Federal judge calls for industry to scrap the ‘grandfathering’ term

In a curious aside to ASIC’s appeal of the CBA/Colonial First State judgment, the judge has taken issue with the financial services industry of the term ‘grandfathering’ and suggested an alternative.

A judgment was released on 17 August that dismissed an appeal by ASIC of a Federal Court finding that the Commonwealth Bank of Australia (CBA) and Colonial First State did not receive ‘conflicted remuneration’ benefits under a super agreement.

This alleged CFS had breached the law when it paid CBA to distribute Essential Super. 

The Full Court found Justice Stewart Anderson was “correct to conclude the benefits were not conflicting remuneration”.

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But in an addendum to the judgment, Justice Ian Jackman took issue with the use of the phrase ‘grandfathering’ by parties throughout the case. 

The case had referred to grandfathered remuneration which was removed from the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 in January 2021.

This is because the original term was enacted for racial purposes after the US Civil War in 1898. 

“The Louisiana Convention enacted the first such grandfather clause in 1898, whereby males entitled to vote before 1867, their sons and grandsons over 21, and foreign-born naturalised males over 21 were permitted to register to vote without meeting the literacy or property requirements. In Louisiana, more than 130,000 African Americans had voted in 1896, before the disenfranchising measures were enacted, but in 1900 the number was down to 5,320.

“Similar grandfather clauses were enacted in the following decade by North Carolina, Alabama, Virginia, Georgia and Maryland. This was a blatant denial of the right to vote based on race, despite the 15th Amendment prohibiting the denial of voting rights ‘on account of race, color or previous condition of servitude.’”

For Justice Jackson, the origins of the term make it “surprising” that it has become commonplace in the financial services profession and suggested the term “preservation” should be used instead.

“It is surprising that the unexceptional technique in statutory drafting of preserving the operation of the previous legal regime, in limited and defined circumstances for those who were engaging in the relevant conduct at the time the legislation was passed, should be expressly associated with one of the more regrettable episodes of US legislative history. 

“In an age when seemingly innocuous language is frequently made the object of censure, it is ironic that this usage has passed uncritically into current legal jargon. A more literal term, such as ‘preservation,’ might be considered more appropriate in contemporary Australia.”