Australian Securities and Investments Commission v HCF Life Insurance... [2025] FCA 454 | Case summary

Australian Securities and Investments Commission v HCF Life Insurance... [2025] FCA 454 | Case summary | Zoe

[55]

The salient principles relating to the assessment of pecuniary penalties were not the subject of significant dispute between the parties, and may be stated as follows.
The purpose of a civil penalty regime is primarily, if not solely, the promotion of the public interest in compliance with the provisions of the relevant Act by the deterrence, specific and general, of further contraventions: Australian Building and Construction Commission v Pattinson [2002] HCA 13; (2022) 274 CLR 450 at [9], [15] and [31] (Pattinson) (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ); Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3; (2018) 262 CLR 157 at [87] (Keane, Nettle and Gordon JJ).
The penalty must be fixed with a view to ensuring that the penalty is not such as to be regarded by the offender or others as an acceptable cost of doing business: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [66] (French CJ, Crennan, Bell and Keane JJ); Pattinson at [17]. In other words, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 at [63] (Keane CJ, Finn and Gilmour JJ). However, the penalty should not be greater than is necessary to achieve the object of deterrence, and severity beyond that is oppression: Pattinson at [40] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ). The penalty should be proportionate in the sense of striking a reasonable balance between deterrence and oppressive severity: Pattinson at [41].
Further guidance as to the approach to be adopted in assessing the quantum of an appropriate penalty is to be drawn from the joint reasons of Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ in Pattinson as follows:

[57]

What is required is "some reasonable relationship between the theoretical maximum and the final penalty imposed": Pattinson at [10]. That relationship is established where the maximum penalty does not exceed what is reasonably necessary for specific and general deterrence of future contraventions of a like kind by the contravener and by others: Pattinson at [10]. This may be established by reference to the circumstances of the contravener and the contravening conduct: Pattinson at [55].
The penalty that is appropriate by way of general deterrence may be moderated by factors of the kind adverted to by French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 to the extent that they bear upon an assessment of what is required to deter future contraventions: Pattinson at [47]. However, these must not be considered a "rigid catalogue of matters for attention": Pattinson at [19]. Those factors (which substantially overlap with the mandatory factors in s 1317G(6) of the Corporations Act 2001 (Cth) (Corporations Act)) are, relevantly, (1) the nature and extent of the contravening conduct, (2) the amount of loss or damage caused, (3) the circumstances in which the conduct took place, (4) the size of the contravening company, (5) the degree of power it has, as evidenced by its market share and ease of entry into the market, (6) the deliberateness of the contravention and the period over which it extended, (7) whether the contravention arose out of the conduct of senior management or at a lower level, (8) whether the company has a corporate culture conducive to compliance, and (9) whether the company has co-operated with the relevant regulator in relation to the contravention.
A court will usually give significant weight to what the regulator, as ASIC is here, considers necessary to achieve specific and general deterrence: Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; (2004) ATPR 41-993 at [51] in which the Full Court distilled the key propositions which emerged from NW Frozen Foods Pty Ltd v ACCC [1996] FCA 1134; (1996) 71 FCR 285. The task for the court is to satisfy itself that the submitted penalty, or disqualification period, is appropriate: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [48].
Where there is an interrelationship between the factual and legal elements of two or more contraventions, consideration might be given to whether or not it is appropriate to impose a single overall penalty for that course of conduct: Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd (in liq) (No 3) [2017] FCA 1018 at [36] (Beach J); Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [217]-[234] (ACCC v Yazaki) (Allsop CJ, Middleton and Robertson JJ). As Middleton and Gordon JJ expressed the matter in Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; (2010) 269 ALR 1 at [39] (Cahill) (emphasis in original), the course of conduct principle:

[61]

In addition, the totality principle requires the court to review the "aggregate" penalty to ensure that it is just and appropriate, and not out of proportion to the contravening conduct considered "as a whole" or the "totality of the relevant contravening conduct": Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147 at [272] and [308] (Wigney J). It involves a "final overall consideration of the sum of the penalties determined" by consideration of all the relevant factors, and requires the court to make a final check of the penalties to be imposed on a wrongdoer, considered as a whole: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd [1997] FCA 450; (1997) 145 ALR 36, 53 (Australian Safeway Stores) (Goldberg J). The totality principle will not necessarily result in a reduction from the penalty that would otherwise be imposed. In cases where the court considers that the cumulative total of the penalties to be imposed would be too low or too high, the court should alter the final penalties to ensure that they are just and appropriate: Australian Safeway Stores at 53. The totality principle is distinct from the course of conduct principle in performing a check at the end of the reasoning process.
Courts in civil penalty proceedings have applied the parity principle, which recognises that equal justice requires that, as between co-offenders (in a criminal context), there should not be marked disparity which gives rise to a "justifiable sense of grievance": Gilfillan v Australian Securities and Investments Commission [2012] NSWCA 370; (2012) 92 ACSR 460 at [185]- [186] (Sackville AJA, with whom Beazley and Barrett JJA agreed); see also Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 284 ALR 734 at [125]- [126] (Middleton J). However, penalties imposed in other cases, especially under other legislative schemes, can only be of limited analogical value and must be treated with caution: Australian Securities and Investments Commission v Australia and New Zealand Banking Group Ltd [2018] FCA 155 at [22(2)] (Middleton J).
In fixing a pecuniary penalty, the court will engage in an "intuitive or instinctive synthesis" of all the relevant matters by weighing together all relevant factors, rather than engage in a sequential, mathematical process: Markarian v R [2005] HCA 25; (2005) 228 CLR 357 as applied to civil penalty proceedings in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 at [6] (Allsop CJ).

[107]

On 1 May 2023, the external solicitors responded to an email from HCF Life that relevantly asked whether a decision had been made as to where to add the proposed new text in the PDSs and whether that was the only change currently required to be made, referring to the language which had been proposed in the letter to ASIC of 21 April 2023. The external solicitors responded suggesting where the wording be included and stating that it was the only change required from their perspective, but noted that "we have also informed ASIC of the approach, so may be worthwhile to see if they respond before finalising the approach".
On 11 May 2023, these proceedings were commenced, without ASIC having responded to HCF Life's letter of 21 April 2023, making allegations as to misleading conduct in relation to financial services and unfair contract terms.
On 10 August 2023, ASIC responded to HCF Life's letter of 21 April 2023. Although the letter is marked "without prejudice", both parties have agreed to waive the privilege which would otherwise have been attached to the letter (and they have taken the same approach to a letter dated 17 October 2023 by HCF Life's external solicitors which is also marked "without prejudice"). In the letter of 10 August 2023, ASIC said that it was not clear how the text of the further proposed amendment would be introduced into the relevant PDSs and also expressed some preliminary concerns about the proposed amendment. ASIC suggested that another way of addressing ASIC's concerns may be to alter the definition of Pre-Existing Condition so as to incorporate the relevant elements of s 47(2). ASIC also said that they understood that the proposed amendments would only be introduced for new sales of products, and that it was unclear whether HCF Life intended to take any steps to ensure that existing policyholders were made aware of the effect of s 47 on HCF Life's ability to rely upon a Pre-Existing Condition Term to deny a claim.
On 18 August 2023, HCF Life completed its Financial Condition Report for the year ended 30 June 2023, being a document required to be submitted by HCF Life to the Australian Prudential Regulation Authority, and which is not made public by HCF Life. In that report, the Appointed Actuary of HCF Life commented on the litigation commenced by ASIC against HCF Life on 11 May 2023, in which it was alleged that the Pre-Existing Condition Terms were unfair contract terms and could mislead the public. The report stated that HCF Life was currently considering its legal position, and that potential penalties, remediation costs or increased capital requirements were expected to be less than the excess assets of HCF Life. The report later stated that a wide range of potential outcomes was possible, ranging from:

[112]

It is common ground that there is no evidence that any consumer suffered any direct loss or damage because of the contraventions. Indeed, as I found in the Liability Judgment at [122], the impugned conduct presented the Recover Cover Products as less desirable than they actually were. The contraventions therefore stand in contrast to the more typical misleading conduct case in which a product or service is presented as more desirable than it actually is, and induces consumers to enter into the relevant transaction on that basis. It is also common ground that there is no evidence that any consumer was dissuaded from bringing a claim on a policy that they could have brought, or was prejudiced in their ability to prosecute a claim that they had brought (for example, by disputing the refusal of a claim).
In the Liability Judgment at [124], I referred to the evidence of Mr Goodsall, a highly experienced actuary engaged by HCF Life to give independent expert evidence, to the effect that, in his experience, insureds: (i) claim on policies without having read their terms, or (ii) claim on policies even when aware that an exclusion clearly says the claim is not eligible. I accepted that Mr Goodsall's second proposition was probably true for the vast majority of insureds when deciding to make a claim, but I accepted ASIC's submission that Mr Goodsall's evidence suffers from the usual limitation of inductive reasoning, namely that persons who read policy terms and do not make claims when they understand an exclusion applies are, by definition, unlikely to come to attention. I also noted that Mr Goodsall's report was not admitted as evidence of invariable policyholder behaviour. It thus follows that there was a possibility that the contravening conduct might have had the potential to dissuade at least some consumers from making, or persisting with, claims that HCF Life would have been obliged to pay.
In terms of the significance of such a possibility in the assessment of pecuniary penalties, ASIC relies on two recent cases. In Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (No 3) [2021] FCA 170; (2021) 150 ACSR 185 at [57], O'Bryan J said in the context of assessing a pecuniary penalty that it was relevant to consider the extent to which the contravening conduct had the potential to cause consumers loss and damage. However, in the following paragraph at [58], O'Bryan J found that the relevant conduct had "real potential" to mislead consumers, and that the erroneous belief thereby generated could have caused consumers very great loss. His Honour was thus concerned with realistic, rather than merely theoretical possibilities. In Australian Securities and Investments Commission v MobiSuper Pty Ltd [2022] FCA 990 at [119]-[120], Charlesworth J referred to the seriousness of the contravening conduct in that case as lying in the failure of the Defendants to ensure compliance so as to guard against the risk that loss and damage might ensue, being the risk that consumers may lose the benefit of insurance cover as a result of a decision to consolidate their superannuation. However, the point of her Honour's remarks was to reject a submission that the absence of evidence concerning financial loss or damage being suffered in fact should operate as a mitigating factor. As her Honour said at [119], whether or not loss or damage might be suffered after consumers had lost the benefit of insurance cover attached to their existing superannuation was a matter of happenstance, and one that may not play out until some time had passed. Moreover, as her Honour said at [120], on the admitted facts in that case, there were two instances where consumers had in fact lost insurance cover previously provided under existing superannuation upon their decision to consolidate their superannuation.
The difficulty in the present case is that there is little evidence to indicate (whether directly or by inference) the extent, if any, to which the relevant possibility (ie that some consumers may have been dissuaded by the contravening conduct from making or persisting with claims that HCF Life would have been obliged to pay) was a realistic one. In many cases, that will be a matter of inference from the nature of the contravention in light of ordinary experience. Mr Goodsall's evidence points in the direction of the possibility being speculative and remote, but his evidence cannot entirely eliminate the theoretical possibility. Although I found at [123] of the Liability Judgment that the probability of a mismatch between s 47 of the ICA and the Pre-Existing Condition Terms is real and not speculative, that objective likelihood does not bear on the present issue, which concerns potential decisions by insureds as to whether to make or persist with a claim, not simply whether there is a disparity between s 47 and the language of the policies.
I note that corrective notices have now been issued by HCF Life, together with an invitation to submit a claim or contact HCF Life if consumers believe that they were affected by the change to the Pre-Existing Condition Term or would have made a claim under a policy, had the updated Pre-Existing Condition Term been in place. If those notices had been issued promptly after delivery of the Liability Judgment (as would seem to be generally desirable), and well before the hearing as to civil penalties, then evidence would now be available as to whether any consumers claim to have been affected by the contravening conduct. However, ASIC indicated a preference at the liability hearing to defer the question of appropriate corrective notices until the penalty hearing (Liability Hearing Transcript of 11 September 2024, T60.6-19; ASIC's written submissions of 1 August 2024 at [172]), in which HCF Life acquiesced, and thereby deprived itself of the potential opportunity of ascertaining by now whether any consumers claimed to have been affected by the contravening conduct, for example in not previously making or persisting with a claim. ASIC bears the onus of establishing whether the risk to consumers on which it relies was a realistic possibility, rather than one which is merely theoretical, fanciful or speculative (as ASIC accepted at the penalty hearing at T18.45 and T100.18-23). In my view, ASIC has not discharged that onus. I therefore approach the matter on the basis that the risk of a consumer being detrimentally affected by the contravening conduct has not been shown to be more than theoretical.
ASIC also submits that persons who claim on life insurance policies face inherent disadvantages in preparing and prosecuting an insurance claim, given that they are facing exigencies such as being sick, injured, disabled, recently unemployed or recently bereaved. ASIC submits that a mistaken understanding as to whether the consumer can claim on the policy and, if so, what must be established to do so, is liable significantly to compound these existing disadvantages. I do not regard that consideration as sufficient to discharge the onus of establishing that the relevant risk of loss or damage in the present case was a realistic one.

[114]

There is no evidence of HCF Life having derived any financial benefit from the contraventions, nor does ASIC suggest that HCF Life intended to derive such a benefit.
Mr Reville, who is now the General Manager of HCF Life, conducted a review of the financial records of HCF Life and found no reference to any expected or projected financial impact to HCF Life (either positive or negative) from the Pre-Existing Condition definitional changes in 2019 or in 2021: Affidavit of Mr Reville of 17 March 2025 at [45] and [48]. As to the change in 2023, this change (which involved introducing a 5-year look-back limitation on the term) was not put forward to mitigate HCF Life's risk exposure or reduce HCF Life's loss ratios, and in fact, before making the change, HCF Life estimated that introduction of the 5-year limitation period under the 2023 PEC Clause would increase its annual claims costs by about $200,000 per year: Affidavit of Mr Reville of 17 March 2025 at [50]. That evidence is consistent with the finding in the Liability Judgment at [34] that internally within HCF Life, it was not intended that these changes to the policy would change how claims were to be assessed.
The parties have agreed facts concerning HCF Life's revenue from net premiums, loss ratio and profit margins for the Recover Cover Products between the financial years ended 30 June 2020 and 30 June 2023: SAF2 at [25]. The total product profitability for the Recover Cover Products between April 2021 and April 2023 was a total of $4,464,924: SAF2 at [26]. Those agreed facts, however, have been supplemented by the evidence of Mr Reville concerning the "scaled product profitability" for the 12,265 policies issued by HCF Life for the period April 2021 to April 2023 (including contracts issued containing the Pre-2019 PEC Clause), which shows an overall loss of $144,598: Affidavit of Mr Reville of 17 March 2025 at [67]. Mr Reville explains that "scaled product profitability" has been calculated as the actual revenue earned for the 12,265 policies as a proportion of the total revenue for the four relevant products across the relevant period, with that proportion applied to the total claims and expenses for those products in the period. The proportion of the actual premium paid for the 12,265 policies, to total revenue for the four relevant products across the relevant period, is then applied to apportion claims, reserves and expenses to the 12,265 policies: at [68]. In my view, the concept of "scaled product profitability" is an appropriate way of assessing whether HCF Life derived any profit from the 12,265 policies at all. The fact that HCF Life incurred a loss based on that measure reinforces the conclusion that it did not derive any benefit from the contraventions.

[116]

ASIC places considerable reliance on an article by the Honourable J C Campbell KC entitled "Unenforceable Exclusions in Travel Insurance" (2018) 29 Insurance Law Journal 71. That article criticised the practice of including partially enforceable exclusions in respect of pre-existing conditions (including those which depended upon the existence of signs or symptoms) in insurance products as "deceptive market behaviour" (at 125). As I indicated in the Liability Judgment at [119], Mr Campbell KC stated (at 127) that making a practice of issuing standard form contracts that contain unenforceable terms seems likely to contravene s 12DF(1) of the ASIC Act. However, ASIC acknowledges that there is no evidence that anyone at HCF Life was aware of the arguments put forward in Mr Campbell KC's 2018 article at the time of the adoption of the 2019 PEC Clause, the 2021 PEC Clause or the 2023 PEC Clause. In my view, even the most diligent officer of a life insurer cannot reasonably be expected to be aware of, and to read and absorb, an article in an academic legal journal apparently pertaining to travel insurance, even one written by a distinguished author of Mr Campbell KC's eminence. ASIC accepted that at T16.23-17.11.
Importantly, for each of the Recover Cover PDSs issued in 2019, 2021 and 2023, HCF Life sought and obtained legal advice from external lawyers as to the compliance of those PDSs with financial services laws, which must have included s 12DF of the ASIC Act and other provisions dealing with misleading or deceptive conduct. It is an agreed fact between the parties that in none of those advices did the external lawyers raise the possibility that the proposed 2019, 2021 and 2023 PEC Clauses may be misleading due to the failure to advert to, or explain, the existence or effect of s 47 of the ICA, or that those PEC Clauses were partially unenforceable: SAF2 at [29A]-[29C]. ASIC acknowledges the significance, on the question of penalty, of HCF Life's external lawyers failing to identify the misleading nature of its PDSs. ASIC cites without criticism or challenge my reasoning in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd (Penalty) [2024] FCA 578 at [36]-[41] and [62] (ASIC v Web3 (Penalty)): ASIC's written submissions on penalty at [57]. Those observations were made in the context of accepting an application under s 1317S(2) of the Corporations Act for relief from liability for contravention of a civil penalty provision, but they are also applicable to the assessment of the amount (if any) of a pecuniary penalty. I note that the Full Court in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58 at [140]-[141] (O'Callaghan, Abraham and Button JJ) referred to my reasoning on this issue at first instance, saying only that a defendant who seeks to contend either that they should be relieved from liability to pay a pecuniary penalty for contraventions of the Act, or that a penalty should be fixed in an amount lower than it otherwise would be, because they have received relevant legal advice would "ordinarily" need to give evidence about what advice they had in fact received. The present case falls within what might be regarded as the ordinary case, and the agreed facts provide such evidence.
ASIC submits, and I accept, that the relevance and weight to be attributed to the obtaining, by the contravener, of legal advice will necessarily depend upon all of the circumstances of the case, including the nature of the contravention and the nature of the advice obtained, and including the degree of certainty or qualification with which it is expressed. There is no inflexible rule: Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; (2018) 260 FCR 68 at [64] (Allsop CJ, Davies and Wigney JJ). The present case is clearly distinguishable from Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 at [307]-[308] (Wilcox, French and Gyles JJ), where the Full Court regarded the fact that the contravener had received favourable and unqualified legal advice as a matter which was to be given minimal weight in the assessment of penalty because the contravening conduct "was plainly and deliberately anti-competitive in its intent" and "ran a serious risk of being in breach of the Act". In the present case, the fact that HCF Life sought a review by external lawyers of the relevant PDSs as a whole for their compliance with financial services laws before they were issued evinces an intention by HCF Life to comply with those laws, including s 12DF of the ASIC Act. In my view, HCF Life acted responsibly and commendably in that regard. The present case is also clearly distinguishable from Mayfair Wealth Partners Pty Ltd v Australian Securities and Investments Commission [2022] FCAFC 170; (2022) 295 FCR 106 (Jagot, O'Bryan, Cheeseman JJ), where the only evidence was that the impugned document had been "reviewed and approved by the solicitors for the Mayfair Parties" (at [235]-[236]).
Despite acknowledging the significance of HCF Life's external lawyers failing to identify the misleading nature of the PDSs, ASIC advances four submissions of a supposedly countervailing effect.
First, ASIC draws attention to the Pre-2019 PEC Clause substantially mirroring the language of s 47 of the ICA, giving rise to an inference that HCF Life had, at some point in its corporate history, considered it desirable that the PEC Clause align with s 47 of the ICA, but that this aspect of HCF Life's corporate knowledge appears to have been forgotten or overlooked at the time HCF Life adopted the 2019 PEC Clause. I do not regard that matter as anything more than inadvertence on the part of HCF Life. Further, that inadvertence should be viewed against the background that the change from the Pre-2019 PEC Clause to the 2019 PEC Clause was motivated by a desire to bring the clause into line with private health definitions and make the policies "easier to understand" and "improve transparency and member centricity": Liability Judgment at [27]-[34]. The 2019 PEC Clause is clearly adapted from s 75-15 of the Private Health Insurance Act 2007 (Cth).
Second, ASIC submits that HCF Life's Claims Manager from February 2019 only became aware of the existence of s 47 in late 2019, in the course of a complaint to the Australian Financial Complaints Authority (AFCA), and thus was ignorant of the existence of s 47 at the time that the 2019 PEC Clause was adopted on 9 August 2019. Similarly, ASIC submits that HCF Life's General Manager from 2020 to 2024 only became aware of the existence of s 47 in 2022 when dealing with a complaint to AFCA. However, neither of those employees was responsible for the wording change in 2019, and the submission seems to me to go nowhere in the context of the external legal advice which was obtained. Further, the knowledge or ignorance of the Claims Manager and the General Manager is of minimal relevance in circumstances where the contravening conduct did not involve the failure of HCF Life to apply s 47 correctly when assessing claims made under the Recover Cover Contracts, and, as I found in the Liability Judgment at [68], HCF Life did in fact assess claims consistently with s 47 throughout the whole of the relevant period.
Third, ASIC submits that HCF Life had subscribed to the Life Insurance Code of Practice (LICOP) in July 2018, which contained a provision in cl 3.5(a) to the effect that where a life insurance policy has an exclusion clause for a pre-existing medical condition, the insurer will provide to insureds details of how the exclusion works and when the exclusion applies and the potential implications of this in plain language. However, ASIC does not submit that HCF Life did not genuinely attempt to comply with that provision. Further, Mr Keane's evidence is that since around September 2022, HCF Life has conducted quarterly reviews of both the Claims and Product Teams to ensure compliance with the relevant provisions of the LICOP and, as part of that review, HCF Life ensures that its terms and member-facing communications are consumer-centric and in plain language: Affidavit of Mr Keane of 19 December 2023 at [63].
Fourth, ASIC submits that the Pricing and Product Management Framework in place at the time required that changes to conditions be subject to actuarial advice and approval by the board and that the framework expressly provided that the General Manager had no delegation to make changes to product conditions. ASIC submits that it appears that approval of the Board was not sought at the time that the 2019 PEC Clause was adopted, nor does it appear that any actuarial advice was sought in relation to the change. ASIC submits that, consistently with the Liability Judgment at [33], the board of HCF Life was updated about policy changes, which included the 2019 PEC Clause on 28 August 2019. However, it should be noted that the 2019 PEC Clause, despite being the clause that introduced the fundamental flaw, is not in fact the contravening clause. The contravening clauses are the 2021 PEC Clause and the 2023 PEC Clause. HCF Life submits, and I accept, that given the change from the Pre-2019 PEC Clause to the 2019 PEC Clause was not expected to involve any financial impact to HCF Life (either positive or negative), it is not surprising that there was no actuarial review of this change. In any event, ASIC accepts that HCF Life followed its internal governance procedures with respect to the introduction of the 2021 and 2023 PEC Clauses: ASIC's written submissions on penalty at [71]-[72].
In short, in my view, the circumstances in which the contraventions took place before 23 March 2023 do not in themselves warrant the imposition of any pecuniary penalty.

[117]

ASIC's letter of 23 March 2023 implicitly expressed a concern that HCF Life's proposed amendments to the Pre-Existing Condition Term may be misleading, by stating that the proposed amendments "do not accurately describe the rights and obligations arising under the HCF Life policies", and in particular, that the proposed amendments do not adequately set out how the Pre-Existing Condition Term would operate given the effect of s 47 of the ICA. ASIC encouraged HCF Life to review the wording of the proposed amendments against s 47 of the ICA and consider whether further revisions were necessary. It is clear from HCF Life's response of 31 March 2023 and the unchallenged evidence of Mr Keane (Affidavit of Mr Keane of 17 March 2025 at [68]) that HCF Life did not agree with ASIC's concern and did not consider at the time that it issued the 2023 PDSs, from 25 March 2023, that it was contravening the law.
ASIC submits that its letter of 23 March 2023 must have caused HCF Life to at least appreciate there to be a "substantial risk" that the Recover Cover PDSs were misleading, being a risk that until then had not been raised by their external lawyers, given the expression of concern by the regulator that it considered a statement in the PDSs not to be accurate. I accept that the letter of 23 March 2023 caused HCF Life to be aware of a risk that the Recover Cover PDSs may be misleading or liable to mislead. So much is apparent from HCF Life's internal email of 24 March 2023 referring to the advice given that day by the external solicitors. However, I do not think that ASIC has established that, in the period before 11 May 2023, when ASIC commenced proceedings, HCF Life was aware of any particular level or extent of the risk or that the risk was "substantial". ASIC's letter is expressed in relatively mild terms, saying that it was "concerned", and that it "encourages" HCF Life to review the proposed amendments against s 47 of the ICA and "consider whether" further revisions are necessary. There is no evidence that officers of HCF Life understood from the 23 March 2023 letter that ASIC had arrived at a concluded position that the Pre-Existing Condition Terms were misleading. There is no reason, in the absence of any cross-examination, to doubt the sincerity of HCF Life's generally dismissive response of 31 March 2023, maintaining its belief that "the material substance" of s 47 had been disclosed in the revised wording and that "HCF Life considers that the pre-existing condition term does sufficiently disclose how the pre-existing condition term would operate in practice, both in accordance with its terms and section 47 of the Insurance Contracts Act".
In Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; (2016) 340 ALR 25 at [131], Jagot, Yates and Bromwich JJ said that if any degree of awareness of the actual or potential unlawfulness of the conduct is proved then, all other things being equal, the contravention is necessarily more serious. The Full Court also said (at [131]) that it is for the party asserting any particular state of mind to prove its assertion. ASIC accepts that it bears the onus of establishing that HCF Life was conscious of the risk of contravention (T65.24-30).
In the present case, ASIC has discharged its onus of establishing that HCF Life was aware from 24 March 2023 of some risk of potential unlawfulness of its conduct, but I am unable to find on the evidence what level of risk HCF Life was aware of at that time. However, after ASIC actually commenced proceedings on 11 May 2023, the evidence includes HCF Life's Financial Condition Report for the year ended 30 June 2023, issued on 18 August 2023, to which I have referred above. In my view, that report indicates an awareness on the part of HCF Life that the risk of a finding of contravention was substantial, although not preponderant in the sense of being more likely than not. I regard HCF Life's awareness of the risk of contravention from 24 March 2023, and at the level of a substantial risk by 18 August 2023, as rendering its conduct more serious than would otherwise have been the case.
ASIC points out that HCF Life has waived privilege in the legal advice it received in relation to the 2023 PEC Clauses before 11 May 2023, but has not waived privilege over the advice it received on or after 11 May 2023, which may have exposed the degree of risk of contravention that HCF Life apprehended at that time. However, no adverse inferences should be drawn against HCF Life by reason of its decision not to waive that privilege: ASIC v Web3 (Penalty) at [9], referring to Giannarelli v Wraith (No 2) [1991] HCA 2; (1991) 171 CLR 592 at 605 (McHugh J); Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1 at [168] (McDougall J); Heydon JD, Cross on Evidence (LexisNexis Australia, 14th Australian ed, 2024) at [25040]. Accordingly, I regard HCF Life's maintenance of legal professional privilege from 11 May 2023 as a neutral factor.
HCF Life's response of 31 March 2023 indicates that HCF Life was planning a launch of the proposed amendments on 25 March 2023, two days after receipt of the 23 March 2023 letter, and that trying to stop the launch at the last moment would have had "other consequences for the business and the IT processes". ASIC submits that HCF Life "courted the risk of contravention" by proceeding with the launch, rather than dealing with the inconvenience of deferring the part of the launch that involved the 2023 PEC Clause. I accept that submission if "courting the risk" is treated as meaning no more than knowingly running a risk of it being found that the conduct in question contravened the law.
To the extent that the expression "courting the risk" involves the concepts of objective or subjective recklessness, I do not regard these concepts as applicable. The concept of "objective recklessness" relates to a person who does not appreciate an obvious risk of causing harm and proceeds to cause the harm without appreciation of the risk; whereas the concept of "subjective recklessness" relates to a person who actually appreciates the risk of causing harm and proceeds nevertheless deliberately to run that risk and end up causing the harm: Couch v Attorney-General (No 2) [2010] NZSC 27; [2010] 3 NZLR 149 at [100] (Tipping J); Australian Competition and Consumer Commission v HJ Heinz Company Australia Limited (No 2) [2018] FCA 1286 at [25] (White J); Australian Securities and Investments Commission v Firstmac Limited (Penalty Hearing) [2025] FCA 12 at [45] (Downes J). I do not think that the evidence supports a finding that HCF Life actually appreciated the risk of causing harm, and ASIC has not established that the risk of harm was anything more than theoretical. As to objective recklessness, I do not regard the risk of the Recover Cover PDSs being misleading as an obvious one. ASIC itself had been reviewing and investigating HCF Life's Pre-Existing Condition Terms for about 12 months since 24 March 2022 (Affidavit of Mr Keane of 17 March 2025 at [48]) and had not raised the issue with HCF Life. Further, the 2023 PEC Clauses had passed review by external lawyers acting for HCF Life in relation to compliance with financial services laws. Nonetheless, as I have indicated, in my view HCF Life did realise that there was some risk of misleading conduct being established once the issue was drawn to HCF Life's attention on 23 March 2023, which HCF Life was running by proceeding with its launch on 25 March 2023, and the extent of that known risk increased after proceedings were commenced by ASIC on 11 May 2025. That is a significant matter in the assessment of pecuniary penalties, but it is not at the higher ranges of moral culpability.
ASIC criticises HCF Life in its written submissions at [84] for having taken about six months to address (in part) ASIC's concerns (of 23 March 2023) by introducing new PDS documents for Cash Back Cover and Income Protect Insurance policies issued from 9 November 2023. ASIC submits that its concerns could have been addressed far more expeditiously, including by issuing a one-page supplementary PDS explaining the operation of s 47 of the ICA. Further, ASIC submits that when HCF Life did introduce the November 2023 PDSs, it did not take steps to issue a supplementary PDS for existing policyowners (ie owners of policies of the Recover Cover PDSs which are the subject of these proceedings) or produce other clarification or information explaining the operation of s 47 of the ICA to them.
HCF Life submits that it responded relatively promptly to the concerns expressed by ASIC on 23 March 2023, by way of its letter of 21 April 2023, being the outcome of the consideration which HCF Life said on 31 March 2023 it was giving to ASIC's comments, and that ASIC did not respond to HCF Life's letter until 10 August 2023, about four months later. However, HCF Life's external solicitors had advised on 19 April 2023 that ASIC was unlikely to confirm that the amendments were acceptable, as ASIC's standard approach was not to approve disclosures. In any event, HCF Life itself was responsible for ensuring that it complied with the financial services laws and it could not reasonably expect ASIC to share in that responsibility.
ASIC further submits at [85] of its written submissions that following the delivery of the Liability Judgment, HCF Life has continued to make the misleading Recover Cover PDSs available on its website, and has continued to state that those Recover Cover PDSs are "applicable" to policies purchased in the relevant times, without taking any step to alert readers to the existence of the Liability Judgment, the fact that the Recover Cover PDSs are misleading, or the existence or effect of s 47 of the ICA.
HCF Life submits that those matters must be viewed in their broader context. In the first place, the unchallenged evidence of Mr Reville provides a practical reason for HCF Life continuing to make the misleading Recover Cover PDSs available on its website (Affidavit of Mr Reville of 17 March 2025 at [58]):

[121]

(a) On 17 December 2024, the solicitors for HCF Life wrote to the solicitors for ASIC, noting that HCF Life did not dispute that it should take steps to notify affected consumers, but that a primary concern was to ensure that there were clear communications to policyholders, to avoid duplicative processes which may confuse policyholders, and thus it proposed sending drafts to ASIC for its consideration and comment. The evidence does not reveal any opposition to that course being expressed by ASIC;

(b) By 12 February 2025, HCF Life's solicitors provided draft corrective notices to ASIC's solicitors, to which ASIC's solicitors responded on 14 February 2025 with a number of queries, "[s]o as to enable ASIC to properly consider the content and form of [those] corrective notices";

(c) Those queries were responded to by HCF Life on 4 March 2025;

(d) By email dated 6 March 2025, ASIC's solicitors responded to HCF Life's solicitors and noted that ASIC did not expect to be in a position to provide comments on the corrective notices by 10 March 2025, but that ASIC "would endeavour to confirm ASIC's position next week". Importantly, in this email, ASIC's solicitors expressly requested that HCF Life refrain from publishing or issuing the corrective notices until such time as ASIC had an opportunity to comment;

(e) By email dated 11 March 2025, HCF Life's solicitors responded to ASIC's solicitors noting the delay in receiving ASIC's comments on the corrective notices, and agreed to wait for ASIC's comments before issuing corrective notices. HCF Life's solicitors reiterated HCF Life's eagerness to avoid duplicative processes which may confuse policyholders, and its eagerness to proceed with remediation efforts, and thus requested ASIC's comments as soon as possible; and

(f) HCF Life received ASIC's final comments on the corrective notices on 4 April 2025 and commenced issuing them on 10 April 2025. HCF Life received ASIC's comments on the website on 9 April 2025, and made changes on 15 April 2025.

[126]

ASIC submits, and I accept, that while HCF Life's operating profits (after paying commissions to HCF Ltd) are fairly modest, it has substantial excess reserves above its regulatory and internal capital requirements. Further, ASIC submits, and I accept, that while HCF Life is not one of the larger life insurers in Australia, it is relevant that it is a subsidiary of a very substantial private health insurer, and that HCF Life's life insurance business is a diversified part of the business of the HCF group of companies with which it is integrated. Where a contravener is a distinct legal entity within a broader corporate structure, the court may take account of that broader structure in assessing the extent to which the penalty achieves deterrence, including in circumstances where the contravener is part of a much larger, internally coordinated and wealthy corporate group: Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69; (2020) 377 ALR 55 at [185] (ASIC v AMP) (Lee J). Accordingly, I regard the financial position of HCF as a relevant factor.
I also bear in mind that HCF Life and HCF Ltd are two separate entities with separate (albeit overlapping) boards of directors. Mr Keane has given unchallenged evidence to the effect that, despite any overlap in board composition, the board of HCF Life is separate from the board of HCF Ltd; HCF Ltd and HCF Life are subject to separate management, and HCF Ltd does not exercise control over decision-making at HCF Life, including over product changes. Despite the arrangements in place for shared services and personnel, matters pertaining to HCF Life are addressed by the board of HCF Life and matters pertaining to HCF Ltd are addressed by the board of HCF Ltd: Affidavit of Mr Keane of 17 March 2025 at [13]. I also bear in mind that while the contravener's size and financial resources are a relevant consideration in relation to the objective of deterrence, they do not alone justify a higher penalty than might otherwise be imposed: Australian Competition and Consumer Commission v Coles Supermarkets Australia [2015] FCA 330; (2015) 327 ALR 540 at [92] (Allsop CJ). ASIC acknowledges, in its written submissions at [92], in this context, that the penalty must not be disproportionate to the contravening conduct.

[135]

ASIC submits that HCF Life continues to issue a range of life insurance products, including the Income Protect Insurance product, which continues to include a PEC Clause. Although HCF Life continues to sell Cash Back Cover, this product no longer has a PEC Clause for new policies entered into since 4 April 2024 (the clause has been replaced with a "Waiting Period"): SAF2 at [13]. HCF Life ceased to offer Income Assist Insurance policies for purchase from 30 September 2021 (SAF2 at [11]), and ceased to offer Smart Term Insurance policies for purchase from 25 March 2023 (SAF2 at [12]).
ASIC also draws attention to the fact that HCF Ltd operates both a private health insurance business and, through its subsidiary HCF Life, a life insurance business, and the two businesses are subject to fundamentally different regulatory regimes. The contravening conduct in this case was the product of the adoption into a life insurance product of language from the Private Health Insurance Act 2007 (Cth). ASIC submits that, in circumstances where the much smaller life insurer outsources many of its core functions to the much larger private health insurer, there is a particular need for care and attention to the different regulatory regimes applicable to each insurance business, and that a failure to pay close attention to the different regulatory regimes is liable to lead to contraventions, such as occurred in this case. I accept that there is a particular need for care and attention to the different regulatory regimes, although I also accept the submission by HCF Life that the declarations of contravention and reasons of the court in these proceedings themselves go a considerable way to achieving this specific deterrent goal.
HCF Life further submits that ASIC will likely require HCF Life to pay for at least part of its investigation costs under s 91 of the ASIC Act, which will have an additional "sting" upon HCF Life because ASIC's investigation was (at least up to December 2022) entirely focused (and from that time also focused) on the question of whether the Recover Cover Contracts were unfair contracts, that being a matter on which ASIC was unsuccessful in the Liability Judgment. I am unable, on the material available to me, to assess just how strong a likelihood that is, and therefore do not take it into account in considering specific deterrence. I express no view either way as to whether an order under s 91 of the ASIC Act for payment of the costs of an investigation might be relevant in principle to the assessment of a pecuniary penalty.

Australian Securities and Investments Commission v HCF Life Insurance Company Pty Limited

At a glance

Court

Decision date

Before

Source

Judgment (147 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (18)