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  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.
- 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applied to the relevant period described in the Pioneer Credit Acquisition Service Pty Ltd (Pioneer) decision have been superseded, but some important comments on FOS' powers and obligations can still be made.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.
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.