David Huggins, Principal of Huggins Legal, discusses what he calls “the coming cyclone” of the Australian Financial Complaints Authority. The cyclone factor derives not just from the fact that legacy claims can be pursued but also from the nature of the AFCA’s jurisdiction, he writes. Read David’s previous article on the AFCA, here.
In a previous article I described AFCA as being a “coming storm”. In the light of the Government’s Response to the Hayne Royal Commission this storm may be going to turn into a cyclone.
The reason for this is that the Government’s Response provides that it will require AFCA to consider disputes dating back to 1 January 2008. What is meant by disputes dating back to 1 January 2008 is not explained and draft legislation is not yet available. The Government may take one of two approaches on this point each of which will have very different outcomes.
The first approach is to say that any person who could have made a complaint to AFCA on 1 January 2008 if AFCA’s current time limits are taken to operate at that time can make a complaint. The problem with this is that AFCA’s time limits for much of its jurisdiction allow for a complaint to be made at any time up to 6 years after the complainant should reasonably have become aware that they suffered a loss. The result being that a person who suffered a loss in 2002 could pursue a claim at AFCA as at 1 January 2008 and could therefore pursue a claim now. I very much doubt that this is the outcome that the Government intended.
The second approach will be to put a different mechanism in place that will limit claims to where the loss was suffered after 1 January 2008. Under this approach claims that are now long out of time will be revived. Of particular interest is that 1 January 2008 is before the Global Financial Crisis occurred. This event was a major source of claims and it will be the case that claims that derived from this era that are now long out of time will be able to be pursued.
The cyclone factor derives not just from the fact that legacy claims can be pursued but also from the nature of AFCA’s jurisdiction. This issue has two aspects.
The first is that AFCA has a very wide jurisdiction including banking, financial advice, superannuation and insurance. This fact alone means that potentially a very significant number of legacy claims will arise.
The second is that AFCA’s jurisdiction is much wider than the jurisdiction of the Financial Ombudsman Service, which it replaced on 1 November 2018. The FOS could deal with disputes where the amount of the loss was less than $500,000 and it could award up to $309,000. In some cases, AFCA’s jurisdiction is unlimited or is much higher but the bulk of its jurisdiction concerns claims where the amount in dispute is up to $1 Million and it can award up to $500,000. As a practical matter, in the past, many valid claims were not pursued because they fell outside of the jurisdiction of the FOS and the claimant did not want to take action in a Court. Claims of this type will now be taken to AFCA.
I expect that an area that will be significantly affected by the change to AFCA’s jurisdiction will be loans made to primary producers and guarantees entered into with respect to the guarantor’s principal residence. For primary producer loans, AFCA can consider a complaint where the value of the credit facility was up to $5 million and it can award up to $2 Million in compensation.
A key driver behind the creation of AFCA was political concerns about loans made to primary producers. The effect of the proposed changes is that very old disputes from this sector that could not have been pursued at the FOS and which, for practical reasons, could not be pursued in a Court, will now be able to be considered by AFCA.
Guarantees secured over the guarantor’s principal place of residence must also be a major source of future disputes. AFCA has unlimited jurisdiction with respect to this type of dispute. AFCA, because it is a cost free jurisdiction, offers a very attractive venue to litigate disputes. In this context the effect of the proposed changes is that every guarantee that has been enforced against a family home since 1 January 2008 could potentially be the subject of a complaint to AFCA.
David Huggins is the principal of Huggins Legal. David has more than two decades of experience in all aspects of financial services related disputes including regulatory disputes. David has worked at ASIC, ASX and a national law firm and has operated Huggins Legal since 2005. David has a deep commitment to legal practice and to obtaining compensation for his clients. Where possible David looks to achieve settled outcomes but if necessary he will take matters to trial. David has written extensively for the West Australian Newspaper and other publications and has appeared on television as an expert commentator. In addition, David has been a Director of the Australian Compliance Institute and the Independent Market Operator. David is an Adjunct Lecturer for the College of Law and is a member of the Compliance Committee for two managed investment schemes.