Consideration of ASIC's submissions
94 I do not accept ASIC's contention. In the relevant period, the PDSs issued in respect of units in the Fund and Vanguard's website stated in clear terms that the Fund comprised bonds issued by governments, government related entities and companies, but the ESG screening was applied only to companies. The submissions advanced by ASIC in support of its contention that the PDSs and the website conveyed a representation that ESG screening was applied to all securities are strained and, in some instances, conceptually flawed as discussed below.
95 ASIC's submissions correctly commence with the impugned statements in Vanguard's PDSs and on its website, but the conclusion it urges cannot be accepted. Section five of the PDSs are headed "How we invest your money". The PDSs states in clear terms that:
(a) the Fund seeks to track the return of the Bloomberg SRI Index (hedged into Australian dollars);
(b) the Bloomberg SRI Index is a market value weighted index comprised of global investment grade securities (bonds) which includes government, government-related, corporate and securitised fixed rate bonds from both developed and emerging market issuers; and
(c) the Bloomberg SRI Index excludes companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment.
96 Statements to that effect appear twice in section five of the PDSs. They appear first under the sub-heading "Investment strategy and investment return objective", and are repeated under the sub-heading "Environmental, social, and ethical considerations".
97 The relevant statements on the website are stated in equally clear terms:
(a) the Fund provides exposure to high-quality, income-generating securities issued by governments, government-owned entities, government-guaranteed entities, investment-grade corporate issues and securitised assets from around the world; and
(b) the Fund excludes companies with significant business activities involving fossil fuels, alcohol, tobacco, gambling, military weapons and civilian firearms, nuclear power and adult entertainment.
98 ASIC's submission rests on a foundational argument that because the words "issuers" and "companies" are used in the same paragraph, an ordinary and reasonable reader would understand them to be interchangeable and carry the same meaning. That submission needs only to be stated to be rejected.
99 The present question concerns the meaning of the words as would be understood by an ordinary member of the public who is considering an investment in the Fund. The legal presumption in statutory and contractual construction that the use of different words within a relevant text usually conveys a different meaning has no direct application. However, the common sense that underlies that legal presumption has considerable force. As Vanguard correctly submitted, the relevant statements in the PDSs and on the website draw an immediate distinction between the four categories of issuers of bonds which are included in the Bloomberg SRI Index and the bonds which are screened, being those issued by companies which engage in significant business activities that breach the applicable ESG criteria.
100 The change in terminology from "issuers" to "companies" was not, as ASIC submitted, misleading by silence or a half-truth. It was a complete truth in the sense that the ESG screening was limited to companies and did not extend to governments or government related entities. Vanguard has admitted that the ESG screening did not apply to all companies included in the Bloomberg SRI Index and the Fund, and for that reason the PDSs and the website contained misleading statements, but that is a separate matter. What is clear from the PDSs and the website is that the ESG screening did not go beyond companies.
101 In its submissions, ASIC sought to support its contention by reference to a range of contextual considerations. The matters relied on by ASIC do not change the clear meaning conveyed by the central statements in the PDSs and on the website. Some of the matters relied on by ASIC are not truly matters of relevant context in any event.
102 First, ASIC sought to place reliance on the amendments made by Vanguard to its PDSs and website from February 2021. The amendments do not assist ASIC's argument. The question is whether the statements made in the relevant period were misleading. The fact that Vanguard chose, from February 2021, to make more extensive disclosures about the ESG screening that was applied in the compilation of the Bloomberg SRI Index does not necessitate any conclusion that the earlier disclosures conveyed the representation alleged by ASIC (that screening was applied to all securities in the Index).
103 Second, ASIC sought to place reliance on the "suitability" statements contained in the PDSs and on the website. Perversely, ASIC's argument requires those statements to be read out of context. On their terms, the "suitability" statements are not purporting to describe the parameters of the ESG screening that is applied to the Blomberg SRI Index. They are broad statements as to the nature of the Fund. In the PDSs, the statement is to the effect that the Fund is suitable for investors "seeking exposure to a diversified portfolio of global fixed interest securities with an ethically conscious screen that is relatively unaffected by currency fluctuations". The phrase "ethically conscious screen" does not specify the parameters of the ESG screen. That phrase does not override or alter the clear meaning of the statements in the PDSs, which occur both immediately before and immediately after the "suitability" statement, that the screen applies to companies which engage in significant business activities that breach the applicable ESG criteria.
104 Third, and relatedly, ASIC sought to place reliance on the title and description of the Fund as "Ethically Conscious". Again, the description "ethically conscious" does not specify the parameters of the ESG screen that is applied in compiling the Bloomberg SRI Index. Information concerning the screen is stated in clear terms in the PDSs and on the website.
105 Although a digression, it is important to emphasise at this point that Vanguard's use of the phrase "ethically conscious" in the title of the Fund and in the PDSs and on the website is not without significance or consequence. Vanguard has admitted that the PDSs and the website conveyed the representation that the Fund offered an ethically conscious investment opportunity. Vanguard has admitted that that representation was misleading because:
(a) the research and screening for the Bloomberg SRI Index, and therefore the Fund, had the Entity, Ticker and Fossil Fuel Limitations;
(b) a significant proportion of securities in the Bloomberg SRI Index and the Fund were from issuers that were not researched or screened against applicable ESG criteria; and
(c) the Bloomberg SRI Index and the Fund included issuers that violated applicable ESG criteria.
106 The issue in dispute is not whether the use by Vanguard of the phrase "ethically conscious" in connection with the Fund was misleading. That has been admitted by Vanguard. The issue in dispute is only whether the PDSs and the website conveyed a further representation that ESG screening was applied to all securities in the Bloomberg SRI Index and the Fund. It is that contention which I reject.
107 The fourth matter that ASIC sought to place reliance on are the fact sheets published by Bloomberg on its website. As discussed earlier, the fact sheets contained information about the composition of the Bloomberg SRI Index. I accept ASIC's submission that the 31 July 2018 fact sheet conveyed that all issuers of securities included in the Index were subject to ESG screening in accordance with the criteria described in the fact sheet. However, I reject ASIC's submission that the 15 July 2020 fact sheet conveyed that representation. The description of the ESG "Rules" in the 15 July 2020 fact sheet principally conveyed that only companies involved in specified ways in the adult entertainment, alcohol, gambling, tobacco, controversial weapons, conventional weapons, nuclear weapons, civilian firearms, nuclear power and fossil fuel industries were excluded.
108 Although I accept that the content of the 31 July 2018 fact sheet was misleading, there is a conceptual flaw in the manner in which ASIC sought to place reliance on that document as "contextual" material affecting the meaning conveyed by the impugned statements in Vanguard's PDSs and on its website. ASIC has not alleged that Vanguard made or restated the representations contained in the fact sheets by referring to them in the PDSs, and accordingly ASIC has not alleged that the publication of the fact sheets involved representations or conduct of Vanguard. If those allegations had been made, it would have been necessary to consider whether the impugned statements made by Vanguard about the ESG screening methodology in the PDSs, on the website and in the fact sheets, considered as a whole, conveyed the representation alleged by ASIC. Rather, ASIC has alleged that the impugned statements in Vanguard's PDSs and on its website conveyed the representation that ESG screening was applied to all securities because those statements must be read in the "context" of the statements made in the fact sheets published by Bloomberg.
109 I do not accept ASIC's argument. The fact sheets are not matters of context affecting the meaning that would be given to the impugned statements in Vanguard's PDSs and on its website by ordinary members of the public considering an investment in the Fund. The statements in the 31 July 2018 fact sheet contradict the relevant statements in Vanguard's PDSs and on its website concerning the ESG screening methodology. One or other could be understood to be correct, but not both. The impugned statements in Vanguard's PDSs and on its website were made by Vanguard, whereas the statements made in the 31 July 2018 fact sheet were made by Bloomberg. Vanguard cannot be held liable for the misleading statements in the fact sheet unless Vanguard adopted and repeated those statements. That is not alleged by ASIC. The relevant circumstances are that Vanguard made one set of statements about the ESG screening methodology and Bloomberg made another set of statements. If potential investors read the Bloomberg fact sheets and formed the erroneous impression that ESG screening was applied to all securities in the Fund, that would have been the fault of the misleading statements in Bloomberg's fact sheets. The erroneous impression would not have been caused by the statements in Vanguard's PDSs and on its website.
110 Underlying ASIC's submissions was an unhelpful blurring of the concepts of context and causation. It is axiomatic that the meaning of all statements is affected by their context. In the case of written statements, the immediate context includes all the words in the document in which the statements are made and the manner in which those words are conveyed: Self Care at [82]. The broader context includes the surrounding facts and circumstances, including particularly the types of goods and services being supplied, the manner in which they are supplied and the habits and characteristics of purchasers of those goods and services: Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at [109] (McHugh J); Coles Supermarkets at [41]. Although context is relevant to assessing the likely meaning of an impugned representation, the central question remains whether an alleged misconception was caused by the impugned representation. In the early case of Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216, Stephen J explained that, in order to determine whether there had been a contravention of the prohibition against misleading or deceptive conduct, it is necessary "to inquire why this misconception has arisen in the minds of others" (at 228). In Campomar, the High Court referred to that statement of Stephen J and further explained that the question is whether there is a sufficient (causal) nexus between the impugned conduct and the misconception (at [98]).
111 The difficulty with ASIC's argument in the present case is that it is seeking to rely on a statement made by a third party, Bloomberg, to "colour" or "contextualise" the impugned statements made by Vanguard. It can be accepted that Bloomberg is the creator and publisher of the Bloomberg SRI Index, and has done so under contract with Vanguard. It can also be accepted that, in the PDSs, Vanguard informed investors that information with respect to the Index methodology was available on Bloomberg's website. It can be accepted that some potential investors may have reviewed the 31 July 2018 fact sheet on Bloomberg's website before investing and may have been misled. Notwithstanding those connections, the relevant question remains whether the impugned statements made in Vanguard's PDSs and on its website conveyed the representation alleged by ASIC. That question is to be answered in circumstances where ASIC did not allege that Vanguard made (by repeating) the statements in the 31 July 2018 fact sheet. In my view, the relevant question must be answered in the negative. The impugned statements made in Vanguard's PDSs and on its website conveyed that ESG screening was only applied to companies whose securities were included in the Bloomberg SRI Index. Bloomberg's 31 July 2018 fact sheet contained a contradictory statement, but that statement was not made by Vanguard and did not alter the meaning conveyed by Vanguard's statements.
112 The fifth matter that ASIC sought to place reliance on were the statements made in the media release issued in respect of the launch of the Fund, the FNN interview published on YouTube and the FNN presentation published on the FNN website. ASIC submitted that those matters reinforced the message that all securities in the Fund, and not only a subset of those securities being securities issued by "companies", were subject to ESG screening. I reject that submission. Again, the submission has a logical flaw and involves a misuse of the concept of "context" in this field.
113 In order to rely on the statements made in the media release, the FNN interview and the FNN presentation as matters of context, it must be assumed that a potential investor read or saw those materials (or one or more of them). To state the obvious, if a potential investor did not see or read those materials, they cannot constitute context in which the impugned statements in the PDSs and on the website were read. However, Vanguard has admitted that the media release, the FNN interview and the FNN presentation conveyed the representation that all securities in the Fund were subject to ESG screening, and that that representation was misleading. It follows that, if a potential investor read or saw those materials, they would have been misled by those materials. The issue in dispute is whether, by reason of the potential investor having read those materials, the impugned statements in Vanguard's PDSs and on its website were thereby rendered misleading (as separate acts of contravention of the ASIC Act). In my view, the answer is in the negative. The impugned statements in Vanguard's PDSs and on its website have a clear meaning, and the meaning of the statements is not altered by the fact that contrary statements are made elsewhere. The existence of the inconsistent statements published by Vanguard about the ESG screening methodology may well have caused a potential investor confusion; the investor may have wondered which statement was correct. But the inconsistency was not capable of changing the meaning of the impugned statements made by Vanguard in its PDSs and on its website.
114 In my view, none of the so-called contextual matters relied on by ASIC altered the plain meaning of the impugned statements in Vanguard's PDSs and on its website, which were to the effect that securities issued by companies were researched and screened against applicable ESG criteria, and that securities issued by companies that violated those criteria were excluded or removed from the Bloomberg SRI Index and therefore the Fund.