In Patersons Securities Ltd v Financial Ombudsman Service Ltd and Ors [2015] WASC 321 the Supreme Court of Western Australia reviewed a binding Determination (Determination) made by the Financial Ombudsman Service (FOS) of a dispute between a financial services provider (FSP) and investors to whom the FSP had provided investment advice and services.

Even though the Court found an error in the Determination (which resulted in a greater award of compensation than the investors were entitled to), it declined to overturn it because it was not satisfied that FOS had acted unreasonably in reaching its opinion or failed to act in accordance with its terms of reference. The decision illustrates the difficulties that financial service providers (and their insurers) face in attempting to overturn decisions made by private tribunals such as FOS and provides guidance in relation to the basis on which a Court will intervene in such decisions.


In the Determination, FOS decided that the FSP should pay the investors $247,597 (plus interest) to compensate them for direct financial loss they suffered as a result of the FSP’s failure to carry out an agreed investment strategy (the FSP overexposed the investors to speculative equities). The FSP commenced proceedings seeking a declaration that the Determination was not binding because it breached the contract that came into existence between FOS, the FSP and the investors upon the referral of the dispute to FOS (the contract comprised FOS’s terms of reference and its constitution). The FSP argued that the Determination breached this contract because the award of compensation included substantial amounts that were properly characterised as indirect (consequential) loss (rather than direct loss as decided by FOS) in circumstances where FOS’s power to award such loss was capped at $3,000 by its terms of reference.


The Court referred to various authorities that evidenced a general approach to the question of whether a private tribunal’s decision ought to be overturned but noted that each situation depended on the terms of the particular contract pursuant to which the decision was made. The fundamental question for the Court to consider (in the context of the principles identified in the general approach) was whether a tribunal’s decision was within the authority conferred on it by the enabling contract.

Taking that approach, the Court decided that it could intervene in the Determination if it was made dishonestly, for an improper purpose or otherwise not in accordance with the procedure prescribed by the terms of reference (none of which were established on the facts). Absent one of those factors, the question for the Court was whether a reasonable person, acting rationally and with regard to the terms of reference, could have formed an opinion that it was fair in all the circumstances to award the investors $247,597 in compensation for direct financial loss (the terms of reference expressly authorising FOS to award a remedy that it considered ‘fair and appropriate’). The Court could intervene only if that decision was one to which no reasonable tribunal could have properly come on the evidence.

In assessing the merits of the Determination, the Court decided that $33,758 of the award of compensation should have been characterised as indirect loss rather than direct loss (while FOS appeared to understand the fundamental distinction between direct and indirect loss it made a mistake as to the characterisation of that particular component of the loss). However, despite this error, the Court concluded that the Determination was not irrational or unreasonable, that FOS had acted in accordance with the terms of reference and that the error was therefore made within the ambit of FOS’s contractual decision-making authority. Accordingly, it dismissed the FSP’s action.

The Court noted that the result would have been different had FOS properly characterised those losses as indirect but failed to reduce the corresponding award of compensation to $3,000 in accordance with the limit provided for by the terms of reference. Such an error would have been outside the ambit of FOS’s decision making authority under the enabling contract.