FICS’s Federal Court win proves bittersweet

Alison Maynard

The Financial Industry Complaints Service (FICS) has prevailed in a Federal Court application over its jurisdiction to resolve Westpoint complaints, but it has turned out to be something of a hollow victory.

Even while FICS was celebrating Justice Finkelstein’s judgement of December 21, last year, the organisation was forced to seek legal advice on comments in his judgement on other key aspects of its operating procedures.

The comments concerned FICS’s jurisdiction in relation to joint complaints and claims made by super and trust funds, particularly with regard to claims with a combined total of more than FICS’s monetary limit ($100,000 investments, $250,000 life insurance).

FICS’s “Practice Note No 5”, which provides guidance to members on the handling of joint complaints, is under review as a result of Finkelstein’s comments, according to chief executive Alison Maynard.

She said FICS is also in the process of directly contacting members involved in complaints that may be affected by the comments to advise them that the review could potentially impact on judgments in those cases.

“Only about 27 of a total of nearly 350 complaints we have received about Westpoint are affected by Justice Finkelstein’s comments, and we’re assessing the individual circumstances of these based on the legal advice we receive.”

In FICS Ltd v Deakin Financial Services, Finkelstein ruled that FICS had jurisdiction over Westpoint complaints on the basis that promissory notes (including those issued by Westpoint) were indeed “financial products” under the Corporations Act.

FICS had launched the application to counter an argument by a number of affected Australian Financial Services (AFS) licensees that FICS had no jurisdiction to hear Westpoint complaints because promissory notes are not “financial products” as defined in the Act.

Perth-based financial services-specialist lawyer Mark Halsey, of Halsey Legal Services, said Finkelstein had handed down a “very significant judgement for all AFS licensees who are FICS members, and not only those affected by Westpoint complaints”.

“On face value, it gives authority to FICS to make determinations about promissory notes issued by Westpoint, but it is also critical in respect of other key issues relating to FICS policies and procedures.”

Halsey said FICS’s “Practice Note 5 — Handling Joint Complaints”, issued on May 17, 2004, had always been “controversial for being inconsistent with Australian legal principles” for the policy it contained.

The controversy stemmed from FICS’s practice of ‘splitting’ or ‘notionally separating’ complaints in certain cases where the value of the financial products held in joint names exceeded the monetary limits, he said.

“This FICS practice has allowed each of the joint owners to lodge separate claims, even though their joint investment value exceeds the monetary limits. So, for example, where there is a joint investment between two people, FICS has been attempting to maintain that the upper limit is effectively $200,000.”

In FICS v Deakin, however, Finkelstein held that joint claims “cannot be split, because a promise made to two or more persons jointly creates only one obligation”, according to Halsey.

He added that the judge also found that claims by self-managed super fund members (beneficiaries) cannot be treated as FICS is presently treating them — as claims for a fund member’s proportionate share of the loss suffered by the overall superannuation fund.

“Finkelstein found that a FICS member bringing a claim must be treated as a representative acting for all members, with the relevant monetary limit being the aggregate value of the claim for all fund members,” he said.