806 The transitional regime established by s 1528 of the Corporations Act was considered by a Full Court of this Court (Moshinsky, O'Bryan and Jackman JJ) in Australian Securities and Investments Commission v Commonwealth Bank of Australia (2023) 299 FCR 604 (ASIC v CBA). That case concerned the application of the statutory prohibition on conflicted remuneration in Div 4 of Pt 7.7A of the Corporations Act to arrangements agreed between the first respondent, Commonwealth Bank of Australia (CBA), and the second respondent, Colonial First State Investments Limited (CFSIL), in relation to the distribution of a superannuation product called Essential Super. The appellant, ASIC, alleged that during the relevant period when CFSIL issued and CBA distributed Essential Super, CFSIL gave, and CBA accepted, benefits in relation to Essential Super which comprised conflicted remuneration contrary to s 963E and s 963K of the Corporations Act.
807 The primary judge dismissed the proceeding on four principal bases including, relevantly, that, even if the impugned benefits given by CFSIL to CBA constituted conflicted remuneration for the purpose of s 963A of the Corporations Act, those benefits were exempted by operation of transitional provisions in s 1528 of the Corporations Act and the relevant regulations made under that provision, being regs 16, 16A and 16B of the Corporations Regulations. On appeal, among other things, ASIC challenged the primary judge's finding that the impugned benefits came within reg 16 of the Corporations Regulations with the consequence that Div 4 of Pt 7.7A of the Corporations Act did not apply to them.
808 Justice O'Bryan (with whom Moshinsky J agreed on all but one issue which did not concern the operation of the transitional provisions) relevantly said at [245]-[249]:
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 Ltd(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.
809 His Honour continued in relation to the operation of regs 16, 16A and 16B at [259]-[260]:
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.
810 For completeness I note that Jackman J agreed with O'Bryan J save in relation to the application of the transitional provisions in s 1528 of the Corporations Act: see ASIC v CBA at [288].
811 At [24(c)] of its defence to the 5FASOC NULIS in effect contends that to the extent it gave any benefits to a financial services licensee, or a representative of a financial services licensee, Div 4 of Pt 7.7A of the Corporations Act did not apply to those benefits because: they were given by a platform operator and were given under an arrangement that was entered into before the application day (as defined in s 1528(4)) by application of reg 16 of the Corporations Regulations; or in the alternative, if they were not given by a platform operator (because NULIS was not a platform operator), those benefits were given under an arrangement entered into before the application day (as defined in s 1528(4)).
6.4.1 Is NULIS a platform operator?
812 The first question to determine is whether NULIS is a platform operator.
813 As set out above, the term "platform operator" is defined in s 1526(1) of the Corporations Act to mean "the provider of a custodial arrangement, or custodial arrangements". The terms "custodial arrangement" and "provider" are also defined in s 1526(1). The term "custodial arrangement" has the "the same meaning as it has in subsection 1012IA(1), subject to subsection (2)" and the term "provider" is defined to have "in relation to a custodial arrangement… the same meaning as in subsection 1012IA(1)".
814 In ASIC v CBA O'Bryan J said in relation to the definitions in s 1526 at [251]-[253]:
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.
815 It is tolerably clear, and it did not seem to be in dispute, that NULIS was and is a platform operator having regard to the definitions of "platform operator" in s 1526(1) and of "custodial arrangement" in s 1012AI as extended in s 1526(2).
6.4.2 Was the arrangement entered into before the application day?
816 Given my conclusion that NULIS is a platform operator, s 1528(1)(b) is not satisfied and it is necessary to consider the regulations prescribed for the purpose of s 1528(2) of the Corporations Act. Relevantly, NULIS' defence relies on the conclusion that the benefits were given under an arrangement that was entered into before the application day, as defined in s 1528(4), such that reg 16 applies. If that is the case, Div 4 of Pt 7.7A of the Corporations Act did not apply to the benefits. The resolution of this question is relevant to regs 16, 16A and 16B as each apply only to benefits paid under an arrangement entered into before the application day.
817 In ASIC v CBA O'Bryan J considered the meaning of the term "arrangement", in the context of considering the operation of reg 16, explaining at [262]-[263]:
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 (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 … 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. ...
818 There did not seem to be any dispute between the parties that there was an "arrangement" as required by reg 16 in place pursuant to which NULIS paid commissions to the financial services licensees of Mr Brady and Group Members. The question that arises for resolution is whether that arrangement was an arrangement entered into before the application day as defined by s 1528(4), namely before 1 July 2013.
819 It is convenient, in this context, to address Mr Brady's contention, explained below, that the arrangement changed at the time of the SFT so that, insofar as NULIS continued to pay commissions to financial services licensees, it was not pursuant to an existing arrangement, i.e. an arrangement entered into before 1 July 2013.
6.4.2.1 Were the commissions paid pursuant to an existing arrangement?
820 Both parties rely on the LRA as evidencing the arrangement. The LRA incorporates remuneration schedules setting out the terms upon which commissions were to be paid. Mr Brady observes that MLCN and not NULIS was a party to the LRA in force prior to 1 July 2013. He says that the mechanics of the arrangement to pay commissions involved MLC Limited, a related entity of MLCN, extracting fees from his and the Group Members' accounts and using those moneys to reimburse NWMSL, also a related entity of MLCN, for making the payment of commissions. Mr Brady contends, relying on the admission by NULIS at [50(d)(i)] of its defence, that this made no difference to the fact that the substance of what was occurring was the payment of commissions by NULIS noting that:
(1) NULIS as trustee levied a particular fee on the trust funds of each beneficiary who had an adviser who submitted an application for them to become a beneficiary of TUSS (the fee was extracted by NULIS itself or its related entity MLC Limited, as agent of NULIS);
(2) the adviser was paid the amount of that fee as commission by a related entity of NULIS, NWMSL; and
(3) NWMSL was reimbursed the amount of the fee by NULIS or MLC Limited (who extracted the fee from the members on NULIS' behalf).
Mr Brady also refers to the Grandfathering Paper where it sets out the process by which, prior to the SFT, fees were charged by MLC Limited and used to fund commission payments to advice licensees but that MLCN was considered for Corporations Act purposes as the ultimate "giver" of the commissions and that, as part of the proposed SFT, NULIS would instead charge the fees and use the revenue to reimburse NWMSL (see [210(2)] above).
821 Mr Brady, relying on [31AA]-[31AB] of the 5FASOC, submits that at the time of the SFT there was a change in the arrangement that existed prior to 1 July 2016 and as such the arrangement was no longer one entered into before 1 July 2013. The change identified by Mr Brady is that ongoing advice was no longer required to be given to him and some Group Members in relation to their interests in the TUSS Division after 1 July 2016. Mr Brady makes the following submissions:
(1) NULIS asserts that no ongoing advice was required to be provided to him and Group Members when they were members of the MLC Super Fund (at [51(l)(ii)] and [51A(f)ii)] of its defence) but suggests (by its denial at [31AA] of its defence) that prior to 1 July 2016 there was also no requirement that advisers provide ongoing services;
(2) prior to 1 July 2016 there was an obligation for advisers to provide advice to him and some legacy product holders based on the relevant terms of the LRA, IRA, remuneration schedules and disclosures made in applicable PDSs prior to 1 July 2016;
(3) NULIS accepts that from 1 July 2016 there was no requirement to provide ongoing advice (at [51(l)(ii)] and [51A(f)(ii)] of its defence and [162] of its opening submissions). NULIS did not replace or adopt any remuneration schedules in respect of Mr Brady's and some of the legacy product holders' products when it made the Grandfathering Decision. NULIS admitted that the remuneration schedules issued by MLC Limited were not incorporated into the LRAs in the period following 1 July 2016 (being the period in which NULIS paid the commissions). By failing to issue new remuneration schedules, or failing to adopt MLC Limited's remuneration schedules, NULIS changed the arrangement such that ongoing advice was no longer required to be given which fundamentally altered the arrangement that existed prior to 1 July 2016.
822 Mr Brady submits that the consequence of that change in arrangement is that commissions were no longer paid pursuant to an arrangement entered into before 1 July 2013 (5FASOC [31AC]) and, therefore, NULIS contravened s 963K of the Corporations Act and the Trust Deed (5FASOC [59AA] and [59A]).
823 The change in the arrangement relied on by Mr Brady is the removal of a "services obligation" (i.e. requirement to provide ongoing advice). The removal of the "services obligation" is pleaded at [31AB] of the 5FASOC and particularised by reference to Mr Jones' report at [242] and a letter dated 22 July 2021 from NULIS' solicitors, King & Wood Mallesons (KWM), to Mr Brady's solicitors, William Roberts Lawyers (WRL).
824 Mr Brady did not tender Mr Jones' report. However, KWM's letter dated 22 July 2021 to WRL was in evidence before me. That letter, which was in response to a letter from WRL seeking particulars of [51(l)] and [51(m)] of NULIS' defence to the further amended statement of claim filed on 9 April 2021, includes (as written):
4. In relation to paragraph 7 of your letter, we confirm it is our client's position that the legal entitlement to the payment of the Grandfathered Remuneration is conferred on the financial services licensees by clause 4.2 of the LRAs, at the rates of commission set out in the PDSs for each product (which provide the product terms pursuant to clause 4.2 of Schedule 1 of the MLC Super Fund Trust Deed).
5 For the avoidance of doubt, and to the extent that correspondence sent in the context of queries about discovery, could be or were read otherwise, our client's position, consistent with the pleading in subparagraphs 51(l) and (m) of the Defence filed on 9 April 2021, is that remuneration schedules issued by MLC Limited:
(a) were not incorporated into the LRAs in the period following 1 July 2016; and
(b) in any case, on their proper construction, did not require services to be provided or affect the entitlement of a financial services licensee to the payment of the Grandfathered Remuneration conferred by clause 4.2 of the LRAs.
825 I consider below the claim made by Mr Brady that there was a change in the arrangement because of the removal of a requirement to provide "services" which existed in the remuneration schedules and PDSs prior to the SFT but which was removed either because NULIS did not adopt the remuneration schedules (on Mr Brady's case there were no applicable remuneration schedules) or because the terms of the PDS issued after the SFT did not require advisers to provide services.
826 The starting point in considering the "arrangement" that existed is the LRA which, among other things, provides for the obligation to pay commissions. It sets out the arrangement between each MLC Issuer and MLC Payer, on the one hand, and financial services licensees, on the other. That is apparent from cl 3.2 of the LRA in place immediately before the SFT, which requires the person to whom the remuneration is to be paid (referred to as "you" in the LRA) to hold an Australian financial services licence (AFSL) authorising that person or entity to "deal in Financial Products and provide Financial Product Advice in relation to MLC Products".
827 There were, as I have already observed, a number of versions of the LRA in evidence before me with the earliest of those versions dating back to August 2011. In summary, the LRA requires the relevant MLC Payer to pay remuneration to the financial services licensee in respect of the issue of the particular MLC Product pursuant to an application submitted by the financial services licensee or its representative to the MLC Issuer and at the rates and subject to the terms and conditions set out in the remuneration schedules, PDSs or other relevant disclosures that applied between the MLC Payer, MLC Issuer and financial services licensee from time to time (see for example cll 3.1(c), 4.1, 4.2(b) and 4.3(a) of the 1 June 2016 LRA set out at [360(3)] above).
828 Despite the fact that remuneration was payable in respect of the issue of an MLC Product by a representative of a financial services licensee, the remuneration was paid to, and the arrangement pursuant to which it was paid, was with the financial services licensee, not its representative. There was no arrangement between the MLC Issuer or MLC Payer and the representative. This is illustrated below in the context of Mr Brady and his adviser, Mr James.
829 The arrangement in the LRA to pay remuneration to financial services licensees was also reflected in what Ms O'Neal described as a "course of conduct" (see [625] above).
830 The Grandfathering Paper noted that financial services licensees were paid "value and contribution based commissions" for the beneficial interest which their clients held in or contributed to certain products in TUSS which were acquired before 1 July 2014. Evidently, those arrangements had been in place for, and the associated payment of commissions had continued, over many years leading up to 1 July 2014. For example, Mr Brady who held one of the legacy products which attracted the payment of commission, had acquired that product in 2004, which was well before the earliest version of the LRA in evidence before me.
831 As I have already observed the LRAs in evidence dating back to 2011 were each in materially similar terms. In summary each "MLC Issuer" and "MLC Payer" agreed that the financial services licensee was entitled to remuneration and that the "MLC Payer" bore the obligation to pay the remuneration.
832 The 1 June 2016 LRA defined the term "MLC Issuer" as the MLC entity that issued the relevant "MLC Product" and included MLCN and NULIS and defined the term "MLC Payer" as the "MLC Issuer" of the product or "if applicable the entity named as MLC Payer in the current published Remuneration Schedule, product disclosure statement or other relevant disclosure document" and included for that purpose NWMSL.
833 It follows that under the terms of the LRA:
(1) prior to the SFT a product issuer "gave" the benefits to financial services licensees, in the sense of authorising those benefits to be paid (see s 52 of the Corporations Act), in return for the issue of a product to a person. For TUSS the relevant product issuer was MLCN and, as a practical matter, NWMSL paid the benefits on MLCN's behalf and was reimbursed by MLC Limited; and
(2) after the SFT the same financial services licensees continued to receive remuneration in return for the issue of a product to a person. While NWMSL continued to make those payments in respect of those former TUSS members, they were "given" (or authorised to be paid) by NULIS as the MLC Issuer for the products held by the former TUSS members.
834 Based on the above analysis the only change to the "arrangement" after the SFT was the change in the identity of the entity giving the "benefit" from MLCN to NULIS. The change to a party to an arrangement is expressly disregarded for the purposes of reg 16: see reg 16(3) of the Corporations Regulations.
835 Before leaving this aspect of the consideration of whether there was an existing arrangement, it is necessary to address Mr Brady's contentions: first, that NULIS was not formally a party to the LRA prior to 1 July 2013 or the SFT and secondly, that, even if it was a party, the LRA applied separately between a financial services licensee and each MLC Issuer.
836 The first contention is based on emails exchanged on 10 May 2016 between Mr Marriott and Ms Neaves, among others, in which Mr Marriott informed Ms Neaves that he had "searched over 4,500 pages of minutes (since June 2004) and there [was] no record of the matter ever having been presented to any of the Trustee entities or the Board resolving to enter any arrangements with financial advisers" (see [241] above). The "matter" referred to by Mr Marriott was his concern that the LRA and IRA had never been approved by the board of NULIS such that he could not then approve those documents using his board delegation.
837 At the time the NULIS board was asked to make the LRA Approval Decision, it was provided with a paper titled "Licensee Remuneration Arrangements" (see [243] above) which relevantly provided that the LRA was "not formally executed by any of the parties" but that NULIS was "already a party to the LRA". The board was also told that despite being party to it, "there [was] no formal minuted record of either" the MLCN or NULIS board having received or approved the LRA.
838 As NULIS submits, there is no principle that a company is only bound by an agreement where there is a board resolution approving it. Contractual assent may be inferred from conduct and without the need for a formal resolution: see e.g. Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 229 CLR 545 at [56].
839 I would accept, in light of the matters set out above, and, in particular, the understanding of NULIS' position as a party to the LRA reflected in the paper presented to the board, that NULIS was in fact a party to the versions of the LRA in evidence before me and certainly a party both before 1 July 2013 and the SFT. As NULIS observes it does not lie well in Mr Brady's mouth to assert that NULIS was not a party to the LRA, yet embrace MLCN as a party prior to the SFT in circumstances where its status vis-à-vis the LRA is described in exactly the same way in the board paper referred to at [243] above.
840 In any event, as Ms O'Neal confirmed in cross-examination when taken to the LRA, while prior to the SFT NULIS was neither the MLC Issuer or MLC Payer for the purpose of commissions paid for TUSS, the LRA also covered the "Navigator" product and "some NULIS products as well". Ms O'Neal explained that Navigator was "the administrator for all of the other super funds outside of TUSS" of which NULIS was the trustee. By way of explanation Navigator Australia Limited was the service company which administered the MLC Superannuation Fund of which NULIS was trustee and which issued products known as "Wrap" products and "MLC Navigator" products. The LRA includes both NULIS and Navigator Australia Limited as MLC Issuers.
841 As to the second contention, it was not in dispute that prior to the SFT, NULIS was not the MLC Issuer for the TUSS Commission Products. However, it was a party to the LRA as an MLC Issuer. That was the case for both the 2011 and 2013 versions of the LRA in evidence before me. By the LRA Approval Decision, the NULIS board did no more than to approve the LRA in its current form (see [244] above). At the time, the MLCN board approved the removal of MLCN as a party to the LRA. The effect of the latter resolution was to transfer responsibility for the payment of grandfathered commissions for products issued in TUSS from MLCN to NULIS.
842 As NULIS submits the arrangement remained the same. It was between the named MLC Issuer and MLC Payer and financial services licensees. The only change was in the allocation of responsibility to an existing MLC Issuer for the payment of commissions in relation to one class of products. That change did not alter the character of the arrangement. On a consideration of its terms, the LRA did not give rise to numerous individual arrangements between MLC Issuers and individual financial services licensees.
843 The conclusion which I have reached as to the effect of the arrangement in the LRA is, by analogy, consistent with the decision in ASIC v CBA where O'Bryan J said at [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.
844 I turn to consider Mr Brady's allegation pleaded at [59AA] of the 5FASOC that the arrangement changed from 1 July, 23 September or 26 September 2016 because NULIS removed or purported to remove the requirement to provide ongoing advice to him and at least some Group Members.
845 NULIS submits that Mr Brady's allegation in this regard is not made good either on the evidence or the law. NULIS submits that Mr Brady conflates the arrangement in place between NULIS and the financial services licensees under which benefits were given to the licensees, with the different relationships that existed as between NULIS and its members and as between individual advisers and their clients. NULIS further contends that, even if that fundamental difficulty is put to one side, Mr Brady has not demonstrated how disclosures contained in pre and post-SFT PDSs were different in any relevant sense and how any differences, if established, could change the arrangement between product issuer and licensee.
846 NULIS relies on the facts as they apply to Mr Brady in support of its submissions and to highlight the need for precision in identifying the arrangement pursuant to which benefits were given to Mr Brady's financial services licensee. Relevantly:
(1) Mr James was a financial adviser at MK Financial Planning;
(2) MK Financial Planning was an authorised representative of GWM Adviser Services Limited (GWMAS) trading as Garvan Financial Planning, a financial services licensee, i.e. the entity which held an AFSL; and
(3) Mr James provided Mr Brady with initial and ongoing advice and services in relation to his product, MasterKey Allocated Pension Gold Star.
847 The provision of benefits to GWMAS for issue of MasterKey Allocated Pension Gold Star to Mr Brady was between:
(1) MLCN and GWMAS prior to the SFT; and
(2) NULIS and GWMAS after the SFT.
848 There was no relationship between MLCN (prior to the SFT) or NULIS (after the SFT) and MK Financial Planning or Mr James. Rather, there was a series of separate relationships, each of which was governed by its own terms and conditions. Those relationships were between:
(1) the MLC Issuer and GWMAS, which was the arrangement pursuant to which the benefits were given to GWMAS;
(2) GWMAS and MK Financial Planning;
(3) MK Financial Planning and Mr James; and
(4) MK Financial Planning and/or Mr James and Mr Brady.
849 Mr Brady appears to rely on the LRA as giving rise to the obligation on the part of Mr James to provide him with ongoing advice (i.e. the services obligation); he accepted that the PDSs are not contractual documents that operate as between him and NULIS. However, Mr Brady's reliance on the LRA is misplaced. The LRA governs the relationship between the MLC Issuer, the MLC Payer and the financial services licensee who, in the case of Mr Brady, was GWMAS. Representatives of financial services licensees, such as MK Financial Planning and Mr James, are not party to the LRA. It follows that no obligations can be imposed on representatives under the terms of the LRA.
850 That conclusion is reinforced by the terms of the LRA which clearly provide that it is the financial services licensee, not its representatives, who is party to the LRA. It does so by distinguishing between persons who hold an AFSL and their representatives. In particular:
(1) cl 1 provides that "[t]his agreement governs the terms and conditions of the commercial relationship between you and us after the Effective Date";
(2) pursuant to cl 3.2(a) "you must at all times hold an AFSL authorising you to deal in Financial Products and provide Financial Product Advice in relation to MLC Products";
(3) the term "your or your", (which I apprehend should be "you and your") is defined as "each person to whom MLC Payers pay remuneration under this Agreement"; and
(4) the term "Representative" has the same meaning as in the Corporations Act.
851 As required by the LRA, commissions were paid to the financial services licensees, not their representatives. Mr Atwell's unchallenged evidence included that the practice was that NULIS reimbursed NWMSL for any payments of commissions and other types of adviser payments made by NWMSL to financials services licensees on behalf of NULIS, usually in the month following the month that the payments were made by NWMSL (see too [786] above).
852 It follows that, insofar as Mr Brady is concerned, the LRA applied as between MLCN prior to the SFT and NULIS after the SFT, each in their capacity as MLC Issuer, GWMAS as the financial services licensee, the entity that held an AFSL and is referred to as "you" in the LRA, and NWMSL as MLC Payer. NWMSL paid commissions to the financial services licensees and was reimbursed by the MLC Issuer under the IRA.
853 As NULIS submits, given that neither MK Financial Planning or Mr James were party to the LRA, it could not impose a requirement on either of them to provide ongoing advice, services or benefits to Mr Brady in exchange for "Conflicted Remuneration".
854 In the event I am wrong in my consideration set out in the preceding paragraph, it is necessary to consider whether the pre-SFT LRAs imposed any obligation on financial services licensees or their authorised representatives to provide ongoing advice by incorporating the terms and conditions in remuneration schedules and PDSs as Mr Brady contends.
855 As set out above, cl 4.1 of the LRA concerns remuneration including:
(1) at cl 4.1(a) that:
Subject to Applicable Laws, the MLC Payer will pay remuneration at the rates specified in Remuneration Schedules, product disclosure statement or other relevant disclosure document provided to you from time to time. …
(2) at cl 4.2 that remuneration is payable to financial services licensees:
…
(b) in respect of the issue of an MLC Product pursuant to an application for the issue of the MLC Product submitted by you or by one of your Representatives bearing an identification stamp or an MLC Issuer identification number provided by the relevant MLC Issuer to you or one of your Representatives; and
(c) in respect of the renewal, variation, replacement or continuation of an MLC Product submitted as set out in paragraph (b) above, or for which we reasonably believe you or your Representative have become the nominated servicing adviser.
(3) at cl 4.3(a) that:
Payment of remuneration is also subject to any terms and conditions applicable to MLC Products as set out in the Remuneration Schedules, product disclosure statement or other relevant disclosure document, including any terms applicable to clawing back remuneration. To the extent that there is any inconsistency between a Remuneration Schedule, product disclosure statement or other relevant disclosure document and a provision of this agreement, the provision of this agreement prevails unless the Remuneration Schedule, product disclosure statement or other relevant disclosure document expressly provides otherwise.
856 Contrary to Mr Brady's pleaded case (at [31AA] of the 5FASOC) the source of the terms requiring financial advisers to provide ongoing advice in respect of "Conflicted Remuneration" was not the PDSs or the remuneration schedules. As the terms of the LRA set out above make clear the PDSs and remuneration schedules prescribe the rate for, and the applicable terms and conditions governing, payment of the remuneration described in cl 4.2. That is, cl 4.2 of the LRA provides that payment of remuneration is to be made payable in respect of the issue of an MLC Product upon the submission of an application form by the financial services licensee or its representative and in respect of the renewal, variation, replacement or continuation of that MLC Product. Clause 4.2 does not make the payment of remuneration conditional on the provision of any ongoing advice, service or benefit. It exhaustively sets out the circumstances in which remuneration is payable to a financial services licensee.
857 The terms of the LRA do not permit the remuneration schedules to impose an obligation on financial services licensees (or their representatives) to provide services in return for remuneration to which they are entitled pursuant to cl 4.2. While cl 4.3(a) of the LRA provides that payment of remuneration is also subject to any terms and conditions applicable to MLC Products as set out in the remuneration schedules and PDSs, except to the extent there is any inconsistency with the LRA, that clause does no more than permit the remuneration schedules and PDSs to provide further detail in relation to the obligation to pay remuneration in cl 4.2. It does not permit any terms and conditions included in those documents to change the right to remuneration under cl 4.2.
858 For completeness, I consider below the terms of the remuneration schedules and the PDSs and whether in the form in which they existed before the SFT they imposed an obligation on financial services licensees or their representatives to provide ongoing advice.
859 I start with the remuneration schedules. NULIS says that they did not impose any obligation to provide ongoing advice in their pre-SFT form.
860 The pre-SFT remuneration schedule for MasterKey Allocated Pension - Gold Star (Closed) as at 1 October 2008, which was Mr Brady's product, included:
861 As NULIS submits, section 3 of the remuneration schedule uses tentative language. It provides that the authorised representative shall provide services "to the extent that it has" undertaken any of the activities listed at paras (a)-(d). That is, that doing any of the things in (a)-(d) of section 3 amounts to the provision of services.
862 The items included in paras (a)-(d) are each described in the past tense and are not cumulative. They can be read as disjunctive or alternatives. On that basis section 3 provides for an expectation that an individual adviser will undertake one or more of the activities identified in (a)-(d).
863 The second part of section 3 reinforces such a construction. It provides that, "[i]n consideration of the services provided", commission is payable. NULIS submits, and I accept, that the reference to "services provided" is most readily construed as a reference to the services in fact provided by the individual adviser, whether they are all or only a subset of the services at (a)-(d). Nothing in section 3 obliges an adviser to undertake each of the activities listed to be entitled to commission.
864 NULIS submits that on a proper construction of section 3 of the remuneration schedule, read in the context of the LRA, the reference to "services" is a descriptor only, not terms with any contractual effect and that, at most, the section describes an assumed state of affairs, without imposing any obligation. NULIS says that, when read as a whole, section 3 of the remuneration schedule should not be construed as creating any obligation to provide services but as deeming that the matters in (a)-(d) amount to the provision of services and that commission is payable as a result. They do not condition a financial services licensee's entitlement to payment under the LRA on individual compliance by financial advisers or create an entitlement on the part of any individual member to receive any particular form of service. That is apparent from the fact that the matters in (a)-(d) are expressed in a generic way to "any customer" or "customers" or "each customer" and that the commission is expressed to be payable on the combined value of all client accounts.
865 While I do not agree with the characterisation of the "services" as descriptors, I accept that section 3 of the remuneration schedule does not impose any obligation on an authorised representative. Rather it, in effect, deems that the matters referred to in paras (a)-(d) are services in consideration for which remuneration will be paid at the specified percentages based on the level of funds invested. Section 3 does not condition the entitlement to remuneration paid to the financial services licensee. To that end it is not a "term" or "condition" within the meaning of cl 4.3(a) of the LRA.
866 That construction accords with a businesslike interpretation which has regard to the language used, the commercial circumstances and the context in which the LRA and the remuneration schedules operate: see FSS Trustee at [61] (at [379] above). NULIS notes that on its construction, an adviser will be entitled to commission where, for example, he or she has been available during business hours for consultation with customers. In contrast, Mr Brady's construction would require NULIS, as MLC Issuer, to satisfy itself prior to any amount of commission being paid to GWMAS (in the case of Mr Brady) that each relevant adviser had carried out each of the services identified in respect of each client. NULIS would have to satisfy itself of these matters each time a payment was made. The construction urged by Mr Brady is uncommercial.
867 I turn to the PDSs. Once again NULIS' position is that in their pre-SFT form they did not impose any obligation to provide ongoing advice.
868 In Aussiegolfa, cited with approval in Quach at [111], Steward J described the PDS in that case at [212] as:
… documents mandated by the Corporations Act which compel the disclosure of information to proposed investors. Their function and purpose is not to be a source of contractual terms, but to convey a description of a proposed investment. As the Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth), which introduced the provisions concerning product disclosure in Div 2 of Pt 7.9 of the Corporations Act, states at [14.28]:
Division 2 of proposed Part 7.9 deals with point of sale disclosure in relation to all financial products other than securities (as defined in proposed section 761A). The broad objective of point of sale disclosure obligations is to provide consumers with sufficient information to make informed decisions in relation to the acquisition of financial products, including the ability to compare a range of products.
869 At [214]-[215] his Honour relevantly said:
214 The conclusion that the June 2015 Product Disclosure Statement is not a source of contractual terms is supported by authority. In Gunns Finance Pty Ltd (in liq) v Sithiravel [2016] NSWSC 1543, it was contended that statements made in a product disclosure statement contained the terms of a contract. The claim was rejected by Robb J who said at [176], [177] and [179]:
176 Mr Sithiravel submitted, at par 76, that he applied for the products and services offered by Gunns Plantations on the basis of what was contained in the PDSs, and that appears to be the basis of his claim that the PDSs contained terms of the contract. He relied upon a number of statements in the Woodlots Project 2006 PDS (court book p 145) concerning "Key Features" of the project that: "Growers are offered a unique investment opportunity allowing the flexibility of three planting options" and "Growers are offered the opportunity to acquire a Forestry Right over Woodlots …" (emphasis added in both cases) as signifying that the PDSs were offers capable of acceptance. He said that these offers were "akin to the offer to the world at large in the contract case which sticks in all law students' minds Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256".
177 There is no place in the analysis of the effect of the PDSs for the principles governing unilateral contracts, where the offeror makes an offer to a class which is capable of acceptance by the doing of an act identified in the offer.
…
179 While the statements relied upon do make various assertions about the nature of the project and the rights of investors, those statements are expressed in descriptive rather than promissory language. They plainly constitute representations, but they do not appear to be independent sources of contractual obligations.
215 I respectfully agree with Robb J's analysis of the effect of a product disclosure statement. I also respectfully agree with Buss JA, who rejected a similar argument about contractual intent, this time made with respect to an information memorandum, in Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission (2006) 32 WAR 204. …
870 As I have already observed, Mr Brady accepts that the relevant PDSs did not have contractual force between him and NULIS. That must be so. The effect of the authorities is that a PDS does not have contractual force for any purpose. It is a disclosure document mandated by the Corporations Act that describes a proposed investment.
871 In that context, I turn to consider the effect of the disclosures within the PDS on which Mr Brady relies and whether it obliged advisers to provide ongoing advice.
872 The relevant PDS for MasterKey Allocated Pension Gold Star which applied as at 8 September 2004, when Mr Brady acquired his product, is dated 19 September 2003. It is a lengthy document. At p 35 it describes "fees and expenses", noting there are two categories of fees: standard fees and discretionary fees "which are only charged in certain circumstances". Mr Brady relies on two sets of statements appearing at p 40 under the heading "[w]hat is paid to your financial adviser?".
873 First, where the PDS states (original emphasis):
The financial adviser providing you with initial and/or continuing advice on this product may receive payment ('remuneration') for the advice. …
Your financial adviser's remuneration, which is described below, is included in the charges shown previously (except any remuneration that your financial adviser charges directly to you as a fee for service).
I note that the "the charges shown previously" are those described at p 35 of the PDS.
874 This statement is not promissory in nature.
875 As NULIS submits:
(1) there is no detail in the description of the "advice". Neither its nature or scope is specified, nor is the frequency with which it is to be provided;
(2) the inclusion of the words "and/or" indicates that the financial adviser may receive payment for initial advice rather than continuing advice (as was the case for Mr Brady); and
(3) that the adviser may receive a payment for providing initial and/or continuing advice is also not limited to the "Asset based remuneration" referred to in the table (see below), which is the type of commission paid in respect of Mr Brady's account. The table also includes "Adviser Service Fee" which is remuneration that can be agreed between the member and adviser. The reference to "continuing advice" is more apt to apply to advice provided as a result of that type of fee for service.
876 Secondly, Mr Brady relies on the PDS at p 40 where it states, in the table describing the remuneration which an adviser may receive, in relation to "Asset based remuneration":
… The rate of standard remuneration is calculated according to the total value of investments that you, or you and an agreed linked investor, hold with MLC MasterKey products which are serviced by the same financial adviser.
The increasing levels of standard remuneration reflect the increased service required to monitor large account balances.
877 Again, the expression is vague. The "increased service required to monitor large balances" does not describe the "service" that is to be provided or suggest that it concerns giving individualised advice. Rather, it suggests that a financial adviser is required to do more work for a member with a larger account balance, without setting out what that work might be. It is imprecise and lacks detail: see Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission (2006) 32 WAR 204 at [90].
878 Neither the pre-SFT remuneration schedule or the pre-SFT PDS relating to Mr Brady required the provision of any services. Given that conclusion I do not need to consider the effect of the letter from KWM dated 22 July 2021 to Mr Brady's solicitors (see [824] above) and whether it could be relied on to establish a material change in the arrangement. However, I note, without resolving the issue, that NULIS' position is that it could not be relied on for that purpose and, in effect, excuse Mr Brady from proving that there had been a removal of the requirement to provide advice, assuming it existed in the first place.
6.4.2.2 There was an existing arrangement that did not change
879 The effect of the conclusions I have reached about the arrangement are twofold: first, the requirements of reg 16 are met which in turn requires me to consider reg 16A and reg 16B (which I do below); and secondly, it means that Mr Brady's claim at [59AA] of the 5FASOC fails.
6.4.3 Regulations 7.7A.16A and 7.7A.16B of the Corporations Regulations
880 By his Amended Reply (at [1A]) Mr Brady contends that if, contrary to [59AA(c)] and [59AA(d)] of the 5FASOC, the benefits relating to Mr Brady and all Group Members from 1 July 2016 were paid pursuant to an arrangement (because they attracted the exemption in s 1582(2) read with reg 16), the benefits nonetheless attracted the application of Div 4 of Pt 7.7A by reason of s 1582(2) of the Corporations Act read with reg 16A or reg 16B of the Corporations Regulations. If those regulations apply, they override s 1528(2) of the Corporations Act and reg 16. That is, they reduce the scope of the general exemption from the application of Div 4 of Pt 7.7A in s 1528(2) and reg 16: see reg 16(4) and ASIC v CBA at [259].
881 Regulations 16A and 16B are set out at [770]-[771] above. They are, to adopt the description of O'Bryan J in ASIC v CBA at [265], "drafted in an exceptionally complex manner". In summary, regs 16A and 16B prescribed circumstances in which Div 4 of Pt 7.7A of Ch 7 of the Corporations Act applies to a benefit. They each provide that Div 4 of Pt 7.7A applied where the benefit was given under an arrangement that was entered into before the application day, as is the case here. Regulation 16A applies where the benefit was given by a person acting in the capacity as a platform operator and reg 16B applies where the benefit was given by a person who was not acting in the capacity of a platform operator.
6.4.3.1 Acting in the capacity of a platform operator
882 In ASIC v CBA O'Bryan J (with whom Moshinsky J agreed) considered the meaning of the term "acting in the capacity as a platform operator". In doing so his Honour referred first to regs 16A(3) and 16B(3) which are in identical terms and which for convenience I reproduce below:
… 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.
883 At [268] his Honour identified three aspects of reg 16A(3) and reg 16B(3) which required 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?
884 In answering the first question posed, O'Bryan J first referred to the purpose of a deeming provision and then said at [271]-[272]:
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:
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.
(Emphasis added.)
885 His Honour concluded (at [273]) that the impugned benefits in that case were given by CFSIL in its capacity as a platform operator (as the trustee of Essential Super), the benefits were given to CBA for the provision of marketing, distribution and administrative services for Essential Super and "[t]he ordinary meaning of the phrase 'in its capacity as a platform operator' would include benefits given to receive the services provided by CBA". Accordingly, his Honour concluded that reg 16A was capable of applying but reg 16B did not apply to the impugned benefits. As a result O'Bryan J observed that he did not strictly need to consider the further questions he had posed about the interpretation of reg 16A(3) and reg 16B(3). Notwithstanding that, his Honour made the following further observations at [275]-[276]:
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.
886 At [278] O'Bryan J found that none of the services or activities for which the impugned benefits were paid by CFSIL involved investment activities undertaken on the instruction of the client. On the basis that the relevant connection is with the services, events or activities for which the benefit is given, his Honour would conclude that the impugned benefits were not given by CFSIL in relation to the investment activities undertaken on the instruction of the client. His Honour said at [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.
887 For the purposes of reg 16A Mr Brady does not contend that reg 16A(2)(a) was satisfied. That is, Mr Brady's position is that NULIS was not acting in its capacity as a platform operator when it paid commissions to financial services licensees. He submits that, in contrast to the position in ASIC v CBA, no services were provided by advisers to NULIS and that the commissions they were paid had nothing to do with NULIS' "platform operator" activities. Rather, they were incentives paid to advisers to submit applications for people to become members of TUSS which would be paid so long as the person remained a member of the MLC Super Fund. Further, Mr Brady says that the commission paid to financial services licensees had nothing to do with the instructions provided by him and Group Members to NULIS in respect of their investments in the MLC Super Fund.
6.4.3.2 Regulation 16A
888 NULIS' position is that reg 16A does not apply because Mr Brady does not suggest that 16A(2)(a) was satisfied and says that, in any event, reg 16A(2)(c) was not satisfied in relation to Mr Brady or the sample group member, Ms Atkinson.
889 Putting to one side the question of the application of reg 16A(2)(a), I turn to consider whether reg 16A(2)(c) is satisfied. Reg 16A(2)(c) sets out two alternate criteria. It requires that the benefit either:
(i) relates 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) does not relate to a person who opened an account on the platform before 1 July 2014.
6.4.3.2.1 Regulation 16A(2)(c)(i)
890 Reg 16A(2)(c)(i) is satisfied when the benefit relates 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.
891 The text of reg 16A(2)(c)(i) identifies two different instructions: the benefit must relate to an acquisition on the instructions of a person; and the person who gave those instructions must not have given an earlier instruction to the person acting in the capacity of a platform operator to open an account before 1 July 2014.
892 NULIS submits that the evident intent of reg 16A(2)(c)(i) was to preserve grandfathering where a client who had opened an account on the platform before 1 July 2014 subsequently gave an instruction to acquire a financial product to which a benefit related and, equally, to exclude grandfathering for new clients on a pre-1 July 2014 platform. I accept that submission. That dual intent is reflected in the Explanatory Statement to the Corporations Amendment Regulation 2013 (No 5) (Cth) which provides at 3:
For the avoidance of doubt, if a retail client has an interest in the platform before 1 July 2014, subregulation 7.7A.16A(4) provides that a benefit relates to the acquisition of a financial product if it is paid in relation to the initial acquisition of the product or the subsequent holding of that product. That is, a benefit will be grandfathered for existing clients even if the benefit relates to the initial acquisition of a product or the subsequent holding of that product.
…
The effect of regulation 7.7A.16A is to grandfather benefits given under pre-application date arrangements except where they relate to a new client coming onto the platform from 1 July 2014.
893 Insofar as the construction of reg 16A(2)(c)(i) is concerned, Mr Brady submits that the relevant instruction is one given to "the person acting in the capacity of a platform operator" (being the same person referred to in reg 16A(2)(a), which is NULIS) and that the relevant instruction concerns the opening of an account on "the platform" which relates back to the platform operated by the person referred to in reg 16A(2)(a). That is Mr Brady proceeds on an assumption that reg 16A(2)(c)(i) only applies where the person who gives the benefit after 1 July 2014 is the same person to whom the instruction was given before 1 July 2014 to open an account on the platform.
894 There is no basis on which the regulation would be read down in that way. The text of reg 16A(2)(c)(i) does not require the person giving the benefit and the person to whom account opening instructions were given to be the same. As NULIS submits, reg 16A(2)(c)(i) captures the person or persons acting in the capacity of a platform operator from time to time before 1 July 2014, whether that is the same or a different person to that identified in reg 16A(2)(a).
895 That construction is reinforced by reg 16A(5) which provides that, for subreg (2) "if a party to an arrangement changes, the arrangement is taken to have continued in effect, after the change, as the same arrangement". That is, the fact that the identity of the platform operator changed by reason of the SFT, with the result that the party to the custodial arrangement changed, is to be disregarded.
6.4.3.2.2 Mr Brady and Ms Atkinson
896 Based on his construction of reg 16A(2)(c)(i) (see [893] above), Mr Brady submits that no relevant instruction could have been given to NULIS, as the platform operator (being the person mentioned in subreg 2(a)), prior to 1 July 2014, because the MLC Super Fund did not exist prior to that date. Mr Brady submits that when he and Group Members were transferred to the MLC Super Fund in 2016 as part of the SFT, a new custodial arrangement applied because they became members of a new superannuation fund (the MLC Super Fund) with a different trustee (NULIS, being the person giving the relevant benefits). He contends that as the MLC Super Fund was only established in 2016, there were no accounts of Mr Brady or Group Members on the platform operated by NULIS prior to 1 July 2014.
897 NULIS submits that both Mr Brady and Ms Atkinson are outside the class of persons to which reg 16A(2)(c)(i) is directed. I turn to consider whether that is so.
898 I have rejected Mr Brady's construction of reg 16A(2)(c)(i). The regulation does not require an equivalency of identity between the giver of the benefit and the person to whom the account opening instructions were given. It follows that to the extent that Mr Brady's submissions rely on his narrow construction of reg 16A(2)(c)(i) to bring him within the regulation, they must fail. That construction also infects the balance of Mr Brady's submissions.
899 Having regard to my preferred construction of reg 16A(2)(c)(i), NULIS' submissions and the relevant facts, for the following reasons I am satisfied that Mr Brady and Ms Atkinson are not within the class of persons contemplated by reg 16A(2)(c)(i).
900 Mr Brady acquired MasterKey Allocated Pension Gold Star in 2004. He did so by completing, among other things, a "Request to transfer funds to the MLC MasterKey Allocated Pension" and necessarily gave an instruction to the person acting in the capacity as platform operator (at that time MLCN) to open an account on the platform. As NULIS submits, the same is the case for Ms Atkinson. At least by 2005, the earliest year for which her account statement for "MLC MasterKey Business Super" dated 28 July 2006 shows an opening balance, she must have given an instruction to the platform operator, MLCN, to open an account on the platform.
901 The word "platform" is now defined in s 9 of the Corporations Act to include "a website or other electronic facility". That definition was introduced into the Corporations Act with effect from 28 September 2017.
902 The Revised Explanatory Memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 (Cth) provides the following explanation of a platform in a footnote to [3.6]:
A platform is an administration facility that simplifies acquisition and management of a portfolio of investments. Platforms allow retail investors to purchase a range of investments through the one facility. In one sense platforms are like a department store where you can choose from different brand names and products in the one place, rather than having to visit a number of specialty stores.
903 This explanation of a "platform" is consistent with the definition of "platform operator" in s 1526(1) of the Corporations Act as read with s 1012IA(1), which provides that a platform operator is, among other things, the provider of a custodial arrangement by which a person may instruct the provider to acquire specific financial products which are to be held on trust for the person giving the instruction.
904 The relevant "platform" for Mr Brady and Ms Atkinson was the MasterKey platform. As described in the applicable PDS, it allowed clients to direct the platform operator to invest their superannuation in a range of different investment options.
905 The PDS dated 19 September 2003 which was tendered by Mr Brady and which I infer was given to him in 2004 provided that "[t]he MasterKey system gives you planning and investment flexibility within one integrated platform" and that "[t]he MLC MasterKey investment menu has been designed to suit the financial and lifestyle needs of a range of very different investors. You can choose from a range of multi-manager, multi-sector funds; multi-manager sector funds; and single manager funds". MasterKey Allocated Pension Gold Star had "a menu of 40 investment funds" into which Mr Brady's superannuation could be invested, on his instructions. The PDS included detailed information about the specific funds and portfolios available.
906 The descriptions of "MLC MasterKey" and of the available investment options set out in the Investor Information Booklet issued for Ms Atkinson's product, MKBS, dated 30 April 2001, which was the earliest version of the relevant PDS in evidence, are to the same effect. For example, that PDS provided that MKBS "is an efficient and flexible employer sponsored superannuation product" which, among other things "gives you a wide range of investment funds so that you can choose your own individual investment strategy" and that:
When investing your money, the Trustee allows you to select one or more investment funds which suit you, and deposits made in your name are invested in the fund(s) you have chosen.
907 The same platform existed after the SFT. Contrary to Mr Brady's submissions, neither the SFT, nor the change in trustee from MLCN to NULIS, changed the MasterKey platform or Group Members' "accounts" on that platform. For example, the PDS issued after the SFT to:
(1) Mr Brady for MasterKey Allocated Pension Gold Star dated 23 September 2016 stated that MasterKey offered him "a diverse range of multi and single sector asset class investment options managed by us as well as other investment managers" and identified in detail the investment options in a section titled the "Investment Menu"; and
(2) Ms Atkinson for MKBS dated 30 September 2016 provided that the product offered "a diverse range of multi and single sector asset class investment options managed by us as well as other investment managers" and that it provided "a broad range of investment options" and the client could "choose any of these investment options to really put [their] investment plan into action".
908 PDSs for the MasterKey platform continue to provide for these same features.
909 The continued existence of the MasterKey platform is also demonstrated by Mr Brady's investment selections at the time he became a member of TUSS:
(1) in 2004 when Mr Brady completed his application for MasterKey Allocated Pension Gold Star he instructed MLCN to invest his monies in two investment funds, namely the "MLC Horizon 5 " fund and the "MLC IncomeBuilder" fund;
(2) upon completing his application Mr Brady was allocated account number 8301190 on the platform by the platform operator;
(3) Mr Brady retained the same account number and investments in the two investment funds set out at subpara (1) above both before and after the SFT; and
(4) the statements provided to Mr Brady both before and after the SFT (i.e. as at 30 June 2016 and as at 30 June 2017) set out his withdrawal value over the 5 year period prior to respectively 30 June 2016 and 30 June 2017 and provided in each case that his "account start date" was 10 September 2004.
910 The same factors are also evident upon a review of annual statements issued to Ms Atkinson as at 30 June 2016 and 30 June 2017.
911 It follows that any benefit given by NULIS in relation to Mr Brady's and Ms Atkinson's respective investments did not relate to 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 prior to 1 July 2014. As NULIS points out this conclusion is reinforced by the fact that the Gold Star Allocated Pension product in which Mr Brady invested was closed to new members in 2007 such that Mr Brady must have given instructions to open an account on the MasterKey platform prior to 1 July 2014. The same is true for each of the TUSS Commission Products, including that held by Ms Atkinson, which (other than the Corporate Super Products) were off sale and closed to new members by 1 July 2014. While the Corporate Super Products remained on sale after the SFT, commission arrangements only applied to members who joined prior to 29 November 2013 (see [73] above).
912 My conclusion set out in the preceding paragraph must follow even if the benefits paid after Mr Brady and Ms Atkinson acquired their products were characterised as benefits for the continued holding of the product. This is because reg 16A(4) deems such benefits to be treated as relating to the acquisition of a financial product.
913 In light of the above analysis, the question of whether a person acquired a new product by reason of the SFT, namely a superannuation interest in a new superannuation fund, does not arise in the context of reg 16A(2)(c)(i). That is because that regulation is only engaged if there is an acquisition of a financial product and the person who acquired the financial product had not given instructions to open an account on the platform before 1 July 2014.
6.4.3.2.3 Regulation 16A(c)(ii)
914 Mr Brady submits that reg 16A(c)(ii) applies for much the same reason as he says reg 16A(c)(i) applies. That is principally because when he and the Group Members were transferred to the MLC Super Fund as part of the SFT there was a new custodial arrangement. They became members of the MLC Super Fund, which was a new superannuation fund with a new trustee, NULIS, which was the person giving the relevant benefits. He says that for that reason the commissions were not paid in respect of any services provided prior to 1 July 2014.
915 In ASIC v CBA O'Bryan J found (at [282]) that the impugned benefits did satisfy the circumstance described in reg 16A(2)(c)(ii) noting that the regulation does not concern investment instructions and the implementation of such instructions but "merely requires that the impugned benefits relate to persons who opened an account on the platform after 1 July 2014". His Honour referred to the regulatory intent of reg 16A(2)(c)(ii) in the Explanatory Statement which is 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.
916 At [283] O'Bryan J observed that the impugned benefits were given in return for marketing, distribution and administration services provided by CBA in connection with Essential Super, that the payments continued after 1 July 2014 and that it was open to conclude that they 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. That was because his Honour was of the view that the services were designed to facilitate persons opening an account with Essential Super.
917 However, the facts before me are different. Mr Brady opened an account on the MasterKey platform in 2004. The benefits paid to Mr Brady's linked financial services licensee in relation to Mr Brady's MasterKey Allocated Pension Gold Star relate to Mr Brady. That is, the benefits relate specifically to a person who opened an account on the platform before 1 July 2014. Thus, reg 16A(2)(c)(ii) does not apply.
918 It follows from the above that reg 16A does not apply.
6.4.3.3 Regulation 16B
919 I turn to consider whether reg 16B applies to the benefit.
920 Regulation 16B applies where the benefit is given by a person who is not acting in the capacity of a platform operator: reg 16B(2)(a). As set out at [754] above, Mr Brady contends that to be so in the case of NULIS. While NULIS accepted Mr Brady's stated position for the purpose of consideration of the application of reg 16A, it disputes that to be the case for the purpose of reg 16B and contends that in giving the benefit it was acting in the capacity of a platform operator.
921 In support of that contention NULIS submits that the commissions paid by it to Mr Brady's linked financial services licensee related to activities undertaken in connection with the platform as a result of instructions to the platform operator from Mr Brady as a client who had set up an account on the platform. Those activities included the issue and continued holding of Mr Brady's superannuation monies in MasterKey Allocated Pension Gold Star and the continued allocation of Mr Brady's superannuation monies in the specified investment options, which were activities resulting from Mr Brady's instructions. NULIS submits that the relationship between the benefit and those activities is clear. The commissions were payable to financial services licensees in respect of (at least) the issue of MasterKey Allocated Pension Gold Star on the instructions of Mr Brady.
922 The relevant benefit is the commissions paid by NULIS to financial services licensees. As I have found at [815] above, NULIS is a platform operator as required by reg 16B(3)(a). The question to be resolved is whether, as required by reg 16B(3)(b), the benefit "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".
923 The benefit must relate to activities undertaken in connection with the platform, i.e. platform operator activities. In ASIC v CBA the benefit was given by the trustee, CFSIL, in relation to services provided by CBA in respect of the fund. Mr Brady says that unlike the position in ASIC v CBA, here no services were provided by financial services licensees to NULIS and the commissions that were paid had nothing to do with "platform operator" activities. But I do not understand that anything in ASIC v CBA requires that the activities for the purposes of reg 16B(3)(b) must concern the provision of a service. Here the activities are the issue to, and holding by, Mr Brady of a superannuation product on the platform.
924 It is then necessary to consider whether the activities were undertaken in connection with the platform as a result of instructions to NULIS from a client. Mr Brady says that the commissions paid by NULIS had nothing to do with instructions provided by him and Group Members to NULIS in respect of their investments in the MLC Super Fund. That submission overlooks the fact that the commissions were paid by NULIS in respect of the initial investment in or acquisition of MasterKey Allocated Pension Gold Star and Mr Brady's continued holding of that investment as a result of instructions given by Mr Brady. There was a sufficient connection between payment of the commission and the investment activities undertaken on Mr Brady's behalf.
925 It follows that NULIS was acting in the capacity of a platform operator and accordingly reg 16B does not apply.
926 If I am wrong about that and contrary to my finding NULIS was not acting in the capacity of a platform operator it is necessary to consider whether reg 16B is satisfied and, for that purpose, whether the requirements of reg 16B(2)(c) are met.
927 Regulation 16B(2)(c) requires that 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.
928 As is evident reg 16B(2)(c)(i) and (ii) are alternatives. Only one of those subparas need be satisfied. In ASIC v CBA only Jackman J considered the operation of reg 16B(2)(c). In doing so his Honour accepted CBA's submissions as to the construction of reg 16B(2)(c) (at [326]). His Honour summarised those submissions at [323]-[325]:
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.
929 Mr Brady submits that reg 16B(2)(c)(i) is satisfied because:
(1) a financial product is issued to a person when the person becomes a member of a super fund: s 761E(3) of the Corporations Act;
(2) the relevant acquisition is the new product issued for Mr Brady and the Group Members when they were transferred to the MLC Super Fund in 2016; and
(3) this is fortified by the LRA (which NULIS entered into), which provides that commissions are payable in respect of the issue, renewal, variation, replacement or continuation of a product (cl 4.2).
930 Central to Mr Brady's argument is s 761E of the Corporations Act which, among other things, defines when a financial product is issued to a person. Relevantly, s 761E(3) provides that a financial product specified in the table is issued to a person when the event specified for that product occurs. Item 1 of the table concerns "superannuation product" and provides that the "event" is when "the person becomes a member of the fund concerned". Mr Brady contends that a new product was issued to him at the time of the SFT because at that time he became a member of the MLC Super Fund.
931 In my view, the commissions paid by NULIS to Mr Brady's and Ms Atkinson's respective financial services licensees were not in relation to the acquisition, on or after 1 July 2014, of a financial product for the benefit of a retail client. As NULIS submits the commissions were in relation to the issue of Mr Brady's and Ms Atkinson's superannuation interests in 2004 and 2001 respectively. The source of the continuing obligation to pay the commission was, in each case, the original acquisition.
932 Even if that were not so and the benefits paid after the SFT were in relation to a new financial product issued to Mr Brady and Ms Atkinson (because of s 761E(3) of the Corporations Act), NULIS would be able to rely on reg 16B(4) which provides that for the purposes of subreg (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 the 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.
933 The effect of reg 16B(4) is to treat the benefits paid after the SFT as payments in relation to the acquisition by Mr Brady and Ms Atkinson of their products/investments which in each case was before 1 July 2014. That is so whether the benefit is paid for the initial acquisition or the subsequent holding of the product.
934 In the alternative Mr Brady submits that reg 16B(2)(c)(ii) is satisfied because:
(1) from 1 July 2016 the commissions were paid in respect of the membership of Mr Brady and the Group Members in a new superannuation fund;
(2) under cl 4.2 of the LRA, the payment of that commission was for the replacement of Mr Brady's and the Group Members' products in TUSS with the products with which they were issued in the MLC Super Fund and the continuation of the holding of their products in the MLC Super Fund; and
(3) the commissions were not paid in respect of any services provided prior to 1 July 2014.
935 The benefits given by NULIS in relation to Mr Brady do relate to a financial service provided before 1 July 2014 for the benefit of Mr Brady.
936 Division 4 of Ch 7.1 of the Corporations Act was introduced by the Financial Services Reform Act 2001 (Cth). It concerns the meaning of financial service and related terms. Section 766A(1) relevantly provides:
Subject to paragraph (2)(b), a person provides a financial service if they:
(a) provide financial product advice; or
(b) deal in a financial product; or
…
937 The term "financial product advice" is defined in s 766B(1) to mean:
… a recommendation or a statement of opinion, or a report of either of those things, that:
(a) 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
(b) could reasonably be regarded as being intended to have such an influence.
938 The conduct that constitutes "dealing in a financial product" is set out in s 766C(1) and includes:
(a) applying for or acquiring a financial product;
(b) issuing a financial product;
(c) in relation to securities and interests in managed investment schemes - underwriting the securities or interests;
(d) varying a financial product;
(e) disposing of a financial product.
939 As NULIS submits the benefits relate to financial services because they were either related to financial product advice or dealing in a financial product prior to 1 July 2014. As the evidence before me demonstrates:
(1) the benefits were paid because of Mr Brady's receipt of financial product advice prepared by Mr James and recorded in a statement of advice dated 7 September 2004;
(2) the recommendations in that advice included that Mr Brady move his superannuation, at the time held in an MLC fund and Colonial Super Retirement Fund, to MasterKey Allocated Pension Gold Star;
(3) on 8 September 2004 Mr Brady accepted the recommendations in the statement of advice and authorised their implementation; and
(4) on the same day Mr James forwarded an application form completed by Mr Brady to "MLC MasterKey Superannuation" to set up his allocated pension.
940 To the extent that Mr Brady relies on s 761E(3) of the Corporations Act to contend that there was a new product by reason of the SFT, NULIS continues to have the benefit of the deeming provision in reg 16B(4) (see above).
941 It follows that neither regs 16B(2)(c)(i) nor (ii) apply.
942 Finally, I note reg 16B(2)(d) which requires that the client did not have an interest in the product before 1 July 2014. Mr Brady made no submissions in relation to this subregulation. That is for good reason. Mr Brady clearly had a financial product well before 2014, having acquired his product in 2004. As NULIS submits, while the particular product with which reg 16B(2)(d) is concerned is unclear, read in context, it must include the product for which benefits are given. That was the product acquired by Mr Brady in 2004, the features of which effectively remained the same after the SFT.
943 Even if Mr Brady acquired a new product by reason of the SFT, a contention he made in relation to reg 16B(2)(c)(ii), the deeming provision in reg 16B(4) would operate such that the product is the initial product acquired unaffected by the substitution of NULIS as trustee in place of MLCN. Thus, the requirements of reg 16B(2)(d) are not met.
944 It follows that reg 16B does not apply.
6.4.4 Div 4 of Pt 7.7A of Ch 7 of the Corporations Act does not apply
945 Given my conclusions in relation to reg 16A and reg 16B, NULIS can rely on reg 16 such that Div 4 of Pt 7.7A of Ch 7 of the Corporations Act does not apply to the commissions paid by NULIS to financial services licensees after the SFT insofar as they concern Mr Brady or Ms Atkinson.