Plaintiff v Defendant

2 In early April 2009, Pioneer purchased about 2000 credit card debts ('Acquired Debts'). Those debts originated in the United Kingdom with the debtors predominantly having been customers of Barclays Bank. A few months later, Pioneer became a member of Financial Ombudsman Services Limited ('FOS'). FOS is a public company which operates an external dispute resolution scheme approved by ASIC.[1] In broad terms, the scheme operated by FOS enables individuals and small business clients to make a complaint against the member in relation to certain matters. If the matter falls within its jurisdiction, FOS may proceed to resolve the dispute in accordance with its Terms of Reference ('TOR') and Constitution as they apply from time to time. It does this by facilitating settlement discussions between the member and the complainant, by making recommendations and, in some cases, binding determinations as to what must be done to resolve the dispute. Its determinations are binding on the member if the complainant elects to accept the determination made by FOS. The member must pay fees for the service operated by FOS.

3 Pioneer is no longer a member of FOS. FOS claims that Pioneer owes it outstanding fees of $112,419.27. It also claims interest on that amount. Pioneer has counterclaimed alleging that it terminated its membership, because FOS breached four fundamental terms of the contract between them. Pioneer seeks damages from FOS.

4 The Constitution of FOS and the applicable TOR governed the contractual relationship between Pioneer and FOS. The 2008 TOR applied to disputes that arose before 1 January 2010. Thereafter, the 2010 TOR applied. I will refer to the contract between FOS and Pioneer as the 'Membership Contract' and later in this section will describe the terms in that contract which are relevant to the issues in dispute. Before doing so, I will describe the process that applies under the Membership Contract when a complaint is made to FOS.

5 The Ombudsman is appointed by the directors of FOS. His[2] principal powers and duties are to consider disputes within the TOR and to facilitate the resolution of those disputes. The aim of the service provided by FOS is to provide an independent and prompt resolution of disputes having regard to law, applicable industry codes or guidelines, good industry practice and fairness in all the circumstances. The Ombudsman can consider a dispute which relates to any act or omission by a member in relation to a financial service in Australia or relating to confidentiality and privacy. The Ombudsman is required to provide reports and recommendations to regulators (including ASIC).

6 Under the 2008 TOR, the Ombudsman established a procedure in which the first step was for its case managers to make written findings about the merits of disputes ('Finding'). Among other things, a Finding set out the case manager's analysis of the case and conclusion about how the matter should be resolved. Neither the member nor the person who lodged the complaint ('Disputant') was bound to accept the case manager's Finding. They were entitled to respond, provide further information and explain why the views expressed in the Finding were wrong. If the parties did not accept the Finding, then the next step in the process was for the Ombudsman to make a written recommendation ('Recommendation'). The Recommendation is not binding on either party unless they both accept it. In the event that the member does not accept the Recommendation but the Disputant does, the next step in the process is a written determination by the Ombudsman ('Determination'). If Disputants accept Determinations in full and final settlement of the dispute, then they are binding on them and on the member. Under the 2010 TOR, the Ombudsman's process was streamlined and the first step of making a Finding was omitted. The process of making Recommendations and Determinations continued under the 2010 TOR.

7 Turning then to the particular terms of the Membership Contract relevant to the dispute between FOS and Pioneer. Under the Constitution, Pioneer was required to pay FOS fees for dealing with complaints that were made against Pioneer by Disputants.[3]

8 Clause 5.1(c) of the 2008 TOR provided that the Ombudsman could not consider a dispute:

if a dispute is based on the same event and facts and with the same disputant as any matter which is, was, or becomes, the subject of any proceedings in any court, tribunal, arbitrator, or independent conciliation body or an investigation by a statutory Ombudsman of any jurisdiction unless the parties consent;

The Ombudsman may, however, in the Ombudsman's discretion, consider a dispute based on the same event and facts which was the subject of a dispute lodged with the [Banking Financial Services Ombudsman].

9 In addition to the express terms of the Membership Contract, Pioneer submitted that there are implied terms which FOS breached. They are that the Ombudsman must:

(a) correctly decide a question of law which it is required to decide;

(b) not act as the equivalent to a court or hear and determine the dispute as if it was a legal proceeding but restrict its concern to the resolution of consumer disputes;

(c) in exercising a power or making a decision, not do so in a manner which no reasonable tribunal could properly come to on the evidence.[4]

10 From about July to 31 December 2009, FOS received complaints from 10 Disputants concerning Pioneer's attempts to recover some of the Acquired Debts from Australian residents. The Acquired Debts were governed by the Consumer Credit Act 1974 (UK). The complaints went to the question of whether Pioneer had complied with ASIC's Debt Collection Guide and whether Pioneer had breached the Privacy Act 1988 (Cth) and the Credit Reporting Code of Conduct by listing defaults on the Disputants' consumer credit files. The consumer credit files were managed by a credit information agency, Veda Advantage Limited ('Veda').

Did FOS breach clause 5.1(c) of the Membership Contract?

11 Pioneer alleges that FOS considered and continued to consider complaints lodged by Ms Lyndal Wade and Mr Joseph Hart in circumstances where the same event and facts were or had been the subject of legal proceedings in the Magistrates' Court in Perth. Accordingly, Pioneer contends, FOS breached cl 5.1(c) of the 2008 TOR.[5]

12 In late July 2009, Ms Wade made a complaint to FOS. Ms Wade acknowledged that there may be a debt, but disputed the amount. She complained that a credit default listing had been made when she disputed the debt and suggested that this was contrary to ASIC's guidelines. On 25 September 2009, Mr John of Pioneer called FOS, as the debt alleged to be owed by Ms Wade would become statute barred in November 2009. He asked what action Pioneer could take to protect its position and suggested that Pioneer could issue a proceeding, with the consent of FOS, but not serve the proceeding until after FOS had closed its file in relation to the dispute. FOS consented to Pioneer filing the proceeding provided that it did not serve the proceeding before FOS closed its file and that it discontinue the proceeding in the event that FOS found that Pioneer was not entitled to recover the debt. Pioneer commenced a proceeding against Ms Wade in the Perth Magistrates' Court on 30 September 2009. On 4 February 2010, Ms Jillian Brewer, who held the position of Legal Counsel with FOS, issued a Finding in respect of the dispute between Ms Wade and Pioneer.

13 On 4 December 2009, Mr Hart made a complaint about Pioneer's conduct to FOS. A week later, Pioneer contacted FOS to seek consent to commence proceedings against Mr Hart because the claim for the debt alleged to be owed by him would become statute barred on 12 January 2010. As outlined above, FOS had provided its consent to the commencement of proceedings against Ms Wade on the basis that those proceedings would not be served on her whilst the dispute was before FOS. Shortly after it did that, FOS came to learn that once proceedings were issued, and regardless of whether they were served on the defendant, an automatic credit default listing was made by Veda. FOS also learned that Veda would not remove the listing unless a defence was filed or the proceeding was struck out. Taking that and other matters into account, FOS refused to consent to the commencement of proceedings by Pioneer against Mr Hart. Nevertheless, on 7 January 2010, Pioneer commenced a proceeding against Mr Hart in the Perth Magistrates' Court. On 25 January 2010, Ms Brewer issued a Finding in respect of the dispute between Mr Hart and Pioneer.

14 Pioneer submitted that once it began the Magistrates' Court proceedings, FOS ceased to have jurisdiction to consider the disputes with Ms Wade and Mr Hart because of the effect of cl 5.1(c) of the 2008 TOR.

15 At the time that the Membership Contract was entered into, Pioneer voluntarily complied with guidelines produced by ASIC and the ACCC[6] ('ASIC Guidelines'). The ASIC Guidelines observed that many creditor organisations belong to an independent external dispute resolution scheme. The ASIC Guidelines urged creditors to ensure that their systems and practices allow such schemes to work effectively. In particular, the ASIC Guidelines provided that:

collection activity relating to a dispute that has been referred to an [external dispute resolution] scheme must be suspended while the scheme considers the dispute.

Once a dispute has been lodged with us, the financial services provider should not commence legal proceedings before we have closed our file. To do so would defeat the purpose of the Scheme.

17 FOS argued that having regard to both sets of guidelines, the words 'or becomes, the subject of any proceedings' in cl 5.1(c) of the 2008 TOR could not be interpreted as permitting a member to commence proceedings after a dispute had been referred to FOS. To do so, FOS argued, would be absurd. Pioneer submitted that the guidelines conflict with the express terms of the Membership Contract. It observed that much can be drawn from the name of the documents - they are, at best, guidelines. They might represent best practice, they might set out the aspirations of a dispute resolution service, but they did not set out the contractual terms that bound FOS and Pioneer.

18 In my view, the correct approach is to construe the Membership Contract using an objective approach to ascertain the intention of the parties as they have expressed it (not their subjective intention).[7] As Mason J said in the oft quoted passage from Codelfa Construction Pty Ltd v State Rail Authority of NSW:[8]

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.[9]

19 Contracts will also be construed to avoid inconsistency or absurdity.[10]

20 In my opinion, it cannot have been the intention of the parties at the time that they entered into the Membership Contract that once a dispute was referred to FOS, a member, such as Pioneer, could defeat the purpose of the scheme by issuing proceedings. Such an outcome would be absurd. It would mean that at any stage a member could opt out of the alternative dispute resolution process that it had contracted to participate in. The whole purpose of the FOS scheme is to provide 'an accessible alternative to other remedies, such as court proceedings, for people and businesses who use financial services'. On a proper construction of the Membership Contract, cl 5.1(c) cannot mean that members are free to issue court proceedings at any time regardless of the referral of the dispute to FOS. Rather, it seems to me that cl 5.1(c) does not prevent FOS from continuing to deal with a dispute if proceedings are commenced by the member. It may be that if FOS gave its unconditional consent to the commencement of proceedings by the member, that FOS could no longer consider the dispute. In that sense, the words 'or becomes, the subject of any proceeding' may be apt. But so far as concerns the proceedings brought by Pioneer against Ms Wade and Mr Hart after their complaints were lodged, cl 5.1(c) did not have the effect of preventing further consideration of those disputes by FOS. The consent that FOS gave to the commencement of proceedings against Ms Wade was conditional on the proceedings not being served until FOS closed its file and that Pioneer discontinue the proceeding in the event that FOS found in favour of Ms Wade. No consent was given to the commencement of the proceeding against Mr Hart.

21 In arriving at the conclusion that I have as to the proper construction of cl 5.1(c), it is not necessary to take into account the ASIC Guidelines or the guidelines of FOS. Rather, the proper construction of the clause comes from considering it in the context of the whole of the Membership Contract, including the purpose of the scheme as disclosed in the contract.

22 In my opinion, FOS was entitled to continue to deal with the complaints by Ms Wade and Mr Hart and did not breach the Membership Contract by doing so.

Is there an implied term that FOS must correctly decide questions of law?

23 Ms Brewer's Findings in the Hart and Wade cases included her view that the debts claimed by Pioneer were unenforceable in Australia. The same conclusion was reached by FOS case managers in relation to separate but similar complaints made by Mr Jonathan Moss and Ms Samantha Richards in relation to recovery by Pioneer.

24 Pioneer submitted that before these Findings were made, FOS decided a point of law, being that the debts were unenforceable in Australian courts which it then applied to its consideration of the complaints by each of these Disputants. In so doing, Pioneer argued that FOS was obliged to correctly decide that point. It submitted that a term is to be implied into the Membership Contract that FOS must correctly decide questions of law. Pioneer relied on Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd[11] ('Cromwell'). Cromwell claimed that FOS was in breach of the membership contract between them. Clause 5.2 of the 2012 TOR empowered FOS to refuse to consider a referred dispute if FOS considered this course of action appropriate, for example, because there is a more appropriate place to deal with the dispute, such as a court. FOS refused to invoke that power in respect of a dispute between Cromwell and the Radfords about alleged inadequacies, nondisclosures and misrepresentations by Cromwell in relation to investment products. Cromwell had applied to FOS to have the dispute excluded on the basis that a court was a more appropriate forum for the determination of the dispute. Among other things, Digby J held that FOS was required to decide correctly any question of law in relation to the meaning of a law which it is the function of FOS to interpret unless the decision was 'final'.[12] In this regard, Digby J observed that FOS is not likely to be required to decide a question of law because 'FOS is only required to have regard to ... legal principles as a component of all the circumstances, rather than applying the law to its letter'.[13]

25 Pioneer submitted that FOS did not decide the question of law in the current case correctly and perpetuated that error by prejudging complaints in favour of Disputants against the interests of Pioneer. It says that having made an error of law, FOS was in breach of the Membership Contract. Consequently it submitted that it was entitled to terminate the Membership Contract and did so by letter of 4 January 2010, about which I will say more later in these reasons. In addition, Pioneer contended that after that date, FOS threatened to report Pioneer to ASIC without a proper basis for doing so unless Pioneer agreed to forgo its claims against the Disputants and agreed to pay fees to FOS.

26 FOS submitted that no term as contended for by Pioneer is to be implied into the Membership Contract. It submitted that such a term would be contrary to the express terms of the contract. It pointed to cls 1.3, 6.7 and 7.1 of the 2008 TOR.[14] Clause 1.3 provides that the aim of the scheme operated by FOS is to provide an independent and prompt resolution of disputes having regard to law, applicable industry codes or guidelines, good industry practice and fairness in all the circumstances. Clause 7.1 provides that when making a Determination, the Ombudsman must take those matters into account. Clause 6.7 provides that the Ombudsman is not bound by any legal rule of evidence. Nevertheless, FOS accepted that, as a matter of law, its Determinations may be challenged on the basis of an error of law were that error to arise in relation to the meaning of a law which it is the function of FOS to interpret.

27 FOS submitted that if Ms Brewer and the FOS case managers did make an error of law in making their Findings, it was of no consequence because the Findings were not binding on either party and there was a process for internal review after further submissions from Pioneer. Any review by a court would be limited to review of the final decision made by FOS; that is the Determination of the Ombudsman. FOS submitted that the review of that Determination would be limited to a situation where there was fraud or dishonesty or lack of good faith or it was otherwise apparent that the determination had not been carried out in accordance with the Membership Contract.[15]

28 In any event, FOS submitted that Ms Brewer and the FOS case managers had made no error of law. It contended that their Findings that the Acquired Debts were not enforceable in Australia were correct although their reasoning for that conclusion was wrong. In this regard, FOS relied on the advice of Senior Counsel who had been retained by FOS and on advice that Pioneer obtained from separate Senior Counsel.

29 In my opinion, there is no implied term such as that contended for by Pioneer and thus no breach of the Membership Contract. For a term to be implied into a contract the following conditions (which may overlap) must be satisfied:

(b) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c) it must be so obvious that 'it goes without saying';

(e) it must not contradict any express term of the contract.[16]

30 It is clear from the terms of the Membership Contract that I have referred to above that FOS is only required to have regard to applicable legal principles. It is also clear that that is only one of the matters to be taken into account. Therefore, it cannot be that FOS is required to apply legal principles to the exclusion of all else, nor that it will be in breach of the Membership Contract should it fail to apply the law strictly. Moreover, it cannot be that such a contractual obligation could be imposed on FOS at the level of Findings by case managers. The whole scheme operated by FOS proceeded on the basis that there would be a system of review after Findings were made by case managers and that both the Disputant and the member would be entitled to make further submissions to FOS before the Recommendation and Determination stages of the process. It is implicit in that structure that case managers may get things wrong and, after further information is provided by the parties, the Ombudsman may make a Recommendation and later Determination that differs from the original Findings. It is the Determination that may be the subject of review. It is not necessary to decide, in this case, whether it is susceptible of review, nor is it necessary to determine the scope of any such review and I do not propose to say anything about those matters. Given the conclusion which I have reached, it is also not necessary to determine whether the Findings made by Ms Brewer and the case managers were correct, but for the wrong reasons. As the enforceability of debts which have originated overseas may be an issue in dispute in other proceedings, I will say no more about it.

Is there an implied term that FOS must restrict its concern to the resolution of consumer disputes and not act as the equivalent of a court?

31 Pioneer contended that there is an implied term in the Membership Contract that FOS should not act as a court. In this regard it relied on the decision in Wealthcare Financial Planning Pty Ltd v Financial Industry Complaints Service Ltd.[17] The defendant ('FICS') conducted a dispute resolution scheme. Two investors lodged a complaint against Wealthcare with FICS. FICS found fault on the part of Wealthcare, including that Wealthcare had breached provisions of the Corporations Act 2001 (Cth). FICS determined that Wealthcare should pay $65,545 plus interest to the investors on certain conditions. Wealthcare brought a proceeding against FICS seeking (among other things) a declaration that the determination by FICS breached the constitution and rules of FICS and was of no force or effect. The allegation was that FICS erred by failing to apply principles of proportionate liability in determining the investors' complaint. The Court held that the proceeding should be dismissed because FICS was not obliged to apply principles of proportionate liability in determining the complaint. Cavanough J described the role of FICS in the following terms:

The role of a FICS panel is not equivalent to that of a court. It is not established to hear and determine legal proceedings. For constitutional reasons it could not be so established. FICS, as its name suggests, entertains complaints, rather than causes of action. It conducts an industry based scheme for the resolution of consumer disputes. It offers opportunities for investigation, negotiation and conciliation, as well as for the making of determinations by appointed adjudicators and by appointed panels. The general nature of such schemes is helpfully reviewed in a recent article by O'Shea and Rickett. Having referred to the FICS scheme in particular, the learned authors point out that the various schemes differ in significant ways from courts:

They are less concerned with the articulation and determination of legal rights than with the simple resolution of disputes.

Decisions under the schemes create new rights and obligations rather than declare existing ones. There is no power to order discovery of documents or to subpoena witnesses. Enforcement of scheme decisions is "not directly sanctioned by the state. No bailiff will execute a warrant issued by an industry-based dispute resolution scheme".[18]

32 Pioneer submitted that FOS had purported to act as the equivalent of a court. Consequently, Pioneer argued that FOS did not have jurisdiction because it was not entitled to act as a court. It focussed on the assessment by Ms Brewer and the case managers that the Acquired Debts were unenforceable in Australia. In effect, Pioneer argued that making such a decision was not something within the remit of FOS but rather was within the purview of the courts alone.

33 To establish that FOS acted as a court, Pioneer pointed to the evidence of Mr Philip Field. At the relevant time, Mr Field was the Lead Ombudsman - Banking & Finance for FOS. He gave evidence that:

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.

34 Pioneer also suggested that another indicator that FOS had acted as an equivalent of a court was that FOS had decided that it had jurisdiction to determine whether or not the Acquired Debts were enforceable in Australia. It referred to an email of 11 December 2009 from Ms Brewer to Pioneer which in part read:

Ms Wade's claim is that the debt collection activity engaged in breached the Guideline issued by the Australian Securities and Investment Commission and the Australian Consumer and Competition Commission. These are matters that the Financial Ombudsman Service can investigate and the fact that payment has been made does not remove a dispute from the Ombudsman's jurisdiction.

A necessary part of the investigation will be the issues of assignment, credit reporting, the governing law of the credit contract purchased by [Pioneer] and whether enforcement proceedings can be heard in any Australian courts.

35 In my view, no term is implied into the contract as contended for by Pioneer. What was said by Cavanough J in Wealthcare[19] is not about an implied term. Rather, his Honour was describing the nature and role of a dispute resolution body like FOS. Indeed, in Wealthcare,[20] FICS had considered whether the conduct of Wealthcare breached the Corporations Act. No criticism was made of it having done so. That is analogous to what FOS did in the present case. It had before it disputes which in part involved consideration of the enforceability of the Acquired Debts. The express provisions of the Membership Contract required FOS to have regard to law in resolving the dispute as well as to other matters. No term would be implied into the Membership Contract that was contrary to that express term.

36 In any event, FOS did not act as the equivalent of a court. All that Ms Brewer and the case managers did was take into account what they perceived to be the relevant legal principles in making Findings about the merits of the disputes. Unlike a court, those Findings were not binding on either the Disputants or Pioneer unless accepted by both of them. As I have said, there was an opportunity to respond to the Findings, to provide further information and to explain why the views expressed in the Findings were wrong. Instead of adopting that course, Pioneer settled the disputes.

Is there an implied term that FOS must not exercise a power, or make a decision, in a manner which no reasonable tribunal could properly come to on the evidence?

37 In relation to this issue, Pioneer relied on Cromwell.[21] In that case, Digby J held that the relevant decision by FOS 'must not be so unreasonable that it is not open to a reasonable decision maker'.[22] This is sometimes referred to as 'Wednesbury unreasonableness'. In arriving at the conclusion that that was the appropriate standard, his Honour said:

In the absence of clear language, a contract should not be construed as permitting a more generous scope of court review of a contractual discretionary decisionmaking power than the scope of review that would apply on appeal if the power were exercised by a court. It follows that the test of reasonableness on review of a FOS decision must be at least as deferential to the decisionmaker as the House v The King test. The House v The King test is, in turn, closely related to the Wednesbury standard.[23]

38 House v The King[24] was a decision concerning the role of an appellate court in considering an appeal from a discretionary decision. The High Court held:

It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.[25]

39 Whilst Digby J spoke about the principle in House v The King,[26] his Honour was clearly of the view that the test of Wednesbury unreasonableness applied to decisions of FOS. His Honour felt that he was bound to apply that test.[27]

40 Digby J concluded that FOS was required to take into account considerations made relevant by cl 5.2 of the TOR,[28] but that it would not be sufficient to impugn the decision of FOS if FOS applied a construction of that clause that was arguably wrong.[29]

41 FOS accepted that its decisions could be challenged where the decision is one to which no reasonable tribunal could properly come on the evidence; that is, it is subject to the test of Wednesbury unreasonableness.

42 In its closing submissions, Pioneer drew attention to the reference to the passage that I have set out above from Cromwell[30] and Digby J's reference to House v The King.[31] Relying on that authority, Pioneer submitted that in arriving at the decision in the Hart case to refuse consent to the commencement of proceedings by Pioneer when the debt it sought to recover was about to become statute barred, FOS took into account extraneous or irrelevant matters.

43 The Chief Ombudsman wrote to Mr John on 23 December 2009, and on the issue of commencement of proceedings by a member said:

As you are aware, once a dispute has been lodged with FOS, the financial services provider should not commence legal proceedings before we have closed our file. To do so would be contrary to the purpose of our service as an alternative to the courts.

In very limited circumstances, we may agree to proceedings being issued if the debt is likely to become statute barred during our consideration of the dispute. Whilst FOS agreed to legal proceedings being issued (and no further steps in the proceedings being taken) in case 109747 [the Wade dispute], the disputant's credit file has been adversely affected. Given the severe consequences for a disputant of an adverse listing on their credit file, no further consent to issue legal proceedings will be provided by FOS until a decision has been reached in relation to enforceability of the debts in Australia.

44 Mr Field gave evidence that in deciding whether to permit proceedings to be issued, FOS weighed up the possibility of the claim being statute barred against the fact that if proceedings were issued, they would be listed on the Disputant's credit file with Veda in circumstances where FOS was dealing with the dispute which had as a central issue whether the alleged debt had been appropriately credit listed in the first place. Mr Field's evidence is consistent with a letter that he sent to ASIC on 10 February 2010. The letter read in part:

On 8 December 2009, FOS received a dispute from Mr Joseph Hart about debt collection activity undertaken by [Pioneer]. [Pioneer] was notified of the dispute on 9 December 2009 and the dispute referred to it by mail on 11 December 2009.

On 11 December 2009, [Pioneer] requested the consent of FOS by telephone to commence legal proceedings against Mr Hart, pending investigation of the dispute. This request was seriously considered by FOS given the consequences of the [Pioneer] debt becoming statute barred while our file remained open. FOS withheld consent taking into account a number of considerations, including that the debt claimed by [Pioneer] refers to a consumer credit contract regulated by the Consumer Credit Act 1974 (UK) which provides that enforcement proceedings may only be commenced in courts in that jurisdiction.

FOS had become aware from another dispute lodged with us concerning [Pioneer], that where [Pioneer] commenced legal proceedings in a Western Australian court details of the Writ and Summons are noted on the disputant's consumer credit file for a period of five years unless the disputant submits to the court's jurisdiction by entering a notice of intention to defend. Taking into account FOS' view that the court in question appeared to have no jurisdiction, it was the view of this office that the consequences of commencing legal proceedings would be unduly harsh on the disputant.

45 Pioneer submitted that FOS had predetermined its view that Australian courts did not have jurisdiction to hear a case involving the Acquired Debts. In this regard, it relied on an email that Ms Brewer sent to Mr Field on 2 December 2009:

If we are going to allow fsps to commence legal proceedings while we are considering a case, we need to bear in mind that the WA courts (and maybe others) will fire off notifications to Veda and D won't be able to do a thing about it, because D won't have been served (Veda will only remove a listing if D files a defence or the court sets the matter aside.

In this case, I think we've let D down rather, by allowing Pioneer to start proceedings which it almost certainly had no chance of succeeding with (I'd put it in the abuse of process class) and lumbering her with this.

46 Ms Brewer was not crossexamined about this email.

47 The following day, Ms Brewer sent a further email to Mr Field and others. She stated:

Assuming [Pioneer] get back to me by 21 December with the information I've asked for ..., I can put together a finding and probably get it out before the end of the year. I need to see if there is any way a creditor can have an Australian court hear a case about a contract governed by the Consumer Credit Act (UK). Given the fact that the Act says that the only court that can hear cases is the county court in England, I doubt it, but I need to do some research.

48 Ms Brewer's evidence was that she had not formed a concluded view about the issue and had not predetermined it. That evidence is consistent with the contemporaneous documents when both the emails of 2 and 3 December 2009 are read together. It is clear that Ms Brewer had a reasonably strong preliminary view that Australian courts did not have jurisdiction, but she observed that she would need to wait for information from Pioneer and do further work before concluding her view on the topic. Therefore, I do not think that Pioneer has made out its allegation that FOS had predetermined its view about jurisdiction.

49 In my view, FOS was required to exercise the discretion reasonably when refusing to consent to the commencement of proceedings. The concept of reasonableness in exercising a discretion and how the statement from Wednesbury is to be understood was explained in Minister for Immigration and Citizenship v Li[32] ('Li'). The exercise of the discretion must not be arbitrary, vague or fanciful.[33] As the plurality said, the 'legal standard of reasonableness does not involve substituting a court's view as to how a discretion should be exercised for that of a decision-maker'.[34] The plurality observed that the Wednesbury formulation of the applicable test has been criticised for being circular.[35] The plurality suggested that the test proposed by Lord Russell of Killowen CJ in Kruse v Johnson[36] may avoid some of the circularity of Wednesbury unreasonableness. In that case, Lord Russell was of the opinion that unreasonableness was found where delegated laws were:

partial and unequal in their operation as between different classes; if they were manifestly unjust; if they disclosed bad faith; [or] if they involved such oppressive or gratuitous interference with the rights of those subject to them as could find no justification in the minds of reasonable men.[37]

50 It seems to me that FOS did exercise its discretion reasonably when it refused its consent to the commencement of proceedings. As Mr Field made clear, the decision was carefully taken after weighing up a number of factors, including the likelihood of the debts becoming statute barred. In particular, account was taken of the fact that the dispute concerned the very consequence which would flow from the commencement of proceedings; that is, the credit default listing. That was a serious matter for the individuals concerned. On the other hand, FOS also took into account the serious consequences for Pioneer should it not be able to recover its debt if the claim was statute barred. In my opinion, FOS having weighed up the consequences for both Pioneer and the Disputants, the decision that it arrived at was reasonable in the way that concept has been explained by the High Court in Li.[38]

51 As I have determined that FOS did not breach the Membership Contract, it is not necessary to deal with the question of any loss suffered by Pioneer as a result. Nevertheless, in case I am wrong, I would indicate that I would not have accepted the submissions of Pioneer that it suffered loss as a result of the conduct of FOS. Pioneer contended that it settled outstanding disputes at a loss of $174,141.62 and paid compensation of $3000. It also claimed loss of $80,855.82 for legal fees and other expenses in dealing with FOS in the course of the complaint process. Finally, Pioneer sought relief from any amounts owing on invoices issued by FOS for work performed after 4 January 2010. In closing submissions, Pioneer conceded that it was not entitled to the whole of the amount claimed although it did not specify a figure for the reduced amount it claimed.

52 Pioneer's damages case rested on an assertion that it had felt compelled to settle claims with Disputants to avoid FOS reporting it to ASIC, because soon after it would be required to be licensed by ASIC to operate its business. However, Mr John was unaware of the need to have a licence until after Pioneer had settled with eight of the Disputants. After Pioneer had obtained its licence, it settled with a further eight Disputants. There is simply no connection between the alleged breaches of the Membership Contract and the loss associated with these settlements which was said to have arisen from the breaches. It is far more likely that the settlements were entered into for commercial reasons. The evidence given by Pioneer's witnesses was consistent with this. Sometimes the amount involved meant that it was cheaper to settle with the Disputant than to run the FOS process through to Determination and to pay the fees levied by FOS for doing that. Whilst there were seven settlements entered into by Pioneer with Disputants after it learned of the need to be licensed by ASIC and before the license was granted, it seems improbable to me that those settlements were entered into through any fear of a report by FOS to ASIC. Far more likely is that they were entered into for sound commercial reasons unconnected with anything that FOS had done or threatened to do.

If Pioneer was entitled to terminate the Membership Contract, did it do so?

53 Pioneer claimed that the alleged breaches of the Membership Contract amounted to a repudiation such that it was entitled to terminate the Membership Contract. Pioneer claims that it accepted the repudiation and terminated the Membership Contract by letter of 4 January 2010.[39] Given the conclusions which I have reached, it is not necessary to consider this point. However, in case I am wrong, I will briefly set out my views on this topic.

54 By letter of 21 December 2009, Pioneer's solicitors wrote to FOS giving notice that it intended to cease its membership of FOS. The solicitors observed that 12 months' notice of termination was required and requested that FOS agree to earlier termination. FOS responded to say that notice of termination also had to be provided to ASIC and that if that was done, Pioneer's request for early termination would be raised at a FOS board meeting. FOS pointed out that disputes that had already been lodged and any further complaints received before Pioneer's membership was terminated would continue to be dealt with in accordance with the Membership Contract. Pioneer then set on a strategy of forcing FOS to expel Pioneer from membership. From this time, Pioneer determined to stop paying invoices that it received from FOS for its services. Pioneer's solicitors wrote a letter of 4 January 2010 to FOS. It is this letter that Pioneer relies on as acceptance of the alleged repudiation of the Membership Contract by FOS. The letter stated that the failure by FOS to allow termination in a timely manner would force Pioneer to treat the behaviour of FOS as obstructive. The solicitors went on to say that Pioneer would not comply with any directions from the officers of FOS. The letter concluded:

As a result of your biased behaviour, as well as your breach and frustration of the contract with our client, our client no longer recognises you as its dispute provider and will not be responding to any further correspondence from you or paying any of your fees. Our client has advised the complainants directly of the withdrawal of its membership from your company.

55 Three days later, Pioneer began proceedings against Mr Hart in the Perth Magistrates' Court without the consent of FOS. A few days later, Pioneer's solicitors also wrote to FOS in relation to three complaints and stated that Pioneer would not be responding to further requests from FOS for information.

56 On 20 January 2010, FOS responded to the 4 January letter. Among other things, FOS observed that Pioneer remained a member for the 12month termination period unless the FOS board agreed to shorten that period. FOS also stated that it had written to Disputants to tell them that Pioneer was still a member of the service and that FOS would continue to handle their complaints. Pioneer then started to consider what legal avenues it could pursue against FOS and what strategy it should adopt. Pioneer's solicitors also sent correspondence to FOS, making various allegations about its conduct. Then Pioneer seems to have changed its approach. In a letter dated 3 February 2010, Mr John said:

I refer to the numerous pieces of correspondence between your office, mine and that of our solicitors Sphere Legal.

I have over the past few days reviewed that correspondence and it seems quiet [sic] clear that we have taken the wrong approach with your conciliation service and to that end I am personally assuming responsibility of matters currently under your review. Please advise your staff to update the contact details to reflect this.

To the extent that we, or our agents, have caused hardship to your service and staff please accept my sincerest apology.

In order for us to deal with the matters currently before you, and for your service to arbitrate the matters between the disputants and Pioneer Credit it would seem most appropriate for us to respond to your requests. [cb2485]

57 The doctrine of election between competing and inconsistent rights applies to defeat the right to terminate a contract after a binding election has been made between exercising that right and affirming the continued operation of the contract.[40] The doctrine rests upon the notion that it is unfair for one party to a transaction to adopt inconsistent positions in his or her dealings with another party.[41]

58 In my view, the letter of 4 January 2010 did not have the effect of terminating the Membership Contract. The alleged repudiatory conduct relied upon had all occurred before Pioneer's solicitors sent the letter of 23 December 2009. That letter had the effect of affirming the Membership Contract, because Pioneer sought to terminate the agreement by giving 12 months' notice. That is, Pioneer elected to exercise a right under the Membership Contract. That conduct is only consistent with the continued existence of the Membership Contract because it evidences that Pioneer considered itself bound by the agreement.[42] Pioneer accepted that it was only if the board of FOS agreed to early termination that the Membership Contract could come to an end immediately. The correspondence at this time was sent by Pioneer's solicitors, and there can be little doubt that Pioneer took the action it did with full knowledge that it was making a choice between two separate rights - to accept the repudiation and terminate, or to affirm the contract and terminate by notice.[43]

59 No new alleged breach of sufficient significance occurred between the date of that letter and the 4 January 2010 letter which could be characterised as further repudiatory conduct.[44]

60 Even if that is wrong, the letter of 3 February 2010 made it clear that Pioneer considered that the Membership Contract was still in place and operating. Certainly FOS treated the agreement as still on foot. In effect, Pioneer's letter acted as an offer to reinstate the Membership Contract (if it had been terminated by acceptance of repudiation) and treat it as having been operative throughout.[45] By continuing to deal with complaints, FOS is taken to have accepted the offer.

Is FOS entitled to be paid its outstanding fees?

61 Pioneer did not seek to attack the fees claimed by FOS should it fail in its counterclaim. FOS has been successful in its claim and is entitled to be paid those fees and interest.

62 FOS did not breach the Membership Contract. The contract was not terminated by Pioneer. Moreover, even if Pioneer was entitled to and did terminate the Membership Contract, I am not persuaded that it suffered any compensable loss as a result.

63 FOS is entitled to an order that Pioneer pay to it the sum of $112,419.27 plus interest. The counterclaim brought by Pioneer will be dismissed.

[1] Australian Securities and Investments Commission. See: Corporations Act 2001 (Cth) s 912A(2)(b)(i).

[2] A male Ombudsman held the position during the period relevant to the current dispute. For this reason, I will use the masculine gender to describe the Ombudsman.

[4] Pioneer also alleged that FOS had breached an implied term that it would act fairly and impartially without bias or prejudgment and that it would act without manifest error. Those parts of the counterclaim were not pressed by Pioneer in closing submissions, nor was its claim in negligence. It limited its claim to breach of the express term in cl 5.1(c) and the three implied terms for which it contended set out above.

[6] Australian Competition and Consumer Commission.

[7] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at 461-462; Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at 284 [98]. See also Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 and Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604.

[8] [1982] HCA 24; (1982) 149 CLR 337.

[10] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420.

[11] [2013] VSC 333.

[14] FOS relied on similar provisions in the 2010 TOR.

[15] Mickovski v Financial Ombudsman Service Limited [2012] VSCA 185 [41], [51].

[16] BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 283.

[17] [2009] VSC 7; (2009) 69 ACSR 418.

[18] Ibid 421 [7] (footnotes and citations omitted).

[19] [2009] VSC 7; (2009) 69 ACSR 418.

[20] [2009] VSC 7; (2009) 69 ACSR 418.

[21] [2013] VSC 333. See above [24].

[22] Ibid [36], [38], [49]-[62] the quoted words having come from Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1; [1948] 1 KB 223.

[24] [1936] HCA 40; (1936) 55 CLR 499.

[26] [1936] HCA 40; (1936) 55 CLR 499.

[27] [2013] VSC 333 [60]-[61] referring to Australian Football League v Carlton Football Club Ltd [1998] 2 VR 546 and Mickovski v Financial Ombudsman Service Limited [2012] VSCA 185 as the binding authorities.

[29] Ibid [76] relying on Australian Football League v Carlton Football Club Ltd [1998] 2 VR 546, 564.

[30] [2013] VSC 333.

[31] [1936] HCA 40; (1936) 55 CLR 499.

[32] [2013] HCA 18; (2013) 297 ALR 225.

[33] Ibid [65] (Hayne, Kiefel and Bell JJ).

[34] Ibid [66] (Hayne, Kiefel and Bell JJ).

[35] Ibid [68] (Hayne, Kiefel and Bell JJ).

[36] [1898] 2 QB 91.

[38] Ibid [23]-[30] (French CJ), [64]-[76] (Hayne, Kiefel and Bell JJ), [105]-[113] (Gageler J).

[39] In addition to the letter of 4 January 2010, Pioneer had originally also relied on an earlier letter of 21 December 2009. In closing submissions, it restricted its claim to the 4 January 2010 letter.

[40] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, 641.

[41] Oliver Ashworth (Holdings) Ltd v Ballard (Kent) Ltd [2000] Ch 12, 27.

[42] Carr v JA Berriman Pty Ltd [1953] HCA 31; (1950) 89 CLR 327, 348.

[43] Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, 642.

[44] Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444, 458-9.