07/537DECISION

Meeting 5 December 2007

Complaint 07/537

Complainant: D. PercyAdvertisement: Hanover Group Limited

Complaint: The voice-over in the 8 second long sponsored introduction (key no: HB0056/8/001) to One Weather Update on TVOne said:

"This weather update is brought to you by Hanover, the New Zealand business with the size and the strength to withstand any conditions."

The visuals showed wind blown clouds and finished with the Hanover logo and website address.

Complainant, D. Percy, said:

“Type: TelevisionWhere: 8th October 2007, prime time tv (evening). I can't remember which TV channelWho: Hanover FinanceProduct: Investment Products

Complaint -This is a new ad, and features a voiceover by the well known former News presenter, Richard Long, who has been the "face" of Hanover's ads for some time. This voiceover states that Hanover can withstand "any conditions", a clear reference to it's supposed financial security in the current environment

I believe this is very misleading since their credit ratings from Fitch is BB+. This is non-investment grade, and Fitch's own description of a 'BB' rating is as follows (from the Hanover site) 'BB' ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.

Given that the sector Hanover operates in is facing the most adverse financial environment it has ever experienced, I consider it grossly misleading to make such

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comments when they are also supported with images of past successes which are reflective of a more benign environment that no longer applies. I am a financial adviser by profession, and have consistently advised clients that debenture companies have never offered enough to retail investors for the risk.

I consider this Hanover voiceover comment to be grossly untrue, and not supported by Fitch ratings, who Hanover have used to independently assess them. It should be deleted from the ad.

Secondly, I believe the sense of security the ad is attempting to portray - both visually, in conjunction with the voiceover script and the personality specifically selected for the voiceover- to be misleading, and should be withdrawn.

I have attached some pdf's re Fitch, S&P and the meaning of their ratings.”

(17 October)

“Further to my original complaint, I can advise the ad screened again on TV1, on Monday evening, 15th October, 2008 at 8.08pm approx, during an ad break in the programme "Border Security".

Given the recent developments in this sector of more companies continuing to fail (two more in the last two weeks), I believe it grossly misleading that Hanover's ad should mention it can handle "any conditions" when it's independent Credit rating clearly is of a different view and the entire sector is operating in adverse economic conditions.”

The Chairman ruled that the following provisions were relevant:

Code for Financial Advertising

Basic Principle 2: Financial advertisements should observe a high standard of social responsibility particularly as consumers often rely on such services for their financial security.

Basic Principle 3: Financial advertisements should strictly observe the basic tenets of truth clarity and should not by implication, omission, ambiguity, small print, exaggerated claim or hyperbole mislead, deceive or confuse, or be likely to mislead, deceive or confuse consumers, abuse their trust, exploit their lack of knowledge or, without justifiable reason, play on fear.

The Advertiser, Hanover Group, said:

“I refer to your letters …

By way of a general comment, as an organisation with a large retail investor base (and therefore a high level of marketing activity), Hanover is very conscious of both its legal obligations and its broader duties to the public/reputation in respect of such advertising, In fact, all fundraising/profile related advertising is dealt with via a rigorous internal legal/commercial sign-off process.

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Hanover sponsors TV One's One Weather Update' which runs in the advertisement break around 8.10pm each night of the week. For our sponsorship, Hanover has an 8 second introduction to the One Weather Update and then a 30 second advertisement following the One Weather Update (the Advertisements).

The Hanover Group which is advertised in the Advertisements constitutes a broad range of businesses (with a focus on the property sector). The Advertisements are intended to inform the public of the range of "Hanover" businesses, which is much wider than Hanover's well known flagship finance company, Hanover Finance, and includes a property business with a portfolio valued in excess of $400 million (the broader group having aggregate assets in excess of $1 billion).

The campaign was developed prior to the adverse developments in the NZ finance company sector and global credit markets. The agency was Ogilvy New Zealand.

The function of the 8 second introduction to the One Weather Update is to state Hanover's sponsorship of the slot. The creative shows a building and changing weather patterns with a voice over “This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any conditions".

The 30 second advertisement that follows the One Weather Update depicts the broad range of types of property developments associated with the Hanover Group and/or financed by Hanover Finance (or other Hanover companies). This is a transparent and accurate depiction of Hanover's business.

in late October (prior to receipt of the complaint), as a result of internal discussions about the changing finance sector/credit markets and particularly the collapse of the USA subprime market, Hanover decided to alter the voice over and replace the word “any” with "the". The voice over is now “This One Weather Update is brought to you by Hanover, a New Zealand business with the size and strength to withstand the conditions." This new version has been broadcast since 16 November 2007.

Hanover does not consider that the Advertisements are misleading. At the time Hanover claimed that it could withstand "any" conditions, it believed that it could. Despite a number of finance company failures, Hanover is as a matter of fact withstanding the current negative operating environment and is about to issue new prospectuses for all of its finance company subsidiaries in which its directors make various statements about the performance of the companies in the year ahead (particularly their ability to meet its obligations to investors). Hanover has responsibly revised its advertisement to refer to its position under current conditions, and remains confident in its ability to withstand the current market conditions as claimed in the Advertisements.

In view of the above, we consider the statements used in the One Weather Update regarding "Hanover"(particularly as amended) as justifiable and non-misleading in the context in which they are presented, and as such consistent with Basic Principles 1 and 3.”

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Television Commercial Approvals Bureau (TVCAB) said on behalf of the media:

“This complaint is being heard under the Code for Financial Advertising: Basic Principle 2 - high standard of social responsibilityBasic Principle 3 - observe basic tenets of truth and clarity.

The advertisement in question is a sponsored intro to a weather update.The entire v/o consists of one statement: "This weather update is brought to you by Hanover, the New Zealand business with the size and the strength to withstand any conditions."

In essence, this is not a financial advertisement. If every advertisement needs to be assessed on its own merits this does not even identify Hanover as a finance company. It simply says it is a New Zealand company with the size and strength to withstand any conditions.The complaint's claim that this is a clear reference to financial security is purely interpretive and speculative.The definition of a financial advertisement is one that promotes the borrowing, lending, saving or investment of money for guarantees, financial instrument and the purchase of or sale of securities.The 20 words of communication in this advertisement do none these specifically or by inference. The words - money, investment, return - are not mentioned or implied.

To then move into an analysis of Hanover Finance's Fitch rating is an entirely subjective and irrelevant exercise by the complainant. Fitch have ratings of BB and BBB, where BBB is an investment grade, so the complainant is then exercising his own opinion when he says BB+ is not an investment grade.

It is the view of the TVCAB that this Hanover weather intro adheres to the letter of the law and the spirit of the Code and there are no grounds to uphold the complaint.”

Deliberation

The Complaints Board perused the correspondence and then viewed the advertisement. It noted Complainant, D. Percy, was of the view that the advertisement was misleading to the consumer regarding the implied financial security offered by Hanover Finance, whose Fitch credit rating was BB+.

The Chairman directed the Complaints Board to consider the complaint with reference to the Code for Financial Advertising, Basic Principles 2 and 3.

As a preliminary matter, the Complaints Board confirmed that the material subject to complaint, the 8 second long sponsored introduction to One Weather Update on TVOne, was in fact an advertisement as it promoted Hanover Finance, through the use of a “sales message”.

In taking this stance the Complaints Board referred to the definition of an advertisement adopted by the Complaints Board. This said (in part):

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“The word "advertisement" is to be taken in its broadest sense to embrace any form of advertising and includes advertising which promotes the interest of any person, product or service, imparts information, educates, or advocates an idea, belief, political viewpoint or opportunity. …”

Having established this, the task before the Complaints Board was to determine whether the advertisement observed the high standard of social responsibility required by Basic Principle 2. The Complaints Board reiterated its longheld view that this was particularly important in financial advertisements as consumers often relied on such products for their financial security. The Complaints Board was also required to determine whether the advertisement strictly observed the basic tenets of truth and clarity, or was likely to mislead, deceive or confuse consumers, thereby breaching Basic Principle 3.

This approach had been taken by the Complaints Board when making its ruling in Decision 06/318 where it had ruled to uphold an advertisement for a financial investment product, offered by a different company.

Turning to the 8 second television advertisement before it, the Complaints Board took into account that it contained a hyperbolic pun referring to weather conditions and financial conditions. However, it said, that as the advertisement promoted financial investing, hyperbole was not an acceptable element to use in the advertising for such products.

In the Complaints Board’s view, a consumer could be likely to interpret the claim as suggesting that the product had a level of security which could withstand the current financial conditions, as in the Complaints Board’s view, it gave the impression of a guarantee of survival.

The Complaints Board took into account that Hanover Finance had been rated BB+ on the Fitch credit rating system. This was confirmed on its website where it said:

“Hanover Finance has been assessed by Fitch Ratings, and been given a long-term BB+ international credit rating. Fitch Ratings is one of the world's top three ratings agencies, alongside Moody’s and Standard & Poor’s. They’ve rated more financial institutions worldwide than any other ratings agency. This credit rating was awarded after an impartial and rigorous assessment of Hanover Finance’s financial stability, and involved examining our processes and our people.”

The Complaints Board then referred to The Fitch Ratings System where it said:

“BB “BB” ratings indicate that there is a possibility of credit risk developing, particularly as a result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.

BBB “BBB” ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.

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Plus (+) or minus (-)

The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within major rating categories.”

Accordingly, the Complaints Board deduced that Hanover Finance with a BB+ rating fell between the above two rankings, therefore it did not meet the Fitch investment grade category, and that “adverse changes in circumstances and economic conditions” could negatively affect Hanover’s “capacity for timely payment of financial commitments”.

The Complaints Board noted that the advertisement contained contact details, being a website address, for consumers to seek further information. However, it said that this was not sufficient to compensate for the impression contained in the claim.

Having made the above observations, the Complaints Board said the advertisement did not reach the high standard of social responsibility required of a financial advertisement in Basic Principle 2 and thereby the majority ruled that it was in breach of that provision.

Furthermore, the Complaints Board was of the view that the claim would be likely to mislead the average consumer as to the nature of the product offered, and thereby ruled the advertisement was also in breach of Basic Principle 3.

In making this ruling the Complaints Board was pleased to note that Hanover Finance, had in a self-regulatory manner, revised the voice-over in the advertisement in late October to better reflect the then current market conditions, replacing the word “any” with “the”, and that the newly worded advertisement had been telecast since 16 November 2007. However, the Complaints Board was of the view that this amendment was not sufficient to ensure that the advertisement complied with the Code for Financial Advertising.

Having made the above observations, the Complaints Board ruled to uphold the complaint.

Decision: Complaint Upheld

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DECISION

Thursday 8 May 2008Complaint 07/537

Appeal 07/026

Complainant: D. PercyAdvertisement: Hanover Group LimitedAppellant: Hanover Group Limited

Complaint: The voice-over in the 8 second long sponsored introduction (Key no: HB0056/8/001) to One Weather Update on TV One said:

"This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any conditions."

The visuals showed wind blown clouds and finished with the Hanover logo and website address.

Complainant, D. Percy, having seen the advertisement on 8 October 2007 said:

“…This is a new ad, and features a voiceover by the well known former News presenter, Richard Long, who has been the "face" of Hanover's ads for some time. This voiceover states that Hanover can withstand "any conditions", a clear reference to it's supposed financial security in the current environment.…

Given that the sector Hanover operates in is facing the most adverse financial environment it has ever experienced, I consider it grossly misleading to make such comments when they are also supported with images of past successes which are reflective of a more benign environment that no longer applies. …

Secondly, I believe the sense of security the ad is attempting to portray - both visually, in conjunction with the voiceover script and the personality specifically selected for the voiceover- to be misleading, and should be withdrawn. …”

The Chairman ruled that the following provisions were relevant:

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Code for Financial Advertising

Basic Principle 2: Financial advertisements should observe a high standard of social responsibility particularly as consumers often rely on such services for their financial security.

Basic Principle 3: Financial advertisements should strictly observe the basic tenets of truth and clarity and should not by implication, omission, ambiguity, small print, exaggerated claim or hyperbole mislead, deceive or confuse, or be likely to mislead, deceive or confuse consumers, abuse their trust, exploit their lack of knowledge or, without justifiable reason, play on fear.

The Complaints Board ruled at its meeting on 5 December 2007 to Uphold the complaint.

Part of its Deliberation said:

“… the task before the Complaints Board was to determine whether the advertisement observed the high standard of social responsibility required by Basic Principle 2. The Complaints Board reiterated its long held view that this was particularly important in financial advertisements as consumers often relied on such products for their financial security. The Complaints Board was also required to determine whether the advertisement strictly observed the basic tenets of truth and clarity, or was likely to mislead, deceive or confuse consumers, thereby breaching Basic Principle 3.…

Turning to the 8 second television advertisement before it, the Complaints Board took into account that it contained a hyperbolic pun referring to weather conditions and financial conditions. However, it said, that as the advertisement promoted financial investing, hyperbole was not an acceptable element to use in the advertising for such products.

In the Complaints Board’s view, a consumer could be likely to interpret the claim as suggesting that the product had a level of security which could withstand the current financial conditions, as in the Complaints Board’s view, it gave the impression of a guarantee of survival.…

Having made the above observations, the Complaints Board said the advertisement did not reach the high standard of social responsibility required of a financial advertisement in Basic Principle 2 and thereby the majority ruled that it was in breach of that provision.

Furthermore, the Complaints Board was of the view that the claim would be likely to mislead the average consumer as to the nature of the product offered, and thereby ruled the advertisement was also in breach of Basic Principle 3.

In making this ruling the Complaints Board was pleased to note that Hanover Finance, had in a self-regulatory manner, revised the voice-over in the

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advertisement in late October to better reflect the then current market conditions, replacing the word “any” with “the”, and that the newly worded advertisement had been telecast since 16 November 2007. However, the Complaints Board was of the view that this amendment was not sufficient to ensure that the advertisement complied with the Code for Financial Advertising.”

Appeal Application

The Appellant: Hanover Group Limited, said:

“INTRODUCTION

1. We refer to your letter of 25 February 2008.

2. As you are aware, the Advertising Standards Authority's Complaints Board determined at a meeting held on 5 December 2007 that an 8 second introduction to TV One's "Weather Updates" (broadcast in October 2007) depicting a building and changing weather patterns with a voice over stating "This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any conditions" ("Advertisement") breached Basic Principles 2 and 3 of the Advertising Standards Authority's Code for Financial Advertising ("Decision").

3. We are cognisant of the Advertising Standards Authority's Advertising Codes of Practice and, in particular, Basic Principles 2 ("Basic Principle 2") and 3 ("Basic Principle 3") of the Code for Financial Advertising ("FA Code").

4. We remain strongly of the view that the Advertisement did not breach either Basic Principle 2 or Basic Principle 3 of the FA Code for the reasons set out in this letter.

5. We are, therefore, formally appealing the Decision of the Complaints Board.

THE ADVERTISEMENT AND CONTEXT

6. Before setting out our specific grounds of objection, we believe that it is pertinent to consider the purpose of the Advertisement (including its timing) and the context in which the Advertisement was created when considering Basic Principles 2 and 3 of the FA Code. Accordingly, we explain below the purpose of the Advertisement and the legislative framework in which it was developed.

Building the "Hanover" Brand

7. By way of background, the Advertisement depicts a building and changing weather patterns and displays the website address “www.hanover.co.nz” and the following logo:

H A N O V E R (logo)

8. The voice over “This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any

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conditions" ("Voice Over") forms part of the Advertisement and can be heard as the images are screened.

9. The concept for the Advertisement was developed by Ogilvy New Zealand prior to the adverse developments in the New Zealand finance sector and global credit markets as part of a campaign to build public awareness of the "Hanover" brand. At the time the Advertisement was developed, the parent company of the Hanover Group of companies was intending to undertake a public capital raising and the Advertisement was intended to help build public awareness of the "Hanover" brand. Accordingly, the Advertisement was developed as a general brand statement regarding the Hanover Group of companies and their business activities and was intended to:

make viewers aware that the following "Weather Update" on TV One was sponsored by the Hanover Group of companies; and

promote the goodwill of the Hanover Group of companies by linking the changing weather conditions we experience with the changing market conditions of the business environment we have successfully operated in (and continue to do so).

10. The Advertisement ran for some time during the period from 19 August 2007 to 15 November 2007 and, with the exception of the complaint made to your office, we have not received any other objection to the Advertisement to date, either from a member of the public or a regulatory body (including the Securities Commission which is responsible for regulating the activities of financial institutions in New Zealand).

11. As the Hanover Group of companies is one of New Zealand's largest privately-owned financial services and property groups with aggregate total assets of $1.163 billion as at 30 June 2007 (across its four finance companies), we are of the strong view that the Voice Over was an accurate and factual statement of the Hanover Group of companies as at the dates the Advertisement screened. As at the dates the Advertisement screened:

the TV One 'Weather Updates" were sponsored by the Hanover Group of companies;

the Hanover Group of companies was a New Zealand business; and

the Hanover Group of companies was of a size and had the financial strength to withstand any foreseeable market fluctuations at the time, (which is the only reasonable way to construe the meaning of the term "any").

12. As stated in my letter of 3 December 2007 to your office (Attention: Deputy Secretary), in late October 2007, prior to notification of the complainant's complaint, we had determined to alter the Voice Over and replace the word "any” with the word "the" as a result of the changing finance sector and credit markets at that time (particularly, the collapse of the USA sub prime market). That version of the Voice Over was broadcast from 16 November 2007.

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13. Earlier this year, we decided to defer the proposed public capital raising indefinitely given the continuing adverse developments in the finance sector and credit markets. As a consequence, we decided to cease broadcasting the Advertisement and replace that Advertisement with a series of advertisements specifically referring to Hanover Finance Limited ("Hanover Finance"), the flagship finance company of the Hanover Group of companies. Accordingly, the advertisement screening at today's date depicts a series of old photographs, displays the "Hanover Finance" logo (which is distinct from the logo for the Hanover Group of companies that featured in the Advertisement), displays Hanover Finance's website address (www.hanoverfinance.co.nz) and free phone number (0800 353 900), and contains the voice over "This One Weather Update is brought to you by Hanover Finance, a company built on many years of experience".

Our Obligations under New Zealand Securities Legislation

14. We should note from the outset that the Advertisement is a general brand statement that does not refer to any offer of securities and, as such, it does not constitute a securities advertisement for the purposes of New Zealand securities legislation. That said, we acknowledge that because of the strong link of the Hanover brand to Hanover Finance, the Advertisement could be construed as being specific to Hanover Finance (even though there is no mention of any investment products; interest rates; or any form of call to action).

15. For these reasons, we believe that it is pertinent to consider the legislative framework within which our finance companies operate in the context of considering the Advertisement in light of Basic Principles 2 and 3. As you may be aware, the purpose of New Zealand securities legislation is to protect investors by requiring disclosure of matters to enable them to ascertain the true nature of their investment.

16. In respect of advertisements referring to securities, there are rigorous procedures issuers must adhere to when advertising their securities. At a minimum, issuers must include in their securities advertisements a reference to the issuer's Investment statement and a statement as to the nature and ranking of the securities being offered (in the case of debt securities) and the directors of the issuer must sign a certificate in relation to the relevant securities advertisement to verify the accuracy of the content. There is no requirement under securities legislation to include any statement or commentary on the particular risks of the investment. Rather, these risks are required to be disclosed in the issuer's investment statement.

17. Potential investors are required to receive a copy of an issuer's current investment statement prior to making an investment with that issuer. in addition, potential investors are entitled to request from an issuer a copy of the issuer's current registered prospectus.

18. The legislative framework therefore makes it clear that different levels of disclosure are required at different stages in the investment decision process. in other words, the legislation expressly takes notice of the fact that an advertisement by its very nature does not require full disclosure of the nature

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and risks associated with an investment and will be designed (in terms of both look and content) to capture the public's attention and interest - subject to the specific restrictions imposed by the Securities Regulations. In my view, the framework reflects a broad principle that no reasonable person will invest on the basis of an advertisement alone.

19. The Hanover Group of companies and their respective Boards take their obligations, under the securities legislation and otherwise, to investors and potential investors very seriously and are committed to attaining high standards of transparency and disclosure in terms of their business practices.

20. To this end, each of the four finance companies within the Hanover Group of companies (being Hanover Finance, United Finance Limited, FAI Finance Limited and Hanover Capital Limited) has disclosed in full, in their respective current investment statement and registered prospectus, the risks of investing in the respective company in accordance with the requirements of the Securities Act 1978 and Securities Regulations 1983. We enclose copies of the current investment statements and registered prospectuses for Hanover Finance, United Finance Limited, FAI Finance Limited and Hanover Capital Limited for your reference, For your convenience, we have marked the pages in each of the documents which contain the risk disclosures.

21. Each of the four finance companies ensures that all potential investors are forwarded a copy of the relevant investment statement prior to making an investment. To ensure that potential investors fully understand the importance of reading the investment statement, each of the finance companies:

includes an "Application Form" (which must be completed by a potential investor when making an investment) at the back of the respective company's investment statement; and

includes the following statement in the "Application Form" alongside the space where the potential investor is asked to sign his/her name:

"I/We acknowledge that we are a New Zealand resident and that I/we have received and read a copy of [name of relevant finance company) Limited's Investment Statement for this investment and have also read `Some important points to read' conditions accompanying this application."

22. Whilst there can be no assurance that potential investors do, in fact, go on to read the relevant investment in its entirety (or the relevant prospectus if requested), we take all steps to ensure that they do. However, at the end of the day, it is entirely up to the individuals themselves and their financial advisors (if applicable) to assess all the risks of investing and form their own conclusion as to whether or not to make an investment.

BASIC PRINCIPLE 2

23. As you are aware, Basic Principle 2 of the FA Code provides that "financial advertisements should observe a high standard of social responsibility

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particularly as consumers often rely on such services for their financial security”.

24. We have reviewed the Decision and note that the Complaints Board determined that "the advertisement did not reach the high standard of social responsibility required of a financial advertisement in Basic Principle 2” largely having deduced that Hanover Finance's BB+ long-term international Fitch credit rating “did not meet the Fitch investment grade category and that "adverse changes in circumstances and economic conditions" could negatively affect Hanover's "capacity for timely payment of financial commitments".

25. We believe that the Complaints Board's Decision is flawed in three principal respects, being:

the Complaints Board largely focused on Hanover Finance (which is just one of the companies within the Hanover Group of companies) and the securities it offered;

the Complaints Board linked the existence of Hanover Finance's credit rating to its finding of a breach of Basic Principle 2 (presumably because it construed "any" as meaning "all" market conditions/risks); and

the Complaints Board did not consider the Advertisement in the context of it being an advertisement (within the general understanding of that term) or by reference to New Zealand securities legislation and, in particular, the status of an advertisement within that regime (as detailed above).

Focus on Hanover Finance Limited and its Credit Rating

26. The Voice Over featured in the Advertisement stated "This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any conditions". The words "Hanover, a New Zealand business with the size and the strength to withstand any conditions" is a general brand statement as regards the Hanover Group of companies and refers to the overall business activities of the Hanover Group of companies, including lending activities, property investment and development activities, other investment activities, insurance activities, retail fundraising activities and other financial services activities. There is absolutely no reference at all in the Voice Over itself nor in the Advertisement generally to:

any financial product;

any other product; or

any particular company within the Hanover Group of companies.

27. Hanover Finance is the flagship finance company within the Hanover Group of companies with a predominant focus on property financing, which is funded primarily through investment offers of secured first ranking debenture stock to the public. However, Hanover Finance is not the only finance company within the Hanover Group of companies. United Finance Limited, FAI Finance Limited

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and Hanover Capital Limited are also finance companies within the Hanover Group of companies and also offer similar secured first ranking debenture stock to the public for investment.

28. Over recent years, the Hanover Group of companies has expanded through organic growth and acquisition to become one of New Zealand's largest financial services and property groups as at today's date. As at 30 June 2007, the four finance companies within the Hanover Group of companies (being Hanover Finance, United Finance Limited, FAI Finance Limited and Hanover Capital Limited) had:

aggregate funds under management of $1.071 billion*;

aggregate total assets of $1.163 billion*; and

aggregate shareholders' equity of $84,112 million*.

(*Based on the audited full year financial statements for each of Hanover Finance, United Finance Limited, FAI Finance Limited and Hanover Capital Limited for the financial year ended 30 June 2007.)

29. We note that both the complainant's and the Complaints Board's focus appears to be on Hanover Finance itself and that company's current credit rating without any regard to any other companies and activities within the Hanover Group of companies. However, the words "a New Zealand business with the size and the strength to withstand any conditions" are a reference to the size and strength of the Hanover Group of companies as a whole and not to any one company within the group.

30. We do not accept that the Advertisement can be considered in the context of Basic Principle 2 (nor Basic Principle 3) without considering the activities of the Hanover Group of companies as a whole.

31. Turning to the Complaints Board's comments on Hanover Finance's current credit rating, it is correct that Hanover Finance has been awarded a BB+ non investment-grade long-term international credit rating by Fitch, which according to Fitch's BB rating definition (http://fitchratings.com/corporate/fitahResources.cfm?detail=1&rd_file=ltr) indicates that "there is a possibility of credit risk developing, particularly as the result of adverse economic change over time". However, we note that Fitch's long-term international credit rating scale reflects only its assessment of the credit risk of entities and is not indicative of the likelihood of any resulting loss. In this regard, Fitch (at http://fitchratings.com/corporate/fitchResouroes.cfm?detail=l) states that "credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss".

32. We also note that Fitch's BB rating definition also provides that in respect of BB (whether + or -) long-term international credit rated entities "business or financial alternatives may be available to allow financial commitments to be met" , which indicates that an entity with a BB (whether + or -) long-term

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international credit rating may well have risk management strategies in place to guard against the possibility of credit risk developing in the event of adverse changes in circumstances and economic conditions.

33. In the case of Hanover Finance, there are, in fact, robust risk management strategies in place to ensure that in the event of adverse changes in circumstances and economic conditions the company can continue to meet its financial commitments as they fall due. These strategies include (but are not limited to):

maintaining sufficient liquid funds (in cash and/or cash equivalents) to enable the company to meet its commitments based on forecasts and historical cash flow requirements. The company has internal liquidity policies under which it aims to maintain at any time not less than 7% of the total debenture stock on issue at that time as liquid funds. As at 30 June 2007 (being the date of the most recent audited full year financial statements of the company), the company held liquid funds of $149.7 million, comprising 18.1% of the total debenture stock on issue at that date;

actively managing the company's loan portfolio and credit and debt collection processes to ensure repayments are made by borrowers when due;

actively managing the company's investment portfolio to ensure the company's investments continue to perform and the company receives an adequate return on investments;

having alternate funding available to the company by way of a third party loan to the company to ensure that the company is able to meet its financial obligations as they fall due;

continuing to seek other alternate funding avenues to ensure that the company is able to meet its financial obligations as they fall due;

actively managing the company's debenture investment maturity profile to ensure a balanced maturity profile; and

liaising with all current investors of the company to manage debenture reinvestment levels.

34. Although Hanover Finance has put the above risk management strategies into place, it cannot, understandably, guarantee that the company will be free from credit risk. No entity can guarantee that it is free from credit risk regardless of the risk management strategies it may have in place - not even investment grade rated entities could give such a guarantee. As noted above, we contend that the Hanover Group of companies (or even Hanover Finance on a stand-alone basis) was of a size and had the financial strength to withstand any foreseeable market fluctuations at the time (which is the only reasonable way to construe the meaning of the term "any" when used in an advertising context).

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35. Incidentally, entities awarded BBB investment-grade long-term international credit ratings by Fitch are not immune in the event of adverse changes in circumstances and economic conditions. in fact, Fitch's BBB rating definition provides that whilst a BBB rating indicates that there are currently expectations of low credit risk, "the capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity”'. Accordingly, both BB+ non investment-grade long-term international credit rated entities and BBB investment-grade long-term international credit rated entities face the possibility that adverse changes in circumstances and economic conditions could negatively affect their capacity for timely payment of financial commitments.

36. For the reasons set out above, we believe that both the complainant and the Complaints Board gave undue emphasis to the link between the existence of Hanover Finance's non investment-grade credit rating to its finding of a breach of Basic Principle 2 and in doing so also misconstrued the proper meaning of the term 'any conditions" (in the context of an advertisement) by suggesting that this a reference to all conditions whether known or unknown. As the Complaints Board will be aware, there are numerous product advertisements that indicate/suggest that a product can withstand any conditions/treatment, with the unspoken understanding by advertiser and viewer that this does not mean absolute/eternal survival of the product. As with an investment product, the detailed disclosure materials associated with the product is where the applicable health warnings/risks are contained.

37. It is noteworthy to mention that Fitch awarded Hanover Finance Limited its BB+ long-term international credit rating on 17 April 2007 and that rating remains unchanged at today's date despite a raft of finance companies being placed into receivership during the period from July 2007 to today's date. In addition, Hanover Finance Limited was also awarded a 'Rating Outlook' of 'Stable' on 17 April 2007 and this also remains unchanged as at today's date. According to Fitch, "an Outlook indicates the direction a rating is likely to move over a one to two-year period. Outlooks may be positive, stable or negative" (see http://fitchratinos.com/corporate/fitchResourees.cfm?detail=1&rdfile-ltr).

38. The fact that Hanover Finance Limited's BB+ long-term international credit rating and Stable Rating Outlook have remained unchanged since April 2007 in fact serves to illustrate that Hanover Finance Limited has been able to withstand adverse market conditions, particularly in the New Zealand finance industry since July 2007 and, more recently, the collapse of the USA sub prime market.

39. As outlined above, the Advertisement is a general brand statement that does not refer to any offer of securities and, as such, it does not constitute a securities advertisement for the purposes of New Zealand securities legislation, Even if the Advertisement were held to be a securities advertisement under securities legislation, there is no legal requirement to include any statement or commentary on the particular risks of the investment in the securities advertisement itself. Rather, these risks are required to be disclosed in the relevant investment statement, which is required to be provided to all investors prior to investing.

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No Breach

40. For the reasons set out above, we do not believe that the Advertisement (namely the Voice Over "This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any conditions") has breached Basic Principle 2 of the FA Code.

BASIC PRINCIPLE 3

41. As you are also aware, Basic Principle 3 of the FA Code provides that "financial advertisements should strictly observe the basic tenets of truth and clarity and should not by implication, omission, ambiguity, small print, exaggerated claim or hyperbole mislead, deceive or confuse, or be likely to mislead, deceive or confuse consumers, abuse their trust, exploit their lack of knowledge, or without justifiable reason, play on fear”.

42. The Complaints Board determined that "the claim would be likely to mislead the average consumer as to the nature of the product offered, and thereby ruled the advertisement was also in breach of Basic Principle 3".

43. We note that many of the grounds for which we believe the Advertisement does not breach Basic Principle 2 are also the grounds for which we believe the Advertisement does not breach Basic Principle 3. We do not propose to reiterate those grounds here again to avoid any unnecessary repetition. However, we make the following specific observations with respect to the Complaints Board's Decision as regards the breach of Basic Principle 3.

44. As outlined above, the Advertisement (including the Voice Over) depicts a building and changing weather patterns and is a general brand statement as regards the Hanover Group of companies and their business activities and was intended to make viewers aware that the immediately preceding 'Weather Update" on TV One was sponsored by the Hanover Group of companies and promote the goodwill of the Hanover Group of companies by contrasting the changing weather conditions we experience with the changing market conditions of the business environment we operate in. No financial product or other product was referred to in the Advertisement itself and, for this reason, we do not understand the conclusion drawn by the Complaints Board that "the claim would be likely to mislead the average consumer as to the nature of the product offered”.

45. It is true that another separate advertisement which screened immediately after the 'Weather Update" referred specifically to secured first ranking debenture stack offered by Hanover Finance, however, that advertisement was a separate advertisement promoting Hanover Finance's secured first ranking debenture stock and does not form part of the Advertisement which is the subject of the complainant's complaint.

46. in support of our position, we note the following comments of the Television Commercial Approvals Bureau included as part of the published Decision:

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“The advertisement in question is a sponsored intro to a weather update. The entire [Voice Over] consists of one statement… If every advertisement needs to be assessed on its own merits this does not even identify Hanover as a finance company. It simply says it is a New Zealand company with the size and strength to withstand any conditions. The complainant's claim that this is a clear reference to financial security is purely interpretive and speculative. ...”

47. Even after taking into account the Complaints Board's wide definition of "advertisement", it is difficult to ascertain exactly what product is being promoted in the Advertisement as the Hanover Group of companies has a broad range of products on offer to the public, including (but not limited to) insurance coverage policies, consumer finance products, property finance products (non consumer) and term investment products.

48. In any event, we do not accept that there has been a breach of Basic Principle 3 for the reasons outlined in this letter.

49. It is noteworthy to mention that the complainant stated in his complaint (which is included as part of the published Decision) that "I am a financial adviser by profession, and have consistently advised clients that debenture companies have never offered enough to retail investors for the risk”. In our view, the complainant is not an "average consumer" as he/she has specific knowledge of finance companies by virtue of his/her being a financial advisor. The complainant would, therefore, be very familiar with the various finance companies in New Zealand and be aware that various companies in the Hanover Group of companies (including Hanover Finance) are in the business of making offers of secured first ranking debenture stock to the public. He/She has then mistakenly interpreted the Advertisement to relate solely to the secured first ranking debenture stock offered by Hanover Finance notwithstanding the Advertisement makes no mention at all to Hanover Finance nor the debenture stock that company offers to the public.

50. For the reasons stated in this letter above, we cannot accept the Complaints Board's decision to conclude that "the claim would be likely to mislead the average consumer as to the nature of the product offered”.

51. We strongly maintain that the Advertisement (namely the Voice Over "This One Weather Update is brought to you by Hanover, a New Zealand business with the size and the strength to withstand any conditions") has not breached Basic Principle 3 of the FA Code.

Further Information

52. We would be happy to provide you with any additional information should you require this.”

Television Commercial Approvals Bureau said:

“This response is from TVCAB on behalf of the TV Broadcasters.We would largely reiterate the substance of our original response, that nowhere in this weather intro string is "finance" referred to. The Hanover group of companies,

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includes property and finance plus others. The name Hanover is just as synonymous with property as it is with finance even if their other companies may not have such a high profile. Within the advertisement though, there is nothing to tie it to Hanover Finance specifically - and there is certainly nothing visually or in the voice over that states or implies "money, investment, returns."There is just the single sentence in this advertisement - "... brought to you by Hanover, the New Zealand business with the size and strength to withstand any conditions". If there is any implication to be taken from the phrase, it would be that "business" implies an organization operating of several fronts.It remains our belief that this is not a financial advertisement and should not be considered under the Code for Financial AdvertisingThe original complaint largely related to factors that simply do not appear within the advertisement. It should be seen for what it is - a simple branding exercise for the overarching "Hanover" name.If the Finance Code does not apply then the catch-all code is the Code of Ethics, and there is nothing within this short weather intro that could be questioned under the Code of Ethics.”

Complainant: D. Percy, responded to the Appeal Submission as follows:

“I am in receipt of your letter dated 28th March 2008 and also the Hanover Group (HG) response dated 7th March 2008. The veritable plethora of points raised by HG can be grouped into a lesser number of tenets, viz

HG is "of the strong view" that the voiceover containing the words "Hanover, a New Zealand business with the size and strength to withstand any conditions" is accurate (albeit they now wish to clarify the meaning of "any"- their point 11)

That this voiceover was supportive of HG only and not any particular member of HG, albeit that Hanover Finance (HF) ran ads immediately after the One News Update promoting HF products

That even if it could be connected to HF, that HF is strong and also capably managed by experienced people so that it "can withstand any conditions" and that in any event, HG has more than $1billion of assets and ipso facto it must be true.

That in any case, everything is covered off by their processes and Investment statements for each of the entities within HG

That I have erred by referring to the financial rating from Fitch ratings agency of HF in forming the view that HG should not be able to use the word "any"

I wish to respond as follows:

1. HG offers no examples of any financial entity making a similar statement because no sensible, responsible financial entity would do so. To do so implies to the general public a certainty of outcome. By comparison, neither the New Zealand Government nor a single Kiwisaver provider guarantees the return of any capital in any approved KiwiSaver product, yet many of these products are offered by companies of significantly more size than HG.

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2. Size of assets is but one measure of an organisation's financial well-being. Others include capital, liquidity, debt levels and quality of assets. Not mentioned in the HG letter is the fact that their profit dropped for the 6 months to the end of December 2007 dropped from $28m to $17m when compared to the corresponding 6 months ending December 2006, or that they have accessed a loan of $47.5m (against a limit of $50m) from an external party by granting that party preferential security over selected assets. Any such lender inevitably cherry picks the best assets, including a wide safety buffer, thereby degrading the quality of assets supporting the remaining liabilities.

3. Investment Statements are in essence formulaic. I have enclosed Investment statements from four other financial organisations - AMP, BT, Liontamer and NZ Mortgage Income Trust, which have very similar formats to those supplied to you by HG. In isolation, they have proven singularly unsuccessful at helping the general public understand the risks they are taking as witnessed by the slew of monies lost at other finance companies which also collected investors' funds by way of Investment statements. It is also interesting to note the disclaimers inserted into these statements- for example BT's Investment statement dated December 2006 - which predates the HG/HF ad- states on the inside cover "None of Westpac Banking Corporation, Westpac New Zealand Limited, their related entities, or the trustee stand behind or otherwise guarantee (either partially or fully) the capital value or investment performance of any fund offered in this Investment statement". For a financial company to make the assertions that HG/HF did in their voice-over sets them a very long way apart from the financial mainstream.

4. HF is the flagship of HG (their words) and its management, experience and financials have collectively resulted in HF receiving a BB- Fitch rating. I have enclosed a copy of the ratings explanation, sourced from the HF website. If the flagship, HF, could not get above BB+ (i.e. Non-Investment grade), it is inconceivable therefore that HG could have sufficient strength to support a statement that they can withstand "any conditions"

5. Whilst HG then sought to redefine "any" by suggesting it should mean "foreseeable market conditions at the time" this raises two questions

a. If companies within HG are offering Investments for periods up to 5 years, should HG not consider their capacity to meet such obligations for these longer term investors and

b. Would the many years of experience of management not make them consider that "any conditions" assertions would be a foolhardy statement for HG to make?

6. The general public would have had no inkling of HG's capital raising plans and in the absence of any other information could only assume the ad relates to the day to day business of HG, therefore the explanation by HG regarding this is irrelevant.

7. My capabilities as a financial adviser are relevant insofar as I recognise the danger in members of the general public relying on such assertions when they cannot be supported by facts. My original letter to you stated that "...debenture companies have never offered enough to retail investors for the risk". This is palpably true. The whole world is waking up to this fact. This sector has been New Zealand's "sub-prime" debacle

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I therefore contend that the ASA should uphold the complaint on the grounds that a member of the general public would likely connect the two advertisements, given their very close positioning, and that neither HG or HF have demonstrated capacity to support such statements and that any (pun intended) responsible financial institution would recoil from making such an assertion and therefore HG/HF was careless (at best) but certainly reckless and misleading.

I would be happy to provide additional information in support of the above should you require further elaboration or examples.”

Deliberation

The Appeal Board perused all of the relevant correspondence, together with the Complaints Board Decision and the Appeal submissions. It also viewed the 8 second television advertisement, which it confirmed was a financial advertisement as it promoted “Hanover” through the use of a sales message.

It referred to the definition of an advertisement for the purposes of the Codes where it said: “The word "advertisement" is to be taken in its broadest sense to embrace any form of advertising and includes advertising which promotes the interest of any person, product or service, imparts information, educates, or advocates an idea, belief, political viewpoint or opportunity. …”

The Acting Chairperson confirmed that the relevant provisions were Basic Principles 2 and 3 of the Code for Financial Advertising.

Basic Principle 2 required the Appeal Board to consider whether the Hanover advertisement observed a high standard of social responsibility particularly as consumers often relied on such services for their financial security.

Basic Principle 3 stated that, “Financial advertisements should strictly observe the basic tenets of truth clarity and should not by implication, exaggerated claim or hyperbole mislead, or be likely to mislead consumers, abuse their trust or exploit their lack of knowledge.

In making its determination, the Appeal Board was required to take into account the product, audience, context and medium.

It noted the claim in the advertisement said: “…Hanover, the New Zealand business with the size and the strength to withstand any conditions."

This it said was a statement containing an absolute claim. In the Appeal Board’s view “any” market conditions went further than meaning “all” market conditions or “current” market conditions, it extended to include whatever was possible, including conditions across the whole market spectrum, including those that had not yet been envisaged.

It took into account that Hanover was a well recognised brand name, associated with a range of financial services, and that Richard Long, a former television newsreader on TV One, gave a further level of trust and recognition to the brand image.

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Turning to the context in which the advertisement had been screened, the Appeal Board noted that it had been onscreen between 19 August 2007 and 15 November 2007.

It noted Hanover Group’s advice where it said:

“the Advertisement was intended to help build public awareness of the "Hanover" brand. Accordingly, the Advertisement was developed as a general brand statement regarding the Hanover Group of companies and their business activities and was intended to:

make viewers aware that the following "Weather Update" on TV One was sponsored by the Hanover Group of companies; and

promote the goodwill of the Hanover Group of companies by linking the changing weather conditions we experience with the changing market conditions of the business environment we have successfully operated in (and continue to do so).”

In other words, the Appeal Board said the advertisement had been intended to reassure a potential investor that in spite of adverse conditions around financial markets at the time, the Hanover Group of companies, which were inextricably linked with financial market conditions, was stable and reliable. The Appeal Board noted the advice in the Appeal submission which said the advertisement was: “a general brand statement as regards the Hanover Group of companies and refers to the overall business activities of the Hanover Group of companies, including lending activities, property investment and development activities, other investment activities, insurance activities, retail fundraising activities and other financial services activities”

Addressing then the profile of the audience, the Appeal Board referred to Complaints Board Decision 93/105 where the deliberation said,“… the Board was mindful of the test it had adopted in identifying the comprehension level of consumers which was the test in World Series Cricket Pty Ltd v Parish. Applying that test consumers included the “…knowledgeable, and those who are not, the superficial reader, viewer or listener, as well as the profound, the gullible as well as the cautious…”.

The Appeal Board confirmed that the audience at the time the advertisement had been shown, as an introduction to The Weather on TV One, would be likely to be wide ranging and to correlate with the above described profile.

Having made the above observations, the Appeal Board was of the view that the advertisement did not observe the high standard of social responsibility required by a financial advertisement and thereby ruled that it was in breach of Basic Principle 2.

Furthermore, it said the advertisement did not observe the basic tenets of truth and clarity and contained an exaggerated claim which would be likely to mislead consumers. Thereby the Appeal Board ruled that it was in breach of Basic Principle 3.

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Having made the above observations the Appeal Board ruled that the Appeal be Dismissed.

Decision: Appeal Dismissed

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