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  • FOS case questions determinations process
  • 17/01/2015 Make a Comment
  • Contributed by: Joe ( 1 article in 2015 )
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Questions have been raised regarding determinations made by the Financial Ombudsman Service (FOS) after a recent court case argued it should not be able to make decisions ‘which no reasonable tribunal could properly come to on the evidence'.

The case - FOS vs Pioneer Credit Acquisition Services - heard in the Victorian Supreme Court last month examined whether FOS is required to correctly decide a question of law which it is required to decide.

It also examined whether FOS should restrict itself to settling consumer disputes and not acting in the same manner as a court and settling disputes as if they were legal proceedings and whether FOS should avoid making decisions that would not be reached by other tribunals using the same evidence.

While the case was settled in favour of FOS King and Wood Mallesons senior associate Travis Toemoe stated that laywers were troubled at the idea that a FOS determination was binding on a member and cannot be appealed.

Toemoe said lawyers also remained concerned that FOS can determine disputes by referring to matters beyond the applicable law.

"In common law jurisdictions the role of an arbiter of disputes (a court) is to interpret the law, not to make it. From a lawyer's perspective, the role of FOS seems to encompass both the role of courts and the role of the legislature," Toemoe said.

"Whilst one can see the attractiveness of a fast, cheap and efficient dispute resolution service such as that provided by FOS, is that outweighed by the rights foregone by members? Do members really want to continue to expose themselves to a DR process where the law is only one of many considerations in determining a dispute?"


FOS Circular

Recent Supreme Court decision confirms FOS approach to resolving disputes

The recent court case of Financial Ombudsman Service Limited v Pioneer Credit Acquisition Services Pty Ltd [2014] VSC 172 has received some industry interest and commentary since it was handed down on 16 April 2014. The judgment upheld FOS’s claim against Pioneer and dismissed Pioneer’s counterclaim in its entirety.

Some commentary has attempted to draw a link between the Pioneer judgment and reported concern from the legal industry that FOS makes binding Determinations that cannot be appealed, and that the Determinations do not necessarily apply the applicable law if to do so would produce an unfair result for the parties.

Pioneer submitted that FOS could not act like a court and relied on evidence given by Lead Ombudsman Philip Field who said:

“We have to reach a resolution of the dispute and in order do that you have to take into account the legal principles that apply to that particular dispute. That’s what we do and if that involves the interpretation of the law and the application of those legal principles to the facts in dispute, then that’s what we are required do, that’s our job.”

Justice Ferguson, in rejecting this submission by Pioneer, said that FOS was required under its Terms of Reference to have regard to legal principles, as well as other matters, when resolving disputes and that FOS had taken into account what it believed to be the relevant legal principles.

In any event, none of the disputes involving Pioneer were the subject of an Ombudsman’s Determination. If Pioneer did not like the views expressed in the Recommendations issued by the case manager then it had the opportunity to respond to the Recommendations, to provide further information and to explain why the views expressed in the Recommendations were wrong. Instead of adopting that course, Pioneer chose to settle the disputes.

Justice Ferguson also took the additional step of awarding FOS more than the standard rate of costs against Pioneer as a result of Pioneer rejecting an offer by FOS to try and settle the dispute on commercial grounds. FOS notes that some industry media articles have attempted to interpret a concession drafted between the parties in an effort to resolve the dispute during mediation as possessing a significance that it never held. As Justice Ferguson noted in her judgment, the concession was proffered by FOS "with a view to settlement" and was a common thing for parties involved in legal proceedings to do.

FOS remains confident of the integrity of its processes and its impartial and effective handling of disputes in the financial sector, and is working hard to enhance and develop these processes in order to further improve its external dispute resolution service for all stakeholders, both consumer and industry.


Lawyer's Summary

A recent Supreme Court of Victoria decision emphasises that the Financial Ombudsman Service (FOS) is not required to approach dispute resolution as a court would. In Financial Ombudsman Services Limited v Pioneer Credit Acquisition Services Pty Ltd [2014] VSC 172 the Court considered allegations by a financial services provider (FSP) that FOS acted in breach of its Terms of Reference (TOR) and caused the FSP loss and damage. Ultimately, FOS was vindicated, but some interesting comments about FOS’ obligations were made.

Key points

There is no requirement that FOS correctly decide a question of law that arises. In fact, the scheme under which FOS operates is premised on the basis that FOS’ initial decisions may be wrong and subsequently corrected by the Ombudsman.

FOS does not act as the equivalent to a court and is concerned with the resolution of consumer disputes as opposed to the determination of legal rights. FOS is required to take into account relevant legal principles, but not to the exclusion of other matters.

FOS’ decisions can be challenged where it can be argued that the decision is one which no reasonable tribunal could properly make. FOS is required to exercise its discretion reasonably and in a manner that is not arbitrary, vague or fanciful.

The Pioneer decision

FOS’ operations are governed by TOR which set out its powers and processes. The TOR that applied to the relevant period described in the Pioneer Credit Acquisition Service Pty Ltd (Pioneer) decision have been superseded, but some important comments on FOS’ powers and obligations can still be made. Relevant differences are described below.

If FOS cannot facilitate a settlement between the parties it will make a decision about the merits of the dispute. There are currently two levels of decisions:

recommendations, which are made by a case worker and are only binding if accepted by the parties

determinations, which are made by the Ombudsman or a Panel chaired by an Ombudsman.

Determinations are only binding if the complainant accepts the determination.

At the time relevant to the Pioneer decision, there was an initial step where case managers made findings prior to recommendations being made by the Ombudsman. The findings stage is analogous to the current recommendations stage. Pioneer challenged matters arising from the findings stage.

Pioneer purchased certain credit card debts (Acquired Debts) which originated in the United Kingdom. In findings made by FOS it concluded that the Acquired Debts were unenforceable in Australia. Pioneer argued that FOS decided a point of law and as such was obliged to correctly decide that point.

The Court considered that FOS is only required to have regard to applicable legal principles as one of the various matters to be taken into account. In any event, the Court noted the scheme operated by FOS proceeds on the basis there would be a review after findings were made, and as such considered it is implicit in that structure that case managers may get things wrong, and the Ombudsman may make determinations that differ from the original findings.

Pioneer also contended FOS should not act as a court by concluding the Acquired Debts were unenforceable in Australia. The Court dismissed this argument. The TOR required (and still requires) FOS to have regard to matters including the law in resolving the dispute. FOS took into account what its officers perceived to be the relevant legal principles in making Findings. The Court also noted that, unlike a court, the Findings were not binding on either party unless accepted by both of them and there was an opportunity to respond to the Findings.

Pioneer submitted that FOS had predetermined its view that Australian courts did not have jurisdiction to hear a case involving the Acquired Debts. FOS accepted its decisions could be challenged where, based on evidence, the decision is one which no reasonable tribunal could properly reach, but denied it had breached that standard.
The Court agreed that on the facts FOS had not predetermined its views.

Issues also arose regarding the reasonableness of FOS’ decision to consent to the commencement of proceedings by Pioneer seeking to recover the Acquired Debts from one complainant, but not a subsequent complainant. In this context the Court also noted that FOS was required to exercise its discretion reasonably. The Court considered that in the circumstances, FOS did exercise its discretion reasonably when it refused its consent to the commencement of proceedings.

Concluding comments

FSPs should take into account that FOS is not necessarily obliged to correctly decide a question of law that arises. This is particularly relevant in considering whether to accept a recommendation.

FSPs need to be aware that FOS is not a court and, whilst it is required to take into account relevant legal principles, this is not to the exclusion of other matters. Although this allows FOS to achieve more flexible outcomes than a court, it can lead to frustration for FSPs when unexpected outcomes arise.

FOS’ decisions can be challenged where the decision is one which no reasonable tribunal could properly come to, but in practice this is a high standard to reach. It does not involve substituting a court’s view as to how the discretion ought to have been exercised. Nonetheless, FSPs should bear in mind that decisions of FOS must be reasonable, made in good faith and have proper justifications.

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