Courts uphold AFCA powers

The Australian Financial Complaints Authority has had its powers tested in two recent court cases, with the ombudsman winning both bouts.

In one case, super fund QSuper appealed an AFCA determination, arguing that AFCA had "exercised judicial power", which it was not entitled to do. The Federal Court rejected QSuper's appeal.

In the other case, fund manager Investors Exchange argued that AFCA had misconstrued the evidence and made a "jurisdictional error" in making a determination. The Supreme Court of Queensland found that AFCA's determination was reasonable and had been open to the facts.

In the QSuper case, AFCA received a complaint from a member of QSuper who said he had overpaid on life insurance cover and was entitled to a refund.

The member said he fell within an occupational rating that was introduced by the fund in 2016, which entitled him to a lower premium. The super declined to pay a refund on premiums paid over the following two years, saying the member had received information about the new occupational ratings and had the opportunity to apply for a change to his cover.

AFCA determined that QSuper should pay a refund. It said that the member had the responsibility for changing his occupational status but in order for that to happen he needed information that clearly identified his current rating and that he could change his rating to pay lower premiums.

AFCA found that the information to the member "lacked clarity in these respects."

In its appeal to the Federal Court, QSuper argued that AFCA exercised judicial power in making its determination, something it was not entitled to do. It said that AFCA's determination was "in effect" an award of damages based on an assessment of the member's rights - an exercise of judicial power.

The court ruled: "When the reasons are read as a whole, it is apparent that AFCA's concern was as to the extent to which QSuper disclosed to [the member] how he might have secured an occupational rating. It concluded that the information was inadequate.

"AFCA made no determination as to whether QSuper notice satisfied [provisions of the Corporations Act].

"In any event, even if AFCA had reached some conclusions as to the adequacy of the notice under [the Corporations Act], as a step leading to its ultimate determination, and therefore made a decision about the legal rights of QSuper and [the member], this would not have amounted to an exercise of judicial power."

In the Investors Exchange case, a superannuation fund invested A$140,000 in two property development projects managed by Investors Exchange. Both failed and the super fund lost most of its investment.

The fund trustee complained that that Investors Exchange had failed to follow its compliance plan by not obtaining independent valuations and this had caused the loss. AFCA ordered Investors Exchange to pay $66,000.

Investors Exchange failed to pay compensation. In the court action AFCA sought "performance of the determination" and Investors Exchange sought an order setting the order aside.

Investors Exchange argued that AFCA misconstrued its compliance plan and erred in finding that the super fund would not have invested if it had seen independent valuations. It argued that the compliance plan required independent valuations of scheme property , not property which was yet to be acquired for the scheme.

The court rejected this argument, ruling that the product disclosure statement clearly indicated that the valuation was to be obtained before the issue of the PDS.

The court went on to say that even if AFCA was wrong in its interpretation of the compliance plan, it would not have been a "jurisdictional error", as Investors Exchange argued.