AFCA or the Court?

D H Flinders Pty Ltd v Australian Financial Complaints Authority Ltd [2020] NSWSC 1690

In a recent decision of the Supreme Court of NSW, Stevenson J considered whether the Australian Financial Complaints Authority (AFCA) had the authority, jurisdiction or power to deal with complaints arising from the conduct of a representative of DH Flinders Pty Ltd (DH Flinders), a holder of an Australian Financial Service Licence (AFSL), who was acting outside of their authority.

The complaints to AFCA, including those made by the second and fourth defendants, Dr Khan and Mr Ibrahim, related to financial services provided by the representative of DH Flinders, Equitable Financial Solutions Pty Ltd (in liq) (EFSOL), including representations made concerning an investment program and the failure to return funds that were invested in relation to that product.

AFCA’s position was that DH Flinders was liable to EFSOL’s conduct, whether or not EFSOL was acting with DH Flinders’ authority and that AFCA thereby had authority, jurisdiction and power to deal with the complaints.

DH Flinders contested its responsibility for EFOSL’s conduct and claimed that AFCA did not have jurisdiction to deal with claims against representatives acting outside the scope of their authority. DH Flinders also claimed that AFCA breached its obligations of ‘independence, impartiality and fairness or procedural fairness required by the AFCA Rules’ when dealing with the complaints. 

The Court ultimately found that AFCA did not have authority, jurisdiction or power to determine a dispute arising from the conduct of EFSOL, who was found to be acting outside of its authority. In reaching the decision, His Honour noted that there was no dispute that a licence holder had a responsibility under section 917B of the Corporations Act 2000 for conduct of a representative, whether or not the representative’s conduct was within or outside of its authority. His Honour also found that the AFCA rules were drafted in a manner which provided AFCA the jurisdiction to hear complaints against a licensee in respect of conduct of a representative acting within its authority, not outside of its authority.

His Honour did not decide whether AFCA acted in breach of its obligation of impartiality and fairness, but stated that were it necessary for the question to be decided, His Honour would be “inclined to conclude that AFCA did act in breach of those obligations”.