In this edition of Super Verdict we review the decision of the Full Court of the Federal Court of Australia in QSuper Board v Australian Financial Complaints Authority Limited [2020] FCAFC 55. The case is important as it clarifies the decision-making authority of the Australian Financial Complaints Authority (AFCA), namely, that it does not exercise judicial power in contravention of Chapter III of the Commonwealth Constitution.

Dr Lam, a member of QSuper, complained to AFCA about the trustee’s decision to refuse to compensate him for the amount he had overpaid (for two and half years) for death and total and permanent disablement cover which he had obtained through the fund.

On 1 July 2016, QSuper altered the insurance cover arrangements it provided its members and introduced new occupational ratings which determined the quantum of premiums a member would pay. Relevantly, the rates paid by members falling under the “professional” rating were 60 per cent of the standard rate. It was Dr Lam’s argument that, being a doctor, he was a “professional” and, therefore, should have had the benefit of paying the lower premiums offered under this occupational rating as opposed to continuing to pay premiums at the standard rate.

QSuper refused to refund any amounts to Dr Lam and relied upon a document that was sent to its members, including Dr Lam, on 27 May 2016 which outlined the changes to be made to the insurance premiums and the introduction of the new occupational ratings (the Notice). It argued that because Dr Lam had all the necessary information to make a decision to take advantage of the new professional rating but had not done so, he was not entitled to a refund.

On 1 August 2019, AFCA upheld Dr Lam’s complaint and decided that he should be refunded the difference between the premiums which he had paid and the amount that he would have paid had he been classified as a “professional”. In the reasons for its decision, AFCA found that the disclosure material provided to Dr Lam, including the Notice, failed to provide him with sufficient information to enable him to identify his eligibility to apply for the professional rating.

QSuper appealed AFCA’s decision to the Full Court of the Federal Court on the following grounds:

  1. that in making its decision, AFCA exercised judicial power of the Commonwealth, contrary to Chapter III of the Commonwealth of Australia Constitution Act 1901 (Cth); and
  2. that AFCA erred in determining that QSuper had not given Dr Lam a notice in accordance with section 1017B(4) of the Corporations Act 2001 (Cth) (the Act).

A notice under section 1017B(4) is often referred to as a “significant event notice” or by the acronym “SEN”. In a superannuation context, it is a written notice given by the trustee to fund members to notify them of something significant that concerns their beneficial interest in the superannuation trust. The notice must contain information that is reasonably necessary for the fund member to understand the nature and effect of the change or event.

The first issue the Full Court addressed was whether AFCA had made a determination that section 1017B of the Act had been contravened.

Section 1055 of the Act grants AFCA the power to vary or set aside a decision of a trustee if it is satisfied that a decision in its operation to a complainant is unfair or unreasonable. In its judgment, the Full Court found that there was little in AFCA’s reasons to suggest it reached its conclusion that the refusal by QSuper to refund money was unfair and unreasonable because the Notice did not comply with section 1017B(4). It therefore rejected QSuper’s submission that AFCA had made a determination that section 1017B had been breached.

The Full Court went on to observe that even if AFCA had reached some conclusions about the adequacy of the Notice under section 1017B(4) and, therefore, made a decision about the legal rights of QSuper and Dr Lam, this would not have amounted to an exercise of judicial power. This is because the power of AFCA under section 1055 is to decide whether a decision in relation to a member is fair and reasonable and forming conclusions as to legal rights along the way does not invalidate the exercise of this power.

The second issue the Full Court addressed in its judgment was whether, if AFCA had made a decision that section 1017B(1) was contravened, it exercised judicial power? The Full Court determined that the following three features of AFCA’s decision meant that it was not an exercise of judicial power:

  1. it lacked conclusiveness as AFCA could not enforce it and it was open to collateral attack;
  2. it created new rights rather than determining existing ones; and
  3. it did not involve an exercise of sovereign power but was a result of a voluntary submission to the AFCA scheme.

On the first point, the Full Court raised that there was a “very real possibility” that AFCA’s determinations are not binding between the parties, however the Full Court left a final determination on this issue for another time. It also observed that a significant factor that weighed against the conclusion that AFCA was exercising judicial power was that it had no capacity to enforce its own determinations.

Regarding the creation of new rights, the Full Court was influenced by the comments of Kirby J in Attorney-General (Cth) v Breckler [1999] HCA 28; 197 CLR 83 (Breckler), a case which similarly considered whether judicial power had been conferred on the Superannuation Complaints Tribunal. In that case, His Honour observed that the paradigm of judicial decision making is the determination of existing legal rights. The Full Court went on to observe that the object and purpose of AFCA’s power, and of its decision regarding Dr Lam, was to reverse the unfairness or unreasonableness in the operation of QSuper’s decision which was achieved by creating new rights by making a substantive decision. It therefore did not involve the determination of any existing rights. In further reliance on Breckler, AFCA submitted that its power was not a compulsory exercise of sovereign authority since its power to determine superannuation complaints was derived from its members’ agreement to be bound by its complaints resolution scheme rules. The Full Court agreed that QSuper voluntarily submitted to AFCA’s scheme and, as a result, its decision regarding QSuper and Dr Lam was arbitral in nature and, therefore, not an exercise of judicial power.

After determining that AFCA’s decision did not involve the exercise of judicial power, the Full Court then went on to consider QSuper’s second ground of appeal. In support of this ground, QSuper submitted that if the Notice complied with section 1017B(4), then as a matter of law, it was not open to AFCA to determine that QSuper’s decision was “unfair or unreasonable”. The Full Court found that this submission was fundamentally flawed and failed to understand that section 1055 concerned the existence of a subjective jurisdictional fact, which was not dependant on a finding that the Notice was compliant.

During the hearing, a proposed third ground of appeal was raised by QSuper. Under this third ground, QSuper submitted that AFCA, by failing to consider whether the Notice was compliant with section 1017B(4), was in error for not taking into account a relevant consideration when it made its decision. As there was evidence to suggest that section 1017B(4) had been considered by AFCA when it made its decision, QSuper also failed on this third ground.

As QSuper failed to establish any grounds of appeal, it failed in its appeal.