The class action filed in the Supreme Court of Victoria this week by plaintiff lawyers Gordon Legal against Macquarie Investment Management over Macquarie’s role in the collapse of the Shield master fund has all the hallmarks of the controversial “but for” claims that the government is moving to remove from the Australian Financial Complaints Authority’s remit.
Macquarie has already repaid $321 million to investors on its superannuation platform who lost money in the Shield collapse, to restore them to their initial capital position. Another platform operator, Netwealth, compensated investors in another failed managed investment scheme, First Guardian, to the tune of $100 million on a similar basis.
Gordon Legal said in a media release that in Macquarie’s case this is not enough, and “investors have not been compensated for the growth their superannuation may have achieved if those funds had remained invested elsewhere during that time, or for the distress they have suffered”.
“A core feature of superannuation is your super grows in value over time. An initial relatively small amount put into your super when you are 20 years old may grow significantly by the time you retire,” the law firm says on its website.
The aims of the action echo the “but for” determinations made by AFCA, which have inflated claims on the Compensation Scheme of Last Resort to the point that there are serious concerns over the sustainability of the scheme, and which stretched the capacity of sectors of the financial services industry, including financial advice, to pay the levies that fund it.
Minister for Financial Services Daniel Mulino announced on 19 August that there would be changes to the calculation of levies, and that from 30 June next year AFCA will no longer make determinations on a “but for” basis, with compensation under the scheme instead “limited to actual investment losses rather than hypothetical losses” for complaints made after that date.
A “but for” claim assumes that had an individual not been inappropriately advised to take a particular course of action, they would not only have not lost their capital but also would have earned an investment return on that capital.
The authority uses a reference portfolio such as the Vanguard Balanced Fund, a passively managed fund that invests roughly 50 per cent in defensive and 50 per cent in growth assets, to calculate the investment returns the individual has hypothetically missed out on.
However, Gordon Legal says that the class action differs from a complaint brought at AFCA in important respects.
In a statement provided to Professional Planner, the firm said that AFCA may be able to consider claims about the conduct of a financial adviser, licensee or financial firm when deciding whether an investor should be compensated, the class action is focused on Macquarie’s role as a superannuation platform trustee, including whether it met its obligations when Shield was made available through its platform for everyday super fund members to invest.
“AFCA has told people who have tried to bring claims against their platform trustees that it can’t help them, as it is beyond AFCA’s scope,” it said.
“In our view, it is Macquarie, the superannuation platform trustee, who is legally responsible for ensuring that it properly monitored Shield, and it is responsible to investors for its decision to include Shield on its platform in the first place.
“While Macquarie has repaid capital to many affected investors, the question is now whether that fully restores them. The claim also looks at lost opportunity costs, including the investment growth and compounding returns investors have missed out on. It also makes claims for those people who suffered distress as a result of losing their super.
“The class action asks what investors’ position would likely have been if Shield had not been available through Macquarie’s platform in the first place.”
The class action, filed on 16 September, is being brought on behalf of representative plaintiff Rachelle Dessent and around 2800 account holders who invested about $321 million of their super in Shield through Macquarie’s superannuation platform.
The Gordon Legal website urges investors to register for the class action irrespective of whether they have already been compensated by Macquarie.
The action will be funded by litigation funder CASL, which covers the legal costs of running the case and any adverse costs order, in return for between 20 and 25 per cent of any settlement fund.
The legal firm’s website says the class action is necessary partly because AFCA says it has no jurisdiction to hear the underlying complaint, and that the authority has told Shield investors it cannot resolve their complaints against Macquarie, as it does not have the jurisdiction to deal with matters which relate to the management of a super fund as a whole.
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