Goldie Marketing Pty Ltd v Financial Ombudsman Service Limited
[2014] VSC 587
•19 November 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
S CI 2014 06068
BETWEEN
| GOLDIE MARKETING PTY LTD ACN 099 897 202 | Plaintiff |
| STEPHEN MARK GOLDSWORTHY | Second Plaintiff |
| BELINDA GAYE GOLDSWORTHY | Third Plaintiff |
| and | |
| FINANCIAL OMBUDSMAN SERVICE LIMITED ACN 131 124 448 | First Defendant |
| and | |
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 | Second Defendant |
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JUDGE: | MACAULAY J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 November 2014 | |
DATE OF RULING: | 19 November 2014 | |
CASE MAY BE CITED AS: | Goldie Marketing Pty Ltd & Ors v Financial Ombudsman Service Limited & Anor | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 587 | First Revision: 28 November 2014 |
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INTERLOCUTORY INJUNCTION − Plaintiff company in default of loan facilities – Dispute lodged with Financial Ombudsman Service Ltd (‘FOS’) – Moratorium on enforcement action by bank by reason of dispute under consideration by FOS – FOS’s decision to exclude dispute from its consideration as being more appropriate to be determined by court – Moratorium on enforcement lifted and bank intending to appoint receiver to company − Whether decision reviewable - Whether prima facie case – Whether damages an adequate remedy - Balance of convenience – Interlocutory injunction granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Lockhart SC with Mr L Livingston | Sarvas Ciappara Lawyers |
| For the First Defendant | Mr M Wise | Arslan Lawyers |
| For the Second Defendant | Mr S Hay | HWL Ebsworth |
HIS HONOUR:
Introduction
The issue for determination in this application is whether an interlocutory injunction should be granted, pending trial, to restrain the ANZ from taking steps, by legal proceedings or otherwise, to recover its debt from its customers, Goldie Marketing Pty Ltd (‘GM’) and Mr and Mrs Goldsworthy.
In December 2013, the plaintiffs lodged a dispute with Financial Ombudsman Service Limited (FOS), a dispute resolution scheme provided by various financial services providers, including the ANZ, as a condition of them holding a financial services licence under s 912A of the Corporations Act 2001 (Cth). A consequence of a dispute being lodged with FOS, and remaining under its consideration, is that the financial services provider must not take any action to recover a debt the subject of the dispute, to protect any assets securing the debt or to assign any right to recover that debt.
On 7 November 2014, FOS purported to make a ‘final decision’ under clause 5.3(b) of its terms of reference to exclude the dispute from its consideration in the exercise of a discretion allowed under clause 5.2(a). Clause 5.2(a) permits FOS to refuse to consider or continue to consider a dispute if it is satisfied that course of action is appropriate. One possible basis of being so satisfied is that there is another more appropriate place to deal with the dispute.
A consequence of that decision, if validly made, is that the moratorium against the ANZ taking steps to recover the debt is immediately lifted. On the same date that FOS’s decision was provided to the parties (ie. 7 November 2014) the ANZ advised GM that it intended to re-commence collection activity by appointing an external administrator to it on 14 November or thereafter.
FOS’s decision and the ANZ’s advice has prompted this application. The plaintiffs commenced a proceeding by originating motion seeking final orders which would have the effect of quashing or setting aside FOS’s decision and requiring it to consider, in accordance with the law, the dispute lodged by the plaintiffs in December 2013. Pending trial, the plaintiffs seek orders restraining the ANZ from appointing external administrators as it threatens to do. Such an action, the plaintiffs claim, would have a catastrophic effect on GM’s business.
The status quo has been preserved upon mutual undertakings given to the court pending my decision on this application.
The task for me is to consider whether, in the exercise of my discretion, the injunction sought by the plaintiffs should be granted. In accordance with well recognised principle, my discretion is to be exercised having regard to a number of considerations:
(a)the first is whether the plaintiff has made out a prima facie case;[1]
(b)the second, although often combined with the third, is whether or not damages are an adequate remedy; and
(c)the third is what is usually called the balance of convenience but has been expressed by the Court of Appeal in Victoria in terms of where the lowest risk of injustice lies.[2]
[1]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 81 [85] (‘ABC v O’Neill’).
[2]Bradto v State of Victoria [2006] 15 VR 65 [35].
Although stated separately, these considerations are nonetheless interrelated.
Prima facie case
In a domestic tribunal such as FOS which exercises decision-making powers conferred by contract, there will commonly be debate over the extent the courts may review its decisions and, if so, upon what grounds. There have already been a number of decisions in Victoria[3] and elsewhere that consider where the boundary lies between those decisions which may be reviewed and those which may not.
[3]Mickovski v Financial Ombudsman Service Limited & Anor [2011] VSC 257 (Pagone J); [2012] VSCA 185 (Buchanan, Nettle JJA and Beach AJA) (‘Mickovski’), Cromwell Property Securities Limited v Financial Ombudsman Service Limited & Ors [2013] VSC 333 (Digby J); [2014] VSCA 179 (Warren CJ, Tate and Osborn JJA); Financial Ombudsman Services Limited v Pioneer Credit Acquisition Services Pty Ltd [2014] VSC 172.
Before me, the parties advanced detailed arguments on the question whether FOS’s decision was reviewable and, if so, whether it should be impugned. Other than to determine whether there is a prima facie case for the relief sought, it is neither necessary nor wise for me to analyse the merits of that argument.
I have concluded ‑ not without some hesitation ‑ that a prima facie case is made out on the present facts. Of course, whether or not that case will ultimately succeed is for another day and for more detailed consideration than it is appropriate for me to engage in.
I will briefly state the facts that lead me to that conclusion.
By September 2013, the ANZ had already granted combined financial accommodation to the plaintiffs in the vicinity of $6.4 million. In October 2013 the bank granted two further facilities, one for $1,000,000 and the other for $1.5 million to assist GM with its seasonal funding requirements. After the further facilities were granted the total debt was a little over $8.8 million. Mr and Mrs Goldsworthy were guarantors of GM’s indebtedness and were also the owners of properties which formed part of the suite of securities given for the loans.
GM soon breached the loan terms by, amongst other things, failing to lodge with the ANZ certain financial reports and other documents and also by making late payments under the loan terms. The ANZ served letters of default and of demand. In December 2013, the plaintiffs lodged the dispute with FOS.
The dispute has three basic components; namely, claims that the ANZ:
(a)negligently lent the $2.5 million to GM when the company was ‘over-leveraged’;
(b)delayed in assessing and approving seasonal funding for its business activities; and
(c)failed to give enough assistance to the borrowers to help them overcome their financial difficulties.
Under the FOS terms of reference (‘TOR’), a dispute is automatically excluded from its jurisdiction if it involves:
(a)a business which does not qualify as a ‘small business’ (as defined), namely a business with staff exceeding a particular number; or
(b)a claim exceeding $500 000.
Over the course of the past eleven months, the ANZ has sought to have FOS exclude the dispute on the above grounds. At one stage FOS did decide to exclude the dispute. However, in proceedings issued in the Supreme Court of New South Wales in April 2014, then transferred to this court, the parties consented to orders being made that set that decision aside and remitted the question to FOS to deal with according to the TOR.
Once again, the ANZ applied to have FOS exclude the dispute. Again it sought to exclude the dispute on the bases that GM was not a small business, that the claim exceeded $500 000, and that the claim would more appropriately be dealt with in a court.
On 11 September 2014, Ms Diana Ennis, a manager in the Dispute Resolution section of FOS, made what is termed a ‘jurisdictional assessment’. By that assessment Ms Ennis assessed the dispute as being one which was more appropriate to be determined by a court. She did not uphold the ANZ’s exclusion arguments that were based upon the size of the business or the value of the claim.
After a request was made to review the jurisdictional assessment, and upon receiving and considering further submissions from the ANZ and GM, on 7 November 2014, Dr Justi Tonti-Filippini, confirmed Ms Ennis’s jurisdictional assessment by making what is termed a ‘jurisdictional decision’. Dr Tonti-Filipini holds the position of ‘Ombudsman – Banking & Finance’ at FOS. She too decided that the dispute was more appropriate to be dealt with in a court. Her reasons for the jurisdictional decision were provided in writing running to 40 paragraphs over 8 pages.
The specific clauses of the TOR under which FOS made the jurisdictional assessment and the jurisdictional decision are clauses 5.2 and 5.3. They provide as follows:
5.2 Discretion to exclude Disputes
FOS may refuse to consider, or continue to consider, a Dispute, if FOS considers this course of action appropriate, for example, because:
a)there is a more appropriate place to deal with the Dispute, such as a court, tribunal or another dispute resolution scheme or the Privacy Commissioner;
b)the Applicant is not a retail client as defined in the Corporations Act 2001;
c)the Dispute relates to a Financial Services Provider’s practice or policy and does not involve any allegation of either Maladministration or inappropriate application of the practice or policy;
d)the Dispute being made is frivolous or vexatious or lacking in substance; or
e)after the Dispute is lodged with FOS, the Applicant commences legal proceedings against the Financial Services Provider that are related to the Dispute.
5.3 Process for exclusion of Disputes
a) Where a Dispute is lodged with FOS and:
(i)FOS considers that these Terms of Reference exclude the Dispute; or
(ii)FOS decides to exercise a discretion under these Terms of Reference to exclude the Dispute;
FOS will advise the Applicant (and any other parties that are involved in and have been informed about the Dispute) and provide reasons for this assessment.
b)If, within 30 days of receipt of this advice, the Applicant objects to an assessment made by FOS in accordance with paragraph a), FOS will review the matter if FOS is satisfied that the Applicant’s objection may have substance. If so:
(i) FOS will inform the other parties involved in the Dispute;
(ii)all parties will be given an opportunity to provide submissions;
(iii)all parties will be provided with copies of each other’s submissions; and
(iv)FOS will review the matter and provide the parties with FOS’s final decision referred to as a Jurisdictional Decision ‑ this will set out the reasons for the decision.
In her reasons for making the jurisdictional decision Dr Tonti-Filipini concluded as follows:
39.In exercising my discretion I have been mindful of the costs and benefits associated with using FOS as opposed to a court as the venue for the resolution of the dispute, and have not made my decision lightly. I am cognisant that this decision will significantly increase the Applicants’ legal costs, however I remain of the view that my exercise of discretion is appropriate given:
a.The complexity of the dispute and facilities at issue (some of which are cross collateralised).
b.The inability of FOS to cross examine all relevant witnesses and compel the production of information from third parties, compared to the ability of a court to compel production and appearance and cross examine.
c.The need to engage experts, and the persisting issue after the engagement of those experts that FOS is less likely to obtain a complete and accurate picture of the dispute than can a court.
d.The Applicants may have other claims which have not yet been particularised (and may result in their dispute being then deemed to be outside FOS’ TOR)
e.The conduct of the parties during the dispute (as discussed above) and the preparedness of the Applicants to go to court.
40.The Applicant’s dispute will be closed as of the date of this decision (7 November 2014) and the FSP will be entitled to recommence collection activity after giving seven days’ notice in writing of its intention to do so.
On 22 October 2014, in between the dates of the jurisdictional assessment and the jurisdictional decision, a critical telephone conversation took place. It took place between Dr Tonti-Filippini and Mr Bruce Ford. Mr Bruce Ford is the director of Dispute Assist Pty Ltd, a company that assists clients in disputes with banks. In that capacity, Mr Ford had assisted GM in relation to its dispute with the ANZ since it was lodged with FOS in December 2013.
During their conversation, Dr Tonti-Filippini told Mr Ford that she intended to exclude his client’s dispute from FOS’s consideration. She volunteered her reasons for doing so, making statements as follows or to this effect:
I have been agonising as to whether we should exercise our discretion to knock the dispute out because of the complexity of the facilities … the financial arrangements are quite complex so I had to make a decision about whether I thought we had the adequate skills here. I am not persuaded that we’ve got the in-house knowledge to deal with the complexity of the dispute so I’m intending to exercise my discretion to knock it out on that ground.
…
… we’ve had a significant loss of banking advisors in the past six months, we have had two key people go, and this is why it is so unfortunate, if this matter hadn’t been caught up in court earlier this year, it may be that had one of those individuals who left had (sic) still been here we would have given it to him because he was the business banking guru. We haven’t got a replacement for him yet.
…
I’m just being perfectly frank with you, if anything I’m prejudicing myself by being transparent and explain (sic) exactly why you have got to a decision, how I’ve got to it and the reason why I’m uncomfortable with it.
…
I have probably said too much but I have been as transparent as I can in this conversation. If I were in GM’s position I would want to know exactly why. We are trying to get someone to replace the banking advisor because banking advisors have left. It has taken longer than we had hoped to get the level of skill because these people are few and far between. It’s not a decision I’ve been comfortable in making but if the person who had left was still here I would be reeling the dispute in.
GM contends that this conversation reveals that the real or principal reason why FOS excluded the dispute from its consideration was that it had a temporary staff and skills shortage. In short, it argues that it is not open to FOS under the TOR to decide to exclude a dispute for that reason.
GM raises five grounds for seeking, as a matter of final relief, to have FOS’s jurisdictional decision set aside. In substance they are that FOS:
(a)asked itself the wrong question, namely whether its shortage of staff justified or required refusal to consider the dispute;
(b)took into account irrelevant considerations including staff shortage (as well as other matters such as the complexity of the case, the inability to compel attendance for cross-examination and an alleged uncertainty about the quantum of the dispute) and also failed to take into account relevant considerations, namely the benefit to GM of having the dispute dealt with by FOS rather than by a court;
(c)made a decision that was so unreasonable that no reasonable decision maker could have made it;
(d)made its decision for an improper purpose, namely to overcome its staff resourcing problems; and
(e)did not have proper regard to its own operational guidelines in that it failed to identify a ‘compelling reason’ for deciding to exclude the dispute.
The ANZ made careful and fulsome submissions as to why each of the grounds relied upon rose no higher than an impermissible merits-review of FOS’s decision. It emphasised the following:
(a)FOS is a private tribunal established by contract;
(b)the terms of the contract (ie. the TOR) constituted an agreement between the parties (including GM, by lodging the dispute) that a jurisdictional decision is a ‘final decision’;
(c)the real issue in the case is whether the jurisdictional decision was made in accordance with the terms of the contract;[4]
(d)the decision was plainly one that FOS was entitled to make in accordance with the terms of the contract; and
(e)moreover, FOS was entitled to reach its decision even if in doing so it made errors of fact or law provided, using an administrative law analogy, those errors were made ‘within its jurisdiction’ to decide.[5]
[4]Holt v Cox (1997) 23 ACSR 590, 597 (per Mason P citing McHugh JA in Legal & General Life of Australia Limited v A Hudson Pty Ltd (1985) 1 NSWLR 314).
[5]Mickovski [2012] VSCA 185 [41], [51].
Counsel for GM carefully sketched the regulatory framework within which the scheme for a dispute resolution service such as FOS is provided. He did so in aid of the argument that the proper construction of the contract embodied in the TOR should have regard to the statutory obligation of the financial service provider to provide an efficient, effective and accessible, alternative dispute resolution scheme.[6]
[6]Corporations Regulations 2001 (Cth) reg 7.6.02(3).
Accordingly, GM argued that the latitude to be given to FOS under the contract to exclude disputes is to be construed in that context. So construed, GM argued that clause 5.2(a) would not contemplate FOS making a decision to exclude a dispute motivated by, or upon principal consideration being given to, a temporary resources problem within FOS.
Of course these arguments beg a number of questions of both fact and law. First, FOS and ANZ deny that the words extracted from the conversation between Mr Ford and Dr Tonti-Filippini bear the meaning which GM places upon them when those words are placed in their context. There may also be an argument about the admissibility of the evidence of that conversation.[7]
[7]Although that argument was not pressed for the purpose of the interlocutory injunction application.
Secondly, there is an issue as to what role the staffing resources played in the ultimate decision. It was made more than two weeks after the phone conversation. Moreover, when she ultimately expressed her decision in writing, Dr Tonti-Filippini relied upon a range of reasons for excluding the dispute. In those reasons she denied the foreshadowed argument that the in-house business lending and accounting skills of FOS, and the need to commission external experts in order to resolve the dispute, was the only reason for the exercise of her discretion.[8]
[8]Paragraph 26 of the jurisdictional decision dated 7 November 2014.
Thirdly, there is much scope for debate as to the extent to which FOS may properly have regard to its staffing and skills resources when making a decision that there is a more appropriate forum for the dispute.
I do not suggest that the above is a comprehensive list of the controversies at play. But, lying behind the question whether there is a prima facie case is the intersection of two presently unresolved issues:
(a)a factual issue concerning the extent to which FOS did have regard to its lack of staff resources, as well as the other reasons given by Dr Tonti-Filippini, for excluding the dispute; and
(b)a legal question as to the extent to which FOS may, consonant with the contract, have regard to its lack of staff resources (if that was the case), alone or with other reasons given by Dr Tonti-Filippini, for excluding the dispute.
The factual question can only be resolved at trial. The legal question is one that should be decided having regard to the facts as ultimately found.
In my view, the evidence and arguments advanced on the application leave open a reasonable possibility:
(a) first, of a finding that the jurisdictional decision was made wholly or principally because of a temporary staff resourcing problem; and
(b) secondly, of the conclusion that a decision so made was not made in accordance with the TOR.
Put positively, I am satisfied that the plaintiffs have shown sufficient likelihood of success to justify, in the further circumstances described below, the preservation of the status quo pending the trial.[9]
[9]ABC v O’Neill (2006) 227 CLR 57, 82 [65].
Balance of convenience
In my view the rival positions of the parties on balance of convenience firmly favour the grant of the injunction.
GM’s business involves the manufacture and distribution of products which utilise, under licence, names, characters, symbols and designs associated with well recognised characters and products (eg Mattel Hot Wheels, Transformers, 20th Century Fox characters, etc). The company predicts sales in 2015, based upon various assumptions, of $18 million. If it were to be placed into receivership a number of its 8 licences would immediately be placed in jeopardy. At least one would automatically terminate and, with respect to at least 3 others, the receivership would trigger the ability of the licensor to terminate the licence.
GM claims to be currently working on improving its cash flow with summer trading and then positioning itself to re-structure its finance arrangements by the end of April 2015.
I am satisfied that the consequence of the appointment of receivers to GM could be catastrophic and spell the end of its business.
On the other hand, the consequence of granting the injunction would further delay ANZ’s recovery of its debt until trial. Although it is likely that the trial would be of relatively short duration and the parties could be ready to proceed fairly quickly, I will not assume that a trial will take place before the second term of 2015. In those circumstances, the ANZ would be held out of its recovery for at least 18 months, and possibly longer.
Although that is a long time, it is not said that the ANZ’s ultimate recovery of its debt is in jeopardy or that the securities it holds are currently inadequate. There are also a number of other protections in place for the ANZ’s position. First, the moratorium that prevents the ANZ from taking action to recover its debt has, with FOS’s agreement, been relaxed to permit the bank to exercise any rights it might have to freeze or otherwise preserve the assets the subject of the dispute. Secondly, since the orders made by Justice Vickery on 7 May 2014, the plaintiffs have agreed not to deal with the assets which comprise or underpin the value of the ANZ security under the letter of offer dated 11 October 2013 except for dealings which are permitted under the terms of the letter or are otherwise in the ordinary course of the business of GM. The plaintiffs again volunteer undertakings to like effect as a condition of any injunction the court would grant in this proceeding.
There has been no suggestion that damages would be an adequate remedy for GM should the injunction be refused and it ultimately be held entitled to the relief it seeks in the proceeding. In fact, the evidence seems to suggest that irremediable damage would occur to GM’s business should the injunction be refused and the ANZ proceed to appoint receivers as it intends to do.
Summary
In summary, I find there is a prima facie case for relief. Further, the balance of convenience firmly favours the grant of the interlocutory injunction that is sought.
Assuming an injunction was to be granted, there was no criticism of the proposed formulation or the terms of the undertakings proffered. I consider that the terms of the injunction as proposed are appropriate.
Accordingly, subject to any further submissions as to form, and to the undertakings as proffered, I will grant an interlocutory injunction on the terms as proposed.
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