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Australia – Know Your FOS Contract: Settlements.

9 December, 2014

 

Legal News & Analysis – Asia Pacific – Australia – Banking & Finance

 

Ensure Your Settlement Is Effective

 
Clause 8.8 of the Terms of Reference for the Financial Ombudsman Service (FOS) provides:

 
“In order to accept a Recommendation or a Determination, the Applicant must provide the Financial Services Provider (if the Financial Services Provider so requests) with a binding release of the Financial Services Provider from liability in respect of the matters resolved by the Recommendation or Determination. The release must be for the full value of the claim the subject of the Dispute, even if this amount exceeds the amount of the remedy decided upon by FOS.”

 
Financial services providers (FSPs) need a full and effective release from the Applicant to ensure they receive the full benefit of the FOS dispute resolution process. Without this, the Applicant may not be barred from bringing legal proceedings against the FSP notwithstanding that the FSP has paid damages to the Applicant.

 
To help ensure that a release provided by an Applicant is effective:

 
1. make sure the correct Financial Services Provider is named; and

 
2. request a deed of release.

 
Name The Correct “Financial Services Provider”

 
Any release will only be effective in respect of the FSP to whom the release is provided. Accordingly, early on in the dispute resolution process, as the FSP, you should check that the Applicant has named in the dispute the entity that provided the relevant financial services to the Applicant and, if the Applicant has not, you should raise this issue in your submissions in order to ensure that the relevant entity is named by FOS in the Recommendation or Determination.

 
In some circumstances, it may be a simple matter to identify the entity that provided the financial services that is alleged to have caused the Applicant’s loss. However, in many cases, there may be multiple corporate entities involved in providing services of some description to the Applicant and it may not be clear on behalf of which entity the financial services being complained about were provided. For example, in some cases, stockbroking services may be provided by one entity whereas financial advice may be provided by a separate entity and credit facilities may be provided by a third entity. In these circumstances, a conservative approach is to seek to have each possible entity named in the Recommendation and Determination in order to maximise the protection offered to the FSP.

 
If, for whatever reason, the release is not provided in respect of the correct entity, this does not necessarily mean that the FSP will have no protection against the Applicant bringing fresh proceedings against the FSP arising out of the same facts and circumstances, however there is a greater risk that this could occur.

 
Request A Deed Of Release

 
In order for an Applicant to accept either a Determination or a Recommendation, FOS itself requires the Applicant to sign a Confirmation of Settlement in full and final resolution of the dispute they lodged with the Applicant. However, as set out in clause 8.8 of the Terms of Reference, an Applicant will not be required to provide a release to the FSP unless requested to do so by the FSP.

 
Although it will always depend on the particular circumstances of any dispute, where a dispute relates to a potentially significant liability for the financial services provider (even if the amount actually awarded by FOS is much lower), a deed of release can be useful to clearly record the resolution of the dispute and to set out the terms of the settlement.

 
Depending on the circumstances, it may also be possible and desirable to include in the deed of release other ancillary terms, such as non-disparagement and confidentiality clauses, which provide some additional protections to both parties.

 
If, as the FSP, you do request a deed of release, you should be aware of FOS’ policy that FSPs can only require an Applicant to sign a deed of release if they have provided FOS with a copy of the deed within 14 days of being told the Applicant has accepted the decision. Rather than an impediment, this can instead be a tool for FSPs. As some Applicants to FOS are not sophisticated in legal documentation and may be hesitant to sign even a relatively simply deed of release, having FOS review the deed and confirming that it accords with their policies and procedures canbe an extremely effective mechanism to encourage the Applicant to execute the deed and to reduce delay and further dispute.

 

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For further information, please contact:

 

Ashley Wharton, Partner, Ashurst
ashley.wharton@ashurst.com


Andrew Carter, Partner, Ashurst
andrew.carter@ashurst.com 


Sonia Tame, Partner, Ashurst
sonia.tame@ashurst.com


Mark Elvy, Partner, Ashurst
mark.elvy@ashurst.com


Adrian Chai, Partner, Ashurst
adrian.chai@ashurst.com


Chris Goddard, Partner, Ashurst 
chris.goddard@ashurst.com


Jonathan Gordon, Partner, Ashurst
jonathan.gordon@ashurst.com


Gareth Hughes, Partner, Ashurst
gareth.hughes@ashurst.com


Wen-Ts’ai Lim, Partner, Ashurst
wentsai.lim@ashurst.com

 

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