In this edition of the FSR GPS, we explore key principles for financial services businesses to consider when considering the use of a disclaimer to mitigate false, misleading or deceptive conduct.
As noted in our previous article about where an unintentional error may not constitute misleading or deceptive conduct, the key test for misleading or deceptive conduct is whether the conduct, viewed as a whole, has a sufficient tendency (i.e. a real and not remote probability) to lead the relevant person into error.
Recent cases have given room for disclaimers to be taken into consideration in applying this test.
This is a very important development for those in the financial services sector, as it potentially provides an important counterargument to inaccurate (particularly inadvertently inaccurate) material being misleading or deceptive.
The effect of a disclaimer
In ASIC v NAB,[1] the Court considered the effect of customer account statements which had showed fees being charged by NAB where it had no entitlement to do so. Similarly, ASIC v CBA considered customer account statements showing fees charged by CBA where such fees had been contractually waived. [2]
In each case, ASIC alleged that the bank made an implied representation that it was contractually entitled to charge the relevant fee, which was misleading. In each case, the Court found that the account statements did not create that implied representation and were not misleading. As observed by Downes J: [3]
While the customer expects that the bank will adhere to the terms of the contract, the ordinary and reasonable customer (as described above) does not expect perfection from a bank in the performance of its contract.
The account statements in each scenario contained a note to the effect that the customer should check their statement and notify the bank of any errors. For example: [4]
…First, a passage at the foot of each account statement (although it did not appear in passbook accounts) tended to negate any suggestion that the information contained in it was warranted to be accurate or that it accorded with the contract terms. It read as follows:
Explanatory Notes
Please check all entries and report any apparent error or possible unauthorised transaction immediately.
We may subsequently adjust debits and credits, which may result in a change to your account balance to accurately reflect the obligations between us.
For information on resolving problems or disputes, contact us on 1800 152 015, or ask at any NAB branch.
These notes were also supported by the relevant terms and conditions in each case, which contained wording with a similar effect. CBA’s terms also went on further to expressly disclaim the accuracy of its statements: [5]
This is especially as, except for the period between 1 June 2010 and 29 May 2011, the Terms and Conditions also contained an express statement to the effect that CBA “accept[s] that sometimes we can get things wrong, and when this happens we’re determined to make them right again” (emphasis added). By that express acceptance, CBA disclaimed any guarantee of perfect accuracy as regards the account statements or entries in the passbook.
The cases demonstrate that the effect of the disclaimers will be relevant in determining whether relevant representations are misleading. This suggests that it could be prudent for financial service providers to include a disclaimer to reflect that the relevant provider does not always get it right.
Where could a disclaimer be used?
A disclaimer could be used for regulated disclosure documents (such as an FSG, PDS, Cash Settlement Fact Sheet or Statement of Advice) (though noting that the effectiveness will also depend on the content vis-a-vis the prescribed content requirements for such documents), as well as for other documents such as fee account statements, records of transactions, or marketing collateral.
Limitations of using a disclaimer
A disclaimer is not a ‘Get Out of Jail Free card’. Providers will need to strike the right balance in framing the disclaimer. In doing so, the following limitations of using disclaimer should be considered:
- General obligations: A financial service provider will still have duties to take reasonable care and act efficiently, honestly and fairly in the provision of its financial services. A provider cannot rely on the disclaimer to do things incorrectly or negligently.
- Context of the document: The misleading or deceptive test is applied in relation to the context of document as a whole. We note that both the NAB and CBA cases were in the context of customer account statements. Downes J considered that: [6]
…the ordinary and reasonable customer would not view a customer account statement as an invoice, but as a record of transactions that have occurred on the account. The ordinary and reasonable customer understands that a customer account statement is sent to customers so that they may acquaint themselves with those transactions and satisfy themselves that no disputed transactions have occurred, either by error of the bank, or mistake or malfeasance by third parties.
In some contexts, ASIC or the Court could potentially take the view that a disclaimer is not sufficient to negate the overall context and dominant message of a particular document or statement. When thinking about the context, some questions to ask may include:
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- What is the purpose of the document or statement? Would the ordinary and reasonable reader view the document or statement as accurate and binding?
- Is there any demand for the reader to perform any obligation (e.g. pay a potentially incorrect fee which is due imminently)?
- Are there any representations that the provider warrants the accuracy of the document or statement?
- Unfair contract terms: In a contract, care should be taken to ensure that the effect of the disclaimer does not cause a significant imbalance in the parties rights and obligations. This could arise, for example, if the misstatement gives the provider an advantage (to the detriment of the customer) and the disclaimer allows the provider to retain the advantage.
What might a disclaimer look like?
We set out below an example of a disclaimer, although the relevant disclaimer will vary depending on the context in each case:
We use reasonable efforts to provide accurate and up to date information. However, mistakes may still occur from time to time and we cannot guarantee that this document is free from any errors, inaccuracies or omissions.
If the document is also a form of statement or record of account, the disclaimer may also state:
You should check this [statement] and let us know of any errors or omissions as soon as practicable.
or
You should check this statement against your records and/or your understanding and let us know if you suspect that there may be any error or inaccuracy.
The disclaimer should be reasonably prominent, rather than obscured in fine text. For example, the disclaimer in the customer account statements considered in CBA case “enjoyed a prominent position at the top of the first page of the account statements”. [7]
[1] Australian Securities and Investments Commission v National Australia Bank Limited [2022] FCA 1324 (ASIC v NAB).
[2] Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1422 (ASIC v CBA).
[3] ASIC v CBA [2022] FCA 1422, [92].
[4] ASIC v NAB [2022] FCA 1324, [260].
[5] ASIC v CBA [2022] FCA 1422, [101].
[6] ASIC v CBA [2022] FCA 1422, [89].
[7] ASIC v CBA [2022] FCA 1422, [97].
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.