Supreme Court New South Wales Medium Neutral Citation: Notesco Pty Ltd v Australian Financial Complaints Authority Ltd [2023] NSWSC 1525 Hearing dates: 11 December 2023 Decision date: 18 December 2023 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: Summons dismissed Catchwords: CORPORATIONS – financial services – external dispute resolution scheme – review of determination made by Australian Financial Complaints Authority (AFCA) – whether determination legally unreasonable and beyond the contractual authority, jurisdiction or power of AFCA – whether decision one no reasonable decision maker could have reached on the evidence – where determination related to conduct of financial service licensee – whether financial service licensee adequately assessed complainant's suitability to trade – apportionment of liability – consideration of ASIC Regulatory Guide 227 Legislation Cited: Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Australia Capital Financial Management Pty Ltd v Australian Financial Complaints Authority Ltd [2022] NSWCA 204 Australian Capital Financial Management Pty Ltd v Australian Financial Complaints Authority Ltd [2021] NSWSC 1577 Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179 Investors Exchange Ltd v Australian Financial Complaints Authority Ltd [2020] QSC 74 MetLife Insurance Ltd v Australian Financial Complaints Authority Ltd (2022) 295 FCR 1; [2022] FCAFC 173 Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456; [2012] VSCA 185 Minister for Immigration and Citizenship v Li (2013) 249 CLR 332; [2013] HCA 18 Notesco Pty Ltd v Australian Financial Complaints Authority Ltd [2022] NSWSC 285 Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321 QSuper Board v Australian Financial Complaints Authority Ltd (2020) 276 FCR 97; [2020] FCAFC 55 Texts Cited: AFCA Complaint Resolution Scheme Rules AFCA Operational Guidelines to the Rules ASIC, Regulatory Guide 227, "Over-the-counter Contracts for Difference: Improving Disclosure for Retail Investors" Australian Financial Complaints Authority Constitution International Capital Markets Pty Ltd Case Number 765773 Category: Principal judgment Parties: Notesco Pty Ltd (Plaintiff) Australian Financial Complaints Authority Limited (First Defendant) Jean Pasquier (Second Defendant) Representation: Counsel: D R Sulan SC with R J Pietriche (Plaintiff) E A J Hyde (First Defendant) Solicitors: Morris Mennilli (Plaintiff) Hall & Wilcox (First Defendant) File Number(s): 2023/3538 JUDGMENT 1. The first defendant, the Australian Financial Complaints Authority Ltd ("AFCA"), is a company limited by guarantee and the operator of the AFCA Scheme. [1] The AFCA Scheme is a financial services external dispute resolution system authorised under the Corporations Act 2001 (Cth) (the "Act"). [2] 2. AFCA is the single authorised operator of the AFCA Scheme. [3] There were a number of predecessor schemes that existed prior to AFCA, including the Financial Ombudsman Service Ltd. [4] 3. The plaintiff, Notesco Pty Ltd was, until 30 August 2021, the holder of an Australian Financial Services Licence. Notesco's parent company is Notesco Financial Services Ltd, a company incorporated in Cyprus. 4. As a financial services licensee, Notesco was required to be a member of the AFCA Scheme. [5] 5. Notesco operates a trading platform, known as Metaquotes MetaTrader 4 (the "Trading Platform"), through which customers can access an online market to trade in complex foreign exchange products, including "contracts for difference" or "CFDs". 6. Ms Loukia Kanarini, the Chief Legal and Compliance Officer of Notesco Financial Services Ltd, described CFDs as follows: "A CFD is an agreement which allows a person to make a profit or loss from fluctuations in the price of an underlying quoted security without actually owning or exchanging that security. Under the CFD, one party is entitled to be paid an amount of money, or is required to pay an amount of money, depending on movements in the price or value of the underlying asset … This transaction, also commonly referred to as a 'swap transaction', concludes with the parties settling the difference between the value of the underlying asset at the time the CFD was entered into and the value of the underlying asset at the time the CFD is closed. A CFD trade creates both a long (buy) and short (sell) position in relation to two currencies, allowing a trader to speculate on the change in the value of two currencies. CFDs are typically leveraged, meaning that the trade is facilitated using capital borrowed from a broker. Leverage enables traders to use a small margin to gain greater economic exposure to the performance of an asset for a proportion of its value. The risk of leveraged CFDs is that a trader is exposed to a much greater economic loss if they lose their CFD position, but is also exposed to a much greater economic gain if their CFD position is successful." 1. Notesco deals with customers on an "execution only" basis. It facilitates the placement of trades through the Trading Platform and permits customers to monitor, manage and execute their market positions by supplying them with the software required to access the Trading Platform. 2. The second defendant is Mr Jean Pasquier, a resident of France. On 28 July 2020, Mr Pasquier made a complaint to AFCA about financial services allegedly supplied to him by Notesco that, he says, caused him trading losses of more than €300,000. Those trades were executed on Mr Pasquier's behalf by a third party, Nextrade Pty Ltd, trading under the name "La Maison Du Placement". 3. Nextrade is not related to Notesco. Nextrade did not conduct any of the trades pursuant to any authority conferred on it by Notesco. 4. Mr Pasquier has been served, but has not appeared. 5. On 19 March 2021, AFCA made a determination that Notesco had not adequately assessed Mr Pasquier's suitability to trade in foreign exchange products and that Notesco should compensate Mr Pasquier's entire trading loss (the "First Determination"). 6. On 17 March 2022, Rees J set aside the First Determination on the basis of a denial by AFCA of the rules of procedural fairness. [6] 7. Rees J remitted Mr Pasquier's complaint to AFCA for reconsideration. 8. On 9 December 2022 AFCA issued a further determination (the "Second Determination") in respect of Mr Pasquier's complaint. AFCA again concluded that Notesco was responsible for Mr Pasquier's trading losses, but concluded that Mr Pasquier had "contributed to his losses by engaging [Nextrade] to trade on his behalf" and determined that Notesco should compensate Mr Pasquier for 75% of his loss: €230,175. 9. AFCA rejected Notesco's submission that, as Nextrade effected the CFD trading that caused Mr Pasquier to lose his money, it should be seen as totally or primarily responsible for that loss and that Notesco's responsibility should be limited accordingly. 10. Notesco contends that there is no "evident and intelligible justification" [7] in the Second Determination for that conclusion and that it was therefore "legally unreasonable and therefore beyond AFCA's contractual authority, jurisdiction or power". [8] 11. Notesco seeks a declaration to that effect and an injunction restraining AFCA from enforcing the Second Determination. Decision 1. I decline to make the declaration or grant the injunction sought by Notesco. 2. The proceedings should be dismissed. The AFCA Rules 1. The AFCA Scheme commenced operation on 1 November 2018. 2. Although, as I have said, financial service licensees who provide services to retail clients are required to obtain AFCA membership as a condition of their financial services licence, AFCA: 1. is not a "public body" and does not perform "government functions"; [9] 2. is not exercising a public duty; [10] 3. is an administrative body that does not exercise judicial power. [11] 1. The AFCA Complaint Resolution Scheme Rules ("AFCA Rules") form a binding contract between each member, AFCA and any complainant, [12] such that AFCA decisions on complaints have contractual, not statutory, force. [13] 2. Under the AFCA Rules, AFCA agrees to consider complaints submitted to it in a way that is "independent, impartial and fair" [14] and "must do what the AFCA Decision Maker considers is fair in all the circumstances having regard to", amongst other things, "legal principles" and "previous relevant Determinations of AFCA or Predecessor Schemes". [15] 3. The AFCA "Operational Guidelines to the Rules" state that: "We are not, however, required to strictly apply legal principles. Where we consider that it is fair in all the circumstances to depart from legal principles, we will explain in the Determination our reasons for doing so." [16] 1. AFCA can implement a variety of remedies against financial service licensees including, relevantly, monetary compensation. 2. Any determination made by AFCA is, if accepted by a complainant, final and binding. [17] The financial services licensee does not have a discretion as to whether to accept a determination of AFCA. Once a determination is made and accepted by the complainant, the licensee is bound with no right to appeal within the AFCA Scheme. 3. If a financial service provider does not comply with a determination made by AFCA, it may be expelled as a member of AFCA. This would result in a breach of the financial services licensee's licence. Review of AFCA's decisions 1. Decisions of AFCA are not susceptible to review on administrative law grounds. [18] 2. AFCA decisions may, however, be reviewable as a matter of contract if affected by legal unreasonableness. 3. Thus: "By their agreement that AFCA's determination is to be final, the parties accept that the 'determination will not be subject to review unless affected by fraud or dishonesty or lack of good faith or (by analogy with jurisdictional error) unless it is otherwise apparent that the determination has not been carried out in accordance with the agreement' … That will be the case if the outcome is one that no reasonable decision-maker could have reached." [19] 1. The basis for the Court's power to intervene, notwithstanding the parties' agreement that the decision will be final, is: "… 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. 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'." [20] 1. Judicial intervention requires demonstration of reasoning that is "irrational", "absurd", "perverse", [21] or "which lacks an evident and intelligible justification". [22] Mr Pasquier's complaint 1. Mr Pasquier is a French national. In May 2019, he was 83 years of age. 2. According to Mr Pasquier's Attorney, Mr Konstantine Mikov, of the Bulgarian Law Firm "Mikov and Attorneys": "In May 2019, my Client came across a website of a wealth management platform operating under [a Nextrade] domain name. The services offered by [Nextrade] immediately attracted the attention of my Client because he was looking for a source of additional income in order to cover the charges for a very expensive treatment for his wife who suffered from Parkinson's disease. My Client demanded for further information and he was promptly contacted by one of the representatives of [Nextrade] – Mr Richard Merville (probably a fake name). He presented to my Client the alleged benefits of the 'customised portfolio management' service and guaranteed to him that he will be able to receive a monthly profit from his investment with a minimal risk exposure. In addition to that, my Client received by e-mail a presentation of the services offered by [Nextrade] which described the following benefits of making an investment with [Nextrade's] platform: (i) Net monthly profits from 1.10% to 1.80%; (ii) Security of the funds and Risk Management (5% risk exposure); … (iv) Management of his investments by professional traders. The [Nextrade's] representatives informed my Client that they will manage his account professionally and in his best interest by opening/closing positions on his behalf and promised him a guaranteed profit from his investments given the results achieved by them so far. My Client also understood that the platform [Nextrade] is authorised and thus operated by [Notesco] which is authorised by the National Bank in France … After being misled by the description of the services offered by the [Nextrade's] representative, my Client decided to invest through them in the financial market as he was convinced that the [Nextrade] platform is reliable, operated by a duly authorised in France investment firm and that he could generate a secure profit from his investments. After creating an account with [Nextrade's] platform, my Client was instructed by the representatives of [Nextrade] to make his deposits to the indicated bank account in the name of [Notesco] … However, after making his initial deposit, my Client was re-directed to the website of [Notesco] Australia, where the representatives of [Nextrade] contracted financial services on his behalf … My Client communicated with three of the representatives of [Nextrade], namely: Mr Jean Philippe Delavenne, Mr Richard Merville and Mr Lionel Brun – probably all using fake names. As stated above, my Client was a very old retired person with no previous experience in trading on the financial markets and no proficiency in English. For that reason, he entrusted the management of his investment entirely to Mr Lionel Brun who: (i) created an account of my Client with [Notesco] Australia's trading platform; (ii) created and operated with three separate trading accounts on behalf of my Client with [Notesco] …; (iii) had access to my client's bank accounts and made direct transfers to the three trading accounts of my Client with [Notesco] Australia. From May to November 2019, my Client invested all his lifetime savings with [Notesco] Australia … All his positions on [Notesco] Australia's trading platform were taken by the representative of [Nextrade] – Mr Brun. Despite the promises for management of the risks and secure profits, my Client suffered a loss in the amount of his entire deposit made through [Nextrade's] platform." (Emphasis in original.) 1. On 6 May 2019, Notesco received an "Account Registration Form", purportedly from Mr Pasquier that Nextrade had evidently completed on Mr Pasquier's behalf. A copy of that document is set out below: 1. Mr Mikov has stated that his instructions are that Mr Pasquier did not complete this document and that it was completed by Mr Brun from Nextrade. 2. The document set out what appear to be genuine "Personal Details" concerning Mr Pasquier, including his birth date, email address, home address and telephone numbers. I have redacted those details. 3. It also accurately stated that Mr Pasquier's "Employment Status" was "Retired" and that his "Source of Funds" was "Savings/Investment". 4. The document stated that Mr Pasquier's "Estimated Annual Income" and his "Estimated Net Worth" were both "$250,000 or more". 5. The document also set out what purported to be details of Mr Pasquier's "Trading Experience, Forex and CFDs". 6. In their submissions, Mr Sulan SC and Mr Pietriche, who appeared for Notesco, stated: "Mr Pasquier had stated on his account application form that he was an experienced trader and trades a high volume of foreign exchange products and CFDs on a daily basis, and that he had appropriate investment knowledge through prior work experience or relevant qualifications to understand the risks involved in trading." 1. That is one reading of the document. 2. Another is that described by AFCA in the Second Determination as follows: "[Mr Pasquier] says he did not complete the questionnaire and does not agree with the answers in it. Rather he says his Power of Attorney [23] completed the questionnaire. [Notesco] says it was entitled to rely on the answers provided, irrespective of who completed it. Whether or not [Mr Pasquier] or [Nextrade] completed the questionnaire, there were a number of anomalies in it, that should have prompted [Notesco] to make further inquiries of [Mr Pasquier]. For example, the questionnaire indicated:- • that [Mr Pasquier] traded CFDs and Forex daily but had never attended a seminar or course on CFDs • he had not traded in other derivative products or securities; • [Mr Pasquier's] net worth was $250,000 (or more) and his average volume size per transaction was to be $200,000 - $250,000. (This could have meant he was trading his entire net worth in an individual transaction, which in turn could have meant he did not fully appreciate the risks of trading). In addition, while [Notesco] asks whether [Mr Pasquier] had work experience or qualifications that helped him understand the risks of trading, it does not ask for any further detail in relation to these matters. (It has subsequently come to light that [Mr Pasquier] did not have any relevant experience or qualifications. This would most likely have become apparent with further questioning)." 1. Further, under the heading "Trading Account Setting", the form stated that the proposed "Leverage" will be "200", suggesting an appetite for risk difficult to accept given that Mr Pasquier is an elderly retired person who, as AFCA observed, was evidently "trading his entire net worth in an individual transaction". 2. In the passage I have set out from AFCA's Second Determination, AFCA referred to Mr Pasquier's "Power of Attorney" who "completed the questionnaire". 3. Ms Kanarini deposed that on 7 May 2019, Notesco received a "Power of Attorney executed by Mr Pasquier in favour of Nextrade … dated 7 May 2019", and that on 11 June 2019, Notesco received a "further Power of Attorney from Mr Pasquier in favour of Nextrade dated 11 June 2019". 4. In the Second Determination, AFCA found on 7 May 2019, Mr Pasquier had granted Nextrade the first of those Powers of Attorney. AFCA did not refer to the second Power of Attorney. 5. Before me, Mr Hyde, who appeared for AFCA, submitted that there was no evidence that, in fact, Mr Pasquier had executed any Powers of Attorney. Mr Hyde pointed to the fact that the only copies of the purported Powers of Attorney in evidence did not appear to be executed. 6. However, this submission is inconsistent with the findings that AFCA made in the Second Determination. These proceedings should be resolved on a basis consistent with AFCA's determination, including that at least the 7 May 2019 Power of Attorney was executed. 7. On 6 May 2019, Notesco opened the foreign trading accounts in Mr Pasquier's name, being the accounts to which Mr Mikov referred. 8. There is no dispute that between May and November 2019, Nextrade caused trading to be effected on Mr Pasquier's behalf through those accounts. Mr Pasquier's money was lost by November 2019. ASIC Regulatory Guide 227 1. Much of AFCA's reasoning in the Second Determination is focused on Notesco's obligations under ASIC Regulatory Guide 227 "Over-the-counter contracts for difference: improving disclosure for retail investors" ("RG 227"), issued by the Australian Securities and Investments Commission in August 2011. 2. RG 227 commences by making the following observations concerning CFDs: "[CFDs] are leveraged derivative products that allow investors trading in them to take a position on the change in the value of an underlying asset. Margin forex instruments are economically equivalent products that have currencies as the underlying asset. … In Australia, most CFDs are not traded on an exchange—they are issued as over-the-counter (OTC) products. They are generally marketed to, and traded by, retail investors. Many of these retail investors do not seek or receive financial advice before deciding to invest, instead relying on advertising and disclosure materials to inform their decision to invest. … Our research suggests that many retail investors do not fully understand the risks of trading in CFDs. This is partly due to the inherent complexity of the subject matter. However, we have also found that disclosure documents are often difficult to understand, and do not highlight key information. Retail investors are often attracted to CFDs in anticipation of promised high rates of return for limited initial capital outlay. However, we regard CFDs as being complex products with a number of inherent risks. For example, CFDs are often highly leveraged, which means that investors can take on a high degree of market risk with only a relatively small initial deposit. This degree of leverage raises the risk that even small adverse movements in the value of the underlying asset can lead to losses on the CFD position that exceed the capital initially provided by investors. We are concerned that this complexity and risk means that these types of product are unlikely to be appropriate for the investment objectives, needs and risk profile of many retail investors. Given that most retail investors do not obtain personal financial advice before investing in CFDs, instead relying solely on information provided in disclosure documents, it is crucial to ensure that these disclosure documents are of a high quality and contain all the information that investors require to make an informed decision. This guide seeks to improve disclosure on OTC CFDs to ensure that retail investors are provided with documents of this standard. However, this guide should not be regarded as an indication that ASIC regards these products as being suitable for all or most retail investors." [24] 1. RG 227 establishes what it describes as a "benchmark disclosure model" comprising of "seven disclosure benchmarks". 2. Under the heading "Improving disclosure on OTC [25] CFDs", RG 227 states: "The role of disclosure The disclosure framework in the Corporations Act requires an issuer of CFDs and other derivatives to: (a) disclose upfront to retail investors all the information they reasonably need to know in order to make a decision about whether or not to acquire the product; and (b) provide ongoing disclosure about material matters to help retail investors monitor whether their expectations are being met. Disclosure is not designed to stop retail investors from taking investment risks, but to help them understand the risks involved in any particular investment or type of investment. This enables them to make an informed decision about whether the potential reward (the return on their investment) matches the level of risk involved, and whether they are prepared to take on that risk. Given the risks for retail investors associated with CFDs, and the fact that many rely on advertising and disclosure material to inform their decision to invest, we think that it is necessary to ensure that disclosure provides retail investors with all the information they need to make an informed investment decision. This may include a decision not to invest in these products in some cases." [26] (Bold emphasis in original; italicised emphasis added.) 1. In their submissions, Mr Sulan and Mr Pietriche placed emphasis on the first of the two emphasised passages in this extract from RG 227 and submitted that this showed the purpose of RG 227 was not to stop persons such as Mr Pasquier from taking investment risks with instruments like CFDs, but rather to "ensure that retail investors are provided with documents which are of a 'high quality' and which contain all the information that investors require to make an informed decision whether to trade in such products". 2. However, the second emphasised passage shows that such disclosure is also intended, in an appropriate case, to lead to an investor deciding not to trade in CFDs. 3. Under the heading "The disclosure benchmarks", RG 227 stated: "An issuer should maintain and apply a written client qualification policy that: (a) sets out the minimum qualification criteria that prospective investors will need to demonstrate they meet before the issuer will agree to open a new account on their behalf; (b) outlines the processes the issuer has in place to ensure that prospective investors who do not meet the qualification criteria are not able to open an account and trade in CFDs; and (c) requires the issuer to keep written records of client assessments. Explanation The complexity and risk inherent in OTC CFDs means that these types of products are unlikely to be appropriate for the investment objectives, needs and risk profile of many retail investors. Many issuers do not provide investors with personal advice about whether OTC CFDs are appropriate for their objectives, financial situation and needs. Nevertheless, all issuers can play an important role in ensuring that only investors who have a sound understanding of the features and risks of the product can open an account and begin trading. Investors who thoroughly understand the features and risks of the product are better placed to determine whether it is an appropriate investment for them, and manage the risks associated with trading on an ongoing basis. An issuer should assess a prospective investor against qualifying criteria that address the investor's understanding of and experience with the product. For example, criteria should address the investor's: (a) previous experience in investing in financial products, including securities and derivatives; (b) understanding of the concepts of leverage, margins and volatility; (c) understanding of the nature of CFD trading, including that CFDs do not provide investors with interests or rights in the underlying asset over which a position is taken; (d) understanding of the processes and technologies used in trading; and (e) preparedness to monitor and manage the risks of trading. An issuer may determine the best method of conducting the assessment itself. We consider that an online test, a face-to-face interview or a telephone interview would all be appropriate methods. In any case, an issuer should document the assessment process in writing, and retain this assessment. We do not consider that just making an assessment about a prospective investor's understanding of and experience with the product, including the criteria listed above, constitutes the provision of personal financial product advice. … The issuer should also assist prospective investors by offering a practice account system, which allows investors to trade on a virtual basis for a period of time before proceeding to open an actual account, and mirrors the functions of actual accounts offered by the issuer. However, any practice systems or equipment offered to prospective investors should be offered on a non-obligatory basis." [27] 1. It is against that background that Notesco's contention that the Second Determination was one that no reasonable body in AFCA's position could have properly come to on the evidence must be considered. The Second Determination Mr Pasquier's contention that Notesco was responsible for Nextrade's conduct 1. Mr Pasquier's first contention was that Notesco was responsible for Nextrade's conduct. 2. In the Second Determination, AFCA rejected that contention. [28] 3. There is no dispute about that conclusion. It can be put to one side. Mr Pasquier's contention that Notesco failed to test his suitability to trade adequately 1. Mr Pasquier's second contention was that Notesco had failed to test his suitability to trade adequately and that, had it done so, Mr Pasquier should not have been allowed to open the account. 2. This contention directs attention to RG 227. Almost two of the five pages of the Second Determination are directed to the question of whether Notesco complied with its obligations under RG 227. 3. AFCA concluded that Notesco did not comply with its obligations because "there were anomalies in the answers provided [by or on behalf of Mr Pasquier] to the questionnaire that should have prompted [Notesco] to make further inquiries of [Mr Pasquier]". 4. Under the heading "Issues and Key Findings", AFCA summarised its conclusion this way: "[Notesco's] failure to address the anomalies in the client suitability assessment was a substantive cause of [Mr Pasquier's] loss. Had [Notesco] properly assessed [Mr Pasquier], it would have realised he was unsuitable to trade CFDs." 1. AFCA identified the "anomalies" in the questionnaire in the passage I have set out at [43] above. 2. AFCA concluded that: "Ultimately, had [Notesco] complied with RG 227, it would have found that [Mr Pasquier] did not have the requisite experience or knowledge to trade CFDs, and it would not have allowed him to open the accounts. The panel is therefore satisfied that [Notesco's] breach was a substantive cause of the loss." 1. In its submissions to AFCA, Notesco argued that had it made inquiries of Mr Pasquier, it is likely that he would have nonetheless expressed his faith in Nextrade and proceeded to instruct Nextrade to trade on his behalf. 2. AFCA did not deal directly with that submission, although it is implicit in the finding set out at [68] that it did not accept it. 3. What AFCA did say was that: "The panel does not accept [Notesco's] argument that the correct 'but for' position was that [Notesco] should have contacted [Mr Pasquier], to confirm he entrusted his funds to [Nextrade]. RG 227 requires [Notesco] to test the investor's suitability to trade. In fact, having regard to the anomalies identified above, in circumstances where [Notesco] was also aware that [Mr Pasquier] had entrusted his funds to a third-party company, unregulated by AFCA or otherwise, this should have increased its concerns that [Mr Pasquier] may not have been a suitable candidate for CFD trading." 1. Notesco had also submitted that, had it made inquiries of Mr Pasquier, it is likely that Nextrade would have managed Mr Pasquier's response to those inquiries on his behalf. 2. AFCA rejected that contention, stating: "The panel also does not accept that if [Notesco] had conducted more thorough testing, the outcome would have been the same, because [Nextrade] would have completed (and passed) the test on [Mr Pasquier's] behalf. As discussed above, [Notesco] was required to test [Mr Pasquier's] suitability to trade, not his Power of Attorney's. In any event even if this were true, and [Notesco] satisfied its obligations by testing the [Power of Attorney's] experience, it is unclear from the material before the panel, whether the Power of Attorney would have, in fact, satisfied a properly conducted suitability assessment." 1. Each of these findings may be contestable but I cannot see how it could be concluded that they are findings that no reasonable body, particularly one in AFCA's position, could have arrived at. The causation question 1. In their submissions, Mr Sulan and Mr Pietriche paid particular attention to the manner in which AFCA had dealt with the question of causation in the Second Determination. 2. In the Second Determination, AFCA stated, correctly, that the onus was on Mr Pasquier to establish that Notesco had breached its duty, that he had suffered a loss and that the breach caused the loss. 3. AFCA's first statement on causation was: "In general, the application of the 'but for' test is sufficient to prove the necessary causal connection i.e. but for the failure of [Notesco] to test suitability what, on the balance of probabilities would have occurred?" 1. However, AFCA went on to state: "In circumstances where [Notesco] has been found to have breached its obligations, the question of whether the breach caused [Mr Pasquier's] loss, is answered by considering whether [Notesco's] actions were a 'sufficient' cause of the loss. In assessing this question, [Mr Pasquier] does not need to show that the breach was the only, or even most significant, cause of the loss. It must, however, be a decisive consideration …". 1. In oral submissions, Mr Sulan accepted that this reflected the "orthodox position" concerning causation, namely that a complainant did not just need to show that the other party's breach was the "only, or even most significant," cause of the loss, but it must show that its actions were a "sufficient" cause of the loss. I read the statement in the Second Determination that "it must, however, be a decisive consideration" to mean that in this case, it was necessary to show that Notesco's alleged breach was a "substantive cause" of the loss; to adopt language AFCA had used earlier in the Second Determination. The apportionment question 1. It was Notesco's position before AFCA that "it was plainly the case that Nextrade's trading on Mr Pasquier's behalf was materially and substantially causative of his loss". Notesco's case before AFCA, and before me, was that it was merely a provider of the Trading Platform and played no role in advising Mr Pasquier how to trade on the platform. 2. AFCA recorded that Notesco had argued that: "… in the event that the panel does not accept that [Nextrade] is responsible for 100% of the loss, [Notesco's] liability should be reduced significantly. It suggested 80% of the loss should be apportioned to [Nextrade], 15% to [Mr Pasquier] and 5% to [Notesco]. In response, [Mr Pasquier] says he did not understand the content and effect of the power of attorney given his inability to read or understand English." 1. The Second Determination continued: "Although it would be difficult (if not impossible) to apportion loss to a third party that is not a member of AFCA or a party to the complaint, AFCA is required by its Rules to do what is fair in all the circumstances. While it may not be able to 'apportion' loss in the way suggested by [Notesco], the panel could reduce the loss awarded if 100% attribution to [Notesco], would result in an unfair outcome." 1. In the first sentence of this passage, AFCA appears to be saying that because Nextrade was not a member of AFCA, AFCA could not effect an apportionment that would result in the imposition of an obligation on Nextrade. 2. However, in the second sentence, AFCA appears to be stating that although it could not apportion loss in a way that would impose an obligation on Nextrade, it could reduce the amount to be paid by Notesco to Mr Pasquier if a requirement that Notesco bear all of Mr Pasquier's loss "would result in an unfair outcome". 3. It seems to me that what AFCA was doing here was accepting Notesco's submission that it could reduce liability to take into account Nextrade's role, notwithstanding that Nextrade was not a member of AFCA and therefore not amenable to AFCA's powers, but only if it would be unfair to attribute all responsibility to Notesco. 4. AFCA then stated why it considered it would not be unfair to attribute 100% responsibility to Notesco, stating: "However, the panel does not accept that it is fair to do so in the circumstances of this matter. An [Australian Financial Services Licence] granted by ASIC to provide a CFD platform is highly regarded by traders both in Australia and overseas. The reason it is so highly regarded is that consumers have confidence that it carries with it important responsibilities such as that [Notesco] is a member of an External Dispute Resolution Scheme, it must act honestly, efficiently and fairly in all its dealings pursuant to section 912A of the Corporations Act and as discussed, and importantly, satisfy the provisions of RG 227. The significance of RG 227 cannot be understated in this regard. As discussed above, RG 227 was developed because CFD trading is generally not appropriate for retail investors. This was especially the case for [Mr Pasquier] who was trading his entire life savings in the belief that he would make a profit to pay for his wife's medical costs for treatment for Parkinson's disease. If the assessment had been conducted properly and in accordance with RG 227, [Nextrade] would not have been able to trade on [Mr Pasquier's] behalf at all. The panel is therefore satisfied that the loss should not be reduced on account of [Nextrade's] actions." 1. I do not see this passage as showing that AFCA there adopted a position on causation contradictory to the "orthodox" position that it recited in the passage at [79] above. 2. Rather, it appears to me that what AFCA is doing is making an evaluative assessment as to what would be a "fair" outcome in all the circumstances. 3. It is true that the AFCA Rules required AFCA to have regard to legal principles when considering what is fair, but I can see nothing in the AFCA Rules requiring AFCA strictly to apply legal principles. 4. Indeed, as I have set out above, AFCA's Operational Guidelines state that it is required to decide a complaint "based on what is fair in all the circumstances", having regard to, amongst other things, legal principles, but not required strictly to apply legal principles. The Guidelines stated that AFCA would explain any departure from the application of strict legal principles. 5. It appears to me that, in the passage I have set out at [86], AFCA was providing such an explanation. 6. It may be that AFCA's conclusion about that matter is contestable. 7. But I am not persuaded that it is a conclusion that no reasonable body, particularly in AFCA's position, could arrive at. It is not a conclusion that is "irrational", "absurd", "perverse" or lacking "an evident and intelligible justification". [29] The contributory negligence question 1. AFCA then went on to consider Mr Pasquier's position and concluded: "However, [Mr Pasquier] must take some responsibility for his loss as he did engage [Nextrade] and accepted its promises of secure returns without checking what it was doing with his money, and what the funds would be invested in. Further the material before the panel demonstrates that he was aware the trades were being placed by [Nextrade], and those trades were loss-making. The panel is of the view it is fair in all the circumstances that the compensation award should be reduced by 25% on this basis i.e. to take into account [Mr Pasquier's] actions in engaging [Nextrade]." 1. I agree with Mr Sulan and Mr Pietriche that there is a tension between a conclusion that but for Notesco's breach of RG 227, Mr Pasquier would not have been given access to the Trading Platform and for that reason not suffered any trading loss, and a conclusion that Mr Pasquier has contributed to that trading loss by his own want of care concerning oversight of Nextrade's trading on the Trading Platform. If Mr Pasquier had not been given access to the Trading Platform, there would have been no trading for him to oversee. To this extent, the Second Determination does lack "intelligible justification". 2. But the outcome of any such tension redounds in Notesco's favour as it led AFCA to conclude that the amount Notesco should pay Mr Pasquier should be reduced by 25%: from €306,900 to €230,175. 3. In any event, AFCA was looking at the question more broadly in the context of its obligation to achieve fairness in its determinations. The determination in the matter of International Capital Markets Pty Limited 1. Finally, Mr Sulan and Mr Pietriche submitted that AFCA's treatment of the circumstances of this case departed "substantively from its determination of complaints against similar CFD users and platform operators in materially analogous circumstances", reference being made to the statement in the AFCA Rules that AFCA will "support consistency of decision-making". [30] 2. Mr Sulan and Mr Pietriche referred to AFCA's decision in the matter of International Capital Markets Pty Ltd. [31] 3. There are some similarities between the facts here and the facts in that case. However, a significant and decisive difference is that AFCA concluded in the matter of International Capital Markets Pty Ltd that: "If the financial firm had not allowed the complainant to open an account, it is more likely than not she would have still traded CFDs." 1. It is true that that passage continued: "In addition, it was the decisions of the third party trading on her behalf which directly led to her losses, not the conduct of the financial firm." 1. However, it was a combination of those circumstances that AFCA found decisive in that case, thus distinguishing it from the facts here. 2. In any event, as I am not able to conclude that the decision AFCA reached in this case was one that no reasonable body could have reached, I cannot see how even a directly contradictory decision in another case could, without more, lead to a conclusion of legal unreasonableness. Conclusion 1. I decline to grant Notesco the relief it seeks. 2. The proceedings should be dismissed with costs. 3. In those circumstances, it is not necessary for me to deal with Notesco's application for an order dispensing with its obligation to comply with r 11.7 of the Uniform Civil Procedure Rules 2005 (NSW). [32] ********** Endnotes 1. Corporations Act 2001 (Cth), s 761A. 2. Section 1050(1); see Pt 7.10A generally. 3. Section 1050(3) of the Act. 4. See MetLife Insurance Ltd v Australian Financial Complaints Authority Ltd (2022) 295 FCR 1; [2022] FCAFC 173 at [10]-[12] (Middleton, Jackson and Halley JJ). 5. Sections 912A(1)(g) and 2(c) of the Act. 6. Notesco Pty Ltd v Australian Financial Complaints Authority Ltd [2022] NSWSC 285. 7. See [32] below. 8. Summons at par 2. 9. Investors Exchange Ltd v Australian Financial Complaints Authority Ltd [2020] QSC 74 at [27] (Applegarth J) 10. Ibid at [24]. 11. QSuper Board v Australian Financial Complaints Authority Ltd (2020) 276 FCR 97; [2020] FCAFC 55 at [93] (Moshinsky, Bromwich and Derrington JJ). 12. Australian Financial Complaints Authority Constitution cll 3.2(g) and 12.1(d); AFCA Rules A.1.2 and A.3.1; Notesco Pty Ltd v Australian Financial Complaints Authority Ltd (supra) at [10] (Rees J); Australian Capital Financial Management Pty Ltd v Australian Financial Complaints Authority Ltd [2021] NSWSC 1577 at [3] (Ball J) ("Principal Judgment"). 13. Australia Capital Financial Management Pty Ltd v Australian Financial Complaints Authority Ltd [2022] NSWCA 204 at [1]-[5], [7] and [10] (Bell CJ and Meagher JA, Basten AJA agreeing) ("Court of Appeal Judgment"). 14. Rule A.2.1(c)(i). 15. Rule A.14.2(a) and (d). 16. Section A.14.2. 17. Rule A.15.3. 18. Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456; [2012] VSCA 185 at [32]-[33] (Buchanan and Nettle JJA, Beach AJA); Court of Appeal Judgment (supra) at [9] (Bell CJ and Meagher JA, Basten AJA agreeing); approving Ball J in Principal Judgment (supra) at [4]. 19. Court of Appeal Judgment (supra) at [10] ] (Bell CJ and Meagher JA, Basten AJA agreeing); citing Mickovski v Financial Ombudsman Service (supra) at [38] and [41] (Buchanan and Nettle JJA, Beach AJA) and Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179 at [87]-[89] and [93] (Warren CJ and Osborn JA) and [256] (Tate JA). 20. Investors Exchange Ltd v Australian Financial Complaints Authority Ltd (supra) at [26] (Applegarth J), citing Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd (supra) at [62] (Warren CJ and Osborn JA) and [256] (Tate JA); Patersons Securities Ltd v Financial Ombudsman Service Ltd [2015] WASC 321 at [95] (Mitchell J). 21. Investors Exchange Ltd v Australian Financial Complaints Authority Ltd (supra) at [37] (Applegarth J). 22. Minister for Immigration and Citizenship v Li (2013) 249 CLR 332; [2013] HCA 18 at [76] (Hayne, Kiefel and Bell JJ). 23. I.e, Nextrade; see [45]-[49] below. 24. RG 227.1, 227.3, 227.5-8. 25. Over-the-counter. 26. RG 227.11-13. 27. At 227.37-42. 28. At [2.2]. 29. See [32] above. 30. Rule A.2.1(d). 31. Case Number 765773. 32. Which obliges it to serve on Mr Pasquier a prescribed notice. Amendments 08 February 2024 - [34] Typographical error of surname and firm name corrected. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 February 2024