Wealthsure Pty Ltd v Financial Ombudsman Service Ltd

Background 6 Financial planning advice was given by Mr Brown, an employee of John Hopkins Financial Services Pty Ltd, which is an authorised representative of Wealthsure. 7 Mr Brown provided three relevant Statements of Advice (SoA) to the Boxes. They contained financial planning advice: (a) SoA dated 3 November 2005, recommending that the Boxes: (i) redraw $110,000 on their current home loan; (ii) establish a Macquarie Property Access Loan of $150,000 in Mr Christopher Box's name; and (iii) invest the above sums in various property management funds. (a) On 27 June 2006, recommending that the Boxes invest $50,000 in the Rewards Group Sandalwood Project using $45,000 borrowed as part of the Rewards Group Lending Facility. (b) On 29 March 2007, recommending the Boxes: (i) redeem their investment in the Cromwell Diversified Property Trust; (ii) draw down a further $80,000 from their Macquarie Access Loan; and (iii) invest the total amount of $226,000 into various property management funds. 8 Separate remuneration by way of up front and trailing commissions were payable to Wealthsure in respect of the investments recommended in each SoA. 9 Broadly described, the Boxes allege that the financial planning advice variously given to them was defective. They say that the advice did not properly explain various risks to them, that the risks were inappropriate for their financial circumstances, and that the investments recommended to them were illiquid and were limited in diversity. They initially claimed the sum of $270,000 by way of compensation for losses. 10 During the course of the complaint handling at FOS the losses were updated several times. FOS initially identified the claim as one which might exceed its jurisdiction. The completed form returned to FOS from the Boxes claimed an increased amount of $316,091, which FOS acknowledged in its letter to Wealthsure of 6 October 2010. 11 FOS then sought to clarify the amounts that were claimed, and in an email to Wealthsure's solicitors of 7 April 2011, explained that FOS considered these to be the subject of not one but three separate claims arising in respect to each separate SoA: CLAIM 1 - Advice provided in SOA dated 3 November 2005 LOSS = $70,489 CLAIM 2 - Advice provided in SOA dated 18 July 2006 LOSS = $69,928 CLAIM 3 - Advice provided in SOA dated 29 March 2007 LOSS = $197,376 The total of the three claims was $337,793. FOS further explained in this email that these three separate claims were each subject to the compensation cap of $150,000. The content of this email was relevantly confirmed directly to Wealthsure by letter dated 11 May 2011. It contains what Wealthsure describes as the "Splitting Decision", meaning that, as Wealthsure apprehends it, the one claim for $337,793 has been treated by FOS as three separate claims totalling that figure. 12 The practical result is that if FOS is correct in its approach, Wealthsure is potentially liable to compensate the Boxes for the entirety of the first two claims and up to $150,000 for the third claim. If there is but one claim, Wealthsure's potential exposure is a maximum of $150,000.

The FOS dispute resolution process 13 As a condition of holding an Australian Financial Services License (AFSL), Parliament intended AFSL licence holders to subject themselves to an external dispute resolution process that is less formal, less costly and easier to access for their retail clients than the alternative of leaving those parties to their rights at law: ss 912A(1)(g) and 912A(2) of the Corporations Act 2001 (Cth); RG 139.35 of the Australian Securities and Investments Commission (ASIC) Regulatory Guide 139 Approval and oversight of external dispute resolution schemes (Regulatory Guide 139). Both applicants and AFSL licence holders have the protection that external dispute resolution bodies and their TOR, including any proposed changes to these, must be approved by ASIC: reg 7.6.02(3) of the Corporations Regulations 2001 (Cth); RG 139.111 of Regulatory Guide 139. FOS is such an external dispute resolution body. 14 The relationship between Wealthsure and FOS is contractual. The Operational Guidelines are incorporated into the contract between the parties. The term "Applicable Terms of Reference" in cl 14.5 of the Constitution is defined in cl 1.1 to mean "the Terms of Reference that apply to a Member in respect of a dispute". It is common ground that in the case of the Dispute this is 'The Investments, Life Insurance & Superannuation Division Terms of Reference': the Constitution (cl 14.1(c)). 15 The Victorian Court of Appeal has recently observed that parties to a claim who agree to submit their dispute to the processes of FOS "… [become] bound in contract to observe the rules of the process and entitled as a matter of contract to require that FOS proceed in accordance with those rules": Mickovski v Financial Ombudsman Service Ltd (2012) 91 ACSR 106 at [35]. The relevant rules applicable here are the current Terms of Reference. 16 By cl 9.2 of the TOR, FOS may, subject to cl 9.7, decide that the Financial Services Provider compensate the applicant for direct financial loss or damage. Clause 9.7(a)(i) of the TOR, read with Sch 1, provides: The maximum total value of the remedy decided upon by FOS for a claim must not exceed $150,000 for a financial planning claim. 17 This reflects RG 139.188 of Regulatory Guide 139, which is one of ASIC's requirements for approval of External Dispute Resolution schemes: Compensation caps apply on a 'per claim' basis. This means that separate claims by the same complainant or disputant must not be aggregated by the scheme for the purpose of determining a maximum claim. Further, the adequacy of a scheme's compensation cap will be subject to review by us. 18 The express obligation of FOS under cl 8.2 of the TOR, principally, is to "do what in its opinion is fair in all the circumstances" having regard to various matters including "legal principles", "applicable industry codes or guidance as to practice" and "good industry practice". 19 Wealthsure submits that this obligation requires FOS not to split what Wealthsure characterises as the Boxes' single claim. Wealthsure adds that the splitting of a claim constitutes an abuse of process. FOS denies it has done this, but rather it has correctly identified three separate claims.

One or more claims 20 The Operational Guidelines provide that a number of claims may be raised by an applicant in one Dispute. Notwithstanding this, and as I have mentioned, the words of cl 9.7 of the TORs, read with Sch 1, make clear, the monetary cap applies in relation to a "Claim" rather than to a "Dispute". It follows that a Dispute may comprise one or more claims, each subject to the relevant monetary cap. 21 Paragraph 9.7 of the Operational Guidelines further provides: The meaning of "claim" FOS takes the view that for the purposes of the TOR, the expression "claim" refers to the set of facts that, put together, give an Applicant the right to ask for a remedy. This means a set of separate events or separate facts that lead to the alleged losses. FOS does not aggregate a number of claims into one claim just because the claims all arose from an ongoing relationship between an F[inancial] S[ervices] P[rovider] and an Applicant. 22 Wealthsure submits that FOS was wrong to conclude that the Boxes' claims constituted three discrete claims each attracting a monetary limit of $150,000, and should have concluded that these constituted a singular claim and cause of action attracting a single monetary limit of $150,000. 23 Wealthsure contends that if its assessment of the Boxes' risk profile for the purposes of the November 2005 SoA was negligently in breach of a contractual or tortious duty or breach of statutory obligation, then this error infected the subsequent two SoAs. That is to say, if it made an error as to the Boxes' appropriate risk profile, then it was one error perpetuated by Wealthsure from the outset and one which informed each separate SoA, but resulting in there being only one claim. 24 Wealthsure points to the fact that the Boxes' complaint as originally received was for one amount, $270,000, and then after further dealings with FOS it became $316,091 and subsequently $337,793.

Consideration 25 The issue of claim splitting usually arises in inferior courts which have a monetary jurisdictional limit. Typically, legislation or rules relating to courts of limited financial jurisdiction include a prohibition on a litigant "dividing" or "splitting" a claim into two, commencing two proceedings in the one court, each for a part of the claim, and thereby avoiding the jurisdictional limit of the court. This would clearly be an abuse of process. 26 The critical question is whether, in the particular instance, a plaintiff has "divided" a single claim or cause of action. That question has been considered in a number of cases. 27 The general principles are that: (a) a plaintiff does not contravene the rule by bringing two complaints where the claims arise out of distinct and independent transactions: Sollimano v Nolan [1921] VLR 389 at 393; (b) in order to contravene the rule, the action said to be split must be "one and entire": Dealey v Clark (1831) 109 ER 936; (c) if a second cause of action can be maintained without depriving the plaintiff of his remedy in the first cause of action, the rule will not be contravened: Dealey v Clark; (d) the fact that the same causes of action could be joined in one proceeding in a superior court does not prevent the plaintiff from bringing separate proceedings in an inferior court: Wickham v Lee (1848) 12 QB 521; and (e) the issue of goods supplied and delivered on a running account is a particular rule resting on whether the parties intended that the obligation to pay the pre-existing debt is extinguished each time a new balance is struck (thus giving rise to a new and singular obligation to pay: Melville v Dartmouth Projects Pty Ltd (unreported, Supreme Court of Victoria, Byrne J, 5 December 1997); Pioneer Concrete (Vic) Pty Ltd v L Grollo & Co Pty Ltd [1973] VR 473. 28 Upon the alleged facts, the Boxes would have alternative claims for breach of contract, tortious negligence and breach of statutory duty. Nonetheless, it is apparent that only one claim could be brought to FOS in respect of one complete set of facts. As I set out above, the Operational Guidelines provide under para 9.7 that FOS will not permit a joint claim in contract or tort to be "split" and treated as multiple claims (with a cap applying to each claim). However, that is not this case. 29 Section 945A of the Corporations Act, as it was prior to amendments made in July 2012, provides: 945A Requirement to have a reasonable basis for the advice The providing entity must only provide the advice to the client if: (a) the providing entity: (i) determines the relevant personal circumstances in relation to giving the advice; and (ii) makes reasonable inquiries in relation to those personal circumstances; and (b) having regard to information obtained from the client in relation to those personal circumstances, the providing entity has given such consideration to, and conducted such investigation of, the subject matter of the advice as is reasonable in all the circumstances; and (c) the advice is appropriate to the client, having regard to that consideration and investigation. 30 Accordingly, upon providing each separate SoA, Wealthsure owed a discrete statutory duty to the Boxes. It was obliged to satisfy the requirements of s 945A of the Corporations Act, and in the case of the 29 March 2007 SoA, s 947D of the Corporations Act. Each SoA recommended a particular investment course of action. Each course of action demanded that the requirement of s 945A were met. 31 Before providing each of the three separate SoAs, Mr Brown met with the Boxes in order to consider, amongst other things, the Boxes' "investment risk profile". Accordingly, their investment risk profile was revisited by Wealthsure, as it was obliged to do, on each separate occasion that a SoA was provided. The profile attributed to them by him on each separate occasion was that of "moderately aggressive" investors. This characterisation had implications for the kind of investments recommended in the several SoAs. The Boxes allege, in effect, that in respect of each SoA, they were given the wrong profile. 32 Whether or not there was a breach of each separate contractual or tortious duty of care or statutory duty would be measured in relation to each separate investment recommendation. Whether loss and damage was suffered would require a separate inquiry into the consequences of the client having followed each separate recommendation. The Boxes have submitted a claim calculation specifying the losses they suffered by reason of each investment recommendation. 33 The facts in this case are an actual example of "Scenario 2" set out under the Operational Guidelines at para 9.7 except that this case involves not two but three separate advices: Advice Where an Applicant has been to an FSP that gives financial advice and over a period of time has had a number of dealings with the FSP, resulting in the Applicant losing money in circumstances where the FSP is liable to pay compensation because the advice was unsuitable, FOS will consider the circumstances carefully to determine whether there has been one claim or multiple claims. Scenario 1 If an FSP has given a statement of advice recommending a number of investments and the Applicant disputes the suitability of this investment advice, FOS is likely to treat this as one claim because there is one set of facts and circumstances giving rise to the Dispute claim, that is, the FSP providing the statement of advice. Because there is only one claim, a cap applies in relation to that claim and the Applicant may not "split" the claim into separate components to avoid or reduce the impact of the cap. The Applicant cannot make a separate claim for each recommended investment. Scenario 2 However, if the FSP has given advice recommending an investment and then given separate advice recommending another investment and the Applicant disputes the suitability of both sets of advice, FOS is likely to treat this Dispute as involving two claims with the effect that a cap applies in relation to each claim. This is so because there are two sets of facts and circumstances giving rise to the Dispute. 34 If there was negligence in the attribution of an inappropriate risk profile at the outset then the generic error was repeated on two further occasions. That it was an error in each case requires to be adjudged upon the personal circumstances of the Boxes at those different times. There would then have been not one but three errors, albeit the same generic error on each occasion. 35 That the duty of care or statutory duty might be similar in each instance does not alter the position that the giving of each SoA, and the related circumstances, constituted a discrete set of facts that gave the Boxes the right to ask for a remedy which is the language of a "claim" as expressed in the Operational Guidelines: see by analogy Do Carmo v Ford Excavations Proprietary Limited (1984) 154 CLR 234 at 245. Each SoA necessarily required a consideration of the Boxes' then financial circumstances. 36 There was no splitting of claims as contended by Wealthsure. It follows that FOS was correct in the approach it ultimately adopted in treating the Dispute as comprising three separate claims each subject to a monetary cap of $150,000.

Conclusion 37 The application will be dismissed. Wealthsure will be ordered to pay the costs of FOS. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.