Court throws out ASIC's $22m case against CBA as judge slams ‘form’ over ‘substance’

The corporate watchdog has failed in its $22 million civil action against Commonwealth Bank of Australia (ASX: CBA), with the Federal Court today dismissing claims that the banking giant had wronged its customers who had signed up to one of its superannuation products.

In a rebuke for the arguments put forward by ASIC, Federal Court Justice Stewart Anderson says the corporate regulator put ‘form’ ahead of ‘substance’ to prove its case which had stemmed from the banking royal commission that concluded in 2019.

In handing down his judgment today, Anderson says ASIC failed to establish that CBA had received ‘conflicted remuneration’ from its former subsidiary Colonial First State after it signed up customers to Essential Super between 2013 and 2019.

“I found that ASIC has failed to establish that the impugned benefits were conflicted remuneration within the section of 963A of the Corporations Act,” Anderson says in his judgement.

“ASIC in its case sought to elevate form over substance which was inconsistent with the language and purpose of the conflicted remuneration provisions. ASIC’s case ignored the circumstances in which the Essential Super product was developed and distributed. Indeed, Essential Super was the only superannuation product that CBA had to distribute.”

ASIC had alleged that about 390,000 people signed up to Essential Super through the alleged influence of $22 million in conflicted remuneration from Colonial First State. As a Colonial First State product, Essential Super was distributed through CBA's branch and digital channels.

However, Anderson says any transfer of value from Colonial First State to CBA ‘simply cancelled out upon consolidation of the financial accounts’.

“The commercial reality of the inter-company transfers that occurred within the CBA group which were done in order to effect an allocation of costs and revenues between the different business units and legal entities, cannot be said to confer a benefit upon either CBA or Colonial First State,” he says.

“ASIC has failed to establish on the evidence the impugned benefits could reasonably be expected to have any influence over CBA’s distribution of Essential Super. The impugned benefits alleged were mere inter-company arrangements that had no impact on the overall financial position of CBA and were not apt to influence either the choice of financial product recommended or the financial advice given by CBA to its retail clients.”

Anderson says regardless of the claims made by ASIC, he found the alleged impugned benefits were grandfathered such that the conflicted remuneration provisions within corporate law do not apply.

The court dismissed the case against CBA and ordered ASIC to pay its costs.

CBA offloaded its 55 per cent interest in Colonial First State to private equity group KKR in 2021 in the wake of the royal commission. Essential Super is no longer available to new customers at CBA.

ASIC’s deputy chair Sarah Court says the regulator will ‘carefully consider’ the judgement.

“ASIC pursued this case because we were concerned that the arrangements between Colonial and CBA had the potential to influence the choice of financial product recommended to retail clients or the advice given to retail clients,” she says.

“ASIC will continue to work to ensure retail clients receive appropriate advice that aligns with their interests.”