The decision of the Victorian Court of Appeal in favour of the Financial Ombudsman Service Ltd (FOS) highlights the difficulties for financial services providers in trying to challenge decisions of FOS and the dispute resolution process under the terms of reference (TOR). The TOR operate as a binding contract with a finality clause in favour of FOS’ decisions and determinations.
- Cromwell administers and was the responsible entity of the Cromwell Property Securities Fund. The Radfords were investors in the fund through their self-managed superannuation fund and made a complaint concerning their investment to FOS.
- Cromwell brought an application for FOS not to continue to hear the dispute under its terms of reference (TOR) on the grounds that the complaint would be more appropriately dealt with by a Court.
- The trial judge dismissed the application and Cromwell appealed.
- Warren CJ and Osborne JA delivered the majority judgment and held that the relevant standard for review under the TOR and contracts of this type is by reference to “Wednesbury” They relied on a previous decision concerning FOS, Mickovski v Financial Ombudsman Service (2012) 36 VR 456, and the private tribunal cases such as Australian Football League v Carlton Football Club  2 VR 546, where the relevant parties had agreed on a contractual mechanism for the resolution of disputes. These cases and the present one all contained contracts which provided that the decision of the relevant adjudicator was final and binding.
- Cromwell had contended that a term ought be implied into the TOR requiring FOS to act reasonably but this was rejected by the Court.
- One of the main grounds relied upon by Cromwell in its application was that the FOS process does not allow for a finding of proportionate liability and contribution and that the Radfords’ advisor, Garnaut, may bear some liability to the Radfords for their loss. The majority noted that the dispute had not yet been investigated by FOS and it was therefore unclear as to whether notions of proportionate liability would be taken into account. Further, they stated that in any event it would still be open to Cromwell to commence a proceeding for contribution against Garnaut for any liability that it may be exposed to in the FOS process under section 23B(4) of the Wrongs Act
- Cromwell also alleged that it would suffer prejudice from the process under the TOR because it could not compel third parties to produce documents nor cross-examine people. The Court of Appeal rejected this complaint and pointed to the contractual nature of the TOR process to which Cromwell had submitted itself.
- Cromwell also attacked the reasonableness of the FOS decision in not excluding the dispute under the TOR on the basis that Garnaut had a conflict of interest, as he was acting as the Radfords’ representative in the FOS dispute. The majority rejected this ground as a basis for saying that FOS had acted unreasonably in a Wednesbury
- Tate JA dissented, only on this last point, and held that Garnaut had a conflict of interest in acting for the Radfords in this dispute. This issue was aggravated by the fact that Garnaut could not be joined as a party to the process under the TOR and could not be subject to cross-examination and orders for the production of documents. Her Honour concluded that that the limitations of the FOS process rendered it unreasonable not to conclude that a court would be a more appropriate forum for this particular dispute.