Click below to read a brief summary of legal cases involving the Financial Ombudsman Services (FOS), one of AFCA's predecessor schemes. In these cases, the courts have considered various aspects of the external dispute resolution service that was provided at the time.
Mickovski v FOS and Metlife [2011] VSC 257; [2012] VSCA 185
In the Matter of Australian Property Custodian Holdings [2011] VSC
Utopia Financial Services Pty Ltd v FOS and Rees [2012] WASC 279
Candice Gate v FOS [2012] NSWCTTT GEN: 12/51694
Lazarus v HSBA and FOS [2012] VCAT C6851/2012
Wealthsure Pty Ltd v Financial Ombudsman Service Ltd [2013] FCA 292
Bilaczenko v FOS [2013] FCCA 420
FOS v Pioneer Credit Acquisition Services [2014] VSC 172
Goldie Marketing and Ors v FOS and ANZ [2015] VSC
Patersons Securities Limited v FOS [2015] WASC 321
Litigation involving FOS
Mickovski v FOS and Metlife [2011] VSC 257; [2012] VSCA 185
In this matter, the Victorian Supreme Court considered whether a Jurisdictional Decision to exclude a dispute was amenable to judicial review or a review based on breach of contract.
These proceedings were initiated by an Applicant whose dispute involved a claim under a group salary continuance policy for ongoing benefits. The dispute was deemed to be outside of the relevant Terms of Reference as it was lodged outside of the allowed time frames.
Initially, the Supreme Court of Victoria held that FOS had acted appropriately in its Jurisdictional Decision. The consumer appealed to the Victorian Supreme Court of Appeal on various grounds, but predominantly on the basis that the initial judgment had only been an interlocutory (or provisional) judgment.
The Victorian Court of Appeal held that FOS decisions were not generally amenable to judicial review. Further, it said that where parties have agreed that a Determination is to be ‘final’, as they had done in the circumstances of this case, they are taken to have agreed that the Determination will not be subject to review unless it is affected by fraud or dishonesty or lack of good faith, or unless it is otherwise apparent that the Determination has not been carried out in accordance with the agreement.
Therefore, as the Terms of Reference state that a Jurisdictional Decision is a final decision, it was unable to be reviewed, even in theoretical circumstances of an Ombudsman having erred in his consideration of FOS’s jurisdiction.
In the Matter of Australian Property Custodian Holdings [2011] VSC
In this matter, the Administrator of Australian Property Custodian Holdings sought an order from the Court, by way of a declaration, that it did not have to respond to the FOS process. The declaration application was based on the assertion that the Corporations Act 2001 prevented FOS from initiating, or continuing to handle, disputes against a member while the member was in administration.
The proceedings were discontinued by the Administrator, as they conceded that FOS did not fall within the statutory meaning of a “court”, and so was not impeded by the operation of the Corporations Act.
Utopia Financial Services Pty Ltd v FOS and Rees [2012] WASC 279
In this matter, Utopia Financial Services Pty Ltd challenged a FOS Determination on the basis that the contract had been breached by the FOS Panel’s allegedly incorrect calculation of loss suffered by an Applicant. The Court considered whether FOS had breached the membership contract in any way.
The WA Supreme Court said that a FOS Determination creates new rights and obligations but that it does not amount to the performance of a judicial function. The power to create new rights and obligations arises from the contract between FOS and a member.
The Court also said that FOS's discretion to decide a remedy is very wide, which means that its powers should not be narrowly construed to decisions that could only be made at common law or in equity.
Therefore, the Court said that it was not necessary to enquire whether or not the FOS Panel correctly quantified the loss or damage. The contract between FOS and Utopia required FOS to deal with the dispute between Utopia and the Applicant in accordance with the FOS Terms of Reference. The Terms of Reference require FOS to decide a remedy on the basis of what in its opinion is fair in all the circumstances. The Court agreed that this is what had occurred.
Candice Gate v FOS [2012] NSWCTTT GEN: 12/51694
In this case the Consumer, Tenancy and Trader Tribunal (CTTT) of New South Wales considered whether its jurisdiction covered FOS. The matter arose when Ms Gate brought a complaint against FOS for damages.
The CTTT found that FOS does not provide a ‘service’ as defined by the enabling consumer protection legislation, and so was not subject to CTTT’s jurisdiction. It also found that any contract that may have been formed by the consumer’s lodgement of a dispute with FOS was formed outside of NSW.
Lazarus v HSBA and FOS [2012] VCAT C6851/2012
In this matter, the Victorian Civil and Administrative Tribunal (VCAT) considered whether its jurisdiction covered FOS. The matter arose when Mr Lazarus brought a complaint against HSBA and FOS for damages.
VCAT held that FOS does not provide a ‘service’ as defined by the enabling consumer protection legislation, and so was not subject to VCAT’s jurisdiction.
Wealthsure Pty Ltd v Financial Ombudsman Service Ltd [2013] FCA 292
In this matter, the Federal Court considered whether a FOS dispute was comprised of three discrete claims or a single claim and cause of action. In addition, in the event that there was a single claim, the Court considered the issue of whether the claim had been improperly split.
The Federal Court stated that there was no splitting of claims as contended by Wealthsure. It followed that FOS was correct in the approach it ultimately adopted in treating the Dispute as comprising three separate claims each subject to a monetary cap of $150,000.
Bilaczenko v FOS [2013] FCCA 420
In this matter the Applicant had sought to overturn two FOS decisions. His reasons included that FOS did not have the authority to decide that his dispute lacked substance, and that he did not sign the relevant authority forms.
The Federal Circuit Court dismissed the case, essentially on the basis that FOS’s two decisions in this case were not susceptible to judicial review.
Cromwell Property Securities Limited v Financial Ombudsman Service Limited and Radford [2013] VSC 333
In this matter the Supreme Court considered whether FOS had committed an error of law in failing to exercise its discretion to exclude a dispute. This followed submissions from Cromwell Property Securities Limited (Cromwell) that it would be unfair to Cromwell’s interests for FOS to consider the dispute.
The Supreme Court dismissed the applications that FOS had committed an error of law and stated that in order to successfully challenge a FOS decision, a party to the contract must establish Wednesbury unreasonableness – namely that the decision was one to which no reasonable decision-maker could properly arrive at on the evidence.
This decision of the Supreme Court was appealed by Cromwell to the Victorian Supreme Court and subsequently, again to the High Court. On both occasions, the Courts supported the FOS submissions that the correct standard was Wednesbury unreasonableness for FOS determinations and jurisdictional decisions.
FOS v Pioneer Credit Acquisition Services [2014] VSC 172
This matter was brought by FOS as a debt recovery action for outstanding dispute fees totalling approximately $112,000. Pioneer’s defence was that FOS was biased in its handling of the disputes and that as a result, the invoices were not valid.
The claim that FOS made to the court for outstanding dispute fees was upheld in full and the counterclaim by Pioneer, which alleged that it had terminated the Membership contract and the invoices were void as a result, was dismissed in its entirety. The main points are:
- FOS is not prevented by the Terms of Reference from continuing to deal with a dispute if proceedings are commenced by an FSP after the dispute has been lodged, irrespective of whether the dispute is based on the same events and facts and with the same Applicant as any matter which is, was, or becomes the subject of any proceedings in any court;
- There is no implied or express term of the membership contract obliging FOS to correctly decide questions of law;
- If it is the function of FOS to interpret the meaning of a law, a Determination may be challenged on the basis of an error in doing so, but as applicable laws are only one factor to be considered by FOS in making a decision, it is unlikely that it is the function of FOS to interpret the law in this manner;
- Only Determinations may be the subject of review by the Courts as they are the binding decision. Other non-final decisions, such as Recommendations and Findings are not, however it is likely that the basis for Justice Ferguson’s decision on this point would extend to final Jurisdictional Decisions; and
- FOS decisions should be subject to the Wednesbury unreasonableness test.
FOS was ultimately awarded the bulk of its legal costs on an indemnity basis, due to the manner in which Pioneer had conducted the proceedings.
Goldie Marketing and Ors v FOS and ANZ [2015] VSC
This matter was brought by Goldie Marketing (an Applicant) following a decision by FOS to exclude the dispute under paragraph 5.2 of the Terms of Reference and find that the court was a more appropriate forum. Goldie submits that the main reason for this decision was a temporary lack of skilled employees –an invalid basis for the exercise of the discretion.
Given the nature of the proceedings to date, FOS stepped aside and agreed to abide by the outcome in accordance with the Hardiman principle applicable to independent tribunals.
The Supreme Court handed down judgment on 29 June 2015 and held in favour of FOS and ANZ, noting that the primary issue for determination was whether FOS exercised its discretion in accordance with the Terms of Reference. The Court held that it did for the following reasons:
- the Terms of Reference constitute the entire contract between the parties and the Operational Guidelines to the Terms of Reference dated 1 May 2012 do not form part of that contract;
- FOS has a broad discretion to exclude disputes under the Terms of Reference which does not prevent FOS from taking into account staffing or resourcing issues;
- the relevant Jurisdictional Decision provides comprehensive, rational, cogent and persuasive reasons why FOS should exercise its discretion to exclude the dispute. There is nothing on the face of the Jurisdictional Decision that would suggest the decision was infected by bad faith, bias or was so unreasonable that no other decision-maker could have arrived at that decision; and
- even if the Operational Guidelines form part of the Terms of Reference, the reasons set out in the Jurisdictional Decision are in accordance with the Operational Guidelines as they are ‘compelling’.
Patersons Securities Limited v FOS [2015] WASC 321
This matter was brought as a challenge to FOS’ approach to putting the Applicant in the position that she would have been had the Applicant received the service that had been agreed to. Patersons asserted that this represents ‘lost opportunity’ and is therefore consequential loss and should be capped at $3,000.
The Ombudsman awarded approximately $150,000 to restore the Applicant to the position that the Applicant would have been in but for the poor implementation of the advice.
Judgment was handed down on 28 August 2015 in favour of FOS. Mitchell J noted that the Panel had performed its function properly and that it had asked itself the correct questions when determining the dispute – giving support for the approach that has been taken by FOS in calculating loss in these types of dispute.
The only criticism of the FOS approach came when dealing with a small portion of the quantum which arose between the date of crystallization of the losses and the date of the Determination. The Panel concluded that as there would have been no impetus for the Applicant to crystallize the loss had the advice been implemented properly and so the loss calculation could be extrapolated out to place the Applicant in the position that she would have been in as at the date of the Determination.
Mitchell J however stated that he would have categorised this loss (of $33,758.00) as indirect or consequential, but as he is not determining the matter on its merits, it is the Panel’s view that stands as it was not irrational or unreasonable.
The FOS claim for specific performance was therefore granted and the Applicant has received orders that Patersons should make payment in accordance with the terms of the Determination.
