Savellis v Financial Ombudsman Services Ltd

Judgment

1. HIS HONOUR: The plaintiff, Mr Robert Savellis, seeks a declaration that a determination by the first defendant, Financial Ombudsman Services Ltd ("FOS"), that the second defendant, National Australia Bank Ltd ("NAB" or "the Bank") was not required to compensate him in respect of a dispute he lodged with the FOS on 8 October 2014, is invalid and of no force and effect. Mr Savellis had applied to the FOS for compensation of $350,000 from NAB for loss he claimed he had suffered in 2008 by reason of a delay in the NAB's making a margin call on a margin loan facility he had with the NAB at the time of the global financial crisis. Mr Savellis made a number of claims but, in essence, he contended that had an earlier margin call been made, losses he claimed to have suffered would have been reduced. The FOS rejected his application, essentially on the ground that the Bank's mistake in not making a margin call until 6 November 2008 rather than in September 2008 was not causative of Mr Savellis' suffering any loss because had an earlier margin call been made it would not have resulted in his selling securities, but rather he would have provided more collateral for his loan by providing additional security. Mr Savellis contends that the reasoning in support of that conclusion was internally contradictory, that the FOS failed to deal with a substantial claim that he made, and that the FOS failed to provide adequate reasons.
2. For the reasons which follow I reject those contentions.
3. The FOS was established to provide an independent forum for the resolution of disputes between retail clients and providers of financial services. Pursuant to s 912A(1)(g) and 912A(2) of the Corporations Act 2001 (Cth) financial service providers are required to have in place dispute resolution procedures that include membership of one or more external dispute resolution schemes approved by the Australian Securities and Investments Commission. FOS is one such external dispute resolution scheme. The NAB is a member of the scheme. A determination of a dispute lodged with the FOS is binding on the financial services provider, but not on its retail client.
4. In November 2006 Mr Savellis applied for, was offered and accepted a margin loan with the Bank. His facility had a limit of $1,300,000. As security for the loan Mr Savellis provided: a small number of shares with a market value as at 29 August 2008 of 431,471.75; an MLC Masterkey Cash Management Trust account ("Cash Management Trust"), which as at 29 August 2008 had a market value of $258,131.47; and an MLC Masterkey Investment Service ("MKIS" or "Investment Portfolio") which consisted of units in an MLC Horizon 6 Share Portfolio ("Horizon 6 Portfolio") and an MLC Cash Fund. The value of units in the Horizon 6 Portfolio reflected changes in the market for securities. As at 29 August 2008 the value of Mr Savellis' Investment Portfolio was $1,264,200.69.
5. It was a term of Mr Savellis' agreement with the Bank that advances made under the margin loan facility be used to purchase "investments" (as defined) or for other business or investment purposes as might be agreed. The agreement provided for the loan to be secured by "secured property" that relevantly included stocks or managed fund investments and any credit balance in a cash management account. The agreement provided for the Bank to attribute a security value to those investments or cash management account by the application of a security ratio to approved investments. The security ratio applied by the Bank was 75 per cent in respect of Mr Savellis' shares and Investment Portfolio, and 80 per cent in respect of the Cash Management Trust. Clause 11.1 of the facility agreement provided: "11.1 We may make a margin call at any time, if at the relevant time, the current LVR is equal to or greater than the margin call LVR at that time. This may occur in any number of ways, including movement in the value of any item of secured property, us changing the security ratio attributed to any item of secured property, and/or us removing an investment from the list of approved investments."
6. The expression "current LVR" was defined to mean the percentage calculated by dividing the "secured liabilities" by the aggregate value of investments forming part of the secured property and multiplied by 100. The "margin call LVR" was calculated as the percentage being the "base LVR + buffer". The base LVR was the security value of the investments calculated by applying the appropriate security ratios divided by the aggregate value of the investments forming the secured property and multiplied by 100. The buffer was a value between five per cent and 10 per cent depending on the composition of the secured property. If a margin call were made the customer was required either to repay some or all of the secured liabilities, or provide additional security by way of approved investments, or additional cash collateral so as to bring the current LVR below the base LVR, that is, to a ratio without the benefit of a buffer. In its statements to Mr Savellis the Bank calculated the base LVR to be 75 per cent or thereabouts, and the margin call LVR to be about 85 per cent.
7. Clause 11.3 of the facility agreement provided that the Bank was not obliged to make a margin call as soon as it was entitled to do so, or at all. The clause provided that the Bank would not be liable for any loss that Mr Savellis incurred because of any failure to make a margin call.
8. In his application to FOS Mr Savellis contended that he had been told by his loan manager, Mr James Beecroft, that he would be informed if or when his investment reached a 75 per cent LVR in order to provide him with an opportunity to sell out the loan quickly or otherwise resolve the issue. Mr Savellis contended that because of his personal circumstances he was resolved fully to sell out of his margin loan if the 75 per cent LVR were exceeded. He contended that the Bank ought to have made a margin call in August 2008. He said that he was repeatedly advised that he was not in margin call and not above 75 per cent LVR. In fact, his bank statements showed that from at least the end of March 2008 his current LVR exceeded 75 per cent. At the end of June 2008 it was shown as 79.87 per cent. It was 84.25 per cent at the end of July, and 83.74 per cent at the end of August.
9. The Bank notified Mr Savellis that he was in margin call on 17 July 2008 when the LVR exceeded 85 per cent, but Mr Savellis was able to wait it out. By 28 July 2008 he was no longer in margin call.
10. On 6 August 2008 Mr Savellis cashed out $250,000 from his Horizon 6 Portfolio to his Cash Management Trust. He did that by selling or redeeming units at a price of 87.94 cents. On 5 September 2008 he switched $250,000 back into the Horizon 6 Portfolio by buying units at 86.83 cents.
11. On 10 October 2008 (before a margin call was made) Mr Savellis sold $100,000 worth of units in the Horizon 6 Portfolio. It appears that the $100,000 raised on the sale of units on 10 October 2008 was applied to reduce the margin loan.
12. At the end of August 2008 Mr Savellis had $258,131.47 in the Cash Management Trust. On 5 September 2008 he requested the Bank to transfer $250,000 from the Cash Management Trust into his Horizon 6 Portfolio. In processing that request the Bank credited Mr Savellis' Horizon 6 Portfolio by $250,000, but failed to debit his Cash Management Trust by the same amount. As a consequence, between 9 September 2008 and 30 October 2008 Mr Savellis' LVR was incorrectly recorded as being significantly lower than in fact it was. Thus in Mr Savellis' bank statement for the period 30 August to 30 September 2008 the market value of his Investment Portfolio was shown as $1,452,718.34 (having a security value of $1,089,538.76 at a security ratio of 75 per cent) and his investment in the Cash Management Trust was shown as $258,131.47 (having a security value of $206,505.18 at a security ratio of 80 per cent). The statement of market value of the Investment Portfolio reflected the transfer of $250,000, but that was omitted in the statement of the balance of the Cash Management Trust. According to the bank statement as at 30 September 2008 the current LVR was 75.38 per cent, being an outstanding loan of $1,311,998.21 against a market value of secured property of $1,740,451.51, whereas the market value of the secured property should have been approximately $250,000 less. The margin call LVR of approximately 85 per cent had been exceeded, the current LVR being in fact, approximately 88.05 per cent..
13. On 30 October 2008 the Bank identified this error and corrected it. It removed the sum of $250,000 from its record of Mr Savellis' Cash Management Trust balance. This resulted in the Bank's recalculating his LVR to 115 per cent. On 6 November 2008 the Bank contacted Mr Savellis and informed him that he was now in a "huge margin call". The margin call was approximately $199,000. Mr Savellis satisfied the margin call by borrowing $500,000 from his father which he provided as additional security for his investment.
14. Between August 2008 and November 2008 the market value of Mr Savellis' investment in the Horizon 6 Portfolio fell substantially.
15. Between 29 October and 3 November 2008 Mr Savellis sold a further $650,000 worth of units in the Horizon 6 Portfolio at prices ranging from 66.72 cents to 71.85 cents.
16. In an email to Mr Beecroft dated 7 November 2008 following the margin call of 6 November 2008, Mr Savellis stated that: "As already mentioned to you, I am quite stunned that my LVR had reached 115% and that I had not been notified until yesterday that I was in margin call territory. Had I known my position earlier I would have acted to reduce my exposure when it hit 75% LVR. In fact, had I known just one day earlier than yesterday, I would very likely had sold down a large amount then and there, given that the market was in a relatively higher position. … Given the fluctuations in the market, I would like to at least have some choice on what to sell and when, and I do not want to be placed in a situation where I am forced to sell out at near bottom levels. If I was forced to sell out now or in the near future, I would be left with a huge loan and nothing to show for it. However, given a little time I can gradually over a period of 4 months sell out at a slightly healthier levels than this. Given the ongoing volatility in the markets, there is very likely to be ongoing fluctuations, and my focus will [be] modest, rather than acting with unrealistic and overly optimistic intentions. However, given the nature of the markets, I would also request access to the full margin loan facility of $1.2 million, in the event that the Dow Jones sinks below 8000 basis points. This would afford me the opportunity to invest a greater amount at this level, and would allow me to make up some of the losses quicker. This was the reason and intention of my selling out $650,000 worth of my Horizon 6 account last week. …"
17. On 7 November 2008 Mr Beecroft responded by asking Mr Savellis how he intended to clear the margin call should the market not improve. Mr Beecroft said that the Bank did not consider waiting for the market to improve to be an appropriate course of action for rectifying a margin call. He said that Mr Savellis' request to have access to the full $1.2 million loan facility would not be possible whilst the facility was in a margin call.
18. Later that day Mr Savellis advised Mr Beecroft that if the market did not improve during the four-month period, then he had funds or shares having a current value of $357,000 available to pay for the margin call and that he was earning a high income. By further email on that day he asked the Bank to reconsider its position that he should not have access to the full $1.2 million facility. He said: "Had I known I would lose access to the $650K I would not have sold them last week with instructions to move into my Cash Mgmt Trust. The market is at a reasonably low base, and it makes sense to provide me access to the full amount under the circumstances that I suggested."
19. Mr Beecroft responded by saying that Mr Savellis would be given until 21 November to clear the margin call. On 19 November Mr Savellis transferred $200,000 into his MLC Cash Fund. Mr Beecroft advised him that his then current margin call was $90,084. Mr Savellis stated that he was looking at depositing more funds towards his "Masterkey fund" as well as possibly offering more of his Australian shares to be held as security. Mr Beecroft said that the number of shares that would be required would depend upon the shares offered.
20. On 25 November 2008 Mr Savellis redeemed $207,224.87 from the MLC Cash Fund and it was used to reduce the margin loan. He also assigned further securities. The provision of further security, coupled with the reduction of the loan and market improvements cleared the margin call.
21. Mr Savellis lodged a dispute with FOS on 7 October 2014. In his application he said that in July 2006 he invested approximately $250,000 of his own funds into an Horizon 6 Investment fund with MLC, and between November 2006 and June 2007 borrowed a margin loan of $1,250,000 from the Bank and further invested it into his Horizon 6 Investment fund. He said that from July 2008 he advised the Bank and MLC on a number of occasions that he intended to sell out of the margin loan if it were approaching 75 per cent LVR, or if he were approaching a margin call. He said he was led to the belief that he was not in margin call territory, nor above 75 per cent LVR from July 2008 until 6 November 2008. In fact, the monthly statements he received from the Bank showed that he was well above a 75 per cent LVR. He had online access that would also have revealed this. The July margin call was made because the LVR exceeded 85 per cent.
22. Mr Savellis said that on 6 November 2008 he was advised that he was in a massive margin call and was required to deliver approximately $200,000 extra to his fund. When he queried when his LVR had exceeded 75 per cent and why he had been misled he was told that there was an incorrect balance for his Cash Management Trust on the Bank's system from 9 September until the end of October. Mr Savellis said that he believed that the misreporting was longer than from September to October and was probably from July 2008 until 6 November. He said that a fair resolution would be to recalculate the value of his fund as if it had been sold at 75 per cent LVR. He asserted this was the industry standard and that he was led to believe this would have occurred and he had indicated he would sell his portfolio if a 75 per cent LVR was exceeded.
23. In support of his application Mr Savellis provided a detailed submission which, with annexures, ran to over 140 pages. In his submission Mr Savellis said that there were three separate occasions when he discussed his LVR status and margin call status with Mr Beecroft between 28 July and 6 October 2008, namely 28 July, 19 September and 6 October. He said that if he had not been provided with misleading LVR details on those dates he would have sold out of the margin loan completely then and there. This was his initial case, that he later repeated, namely that he intended to sell out of the margin loan on a number of occasions, especially on those noted dates and would have done so had he been given the correct LVR and margin call details.
24. The Bank was invited to respond to Mr Savellis' submission, which it did. The Bank submitted that Mr Savellis' margin call LVR was approximately 85 per cent for the period in question. It denied any agreement that it would monitor Mr Savellis' facility to ensure it did not breach a 75 per cent LVR. The bank submitted that there was no evidence to suggest that Mr Savellis had ever communicated his intention to sell out of the loan and that his conduct when the facility was in margin call in July indicated that he had no intention of selling. On 22 July 2008 he had confirmed that he was reluctant to sell. The Bank submitted that if Mr Savellis wanted to sell out and exit the loan it would be strange for him to wait until he was in margin call to do so and pointed to the fact that on 9 September 2008 he moved $250,000 from a cash fund into the Horizon 6 Portfolio which was inconsistent with his intending to exit the investment and pay out the loan.
25. It was common ground that on the submission of the dispute by Mr Savellis to FOS a tri-partite contract came into existence between Mr Savellis, FOS and NAB that the dispute be determined in accordance with the applicable rules (called Terms of Reference) applied by the FOS to resolve disputes between applicants and financial service providers (Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456; [2012] VSCA 185 at [35]-[36]).
26. Clause 1.2 of the Terms of Reference provided: "In dealing with Disputes, FOS: a) Must do what in its opinion is appropriate with a view to resolving Disputes in a cooperative, efficient, timely and fair manner; b) shall proceed with the minimum formality and technicality; and c) shall be transparent as possible, whilst also acting in accordance with its confidentiality and privacy obligations."
27. Clauses 8.1 and 8.2 of the Terms of Reference provided: "8.1 Rules of evidence FOS is not bound by any legal rule of evidence. 8.2 Dispute resolution criteria Subject to paragraph 8.1, when deciding a Dispute and whether a remedy should be provided in accordance with paragraph 9, FOS will do what in its opinion is fair in all the circumstances, having regard to each of the following: legal principles; b) applicable industry codes or guidance as to practice; c) good industry practice; and d) previous relevant decisions of FOS or a Predecessor Scheme (although FOS will not be bound by these)."
28. Clause 8.5 relevantly provided: "the process for deciding a Dispute is as follows: a) After giving the parties a reasonable opportunity to make submissions and provide information about the matters in dispute, FOS makes an assessment referred to as a Recommendation. b) If both parties accept the Recommendation with 30 days of receiving it, the Dispute is resolved on the basis of the Recommendation. c) If, within 30 days of receiving the Recommendation, either: (i) the Financial Services Provider does not accept the Recommendation in relation to the Dispute; or (ii) either party requests FOS to proceed from a Recommendation to a Determination, FOS will proceed to a Determination by either an Ombudsman or by a FOS Panel (as the Chief Ombudsman or his or her delegate decides is appropriate). Before the Determination is made, the parties will be given a reasonable opportunity to make submissions, and provide any further information, in response to the Recommendation."
29. Clause 8.7 relevantly provided: "a) Each Recommendation and Determination: (i) must be in writing: (ii) may either reach: (A) a conclusion about the merits of the Dispute; or (B) the view that, given the procedure adopted by FOS, it would not be appropriate for FOS to reach any conclusion as to the merits of the Dispute; (iii) must set out reasons for any conclusion about the merits of a Dispute or view of the kind referred to in paragraph 8.7a)(ii)(B); (iv) must specify any remedy, determined in accordance with paragraph 9, that FOS considers fair and appropriate; and (v) must be provided to all parties to the Dispute. b) A Determination is a final decision and is binding upon the Financial Services Provider if the Applicant accepts the Determination within 30 days of receiving the Determination."
30. It was common ground that whilst the FOS was required to have regard to legal principles it was not required to resolve the dispute by applying the law to the facts as found by it.
31. The procedures of FOS provide that after the parties have been given a reasonable opportunity to make submissions and provide information about matters in dispute, the FOS will make an assessment referred to as a Recommendation (Clause 8.5(a)). A party who does not accept the Recommendation can request FOS to proceed to a Determination either by an ombudsman or by an FOS panel. The parties are to be given a reasonable opportunity to make submissions and provide any further information in response to a Recommendation prior to the making of a Determination. The FOS is not required to reach a conclusion about the merits of the dispute, but if it does so then the Recommendation and Determination must set out the reasons for any conclusion about the merits of the dispute (Clause 8.7(a)(ii)(A) and (iii)).
32. The case manager at FOS assigned to the dispute asked Mr Savellis a number of questions. She asked him to explain why, when he was advised on 6 November 2008 that he was in margin call, he elected to provide further funds as security to satisfy the call rather than selling down his investments. Mr Savellis provided a detailed response to that question, part of which involved his borrowing funds his father had received from a compulsory third party insurance settlement, rather than selling out at a huge loss or trying to borrow more funds. He said that he would not have been in that predicament if he had known to sell out when his LVR was at or close to 75 per cent.
33. On 9 April 2015 the case manager provided her Recommendation. Under the heading "Issues and key findings" the case manager said that the Bank made an error which caused the value of Mr Savellis' portfolio to be artificially inflated from 9 September until 30 October 2008, but she was not persuaded that Mr Savellis would have sold his portfolio and paid out the margin loan if the margin call had occurred earlier than 30 October 2008. She said that: "I am satisfied on the available information, the Applicant would have continued to retain the portfolio either by only effecting partial sales to take him out of margin call or by introducing additional security from his parents' portfolio. The Applicant has not established the FSP's error caused a loss."
34. In elaboration of this conclusion the case manager said that having reviewed the extensive correspondence provided by the parties there was no evidence to suggest that Mr Savellis instructed the Bank that he wished to sell down his portfolio if his LVR exceeded 75 per cent. She observed that the margin loan statements that had been provided to Mr Savellis for the period from January to October 2008 showed that his LVR was always 75 per cent or above.
35. The case manager then added the following: "The available evidence does not support the Applicant would have sold down his entire portfolio Having reviewed the available information, on balance, I am not satisfied that the Applicant would have sold down his entire portfolio and terminate the margin loan if the FSP's error did not occur. This is supported by the actions the Applicant had taken during this period. On 17 July 2008, the FSP notified the Applicant of a margin call for approximately $159,687. While the Applicant said he would sell down $200,000 of his portfolio 'if push comes to shove' on 22 July 2008, it was evident from this email that he was reluctant to do so and instead wanted to wait and see if the markets would bounce back. Further, the statement for the period as at 31 July 2008 showed the Applicant's LVR was 84.25% and he did not appear to be nervous or indicate he wanted to exit the market. This is inconsistent with his statement that he had intended to sell down his entire portfolio if he was approaching margin call, or that he had instructed the FSP to do so. It is also evident from the available records that the Applicant was an experienced investor, who was watching investment markets closely during this period of market volatility. This was evidenced by the transactions he made to his portfolio and Cash Management Trust during the period March 2008 to November 2008. Emails in March 2008 also showed the Applicant was looking to switch a large proportion of his funds to cash and was waiting for an opportunity to re-enter the market. He re-entered the market sometime in June 2008. Further, on 7 November 2008, even while in the midst of a margin call, the Applicant asked the FSP to allow him to utilize his margin loan up to its limit to purchase more stock if market conditions continued to deteriorate. This further demonstrates the Applicant is experienced with investment markets and is an aggressive investor. Based on the Applicant's actions in July 2008, and in November 2008 when he decided to transfer additional security to his portfolio, instead of selling down the portfolio, it is clear that it was the Applicant's priority to maintain his investment portfolio as much as possible. The fact that he continues to retain the portfolio now is a clear sign that he would not have sold down the portfolio completely if he had received a margin call before 30 October 2008. In the circumstances, I am not persuaded by the Applicant that he would have completely sold down his portfolio and terminate his margin loan but for the FSP's error. If the FSP's error did not occur, it is likely the Applicant would have sold down a portion of his portfolio to satisfy the margin call If the FSP's error did not occur and the Applicant received a margin call on 16 September 2008, based on the available information and his past actions, I am satisfied he would have sold down a portion of his portfolio to satisfy the margin call. Based on market conditions at the time, the FSP calculated that the Applicant would have received another margin call on 10 October 2008. I am satisfied that the Applicant would have either: Continued to sell down a small portion of his portfolio to take him out of margin call LVR, or He would have provided additional security from his parents' portfolio. The Applicant says he decided to transfer additional security from his parents' portfolio because of market conditions at the time, and his financial circumstances. He says if he had sold down his portfolio at that time, he would not have been able to achieve his medium and long-term goals and objectives. I fail to see how a complete sell down in September 2008 would equally assist him to achieve these objectives, when it is evident that it is the Applicant's priority to retain his investment portfolio as much as possible. While the Applicant says accessing his parents' portfolio was a last resort, it is still nonetheless a source of funds for which the Applicant had access to, and was willing to use. It is clear from the Applicant's past actions that he would not have elected to completely sell down his portfolio. In these circumstances, it is unclear how the Applicant has actually suffered a loss as a result of the FSP's error. This is because without the FSP's error, the margin call would have been brought forward to 16 September 2008, instead of 30 October 2008. While the amount of the margin call may have been less, and the market value of the Applicant's portfolio would have been worth more in September 2008, further margin calls in October and November 2008 would have inevitably followed, given market conditions at the time. In my view, the outcome would have been the same - he would have either sold down his portfolio in smaller portions to stave off further margin calls, or he would have introduced additional security to his portfolio. The FSP's error has therefore not caused a loss."
36. It should be observed that the case manager made three statements as to what in her view Mr Savellis would have done if he had received a margin call on 16 September, which he would have received but for the Bank's administrative error. On the first page of the recommendation the case manager said that in her view, Mr Savellis would have continued to retain his portfolio either by only effecting partial sales to take him out of margin call, or by introducing security from his parents' portfolio. The case then being maintained by Mr Savellis was that he would have sold securities so as to discharge his margin loan entirely. This was a rejection of that contention, but not a conclusion as to what alternative courses Mr Savellis might have taken.
37. The second conclusion was that had a margin call been received on 16 September Mr Savellis would have sold down a portion of his portfolio to satisfy the margin call and then, when Mr Savellis received another margin call on 10 October 2008 (as he would have done), he would have either continued to sell down a portion of his portfolio to take him out of margin call, or would have provided additional security from his parents' portfolio.
38. The third statement is a repetition of the first, namely, that had a margin call been made on 16 September 2008 and then subsequent calls been made in October and November as market conditions deteriorated, Mr Savellis would have either sold down his portfolio in smaller portions to stave off further margin calls, or would have introduced additional security to his portfolio.
39. Mr Savellis did not accept the case manager's Recommendation. Accordingly, FOS was obliged to proceed to a Determination after taking additional submissions from the parties. Mr Savellis made a further submission on 19 May 2015 in which he took up the alternative scenarios raised by the case manager in her Recommendation. Mr Savellis maintained his primary case that had he been told that his LVR was at 75 per cent or thereabouts, he would have sold down his portfolio to discharge the whole loan. He also addressed the case manager's finding that if a margin call had occurred before 30 October 2008 he would have continued to retain the portfolio either by only effecting partial sales to take him out of margin call or by introducing additional security from his parents' portfolio. He argued that as he had sold $750,000 worth of his fund at a time when he did not think that he was in margin call, it stood to reason that at the very least he would have been willing to sell $750,000 worth of the fund earlier if prompted by a margin call. This was an alternative scenario to that initially advanced, namely, that he would have sold units in the Horizon 6 Portfolio to exit the loan entirely if given an earlier margin call.
40. Mr Savellis rejected the suggestion that if he had received an earlier margin call he would have sold only a small portion of the portfolio. But he also said that: "However, even if I entertain the notion put forward by the Case Manager that I somehow would have engaged in micro-sales chasing down the 75 per cent LVR level, then the assumption that it would have resulted in no net loss is technically incorrect."
41. He then provided a spreadsheet that he said suggested that on that scenario he nonetheless had suffered a loss on sale of units in the Horizon 6 portfolio of $165,000. He calculated that his total loss on this scenario was $265,425 being the difference between the prices at which units would have been sold on 23 September if a margin call had been made on 16 September ($165,000) plus interest on that sum, plus interest paid on the margin loan for three months, plus $30,000 for loss of income as a result of depression from the bank's alleged misrepresentation. Mr Savellis repeated his contention that in fact he would have been compelled to sell out of the fund completely because of his particular circumstances had he received a margin call in August or September, or been told that his LVR ratio had exceeded 75 per cent.
42. On 27 May 2015 the Case Manager sent an email to the Bank noting that the dispute had been referred to an Ombudsman who would issue the final Determination shortly. The email stated: "The Ombudsman has reviewed the dispute and requires some further information from the FSP as follows …"
43. Amongst the information sought was the following: "Further, the Applicant also noted that if he had sold down his portfolio in increments and in accordance with the Case Manager's Recommendation, he says that he would be better off by $265,425 as unit prices would have been higher if he had sold down earlier. Please provide your comment and any relevant calculations and raw data to support the FSP's position."
44. The Bank responded to the Ombudsman's questions. It argued that if Mr Savellis had responded to a margin call on 16 September by selling units and he had responded to two later margin calls also by selling units in his portfolio, then he would have been worse off than he in fact was because the market continued to deteriorate after November 2008 through to March 2009 and further margin calls would have occurred requiring greater selling and thus reducing his exposure to the market when the market started to improve in March 2009. Instead, because Mr Savellis put in additional security in November 2008 he benefited from the improvement in market conditions from March 2009.
45. Mr Savellis responded to the Bank's submission on 7 July 2015. He said that the most likely outcomes had he known that he was in margin call earlier than he did was that he would have sold $750,000 of the fund five days after he fell into margin call, or he would have sold down $1.3 million so as to effectively sell the fund in full. He provided detailed analyses of the financial consequences of those alternative scenarios. He submitted that on any basis had he been aware of his true position earlier, he would have sold what he eventually sold earlier or would have sold only what was minimally required in order to get him out of margin call, but in either case he would have been better off. He elaborated on the financial consequences of what he called "The fall back 'Progressive Sell Down' scenario".
46. In her Determination of 14 July 2015 the Ombudsman stated in paragraph 1.2 under the heading "Issues and Key Findings" the following: "Were the findings, reasons and outcome of the Recommendation correct? The findings, reasons and outcome contained in the Recommendation were correct and are adopted in this Determination. Further submissions provided after the Recommendation have been considered but did not advance the Applicant's position."
47. Mr Savellis relies upon the first sentence. He says that this general statement that the findings, reasons and outcome of the Recommendation were correct and were adopted is inconsistent with later reasons given by the Ombudsman.
48. The same question was also addressed in a section headed "Reasons for Determination". Under that heading the Ombudsman said: "2.1 Were the findings, reasons and outcome in the Recommendation correct? I have determined this dispute based on what is fair in all the circumstances, having regard to the relevant law, good industry practice, codes of practice and previous FOS decisions. I have taken into account all the material submitted by the parties, both before and after the Recommendation. I am satisfied that the documentation I have relied on has been provided to both parties. I am satisfied that the Case Manager's Recommendation contains an accurate summary of the dispute, the issues to be determined, any applicable paragraphs of the Terms of Reference and any relevant law. I add the following to take account of the responses to the Recommendation. [Emphasis added.] Failure to monitor his account I have taken into account the apparent failure of the Applicant to monitor his account. The missed transaction was a significant percentage of the Applicant's portfolio. I am aware that the Applicant did not access his account details online but would have received a statement in October that would have shown inconsistent information. I accept that the Applicant's failure to notice the error may have been impacted by his personal circumstances or by the fact that his brother was not closely involved in the account. However, it is a relevant circumstance when considering whether and to what extent the FSP caused the Applicant to suffer a loss. The date the account was in margin call The Applicant alleged that the redemption of $250,000 of units put his account into margin call by 6 August 2008. The FSP maintains that the account was in margin call as a result of a failure to record transactions on 9 September 2008. The FSP submitted that the Applicant's calculations did not include all the assets securing the margin loan. I am satisfied that there is insufficient evidence that the applicant's account was in margin call in August 2008. The Applicant's likely response to a margin call in September 2008 The Applicant's loss calculation was largely based on the assumption that if he had known the true situation in September 2008 he would have sold a large portion of the assets securing the margin loan. He pointed to the substantial sales in that period when he though he was not in margin call as evidence that he would have done the same if he had known he was in margin call. I must be satisfied on the balance of probabilities as to the Applicant's response in September 2008. I have evidence of his response to the margin call in November 2008 but clearly that was at a different stage in the global financial crisis. The telephone recordings and emails clearly show that in November 2008 the Applicant considered that the market was still volatile and in a downward cycle. The Applicant responded to the margin call in November 2008 by requesting an extension of time and then provided more collateral by transferring securities to the account. Had the margin call occurred in September 2008, I am not satisfied on the balance of probabilities that his response would have been significantly different. Again, in coming to that conclusion, I have taken into consideration the personal issues that the Applicant raised in his response to the Recommendation. The Applicant has been unable to prove on the balance of probabilities that the failure of the FSP to correctly account for a transaction on his account caused him to suffer a loss."
49. Contrary to Mr Savellis' submission, it is clear that the Ombudsman did take into account his responses to the case manager's Recommendations. She expressly said so. The reasons that follow that statement are responsive to the two alternative scenarios advanced by Mr Savellis in response to the Recommendation. The Ombudsman's critical finding was that had a margin call been made in September 2008, she was not satisfied that Mr Savellis' response would have been significantly different than it was when he received a margin call in November 2008. When he received the margin call in November 2008 he did not sell any part of his portfolio, but after requesting an extension of time, he provided more security. This was an answer to both of the alternative scenarios advanced by Mr Savellis in response to the Recommendation. The only difficulty is with the somewhat formulaic statement under paragraph 1.2 that the Ombudsman considered that the "findings, reasons and outcome contained in the Recommendation were correct and are adopted in this Determination". In fact, part of the reasoning in the Recommendation was not adopted in the Determination. The case manager said that in her opinion if a margin call had been made in September Mr Savellis would have effected a partial sell down to meet the margin call and then would have either made further sales or would have introduced additional security when additional calls were made from October 2008. By contrast, the Ombudsman was not satisfied that Mr Savellis would have acted differently had a margin call occurred in September than he did when the margin call was made in November 2008.
50. When the reasons for the Determination are read in context, the statement at paragraph 1.2 that the findings, reasons and outcome contained in the Recommendation were correct and were adopted in the Determination, should be understood as an adoption of those findings for the purposes of the matters addressed in the Recommendation and subject to the Ombudsman's reasons addressing the responses to the Recommendation. The same question "Were the findings, reasons and outcome of the Recommendation correct?" was asked twice. In the first instance it was answered affirmatively without qualification or elaboration. When asked the second time, it was answered differently. When asked the second time the question was answered by the Ombudsman's saying that the case manager's Recommendation contained an accurate summary of the dispute, the issues to be determined, any applicable paragraphs of the Terms of Reference and any relevant law. Then the Ombudsman provided additional reasons to take account of the responses to the Recommendation. The Ombudsman then expressed a different conclusion as to what she considered would have been the applicant's response to a margin call, had one been made in September 2008, than the case manager had stated in her Recommendation. When the Ombudsman's reasons are read as a whole it is clear that the Ombudsman accepted the findings of the case manager, subject to her own findings that took account of the responses to the Recommendation.
51. Mr Savellis submitted that the Determination was defective in three respects, namely that: it failed to deal with his alternative loss scenario in his responses to the Recommendation; it was unintelligible, irrational or illogical on account of its internal inconsistency; and it failed to provide adequate reasons for rejecting his alternative loss scenario.
52. These contentions were related.
53. The question in these proceedings is not whether the FOS' Determination was correct. The question rather is whether it was made in accordance with the tripartite contract. I accept Mr Savellis' submission that for the Determination to have been made in accordance with the contract constituted by the parties' acceptance of the Terms of Reference, the Ombudsman was required to consider and address the submissions made by Mr Savellis and was required to set out reasons for her conclusion about the merits of the dispute. The former requirement is implicit in the requirement in clause 8.5(a) that the parties are to be given a reasonable opportunity to make submissions and provide information about the matters in dispute. It follows from that requirement that the FOS is required to consider and address the submissions made, at least if those submissions are relevant, intelligible and plausible.
54. Although the FOS is required to give reasons for any conclusion about the merits of a dispute in both the Recommendation and Determination (clause 8.7(a)(iii)), it is not required to give extensive reasons. The FOS does not act judicially (Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd (2014) 288 FLR 374; [2014] VSCA 179 at [146]). No appeal lies from a Determination. It is sufficient if the reasons provide an intelligible basis for the decision and are sufficient to indicate that the contentions raised have been considered (Sasterwan v Morris [2008] NSWCA 70 at [34]). Reasons are to be construed fairly, without a tooth-comb finely attuned to the detection of error (Minister for Immigration and Ethnic Affairs v Woo Shan Liang (1996) 185 CLR 259 at 291). A decision which is so irrational that no reasonable decision-maker could have reached it will not be made in accordance with the parties' contract (Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd at [93]), but a decision is not to be impugned merely because a judge may consider it to be wrong.
55. I do not accept that the Ombudsman failed to deal with either of Mr Savellis' alternative claims advanced in his responses to the Recommendation. It is clear from the terms of the Determination as well as the correspondence from the FOS that the Ombudsman did so. Her Determination expressly added reasons to take account of the responses to the Recommendation. Her finding that Mr Savellis would have responded to a margin call in September 2008 in a way that was not significantly different from the way he responded to the margin call in November 2008 was a sufficient answer to both of the alternative claims he advanced in his responses to the Recommendation. It was not unintelligible, nor irrational, nor illogical. The Ombudsman was not required to accept Mr Savellis' contention that because he sold units in the Horizon 6 Portfolio before the margin call was made, had a margin call been made earlier, he would have either sold down a substantial part of the portfolio or made progressive sell downs sufficient to clear the margin call, if (contrary to his primary contention) the Ombudsman rejected his claim that he would have sold the entire portfolio. Mr Savellis had received a margin call on 17 July 2008 for approximately $160,000, but had persuaded the Bank to allow him to sit it out as he wanted to wait and see if the markets would bounce back. The case manager referred to this in her Recommendation, which was part of the findings that the Ombudsman adopted.
56. In summary, fairly read, the Determination provided sufficient reasons for the rejection of each of the bases upon which Mr Savellis claimed compensation. The Determination was made in accordance with the parties' tripartite contract.
57. For these reasons I order that the plaintiff's claims for relief in the summons be dismissed. I order that the plaintiff pay the second defendant's costs. I will hear from the plaintiff and the first defendant in relation to the first defendant's costs. Prima facie, in my view the first defendant is entitled only to its costs as a submitting defendant.

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