ASIC v HCF Life: further guidance on unfair contract terms laws

ASIC v HCF Life Insurance Company Pty Ltd [2026] FCAFC 81 8 min read

The Full Federal Court has provided further guidance on unfair contract terms laws, including in relation to the assessment of whether a term creates a significant balance and whether the term is reasonably necessary to protect a person's legitimate interest. It is a reminder that contract terms look beyond the words on the page. Businesses should be able to explain the legitimate interest a term protects, how the term operates in practice, whether statutory protections qualify it, and what evidence supports the conclusion that customers are not placed at a practical disadvantage.

The decision also carries a procedural reminder. ASIC’s primary ground of appeal failed because it sought to withdraw a concession made at trial. The purpose of an appeal is to correct error, not to run a materially different case.

ASIC is considering the decision.

Key takeaways 

Misleading is not the same as unfair: A term can be liable to mislead and still not be unfair. The two findings sit under different statutory tests, and a finding on one does not automatically answer the other. However, this is not a licence to include misleading terms in a contract.

'Significant imbalance' must be proved on the evidence: To establish significant imbalance under section 12BG(1)(a), it is not enough to point to a theoretical risk that consumers might be deterred from claiming. The regulator bears the onus of proving a real, practical disadvantage.

Transparency matters, but is not determinative: A lack of transparency may inform the unfairness analysis, but it does not, by itself, make a term unfair.

Reasonable necessity has regard to proportionality: A term which is directed at protecting a legitimate interest will have regard to whether there is an obvious, equally practicable alternative that would impose a significantly lesser burden on the consumer.

Appeals are not second attempts: A party that deliberately runs its case on a particular footing at trial will struggle to abandon that footing on appeal, especially where the other side would be prejudiced.

Background

HCF Life offers life insurance products that exclude cover for pre-existing conditions. Section 47 of the Insurance Contracts Act 1984 (Cth) (ICA) provides that an insurer cannot rely on a pre-existing condition exclusion, where, at the time the contract was entered into, the insured was not aware, and a reasonable person could not be expected to be aware, of the relevant sickness or disability.¹

From August 2019, HCF Life adopted a definition of ‘pre-existing condition’ that excluded cover wherever a medical practitioner formed the opinion that signs or symptoms of the condition existed before the policy started (the pre-existing condition terms). Critically, the product disclosure statements and welcome materials did not mention section 47 of the ICA or its protective effect.²

ASIC commenced the proceeding arguing that, because section 47 rendered the policy terms partially unenforceable, presenting the exclusion as a complete and accurate statement of when cover would be refused:

• was conduct liable to mislead under section 12DF of the ASIC Act; and
• made the terms unfair under section 12BF of the ASIC Act.³

The decision at first instance

At first instance, the primary judge:⁴

• accepted that section 47 of the ICA materially differed from the pre-existing condition terms and rendered them partially unenforceable;
• found the terms were liable to mislead in contravention of section 12DF(1) of the ASIC Act because they presented the exclusion as an accurate and unqualified statement of when benefits would not be paid, when it was not; but
• held the terms were not unfair under section 12BG(1) of the ASIC Act as they did not cause a significant imbalance in the parties' rights and obligations, and they were reasonably necessary to protect HCF Life's legitimate interests in offering guaranteed-acceptance products and managing the risk of anti-selection.

ASIC appealed only the unfairness finding. HCF Life did not cross-appeal the misleading conduct finding. So the sole question on appeal was whether the primary judge erred in holding that the terms were not unfair within the meaning of section 12BG(1) of the ASIC Act.⁵

The appeal

ASIC appealed the decision at first instance on two grounds:

• Ground 1: the primary judge should not have taken the ‘ameliorative effect’ of section 47 of the ICA into account when assessing imbalance under section 12BG(1)(a) and (b) of the ASIC Act.
• Ground 2: in the alternative, accepting that section 47 of the ICA was properly taken into account, the primary judge nonetheless erred in finding:
  • no significant imbalance under section 12BG(1)(a); and
  • that the terms were reasonably necessary under section 12BG(1)(b).

Ground 1: The withdrawn concession

At trial, ASIC expressly accepted that the Court should take the effect of section 47 of the ICA into account in applying each of the three elements of section 12BG.⁶ On appeal, ASIC sought leave to withdraw that concession, characterising it as a mere legal position about how two statutes interact in reliance on the decision in ASIC v Auto and General Insurance Company Ltd.⁷

The Court refused leave, accepting the respondent's position for three reasons:⁸

• It was more than a concession: ASIC's entire case, on both misleading conduct and unfairness, had been built on the premise that the terms were partially unenforceable as a result of the application of s 47 of the ICA. Section 47 formed a central part of each plank of ASIC's case on unfairness and so ASIC could not now divorce it from the analysis.
• There was real prejudice: HCF Life had borne the onus of proving reasonable necessity under section 12BG(4) of the ASIC Act and had led detailed evidence on the shared assumption that section 47 was relevant. Had ASIC run the case it now advanced, HCF Life ‘may well have led different evidence’ including expert medical evidence on what ‘signs and symptoms’ mean to a practitioner.⁹
• It would deprive the Court of the trial judge's views: Allowing the new case would mean deciding, for the first time on appeal, a case the primary judge was never asked to consider and would effectively deny HCF Life its entitlement to have an adverse decision tested on appeal.¹⁰

Ground 2(a): No significant imbalance (section 12BG(1)(a))

ASIC argued that a term's liability to mislead can itself create a significant imbalance as a consumer who reads an exclusion stated as absolute may be deterred from making or pursuing a claim the insurer would in fact have to pay. It relied on Karpik v Carnival plc, where a class-action waiver was held to be imbalanced because it discouraged passengers from vindicating their rights, even though it did not strictly remove those rights.¹¹

The Full Court accepted that whilst a misleading term could, at least at a theoretical level, substantively impact the equilibrium of party rights and obligations and effect or exacerbate imbalance, this was not such a case. Critical to this issue was the evidence led by the parties. ASIC bore the evidential onus in respect of section 12BG(1)(a) and led little or no evidence that consumers were realistically dissuaded from making claims. The respondent, however, led direct evidence that policyholders tend to claim regardless of whether they are aware of, or ignorant of, exclusion terms, making the posited disadvantage ‘speculative and remote’.¹²

The objective likelihood of an inconsistency between section 47 of the ICA and the terms being ‘real and not speculative’ did not answer the different question of whether consumers would in fact be put at a practical, substantive disadvantage here. The disadvantage did not rise so high as to tilt the parties' rights significantly in the insurer's favour, particularly as the terms had at all times been administered consistently with section 47.¹³

ASIC also argued the terms were not transparent because they were liable to mislead, and that this lack of transparency supported a finding of imbalance. The Court confirmed the settled position that transparency is not a free-standing element of unfairness. A term that is not transparent is not necessarily unfair, and a transparent term is not necessarily fair.¹⁴ Transparency informs the section 12BG(1) criteria; it does not displace them. Since the alleged practical disadvantage rose no higher than a theoretical possibility, any lack of transparency could not change the imbalance conclusion.¹⁵

Accordingly, ground 2(a) failed.

Ground 2(b): Reasonably necessary (section 12BG(1)(b))

Under section 12BG(1)(b), a term is presumed unfair unless the party advantaged by it proves the term is reasonably necessary to protect its legitimate interests. ASIC argued the primary judge erred by asking too narrow a question, essentially, whether an alternative term would cause a significantly lesser imbalance, and by failing to ask why it is ever proportionate to use a misleading term to protect a commercial interest when non-misleading alternatives existed.¹⁶

The Full Court upheld the primary judge's approach. Whether a term is 'reasonably necessary' to protect a legitimate interest has regard to proportionality.¹⁷ The Court looks at the particular circumstances of the business, the alternatives available, and the proportionality of the term against the potential loss.¹⁸ Borrowing this analysis from other legal contexts, including cases on the implied freedom of political communication, was legitimate, and the primary judge did not improperly import constitutional doctrine.¹⁹

The governing principle the Court endorsed was that where a term has a purpose aligned with protecting the advantaged party's legitimate interests and is suitable for that purpose, it is not to be regarded as lacking necessity unless there is an 'obvious and compelling alternative which is equally practicable and available and would result in a significantly lesser burden on the consumer'.²⁰

Applying that test, the terms served HCF Life's legitimate interest in mitigating anti-selection risk (which ASIC accepted).²¹ While equally practicable alternatives existed, they would not have imposed a significantly lesser burden on consumers, because, on the evidence, insureds tend to claim regardless of the wording of an exclusion. The primary judge was therefore right to find the terms reasonably necessary.²²

Accordingly, ground 2(b) failed.

With both limbs of ground 2 rejected and leave refused on ground 1, the appeal was dismissed with costs.²³

What businesses should do now

• Assess terms through more than one compliance lens: A clause may survive a UCT challenge yet still attract liability for misleading conduct. Businesses should review standard-form terms alongside product disclosure, marketing, customer communications and operational guidance.
• Map statutory qualifications to contractual rights: Where legislation limits or qualifies a contractual right, that qualification should be reflected clearly in product materials and internal processes. Administering a term consistently with statutory protections may reduce practical disadvantage, but it will not necessarily answer a misleading conduct risk if the term is expressed too broadly.
• Document the legitimate interest and available alternatives: Because the advantaged party bears the onus on reasonable necessity, businesses that rely on standard-form terms should keep records of the legitimate interest a term protects, why the term is suitable, and why available alternatives would not achieve the same protection with a significantly lesser burden on consumers.
• Build evidence of practical operation: The decision shows that Courts will not infer significant imbalance from the mere existence of a misleading or ambiguous term. Evidence of real-world disadvantage matters. Contract reviews should therefore include input from legal, product, claims, complaints and customer teams.
• Do not treat fair administration as a substitute for clear drafting: The misleading conduct finding remains an important reminder that presenting an exclusion as absolute, without explaining a statutory protection such as section 47 of the ICA, carries risk even if the term is administered fairly in practice.