Court backs FICS to rule on Westpoint promissory notes

The Financial Industry Complaints Service (FICS) has already begun processing the backlog of over 300 Westpoint cases following a Federal Court decision late last year confirming its right to handle matters concerning promissory notes.

Alison Maynard, FICS chief executive, said she was “pretty pleased” by the decision handed down on December 22 last year in the Court that backed its right to hear the Westpoint cases and confirmed promissory notes as ‘financial products’ under the Corporations Act. “We’ve already started to deal with the Westpoint cases,” Maynard said. FICS had put on hold all Westpoint complaints relating to the failed Perth property investment company’s promissory note products after a legal challenge from the now defunct financial planning group Deakin Financial Services (DFS). DFS, which was put into administration last year by its owner the ASX-listed financial services firm DKN, claimed FICS was not entitled to hear Westpoint cases as the promissory notes in question were not financial products under the law. In an assessment of the ruling Jim Bulling, partner with legal firm Middletons, said the Court’s decision “has significant implications for the financial planning industry and the role of the Financial Industry Complaints Service”. “The promissory notes issued by the Westpoint related mezzanine companies would appear to be financial products within the meaning of the Corporations Act and the FICS Rules. Accordingly, Westpoint claimants may be able to rely on the various causes of action set out in the Corporations Act which relate to the provision of financial product advice,” Bulling said in the assessment. The decision, however, was a mixed result for FICS with the court ruling the complaints body could not split joint claims in order to bring them under its $100,000 monetary limit. FICS had been operating under the assumption it could split joint claims that exceeded the $100,000 limit between individual beneficiaries in order to bring the complaint under its jurisdiction. According to Bulling, FICS had earlier issued a practice note claiming, for example, it could handle a $200,000 claim from a super fund that had two beneficiaries. “The Court held, however, that based on principles of trust and contract law, joint claims could not be split as between beneficiaries or joint interest holders and that accordingly, FICS should not act in accordance with its Practice Note,” Bulling said. Maynard said only 22 cases currently before FICS were affected by the court’s ruling on joint claims. She said FICS was reviewing the ruling but was unlikely to appeal. The complaints body is currently consulting with the industry on lifting its monetary limits with an increase likely to be implemented early this year.