AFS licensees are increasingly becoming annoyed and concerned by the external dispute resolution process.  Until recently, a licensee aggrieved by a Financial Ombudsman Service Ltd ("FOS") decision might have considered seeking judicial review of that decision.  However, a recent Victorian decision casts doubt on the reviewability of FOS decisions.

What is judicial review?

Where a public (i.e. governmental) body makes a decision of an administrative nature, a person aggrieved by that decision can ask the Court to review the decision.  In reviewing the decision, the Court will consider whether or not the decision-maker respected the boundaries of the powers and functions formally assigned to them.  This process is known as "judicial review".

What kinds of decisions are judicially reviewable?

Judicial review is, as a general rule, only available where there is an exercise of public power (i.e. power which is in the hands of, or associated with, the executive arm of government).  Decisions made by private bodies are not susceptible to judicial review and individuals aggrieved by decisions made by private bodies are forced to rely on remedies under private law.  

There is, however, some English case law which suggests that judicial review may extend to decisions made by private organisations.  In R v Panel on Take-overs and Mergers, Ex parte Datafin plc [1987] QB 815 ("Datafin") the English Court of Appeal held that, although the Panel of Take-overs and Mergers was a private organisation, decisions of the Panel were susceptible to judicial review on the basis that:

Modern government practices (particularly the processes of outsourcing, corporatisation and privatisation) raise significant new difficulties for the practice of judicial review.  The Datafin principle supports the idea that some private organisations operate in a public law context, making judicial review appropriate.

It is currently unclear whether or not Datafin applies in Australia.

Are FOS decisions judicially reviewable?

FOS is a private company which derives its jurisdiction from a contract with its members (i.e. the applicable FOS Terms of Reference).  Being a private organisation, there has always been some question as to whether or not decisions of FOS may be subject to judicial review.

In Masu Financial Management Pty Ltd v Financial Industry Complaints Service Ltd (No 2) [2004] NSWSC 829, the Supreme Court of New South Wales held that the Financial Industry Complaints Service Ltd (the predecessor to FOS) exercised powers of a public nature and, although it was a private organisation, its decisions were open to judicial review.  Shaw J held that, "companies administering external complaints schemes concerning participants in the finance industry are judicially reviewable" (para 5).

In reaching a conclusion, his Honour noted (at para 7) that:

More recently, however, the Victorian Supreme Court of Appeal held that decisions of FOS cannot be subject to judicial review.  In Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185 the Court agreed that the Datafin principle was "appealing" (para 31).  However, the Court held that FOS exercises only private law functions, and the fact that FOS was created to fulfil a statutory purpose was insufficient to support the conclusion that FOS operated in a public law context. 

The Court stated (at para 32) that:

Taken at its widest, it is doubtful that the [Datafin] principle has any application in relation to contractually based decisions and, even if it does, we agree with the [trial] judge that the public interest evident in having a mechanism for private dispute resolution of insurance claims of the kind mandated by s 912A [of the Corporations Act 2001] is insufficient to sustain the conclusion that FOS was exercising a public duty or a function involving a public element in circumstances where FOS' jurisdiction was consensually invoked by the parties to a complaint.

As a result, it is unclear whether or not decisions of FOS are judicially reviewable.  However, on the latest authority, it would appear that they are not.  In the Mickovski case the Court acknowledged that FOS erred in making its decision, but the Court was still unable to review that decision, overturn the decision or make a new decision.  Currently, FOS can award up to $280,000 per claim.  Where there are multiple claims, the remedy (and therefore the potential consequences of a wrong decision) can be very substantial.

What if FOS breaches its Terms of Reference?

In the Mickovski case, the applicable FOS Terms of Reference provided:

If a party to the complaint objects to the decision of the delegate, that objection will be considered either by the Investments, Life Insurance & Superannuation Ombudsman or by a different delegate of the Investments, Life Insurance & Superannuation Ombudsman ("the second delegate") of equal or greater seniority to the original delegate.  If the Investments, Life Insurance & Superannuation Ombudsman or the second delegate is satisfied the party's objection has substance, he or she will refer the decision to a Panel Chair for review, whose decision on the issue will be final.

(our emphasis)

The Court held (at para 40) that the effect of the word "final" was to preclude a review of the Panel Chair's decision.  According to the decision in Mickovski, an AFS licensee is unable to challenge a decision of the FOS Panel Chair on the basis that FOS failed to observe its Terms of Reference.  The decision of the Panel Chair will be final, irrespective of whether the decision-maker erred in making the decision.

Required Action

Since there appears to be no right of appeal, and now no apparent right to judicial review of a FOS decision, it is critical that responses and submissions to FOS in relation to a "dispute" are comprehensive and technically correct.  There is no ability to review or change a determination after one has been made by FOS.  You should ensure that your FOS and COSL disputes are handled by an experienced firm of solicitors with a strong practical knowledge of the financial services industry and a sound practical knowledge of FOS and COSL policies, practices and procedures.

For a copy of any of the cases referred to in this article, please contact any of us.