To read a brief summary of legal cases involving FOS click here.
Financial Industry Complaints Service Limited v Deakin Financial Services Pty Ltd [2006] FCA 1805
Litigation involving FOS predecessors
MASU Financial Management Pty Ltd v Financial Industry Complaints Service Limited and Julie Wong (No. 1) [2004] NSWSC 826
MASU was a financial adviser which had provided advice to a client who then purchased a property. The client complained about the transaction to the Financial Industry Complaints Service (FICS). FICS reviewed the dispute and determined that MASU should pay to the client the amount of the commission it received, together with any difference between the price the client paid for the property and the price for which it was sold. MASU rejected the FICS decision and appealed to the NSW Supreme Court on constitutional grounds and on the basis that it had been denied procedural fairness by FICS.
In this case the NSW Supreme Court dealt with the issue of whether the FICS scheme intruded upon the exercise of judicial power in Australia and whether such powers of adjudication can only be exercised by a court constituted in conformity with the Australian Constitution.
The NSW Supreme Court found that the purpose of FICS panels included acting as a complaints resolution body in the financial services industry and dealing with complaints arising from transactions involving participants in the industry and members of the public. FICS was designed to adjudicate in relation to consumer complaints, but was not established by parliamentary legislation. Rather it was constituted under regulations and a policy statement issued by ASIC.
The Court decided that FICS was not a court and did not exercise judicial power as its jurisdiction was administrative rather than judicial.
Further, the Court found that the FICS scheme did not intrude in an impermissible way upon the exercise of judicial power in Australia and these powers of adjudication were not limited to a court constituted under the Australian Constitution. Accordingly, FICS’s powers of adjudication were not contrary to the Australian Constitution.
MASU Financial Management Pty Ltd v Financial Industry Complaints Service Limited and Julie Wong (No. 2) [2004] NSWSC 829
This was a further hearing that arose from the events described above. In this hearing the NSW Supreme Court reviewed whether FICS decisions were amenable to judicial review or, alternatively, whether FICS was contractually bound to the member in a way that gave rise to a claim of breach of contract.
The Court also considered whether FICS was bound by the established principles of administrative law in its functions: in particular, the process of procedural fairness.
The NSW Supreme Court was of the view that because FICS was empowered to make decisions of a public character, it was susceptible to judicial review on the basis that it administered a public external complaints scheme. In any event, as part of its contractual obligations, FICS was obliged to provide procedural fairness to each member.
The Court found that there was no actual bias in the FICS decisions, but there was however a reasonable apprehension of bias. This was overcome by an order directing that the matter be remitted to a different FICS panel to re-determine the complaint.
National Mutual Life Association of Australasia Ltd (t/as AXA Australia) v Financial Industry Complaints Service Limited and Mr. Kevin Day [2006] VSC 121
These proceedings arose after FICS dealt with a dispute involving an insurance complaint.
AXA Australia issued proceedings and alleged that there were four errors in FICS’s reasoning that gave rise to challenge. Those errors were that:
- The Panel had said that the issue it needed to determine was whether the Applicant was "working" at relevant times within the terms of the relevant policy. AXA said the Panel had asked itself the wrong question;
- As the Panel had asked itself the wrong question, it had also failed to ask itself the correct question, namely whether the Applicant had been fraudulent by giving false answers to certain questions on claim forms;
- The Panel had failed to consider whether the Applicant had been reckless in answering those questions and was thereby fraudulent; and
- The Panel had misconstrued the word "working" in the relevant policies.
The Victorian Supreme Court reviewed whether the alleged errors in the FICS Determination could result in the Determination being set aside by the Court. It looked at whether:
- the alleged errors constituted a breach of the contract between FICS and the FICS member, and
- FICS had fallen into jurisdictional error and was therefore liable to judicial review.
After reviewing the available information, the Victorian Supreme Court decided that there was no error by FICS in the relevant Determination. Accordingly, there was no case for a breach of contract obligation against FICS and nor was FICS liable to judicial review.
Financial Industry Complaints Service Limited v Deakin Financial Services Pty Ltd [2006] FCA 1805
In this case the Court reviewed the ambit of financial products that FICS could review in accordance with its jurisdiction.
Deakin Financial Services Pty Ltd’s professional indemnity insurer challenged the ability of FICS to accept certain disputes involving “promissory notes”, arguing that such notes were not financial products as defined by the Corporations Act 2001. It said that as a result, FICS did not have jurisdiction to review the relevant disputes, and it threatened injunctive proceedings in the Supreme Court of Victoria.
Prior to these proceedings being issued, FICS issued proceedings of its own in the Federal Court, seeking a declaration that it had jurisdiction to deal with complaints involving the promissory notes. FICS submitted that not only was its authority under the 2005 FICS Rules wider than the definitions contained in the Corporations Act 2001, but that promissory notes were financial products as defined by the Corporations Act 2001, and were also interests in an unregistered managed investment scheme.
The Federal Court declared that a “promissory note” did fall within the FICS jurisdiction and that it was a financial product. Further, the source of the authority of FICS to deal with the dispute was derived from the private contract formed by the relevant Constitution, the Rules and the Membership Application Form. That contract gave a wider jurisdiction than that contained in the Corporations Act 2001.
Wealthcare Financial Planning Pty Ltd v Financial Industry Complaints Service and Norris [2009] VSC 7
In this matter, Wealthcare Financial Planning Pty Ltd challenged FICS’s decision on the ground that it had failed to take into account an applicable law – namely, the proportional liability provisions of the Victorian Wrongs Act 1958. It submitted that FICS was susceptible to judicial review and that there had been a breach of contract in the Panel’s failure to “have regard to all applicable legal rules and judicial authority”, as it was required to do under Rule 5 of the 2005 FICS Rules.
The Victorian Supreme Court considered whether FICS was bound to apply principles of proportionate liability when determining a retail client’s complaint against a financial planner.
The Victorian Supreme Court dismissed proceedings and held that FICS was not bound by an obligation to apply principles of proportionate liability to each decision. The primary duty of FICS, under the terms of the contract with its members, was to do what was fair in all the circumstances, having regard to various listed factors. The FICS panel was required to “have regard” to all of the law (statutory and judge-made) that was relevant or capable of being applied; however, proportionate liability was not an “applicable legal rule” that the Panel was obliged to put into effect in this case.
To read a brief summary of legal cases involving FOS click here.
