Wealthcare Financial Planning Pty Ltd v Financial Industry Complaints Service Ltd

[2009] VSC 7

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 8798 of 2007

BETWEEN

WEALTHCARE FINANCIAL PLANNING PTY LTD (ABN 51 007 263 621)	Plaintiff
and
FINANCIAL INDUSTRY COMPLAINTS SERVICE LTD (ABN 64 068 901 904) & ORS (according to the attached Schedule)	Defendants

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JUDGE:	CAVANOUGH J
WHERE HELD:	Melbourne
DATE OF HEARING:	14, 15 May 2008
DATE OF JUDGMENT:	22 January 2009
CASE MAY BE CITED AS:	Wealthcare Financial Planning Pty Ltd v Financial Industry Complaints Service Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2009] VSC 7

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Consumer protection – Licensing of financial advisers – National financial industry complaints and dispute resolution scheme – Whether panel determining retail client’s complaint against financial planer bound to apply principles of proportionate liability – Panel under no such obligation – Application for declarations and for judicial review dismissed – Corporations Act2001 (Cth) ss 851(2), 912A, 945A, 953B – Wrongs Act1958 (Vic) Part IVAA.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Cawthorn SC Mr C Madder	Moray & Agnew Solicitors
For the First Defendant	Mr M Colbran SC Mr M Wise	Piper Alderman
For the Second and Third Defendants	No appearance	Minter Ellison Lawyers

HIS HONOUR:

Overview

1. In December 2004 a financial planner employed by Wealthcare Financial Planning Pty Ltd (“Wealthcare”) advised Eric Norris, a retired farmer then 77 years of age, and his wife Christine Norris to lend approximately $65,000 to a mezzanine finance company which was part of the Westpoint property development group.  The Norrises did so.  This represented a rollover of funds which the Norrises had previously lent to another member of the Westpoint group on the advice of the financial planner given some years earlier.  The mezzanine finance company went into administration in December 2005 and was placed in liquidation in January 2006.  The Westpoint group as a whole collapsed at about the same time.  The Norrises’ investment was substantially lost.

1. The Norrises complained to a dispute resolution service conducted by a body of which Wealthcare was a member, namely Financial Industry Complaints Service Ltd (“FICS”). A panel appointed by FICS found fault on the part of Wealthcare and upheld the Norrises’ complaint. The panel found, among other things, that Wealthcare had initially breached s 851(2) of the Corporations Act 2001 (Cth) in advising the Norrises to invest with Westpoint. It also found that Wealthcare had later breached s 945A of the Corporations Act 2001 (Cth), the successor of s 851(2), in advising the Norrises to roll their money over with Westpoint in December 2004. Under s 945A it is an offence for a licensed financial adviser to provide advice to a retail client unless, among other things, the adviser makes “reasonable inquiries” in relation to the client’s personal circumstances and gives such consideration to, and conducts such investigations of, the subject matter of the advice as is reasonable in the circumstances, and the advice is “appropriate” to the client, having regard to that consideration and investigation. Section 953B of the Corporations Act 2001 (Cth) confers a right to bring a civil action for damages for breach of s 945A. The panel determined that Wealthcare should pay to the Norrises the sum of $65,545 plus interest, on certain conditions.

1. Wealthcare now brings this proceeding by originating motion seeking a declaration that the determination by the FICS panel breached the constitution and rules of FICS and is of no force or effect. Wealthcare also seeks corresponding relief by way of judicial review under Order 56 of the Supreme Court (General Civil Procedure) Rules 2005.

1. Four grounds were originally stated in the originating motion.  Ground (c) was abandoned in the course of argument. Ground (d) alleges that the FICS panel erred by “finding that the entirety of the loss of the [Norrises] was caused by the conduct of Wealthcare”.  This ground was not pressed as an independent ground but only as ancillary to the remaining grounds, (a) and (b).  Those grounds, in turn, raise what is really a single claim, namely that FICS erred by failing to apply principles of proportionate liability in determining the Norrises’ complaint. Wealthcare had submitted to the panel (and it was common ground before me) that there were other persons or entities that might, if sued by the Norrises in some other forum, have been found liable to the Norrises for the same loss.  Examples suggested were the mezzanine finance company itself, its directors, the Westpoint group generally, its auditors, and an investment research firm on whose reports Wealthcare had allegedly relied. 

1. For reasons I will in due course explain, in my opinion the panel was not obliged to apply principles of proportionate liability in determining the Norrises’ complaint.  I do not consider that the panel’s decision was made in breach of the constitution and rules of FICS.  The proceeding will therefore be dismissed.

The FICS dispute resolution scheme generally

1. Section 912A of the Corporations Act 2001 (Cth) requires a financial planner, as a condition of the obtaining of a financial services licence, to be a member of an external dispute resolution scheme that is approved by ASIC and that covers complaints against the licensee made by retail clients in connection with the provision of financial services covered by the licence.[1]  The dispute resolution scheme conducted by FICS answers that description.[2]  The rules of the scheme have been amended from time to time.  It is common ground that the rules under which the complaint by the Norrises against Wealthcare fell to be determined were the rules as promulgated in a document dated 1 January 2005 published by FICS.[3]  The history and nature of the scheme, and the effect of the main amendments made to the constitution and rules of FICS up to 2002, are described in detail by Finkelstein J in Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd[4].  In that case, as Wealthcare itself submits, Finkelstein J found that the external facts established the existence of a contract between Deakin and FICS to the general effect that Deakin would be bound by the FICS rules that established a dispute resolution scheme as amended from time to time; and that this private contract – not any statutory provision – was the source of the power and authority of FICS to hear and determine complaints against Deakin.[5]  Despite the passage of time and further amendment of the rules, Wealthcare does not suggest that the facts surrounding the relationship between itself and FICS are distinguishable in any relevant way from the facts surrounding the relationship between Deakin and FICS which were considered and ruled upon by Finkelstein J. 

   [1]Section 912A(2)(b).

   [2]There was a suggestion during the hearing that at least some licensees might have access to an alternative scheme, but I will assume in Wealthcare’s favour that it had access only to the FICS scheme.

   [3]See the transitional provisions (rule 57) of the subsequent rules published by FICS on 1 January 2007.

   [4](2006) 60 ACSR 372; [2006] FCA 1805.

   [5]At [42]-[44].

1. The role of a FICS panel is not equivalent to that of a court.  It is not established to hear and determine legal proceedings.  For constitutional reasons it could not be so established.[6]  FICS, as its name suggests, entertains complaints, rather than causes of action.  It conducts an industry based scheme for the resolution of consumer disputes.  It offers opportunities for investigation, negotiation and conciliation, as well as for the making of determinations by appointed adjudicators and by appointed panels.  The general nature of such schemes is helpfully reviewed in a recent article by O’Shea and Rickett[7].  Having referred to the FICS scheme in particular, the learned authors point out[8] that the various schemes differ in significant ways from courts: 

“They are less concerned with the articulation and determination of legal rights than with the simple resolution of disputes.”

[6]See, eg, Brandy v Human Rights and Equal Opportunity Commission (1995) 183 CLR 245; Australian Communications Authority v Viper Communications Pty Ltd (2001) 110 FCR 380 at 403-405 [95]-[103].

[7]P. O’Shea and C. Rickett, In Defence of Consumer Law:  The Resolution of Consumer Disputes [2006] 28 Syd L Rev. 139 at 152.

[8]Ibid, 152-153.

Decisions under the schemes create new rights and obligations rather than declare existing ones.[9]  There is no power to order discovery of documents or to subpoena witnesses.  Enforcement of scheme decisions is “not directly sanctioned by the state.  No bailiff will execute a warrant issued by an industry-based dispute resolution scheme”.[10]

[9]Ibid, 152.

[10]Ibid, 153.

The constitution and rules of FICS

1. The constitution of FICS provides for a board of directors consisting of an independent chair and an equal number of directors appointed to represent the interests of members and the interests of consumers. 

1. The stated objects for which the company is established include[11]:

“(a)     to act as the complaints resolution body of the financial services          industry in Australia …

(b)to have due regard to all relevant law and codes of conduct approved by ASIC and the Australian Competition and Consumer Commission, fairness in the circumstances and good industry practice.

(c)to adopt procedures (‘Rules’) as formulated by the Board from time to time for, inter alia, resolving complaints concerning Members, and which shall be a contract between each Member and the Company.

(d)to take such steps as are considered necessary to ensure that the Industry provides the best standards of complaints resolution.”

[11]Clause 2.3.

1. “Panel” is defined in the constitution to mean “the independent determination body set up in accordance with the Rules to determine disputes that are not resolved by investigation, negotiation or conciliation under the Rules”.[12]

   [12]Clause 1.

1. The constitution provides for the discretionary expulsion of a member which fails to comply with any decision of a panel.[13]  The board may create, modify or terminate any rules in its discretion.[14]

   [13]Clause 11.6.

   [14]Clause 29.1.

1. The 2005 Rules are not couched in the strict language and form of a statute.  They are expressed in a simple style, partly informative and partly prescriptive. 

1. Part A of the 2005 Rules, entitled “Role of the Service”, includes relevant provisions or statements along the following lines:

•that FICS has been established as an independent body “to help customers” in the resolution of complaints;

•that the “Service” offers two main types of procedure – conciliation and, if that fails, “arbitration” by an “Adjudicator” (for smaller claims) or by a Panel (for larger claims);

•that the procedures are available free to any member of the public regarding any dealings with a member covered by the rules;

•that complaints must first be raised direct with the member;

•that members must also have an internal complaint handling system in accordance with ASIC guidelines;

•that complaints must be in writing and must set out “adequate details of the complaint, for example any alleged deficiencies or breaches of duty by the member”, and must state any “corrective action” needed to be taken by the member to “resolve the dispute”;

•that there are specified monetary limits on complaints to the Service;

•that in the case of financial services advice the limit is $100,000;

•that subject to certain exclusions and to the monetary limits, the Service is able to “conciliate and arbitrate” in respect of certain specified types of complaints brought in relation to members of the Service, including “complaints relating to investment advice provided by a member to a retail investor[15] in relation to a financial service or product”;

•that amongst the exclusions are matters where a complainant seeks “compensation by way of punitive or consequential damages”;

•that complainants and members provide information and make statements to the Service (including the Adjudicators and Panels) on a “without prejudice” basis, meaning that the information or statement “cannot be used in any subsequent court proceedings”.

[15]“Retail investor” is defined to have the same meaning as in the Corporations Act 2001 (Cth).

1. Part B of the rules deals with conciliation procedures.

1. Parts C and D deal with arbitration by the Adjudicators and Panels.  They include relevant provisions and statements along the following lines:

•that members participating in the Service have agreed to abide by the Adjudicator’s/Panel’s decisions unless the complainant has exercised other rights of review which result in a different decision or revision of a decision;

•that the Chair of a Panel decides what procedures to follow, and the proceedings “are to be as informal as possible, with a minimum of legal formality and technicality, but the Panel “must apply the rules of procedural fairness”;

•that a Panel “may” hold a hearing to consider a complaint and if so the member must appoint a senior officer to represent it;

•that the complainant is expected to represent himself/herself;

•that legal representation is “discouraged” and only allowed at the discretion of the Chair;

•that a Panel may inform itself in any way it thinks appropriate, including by seeking professional advice on financial services industry law or practice;

•that a Panel may accept evidence in any way it thinks appropriate;

•that each person on the Panel has one vote and a decision is made by simple majority;

•that decisions do not create binding precedents;

•that a Panel must issue reasons for its decisions in writing unless this is considered inappropriate;

•that reasons will not identify the parties;

•that a Panel will not normally award costs, and any (extraordinary) award of medical or legal costs is subject to a limit of $2,000;

•that the Service “expects the complainants to abide by the decisions of a Panel”, but “recognises that complainants may wish to pursue whatever rights they have in the courts”;

•that the Service may take any necessary action (including legal action) to enforce a Panel’s decision, and this may include seeking specific performance of the agreement to abide by the rules;

•that a member who does not comply with the decision of a Panel “may” have its membership terminated, but the Service must consult with ASIC prior to the termination process taking place;

•that the Chair of a Panel may decide (after hearing the complainant) that it is inappropriate for a panel to decide a complaint before it.[16]

[16]See also Section G of the rules dealing with objections to the Service dealing with “significant matters”.

1. Part F of the Rules deals with the appointment of panels.  Each is to have three members – an independent chairperson, a person capable of representing the interests of consumers and a person capable of representing the interests of the membership sector to which the panel relates.  Chairs of the panels are appointed for a three year period, following consultation with stakeholders.  Chairs are required to meet relevant selection criteria, but are not required to be legally qualified.[17]

   [17]As it happens, the chair of the panel that heard the Norrises’ complaint was legally qualified. 

1. The rule of most importance in the present case is rule 5, which should be set out in full:

“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 (including one concerning the legal effect of an express or implied term of the contract or other document)

•general principles of good industry practice and any applicable code of practice

•resolving complaints in an accessible, efficient and timely way

•keeping complainants and members informed of progress

•assisting complainants and members to reach informed and voluntary decisions to resolve complaints

•assisting complainants to prepare and present their complaints to the Panel

•discouraging frivolous or vexatious complaints.”

Judicial review

1. With a view to, among other things, supporting its submission that the decisions of panels appointed by FICS are judicially reviewable pursuant to Order 56 of the Rules of the Supreme Court, Wealthcare disputed the conclusion of Finkelstein J in Deakin that the relationship between FICS and its members was purely contractual.  Further, Wealthcare drew attention to the prior judgments of Shaw J of the Supreme Court of New South Wales in Masu Financial Management Pty Ltd v Financial Industry Complaints Service Ltd (Nos 1 + 2)[18].  Shaw J found that the decisions of panels appointed by FICS under the constitution and rules of FICS as at the time relevant for that case[19] were judicially reviewable on administrative law grounds, including on the ground of breach of the principles of procedural fairness.  There was considerable debate before me as to whether I should follow Masu in that regard, whether it is distinguishable[20] and whether it is in conflict with Deakin and/or with the decision of Ashley J[21] in D’Souza v Royal Australian and New Zealand College of Psychiatrists[22].  However, I need not rule on that debate.  Senior counsel for Wealthcare acknowledged[23] that his client’s challenge in this case gained nothing extra from any administrative law ground (notwithstanding references in his outline of argument to “errors of law”, exceeding or failing to exercise jurisdiction, “jurisdictional error” and “errors of law on the face of the record”).  Rather, he accepted, the challenge stood or fell on the proposition that the panel’s decision was in breach of the FICS rules (which in turn required FICS to have regard to “any applicable legal rule”) and for that reason amounted to a breach of contract.  On the other hand, Wealthcare also submitted, at least initially, that if (as Masu may suggest) the decisions of FICS panels are judicially reviewable on administrative law grounds, it would be all the more appropriate to characterise such a panel as a “tribunal” within the meaning of the provisions of the Wrongs Act 1958 (Vic) relating to proportionate liability on which Wealthcare relied and to which I will come. However, as I will explain in due course, even if panel decisions are judicially reviewable on administrative law grounds, I would still not be satisfied that FICS panels are tribunals within the meaning of the relevant provisions of the Wrongs Act 1958 and in any event I would still not be satisfied that the panel was obliged to apply principles of proportionate liability in the present case.  So I need not decide whether panel decisions are judicially reviewable on administrative law grounds.  I need not do so even for the purpose of considering whether any grant of relief should be framed by reference to the language of judicial review as distinct from the language of the enforcement of contracts[24], because, as indicated above, I do not consider that the panel’s decision was in breach of the rules and I do not intend to grant any relief at all.  So the interesting and difficult question of the judicial reviewability of the decisions of FICS panels must await a case in which it needs to be decided.

   [18](2004) 50 ACSR 554, [2004] NSWSC 826 and 829.

   [19]Which appears to have been some time between July 1999 and July 2002.

   [20]At the relevant time in Masu, certain members of the board of directors of FICS were apparently appointed by the Federal Minister responsible for consumer affairs:  see Masu (No 1) at [5]. I was informed by counsel that that is no longer the case. That information is confirmed by O’Shea and Rickett, op. cit. at 153.

   [21]As Ashley JA then was.

   [22](2006) 12 VR 97. For an interesting review of the issue, see P. O’Shea and C Rickett, “In Defence of Consumer Law: The Resolution of Consumer Disputes” [2006] 28 Syd L Rev. 139 (esp section 6, at p 157-169).

   [23]Transcript, 5, 192.

   [24]Cf Masu (No 2) at [11].

The further refining of the plaintiff’s argument

1. In written submissions made to the FICS panel itself, Wealthcare had relied on the nationwide introduction of statutory provisions imposing proportionate liability (in similar, though by no means identical, terms) after the various inquiries into tort reform and insurance reform in the early 2000s.  It had relied mainly, though not exclusively, on Part IVAA of the Victorian Wrongs Act 1958, which came into operation on 1 January 2004.  It had submitted that Part IVAA and certain corresponding Commonwealth provisions applied “directly”[25] to the claim before the panel and that the panel was therefore “bound”[26] to apply proportionate liability to the complaint.

   [25]See para 30 of exhibit “CIF-11” to the affidavit of Cameron Ian Forster sworn 9 October 2007 herein.  See also, to the same effect, paras 47-54 of exhibit “CIF-8” to Mr Forster’s affidavit.

   [26]Ibid, para 41.

1. However, ultimately at least, the case was put in a different way to this Court.  Wealthcare placed no reliance, or no significant reliance, on statutory provisions other than those of Part IVAA of the Wrongs Act (Vic). And Wealthcare ultimately conceded[27] that even Part IVAA did not apply directly, or of its own force, to the complaint before the panel.[28]  Rather, Senior Counsel said, the entire case came down to a matter of the proper construction of the rules of FICS and in particular of rule 5 which, among other things, required FICS to “have regard” to “any applicable legal rule”.[29]  However, Wealthcare maintained that the legal “norm” of proportionate liability, as reflected, or as provided for, in Part IVAA of the Wrongs Act 1958[30], was just such a thing, and Wealthcare maintained that the panel was obliged to apply it, not merely to “have regard” to it (in the sense of merely considering whether to apply it or otherwise merely taking it into account).  FICS made no objection before me to Wealthcare arguing the matter in this way, notwithstanding the departure from the way in which Wealthcare had argued the matter before the panel. 

   [27]Transcript 192.

   [28]Nor was it submitted that any corresponding Commonwealth or other provision so applied.

   [29]Transcript 192.  This concession further diminished the significance of the question whether decisions of the panel are judicially reviewable and of the question whether the panel was a “tribunal” within the meaning of Part IVAA of the Wrongs Act 1958 (Vic).

   [30]Especially in s 24AI(1) thereof:  see below.

1. I accept the correctness of Senior Counsel’s concession that Part IVAA did not apply directly, or of its own force, to the complaint before the panel.  I do so for reasons that will become apparent when I turn to the consideration of the provisions of Part IVAA in detail.  However it is convenient to deal first with the proper construction of rule 5, in its context. 

The proper construction of rule 5

1. It is common ground that rule 5, though expressed in terms of the obligations of “the Service”, extends to the obligations of FICS panels.

1. The most significant parts of rule 5 for present purposes are the opening lines and the first three dot points.  A panel is to deal with a complaint “on its merits” and, most importantly, is to do what, in its opinion, is fair in all the circumstances.  That is the central task of the panel.  True, the panel must “have regard” to “any applicable legal rule or judicial authority (including one concerning the legal effect of an express or implied term of the contract or other document)”.  The Macquarie Dictionary[31] defines “applicable” as “capable of being applied; fit; suitable; relevant”.  In my opinion, the true meaning of “applicable” in rule 5 is somewhere between “capable of being applied” and “relevant”.  The panel must also “have regard” to “general principles of good industry practice and any applicable[32] code of practice.  In addition, the panel must “have regard” to “resolving complaints in an accessible, efficient and timely way”.

   [31]Third edition.

   [32]Again, I think that “applicable” here means “capable of being applied” or “relevant”.

1. In R v Financial Ombudsman Service Limited; ex parte Norwich and Peterborough Building Society[33] (“Norwich”), the respondent Ombudsman had a very similar charter, including a statutory obligation to determine complaints by reference to what was, in its opinion, “fair in all the circumstances of the case” and to “have regard” to the rules of the relevant building society, the provisions of any relevant contract and the provisions of any applicable code of conduct. [34]  There was no express equivalent of FICS’s obligation to have regard to “any applicable legal rule or judicial authority”, but that difference is insignificant, in my opinion.  Ousely J held that the Ombudsman had misinterpreted an applicable code of conduct (the Banking Code) and had thereby failed to “have regard” to it as required by the statute and the relevant scheme.  His Honour rejected an argument that the interpretation of the Code was a matter for the Ombudsman (within the limits of rationality), holding instead that the interpretation of the Code was a matter for the courts.  However his Honour found that the Ombudsman’s decision (which favoured the customer) was independently supported by the Ombudsman’s assessment of what was fair (or unfair) in all the circumstances of the case.  His Honour said[35]:

“The very concept of ‘unfairness’ is very wide, and permits reasonable people to disagree.  But its very width serves as a caution against over-active judicial intervention in the approach adopted by the Ombudsman, in the criteria which he develops or in the application of those criteria or of the concept of unfairness to the circumstances of the case”. 

In other words, the central task of the Ombudsman involved the exercise of a broad discretion, and, in my view, the same applies to a FICS panel.

[33][2002] EWHC 2379 (Admin). This case is extensively discussed in O’Shea and Rickett, op. cit, at 160-163.

[34]See at [13]-[16].

[35]At [77].

1. Nevertheless, I can accept that a FICS panel is required to “have regard” to all of the law (statutory and judge-made) that is relevant or capable of being applied.  And, as Norwich indicates, a panel may be implicitly required to properly interpret and understand that law, and to take it into account.  I will even assume, without deciding, that a panel is required to give weight to all of that law “as a fundamental element in making the decision”.[36] 

   [36]See Pearce and Geddes, Statutory Interpretation in Australia, 6^th edition, 2006, [12.14] and cases there referred to.

1. Even so, bearing in mind the general nature of the FICS scheme and that the panel’s central task is to do what, in its opinion, is “fair” in all the circumstances and that the panel is required to have regard to “general principles of good industry practice and any applicable code of practice” and to “resolving complaints in an accessible, timely and efficient way” (as well as to “any applicable legal rule or judicial authority”), it seems to me that the position of a FICS panel cannot be any more constrained than that of Telecommunications Industry Ombudsman Ltd (“the TIO”), which was considered by Sackville J in Australian Communications Authority v Viper Communications Pty Ltd[37]. Section 128 of the Telecommunications Act 1997 (Cth) provided for the establishment of a scheme under which the TIO was to “(a) investigate; and (b) make determinations relating to; and (c) give directions relating to: complaints about carriage services by end-users of those services”. Sackville J said:

“[Section 128] does not require the TIO to resolve complaints by making determinations on the basis of the application of principles of law to the facts as found. Section 128 contemplates that the TIO will be free to create norms to resolve a particular dispute or class of dispute.”

[37](2001) 110 FCR 380. See also Citipower Pty Ltd v Electricity Industry Ombudsman (Vic) Ltd [1999] VSC 275 (Warren J, as the Chief Justice then was), esp at [31] (discussed by O’Shea and Rickett, op. cit at 163-164). I note that no reference was made to those authorities by Jones J in his interlocutory judgment in ABN Amro Morgans Ltd v Alders [2008] QSC 160 in which, at [12], his Honour accepted a submission by the complainants that the relevant FICS panel would be required to “apply the law applicable at the relevant time”.

1. In the present case, as I have said, Wealthcare concedes that neither Part IVAA of the Wrongs Act nor any other statutory provisions imposing proportionate liability applied, of their own force, to the complaint before the panel.  In those circumstances I can see nothing in rule 5 of the FICS rules to elevate the so-called “norm” of proportionate liability to an “applicable legal rule” that the panel was obliged to put into effect in this case.  Arguably, perhaps, the panel might have chosen, in the exercise of its broad discretion, to discount the Norrises’ compensation by reference to some sort of analogy with the principles of proportionate liability as reflected in Part IVAA of the Wrongs Act.  But Wealthcare’s submissions to the Panel were not couched in that way, even in the alternative.  Nor, in fairness, does Wealthcare now seek to attack the panel’s decision as involving any such miscarriage of its discretion.  Wealthcare continues to put its case on an “all or nothing” basis.  In any event, as I will explain in due course by reference to Dartberg Pty ltd v Wealthcare Financial Planning Pty Ltd[38] it is arguable that for the panel to have reduced the Norrises’ compensation by reference to some analogy with proportionate liability would have been precluded by rule 5 as being contrary to a particular “legal rule” established in Dartberg, namely that the provisions of Part IVAA cannot be used, at least in the Federal Court, in defence of a claim under s 945A and s 953B of the Corporations Act 2001 (Cth).

   [38][2007] FCA 1216.

1. Further, as I will shortly explain, there are various additional limitations and other features of Part IVAA (for example, the provisions relating to the joinder of parties) which confirm that “proportionate liability” cannot be regarded as a legal rule that a FICS panel is obliged to apply.

1. I turn now to the salient provisions of Part IVAA.

Part IVAA of the Wrongs Act 1958

1. So far as relevant, s 24E provides:

“24AE Definitions

In this Part —

‘apportionable claim’ means a claim to which this Part applies;

‘court’ includes tribunal and, in relation to a claim for damages, means any court or tribunal by or before which the claim falls to be determined;

‘damages’ includes any form of monetary compensation;

‘defendant’ includes any person joined as a defendant or other party in the proceeding (except as a plaintiff) whether joined under this Part, under rules of court or otherwise; … .”

1. Section 24AF(1) provides:

“24AF Application of Part

(1)This Part applies to —

(a)a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care; and

(b)a claim for damages for a contravention of section 9 of the Fair Trading Act 1999.”

1. By s 24AG, Part IVAA is made inapplicable to claims arising out of personal injury, to claims arising under a long list of specified Victorian statutes and to claims of a kind excluded by regulations.

1. Section 24AH provides:

“24AH  Who is a concurrent wrongdoer?

(1)A concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim.

(2)For the purposes of this Part it does not matter that a concurrent wrongdoer is insolvent, is being wound up, has ceased to exist or has died.”

1. Section 24AI is the central operative provision.  It provides:

“24AI  Proportionate liability for apportionable claims

(1)In any proceeding involving an apportionable claim—

(a)the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant's responsibility for the loss or damage; and

(b)judgment must not be given against the defendant for more than that amount in relation to that claim.

(2)If the proceeding involves both an apportionable claim and a claim that is not an apportionable claim—

(a)liability for the apportionable claim is to be determined in accordance with this Part; and

(b)liability for the other claim is to be determined in accordance with the legal rules, if any, that (apart from this Part) are relevant.

(3)In apportioning responsibility between defendants in the proceeding the court must not have regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or, if the person is a corporation, the corporation has been wound-up.”

1. Sections 24AK and 24AL are also noteworthy.  They read:

“24AK Subsequent actions

(1)In relation to an apportionable claim, nothing in this Part or any other law prevents a plaintiff who has previously recovered judgment against a concurrent wrongdoer for an apportionable part of any loss or damage from bringing another action against any other concurrent wrongdoer for that loss or damage.

(2)However, in any proceeding in respect of any such action the plaintiff cannot recover an amount of damages that, having regard to any damages previously recovered by the plaintiff in respect of the loss or damage, would result in the plaintiff receiving compensation for loss or damage that is greater than the loss or damage actually suffered by the plaintiff.

24AL Joining non-party concurrent wrongdoer in the action

(1)Subject to subsection (2), the court may give leave for any one or more persons who are concurrent wrongdoers in relation to an apportionable claim to be joined as defendants in a proceeding in relation to that claim.

(2)The court is not to give leave for the joinder of any person who was a party to any previously concluded proceeding in relation to the apportionable claim.”

1. Finally, subsection 24AP(e) should be noted.  It provides:

“24AP  Part not to affect other liability

Nothing in this Part—

(a)…

(b)…

(c)…

(d)…

(e)affects the operation of any other Act to the extent that it imposes several liability on any person in respect of what would otherwise be an apportionable claim.”

FICS was not obliged to apply proportionate liability

1. Wealthcare’s essential argument is that, in Victoria at least, proportionate liability is now a fundamental legal norm.  It is true that, where it applies, Part IVAA of the Wrongs Act 1958 makes fundamental changes to the law of Victoria.  In Gunston v Lawley[39], on which Wealthcare relies, Byrne J said:

“The scheme of s 24AI is that any given defendant is at risk of liability and judgment for an amount limited to its proper share of the loss or damage the subject of the claim.

The effect of the proportionate liability regime, therefore, is to transform fundamentally the relationship which exists between a plaintiff and a concurrent wrongdoer … .”

However the provisions of Part IVAA are by no means of universal application.  For example, they apply only in a “proceeding[40] involving an apportionable claim”.  “Apportionable claim” is defined to mean a claim to which Part IVAA applies.  By virtue of s 24AF(1), the limits on that concept include that the claim must either be a claim for economic loss or damage to property in an action for damages[41] arising from a failure to take reasonable care, or be a claim for damages for a contravention of s 9 of the Fair Trading Act 1999. Immediately one sees a contrast between Part IVAA and provisions such as s 9 of the Fair Trading Act 1999 itself.  That section directly regulates the conduct of persons and other entities.  It prohibits misleading and deceptive conduct; and it does so in respect of a vast field of activity, namely trade or  commerce.  It may truly be said to be a legislative reflection of a norm of conduct.[42]  Part IVAA of the Wrongs Act is different.  It makes no change to the law or to the rights or obligations of individuals outside the context of a “claim” within a “proceeding”.  A “concurrent wrongdoer” is only defined “in relation to a claim”:  s 24H.  The central provision – s 24AI - is expressly directed towards the position of a “defendant”, as defined.  At least insofar as Part IVAA relates to a claim arising from a failure to take reasonable care[43], the claim must be made in an “action”: s 24AF(1)(a). In its context in Part IVAA, the word “action” does not bear its popular meaning of a proceeding commenced by writ, but it does, I think, mean, in substance, a legal proceeding.[44]  It will extend to a legal proceeding conducted in a tribunal (because of the definition of “court”) but the whole tenor of Part IVAA suggests confinement to proceedings in court and closely comparable proceedings.  The central provision – s 24AI – is expressed to operate by reference to “the court”.  “Court” may be defined to include “tribunal” and, in relation to a claim for damages (as defined), to mean “any court or tribunal by or before which the claim falls to be determined”, but, as Bennion says in relation to statutory definitions in general[45], it is “impossible to cancel the ingrained emotion of a word merely by an announcement”.  Moreover, the very subject matter of Part IVAA is the distribution of liability, meaning, I think, legal liability.  Part IVAA hardly seems to be directed towards the proceedings of a domestic tribunal with an essentially discretionary jurisdiction.  Writing extra-judicially, Byrne J has said that the regime of Part IVAA “does not appear to apply to arbitrations …”[46].  I think that his Honour was referring there to commercial arbitrations, as distinct from industrial arbitration and like processes.  I need not and do not decide the very important question whether Part IVAA applies to formal commercial arbitrations,[47] but his Honour’s comment is entirely consistent with the proposition that Part IVAA is inapplicable to a matter before a FICS panel. 

[39][2008] VSC 97 at [59] and [60].

[40]Section 24AI(1).  “Proceeding” is not defined.

[41]“Damages” is defined to include any form of monetary compensation. 

[42]See Brown v Jam Factory Pty Ltd (1981) 35 ALR 79 at 86 and Travel Compensation Fund v Tambree (2005) 224 CLR 627 at 639 [28]-[29], to each of which Wealthcare referred.

[43]Compare s 24K.  The word “action” is used in s 24K in a way that may indicate that no apportionable claims at all can arise except in the context of an “action”.

[44]Compare R v Day and Thomson [1985] VR 261 at 266.

[45]F. Bennion, Statutory Interpretation, 3^rd edition, 434, citing Richard Robinson, Definition (1952), p 77.

[46]The Hon. Justice David Byrne, “Proportionate Liability: Some Creaking in the Superstructure”, A paper presented to the Judicial College of Victoria, Friday 19 May 2006, p 7, para [20].

[47]Counsel for FICS disclaimed any suggestion that FICS was covered by the Commercial Arbitration Act 1984:  transcript 185-186.

1. Another feature of Part IVAA tends strongly in the same direction.  Unsurprisingly, Part IVAA seems to proceed on the basis that, at least in the usual case, if possible, all putative “concurrent wrongdoers” should be before the court (or tribunal) in the one proceeding.[48]  That principle can only happily operate in a forum which has jurisdiction over all potential defendants.  Needless to say, FICS can only deal with its members and has no jurisdiction or power over anyone else.[49] Further, s 24AI(3) of the Wrongs Act prevents the court or tribunal from having regard to the comparative responsibility of any person who is not a party to the proceeding unless the person is not a party to the proceeding because the person is dead or (being a corporation) has been wound-up.  Section 24AK does contemplate the possibility of successive actions, but s 24AL(1) envisages the giving of leave for concurrent wrongdoers to be joined as defendants.  Moreover, s 24AL(2) prevents the joinder of any person who was a party to any previously concluded proceeding in relation to the apportionable claim.  The combination of s 24AI(1) and (3) and s 24AL(2) makes manifest the general undesirability of split proceedings in relation to apportionable claims.[50]  Further, there is something to be said for the submission by FICS that even if the panel had purported to apply Part IVAA, it would necessarily have arrived at the same conclusion, because there still would have been only one “defendant” before it.[51]

   [48]See also Byrne, op cit, p 26 [57].

   [49]Thus in ABN Amro Morgans Ltd v Alders [2008] QSC 160 at [13] Jones J said that it was “undoubtedly the position” that a FICS member would not have the opportunity before a FICS panel to put forward claims against third parties.

   [50]See also Byrne, op cit, p 14-17 [28]-[33].

   [51]However this assumes, controversially, that it would have been proper for the panel to have imported all of the provisions of Part IVAA, including s 24AI(3), despite the panel’s inability to join other parties.

1. None of this is meant to imply that the provisions of Part IVAA should be characterised as procedural rather than substantive where that distinction may be significant.[52]  But, even regarded as substantive provisions, they are relevantly quite limited in their scope.

   [52]Compare John Pfeiffer Pty Ltd v Rogers (2000) 203 CLR 503.

1. In addition to the limitations already mentioned, I note that Part IVAA does not purport to override any other Victorian statutory provisions imposing several  or solidary liability (as distinct from proportionate liability) for a particular type of claim, even in relation to what would otherwise be an “apportionable claim” as defined in Part IVAA.  Quite the opposite.  That is spelt out expressly in s 24AP(e).

1. Nor should Part IVAA readily be construed to purport to operate in a way that would be inconsistent with any Commonwealth statutory provision[53]. In the present case, as I have mentioned, the FICS panel found that Wealthcare was initially in breach of s 851(2) of the Corporations Act 2001. It also found that Wealthcare was later in breach of the successor provision, s 945A of the Corporations Act 2001 (Cth). In the course of its reasons it had also quoted s 953B of that Act (the provision creating a right to bring a civil action for damages for breach of s 945A). I infer that the panel relied on both provisions (as well as on s 851(2) of the Corporations Act 2001 in respect of the earlier conduct). Had the Norrises brought a claim against Wealthcare in the Federal Court under s 851(2) of the Corporations Act 2001 and/or under ss 945A and 953B of that Act, that claim could not have been met by any valid plea under the Part IVAA of the Wrongs Act.  So much follows from the reasoning of Middleton J on certain points raised in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd[54].  I am in respectful general agreement with his Honour’s reasoning.  The applicant in Dartberg relied on four sets of Commonwealth statutory provisions (referred to in the judgment as “the Commonwealth Legislation”), including s 851(2) of the Corporations Act 2001.  Middleton J found that the “express purpose”[55] of the Commonwealth Legislation was to make each alleged transgressor, if found liable, legally responsible for the whole of the loss.  His Honour noted[56] that the Commonwealth had introduced proportionate liability provisions into the Corporations Act 2001 in 2004, but had made them applicable only to conduct done in contravention of s 1041H (which prohibits misleading and deceptive conduct in relation to a financial product or a financial service). They were not made applicable to s 945A (or (retrospectively) to its predecessor, s 851). Certain other Commonwealth proportionate liability provisions were identified, but they likewise had no application to the causes of action relied on by the applicant in Dartberg.  Therefore the respondents had sought to rely on Part IVAA of the Wrongs Act (Vic).

   [53]Any attempt to do so may have to contend with s 109 of the Commonwealth Constitution. No s 109 question was raised by either of the parties and no notices were given to Attorneys-General under s 78B of the Judiciary Act 1903 (Cth).

   [54][2007] FCA 1216, at [16]-[37], esp at [21] and [33]-[34].

   [55]At [10]-[12], [33].

   [56]At [18].

1. However, as Middleton J further noted[57], the Wrongs Act could not apply of its own force to proceedings in the Federal Court exercising federal jurisdiction.  The application  of Part IVAA of the Wrongs Act therefore depended on s 79 of the Judiciary Act 1903 (Cth). Section 79 provides:

“The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.”

Middleton J considered first[58] whether or not Part IVAA was “applicable” (within the meaning of s 79) in any event having regard to its own terms. His Honour was prepared to accept that the reference in s 24AF(1)(a) of the Wrongs Act to “under statute or otherwise” would include Commonwealth statutes such as the Commonwealth Legislation.  Further, his Honour concluded that the form of the applicant’s pleading of its claim was not conclusive.  Part IVAA was so drafted that it could apply even in the absence of any pleading of negligence or “failure to take reasonable care”, because a failure to take reasonable care may form part of the allegations or the evidence that is tendered in the proceedings.  At the end of the trial, after all the evidence has been heard, it may be found that Part IVAA applies, although the onus would be on the party so contending to prove it.[59]

[57]At [21].

[58]At [26]-[31].

[59]These views are consistent with those expressed by Hollingworth J in her Honour’s interlocutory judgment in Woods v De Gabriele [2007] VSC 177. But compare Byrne, op cit, p 7 (comment (2) to para [20]) and at p 20 [42]; Gunston v Lawley [2008] VSC 97 at [55]. Having expressed my general agreement with the relevant reasoning of Middleton J in Dartberg, I should nevertheless not be taken to have formed a concluded view as to whether it is the pleadings or the facts that should be regarded as the principal determinant of whether or not a claim is an apportionable claim.

1. Nevertheless, Middleton J decided that Part IVAA was not picked up in the proceeding by s 79 of the Judiciary Act, because the Commonwealth Legislation “otherwise provide[d]” (within the meaning of s 79). The operation of the Commonwealth Legislation would so reduce the ambit of Part IVAA that, in his Honour’s view, the provisions of the Commonwealth Legislation were irreconcilable with it.[60]  Middleton J said:

“[33]For the reasons I have enunciated above in relation to the express purpose of the Commonwealth Legislation, in my view the Commonwealth Legislation has otherwise provided for the determination of liability to compensate a person who has suffered loss or damage by conduct in contravention of the Commonwealth Legislation. The purpose of the Commonwealth Legislation is to impose a specific and comprehensive regime imposing liability according to its terms, and to give an entitlement to an applicant to recover the whole amount of which it is established under such enactments the applicant is entitled to recover.

[34]I do not accept that Pt IVAA of the Wrongs Act is complementary to the operation of the Commonwealth Legislation. This would be inconsistent with the whole purpose of the Commonwealth Legislation, for to allow Pt IVAA of the Wrongs Act to apply would be to detract from the operation and effect of the Commonwealth Legislation, as the applicant would not necessarily be entitled to full compensation from a wrongdoer as is contemplated.”

[60]Citing, among other cases, Macleod v Australian Securities and Investments Commission (2002) 211 CLR 287 at [22].

1. In the present case, ground (b) of Wealthcare’s originating motion ascribes error to FICS as follows:

“wrongly concluding that the decision of the Federal Court of Australia in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 required the conclusion that in this case Wealthcare could not reduce the Claimant’s entitlement to compensation on the basis of proportionate liability.”

1. In my view there is no substance in this ground. The decision of Middleton J did show, in my opinion, that had the Norrises’ claim been brought in the Federal Court in reliance on s 851(2) or s 945A and s 953B of the Corporations Act 2001, their damages could not have been reduced by reference to the principles of proportionate liability. It is true that, strictly speaking, the conclusion of Middleton J was reached via the provisions of s 79 of the Judiciary Act, which were not themselves applicable to the processes of the FICS panel.  The FICS panel may have missed that subtlety.[61]  And it is arguably true, as I have said, that the FICS panel might have had a discretion to reduce the Norrises’ compensation.  However, given the ways in which Wealthcare has argued this case, that matters not. 

   [61]See the Panel’s reasons at [119]-[126].

1. For completeness, I note that the FICS panel appears to have found not only a breach of ss 851(2) and 945A of the Corporations Act 2001 but also that Wealthcare was guilty of common law negligence (in other words, that it failed to take reasonable care[62]).  Had the case been before a court of competent jurisdiction (whether state or federal) and had a negligence finding, alone, been made, then there might have been room for the application of Part IVAA of the Wrongs Act.  However, bearing in mind the observations of Middleton J in Dartberg, it seems to me that a court could not reduce an award under s 851(2) or s 945A/s 953B of the Corporations Act2001 by reference to proportionate liability merely because, in the same proceeding, it also found negligence (or some statutory breach other than a breach of s 851(2) or s 945A) on the part of the defendant/respondent. There is no reason why a corresponding finding by a FICS panel should be regarded differently.

   [62]Cf s 24AF(1)(a) of the Wrongs Act.

Conclusion

1. The various considerations to which I have referred demonstrate the correctness of Wealthcare’s concession that Part IVAA did not apply directly, or of its own force, to the complaint before the panel, and also demonstrate that the FICS panel was not obliged to apply any principles of proportionate liability to the Norrises’ complaint.  Accordingly, this proceeding will be dismissed.

1. I will hear the parties in relation to costs.

---

CERTIFICATE

I certify that this and the 24 preceding pages are a true copy of the reasons for Judgment of Cavanough J of the Supreme Court of Victoria delivered on 22 January 2009.

DATED this twenty second day of January 2009.

Associate

SCHEDULE OF PARTIES

No. 8798 of 2007
BETWEEN:
WEALTHCARE FINANCIAL PLANNING PTY LTD (ABN 51 007 263 621)	Plaintiff
- and -
FINANCIAL INDUSTRY COMPLAINTS SERVICE LTD (ABN 64 068 901 904)	Firstnamed Defendant
ERIC NORRIS	Secondnamed Defendant
CHRISTINE NORRIS	Thirdnamed Defendant