A recent court case has highlighted the difficulty of challenging decisions of the Financial Ombudsman Service (FOS).
We consider the ways that FOS decisions can be challenged and provide a reminder of steps that should be taken to avoid disputes.
WITH GREAT POWER COMES?
FOS has broad powers to make adverse findings against Financial Service Providers (FSPs) with a wide range of remedies at its disposal.
In the face of these powers, the options available to FSPs to challenge FOS decisions are limited.
Where an applicant accepts FOS's determination, it is binding on both parties. If the FSP disagrees with the determination, there is no further appeal or review process within FOS. However, it is not necessarily the end of the line.
WHAT IF THE DETERMINATION APPEARS UNREASONABLE?
A FOS decision can be overturned by a court as being invalid if it is "one to which no reasonable tribunal could properly come on the evidence".1
This standard is difficult to meet. It does not catch decisions that are merely bizarre, unfair, irrational or even at times incorrect. Under its own Terms of Reference2, FOS is not bound by previous decisions.
FOS decisions can also be overturned where there is evidence of fraud or where the decision maker was biased or acted in bad faith. Such cases are likely to be rare.
FSPs should also remember that even where the decision is found to be unreasonable, the likely result will be that a Court will return the matter to FOS to reconsider.
WHAT ABOUT BREACH OF CONTRACT?
The Terms of Reference form a contract between FOS, the FSP and the customer.
Given that the powers given to FOS under the Terms of Reference are broad and discretionary, it is difficult to conceive of a misapplication of the Terms of Reference that would be sufficient to ground a breach of contract that would justify overturning a FOS decision.
WHAT ABOUT JUDICIAL REVIEW?
FOS decisions are not subject to judicial review. This was addressed by the Victorian Court of Appeal in Mickovski v Financial Ombudsman Service Limited 3.
RECENT CASE EXAMPLE – GOLDIE MARKETING
The recent decision of Goldie Marketing Pty Ltd v Financial Ombudsman Service4 from June this year highlights the difficulty of overturning a FOS decision.
That case related to a debt owed to an FSP of approximately $8.8 million. FOS issued a decision confirming it was excluding the dispute on the basis that a court was a more appropriate forum to deal with the dispute.
Goldie alleged this decision by FOS was invalid as the dispute was excluded on the basis of a staff shortage at FOS and therefore its decision was unreasonable and in breach of its Terms of Reference.
Goldie relied on a telephone conversation that occurred between the Ombudsman and the relevant decision maker, where it was stated that FOS did not have the in-house knowledge to deal with the dispute after losing key staff.
Applying the standard set out above, the court found there was no basis to overturn the decision. FOS was entitled to take into account issues of staff resourcing, capability and availability in determining whether to exclude a dispute in the exercise of its discretion.
The court also found that FOS's Operational Guidelines did not form part of the Terms of Reference. Even if FOS acts outside those Guidelines, this will not provide a basis to challenge a FOS decision.
PREVENTION IS BETTER THAN CURE
Although not impossible, the Goldie case highlights how difficult it is to challenge a FOS decision. It's a reminder for FSPs to avoid disputes where they can.
Steps that FSPs can take to minimise the likelihood of being exposed to a protracted FOS dispute include:
- keeping accurate and complete records at all stages of the transaction;
- maintaining constant and open communications with customers, particularly where the potential for a dispute arises, as well as the FSP being liberal in its willingness to provide customers with copies of all relevant documents; and
- seeking advice early and considering all options.
In our experience, the delay in resolving issues between the FSPs and the customer which often accompanies the FOS dispute resolution process is often a source of more angst for the FSP than the FOS decision itself.
Taking the above steps can reduce the likelihood of a matter ending up in the hands of FOS, or at least reduce the duration of the process.
1 Cromwell Property Securities Limited v Financial Ombudsman Service Limited & Ors  VSCA 179
2Financial Ombudsman Service, Terms of Reference dated 1 January 2010 (as amended on 1 January 2015)
3 Mickovski v Financial Ombudsman Service Limited & Anor  VSCA 185
4 Goldie Marketing Pty Ltd v Financial Ombudsman Service  VSC 292
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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