Finance Law

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Ben also has the option to take the matter to court however this will be a much more formal and costly process than FOS, where the FSP is obligated to cover the applicants expenses.

Q2. “The Financial Ombudsman Service (FOS) is not part of the Australian legal system and yet it works according to the law.” Critically analyse this statement.

This statement is true in a sense that FOS is not part of the legal system and instead classified as an alternative dispute resolution. In order to analyse this statement further to determine if FOS works according the law, the following will be discussed; how and who created FOS, main purpose of FOS and how it operates and makes decisions in accordance with Australian Law.

FOS is an ADR service, approved and created by ASIC, in 1990, which was modelled off a UK system to improve public relations. FOS operations are governed by their Terms of Reference (TOR), which set out the power of FOS to consider disputes, the dispute resolution process and reporting obligations.

FOS covers a wide range of disputes including banking, credit, loans, insurance and many more. In order to have jurisdiction to hear a dispute, FOS must comply with the following clauses in their TOR. In order to determine of FOS have jurisdiction, there are a few clauses which deal with this; in particular, Cl 5.1(n); The applicant must first go through their banks internal dispute resolution, if they are unhappy or unsatisfied with the outcome they may turn to FOS as an external dispute process. 5.1 (i) also states that FOS may not intervene in matters which are already being dealt with by the courts. Furthermore only those matters which are of small business or individuals, in the case of small business, it will be deemed small if it is manufacturing and under 100 full time employees, otherwise any other business has to be under 20 employees to be considered small cl. 4.1(a)&(b). Only matters that are under $500 000 cl. 5.2 TOR will be heard through FOS. There are other exceptions where FOS can turn away a case.

Cl 1.1 sets out the purpose of FOS which is to act as an independent forum. The panel will be made up of an Ombudsman and two panel members – one an industry representative and the other a consumer representative cl. 2.4 (a)(i). Unlike the court system the three panel members are not necessarily legally trained. Cl. 2.4(b) states that the panel members have the power to resolve disputes by making determinations. Cl 7.1 lists the methods for resolution of disputes as being negotiation, conciliation or mediation. This differs from the Australian courts where a trial is conducted. FOS is less formal and technical.

Cl 8.1 offers a very flexible rule of evidence to disputes heard under FOS, with no specific rule of evidence being binding in FOS, unlike a court trial. Under cl. 8.2 states that when the panel members are deciding on a dispute and whether a remedy should be provided, FOS will do what in its opinion is fair in all the circumstances, having regarded each of the following;

a). legal principles

b). applicable industry codes or practice as to guidance

c) good industry practice

d) previous relevant decisions of FOS or a predecessor, although FOS is not bound by previous determinations unlike the courts where the doctrine applies.

cl. 8.2 (a) & (b) shows how FOS operates in accordance with Australian law as it provides panel members to look at relevant laws and codes – which subscribed to by the FSP are legally binding through contract law.

Cl. 8.3 is a similar practice to the courts, in that FOS can bring is specialists input where appropriate.

Once FOS has regarded information available in 8.2 FOS makes an assessment known as recommendation in cl. 8.5 if both parties accept within 30 days the dispute is resolved. An expedited process can be offered under cl. 8.6 where FOS may proceed to a determination without a recommendation being made first.

Under cl 8.7, states that a determination is the final decision and is binding up on the FSP if the applicant accepts the determination within 30 days of receiving the determination. Cl 8.9 states that the applicant is not bound to accept the determination or recommendation, and may reject and bring the matter to courts or other viable action. Cl 8.8 states that if an applicant accepts the decision by FOS it forgo the right to pursue further action against the FSP. This is very different to how judgements and verdicts are passed down by the courts by judges or juries and where there say is usually finally upon both parties. However unlike the courts, there is no appeal process with in FOS.

Finally, the damages available under FOS in cl. 9 are similar to those in the court however there are caps for consequential financial loss of $3000 under cl 9.3. Furthermore in 9.4 states that the FSP is only required to cover the applicants costs in pursing the matter up to $3000. Under cl 9.6 states that FOS may not award punitive, exemplary or aggravated damages which is again different to the courts.

To conclude, FOS is an ADFR that may hear and make determinations and recommendations on consumer complaints with FSPs in certain circumstances. When making determination and recommendations FOS must consider Australian Law and Codes that apply to the matter. The determinations become binding upon the FSP and applicant if the applicant accepts within the time frame given. However the FOS system runs a little different to the courts and not all the same damages may apply that may be available in court. Furthermore, there are limitations on the amount of consequential finance loss. If the applicant rejects the determination by FOS it may take the matter to court.

Q3. Kakushita, an entrepreneur, drew out two cheques, one to Masita Supplies and another to Masotida Supplies. One day, he decided to stop payment on the first one to Masita Supplies and immediately phoned the bank and spoke to an employee in a hurry in his thick Japanese accent. The line was not clear and the employee had asked Kakushita to repeat several times. The bank then paid the first cheque and stopped payment on the second cheque. The payment to Masotida Supplies was important for Kakushita’s business. Advise Kakushita of his rights, if any, against the bank. What if the funds to cover the Masotida cheque were not enough as it was a little short? And what if Kakushita had enough funds in another account to cover the Masotida cheque even though there were not enough in the cheque account; is it reasonable for Kakushita to expect the bank to