In Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) [2022] FCA 786 the Federal Court of Australia concluded that conflicted remunerations contraventions were established in Select which was part of a company group that retailed life insurance products where the remuneration of sales agents was linked to the number of sales they made as, although they were paid a base salary, they earned commission on products sold and could obtain benefits as a result of sales. There were also incentive schemes in place.
ASIC also alleged consumer contraventions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by all three Corporate Defendants, relating to 14 consumers, 12 of whom were vulnerable consumers (of whom 10 are Indigenous) and the other two in a weaker bargaining position.
The Federal Court found that Select, BlueInc Services Pty Ltd and Insurance Marketing Service Pty Ltd engaged in unconscionable conduct when selling life, funeral and accidental injury insurance.
Judge Abraham concluded that ASIC has established that Select has contravened its AFSL general obligations in section 912A(1)(c) Corporations Act .
Facts
The evidence established that the sales conduct at the Call Centre occurred in a very competitive environment. Sales agents were under pressure to meet daily sales targets, which increased over time as the business grew. The number of sales each sales agent made and the value of those sales, were recorded on a leader board visible to all staff and regularly updated throughout the day to rank the top performing agents. The sales agents who recorded lower sales on any one day would be identified in emails sent to the entire sales floor by the Head of Sales, and those who made no sales in the morning session would be ridiculed, for instance, by being required to wear an inflatable doughnut or by having their chair taken away. A bell on the sales floor was rung every time a sale was made. Each month, a “Top Dog Chair” was awarded to the top performing sales agent for that month.
Incentives included a cruise to the Gold Coast, trips to Las Vegas and Hawaii, and a Vespa scooter.
Incentives also included $1000 Flight Centre vouchers for sales agents who became part of the “Million Dollar Club” by achieving one million dollars of sold premiums. Also on offer, during monthly “Super Sales Days”, were gift cards, $100 pre-paid VISA cards and iPads.
The trial judge described this as a competitive, sales-driven culture designed to sell more products, by rewarding the top performers. These practices were known to, and endorsed by, senior management and set the culture of the sales environment.
During the relevant period, Select marketed and distributed insurance products issued by St Andrew’s under the brand name “Let’s Insure” and under the brand name “FlexiSure”.
The insurance products included Let’s Insure Funeral Cover and options; Let’s Insure Accident Cover and options; Essentials Life Cover; Easy Life Insurance and options and/or Easy Life Cover; Let’s Insure Life Cover; and FlexiSure Life Cover.
With respect to Select’s sole director and responsible manager Justice Abraham concluded:
I accept ASIC’s submission that a director in Mr Howden’s position and with his skills and experience would, at least, be expected to inform himself of his obligations under the financial services law, including the conflicted remuneration provisions; seek advice from relevant persons (legal or otherwise experts in the area) as to compliance with those provisions before implementing the Incentives; if instituted, adapt the schemes so as to reduce any risk of driving poor sales practices which would include, inter alia, ensuring before implementation, a QA process which would properly monitor its operation, and enable that to occur contemporaneously so that the scheme could be appropriately monitored for bad behaviours. There is no evidence that any of those, or similar steps, were undertaken by Mr Howden.
By not only failing to take such steps, but rather conceiving of and promoting the Incentives, Mr Howden exposed Select and BlueInc Services to, and failed to guard them against, a foreseeable risk of harm. I accept ASIC’s submission that in the circumstances, any reasonable director in Mr Howden’s position could have foreseen the distinct and not remote possibility that Select and BlueInc Services would receive a very public admonition for such breaches, as well as have to engage in significant remediation efforts. A foreseeable risk of a contravention by Select and BlueInc Services, with the consequences that would flow, is a foreseeable risk of harm to them.
I am satisfied that Mr Howden has breached his directors’ duties owed to Select and BlueInc Services under s 180(1).
A separate hearing will be held on the penalty.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
