Industry Concerns with FOS
A recent court decision has reaffirmed concerns the insurance industry and many FOS members have around the process of the external ombudsman. Concern has been raised that the discretionary nature of the ‘fairness’ based dispute resolution through the FOS may work against financial advisers and deny them some of the benefits available under the law.
Brief summary of applicable facts
· Wealthcare Financial Planning Pty Ltd (‘the financial adviser’) gave advice to their clients, Mr. & Mrs. Norris to roll over a loan made to part of the Westpoint property development group. This investment was lost as a consequence of the Westpoint collapse and Mr & Mrs Norris made a complaint to FICS. FICS upheld this complaint and determined that the adviser should pay Mr. & Mrs. Norris the whole amount they had lost, plus interest, on certain conditions.
· The financial adviser took FICS on judicial review in the Supreme Court of Victoria on the grounds that there were a number of other parties that might have been found liable for the same loss if they had been sued by Mr. & Mrs. Norris in a court of law. Such parties included the finance company itself, its directors, the Westpoint group generally, its auditors, and the research house on whose reports the financial adviser had allegedly relied.
· The financial adviser claimed that the FICS determination was contrary to the Rules of the FICS in that it failed to apply principles of proportionate liability in determining Mr. & Mrs. Norris’ complaint and took the FICS on judicial review in the Supreme Court of Victoria.
Supreme Court findings in relation to the FICS and the implications for financial advisers
The Supreme Court of Victoria held as follows in Wealthcare Financial Planning Pty Ltd v Financial Industry Complaints Service Ltd & Ors [2009] VSC 7:
· The FICS Panel was not absolutely required to apply any legal principles of proportionate liability to the complaint as it had broader obligations of fairness. This means that, although the FICS is required to ‘have regard’ to all of the law that is relevant or capable of being applied, there is no requirement to resolve complaints by making determinations strictly by applying principles of law. FICS is free to resolve disputes in another way which does not involve the strict application of legal principle if, in all the circumstances, this produces a fair result.
· The Wrongs Act (which provides for apportionment of liability) was not applicable to proceedings commenced other than before a court or tribunal. The laws of proportionate liability may be irrelevant to the FICS in determining a member’s liability to compensate a customer for inappropriate financial advice because they are only suitable for courts and tribunals that have potential jurisdiction over all the parties that are liable to pay damages. Therefore, where a FICS member is at fault it may be held liable to pay the whole amount of compensation to a customer suffering loss;
· Where there are other parties who, if sued, would also be liable to compensate the customer, the member may still be capable of bringing its own civil action to obtain contribution from that party in the courts if it has a case for recovery as a joint wrongdoer; and
The Court found against the financial adviser on all points. It did not consider that the Panel’s decision was made in breach of the Constitution and Rules of the FICS and the financial adviser’s application for judicial review was therefore dismissed.
Conclusion
The decision went against the financial adviser in this instance. This was partly due to the financial adviser seeking to be held not liable at all, rather than seeking a reduction in the amount awarded, based on proportionate liability.
It is therefore possible that the FOS may apportion liability and reduce the amount of compensation awarded when this issue comes up for determination in the future, if it considers this to produce a fair outcome.
* Please note that:
· The FICS was incorporated within the FOS subsequent to this Supreme Court decision. As the FOS terms of reference have not yet been finalised, it is not certain whether variations will be made to the FICS practices.
· The intention of this paper is to highlight some of the issues in relation to the FICS/FOS and not to discuss the broader legal issues.
Tags: bizcover, Business Insurance, financial advisers, FOS, PI insurance, Professional Indemnity Insurance, Professional Insurance Indemnity Insurance Broker, Public Liability Insurance
