The bank lent money to a toy manufacturer. The debt was guaranteed by its directors and secured over various properties. The borrower defaulted and the guarantors lodged a dispute with FOS. FOS refused to consider the dispute for a number of reasons including the complexity and commercial nature of the loans and the borrowers sought a declaration from the court that it was invalid. Under its Terms of Reference, FOS has a discretion to refuse to consider a dispute if it considers that the court is the more appropriate forum to deal with the dispute.
The transcript of a taped conversation with FOS revealed that a lack of expertise in FOS to deal with the complexity of the loans was a critical factor in rejecting the dispute. However the court found that this was not the only reason for the FOS decision and its written reasons included that the borrower was a small business, the claim exceeded FOS’s limit and the court was a more appropriate forum.
The court found that FOS exercised its discretion in accordance with its Terms of Reference for the following reasons:
(a) the Terms of Reference constituted the entire contract between the parties and the Operational Guidelines, which require FOS to have a compelling reason for excluding a dispute did not form part of that contract;
(b) FOS has a broad discretion to exclude disputes which does not prevent FOS from taking into account staffing or resourcing issues;
(c) FOS’s decision provided comprehensive, rational, cogent and persuasive reasons why FOS should exercise its discretion to exclude the dispute. There was nothing on its face 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 formed part of the Terms of Reference, the reasons set out in FOS’s decision are in accordance with the Operational Guidelines as they are ‘compelling’.
The court also noted:
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. Excluding a dispute is a discretionary matter for FOS alone and is generally unrestricted. 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.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.FOS was entitled to take into account issues of staff resourcing, capability and availability. There is no basis for the court to look behind the decision. Accordingly, I do not consider the conversation is relevant to the determination of the issues in this proceeding.