Australia: No scope for judicial review of FOS (Financial Ombudsman Service) decision

Mickovski v Financial Ombudsman Service Limited & Anor [2012] VSCA 185

The proceeding concerned a challenge by Mickovski to a decision of the Financial Ombudsman Service Limited (FOS) that it lacked jurisdiction to deal with a complaint made by him in relation to entitlements allegedly payable by MetLife Insurance Ltd (MetLife).

Background Facts

Mickovski was injured in a workplace accident in February 1995. He claimed and was paid salary continuation benefits under an insurance policy issued by MetLife (SCI Policy). Mickovski subsequently claimed a TPD benefit under a second MetLife insurance policy. MetLife ceased SCI payments in July 1999 and paid Mickovski a TPD benefit in August 1999. At that time, both Mickovksi and MetLife were acting under a misconception that the SCI Policy provided for the cessation of SCI benefits upon Mickovski becoming totally and permanently disabled.

In 2006 Metlife applied to the Court to rectify the SCI policy so that the benefit period ceased upon the insured member becoming totally and permanently disabled. Rectification was granted on 13 November 2007. Thereafter, Mickovski sought to reinstate and backdate SCI benefits from July 1999 on the basis he was not totally and permanently disabled as defined under the rectified SCI Policy. MetLife rejected Mickovski's SCI reinstatement claim on 7 October 2008. Mickovski lodged the FOS complaint in December 2008.

FOS Decision

The FOS Terms of Reference prevented FOS from dealing with complaints where the complainant knew or should reasonably have known of all the relevant facts more than six years before first notifying the complaint. Mickovski argued the 2007 rectification of the SCI policy and Metlife's 2008 denial of the reinstatement claim both constituted relevant facts. FOS decided that neither was a relevant fact, and declined jurisdiction on the basis that the complaint was lodged out of time. The decision was affirmed in a review by FOS's Panel Chair.

Appeal Decision

Mickovski sought judicial review of FOS' decision or, if judicial review was unavailable, a declaration that FOS had breached its contractual obligations to Mickovski to comply with its Terms of Reference.

Judicial review

The first controversy was whether FOS, as a private company, was amenable to judicial review.

English Courts apply the test from R v Panel on Take-overs and Mergers; Ex parte Datafin Plc [1987] QB 815 (Datafin) to determine whether private entities are subject to judicial review. Historically, judicial review was confined to exercises of statutory and prerogative power. The Datafin test recognises that some private entities operate in a public law context, rendering judicial review appropriate. The Datafin test considers both the source and nature of the power being exercised. Judicial review is attracted where the private body exercises public law functions or the exercise of power has public law consequences. It remains undecided whether the Datafin principles form part of Australian law.

The trial judge, Justice Pagone, decided that the Datafin test should be applied in Mickovski's case, but noted its application was somewhat controversial under Australia law. Pagone J ruled that FOS was not exercising a public duty because its jurisdiction was invoked consensually by the parties to the dispute. According to Pagone J, FOS failed the Datafin test and its decisions did not attract judicial review.

The Court of Appeal agreed that FOS exercised only private law functions. It found that FOS was a private company and its powers were derived solely from contract. The fact that FOS was created to fulfil the statutory self-regulation requirements prescribed by the Corporations Act was not sufficient to bring FOS's operation within a public law sphere. The determinative indicators of FOS's private law context were: (1) the public had the choice to pursue their complaint through FOS or through the courts; (2) FOS's power over members was derived solely through contract; and (3) FOS's decisions were of an arbitrative nature in private law and were not supported by any public law sanctions. The Court of Appeal therefore ruled that FOS' decisions were not amenable to judicial review.

The Court of Appeal overruled Pagone J and decided the Datafin test did not apply to FOS. Given the appellate decision that FOS operated solely within a private law context, it followed that the Datafin test could not apply in the absence of any public law justification for the imposition of judicial review. As a result, it remains undecided whether Datafin applies in Australia.

The Court of Appeal acknowledged that there had been some limited recognition given to the Datafin principle in Victorian Courts. It was also acknowledged that, due to increasing privatisation of governmental functions, there was a need to extend judicial review into a wider range of public and administrative functions and that the Datafin principle, in an appropriate case, offered an "appealing" and "logical" response. It was noted, however, that there were doctrinal difficulties in extending judicial review and that the Datafin test was "still to be perfected". Given these comments, it appears the Victorian Courts may adopt some modified version of the Datafin test when the appropriate case arises.

Breach of Contract

The trial and appeal courts both ruled that, upon Mickovski and MetLife agreeing to submit their dispute to the processes of FOS, they became bound in contract to observe the Terms of Reference and entitled as a matter of contract to require that FOS proceed in accordance with those Terms. The Court of Appeal stated that FOS's decisions must be consonant with the contract and, if not, the court will grant a declaration to that effect and an injunction at the suit of an aggrieved party.

The Court of Appeal decided that FOS erred in law when construing its Terms of Reference, by misinterpreting the nature of the "relevant facts" that must be known before the limitation period commenced. According to the appeal court, a "relevant fact" was one that "rationally affected the way in which [Mickovsky] might have behaved if he had been aware of it". Applying that test, the 2007 rectification of the SCI Policy was a relevant fact that became known by Mickovski only one year before lodging the complaint. FOS therefore erred in deciding the complaint was lodged out of time.

However, the Court of Appeal decided that FOS's Terms of Reference prevented the court from reviewing errors of the type made by FOS in the case at hand. Mickovski's complaint had been reviewed by the FOS Panel Chair pursuant to Clause 15.3 of the Terms of Reference, which provided that the decision was "final". By reason of Clause 15.3, the parties were "taken to have agreed that the [Panel Chair's] determination would not be subject to review unless 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".

According to the Court of Appeal, FOS's decision, although incorrect, was made squarely within the ambit of its decision-making power conferred under the Terms of Reference. By reason of Clause 15.3, the error was not reviewable. The appeal was dismissed.

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