Key Takeaways

In a recent key judgment, the FCA has clarified the ability of AFCA to make conclusions of law. The judgment is likely to have important implications for trustees and life insurers.

Brief Facts

Dr Lam was a member of the QSuperannuation Fund (Fund) and had TPD and Death cover. Members of the Fund were all charged generic premiums for cover irrespective of their individual circumstances. This changed in 2016, when the QSuper (Trustee) entered into a policy with QInsure Limited under which a member could personalise their cover and alter the amounts of premiums paid (Policy). Prior to the effective date of the Policy of 1 July 2016, the Trustee wrote to Dr Lam and advised him of the option of tailored cover and the introduction of occupational ratings for premiums. The Trustee did not, however, inform Dr Lam of whether he would be eligible for an occupational rating or provide him with information on how to change the rating.

Accordingly, after Dr Lam’s existing cover for TPD and Death were rolled over to the Policy, he paid premiums at the standard rate. Sometime prior to December 2018 Dr Lam discovered that he qualified for a professional-rated premium, being 60% of the standard premium he had been paying. In order for Dr Lam to change to a professional-rated premium, he was required to make an application and the Trustee would have to approve his application. Neither of these things happened.

In January 2019, Dr Lam requested the Trustee repay him the difference between the standard premiums and the professional premiums. The Trustee refused and Dr Lam lodged a complaint with AFCA. Following a preliminary determination in favour of the Trustee, Dr Lam submitted some additional material and AFCA then reframed his complaint in terms of the obligations under s1017B of the Corporations Act 2001 (Cth) (the Act). That section imposes notice requirements on issuers of financial products where there has been a material change to a matter or significant event which is required to be specified in a Product Disclosure Statement.

Despite the fact that Dr Lam did not apply for a change in rating, AFCA decided the complaint in favour of Dr Lam and found the Trustee should have informed him of his default standard rating, his eligibility for, and the benefits of, a professional rating, along with how to access further information. On this basis, AFCA decided that the Trustee’s decision not to refund the difference in premiums was not fair and reasonable and that the Trustee should refund the difference. The Trustee appealed to the Federal Court.

Judgment

The two main issues were as follows: (1) whether AFCA had in fact made a decision that the Trustee had contravened s1017B of the Act, and if so, whether the determination involved a mistake (or an ‘error of law’); (2) if AFCA had made such a determination, whether AFCA had exercised judicial power in contravention of Chapter III of the Constitution.

The Court found that AFCA had not made a decision that the Trustee had contravened s1017B and the notice requirements under that section.

On the second issue, the Court found that even if AFCA had made a decision as to whether the Trustee breached s1017B of the Act, this would not breach Chapter III of the Constitution.

The Court had regard to previous High Court authorities (notably Breckler), and found that AFCA, although an administrative body, was entitled to make conclusions of law in making an administrative decision which it was empowered to make under the Act. In the Court’s view, this would not be an exercise of judicial power.

Implications

The Court has given a wide interpretation to AFCA’s powers and functions. While the Court’s comments on whether AFCA can make findings on a conclusion of law may not be strictly binding (as the dispute was determined on other grounds), it is likely that the Court would be inclined to find AFCA could exercise this function if it was disputed in the future. Practically speaking, the Court would approve AFCA making determinations as to whether a breach of legislation has occurred.

Trustees and insurers should ensure that their submissions to AFCA deal with these issues if they arise in a complaint.