The New South Wales Supreme Court’s findings in D H Flinders Pty Ltd v Australian Financial Complaints Authority Limited [2020] NSWSC 1690

In a recent decision of the New South Wales Supreme Court, the Court determined that the Australian Financial Complaints Authority (AFCA) does not have jurisdiction, power or contractual authority to determine a dispute against an Australian Financial Services Licence Holder (AFSLH), where a complaint arises from the conduct of the AFSLH’s representative acting beyond its authority.

Background

The proceedings arose from complaints made against Equitable Financial Solutions Pty Ltd (in liq) (EFSOL), which was an authorised representative of DH Flinders. EFSOL had been appointed as an investment manager for the wholesale product ‘EFSOL Income Fund’.

EFSOL made several representations to the complainants regarding financial products to which DH Flinders had no connection, being the ‘EFSOL Ameen Investment Program’ (Ameen Program), which was beyond EFSOL’s scope of authority.

DH Flinders had suspended and subsequently terminated EFSOL’s representative authority as it had identified that EFSOL had conducted business in addition, and unrelated, to its limited authority and sole role to act as the investment manager of the EFSOL Income Fund. It was accepted that EFSOL did not have actual authority to offer a product beyond the EFSOL Income Fund.

The complainants lodged complaints with AFCA regarding EFSOL in respect of the Ameen Program, as EFSOL had failed to complete requests by the complainants to withdraw their investments. At this point, AFCA made suggestions to the complainants that they ‘could join DH Flinders‘ to the complaint, by reason of EFSOL being a corporate authorised representative of DH Flinders.

Questions to be determined 

The first question to be determined was whether AFCA had the jurisdiction to determine a dispute against DH Flinders, where the complaints arose from the conduct of EFSOL acting without authority.

There is no dispute that an AFSLH has responsibility for the conduct of its representative whether within or outside the terms of its authority, pursuant to section 917B of the Corporations Act 2000 (Cth). The loophole lies in the drafting of the AFCA Complaint Resolution Scheme Rules (AFCA Rules), in that the AFCA Rules provide that AFCA only has jurisdiction to hear complaints against an AFSLH in respect of the conduct of a representative acting within its authority. As such, in the complainants’ circumstances, the Court found that AFCA had no jurisdiction to hear a complaint against DH Flinders as the alleged conduct of EFSOL was outside the given authority.

The second question to be determined was whether AFCA had acted in contravention of its obligations to be impartial and to provide procedural fairness in hearing and investigating complaints pursuant to the AFCA Rules. In light of the finding that AFCA did not have jurisdiction to hear the complaint, it was not ultimately necessary for the Court to determine whether AFCA had breached its obligations of impartiality and fairness. Had the Court been required to examine in this respect, the Court would likely have found that AFCA had breached its obligations of objectivity and fairness, as the conduct of AFCA in suggesting to the complainants to join DH Flinders to the complaint was ultimately acting in an advisory relationship with the complainants and was “hardly behaving in a manner procedurally fair to DH Flinders nor in a manner that was impartial”.

What does this mean for complainants? 

Where a complainant is seeking to recover from an AFSLH for wrongful conduct according to section 917B of the Corporations Act, the complainant may need to litigate in the Courts as opposed to lodging a complaint through AFCA.

What does this mean for AFCA?

AFCA must ensure that it provides its services impartially and independently and that it acts independently and provides procedural fairness to all parties involved in a complaint.

 

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