We all know “fair’s fair”; but what is fair?

It is a legitimate question; and an important one if you are in the financial services sector.

The Macquarie dictionary relevantly defines it as “free from bias, dishonesty, or injustice” and something “that is legitimately sought, pursued, done, given; proper under the rules”.

We see the word popping up in different contexts.  Australian Financial Services Licence (AFSL) holders must provide the services under their licence efficiently, honestly and fairly.

AFCA states its key purpose and values as providing “fair, balanced and independent decision making in disputes between financial firms and consumers” and its rules require that “in determining a general dispute”, an AFCA Decision Maker must do “what is fair in all the circumstances” having regard to a number of matters, which I’ll come back to.

My focus in this article is ‘fairness’ in the context of deciding disputes.

I think it is uncontroversial to say that any system, whether it be parliamentary, legal or even an informal dispute resolution scheme, to work in the long term, must have the approval of the society, or the sector of the society, which it serves.  In other words, it must have legitimacy in the eyes of society.

The growth of alternative dispute resolution over the years has largely been a response to the costs, delays and the transparency associated with litigation through the courts.  Especially in business affairs, where time is money, commercial arbitration provides an avenue for efficiently and privately obtaining a binding decision, or Award.  During the preliminary conference the question is asked of the parties, “Do you wish the Arbitrator to decide this matter on legal principles or considerations of fairness?”  In my experience, the parties invariably want the arbitrator to decide the matter on legal principles.  However, if they instead direct the arbitrator to decide the matter based on ‘fairness’ – the arbitrator could do so, knowing that he/she is doing so legitimately in accordance with the wishes of the parties.  The parties, having elected to have the matter dealt with in that way, will invariably accept the Award.  The process was ‘legitimate’.  It was legitimate because the parties had genuinely consented to having their dispute determined by arbitration and had genuinely consented to the matter being determined according to principles of fairness.

The various complaint resolution schemes over the years get off to a poor start in the legitimacy stakes because they lack the true consent of the participants in the process.  The industry players have effectively been forced into the alternative dispute resolution schemes provided by FOS, CIO and now AFCA and effectively excluded from the Courts.  Additionally, they have had no say in whether the matters are to be decided according to principles of law, or principles of fairness.  At least for one party to the dispute consent is a fiction.  So, from the very start the Schemes (and now AFCA) have to play ‘catch up’ to win the legitimacy needed to function successfully in the long term.  Can they do that?  I hope so, because it is so important that it does.

There are competing public policy interests.  The financial services industry is critical to the lives of everyday Mums and Dads.  The industry is given a ‘social licence’ that comes along with the AFSL.  The licence protects the industry from competition and provides a regulated framework in which it can do business.  It is a privilege granted by society.  The ‘quid pro quo’ is that the industry must play by the rules and treat the society that is serves, and is part of, well.  If it does not, the Mums and Dads should not have to foot the expense and potential delays associated with Court proceedings.  Justice must be accessible.  Justice delayed is justice denied.

However, what the Court system in this country does deliver is a high quality of justice.  The rules of evidence, interlocutory processes, the high calibre of the judiciary, the rights of appeal and, dare I say it, my own profession, all play a part trying to bring about, insofar as humanly possible, a just outcome based on legal principles and ‘safe’ evidence.  Getting the decision right is too important to rush.  But that costs money and it takes time.  Whilst not many people can afford to pursue justice through the courts, the rules set in cases funded by the wealthy provide the legal framework for society as a whole.  Whilst this may be true, it does little to assuage the feelings of frustration and injustice for those who have a grievance and are unable to access Court.

Clearly in trying to balance these competing interests of accessibility to cost effective, speedy decision making, something has to give.  Compromises need to be made in the ‘quality’ of the decisions in favour of reducing time and costs.  In order to work, the system of resolving complaints needs to apply to the whole industry.  It effectively needs to be mandatory.  The existing alternative dispute resolution processes of arbitration, conciliation and mediation provided tried and tested working consensual models which could be adapted.  Hence, the various complaints schemes have operated effectively as a contract in which the industry participants agree to have their disputes dealt with in this way according to the rules of the Complaints Scheme.  The reason I referred to their consent as ‘fictional’ earlier in this article is because unless the industry participants enter this contract they cannot carry on their businesses.  A relevant factor in this ‘trade off’ is the size (in terms of money) and complexity (in terms of legal issues) of the dispute.  There is not the same case to be made for ‘cut price justice’ for large, complex disputes.  The legitimacy of the decision making may suffer if such disputes are not handled appropriately.  The increased monetary and compensation cap limits of AFCA’s jurisdiction are not insignificant.

When we talk about fairness in the context of resolving disputes, it is used in relation to the process that is followed and also in relation to the principles to be applied in making the decision.

Fair process, ‘natural justice’ or ‘due process’ (as it is referred to in the USA) requires a party to know what allegations are being made against it and to be given an opportunity to answer those allegations.  In court proceedings, elaborate systems of pleadings and discovery have evolved over the years to achieve this.  Secondly, it requires that the dispute be decided by an independent and impartial decision maker.

In its Website, AFCA addresses this.  It says:

“Fairness requires complaints to be considered objectively and without bias, and by staff and decision makers with appropriate expertise.  Our Rules also explicitly require that we provide procedural fairness to the parties to a complaint.  This means that before we decide a complaint, both the person making the complaint and the financial firm must be provided with relevant information upon which we intend to rely and have an opportunity to provide their views and response.”

Deciding the matter according to principles of Fairness

In the courts, matters are determined in accordance with rules of law and, where appropriate principles of equity.  This means that the courts apply the body of law that has evolved from many cases over the years.  In this way the law has certainty.  It is predictable and advisers are able to give guidance to their clients about likely outcomes.  Any uncertainty usually lies in the way the evidence will come out, rather than uncertainty as to the legal principles that will apply.  By contrast, a decision made by a particular person about what he/she thinks is fair on a particular day may seem akin to “putting it all on red 23” and spinning the wheel.  However, it’s not as bad as that.

AFCA addresses this in its Website by informing us that:

• “in determining a general dispute, an AFCA Decision Maker must do what is fair in all the circumstances having regard to:
  • legal principles
  • applicable industry codes or guidance
  • good industry practice; and
  • previous relevant Determinations of AFCA or Predecessor Schemes
• in superannuation disputes, AFCA Decision Makers must make decisions having regard to the conduct of a fair and reasonable trustee.”

In other words, the AFCA Decision Maker cannot ignore legal principles, or industry codes.  Some guidance can be obtained from previous determinations of AFCA or Predecessor Schemes.  The insertion of “good industry practice” is an interesting dot point and has even been used to hold non-contracting parties to the standards set out in the E Payments Code of Conduct on the basis that AFCA considers the Code ‘good industry practice’.  Interesting.

We are still in the early days and AFCA is trying very hard with limited resources to deal with a deluge of complaints.  From our experience, it is staffed by quality people with a genuine desire to do their jobs well.

In the long run, AFCA’s legitimacy and therefore, its success, will depend upon:

• how well it uses ‘fairness’ as a decision-making criteria. Can it find that balance between consistency of outcome and fairness so that parties have a ‘target’ to aim for?
• transparency and robustness in the process between the preliminary assessment and the determination.
• the proper review of decisions, where a decision reveals a lack of regard to the matters listed previously or cannot stand having regard to the evidence before the decision maker, will also be important for the long term legitimacy of AFCA. AFCA has an Independent Assessor, but the role is confined to assessing the processes followed by AFCA, rather than the merits of particular disputes.  There really is no avenue of appeal from an AFCA decision.  It ought not to be easy to appeal AFCA decisions.  However, in my view, some limited supervisory jurisdiction by the Federal Court, although it would add cost, would be a wise investment in the legitimacy, and therefore long term success of AFCA; and
• whether it is truly seen as an independent and impartial dispute resolution body, staying true to its character as described on its Website. It should try to carefully avoid any perceptions of bias in its public commentary as such perceptions could undermine its legitimacy.

Would you like to know more?

The views expressed in this article are those of the author and should not be attributed to others in Holley Nethercote Lawyers.

Author: Grant Holley (Managing Partner)

This article was first published in the Independent Financial Adviser: We all know ‘fair’s fair’, but what is fair?