The  Australian Financial Complaints Authority’s (AFCA) powers to settle disputes “are not judicial in nature” and therefore, are not binding,  according to the Federal Court of Australia.

An appeal launched last December by Brisbane-based superannuation fund QSuper submitted AFCA had exercised an “impermissible exercise of judicial power” when it  determined a complainant should be refunded for overpaid life policy premiums.

It said the AFCA determination “imposed an immediately enforceable liability on QSuper and that could only have been the consequence of the exercise of judicial power”.

But the Federal Court saw it differently, after considering submissions from all parties and the legislative frameworks setting out how AFCA decides on complaints or the conduct of trustees.

It says when AFCA has reached a decision on a dispute it lacks conclusiveness as it cannot enforce the outcome, which is open to collateral attack.

“It created new rights rather than determining existing ones, and it did not involve an exercise of sovereign power but was a result of voluntary submission to the AFCA scheme,” the Federal Court says in its ruling this month, dismissing the appeal with costs by QSuper.

“A member is not compelled to do anything by AFCA’s determination itself. The inability of an entity charged with determining complaints to enforce its own determinations negates the conclusion that it is exercising judicial power.”

AFCA issued a statement today on the court ruling, describing the outcome as one that “supports the scope of AFCA’s fairness jurisdiction in both its superannuation and general divisions, and the approach AFCA has adopted to its decision-making”.

The Federal Court says in the face of non-compliance with a determination, AFCA can only refer the matter to either the Australian Prudential Regulation Authority, Australian Securities and Investments Commission or the Commissioner of Taxation for possible further action.

“However, even action by any of those entities may not be the enforcement of the determination but effectively a sanction for the failure to comply with it,” the Federal Court says.

It also pointed out AFCA’s powers to intervene are  not concerned with the making of a  trustee’s decision.

“Rather, it was whether there existed any unfairness or unreasonableness in its operation in relation to the complainant,” the court says. “In that way AFCA is not concerned with the legality or veracity of the exercise of power by the trustee – or in some cases, by the insurer – but only with the manner in which the decision operates.

“AFCA’s determination did not declare rights or enforce the legal rights of the parties. It created new legal rights by substituting a decision of the trustee, which it set aside.

“The concern was not whether the decision not to refund any premiums was legally correct or validly reached. It was whether it was unfair or unreasonable in the prevailing circumstances.”

Click here for the Federal Court ruling.