In Wealthcare Financial Planning Pty Ltd v Financial Industry Complaints Service Limited & Ors  VSC 7 the Supreme Court of Victoria considered whether the proportionate liability provisions in the Wrongs Act 1958 (Vic) had to be applied in the determination by the Financial Industry Complaint Service of a retail investor's complaint against a financial adviser for breach of certain provisions of the Corporations Act 2001 (Cth).
This case involved the determination by the Financial Industry Complaint Service Limited (FICS) of a complaint against Wealthcare Financial Planning Pty Ltd (Wealthcare). The complaint arose from advice given by Wealthcare to a retired couple (the investors) that led to their making a loan to a mezzanine finance company in the Westpoint Group. Not surprisingly, the investor's investment was substantially lost.
The investors lodged a complaint against Wealthcare with FICS, the dispute resolution service of which Wealthcare was a member under section 912A of the Corporations Act 2001 (Cth) (the Corporations Act). The panel appointed by FICS found that Wealthcare had breached section 851(2) of the Corporations Act and its successor provision, section 945A. Sections 851(2) and 945A make it an offence for a financial adviser to give advice to a retail client unless the adviser has considered the client's personal circumstances, has made reasonable investigations into the proposed investment which is the subject of the advice, and considered whether what is being recommended is appropriate for the client in question. FICS ordered Wealthcare to pay a sum of money to the investors for the breach of sections 851(2) and 945A.
Aggrieved by the decision of FICS, Wealthcare filed an originating motion in the Supreme Court of Victoria. Wealthcare sought a declaration that the FICS determination had been made in breach of the constitution and rules of FICS and was of no force or effect. In addition, Wealthcare sought corresponding relief by way of judicial review under Order 56 of the Supreme Court Rules. As the case progressed, Wealthcare accepted that its challenge to the FICS decision turned on the proposition that the decision was made in breach of FICS' rules and therefore amounted to a claim for breach of contract. Of the four grounds originally stated in the originating motion, only one was ultimately pressed: that FICS had erred by failing to apply the principles of proportionate liability in determining the investors' complaint.
Justice Cavanough considered the nature and function of FICS. His Honour observed that FICS is not equivalent to a court and does not exist to hear and determine legal proceedings. Rather, it hears complaints (as opposed to causes of action) with the aim of resolving consumer disputes over the provision of financial services. It does so under certain published rules which, pursuant to the contract between it and its members, are binding on members. After reviewing the various FICS rules, Justice Cavanough considered that one rule was particularly relevant to this case, namely Rule 5, which provided:
'What principles must the Service have regard to?
5 In dealing with complaints, the Service must deal with the complaint on its merits and do what, in its opinion, is fair in all the circumstances, having regard to each of the following:
- any applicable legal rule or judicial authority... ...'
Wealthcare, both in its original submissions to FICS and then initially before the Supreme Court, argued that the Victorian proportionate liability provisions contained in Part IVAA of the Wrongs Act 1958 (Vic) (Wrongs Act) were of direct application to the investors' claim and had to be applied by FICS in its determination of the investors' complaint. At the hearing before Justice Cavanough, Wealthcare conceded that Part IVAA of the Wrongs Act did not apply directly of its own force to the investors' complaint. Rather, Wealthcare accepted that its entire case rested on the proposition that Part IVAA was an 'applicable legal rule' which FICS, under Rule 5, was required to apply to the claim and not merely 'have regard' to.
Did the proportionate liability provisions apply?
Justice Cavanough found that FICS was not obliged to apply the Victorian proportionate liability provisions in determining the investors' claim.
His Honour stated that the essential task of FICS was to deal with a complaint 'on its merits' and do what it considered was 'fair in all the circumstances'. Additionally, he considered that one of FICS' most important functions was to resolve complaints in an 'accessible, efficient and timely way'. His Honour was of the view that FICS had a broad discretion in determining complaints, albeit that it was required by Rule 5 to 'have regard' to any statutory and common law rules or principles that were capable of being applied to a particular matter.
In considering the interplay between Rule 5 of the FICS Rules and Part IVAA of the Wrongs Act, Justice Cavanough noted that Wealthcare had put its case on an 'all or nothing' basis. In other words, it was Wealthcare's case that FICS was obliged to apply Part IVAA rather than merely 'have regard' to it.
His Honour carefully considered the words of Part IVAA and made a number of interesting observations as to its operation
- The provisions of Part IVAA are not of 'universal application'. They apply only in a 'proceeding involving an apportionable claim' (section 24AI of the Wrongs Act), with an apportionable claim being a claim for economic loss or damage to property in an action for damages arising from a failure to take reasonable care or from a breach of section 9 of the Fair Trading Act 1999 (Vic).
- Insofar as Part IVAA relates to a claim arising from a failure to take reasonable care the claim must be made in an 'action' (section 24AF(1)(a)). 'Action' means a legal proceeding conducted in a court or tribunal.
- Part IVAA requires, in the ordinary case, that all potential 'concurrent wrongdoers' are parties to the proceeding before the court. That is only possible in a forum that has jurisdiction over all potential defendants. FICS is empowered only to deal with its members and has no jurisdiction over any other person. (His Honour noted that even if FICS had purported to apply Part IVAA to the investors' claim, it would necessarily have reached the same conclusion because there would have only been one 'defendant'.)
Justice Cavanough went on to consider the difference between Part IVAA and the provisions of the Corporations Act which FICS had considered in making its determination. Relying on the reasoning of Justice Middleton in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Limited  FCA 1216, Justice Cavanough stated that if the investors had brought a claim against Wealthcare in the Federal Court under section 953B of the Corporations Act for breaches of sections 851(2) and 945A, then such a claim could not have been met with a defence which relied on the provisions in Part IVAA of the Wrongs Act. His Honour held that although the principles of proportionate liability did feature in the Corporations Act they were only applicable to a breach of section 1041H, which prohibits misleading or deceptive conduct in connection with a financial product or financial service. His Honour approved Justice Middleton's finding in Dartberg that the 'express purpose' of section 851(2) (and, it can be inferred, section 945A) was to make a person found liable for a breach of the section legally responsible for the whole of any resulting loss.
His Honour further referred to Justice Middleton's decision in the context of whether the Victorian proportionate liability provisions could apply to a claim brought in the Federal Court involving the exercise of federal jurisdiction. While it was obvious that those provisions could not apply of their own force, it was possible that they could apply by virtue of section 79 of the Judiciary Act 1903 (Cth). Section 79, in essence, provides that the laws of a state or territory are binding on all courts exercising federal jurisdiction in the particular state or territory, except as otherwise provided by the laws of the Commonwealth. His Honour noted that in Dartberg Justice Middleton found that Part IVAA was not given force by section 79 of the Judiciary Act because the relevant Commonwealth legislation 'otherwise provided'. Part IVAA, if it were applicable, would detract from the purpose of the relevant Commonwealth legislation (which was to make a transgressor liable for the entirety of a claimant's loss). That being the case, Part IVAA was irreconcilable with sections 851(2), 945A and 953B of the Corporations Act and therefore inapplicable to claims involving those provisions.
While this case turned to a large extent on the interpretation of the FICS rules, and in particular Rule 5, the decision is of potential application to any panel or body which exercises a function similar to that exercised by FICS. However, the decision also demonstrates that much will depend on the particular powers of the body in question and the rules under which it operates.
In light of the finding made by Justice Cavanough that Part IVAA applies only to courts or tribunals, it is unlikely that other bodies or panels not exercising a judicial function will be in error if they fail or refuse to take into account the proportionate liability provisions of Part IVAA (unless the rules applicable to a body or panel provide otherwise). The wording of, for example, the New South Wales proportionate liability provisions in the Civil Liability Act 2002 (NSW) is sufficiently similar to the Victorian counterpart for Justice Cavanough's findings to be of application in New South Wales.
From the perspective of financial service providers and their insurers, the decision in Wealthcare is of some concern as it potentially exposes them to greater liability than would be the case if a consumer's dispute were to be agitated in legal proceedings. The introduction of proportionate liability represents the most significant evolution of the law of tort in modern times, yet the peculiarities of a scheme such as FICS deprives its members of the benefits brought about by proportionate liability. While it is recognised that the raison d'ętre of complaint resolution schemes such as FICS is to assist consumers, the interests of members should not be overlooked entirely. It is submitted that in circumstances where determinations are binding on members but not consumers (as is the case with FICS), a fairer approach would be for the schemes' rules to permit the application of the principles of proportionate liability. A consumer aggrieved by the application of the proportionate liability provisions would then be at liberty to seek redress by issuing court proceedings.
The decision also serves as a useful reminder of the limits on the application of state legislation to cases in the Federal Court involving the exercise of federal jurisdiction.
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