended to apply to the timing issue of whether such a financial service was not provided before 1 July 2014, rather than the question whether a financial services was provided at all. I have given consideration to the Explanatory Statement pursuant to s 15AB(1)(b)(i) of the Acts Interpretation Act 1901 (Cth) to determine the meaning of a provision which is ambiguous or obscure. 329 Second, I agree that a literal construction of para (c)(ii) would give para (c)(i) little or no practical work to do. A benefit "given in relation to the acquisition, on or after 1 July 2014, of a financial product, for the benefit of a retail client" (ie, para (c)(i)) would almost invariably be a benefit which literally "does not relate to a financial service provided, before 1 July 2014, for the benefit of a retail client" (ie, para (c)(ii)). It would appear from the text and structure of para (c) that subpara (c)(i) was intended to have a substantial scope of operation independent of subpara (c)(ii), being the first of two alternatives set out in that paragraph. 330 While the quantification of the payment of 30% of net revenue to CBA would have been affected by the amount of investments by retail clients of CFSIL (including those who became members on or after 1 July 2014) from which the revenue of CFSIL was generated, that is too tenuous a connection to satisfy the circumstances to which para (c) refers. I agree, as CBA has submitted, that the alleged benefits in the present case were given in relation to activities concerned with attracting potential retail clients rather than the acquisition of financial products for the benefit of existing retail clients or the provision of financial services to existing retail clients.

Do the conflicted remuneration provisions have any application? 331 It follows from the conclusions I have reached that neither reg 7.7A.16A nor reg 7.7A.16B has any application to the alleged benefits in this case. That leaves the field clear for the application of reg 7.7A.16 which prescribes a circumstance in which the conflicted remuneration provisions Div 4 of Pt 7.7A do not apply. 332 The circumstance referred to in reg 7.7A.16(2) is satisfied where the benefit is given by a platform operator (which it is common ground is satisfied), and the benefit is given under an arrangement that was entered into before 1 July 2013 (which I have found to be the case, given the continuity throughout the relevant period of the arrangement reflected in the 2013 Distribution Agreement entered into on 27 June 2013). Accordingly, reg 7.7A.16 is satisfied, and therefore Div 4 of Pt 7.7A of the Act does not apply.

Miscellaneous Matters 333 There was considerable debate as to which party bears the onus of proving the elements of regs 7.7A.16, 7.7A.16A and 7.7A.16B. In light of the conclusions I have reached it is not necessary to decide that question. It is well established that the plaintiff bears the onus of establishing the ingredients of a provision which defines the scope of the application of a prohibition, as distinct from a provision which defines an exception: Vines v Djordjevitch (1955) 91 CLR 512 at 519-520; Chugg v Pacific Dunlop Ltd (1990) 170 CLR 249 at 257-9; Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88 at 94-95; Australian Securities and Investments Commission v Lewski (2018) 266 CLR 174 at [83]. In my view, the substance of the language used in regs 7.7A.16, 7.7A.16A and 7.7A.16B defines the scope of a prohibition, rather than providing an exception as such. Accordingly, had it been necessary to do so, I would have found that the relevant onus of proof with respect to the application or non-application of the grandfathering provisions lay with ASIC. 334 I note that there was some debate concerning pleadings, and in particular the way in which these regulations were relied on in the respondents' defences. I read the defences as raising an issue as to the application of regs 7.7A.16, 7.7A.16A and 7.7A.16B and, I do not read the defences as conceding that the only available grandfathering was in relation to clients who opened accounts on or after 1 July 2014. That is also how the trial was conducted. I note further that in oral submissions in reply, after full argument had taken place on all these regulations, ASIC expressly took no point concerning the way in which issues concerning the regulations had been raised on appeal. 335 Finally, I wish to say something about the term "grandfathering". I have used the term only because it was adopted by the parties, reflecting the usage in the Explanatory Statement and elsewhere. The term "Grandfather Clause" originated in the second generation after the US Civil War when a number of southern states enacted property, literacy or other voter qualifications but provided that they need not be met by men who had voted before 1867 or had served in the military in the Civil War or in certain earlier wars, or who were descended from such persons. The Louisiana Convention enacted the first such Grandfather Clause in 1898, whereby males entitled to vote before 1867, their sons and grandsons over 21, and foreign-born naturalised males over 21 were permitted to register to vote without meeting the literacy or property requirements. In Louisiana, more than 130,000 African Americans had voted in 1896, before the disenfranchising measures were enacted, but in 1900 the number was down to 5,320: Benno C. Schmidt, "Principle and Prejudice: The Supreme Court and Race in the Progressive Era" (1982) 82 Columbia Law Review 835 at 847. Similar Grandfather Clauses were enacted in the following decade by North Carolina, Alabama, Virginia, Georgia and Maryland. This was a blatant denial of the right to vote based on race, despite the 15th Amendment prohibiting the denial of voting rights "on account of race, color or previous condition of servitude". In 1915, the US Supreme Court held that an amendment to the Constitution of Oklahoma enacting a Grandfather Clause was invalid, being in contravention of the 15th Amendment: Guinn v United States, 238 US 347 (1915). The unanimous opinion of the Supreme Court was delivered by Chief Justice White, who had himself fought in the Civil War as a Confederate soldier from Louisiana. The Oklahoma legislature responded brazenly in 1916 by enacting a new registration law that gave permanent voting privileges to all those registered to vote in the 1914 general election, which had been held under the Grandfather Clause, and gave all others eligible in 1916 only 12 days to get their names on the rolls, unless prevented by illness or absence, or be perpetually disenfranchised. Oklahoma thereby grandfathered the Grandfather Clause (Benno C. Schmidt, op. cit., p. 880), and it was not until 1939 that the Supreme Court (by majority) struck down the new Oklahoma scheme: Lane v Wilson, 307 US 268 (1939). It is surprising that the unexceptional technique in statutory drafting of preserving the operation of the previous legal regime, in limited and defined circumstances for those who were engaging in the relevant conduct at the time the legislation was passed, should be expressly associated with one of the more regrettable episodes of US legislative history. In an age when seemingly innocuous language is frequently made the object of censure, it is ironic that this usage has passed uncritically into current legal jargon. A more literal term, such as "preservation", might be considered more appropriate in contemporary Australia.

Conclusion 336 Accordingly, in my view, the appeal should be dismissed with costs. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.