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Queensland Judgments
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  •   Notable Unreported Decision

Investors Exchange Limited v Australian Financial Complaints Authority Limited

 

[2020] QSC 74

SUPREME COURT OF QUEENSLAND

CITATION:

Investors Exchange Limited v Australian Financial Complaints Authority Limited & Anor [2020] QSC 74

PARTIES:

INVESTORS EXCHANGE LIMITED

ACN 116 489 420

(applicant)

v

AUSTRALIAN FINANCIAL COMPLAINTS AUTHORITY LIMITED

ACN 620 494 340

(first respondent)

and

LORNETTE PTY LTD ATF LORNETTE SUPERANNUATION FUND

ACN 133 435 275

(second respondent)

FILE NO/S:

10366/19

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland at Brisbane

DELIVERED ON:

9 April 2020

DELIVERED AT:

Brisbane

HEARING DATE:

27 March 2020

JUDGE:

Applegarth J

ORDER:

1. The application filed 24 September 2019 is dismissed.

2. Within 14 days of the date of this order, the applicant pay the second respondent $66,115 together with interest calculated at 1.5 per cent per annum (compounding annually) from 24 November 2015 to the date of payment.

3. The applicant pay the first respondent’s costs and the second respondent’s costs of and incidental to the proceeding, including the application filed 14 November 2019, to be assessed on the standard basis.

CATCHWORDS:

ADMINISTRATIVE LAW – JUDICIAL REVIEW – REVIEWABLE DECISIONS AND CONDUCT – REVIEW OF PARTICULAR DECISIONS – where applicant conducted a managed investment scheme in which the second respondent invested – where the second respondent suffered losses and made a complaint regarding the scheme under the external dispute resolution procedure – where AFCA made a determination in the second respondent’s favour and found that the applicant failed to comply with its Compliance Plan – where the dispute resolution procedure provides that a determination by AFCA is a final and binding decision – whether AFCA misconstrued the Compliance Plan in making the determination – whether an error by AFCA in construction of the Compliance Plan permits judicial intervention to set aside the determination – whether findings by AFCA as to the consequences of the applicant’s failure to comply with the Compliance Plan were open to AFCA in reaching an opinion about what was “fair in all the circumstances”

EQUITY – GENERAL PRINCIPLES – SPECIFIC PERFORMANCE – JURISDICTION AND AVAILABILITY – GENERAL PRINCIPLES – where AFCA seeks order for specific performance of its determination – whether the determination is capable of being specifically enforced – whether adequate remedy available at common law

Corporations Act 2001 (Cth) s 9, s 601FC(1)(h), s 601HA(1)(c)

Australian Football League v Carlton Football Club Ltd [1998] 2 VR 546, cited
Buck v Bavone (1976) 135 CLR 110; [1976] HCA 24, cited
Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd (2014) 288 FLR 374; [2014] VSCA 179, followed
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144, cited
Mickovski v Financial Ombudsman Service Ltd (2012)
26 VR 456; [2012] VSCA 185, followed
Minister for Immigration and Border Protection v Eden (2016) 240 FCR 158; [2016] FCAFC 28, cited
Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30, cited
Minister for Immigration and Citizenship v Li (2013)
249 CLR 332; [2013] HCA 18, cited
Patersons Securities Ltd v Financial Ombudsman Service Ltd (2015) 108 ACSR 483; [2015] WASC 321, followed
Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4, cited
Savellis v Financial Ombudsman Service Ltd [2016] NSWSC 1771, cited
Spencer v The Commonwealth (1907) 5 CLR 418; [1907] HCA 82, cited

COUNSEL:

H L Alexander, with C Upton, for the applicant

M W Wise QC, with A F Solomon-Bridge, for the first respondent

SOLICITORS:

Creagh Weightman for the applicant

Arslan Lawyers for the first respondent

The second respondent by its director Mr Wamsteker appeared on its own behalf

  1. [1]
    The applicant (“IEL”) was the responsible entity of an unlisted managed investment scheme which offered investors the opportunity to invest in projects to acquire and develop properties.
  2. [2]
    The second respondent (“LSF”) is the trustee of a superannuation fund.  It was persuaded to invest a total of $140,000 into two of IEL’s property development projects: one at Manly and one at Maleny.
  3. [3]
    Each project was a financial disaster.  LSF lost $132,230 of its $140,000 investment.  It complained to the Financial Ombudsman Service Ltd (“FOS”) which operated an external dispute resolution scheme.  The scheme provides that if the dispute proceeds to a determination, the decision will be “what in its opinion is fair in all the circumstances”, having regard to legal principles and other matters.  As Mitchell J stated in Patersons Securities Ltd v Financial Ombudsman Service Ltd:[1]

“… it must be kept in mind that the subject of the opinion is not the existing legal rights, duties and liabilities of the parties.  Rather, the subject of the opinion is what is fair in all the circumstances.”

  1. [4]
    Clause 8.7 of the Terms of Reference (“TOR”) that apply in deciding a dispute provides that a determination is “a final decision and is binding upon the Financial Services Provider if the Applicant accepts the Determination within 30 days of receiving the Determination”.  This provision limits the grounds for judicial interference with a determination. 
  2. [5]
    In this matter, LSF’s dispute with IEL proceeded to a determination.  The essence of the determination made on 24 May 2019 was that IEL had failed to comply with its Compliance Plan in failing to obtain independent valuations and that the failure caused LSF to suffer loss.  Account was taken of other compensation LSF had received in relation to the investments.  The first respondent (“AFCA”), which is the successor body to FOS, determined that IEL pay LSF $66,115 plus interest.  LSF accepted the Determination shortly afterwards. As a result, the Determination is “a final decision” and became binding upon IEL pursuant to cl 8.7 of the TOR.
  3. [6]
    Despite this, IEL has failed to pay LSF any amount in accordance with the Determination.  AFCA seeks specific performance of the Determination.
  4. [7]
    IEL seeks a declaration that the Determination is invalid, an order setting it aside or an order permanently restraining or staying AFCA from enforcing it.
  5. [8]
    IEL argues that AFCA made findings and reached conclusions that “were not reasonably open on the material or that were not based on material having rational probative force or were arbitrary, irrational and illogical and that no decision-maker acting reasonably could have made or further or alternatively were not a bona fide or rational exercise of the function conferred by the FOS TOR or further or alternatively the panel misconceived the task they were required to undertake under the FOS TOR and in the premises AFCA’s Determination was in breach of the TOR”.  Its principal arguments are that:
    1. (a)
      AFCA misconstrued the Compliance Plan in concluding that it required the property that was to be acquired for the purpose of the scheme to be valued before the Product Disclosure Statement (“PDS”) was issued to investors; and
    2. (b)
      AFCA erred in finding that if independent valuations for the projects had been obtained in accordance with the Compliance Plan, and if LSF had been provided with them at the “pre issue offer” stage of the projects, then LSF would not have proceeded to invest in the projects, and would not have suffered a loss as a direct result of IEL’s breach of the Compliance Plan.
  6. [9]
    In response, AFCA submits in essence:
    1. (a)
      The Determination did not misconstrue the Compliance Plan, which expressly provided that the property was to be valued “pre issue Offer Doc”;
    2. (b)
      That reference to the timing of the valuation in the Compliance Plan could only be a reference to valuing property which was proposed to be acquired (and had not yet been acquired) by the responsible entity on behalf of the scheme.  In other words, the Compliance Plan could only sensibly be interpreted as stipulating that property to be purchased for the scheme would be independently valued before issuing the Offer Document/PDS in relation to the proposed property acquisition;
    3. (c)
      Even if AFCA adopted a wrong interpretation of the terms of the Compliance Plan, the interpretation was one which was open to it;
    4. (d)
      Having regard to the parties’ agreement that the Determination was final and binding, the interpretation of the Compliance Plan was one “within the ambit of decision-making power” conferred on AFCA,[2] and not amenable to judicial intervention.
    5. (e)
      The other findings also were open to AFCA and IEL’s submissions invite the Court to descend into an impermissible merits review; and
    6. (f)
      IEL’s submissions tend to disregard the fact that the decision was not a determination of pre-existing legal rights, duties and liabilities, but an opinion about what is fair in all the circumstances.

Issues

  1. [10]
    The principal issues are as follows:
  1. Did AFCA misconstrue the Compliance Plan, as alleged?
  2. If so, is an error in the proper interpretation of the Compliance Plan one that means that the Determination is not final and binding upon IEL, and an error that permits judicial intervention?
  3. Are the other findings of AFCA about the consequences of IEL’s failure to comply with the Compliance Plan ones that permit judicial intervention? In short, were they findings that were open to AFCA in reaching an opinion about what was “fair in all the circumstances”?
  1. [11]
    In addressing these questions it is necessary to consider the principles governing judicial intervention to set aside a decision of a private domestic body engaged in the resolution of disputes in which the parties’ contract provides that the decision is “final”. 

Principles governing judicial intervention

  1. [12]
    I am not required to plough a new field in considering the scope of a court’s power to interfere with a determination of the kind presently under challenge.  The source and scope of the Court’s power to set aside such a determination has been the subject of authoritative and thorough analysis in cases which have considered determinations made under the same or similar terms of reference in respect of determinations by FOS.  There is no suggestion that these principles do not apply equally to the successor body, AFCA, which replaced FOS on 1 May 2018, assumed its obligations and dealt with disputes that had previously been lodged with FOS.  The authorities include Mickovski v Financial Ombudsman Service Ltd;[3] Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd[4] and Patersons Securities Ltd v Financial Ombudsman Service Ltd.[5]
  2. [13]
    Upon LSF and IEL agreeing to submit their dispute to FOS, they became bound in contract to observe its processes and were entitled, as a matter of contract, to require that FOS proceed in accordance with those rules.  A tripartite contract was constituted between LSF, IEL and FOS.[6]  AFCA assumed the contractual obligations of FOS on and from 1 May 2018.
  3. [14]
    The essence of the contract was that the parties would accept the determination of the dispute according to AFCA’s “opinion of what is fair in all the circumstances”, having regard to legal principles, applicable industry codes or guidance as to practice, good industry practice, and previous relevant decisions of FOS or a predecessor scheme (although AFCA is not bound by those decisions).
  4. [15]
    In dealing with disputes, AFCA is required to proceed with “the minimum formality and technicality”.[7]  Clause 8.1 of the TOR provided that “FOS is not bound by any legal rule of evidence”.  Clause 8.2 of the TOR is critical in defining the nature of the Determination:

8.2 Dispute resolution criteria

Subject to paragraph 8.1, when deciding a Dispute and whether a remedy should be provided in accordance with paragraph 9, FOS will do what in its opinion is fair in all the circumstances, having regard to each of the following:

  1. legal principles;
  2. applicable industry codes or guidance as to practice;
  3. good industry practice; and
  4. previous relevant decisions of FOS or a Predecessor Scheme (although FOS will not be bound by these).”
  1. [16]
    As Mitchell J observed in Paterson:

“In forming an opinion about what is fair, FOS is to have regard to legal principles. However, it is not required to apply those principles. Paragraph 8.2 also provides for FOS to have regard to a variety of other matters. In deciding upon the fair and appropriate remedy, FOS is not limited to making decisions which could be made at law or equity”.[8]

  1. [17]
    His Honour continued:

“It follows that the opinion which FOS is to form under para 8.2 is not a legal opinion about the pre-existing legal rights, duties and liabilities of the parties to the dispute. While FOS is to have regard to the existing contractual rights, its task is not confined to determining the legal liabilities of the parties under the relevant contract. Rather, FOS is to act on the basis of its opinion of what is fair in all the circumstances. This is a very broadly expressed contractual power.”[9]

  1. [18]
    In addition to being required to decide the dispute according to its opinion as to what is fair in all the circumstances, AFCA is also required to specify in the Determination the remedy that it considers “fair and appropriate”.[10]
  2. [19]
    The parties agreed by virtue of cl 8.7(b) that:

“A Determination is a final decision and is binding upon the Financial Services Provider if the Applicant accepts the Determination within 30 days of receiving the Determination.”

  1. [20]
    Both the nature of the required determination, being based on AFCA’s opinion as to what is fair in all the circumstances, and the parties’ agreement that the determination is “final”, severely constrain the scope for judicial intervention.  Various formulations appear in the cases but they have a consistent theme.
  2. [21]
    An error in a process of reasoning which results in a wrong conclusion, if made “within the ambit of decision-making power conferred” on AFCA is not reviewable.[11]
  3. [22]
    Mickovski illustrates that an error of law in construing a document may fall within that ambit.  The error in that case was an error in construing the former Terms of Reference.  It was not reviewable even though it might be said to be an error in construing the terms of the contract going to its “jurisdiction”.[12] 
  4. [23]
    It is convenient to note at this point that in this case the alleged error of construction is not of that kind. It concerns an alleged error in the construction of a Compliance Plan, the terms of which were relevant in reaching an ultimate conclusion in relation to the dispute over whether the Compliance Plan had been breached, as alleged.  The nature of the document differs from a document, such as Terms of Reference, which might be said to define the “jurisdiction” of AFCA.  Instead, it is a document, the terms of which are construed in exercising the decision-making power conferred by contract on AFCA.  If one was to use the language of “jurisdiction”, it is a document which is construed in exercising AFCA’s jurisdiction to determine a dispute.
  5. [24]
    A determination by AFCA is not susceptible to judicial review on administrative law grounds.[13]  AFCA is not exercising a public duty.  Its power to make a determination is derived solely from the parties’ contract.[14]
  6. [25]
    A determination may be said to be “reviewable as a matter of contract” in the absence of a provision that it is “final”.[15]
  7. [26]
    The power of a court to review a decision, even one which the parties agree will be “final”, may be said to derive from a term implied into the contract by operation of law or as a matter of fact from the necessity to give business efficacy to the contract.[16]  The necessary implication is that the opinion “must be an honest opinion at which a reasonable person could honestly arrive in a bona fide and rational exercise of the function conferred by the contract for the purpose of deciding the dispute.”[17]
  8. [27]
    The contract does not impose on the decision-maker an obligation of reasonableness of the kind implied in building and engineering contracts and some other commercial contracts.[18]  Instead, the applicable standard is unreasonableness in the Wednesbury sense.[19]  That standard does not arise because AFCA is a public body or is performing government functions.  It is not such a body.  The Wednesbury standard applies because of a line of authority, including Australian Football League v Carlton Football Club Ltd,[20] concerning resolution of disputes by a private domestic body in which the Court will intervene in the case of a decision which is so irrational or unreasonable that no reasonable body could properly have come to it on the evidence.[21]
  9. [28]
    It is not sufficient to engage unreasonableness in the Wednesbury sense that the decision-maker made an error of fact or law (such as an error in construing a document) leading to an erroneous decision.  It is not sufficient that the Court concludes that the decision is wrong.[22]  This is so even if the Court concludes that AFCA has misconstrued some legal rule in the process of reaching its decision.
  10. [29]
    In simple terms, the decision can only be set aside on the grounds of Wednesbury unreasonableness if it is “one to which no reasonable tribunal could properly come on the evidence”.[23]
  11. [30]
    Other grounds may arise because the decision is inconsistent with the contract upon which it depends for its authority.  This will be so, for example, if the decision is the result of bad faith, bias, fraud or dishonesty or is the product of a breach of the rules of natural justice.[24]  A determination is also amenable to court intervention if the decision-maker misconceived the task it was required to undertake[25] or made an error which shows that the determination was not made in accordance with the contract.  This last ground is not engaged simply because the decision-maker made an error in the process of reasoning[26] or made a finding or conclusion which was unreasonable in some general sense of that word. 
  12. [31]
    It is unnecessary to burden these reasons with a lengthy discussion of “legal unreasonableness” in the context of public law when considering the legality of a decision made pursuant to statutory authority.  Analogies may be suggested in the present private law context in respect of a decision which is said to be unauthorised by the contract on which it depends for its authority.  The term “legal unreasonableness” is used to describe the particular qualities of decisions that exceed the limits and boundaries of statutory power.[27]  Expressions that have been used to describe a decision which is “legally unreasonable” include “irrational”, “arbitrary” and “lacking in evident or intelligible justification”.  Similar expressions may be found in authorities about the circumstances in which a court may intervene to set aside the decision of a private domestic body engaged in the resolution of disputes.  In the public law context, the concept of “legal unreasonableness” recognises that there is an area within which a decision-maker has a genuinely free discretion.[28] Reasonableness is concerned with whether the decision “falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law”.[29] It is not a vehicle for challenging an evaluative judgment that was rationally open to the decision-maker, but with which a court disagrees.[30]
  13. [32]
    The concept of “legal unreasonableness” does not invite impermissible merits review.  An assessment of whether a decision was beyond power because it was “legally unreasonable” depends on the application of the relevant principles to the particular factual circumstances of the case.[31]  In a public law context, judicial intervention is constrained where the exercise of the decision-maker’s power depends upon the existence of an opinion, particularly an opinion which rests upon value judgments.[32]
  14. [33]
    Similar principles apply in the present, private law context in considering a challenge to a determination.  The subject of the opinion is not the existing legal rights, duties and liabilities of the parties.  The subject of the opinion is what is fair in all the circumstances.  The determination involves the exercise of a “broadly expressed contractual power”[33] to reach that opinion.
  15. [34]
    In reaching that opinion the decision-maker must “have regard to”, among other things, principles of law.  What weight, if any, is given to those principles is a matter for the decision-maker.  In considering the weight given to principles of law, it is necessary to distinguish the task upon which the decision-maker embarks from a form of private arbitration in which the arbitrator is given the task of determining the pre-existing legal rights, duties and liabilities of the parties.
  16. [35]
    It is possible that, having had regard to legal principles, the decision-maker decides to not apply them because the strict application of those legal principles would lead to an outcome which is unfair in all the circumstances.  Also, in applying legal principles to which it has had regard, the decision-maker may make an error, such as an error in the proper construction of a document.  This may be an error that falls within “the ambit of a decision-making power” conferred on it,[34] and therefore not be one which is the proper subject of judicial intervention.  An error in construing a document considered in the course of performing the task of arriving at an opinion as to what is fair in all the circumstances does not mean that the decision-maker misconceived the task that it was required to undertake or that the decision is not in accordance with the contract.  To the extent that it is useful to speak in terms of “jurisdiction” in such a context, an error of law in construing such a document will not be a “jurisdictional error”, but rather an error made in the exercise of jurisdiction.[35]
  17. [36]
    An allegation that AFCA did not have regard to legal principles may, upon analysis, be in reality a complaint that it misapplied legal principles.  Misconstruing the terms of a document required to be considered in reaching a determination as to fairness may be an error which is made within the ambit of a decision-making power conferred upon the decision-maker.  Like an error in the process of fact finding, such an error made in the execution of the authority conferred upon the decision-maker will not vitiate the determination. The Court will not have power to intervene in respect of such a decision which the parties agreed would be “final”.
  18. [37]
    It is unnecessary for present purposes to explore the jurisdiction to set aside an award of a private arbitrator for error of law on the face of the award.  It may be accepted that the Court retains this common law jurisdiction which has been described as “anomalous” or an “accident of legal history”.[36]  This case does not relate to an arbitration which determines the parties’ legal rights, duties and liabilities.  It is concerned with a tripartite contract by which the parties agree to have a dispute resolved according to an opinion as to what is fair in all the circumstances.  The contract provides for the determination to be “final”.  As a result, any “error of law” must fall within the narrow scope for judicial intervention because it is one “to which no reasonable tribunal could properly come on the evidence”[37] or variously described as “irrational”, “absurd”, “perverse” or lacking any intelligible justification.
  19. [38]
    The determination in this case is agreed by the parties to be “final”.  Therefore, it is unnecessary to decide whether, in the absence of a provision making the decision “final”, it may be set aside on the grounds that it was affected by error of law.[38]
  20. [39]
    Finally, I should deal with a submission by IEL that the decision of the Victorian Court of Appeal in Mickovski is incorrect.  I do not read the decision as stating that where parties agree that a determination is to be “final”, they are taken to have agreed that the determination will not be subject to review unless affected by fraud or dishonesty or lack of good faith or unless it is otherwise apparent that the determination has not been carried out in accordance with the agreement.  Those expressions may be found in part of the decision.[39]  However, the decision recognises that a domestic tribunal’s decision may be subject to declaratory and other relief because the decision is one to which no reasonable tribunal could properly come on the evidence.[40]  I do not accept that Mickovski is incorrect in law.  I follow it and the other authoritative decisions which I have cited, particularly Cromwell and Patersons.  I respectfully follow them as authoritative determinations of the law which applies to a determination of the kind which is presently under challenge.

Did AFCA misconstrue the Compliance Plan, as alleged?

  1. [40]
    Section 601FC(1)(h) of the Corporations Act requires that, in exercising its powers and carrying out its duties, the responsible entity of a registered scheme must comply with the scheme’s compliance plan.
  2. [41]
    IEL had a compliance plan for the scheme for which it was responsible entity.
  3. [42]
    Clause 1.1 of the Compliance Plan contained a summary of the key features of the scheme and explained that the scheme was established as a unit trust, that the trust deed established a property trust which proposed acquiring and selling properties, and that Dean Capital Ltd (now named IEL) or a custodian would hold all scheme property.
  4. [43]
    Clause 1.3 stated that the compliance plan has been designed to ensure the members are protected, the major compliance risks for members have been identified and to ensure compliance with the Law and the Constitution. Clause 1.4 identified various scheme risks, including “Property risk”, “Asset Risk” and “Borrowing risk”, and stated that the measures [IEL] would use to address and manage these risks were detailed in the schedules to the compliance plan.  Clause 1.5 identified some major compliance risks, one of which was the “wrongful holding, acquisition, disposition or any other wrongful dealing with the property of the Scheme”. 
  5. [44]
    Clause 4.1 required scheme property to be clearly identified and held separately from other property of IEL or any other scheme.
  6. [45]
    Clause 4.4 of the Compliance Plan provided that “All assets of the scheme depending on their nature will be valued by an approved valuer”.  Clause 4.4 additionally provided that the approved valuer “shall be independent of [IEL], and must certify in writing to [IEL] that they have no conflict of interest with [IEL] or the property they are being instructed to value.”  It was for the company secretary to arrange for a valuation or “a revaluation where the Board consider it is in the best interests of Members in the Scheme to re-value the Properties, or at least prior to sale of a Property”.
  7. [46]
    Item 8 of Schedule 5 to the Compliance Plan provided the following in relation to valuation:

 

Control

Corp’ns Act

Const’n

Responsible

Frequency

Clause

8

Valuation

601FC(1)(j)

 

 

 

4.4

 

scheme property

601HA(1)(c)

 

Company Secretary

pre issue Offer Doc and prior to sale

 

  1. [47]
    There was no contention by IEL to AFCA that it obtained an independent valuation either for the Manly project or for the Maleny project before the offer of units in that project, and that, having obtained an independent valuation of the property to be acquired, it disclosed that valuation to investors in the project.  It acknowledged in the relevant PDS in the case of each project that it had not obtained an independent valuation of the property.
  2. [48]
    AFCA interpreted Item 8 of Schedule 5 to the Compliance Plan as providing that the property be valued at the “pre issue offer stage and prior to sale stage”.  Given its interpretation of the Compliance Plan and the acknowledged fact that IEL had not obtained an independent valuation of the property before the “Offer Doc”/PDS, it is unsurprising that AFCA found that the failure to fulfil the obligation to obtain a valuation was a breach of the Compliance Plan and IEL’s obligation under
    s 601FC(1)(h) and 601HA(1)(c) of the Corporations Act 2001 (Cth). 
  3. [49]
    IEL submits in this proceeding that the Compliance Plan, on its proper construction, did not require it to obtain an independent valuation at the “pre issue offer stage” for a project.  It contends that AFCA misconstrued the Compliance Plan in this regard and failed to have regard to legal principles in concluding that it had an obligation to obtain an independent valuation of the relevant property at the “pre issue offer stage”, that is before the issue of the PDS in relation to that project, and before it was purchased for the scheme with funds raised as a result of the “Offer Doc”/PDS.
  4. [50]
    I was assisted with submissions about principles for the proper construction of such a document.  Such a document should be interpreted by reference to its text, context and purpose.  IEL acknowledged that any reliance upon extrinsic evidence as an aid to the proper construction of the Compliance Plan must be more constrained than in the case of the interpretation of a commercial contract, because the Compliance Plan differs from an ordinary contract.  It was not created by agreement between the responsible entity and the relevant members.  AFCA’s submissions doubted whether the principles of contractual interpretation applied because the Compliance Plan creates rules whose binding effect is owed to statute, not contract.  It submitted that the principles governing statutory interpretation are to be preferred.[41] 
  5. [51]
    In the circumstances of this case, it is unnecessary to decide whether principles derived from the construction of business documents or principles in relation to the interpretation of statutes are to be preferred.  It is unnecessary because no issue arises as to reliance upon extrinsic evidence as an aid to the proper construction of the Compliance Plan and because the principles of interpretation share a common approach of arriving at the preferred interpretation by reference to the document’s text, context and purpose.
  6. [52]
    The Compliance Plan was authored by IEL (then named Dean Capital Ltd) in order to comply with the statutory requirement in s 601FC(1)(h).  As noted, cl 1.1 identified that the scheme was a unit trust concerned with acquiring and selling properties.  The Compliance Plan was designed to ensure that members were protected and a major compliance risk was identified as the wrongful acquisition of property of the scheme.  The immediate context of Item 8 in Schedule 5 of the Compliance Plan was the obligation imposed by cl 4.4 for assets to be valued by an approved valuer who “shall be independent” of IEL and had no conflict of interest with it or the property they had been instructed to value.  The statutory context was a requirement to ensure that scheme property is valued at regular intervals appropriate to the nature of the property.
  7. [53]
    IEL places particular reliance upon the definition of “scheme property” in s 9 of the Corporations Act.  “Scheme property” is defined in section 9 of the Corporations Act to mean inter alia money that forms part of the scheme property and “property acquired, directly or indirectly, with, or with the proceeds of, contributions of money ...”.  IEL submits that Item 8 of Schedule 5 should be interpreted as applying to property which is existing scheme property, not property which has yet to be acquired for the scheme.  It submits that the item did not require an independent valuation by an approved valuer to be carried out for property that was the subject of an “Offer Doc”/PDS that was not scheme property when the PDS was issued.  It submits that the reference in the table to a “pre issue Offer Doc” was an incorrect description of the purpose, operation or effect of cl 4.4 and did not impose an obligation on IEL to obtain an independent valuation of property before the issue of an “Offer Document”. 
  8. [54]
    IEL’s submissions are to the effect that the reference to “pre issue Offer Doc” was an error or mistake.  However, the text of these words is central to the task of interpretation and assists in determining an answer to the question of when a valuation was to be obtained for property which was the subject of an “Offer Doc”/PDS.  The terms of the document clearly indicate that the valuation was to be obtained before the issue of the PDS in such a case.  While the definition of “scheme property” in s 9 of the Corporations Act is part of the context, the relevant issue of interpretation is the meaning of “scheme property” in the context of a requirement to obtain an independent valuation before a PDS is issued.  Item 8 of Schedule 5 of the Compliance Plan required the valuation to be obtained before the PDS was issued.  The Compliance Plan defined an “Offer Document” to mean the disclosure document lodged with or notified to ASIC offering interests in the Scheme.  In the case of property that was to be the subject of the Manly project it was the PDS in relation to that project.  In the case of the Manly project it was the PDS for it. 
  9. [55]
    The commercial context, as identified in the Compliance Plan, is significant.  It indicated that the property would be acquired after the close of the Offer Document.  It stated that once the Offer Document closed, IEL would proceed “to acquire the Property or make the Authorised Investment”.
  10. [56]
    In that context, the reference to the timing of the valuation as “pre issue Offer Doc” appears to refer to valuing property that was to be acquired, but had yet to be acquired, by IEL on behalf of the scheme.  This interpretation makes sense in the context of a document that was designed to ensure that members were protected.  The interests of members would hardly be protected by only obtaining an independent valuation of property after it had been acquired and had become “scheme property” within the meaning of the Corporations Act, only to find that the scheme had acquired the property at an over-value.  A reasonable and sensible interpretation of the provision is that it required property to be purchased for the scheme to be independently valued before the relevant Offer Document in relation to that acquisition was issued to investors.  This would protect members by ensuring that property was not purchased at an over-value and that the results of an independent valuation were disclosed to them in a PDS.
  11. [57]
    To interpret the Compliance Plan as if Item 8 of Schedule 5 only applied to property which had been acquired does not pay appropriate regard to the actual text of the document which uses the term “pre issue Offer Doc”.  This expression is apt to apply to property which is to be purchased with funds acquired from investors who respond to a PDS in relation to investment in that property. 
  12. [58]
    The interpretation for which AFCA contends accords with the text, context and purpose of the Compliance Plan.  Item 8 of Schedule 5 of the Compliance Plan, when interpreted according to its ordinary meaning and in the context of a Compliance Plan that governed IEL acquiring a property which was to be the subject of a PDS, should mean that an independent valuation in relation to the Manly project should be obtained before the PDS for that project was issued.  The same applies to the obligation imposed by the Compliance Plan in relation to the Maleny project.
  13. [59]
    I conclude that the preferred construction of the Compliance Plan is the one advanced by AFCA and that the determination did not misconstrue the Compliance Plan as alleged.

Would an error in the proper interpretation of the Compliance Plan be an error that permitted judicial intervention?

  1. [60]
    Because I have found that AFCA did not misconstrue the Compliance Plan as alleged, it is strictly unnecessary to consider whether the alleged error, if established, would have permitted judicial intervention.  However, it is appropriate to do so.
  2. [61]
    Had I reached the conclusion that AFCA erred in the interpretation of the Compliance Plan, then I would have regarded the interpretation which it adopted as one which was arguable.  I certainly would not have regarded such an interpretation as irrational, perverse, lacking in evident justification or unreasonable in the Wednesbury sense.  It was an interpretation at which a reasonable entity could arrive.  If an error of interpretation had been made it would not have been a “jurisdictional error”.  It would have been an error in construing a document which arose for consideration in carrying out ACFA’s task.  It would have been “an error made in the exercise of jurisdiction or more accurately within the ambit of decision-making power” conferred on it.[42]
  3. [62]
    In making its determination, AFCA was bound to have regard to legal principles and it apparently did so in adopting an interpretation of the Compliance Plan which was at least arguable.  The interpretation it reached was one which was open to it.  Had I reached the conclusion that AFCA erred in the proper interpretation of the Compliance Plan, then that error would not have been one justifying judicial intervention to declare the determination invalid and to set it aside.

Were the other findings open to AFCA in reaching an opinion about what was “fair in all the circumstances”?

  1. [63]
    Having found that IEL, in breach of the Compliance Plan, failed to obtain an independent valuation for each project, AFCA’s Determination turned to the issue of whether IEL’s breach caused LSF to suffer a loss.  It found that if LSF had been provided with independent valuations it would have assessed that the risk adjusted rate of return would put the decision to invest in doubt and it would not have proceeded to invest in the projects.  AFCA went on to find that it was appropriate to assess loss on a no transaction basis and that LSF’s loss should be assessed as to the amount invested, less any benefits received. 
  2. [64]
    In these proceedings, IEL seeks to challenge AFCA’s finding that if independent valuations had been obtained then LSF would not have proceeded to invest in the projects.  Its submissions tend to focus on evidence about other valuations for the project, being one commissioned by the Development Manager in respect of the proposed residential development at Manley and one commissioned by the vendor who sold the land at Maleny.  These are subsidiary pieces of evidence since, as AFCA’s Determination indicated, the critical inquiry was what LSF would have done if IEL had obtained independent valuations, as required by cl 4.4 of the Compliance Plan.  It was not what LSF would have done if it had obtained the LandMark White valuations.  As AFCA found, these were not independent valuations which IEL would have obtained had it complied with its Compliance Plan. 
  3. [65]
    IEL complains that there was no legitimate foundation for AFCA’s observations about the valuations that were commissioned by the Development Manager and by the vendor.  AFCA’s Determination noted that the motivations of the property developer and the vendor for obtaining those valuations could put into question their independence.  In my view, it was open for AFCA to question the independence of the valuations on that basis.  Those valuations depended upon the instructions of the parties who commissioned them, and both the Development Manager and the vendor had an interest in giving instructions to the valuer which enhanced the valuation that was arrived at.  It was open to AFCA to conclude that neither valuation would have qualified as an independent valuation for the purpose of compliance with cl 4.4 of the Compliance Plan and that if independent valuations had been commissioned by IEL, they would have been similar or possibly lower.
  4. [66]
    Some background is required to better explain that conclusion and to explain how the LandMark White valuations became part of the evidence.  They arose for consideration in a different part of LSF’s original complaint.  That part complained about each PDS which was issued, not IEL’s compliance with the Compliance Plan.
  5. [67]
    In the PDS in respect of the “Manly Road Residences Development Offer”, IEL stated that in the Development Manager’s view “the market value of the Property, assuming a gross realisation ‘as if complete’ based on individual sales valuation methodology, is $14,493,000 (inclusive of GST)”.  By the time of the dispute, but not before it had made the investment, LSF had become aware of a valuation dated 20 September 2018 that the Development Manager, SMSF Property Pty Ltd, commissioned which valued the same property on an “as if complete” basis inclusive of GST of $13,785,000.  LFS inferred and suggested that IEF was aware of this valuation, which was substantially less than the Development Manager’s valuation, and failed to disclose it in the PDS.
  6. [68]
    In LSF’s original complaint, Mr Wamsteker on its behalf stated that he “would not have invested had the as if complete value been $13,785,000 because the lower value, combined with the other factors below, would have materially reduced the expected rate of return to below an acceptable threshold.”
  7. [69]
    In the PDS in respect of the “Maleny Commercial Development Offer”, IEL stated that the Development Manager’s assessment of the market value of the property, assuming “a gross realisation ‘as if complete’ based on individual sales valuation methodology, is $4,441,348 (ex of GST)”.  This provided a development profit of $960,000, which according to LSF’s complaint, produced a return of 28 per cent.  Yet the vendor of the Maleny property had commissioned a valuation from LandMark White dated 30 September 2011 which arrived at a gross realisation from sale on an “as if complete” basis at far less than this: $3,900,000.  If that valuation was correct, it would have produced a development profit of $430,000 and a far smaller return on investment.  Mr Wamsteker, on behalf of LSF, said that he would not have invested if that was to be the likely return.  He said he also would have taken into account the extended timeframe required to achieve leases within the development, as suggested in the LandMark White valuation.  Again, these matters were in the context of an alleged failure by IEL to make proper disclosure in the PDS: the inference from other documents was that IEL knew of the LandMark White valuation of $3.9 million and that it was substantially less than the valuation of $4,441,348 contained in its PDS.
  8. [70]
    The context of these complaints about the contents of the PDS is different to the complaint successfully pressed in the determination process before AFCA.  It was not about the contents of each PDS and what had been omitted from those documents.  It was about the failure of IEL to obtain independent valuations and thereby comply with its Compliance Plan.  The present context is what would have occurred had IEL obtained and disclosed independent valuations of the Manly property and of the Maleny property in accordance with the Compliance Plan.
  9. [71]
    In defending that complaint, IEL did not commission an independent retrospective valuation, based on the instructions it would have given to an independent valuer chosen by it in late 2011 (in the case of the Manly development) or early 2012 (in the case of the Maleny development).  LSF also did not obtain a retrospective valuation for the purpose of AFCA’s dispute resolution process.  As a result, AFCA, in determining the issues it had to decide, had regard to the valuation evidence before it, particularly the LandMark White valuations.
  10. [72]
    IEL submits that there was “no foundation or no legitimate foundation for the finding or conclusion that the motivations of the property developer and vendor for obtaining the valuations could put into question the independence of the valuations they obtained”.  It adds that the finding that if independent valuations had been commissioned by IEL, they would have been similar or possibly lower than the valuations commissioned by the Development Manager and the vendor was not reasonably open.  These findings are submitted to be “arbitrary, irrational and illogical” or “findings or conclusions that no decision-maker acting reasonably could have made.”  I do not agree.
  11. [73]
    The valuation obtained from LandMark White for the Manly property was procured by the Development Manager.  According to the PDS, the Development Manager stood to be paid an estimated $772,600 if the project proceeded.  It had a strong financial incentive for the project to proceed and to give instructions to its valuer which arrived at a reasonably high “as if complete” valuation.  The valuation which LandMark White produced was stated to be “contingent” upon all the information provided by the Development Manager being a full and frank disclosure of all relevant information.  The valuation defined “as if complete”:

“As if complete value is the market value of the proposed improvements on the basis that all construction has been satisfactorily completed in all respects and is based on the market conditions existing as at the date of valuation.  It does not purport to predict the market conditions nor the value of the actual completion of the improvements due to time lag.”

In other words, it did not make any discount on account of risk of the construction not being satisfactorily completed, project delays or the risk that there would be a decline in the market between the date of the valuation (20 September 2011) and the unstated and uncertain date of sale.  It made clear that the total gross realisation of the residential units of $13,785,000 had been prepared on the basis of current market conditions which might weaken over the course of the development period.

  1. [74]
    The Maleny valuation, obtained by the vendor of that property, arrived at an “as if complete” valuation of $3.9 million.  This was based on “Special instructions”, and the courageous assumption that the numerous tenancies in the building were “complete and fully let at the date of valuation”.  It is worth quoting the following:

“3.1 Special instructions and disclaimers

 My instructions are to provide a Gross Realisation assessment on an ‘as if complete’ basis assuming 10 strata titled units have been created each of which are let on market terms to strong and suitable tenants on net terms with the tenants responsible for 100% of outgoings. 

 My instructions are not to include any vacancy or lease up allowances in my calculations but to treat the property as a fully let net income generating property without allowances.”

Yet elsewhere in the valuation, the valuer remarked upon the difficulties that were being experienced within Maleny at the time in leasing the vacancies that were available.  The valuer’s special instructions were to not take account of incentives or allowances in order to secure tenants. Yet incentives were being offered to tenants elsewhere.  As the valuer remarked, “the level of incentives offered to tenants varies and these are increasing in order to secure occupiers”.  The valuation was made on the basis that there were no rental arrears, another favourable assumption.  A further instruction was that outgoings were fully recoverable.  In accordance with instructions, no allowance had been made for land tax.  Yet there are statutory restrictions upon the recovery from tenants by landlords of land tax.  Most tellingly, the valuer stated:

“I have not made a permanent vacancy allowance.  This is in accordance with my instructions.”

  1. [75]
    There was no discount for the risk of the development taking longer than expected or the completed vacant tenancies coming on the market at a time when market conditions and rentals had softened.
  2. [76]
    LandMark White would not have been available to provide a valuation to IEL because it had acted for other parties in relation to the property and would have been unable to certify in writing to IEL that they had no conflict of interest with the property they were being instructed to value.  In any event, the instructions given to LandMark White by the Development Manager of the Manly property and by the vendor of the Maleny property would not have accorded with the instructions that would have been given to it or any other valuer in compliance with cl 4.4 of the Compliance Plan.  An independent valuer would not have been constrained by such artificial instructions.
  3. [77]
    IEL also makes a point about the Maleny development being undertaken on the basis of it having a lettable area of 1,115 m² whereas the LandMark White valuation was on the basis of a lettable area of 1,088 m².  As AFCA’s submissions explain, this difference would have added less than $100,000 to the LandMark White valuation, assuming a proportionate increase in value and could not account for the more than $540,000 difference between the LandMark White valuation of $3,900,000 and the Development Manager’s assessment, which was included in the PDS, of $4,441,348.
  4. [78]
    AFCA had good reason to find that the motivation of the vendor of the Maleny property to obtain the best price for its property could “put into question” the independence of the valuation it commissioned.  AFCA also had good reason to question the independence of the valuation procured by the Development Manager of the Manly project.  It had a strong financial incentive for the project to proceed and to give optimistic instructions and information about the construction program.  A director of the Development Manager was the subject of a lifetime ban imposed by the Queensland Building and Construction Authority (the predecessor to the Queensland Building and Construction Commission).  This, and a three year ASIC ban, would have been a reason for AFCA to doubt the Development Manager’s competence in managing a development project and the reliability of the instructions and information given to the valuer.  An independent valuer would be expected to take a more conservative approach than the Development Manager about the prospects of the project being carried out at the estimated cost and on time.
  5. [79]
    IEL’s submissions descend to an argument that the LandMark White valuation of the Manly property was performed on the basis that the project would be developed and sold in a single stage, whereas the Development Manager’s market value assessed the value of the property on the basis that the project would proceed in multiple stages.  I do not consider that this point makes AFCA’s findings arbitrary, irrational and illogical or ones that no decision-maker acting reasonably could have made.  The staging of the development may have had some implications upon cash flow and liquidity.  However, it is not clear that it would affect the “as if complete” valuation.  After all, LandMark White assumed that the sales (whenever they occurred) would occur in a market which had the same market conditions as those existing as at the date of valuation.  On this basis, the same gross realisation value would have been arrived at irrespective of whether the residences were sold in stages or at the same time.  Moreover, any assumption in the Development Manager’s valuation or in any independent valuation that the residences would be sold in stages was questionable.  The development approval existing at the time of the PDS did not permit development to be carried out in stages.  In fact, it was not until 21 March 2013 that approval was given to allow the first six townhouses to be given separate titles and sold before the remaining 29 were also constructed.
  6. [80]
    I conclude in respect of each project that, given the source of the instructions to LandMark White (the Development Manager of the Manly property and the vendor of the Maleny property) and the instructions and assumptions which LandMark White acted upon, AFCA had reason to doubt that such a valuation would have been provided to IEL by an independent valuer commissioned by IEL in accordance with cl 4.4 of the Compliance Plan.  AFCA had reason to conclude that if independent valuations had been commissioned by IEL they would have been “similar or possibly lower” than the LandMark White valuations.  In the light of the matters which I have considered it was reasonably open to AFCA to conclude that independent valuations which were not based on the kind of instructions given to LandMark White, and which were based on the realistic risk of the project encountering problems or the project reaching completion at a time when market conditions had softened, would produce valuations which were substantially lower than the LandMark White valuations.
  7. [81]
    IEL makes the point that the Compliance Plan did not require a property to be valued on an “as if complete” basis, but according to a definition of “market value” which accords with the principles in Spencer v The Commonwealth.[43]  It argues that a failure to obtain an independent valuation on an “as if complete” basis was not misleading and such a valuation was not required by the Compliance Plan.  However, the point does not invalidate the panel’s finding that if LSF had been provided with independent valuations at the pre issue offer stage of the projects, it would not have proceeded with the investment in the projects. 
  8. [82]
    An independent assessment of market value would take account of the development potential of the land.  In commissioning a valuation in accordance with cl 4.4 of the Compliance Plan, the approved valuer would be asked to consider the principles of “market value” and the matters listed in cl 4.4.  If IEL acted competently it would have instructed the independent valuer to do more than provide an assessment of the current state of the land, including its development potential.  This is because IEL was not intending simply to acquire and hold the land.  It was intending to develop it, and develop it in a particular way.  One would expect IEL to be interested in ascertaining the value of the land upon completion of the proposed development.  It planned a specific development to be commenced shortly after acquisition.  The “as if complete” valuation would be a useful check upon the valuer’s assessment of the current market value.  Also, if done properly, with regard to the time to complete the project, the cost to complete and the risks associated with the development, the “as if complete” valuation would probably call into question assumptions made by the Development Manager’s “as if complete” valuation.  Those assumptions were seemingly more optimistic than the questionable assumptions contained in the LandMark White valuation.  An independent valuer who was asked to assess the current market value of the property and in doing so consider its “as if complete” value would likely arrive at an “as if complete” valuation which was lower than both the Development Manager’s valuation and the LandMark White valuation.  Such an independent valuation would probably call into question whether the project should proceed at all or at least call into question whether the land should be purchased at the proposed price. 
  9. [83]
    Irrespective of the methodology used by the independent valuer to reconcile its “as if complete” valuation with its “as is” valuation, the point remains that the independent valuation was likely to be less than the LandMark White valuation.
  10. [84]
    The obtaining of an independent valuation before the PDS was issued was the point of the Compliance Plan.  The point was that IEL should rely upon an independent valuation commissioned by it on the basis of realistic assumptions, rather than rely on valuations which were not independent and based on questionable assumptions and instructions which suited the interests of the parties commissioning those valuations. 
  11. [85]
    In summary, the challenged findings of AFCA in relation to the questionable independence of the LandMark White valuations and the valuations which would have been obtained if independent valuations had been commissioned by IEL were, if anything, generous to IEL.  It would have been open to AFCA to find independent valuations probably would have been lower than those provided by LandMark White. It is sufficient to conclude that it was open to AFCA to find that neither of the LandMark White valuations would have qualified as an independent valuation for the purpose of the Compliance Plan and that if independent valuations had been commissioned by IEL, they would have been similar or possibly lower.
  1. [86]
    It is unnecessary to pursue the issue of the extent to which this conclusion was fortified by subsequent valuations which valued the property well below the market value assessed in the PDS.  Subsequent valuations may not have reflected market conditions at the time an independent valuation would have been obtained.  However, they may also have reflected more realistic assumptions than those adopted in the valuations commissioned by the Development Manager and the vendor, and an approach closer to that which would have been obtained if IEL had obtained an independent valuation.
  2. [87]
    IEL points to findings in previous determinations.  However, the TOR provides that prior decisions are not binding, and it was open to AFCA to come to the findings which it did on the basis of the evidence and arguments put to it.
  3. [88]
    I have had regard to the parts of the previous determinations upon which IEL relies.  They arose in a different context, namely allegations of non-disclosure of the LandMark White valuations.  In any case, AFCA was not bound to come to the same opinions in respect of the complaint which was successfully pressed by LSF in this matter.  I should add for completeness that I find the previous determinations unconvincing.  One describes differences in value as “not large”.  One says that the difference in value between the Development Manager’s assessment of the Maleny property and the LandMark White valuation was “not large and could readily be explained by the increase in lettable space.”  The difference was significant and it could not be explained by the small increase in lettable space. 
  4. [89]
    It fell to the decision-maker in this case to have regard to the differences between the Development Manager’s market value assessment and the valuations obtained from LandMark White, along with LSF’s evidence about the significance of these differences and what LSF would have done had it been provided with valuations such as that undertaken by LandMark White.  It was open to AFCA to reach the conclusion that these differences were material and that if LSF had obtained the LandMark White valuation it would not have invested in the projects.  However, what LSF would have done if it had obtained the LandMark White valuation was a subsidiary issue.  The real issue was what LSF would have done had IEL obtained and disclosed independent valuations.
  5. [90]
    IEL makes a submission about whether LSF knew of the LandMark White valuation before making the investment decision.  This point is adequately answered in paragraph 42 of the respondent’s submissions.  In short, LSF did not admit obtaining a copy of the valuation before investing. 
  6. [91]
    IEL’s submissions argue that if it had commissioned and provided independent valuations to LSF then LSF’s assessment of risk and return would not have put the decision to invest in doubt and it would have still invested.  LSF’s case included an argument that the investment return was very sensitive to relatively minor changes in the end value of the building and any time delays in leasing and selling the building.  It argued, by reference to the LandMark White valuation, that an independent valuation commissioned by IEL would have raised concerns about a number of assumptions, including assumptions about the timing of any future sale. 
  7. [92]
    In its submissions in reply, IEL’s counsel undertake calculations about a risk adjusted rate of return.  Even if it be accepted that some of LSF’s calculations about the risk adjusted rate of return flowing from the LandMark White valuations were erroneous in some respects, when subjected to further detailed analysis, there was still a substantial reduction of the risk adjusted rate of return.  The material before AFCA warranted acceptance of Mr Wamsteker’s contention that had an accurate representation of the value been included in the PDS, he would have considered the project returns to be too low compared to the risk and would not have invested.
  8. [93]
    IEL’s submissions devote great attention to the LandMark White valuations.  However, neither was a valuation which IEL obtained in purported compliance with its obligations under cl 4.4 of the Compliance Plan and it would not have been a valuation which it could have obtained because it had been commissioned by another party over the subject property.  It did not qualify as an independent valuation.  It would be reasonable to infer that an independent valuation commissioned by IEL would have been based upon different instructions and less optimistic assumptions than those provided to LandMark White by the vendor. 
  9. [94]
    Understandably, LSF’s director in conducting the complainant’s case through an informal dispute resolution process placed reliance upon the LandMark White valuation and what he would have done had that valuation been available to him.  His evidence was not implausible and AFCA was entitled to act upon it.  However, the real issue was what would have occurred if IEL had commissioned an independent valuation.  It was open to AFCA to conclude that the valuation obtained would have been less than the LandMark White valuation and to conclude that IEL would not have proceeded with the investment.  This conclusion could more comfortably be reached in circumstances in which IEL did not obtain for the purpose of the dispute resolution process a retrospective valuation from the kind of independent valuer it was obliged to commission. 
  10. [95]
    AFCA’s findings make the assumption in IEL’s favour that, IEL having obtained an independent valuation for the purpose of the proposed acquisition, it would have decided to proceed with the project. In that event the PDS for the relevant project would disclose the independent valuation to investors such as LSF.  In circumstances in which IEL did not obtain a retrospective valuation from the kind of independent valuer it would have been required to commission, AFCA’s analysis proceeded on the basis of evidence and reasonable inferences about what such an independent valuation probably would have revealed.  This included consideration and analysis of the LandMark White valuation.  The finding reached by AFCA about what LSF probably would have done if it had been provided with independent valuations was reasonably open on the material before it.  It was not arbitrary, irrational or illogical.  It was a conclusion that a decision-maker, acting reasonably, could have reached. It was open to ACFA to accept LSF’s case that if the LandMark White valuations had been disclosed to it, they would have raised concerns about the value of the land, and it would not have proceeded to invest because the risk adjusted rate of return would have been substantially reduced.  If disclosure of the LandMark White valuations probably would have had that consequence, then it follows that disclosure of independent valuations, unconstrained by the artificial or optimistic assumptions made by LandMark White on the basis of instructions given to it, would have been even more likely to have led LSF to not invest. 
  11. [96]
    In summary, AFCA was entitled to act upon the evidence before it and reach the conclusion that independent valuations commissioned by IEL would have been similar to or possibly lower than the valuations which were put in evidence and that, faced with those independent valuations, LSF would have made a different assessment of risk and return and not proceeded with the investments.  That finding was not irrational.  It was a finding which was open to AFCA to make.  It was not a finding that no decision-maker acting reasonably could have made.  IEL has failed to establish that the findings were unreasonable in the Wednesbury sense.  The findings were made bona fide.  IEL advances no sound basis to contend otherwise.  Nor does it advance a proper basis to allege that AFCA misconceived the task it was required to undertake in assessing the consequences of IEL’s breach of the Compliance Plan.
  12. [97]
    IEL has not established grounds to interfere with AFCA’s findings about the consequences of IEL’s breach of the Compliance Plan.
  13. [98]
    In its reply submissions, IEL advances an argument, in the alternative, that under paragraph 5.1(g) of the TOR, AFCA may not consider a dispute “about the investment performance of a financial investment, except a Dispute concerning non-disclosure or misrepresentation”.  This submission was not advanced in its principal submissions and as a result AFCA was confined to responding to it in oral submissions.  I accept AFCA’s submissions that insofar as the dispute was one about the investment performance of a financial investment, it concerned non-disclosure.  The case was premised upon the proposition that the Compliance Plan required an independent valuation to be obtained and if it had been obtained in compliance with the Compliance Plan, then it would have been disclosed in the PDS.  No independent valuation was disclosed in the PDS and as a consequence LSF suffered loss.

Conclusion on IEL’s application

  1. [99]
    IEL’s application should be dismissed with costs.

AFCA’s application that the Determination be specifically enforced

  1. [100]
    The AFCA panel considered it fair in all the circumstances for IEL to compensate LSF in the amount of $66,115.  This took account of the fact that LSF had already received $66,115 as partial compensation from another financial firm in relation to the investments.  AFCA also considered it fair in all the circumstances to award interest to maintain the real value of the compensation.  It awarded interest calculated at 1.5 per cent per annum (compounding annually) from 24 November 2015.  This was the day after the date that the panel considered the loss crystallised, being when LSF received a distribution from the projects of $7,770. 
  2. [101]
    By application filed 14 November 2019, AFCA seeks an order for specific performance, requiring IEL to comply with the Determination by:
    1. (a)
      paying LSF, as trustee of the Lornette Superannuation Fund, $66,115; and
    2. (b)
      paying interest in accordance with the Determination.

In the alternative to (b) it seeks interest pursuant to statute.

  1. [102]
    IEL replies that there is “an adequate remedy at common law so there is either no jurisdiction to grant specific performance or specific performance should be refused on discretionary grounds.”
  2. [103]
    In my view, the Determination is capable of being specifically enforced.[44]
  3. [104]
    IEL does not identify an adequate remedy that is available to AFCA at common law.  The amount of the Determination is not a debt payable to AFCA.  There may be an argument that AFCA, although having suffered no loss, is a party who can sue for damages, it having the benefit of the contract.  However, I see no utility, and only unnecessary costs, in AFCA being put to the trouble and expense of commencing separate proceedings in which it sues for damages, either for its own benefit or for the benefit of LSF.  That would be an unnecessary lawyers’ picnic.
  4. [105]
    LSF might commence proceedings in the Magistrates Court for debt or for breach of contract in relation to IEL’s not paying LSF in accordance with the Determination.  That would entail costs and delay.  It also would be inconsistent with the parties’ submission to an alternative dispute resolution process and the required performance of a determination which is agreed to be final and binding.
  5. [106]
    AFCA has an interest in ensuring that its determinations are performed.  The order for specific performance which it seeks is a simple way in which to enforce performance of the tripartite contract.  Therefore, I propose to make an order generally in accordance with paragraph 1 of AFCA’s application.  It seems appropriate that there be a time fixed for payment.  I consider that 14 days is appropriate.  The form of order which I propose is as follows:

“Within 14 days of the date of this order, the applicant pay the second respondent $66,115 together with interest calculated at 1.5 per cent per annum (compounding annually) from 24 November 2015 to the date of payment.”

  1. [107]
    Having made the order sought in paragraph 1, it is unnecessary to consider whether there is power to award interest pursuant to statute.

Conclusion and orders

  1. [108]
    Subject to any submissions as to the form of order for payment of the amount due to the second respondent and any submissions as to costs, the orders will be:
  1. The application filed 24 September 2019 is dismissed;
  2. Within 14 days of the date of this order, the applicant pay the second respondent $66,115 together with interest calculated at 1.5 per cent per annum (compounding annually) from 24 November 2015 to the date of payment;
  3. The applicant pay the first respondent’s costs and the second respondent’s costs of and incidental to the proceeding, including the application filed 14 November 2019, to be assessed on the standard basis.

Footnotes

[1](2015) 108 ACSR 483 at 501 [95] (“Patersons”).

[2]Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456 at 471 [51] (“Mickovski”).

[3](2012) 36 VR 465.

[4](2014) 288 FLR 374 (“Cromwell”).

[5](2015) 108 ACSR 483.

[6]Mickovski at [35] and [36].

[7]TOR, cl 1.2(b).

[8]Patersons at 500 [90] (footnotes omitted).

[9]At 500 [91].

[10]TOR, cl 8.7(a)(iv).

[11]Mickovski at 470 [48], 471 [51].

[12]Patersons at 501 [94].

[13]Mickovski at 466 [32], 467 [33].

[14]Ibid.

[15]Mickovski at 467 [37].

[16]Cromwell at 391 [62], 441-442 [256].

[17]Patersons at 501 [95].

[18]Cromwell at 399 [86], 400 [92], 441-442 [256].

[19]Cromwell at 401 [93], 412 [163], 441 [256].

[20][1998] 2 VR 546.

[21]Cromwell at 396 [76], quoting Rush v WA Amateur Football League Inc [2007] WASC 206 at [205].

[22]Savellis v Financial Ombudsman Service Ltd [2016] NSWSC 1771 at [54].

[23]Cromwell at 401 [93]; Mickovski at 456 [38], fn 26.

[24]Ibid.

[25]Mickovski at 471 [51].

[26]Mickovski at 471 [51].

[27]Minister for Immigration and Border Protection v Eden [2016] FCAFC 28; (2016) 240 FCR 158 at 172 [65].

[28]Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 at 363 [66].

[29]Ibid at 375 [105].

[30]Ibid at 351 [30].

[31]Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541 at 574 [84].

[32]Buck v Bavone (1976) 135 CLR 110 at 118-119.

[33]Patersons at 500 [91].

[34]Mickovski at 471 [51].

[35]Ibid.

[36]Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1 at 30 [77].

[37]Cromwell at 401 [93]

[38]Mickovski at 468 [39].

[39]Mickovski at 468 [41].

[40]Mickovski at 468 [38] fn 26.

[41]Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 at 13 [54] – [57], 22 [102].

[42]Mickovski at 471 [51].

[43](1907) 5 CLR 418.

[44]Utopia Financial Services Pty Ltd v Financial Ombudsman Service Ltd [2012] WASC 279 at [55] – [56].

Close

Editorial Notes

  • Published Case Name:

    Investors Exchange Limited v Australian Financial Complaints Authority Limited & Anor

  • Shortened Case Name:

    Investors Exchange Limited v Australian Financial Complaints Authority Limited

  • MNC:

    [2020] QSC 74

  • Court:

    QSC

  • Judge(s):

    Applegarth J

  • Date:

    09 Apr 2020

  • White Star Case:

    Yes

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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