In Australian Capital Financial Management Pty Ltd v Australian Financial Complaints Authority Limited [2021] NSWSC 1577, Justice Ball considered two important questions regarding the power of the Australian Financial Complaints Authority (AFCA):

  1. Is AFCA required to conduct hearings as a part of its complaint handing process?
  2. What steps does AFCA need to take to reach its determination?


Background Facts

On 16 May 2014, Australian Capital Financial Management Pty Ltd (ACFM) lent to Australian Sheepskin & Hide Pty Ltd (ASSH) up to $2 million, which was guaranteed by Benyu Bai (Mr Bai) and his wife, Wenhua Yang (Ms Yang).

In support of the guarantees, Mr Bai and Ms Yang provide signed mortgages to ACFM over two residential properties.

The loan agreement and the associated documents were signed by David Lee on behalf of Ms Yang pursuant to an authority. Ms Yang signed the documents in June 2014, upon her return to Australia.

By July 2014, ASSH encountered financial difficulties.

On 26 August 2014, ACFM exchanged a contract for sale over one of the residential properties.

Around February 2015, ACFM commenced proceedings in the New South Wales District Court against Mr Bai and Ms Yang for payment of $742,800 owing under the loan agreement (District Court Proceedings).

On 14 March 2016, Mr Bai and Ms Yang voluntarily departed Australia due to the Minister refusing to grant Ms Yang a Business Owner (Residence) Visa, which they attempted to appeal to the Administrative Appeals Tribunal.

As there was no appearance by Mr Bai and Ms Yang at the District Court Proceedings, the Court granted judgment in favour of ACFM in the amount of $738,876.39. However, on 31 October 2018, the judgment was set aside.

On 15 February 2019, an AFCA complaint was lodged on behalf of Mr Bai and Ms Yang.

AFCA’s Decision

AFCA determined that the guarantees provided by Mr Bai and Ms Yang were “unfairly obtained” and therefore the guarantees were invalid and unenforceable. AFCA’s reasons for reaching this conclusion was as follows:

“In relation to obtaining guarantees, the lender, having regard to the size and purpose of the proposed loan, and good industry practice at a minimum must meet the following conduct standards:

  • the lender to provide a prominent notice to the proposed guarantor that:

>   they should obtain independent legal advice on the effect of the guarantee

>   there are financial risks to providing a guarantee

>   they can refuse to enter into the guarantee

  • the lender must provide to the proposed guarantor a copy of the related loan contract and related security contracts
  • the lender must permit the proposed guarantor until at least the next day to consider the guarantee and related loan and security contracts, unless the guarantor is legally advised. Where the proposed guarantor is a director of the borrowing entity, the lender must permit sufficient time for the director to consider these documents unless the director waives this requirement
  • the lender must not give the guarantee to the borrower (or someone acting on behalf of the borrower) to arrange for the signing of the guarantee
  • the lender must ensure the guarantee is signed by the guarantor in the absence of the borrower.”

Based on the above, AFCA noted that ACFM provided the loan agreement to the guarantors in English, when Mr Bai and Ms Yang did not speak or read English. At the same time, ACFM provided the loan security summary and the loan drawn down summary in Mandarin to the guarantors. AFCA held that this would have been unnecessary if Mr Bai and Ms Yang did understand English. Further, AFCA noted that the guarantors were not provided an opportunity to obtain legal advice, and as such they did not understand the effect of the guarantee.

ACFM sought to review the decision on the basis that it was denied procedural fairness based on the way the factual issues were determined by AFCA. Counsel for ACFM argued that there ought to have been a hearing and appropriate procedures allowing for cross-examination of the guarantors.



Justice Ball disagreed with ACFM’s submission and dismissed these proceedings brought by ACFM.

His Honour held that:

  1. AFCA Rules require it to determine disputes in an independent, impartial, and fair manner;
  2. AFCA Rules also required that it deals with complaints in an efficient, effective and timely manner. AFCA is not bound by the rules of evidence, but must consider all circumstances having regard to the legal principles, applicable industry codes or guidance and good industry practice;
  3. AFCA is not required to conduct ‘hearings’ and allow cross-examination. Instead, it is allowed to resolve conflict by reference to objective facts available to it; and
  4. both parties were provided opportunities to provide written submission.

Based on the above, there was no denial of procedural fairness to ACFM.



The decision reminds lenders and their solicitors that, when preparing submissions for AFCA, you will need to:

  1. provide all relevant contemporaneous documents; ad
  2. prepare comprehensive submissions, including reasons why the claimant’s submissions/evidence should be rejected; and
  3. have regard to the legal principles, applicable industry codes or guidance and good industry practice in your submissions.