Federal Court calls out ASIC for re-running case on appeal

The Full Federal Court of Australia has criticised regulators for falling back on appeals to re-litigate cases on a different legal basis than the one run at trial.

Justices Derrington, Halley, and McEvoy were hearing ASIC's appeal against a previous finding of the Federal Court that a "pre-existing condition" term used in a range of products issued by HCF Life was not an unfair contract term.

While the earlier finding that the term was liable to mislead the public remains intact, the Court upheld the finding that the term was not, in law, unfair.

"In the present case the pre-existing condition terms had a purpose consistent with the protection of the respondent's [HCF Life] legitimate interest in mitigating the risk of anti-selection behaviour by prospective insureds," the judgement read.

"While there were equally practicable alternatives to the pre-existing condition terms, those alternatives would not result in any significantly lesser burden on the consumer."

ASIC said it had brought the appeal to seek to clarify how the unfair contract terms regime applies to contract terms in insurance contracts that may be affected by other statutory protections. It was also concerned that the same term that was found to be liable to mislead the public was also found not to be unfair.

ASIC began civil proceedings against HCF Life in May 2023 alleging that its insurance policies contained the unfair contract term and could mislead the public.

Following that, HCF Life replaced the "pre-existing condition" term in its life insurance products. ASIC does not consider the replacement term is liable to mislead or is unfair.

In May 2025, the Federal Court penalised HCF Life $750,000 for including the pre-existing condition term in its policies, which the court found was liable to mislead the public.

"It is a matter of great concern that a trend appears to be developing where those drafting appeals, especially in regulatory enforcement proceedings, appear to feel unconstrained by how the matter was conducted at first instance," Judge Derrington said.

"Appeals by way of rehearing are not de novo proceedings. Rather, they are for the correction of error."

Justice Derrington acknowledged that raising new grounds on appeal can sometimes be appropriate but held that where a party deliberately ran its case at trial on a particular basis - one that founded the primary judge's determination - the scope to alter that basis on appeal must be limited.