Introduction
The case of Australian Securities and Investments Commission (ASIC) v LGSS Pty Ltd [2024] FCA 587 highlights the risks of misleading and deceptive conduct in financial services, particularly regarding claims about adherence to environmental, social, and governance (ESG) principles. The case arose from allegations by ASIC that LGSS Pty Ltd, trustee of the Active Super fund, engaged in misleading conduct by marketing itself as adhering to strict ESG principles while failing to do so in practice.
Promotion of Active Super
LGSS marketed Active Super as a leader in ethical investments, claiming to avoid sectors such as gambling, tobacco, fossil fuels, and Russia. These claims were made through multiple channels, including the fund's website, annual reports, and public statements. However, ASIC alleged that LGSS held investments, directly and indirectly (e.g. through pooled funds), in companies involved in these excluded sectors.
Despite having a Sustainable and Responsible Investment (SRI) Policy outlining thresholds and potential indirect exposures, these disclaimers were not prominently featured in LGSS’s public-facing materials. This created an impression of absolute exclusion, misleading consumers who relied on these representations.
Court’s findings
The Court found LGSS’s conduct to be misleading and deceptive. The judgment emphasised:
Statements made by LGSS were portrayed as absolutes, with no indication of indirect exposures or conditions.
While LGSS relied on its SRI Policy to argue that exclusions were subject to thresholds, the policy was not prominently displayed or cross-referenced in promotional materials.
It is important to note the Court rejected LGSS’s argument that a reasonable consumer would interpret its claims as aspiration goals, ruling instead that consumers would take the claims at face value.
Key takeaways for financial services providers
Disclaimers play a critical role in managing consumer, investor and public expectations and mitigating the risk of misleading and deceptive conduct. However, as this case illustrates, the mere presence of a disclaimer is not always sufficient. For a disclaimer to be effective, it should be prominent and accessible. As demonstrated in this case, a disclaimer buried in secondary documents or not clearly referenced alongside bold representations will usually not be sufficient to offset misleading impressions of a financial product or service.
Furthermore, financial service providers should carefully examine whether use of absolute language can cause a misleading or deceptive perception of a financial product or service. Absolute language (e.g. “always”, “never”) needs to be used accurately.
Overall, this case highlights the risks of using overly bold or absolute language in communications. Financial services providers should always consider how their statements might be understood by a reasonable consumer and ensure that any necessary disclaimers are clear, prominent, and effectively incorporated.
If you have any questions in relation to the above, please contact the authors Andrew Mutton or Sandra Bejo.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.