The ‘Hardiman’ principle – whether it applies to AFCA

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By Nica Manosca, Solicitor, and David Slatyer, Partner

In the case of ISG Financial Services Ltd v Australian Financial Complaints Authority Ltd & Ors; ANLP Pty Ltd atf AP Superannuation Fund v ISG Financial Services Ltd (No 2) [2022] QSC 281, Justice Dalton, in deciding the issue of costs while considering the decision in MetLife (No 3), discusses whether the Hardiman principle applies to AFCA.

Although the plaintiff was almost entirely unsuccessful in its claim against the defendants, it argued that it should not have to pay the defendants’ costs. The plaintiff also urged that the court should follow the single judge decision in the Federal Court case MetLife Insurance Ltd v Australian Financial Complaints Authority (No 3)[1] (MetLife (No 3)).

In MetLife (No 3), the decision was to make no order as to costs in a proceeding where a financial services licensee challenged AFCA determinations as to its liability to an investor. Although Colvin J’s decision on the substantive issues was in favour of AFCA, he refused to make an order that costs follow the event. Instead, he ordered that there be no order as to costs by reference to what has become known as the Hardiman principle, articulated in R v Australian Broadcasting Tribunal; ex parte Hardiman[2].

With regards to the Hardiman principle, the High Court states in that case that; “If a tribunal becomes a protagonist in this Court there is the risk that by so doing it endangers the impartiality which it is expected to maintain in subsequent proceedings which take place if and when relief is granted.” The High Court further said that this was not a course which it would wish to encourage and that “where it occurs, it should in general be limited to submissions going to the powers and procedures of the Tribunal.”

The Hardiman principle is normally complied with in the case of judicial officers of lower courts, and Magistrates, and in the case of statutory tribunals. As to the question of whether the Hardiman principle ought to apply in the case of AFCA, Justice Dalton states that although AFCA acts as an impartial decision-maker between two litigious adversaries, it is not a statutory tribunal, but rather it is a private body, although it operates a scheme approved by the relevant Federal Minister and has obligations imposed upon it by legislation.

Justice Dalton refers to the decision in QSuper Board v Australian Financial Complaints Authority Ltd[3] (QSuper) which explains that AFCA is not a court, and does not exercise judicial power. The Full Federal Court in QSuper, as part of its reasoning, accepted that at law AFCA had no power to determine complaints except by its members’ agreement. Further, as recognised in QSuper, the federal government has entrusted the administration of the AFCA scheme to a company limited by guarantee whose functions are not exclusively judicial. That company has power to make determinations affecting financial services licensees and investors because they agree to it doing so. Therefore, the relevant cause of action, by and against AFCA, is in contract, namely private law and not public law.

A feature which the Full Federal Court in QSuper regarded as showing that AFCA was not a court, was its inability to enforce its own determinations. However, Justice Dalton points out in his decision that there are in fact decisions allowing AFCA to sue for specific performance (as well as declaratory orders) in order to compel compliance with its determinations.[4] An indication that AFCA is not bound by the Hardiman principle is its ability to take such a role against one of the parties who has appeared before it in an adversarial process.

As noted by Colvin J in MetLife (No 3), AFCA is obliged by legislation, namely by section 1051(4)(d) of the Corporations Act 2001 (Cth), to take reasonable steps to ensure compliance by the members of the scheme with the determinations it makes. Therefore, Justice Dalton states that the very fact that AFCA is obliged to take reasonable steps to ensure compliance with its determinations is another indication that it is not bound by the Hardiman principle.

A further indication that AFCA is not bound by the Hardiman principle is found in the nature of the AFCA scheme and that is to provide a timely, cheap and efficient way for investors to seek redress from financial services licensees. To achieve this, the parliament has chosen to entrust the determination of disputes to a private company, rather than a statutory tribunal or a court, and it has chosen to empower AFCA to determine disputes on the basis of fairness, having regard to legal principles, rather than according to law.

Due to the above reasons, Justice Dalton declined to apply the Hardiman principle in this case and proceeded to make determinations as to costs on the basis that all parties to this litigation were private persons who were parties to a tripartite contract and who sued to vindicate their rights and obligations under that contract.

In this case (ISG v AFCA), the Court awarded costs against the plaintiff licence holder, in favour of AFCA, to 90%. (In MetLife (No 3) the court refused to award costs, relying on the Hardiman principle.)

[1] [2022] FCA 849.

[2] (1980) 144 CLR 13, 35-36.

[3] (2020) 276 FCR 97; [2020] FCAFC 55.

[4] Investors Exchange Limited v Australian Financial Complaints Authority Limited [2020] QSC 74; Utopia Financial Services Pty Ltd v Financial Ombudsman Service Ltd [2012] WASC 279.

Insurance

MetLife Insurance Ltd v Hellessey [2018] NSWCA 307