Plaintiffs v First Defendant Second Defendant

11 Central to the plaintiffs' claim is a telephone conversation which occurred on 22 October 2014 between Dr Tonti-Filippini - the Ombudsman, and the relevant decision maker, from FOS - and Mr Ford ('the 22 October 2014 conversation'). I will return to this conversation in further detail.

1. Following submissions by the plaintiffs and ANZ, FOS issued a further written decision on 7 November 2014 ('November Jurisdictional Decision') excluding the dispute from its jurisdiction on the basis that the court was a more appropriate place to deal with the dispute. This decision was said to be made pursuant to FOS's general discretion as contained in clause 5.2(a) of the Terms of Reference.[2]
2. The plaintiffs' case is that the November Jurisdictional Decision is invalid by virtue of the 22 October 2014 conversation. The plaintiffs argued that that discussion revealed what was truly 'the materially operative reason' for the November Jurisdictional Decision, being a temporary staff shortage at FOS which meant that it did not have the resources to deal with the dispute. The plaintiffs said that this is not a valid reason in accordance with the Terms of Reference.
3. The plaintiffs, by their Originating Motion filed 14 November 2014, seek declaratory relief that the November Jurisdictional Decision is invalid.

15 The primary issue for determination is whether FOS exercised its discretion in accordance with the Terms of Reference. In my opinion it did for the following reasons:

(a) the Terms of Reference constitute the entire contract between the parties and the Operational Guidelines to the Terms of Reference dated 1 May 2012 ('the Operational Guidelines')[3] do not form part of that contract;

(b) FOS has a broad discretion to exclude disputes under the Terms of Reference which does not prevent FOS from taking into account staffing or resourcing issues;

(c) the November Jurisdictional Decision provides comprehensive, rational, cogent and persuasive reasons why FOS should exercise its discretion to exclude the dispute. There is nothing on the face of the November Jurisdictional Decision that would suggest the decision was infected by bad faith, bias or was so unreasonable that no other decision-maker could have arrived at that decision; and

(d) even if the Operational Guidelines form part of the Terms of Reference, the reasons set out in the November Jurisdictional Decision are in accordance with the Operational Guidelines as they are 'compelling'.

1. There is no dispute between the parties that the Terms of Reference constitute a tripartite contract. Therefore, FOS is governed and constrained by its contractual obligations.[4]
2. It is common ground that the court is not conducting a merits review of FOS's decision, nor is it acting in an administrative law capacity. This case purely centres around the construction of the Terms of Reference.
3. The issue is whether the November Jurisdictional Decision was made in accordance with the Terms of Reference. That is, was it in accordance with the contract between the parties?

What constitutes the contract between the parties?

19 The Terms of Reference constitute the contract between the parties. The plaintiffs argued that the Operational Guidelines, which require FOS to have a 'compelling reason' for excluding a dispute, also form part of the tripartite contract. Therefore, a threshold issue is whether the contract between the parties includes the Operational Guidelines.

20 The plaintiffs submitted that the Operational Guidelines contain binding obligations which are incorporated into the contractual arrangements between the parties by reference pursuant to clause 1.3(b) of the Terms of Reference.

21 Clause 1.3(b) of the Terms of Reference provides:

(b) the Operational Guidelines to the Terms of Reference are intended to assist understanding of the Terms of Reference and to provide further detail as to how FOS will resolve Disputes.

22 The plaintiffs said that FOS is obliged to have regard to and to act consistently with the Operational Guidelines, as a matter of contract. Specifically, the plaintiffs submitted that FOS failed to comply with the obligations imposed by the Operational Guidelines which provide that FOS only exclude a dispute if there is a 'compelling reason' to conclude that it is not the appropriate forum.[5]

23 Alternatively, the plaintiffs submitted that the Operational Guidelines are an aid to interpretation of the Terms of Reference.

24 ANZ submitted that as a matter of plain construction, the Operational Guidelines do not form part of, nor are they incorporated expressly into, the Terms of Reference. ANZ also relied on clause 1.3(b) of the Terms of Reference in support of this contrary proposition.

25 FOS submitted that the Operational Guidelines were for guidance only, akin to a practice note to court rules.

26 Whether or not the Operational Guidelines are incorporated into the contract is a matter of contractual construction.

27 The opening words of the Operational Guidelines under the heading 'How to use this document' are:

Welcome to the Operational Guidelines (OG) to the Terms of Reference (TOR). This document is intended to assist users in understanding how the new TOR operate in practice, and to help users gauge for themselves how their financial matters may be handled at the Financial Ombudsman Service (FOS).

28 The introduction in the Operational Guidelines states that:

These Operational Guidelines (OG) are designed to assist users of the Scheme to understand how the new TOR operate in practice and to help users assess for themselves how matters may be handled and considered at FOS. Our aim is to promote clarity in relation to our processes and our approach to certain types of matters, so that consumers and FSPs can use the Scheme with confidence.

The OG are a living document which may be amended and expanded from time to time to address points that emerge with the new TOR in operation and to take account of the industry developments and other changes including legislative amendments and new case law.[6]

29 In considering the relevance of the Operational Guidelines one must have regard to the plain and ordinary meaning of the terms in light of the contract as a whole. As Gibbs J held in Australian Broadcasting Commission v Australasian Performing Right Association:[7]

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them.

30 In Wealthsure Pty Ltd v Financial Ombudsman Services Ltd,[8] FOS determined that the dispute in question comprised three claims, each the subject of a separate compensation cap of $150,000. Wealthsure challenged this and contended that what FOS did amounted to claim-splitting because there was only one claim and it alone was subject to the compensation cap of $150,000. Wealthsure said that FOS was obliged to determine the dispute on that basis. The Court was not asked to resolve the dispute, that being the province of FOS.

31 Gilmour J observed that FOS's procedures for resolving disputes are contained in the Terms of Reference. His Honour also noted that there were Operational Guidelines to the Terms of Reference 'which are intended to assist the understanding of the TOR and to provide further detail as to how FOS will resolve disputes'.[9] These words mirror those in clause 1.3(b) of the Terms of Reference under consideration in this case. In the course of his decision, his Honour stated that: '[t]he relationship between Wealthsure and FOS is contractual. The Operational Guidelines are incorporated into the contract between the parties'.[10]

32 It does not appear from the decision that there were any submissions before his Honour regarding whether the Operational Guidelines were incorporated into the Terms of Reference.

33 There is no discussion or analysis on the face of his Honour's judgment as to the construction of clause 1.3(b) beyond his Honour's statement referred to above. Accordingly, it is difficult to determine at this distance the basis upon which his Honour's finding was made.

34 With respect, for the following reasons, I take a different view to his Honour.

35 There is no doubt that the Operational Guidelines provide further information to the reader in relation to FOS's approach and practices under the Terms of Reference. That is the utility of the document.

36 The Operational Guidelines are not incorporated expressly into the Terms of Reference pursuant to clause 1.3(b) of the Terms of Reference. Rather, they 'are intended to assist understanding of the Terms of Reference and to provide further detail as to how FOS will resolve Disputes'.[11]

37 The language of clause 1.3(b) is clear. It evinces an intention that the Operational Guidelines are to assist understanding of the Terms of Reference and purport to provide further detail as to how FOS will resolve disputes. In my opinion, this falls short of what would be required to conclude that the Operational Guidelines form part of the Terms of Reference. The plain and ordinary meaning of the words in clause 1.3(b) describe a document to assist, educate and to serve the function of making the Terms of Reference more accessible to those who may need to take advantage of FOS's dispute resolution service.

38 Further, the language of clause 1.3(b) in relation to the Operational Guidelines may be contrasted with the words in clause 1.3(a) which provides as follows:

These Terms of Reference set out who is eligible to lodge a Dispute, the types of Disputes that FOS can consider, how FOS resolves Disputes, the types of remedies that FOS can provide and other related matters. These Terms of Reference are binding upon Financial Services Providers.

39 The direct language used and the reference to the binding nature of the Terms of Reference, at least upon Financial Services Providers, should be contrasted with the language in clause 1.3(b). It is clear that clause 1.3(a) puts the Terms of Reference as the primary source of the basis upon which eligibility is determined and how FOS considers and resolves disputes.

40 The fact that the Operational Guidelines are described as being 'to the Terms of Reference' suggests that they are an adjunct or additional guide, rather than forming part of the contractually binding Terms of Reference.

41 The language of the Operational Guidelines also militates against the conclusion that they form part of the Terms of Reference. The Operational Guidelines state that they are intended to assist users in understanding how the Terms of Reference operate in practice and to 'gauge for themselves how the financial matters may be handled at the Financial Ombudsman Service'.[12] Comparisons may be drawn with a self-help guide or manual. This language demonstrates that the document is, as it describes itself to be, one of assistance and education aimed at users of FOS's service so that there is greater clarity and transparency in the way FOS makes decisions 'so that consumers and FSPs can use the Scheme with confidence'.[13] The Operational Guidelines are described as a 'living document'[14] intended to aid users of FOS's Dispute resolution service - again a description which does not suggest that contractual obligations are created outside the Terms of Reference.

42 The Operational Guidelines are comprehensive, detailed, accessible, and user-friendly. Their structure is to set out the relevant clause in the Terms of Reference and to address certain issues in relation to that particular clause. In many cases, examples are given of how FOS may decide certain matters under the Terms of Reference.

43 That the Operational Guidelines are accessible and written in plain English is not determinative of whether they are contractual in nature. In fact, one might observe that it is highly desirable for contracts to be written in this manner.

44 However, in my opinion, given their structure, content and the express words of clause 1.3(b) of the Terms of Reference, the Operational Guidelines do not form part of the Terms of Reference.

45 It was submitted by the plaintiffs that FOS failed to comply with the requirements of the Operational Guidelines because it did not identify a 'compelling reason' to conclude that it would not be the appropriate forum for the resolution of the dispute. It is the plaintiffs' contention that this constitutes either a failure to satisfy itself of the necessary prerequisite to exercising the discretion to exclude a dispute or to take into account a relevant consideration.

46 Even if I am wrong in my conclusion that the Operational Guidelines do not form part of the Terms of Reference, I nevertheless consider that the reasons given in the November Jurisdictional Decision are 'compelling' within the terms of the Operational Guidelines. I will return to this later.

1. The Terms of Reference establish, amongst other things, a mechanism for the determination of a dispute lodged with FOS.
2. Clause 5.2 of the Terms of Reference confer upon FOS a discretion to refuse to consider, or consider, a decision in the following terms:

FOS may refuse to consider, or continue to consider, a Dispute, if FOS considers this course of action appropriate, for example, because:

a) there is a more appropriate place to deal with the Dispute, such as a court, tribunal or another dispute resolution scheme or the Privacy Commissioner;

b) the Applicant is not a retail client as defined in the Corporations Act 2001;

c) the Dispute relates to a Financial Services Provider's practice or policy and does not involve any allegation of either Maladministration or inappropriate application of the practice or policy;

d) the Dispute being made is frivolous or vexatious or lacking in substance; or

e) after the Dispute is lodged with FOS, the Applicant commences legal proceedings against the Financial Services Provider that are related to the Dispute.

1. Clause 5.3 of the Terms of Reference sets out the process for excluding disputes, as follows:

(i) FOS considers that these Terms of Reference exclude the Dispute; or

(ii) FOS decides to exercise a discretion under these Terms of Reference to exclude the Dispute,

FOS will advise the Applicant (and any other parties that are involved in and have been informed about the Dispute) and provide reasons for this assessment.

b) If, within 30 days of receipt of this advice, the Applicant objects to an assessment made by FOS in accordance with paragraph a), FOS will review the matter if FOS is satisfied that the Applicant's objection may have substance. If so:

(i) FOS will inform the other parties involved in the Dispute;

(ii) all parties will be given an opportunity to provide submissions;

(iii) all parties will be provided with copies of each other's submissions; and

(iv) FOS will review the matter and provide the parties with FOS's final decision referred to as a Jurisdictional Decision - this will set out the reasons for the decision.

50 The Operational Guidelines provide general guidance on the application of paragraph 5.2 in relation to FOS's jurisdiction under the Terms of Reference to exclude a dispute:

Paragraph 5.2 allows FOS to refuse to consider, or exclude, a Dispute in certain circumstances. If FOS has already started to consider a Dispute, it can still decide, at any point in the process, not to consider the Dispute further.

Paragraphs 5.2a) to e) list examples of factors that may lead FOS to exclude a Dispute. These examples are discussed below.

In addition, FOS can decide a Dispute should be excluded for other reasons. FOS could, for example, exclude a Dispute previously determined to be beyond the monetary jurisdictional limit of FOS or a Predecessor Scheme. FOS could also exclude a Dispute raising issues that a court would refuse to consider. EDR schemes are not expected to deal with such Disputes.

In any of the situations referred to in paragraph 5.2, FOS has the discretion to exclude a Dispute. FOS does not have to exclude the Dispute but it may do so.

FOS will not lightly exclude a Dispute that falls within FOS's jurisdiction under the TOR. IT would only exclude if there is a compelling reason for FOS to conclude it would not be the appropriate forum for resolution of the Dispute.

Factors FOS considers when deciding whether to exclude a Dispute

FOS assesses whether it should exercise its discretion to exclude a Dispute after taking into account:

• the nature of the Dispute;
• any special circumstances or factors relevant to the Dispute;
• the principles stated in paragraph 1.2; and
• the requirements of ASIC's Regulatory Guides 139 and 165.

51 In relation to FOS's discretion to exclude a dispute, reference was also made to The FOS Approach Excluding disputes document. Although the plaintiffs did not contend that this document formed part of the tripartite contract, it was nevertheless submitted that it was at least an aid to interpretation.

52 In clause 2.1 of The FOS Approach Excluding disputes document, the scope of FOS's discretion is dealt with in these terms:

2.1 Defining the Scope of the Discretion

What is the scope of our discretion to exclude a dispute?

Section 5.2 of the TOR gives us the discretion to refuse to consider a dispute that is otherwise within our jurisdiction, if we decide that this is appropriate in the circumstances.

Our discretion to exclude a dispute is generally unrestricted. In particular:

• it is for us alone to decide whether it is appropriate to exclude a dispute (although we may ask the parties for their views).
• we can use our discretion, whether or not we have been asked to do so by the FSP.

We can decide to exclude a dispute at any time after this dispute has been lodged with us and before we have closed the dispute.

53 Clause 2.1 lists five reasons why FOS might consider it appropriate to exclude a dispute. Relevantly, one of those factors is where there is a more appropriate place to deal with the dispute, such as a court. Clause 2.1 further provides:

Section 5.2 of the TOR does not limit the possible reasons why we may decide to exclude a dispute. We may decide not to consider certain disputes for reasons other than those set out in section 5.2.

54 The language of the Terms of Reference, the Operational Guidelines and The FOS Approach Excluding disputes document consistently reinforces that FOS has a very wide discretion to determine whether to exclude disputes.

55 There is a two pronged approach to FOS excluding a dispute under the Terms of Reference. First, FOS can exclude a dispute under clause 5.3(a) (the assessment) and then, if an objection is received, FOS will review the matter and make a final decision (the jurisdictional decision), giving reasons.

56 An assessment was made by Diana Ennis of FOS on 11 September 2014 pursuant to clause 5.3(a) of the Terms of Reference. Ms Ennis is a Manager Dispute Resolution at FOS.

57 The assessment was that the dispute fell outside the Terms of Reference under clause 5.2(a). The principal reasons relied upon were:

(a) the complexity of the facilities, the commercial (as opposed to retail) nature of those products and the fact that the facilities were secured by foreign corporations, necessitating an understanding of business activities conducted outside Australia;

(b) that FOS cannot take evidence on oath or require third parties to produce information which may be required to properly review the dispute on its merits; and

(c) that there was some doubt as to whether the dispute exceeded FOS's jurisdictional limit of $500,000.

58 In reaching her decision, Ms Ennis considered the submissions made by ANZ dated 15 May and 17 July 2014 and by the plaintiffs dated 6 June and 30 July 2014.

59 By letter dated 11 October 2014, Mr Ford responded to the matters set out in the 11 September 2014 letter. Subsequently, FOS invited the parties to provide further material in advance of the November Jurisdictional Decision. Further material was provided by the plaintiffs but not by ANZ.

The 22 October 2014 conversation - Dr Tonti-Filippini and Mr Bruce Ford

1. On 22 October 2014, Dr Tonti-Filippini and Mr Ford had a telephone conversation. The principal issue discussed was whether FOS had the requisite in-house skills to deal with a dispute of such complexity. This conversation was in the nature of a 'heads up' as to Dr Tonti-Filippini's intended approach in making the November Jurisdictional Decision.
2. A transcript of the conversation was prepared by Mr Ford's office following his taping of the conversation . This is a practice he has adopted for approximately the last six years.[15]
3. ANZ objected to the admissibility of the transcript on the grounds of relevance - that is, that it did not form part of the reasons for the November Jurisdictional Decision.
4. The transcript reveals that Dr Tonti-Filippini was 'agonising' over the November Jurisdictional Decision and that the lack of staff with appropriate expertise at FOS at that time was a critical consideration given her assessment of the complexity of the facilities. As Dr Tonti-Filippini said:
   1. Yep. I as you have probably gathered, have agonised over this one. Um because as I think I spoke to you earlier, I came down, or I decided that you guys, or that your client was a manufacturer, that there had been an error. I agreed in knocking it out on the grounds that Goldie wasn't a manufacturer at the relevant time.

Um where I got stuck and where I have been agonising is whether we should be exercise our discretion to knock the dispute out because of the complexity of the facilities.

I am convinced that they are quite complex and the financial arrangements are quite complex. Um so I had to make a decision about whether I thought we had the adequate skills here to deal with that level of complexity so I have been talking a lot to our internal banking advisors. If we take the dispute on I want to know that we can actually properly deal with it. Um and I'm not persuaded that we've got the in house knowledge um to deal with the complexity of the dispute so I'm intending to exercise my discretion to knock it out on that ground. But like I've said it's been a knife edge it's something that I have struggled with. Um and which is why I said I wanted to sleep on it because I could have gone either way. Um particularly given that on the other points though I agreed that the claim is within scope I don't think it breaches our monetary threshold and the, your client is a manufacturer so it is within our Terms of Reference. The dispute it all comes down to the complexity of the products cause (sic) largely to FOS's internal resources and ability to provide accurate and appropriate and appropriately knowledgeable um advice on the products and and particularly with assessing a loss from the conduct. Um, I think we may struggle with quantifying that.

...

I was going to say I have had, well in coming to the decision I have had our banking advisors look at the file and they, and, and, hand on hart [sic] can you tell me that you guys are competent and confident to deal with a dispute like this or do you think it is beyond you? Um, and I didn't get a particularly reassuring responses.

1. Did they say they couldn't?
2. They didn't say they couldn't, they said that they, it was outside their normal realm of the expertise.
3. Seriously, is that what they said?
4. Seriously, yes.
5. Well.
6. Um, they don't normally deal with these kink [sic] of files, we could do it, but they were saying its [sic] too complex we are not getting the whole picture. Um.
7. With respect Justi, and I don't want to argue the point with you I am just trying to make something clear. Um when Philip Field went through this he um referred it back to the legal team and the banking experts and again those issues were traversed and it wasn't raised so why is it now.
8. We've have [sic] had a significant loss of banking advisors in the past six months. We have had two really key people go. So, and there is one in particular who I think, and this is why it was so unfortunate, if it hadn't got caught up in court, if it hadn't been argued every step of the way, it may well be that had one of those individuals who left had still been here we would have given it to him because he was the business banking guru. We haven't got a replacement for him yet.
9. So FOS, I mean basically what you are saying.
10. We are currently struggling on the business banking side of things.
11. So basically what you are telling me is that FOS can't deal with it um because of that aspect? And I'm quite stunned to hear that because this is not a complex matter and I've seen much more complex that FOS are dealing with and have dealt with and I just don't quite understand why it's so complex when it's just not. Um, if these people can't deal with it then there is a serious question. Um and if that's the reason, I'm, I'm very surprised.
12. I am just being perfectly frank with you and.
13. Yeah, Yeah, sure, sure, OK.
14. If anything I may be prejudicing myself by being transparent, but I believe you have got to be transparent with people and explain exactly why you have got to a decision, how I've got to it and the reason why I am uncomfortable with it is I think if we had it, if we had actually been able to look at it as opposed to it getting tied up with all this argy bargy with the FSP when our business banking guy was still here, um we would have taken it on and the dispute has merit in my view.

1. And I've been as transparent as I can in this conversation, I have possibly have [sic] said too much but I think if I were in Goldie Marketings [sic] position I would want to know exactly why. We are trying to get someone to replace the banking advisor, because banking advisors have left it is just longer than we had hoped to get that level of skill because those people are few and far between.
2. Look I, I haven't got any complaint.
3. But it's not a decision I have been comfortable in making but if the person who had left was still here I would be ruling the dispute in.

1. The plaintiffs asserted that what was said in the 22 October 2014 conversation constituted 'the materially operative reason' for the November Jurisdictional Decision.
2. It is clear from the conversation that, at least at that point in time, Dr Tonti-Filippini considered that, had FOS been properly resourced, she would have accepted the dispute.
3. In this conversation, Dr Tonti-Filippini only focused on the complexity of the facilities and the financial arrangements between the parties. She was not persuaded that FOS had the in-house knowledge to deal with that complexity and informed Mr Ford that 'I'm intending to knock it out on that ground'. Dr Tonti-Filippini told Mr Ford that 'if our business banking guy was still here ... we would have taken it on'.
4. There is no doubt whatsoever that the lack of expertise in FOS to deal with the complexity of the facilities in dispute was a critical factor in the decision making process of Dr Tonti-Filippini. No other grounds for rejecting the dispute were mentioned in the course of the 22 October 2014 conversation.
5. The question is whether this conversation formed the basis of, or otherwise revealed, 'the materially operative reason' for the November Jurisdictional Decision and, if it did, whether this warrants a finding that the November Jurisdictional Decision is invalid.
6. ANZ contended that the 22 October 2014 conversation is irrelevant and the November Jurisdictional Decision is constituted by the written decision only. In its submission, clause 5.3(b)(iv) of the Terms of Reference clearly contemplates that a jurisdictional decision will provide reasons to a party for a decision and that it would be unusual for any such reasons not to be reduced to writing. ANZ submitted that it is necessarily to be implied that the decision and the reasons for it will be in writing.

70 In the November Jurisdictional Decision Dr Tonti-Filippini considered three principal issues:

(a) whether Goldie was a manufacturer and fell within the definition of small business;

(b) whether the quantum of the claim was within FOS's jurisdictional limit; and

(c) whether FOS should exercise its discretion to exclude the dispute on the basis that a court is a more appropriate forum.

71 Dr Tonti-Filippini found that Goldie was a manufacturer and a small business at the relevant time. She also found that while the quantum of the claim was not clear, it had not been shown that the amount of the claim exceeded FOS's jurisdictional limit.

72 Dr Tonti-Filippini's analysis regarding whether to exercise FOS's discretion to exclude a dispute was detailed and considered. She stated that she had 'considered the totality of the available information and the conduct of the parties to the dispute'. Dr Tonti-Filippini went on to say:

I have not exercised my discretion to exclude the applicants' dispute under clause 5.2(a) of the TOR lightly. In making this decision I am cognisant that I am depriving the applicants of a free external dispute resolution service. Noting the costs associated with a court process for the Applicants as a significant disadvantage for them, I remain persuaded on balance that a court is still the best place for the resolution of the Applicants' dispute, for the reasons set out below.

73 The factors relied upon by Dr Tonti-Filippini in making her decision were set out in some detail in the November Jurisdictional Decision, being that:

(a) FOS did not (at that time) have the requisite in-house skills to deal with the dispute and would need to commission business lending and accounting experts to do so. Dr Tonti-Filippini stated that she had 'investigated and considered this option';

(b) the facilities were not retail consumer lending products and were complicated, involving extensive business activities extending overseas, as noted in the assessment of Ms Ennis. It was noted that FOS can engage experts where transactions are complex and cross-collateralised across various entities not being party to the FOS dispute (in this case, foreign corporations). However, Dr Tonti-Filippini noted that 'such experts may still not be able to obtain all of the information that they need to provide their advice' and that the discovery process may be productive of a more accurate picture of the dispute. Further, she had regard to the ability of a court to compel third parties to provide statements and information relevant to the dispute;

(c) FOS cannot take evidence on oath or require third parties to produce information. Given that some claims for loss relate to overseas sales, it would be difficult to reach a view on the merits as critical events may involve third parties who are not obliged to comply with FOS's processes;

(d) the plaintiffs have competent legal representation and 'have shown themselves to be litigious during the life of the dispute'. On this basis, Dr Tonti-Filippini considered that resolving the dispute in court was a viable option. This was contrasted with the position of most FOS applicants for whom court may not have been a viable option; and

(e) there was uncertainty about the quantum of the plaintiffs' claim and the potential for that claim to change. On this basis, Dr Tonti-Filippini considered that the court may be a more appropriate option, given FOS's jurisdictional limit of $500,000.

74 For these reasons, Dr Tonti-Filippini exercised the discretion to exclude the dispute on the basis that a court would be a more appropriate place to determine it.

75 In relation to the in-house lending and accounting skills of FOS, Dr Tonti-Filippini stated that:

[t]he in-house business lending and accounting skills of FOS (and the need to commission external experts in these fields in order to resolve the Applicants' dispute), has been misconstrued in recent correspondence by the Applicants' solicitors as the only reason for the exercise of my discretion under clause 5.2(a) of the TOR. That is not the case. There are a number of factors, which combined have led me to conclude that a court is a more appropriate place to consider the dispute and so exercise my discretion to exclude the Applicant's dispute under clause 5.2(a) of the TOR.

Did FOS exercise its discretion in accordance with the Terms of Reference?

1. The plaintiffs argued that, by excluding the dispute because of a temporary staff shortage, FOS acted unreasonably and in breach of its obligations pursuant to the Terms of Reference. The staff shortage was the predominant or, as it was put, 'the materially operative reason' for the November Jurisdictional Decision and the result of an improperly exercised discretion - akin to a jurisdictional error. In these circumstances, according to the plaintiffs, the November Jurisdictional Decision is reviewable by the court.
2. The plaintiffs stated that FOS made five separate errors, each of which renders the November Jurisdictional Decision invalid, namely, that:

(a) FOS made an error in treating its temporary staff shortage as justifying its refusal to consider the dispute;

(b) FOS failed to take into account the advantages of dealing with the dispute internally rather than in court; and that it took into account irrelevant considerations, such as: the temporary staff shortage, the complexity of the dispute, its inability to compel cross-examination of witnesses and the uncertainty of the quantum of the plaintiffs' claim;

(c) FOS's decision was so unreasonable that no decision maker acting reasonably could have arrived at it;

(d) FOS acted for an improper purpose, being the avoidance of the need to address the staff shortage; and

(e) FOS did not provide a 'compelling reason' for concluding that it was not the appropriate forum in which to hear the dispute, and therefore failed to comply with its Operational Guidelines.

1. The plaintiffs also argued that there are various obligations on FOS which include a requirement that it ensure it has appropriately qualified resources to deal with the dispute.[16] It was submitted that factors that the Australian Securities and Investments Commission ('ASIC') takes into account when considering whether to approve an external dispute resolution scheme include accessibility, efficiency and effectiveness[17] and that FOS, by its own terms, is expressly empowered to ensure that it remains effective. In this respect it was submitted that FOS's powers and duties include the:

(a) power to appoint and dismiss employees, contractors and agents;[18]

(b) power to require a financial services provider to appoint an independent expert and to report back to FOS;[19] and

(c) procuring of expert legal or industry advice either funded by FOS, or the financial service provider at its request.[20]

1. The plaintiffs contended that appropriate resources could be secured by FOS. It was argued that staff shortages or a lack of appropriate skills within FOS could not possibly have been in the contemplation of the parties to the contract as a reason for FOS deciding to exclude the dispute. It is said that the Terms of Reference reveal that FOS has the capability of dealing with disputes of a certain type (which goes beyond retail type disputes).
2. In summary, the plaintiffs submitted that, as previously referred to, the lack of requisite skills in FOS to deal with the dispute was 'the materially operative reason' for the November Jurisdictional Decision.

81 It was argued that this reason should be impugned as contrary to the contract and, if it was 'stripped out', the November Jurisdictional Decision would have been different.[21]

1. The plaintiffs submitted that the court is not confined to the published reasons contained in the November Jurisdictional Decision but can have regard to other matters or extraneous material if they may assist an inquiry as to what the reasons were. In particular, the plaintiffs contended that the court ought have regard to the conversation between Dr Tonti-Filippini and Mr Ford.
2. Further, by analogy with administrative law principles and based on authorities, the plaintiffs submitted that there is a conceptual difference between 'reasons' and 'decisions'. According to the plaintiffs, the court can and should look behind the November Jurisdictional Decision to ascertain the reasons for it.[22] I was not referred to any authority for this proposition in a contractual context.

1. ANZ submitted that the internal resourcing of FOS is a matter which falls squarely within the purview of the broad discretion conferred on FOS by the Terms of Reference. The November Jurisdictional Decision - which, in ANZ's submission, was constituted in its entirety by the written reasons dated 7 November 2014 - was made validly and in reasonable exercise of FOS's powers. ANZ added that given that no jurisdictional error occurred, it is irrelevant whether or not the resourcing issue was 'the materially operative reason' for the November Jurisdictional Decision.

85 ANZ contended that the court should not intervene in the decision of FOS at all. In deciding whether to intervene, it submitted that the court should have regard to the administrative law principle of jurisdictional error. By analogy, it was contended that a court can intervene where FOS has made an error in exercising its discretion - for example, due to considering irrelevant matters, failing to consider relevant matters or operating under a mistake of fact.[23]

86 ANZ submitted that the key prerequisite for the court's intervention should be where a decision was outside the terms of the contract. It was submitted that FOS's decision could only be outside the terms of the contract if it had abused its discretion under the contract, for example, due to prejudicial, perverse or irrational reasoning. ANZ said that in this case the decision of FOS was within its broad discretion and was not irrational or unreasonable and therefore should not be subject to review by the court.

87 ANZ relied on AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd (formerly TXU Networks (Gas) Pty Ltd).[24] In that case it was held that there are two types of errors in decision making. Firstly, errors involving the exercise of a 'discretion, judgment or opinion' and secondly, errors involving 'objective facts or a mere mechanical or arithmetical calculation'.[25] It was held that the first category of error is generally not reviewable, whereas the second category is, except where the error involves matters which although factual, have an 'overriding discretionary or judgmental character'.[26] It was submitted that FOS's decision in this case was in the first category and therefore was not reviewable.

88 Furthermore, according to clauses 5.2 and 5.3(b) of the Terms of Reference, it was said that the parties agreed that they would be bound by FOS's decision which would be final. This meant that the decision would not be reviewable by a court unless it was not in accordance with the Terms of Reference.

1. FOS had a limited role at trial and did not file written submissions. FOS's submissions were made at trial to assist the court in relation to the practices and procedures of FOS.

Should the November Jurisdictional Decision be disturbed?

1. In Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd[27] ('Cromwell'), the court considered its power to review a decision of FOS. Warren CJ and Osborn JA held that:

[a]s the authorities we address below make clear, the power of a court to review the decision of a body such as FOS may be seen as deriving as a matter of law from the necessity for the attainment of justice in respect of the functions of tribunals of the general type in question, or it may be seen as deriving as a matter of fact from the necessity to give business efficacy to the particular contract in issue. In the present case, the contract contemplates that FOS will undertake an independent arbitral function in a rational manner, potentially giving rise to such an implication.[28]

91 In Cromwell, the court adopted the standard in Associated Provincial Picture Houses Ltd v Wednesbury Corporation[29] and Mickovski v Financial Ombudsman Service Ltd[30] ('Mickovski') and held that in cases where the parties have contracted into an arbitral process, the court would only intervene 'where the decision is plainly unjust'. In Mickovski it was held that the court should only intervene where the decision is one 'to which no reasonable tribunal could properly come on the evidence'.[31] However, the court noted that a positive duty to act reasonably should not be implied as this 'would defeat the intention of the contract and potentially play havoc with a scheme that is meant to be efficient, cost effective, and informal.'[32]

92 In Australian Football League, Maguire, Le Brocq & Shilbury v Carlton Football Club Ltd & Williams ('Carlton Football Club'),[33] Tadgell JA held that:

There are various bases on which the courts may adjudge a decision of a domestic tribunal to be inconsistent with an express or implied contract or a trust or other arrangement (or whatever consensual basis it is) upon which the decision must depend for its binding quality. If, for example, the effect of the decision is unreasonably in restraint of trade the courts will declare it invalid. If the decision is plainly contrary to any agreement on which its binding nature depends it will meet the same fate. If it is a decision that is seen not to be made in good faith, or to be the product of bias or other dishonesty, or not to be made in accordance with the principles of natural justice, the courts will upset it; and the basis for doing so in these several circumstances has been variously expressed.[34]

93 In Mickovski, it was held that despite FOS having made an error in its reasoning which resulted in an erroneous conclusion, the decision was not reviewable. There would need to be evidence of fraud, prejudice or bad faith in order for the decision to be reviewed. It was held in this case that the decision was made 'within the ambit of decision-making power conferred' upon FOS.[35]

94 The proceeding before me does not raise any of the factors referred to in Carlton Football Club or Mickovski. There was no evidence before me that FOS acted in bad faith, was biased, or that the decision was so unreasonable that no other decision maker could have come to that decision. The plaintiffs did not assert that there was any vitiating factor in the November Jurisdictional Decision of the kind referred to in Carlton Football Club or Mickovski.

95 The factors relied upon in the November Jurisdictional Decision are considered, cogent and rational. Some factors (the complexity of the dispute and the possibility for cross-examination) were reasons relied upon by Ms Ennis in the assessment, so they were not new in terms of FOS's consideration of this matter.

96 The plaintiffs argued that the complexity of the facilities did not warrant exclusion of the dispute, and that disputes of equal complexity have been dealt with by FOS in the past. Good minds may differ in relation to this matter, but I do not consider that this constrains FOS from exercising its discretion to exclude the dispute in this particular case. Every dispute is different and different considerations apply; a whole range of factors may weigh upon FOS in deciding whether to exclude a dispute.

97 Excluding a dispute is a discretionary matter (which can be exercised whether or not a financial services provider requests it). According to The FOS Approach Excluding disputes document, it is for FOS 'alone' to decide and the discretion to exclude is 'generally unrestricted'. FOS can exclude a dispute at any time after the dispute has been lodged with it (but before the dispute has been closed). All of the key documents make it clear that FOS's discretion is very wide and that the circumstances in which it may exclude a dispute are not exhaustive. There is nothing to suggest that matters of an administrative nature fall outside the factors that FOS may consider in the exercise of its discretion. The language used in documents is clear, unequivocal and user friendly.

98 I have given close consideration to the words of the Terms of Reference, the Operational Guidelines and The FOS Approach Excluding disputes document. In my opinion, the discretion should extend to all matters that are of relevance to FOS in managing and administering an effective and efficient dispute resolution service.

99 FOS is bound by its Terms of Reference, but delivers its dispute resolution service in a dynamic environment requiring consideration of a number of factors in order to ensure that it can discharge its functions properly. If FOS was prevented from taking into account considerations of a practical or administrative nature in determining whether to exclude a dispute, it would impose an unworkable and unrealistic burden on it. In the circumstances, FOS may have to accept disputes where, in its opinion, it could not properly discharge its functions.

100 The plaintiffs argued that FOS had other options to overcome its staff shortage.[36] FOS may require a financial services provider to pay or to contribute to the loss of any expert advice (including legal or industry experts) up to a cap of $3,000, save in exceptional circumstances..[37]

101 The plaintiffs also submitted that the Terms of Reference 'clearly contain within it an expectation of a capability of dealing with this type of dispute'. It is also contended by the plaintiffs that FOS's dispute resolution service is intended to be effective and accessible, and that is what ASIC considers when approving an external dispute resolution provider such as FOS.[38] The fact that FOS is an ASIC approved dispute resolution provider does not, in my opinion, translate into a positive obligation on FOS to engage the services of an external expert in any particular matter or on any particular occasion. Indeed, that would clearly cut across FOS's broad discretion to exclude the dispute under the Terms of Reference and the express language of the Operational Guidelines and The FOS Approach Excluding disputes document. Again, such an approach may result in FOS accepting disputes in circumstances where it clearly could not discharge its obligations in an effective and efficient manner. FOS is in the very best position to assess its capacity to properly deal with a dispute.

102 A consideration of the plaintiffs' arguments in relation to the likelihood of the need for cross-examination and the uncertainty of the quantum of the claim in this dispute would necessarily involve the court undertaking an analysis akin to a merits review. That is not the function of the court in this matter and the court should not embark on such a course.

103 The suggestion that the staff shortage was the only reason for the exclusion of the dispute is expressly refuted by Dr Tonti-Filippini in the November Jurisdictional Decision. The plaintiffs assert that a lack of skilled staff is 'the materially operative reason' for the November Jurisdictional Decision and that that is not a matter which ought to have been considered at all. They said that this is not a matter which 'could have come anywhere near the contemplation of the parties as being one that enlivens 5.2(a)'. I disagree. The language used in the key documents about the scope of the discretion is readily comprehensible. A reader of these documents would be left in no doubt, in my view, that FOS could exclude a dispute on any number of grounds, not limited to the type or character of the grounds referred to in the examples given.

104 Furthermore, pursuant to clauses 5.2 and 5.3(b) of the Terms of Reference, the parties agreed to be bound by FOS's decision, which would be final in the sense that it would not be able to be reviewed unless it was not in accordance with the Terms of Reference.[39] In Mickovski, it was held that:

...where a statute provides that a decision is "final", it is ordinarily taken to preclude a right of appeal except in cases where the tribunal has acted without jurisdiction or otherwise such that its decision is a nullity. Similarly, where parties agree that a determination is to be "final", they are taken to have agreed that the determination will not be subject to review unless affected by fraud or dishonesty or lack of good faith or (by analogy with jurisdictional error) unless it is otherwise apparent that the determination has not been carried out in accordance with the agreement.[40]

105 In my opinion, FOS was entitled to take into account issues of staff resourcing, capability and availability in determining whether to exclude a dispute in the exercise of its discretion. Accordingly, the November Jurisdictional Decision was in accordance with the contract between the parties, being within FOS's jurisdiction, and was a final decision.

106 It follows from my conclusion that there is no basis for the court to look behind the November Jurisdictional Decision. Accordingly, I do not consider that the 22 October 2014 conversation is relevant to the determination of the issues in this proceeding.

107 The question remains whether, if I am wrong and the Operational Guidelines do form part of the Terms of Reference, the reasons given in the November Jurisdictional Decision are 'compelling' in accordance with the terms of the Operational Guidelines.

108 There is no definition of the word 'compelling' in the Operational Guidelines. The Macquarie Dictionary provides the following definition:

109 I find that the reasons given and decision made by Dr Tonti-Filippini in the November Jurisdictional Decision are 'compelling' within the terms of the Operational Guidelines. They are convincing, rational, logical, reasoned and comprehensive. It has already been noted that those reasons (apart, of course, from the issue of staff resourcing) are not sought to be impugned or attacked by the plaintiffs.

110 Finally, the parties differed in relation to the impact of further delay in the resolution of their dispute. Whilst the plaintiffs stated that there is no urgency given the longevity of the dispute, ANZ submitted that it has effectively been prevented from exercising its enforcement rights for several years. By way of observation, it is highly desirable that commercial disputes are determined in an efficient and timely manner which invariably reduces the costs burden on all parties.

111 For these reasons, I consider that FOS's decision to exclude the dispute was valid and the court should not disturb it. Judgment is given in favour of the defendants.

112 I will hear the parties on the question of costs.

FINANCIAL OMBUDSMAN SERVICES LIMITED (ACN 131 124 448)

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522)

[1] The version of the Terms of Reference I was referred to was the Financial Ombudsman Service, 'Terms of Reference' (1 January 2010 as amended 1 January 2012).

[2] Financial Ombudsman Service, 'Terms of Reference' (1 January 2010 as amended 1 January 2012).

[3] Financial Ombudsman Service, 'Operational Guidelines' (1 May 2012).

[4] Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456.

[5] Financial Ombudsman Service, 'Operational Guidelines' (1 May 2012) 39.

[6] Financial Ombudsman Service, 'Operational Guidelines' (1 May 2012) 12.

[7] [1973] HCA 36; (1973) 129 CLR 99, 110.

[8] [2013] FCA 292.

[11] Financial Ombudsman Service, 'Terms of Reference' (1 January 2010 as amended 1 January 2012) clause 1.3(b).

[12] Financial Ombudsman Service, 'Operational Guidelines' (1 May 2012) 2.

[15] Affidavit of Bruce Ford dated 24 March 2015 [3].

[16] Financial Ombudsman Service, 'Terms of Reference' (1 January 2010) clause 2.2(a)(ii).

[17] Corporations Regulations 2001 (Cth) reg 7.6.02(3).

[18] Financial Ombudsman Service, 'Terms of Reference' (1 January 2010) clause 2.2(b)(i).

[21] East Melbourne Group Inc v Minister for Planning [2008] VSCA 217; (2008) 23 VR 605.

[22] Civil Aviation Safety Authority v Central Aviation Pty Ltd [2009] FCA 49; (2009) 253 ALR 263; Alexander v Australian Community Pharmacy Authority [2009] FCAFC 137; (2009) 179 FCR 554.

[23] AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd (formerly TXU Networks (Gas) Pty Ltd) [2006] VSCA 173; (2006) Aust Contract R 90-241.

[27] (2014) 288 FLR 374.

[29] [1947] EWCA Civ 1; [1947] 2 All ER 680.

[30] [2012] VSCA 185; (2012) 36 VR 456.

[31] Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd (2014) 288 FLR 374, 401.

[33] [1998] 2 VR 546.

[35] Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456, 471.

[36] Financial Ombudsman Service, 'Terms of Reference' (1 January 2010) clause 8.3.

[38] Corporations Regulations 2001 (Cth) reg 7.6.02(3).

[39] Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456; AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd (formerly TXU Networks (Gas) Pty Ltd) [2006] VSCA 173; (2006) Aust Contract R 90-241.

[40] Mickovski v Financial Ombudsman Service Ltd [2012] VSCA 185; (2012) 36 VR 456, 468.

[41] Susan Butler (ed) Macquarie Dictionary (Macquarie Dictionary Publishers, 6th ed, 2013).