A court has ruled that the Australian Financial Complaints Authority’s jurisdiction does not extend to considering complaints arising from the conduct of a licensee’s representative acting outside its authority.
The case before the New South Wales Supreme Court involved Muhammed Khan and Ahmed Ibrahim, who made complaints to AFCA about financial services provided by Equitable Financial Solutions.
Equitable Financial Solutions was a corporate authorised representative of DH Flinders, a funds management advisory firm at the time the services were provided to the complainants.
EFS allegedly made representations about financial products with which DH Flinders was not connected. DH Flinders had no knowledge of the products or dealings in them, and EFS did not have authority from DH Flinders to offer the product in question.
EFS went into liquidation in November 2019 and the liquidators estimated there were a total of 127 complaints to AFCA about the company. The common feature of the complaints was that EFS failed to repay investments when due.
According to the statutory report of the liquidators in February this year, the amount owed to unsecured creditors was A$21.8 million and there was little prospect of any return.
A number of EFS customers who had made complaints against EFS then made complaints about DH Flinders. According to the court, 24 complaints remain active.
The case, DH Flinders Pty Ltd v Australian Financial Complaints Authority Ltd, revolved around provisions of the Corporations Act and the AFCA Rules, which cover the responsibility Australian Financial Service Licensees have for the actions of their corporate authorised representatives.
The court found that for the complainants to bring court proceedings against DH Flinders, the firm may be liable under the Corporations Act for the conduct of EFS while it was DH Flinders’ corporate authorised representative, notwithstanding that fact that EFS did not have DH Flinders’ authority to make representations concerning the product in question.
However, the court said the question of whether these provisions are relevant to AFCA’s “contractual authority, jurisdiction or power to deal with the complaints is a different matter.”
AFCA is derives its authority to determine complaints as a matter of contract. AFCA’s rules say that a complaint “must arise or relate to the provision of a financial service by a financial firm to the complainant.”
The definition of a financial firm includes employees, representatives, agents or contractors of the firm. AFCA’s position was that DH Flinders was, in effect, the financial firm that provided the services.
The court disagreed, distinguishing the Corporations Act and the AFCA rules. It ruled that in the AFCA rules “representative” should be taken to mean a person acting with authority.
It said that in order to be the financial firm in question, entities “must be acting with authority”.