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Fairness Case Studies

FOS is committed to fairness and consistency in its consideration and resolution of disputes.



  • deciding disputes, and
  • making decisions about remedies

in order to:

  • assist in the identification of what is fair, and
  • support consistency in decision making

FOS has regard to:

  • legal principles
  • industry codes
  • industry practice guides
  • good industry practice, and
  • previous FOS decisions. 


While FOS will take into account industry codes, practice guides and good industry practice, FOS will not necessarily be bound by the minimum standard that may be set in a particular industry code. FOS will try to do what is fair in all the circumstances for both parties to the dispute. This may involve deciding that an FSP should have met a higher standard than the minimum industry standard.


This approach is in accordance with paragraph 8.2 of the FOS Terms of Reference (TOR) which establish FOS’s jurisdiction.


As part of their membership, all FOS members agree to be bound by these TOR.


8.2 Dispute Resolution Criteria
Subject to paragraph 8.1, when deciding a Dispute and whether a remedy should be provided in accordance with paragraph 9, FOS will do what in its opinion is fair in all the circumstances, having regard to each of the following:
  1. legal principles;

  2. applicable industry codes or guidance as to practice;

  3. good industry practice; and

  4. previous relevant decisions of FOS or a Predecessor Scheme (although FOS will not be bound by these).


In order to provide further clarity around how we apply the principle of fairness to disputes we provide here case studies in:

  • Banking & finance
  • General insurance, and
  • Investments


Banking & finance case study: recovery of costs under a fixed interest rate loan to two borrowers where one borrower is removed

The loan
Borrowers A and B entered into a fixed rate loan contract with their financial services provider (FSP). Their partnership came to an end and they wished to go their separate ways. They sorted out their financial position as between themselves and then went to their FSP with the following proposal:

  • Borrower A wanted to be released from their obligations under the loan contract and any supporting mortgage
  • Borrower B wanted to stay on the same terms as the existing loan contract, and
  • Borrower B was able to show they had capacity to service the loan contract without reliance upon any financial contribution from Borrower A.


The FSP treated Borrowers A and B’s request to release Borrower A as:

  • a termination of the existing loan contract with Borrowers A and B, and
  • a request for a new loan contract with Borrower B only. 


Because the existing loan contract was being terminated, the FSP sought to charge break costs for early termination of the fixed rate loan from Borrowers A and B. 


The complaint
Borrowers A and B complained to FOS that the FSP ought not to have the right to charge break costs because Borrower B had been willing and able to abide by the terms of the existing loan contract, including honouring repayments as they fell due during the remainder of the fixed interest rate period.


The FSP’s response
The FSP said:

  • The terms of the loan contract disclosed that Borrowers A and B may be required to pay break costs if they repaid ahead of time all or part of their loan during a fixed interest rate period
  • Its systems would not allow for a change to the names of borrowers without the account being closed and a new account being created, and
  • Its policy would not allow a variation to a loan to remove one of the borrower’s names, as its policy stipulated that, in relation to any amendment to a contract, the loan must remain in exactly the same name/s as the original parties to the loan.


FOS approach
As Borrower A wished to be released from the loan, in strict legal terms the contract could be said to be terminated as the parties to the contract would not remain the same.  However, in many ways the underlying transaction was unaffected as the opportunity to maintain the loan and the return on investment remained on foot for the FSP if Borrower B was ready, willing and able to meet their obligations. 

Application costs
FOS accepted that in these circumstances, the FSP needed to assess the ability of Borrower B to service the loan without Borrower A’s financial assistance. Therefore, the FSP was entitled to payment of those costs.  The costs included:

  • the FSP’s costs of assessing Borrower B’s application for a loan in their name only (the application fee)
  • the costs of discharging the mortgage given by Borrowers A and B, and
  • the costs of preparing a new mortgage in Borrower B’s name alone.


These items constituted reasonable costs the FSP would incur by releasing Borrower A.


Break costs
FOS’s view was the break costs did not constitute a reasonable loss that the FSP would incur. We took this view because:

  • the FSP did not need to re-invest the loan monies
  • the loan monies could remain lent on the same terms to Borrower B
  • the FSP had a duty to mitigate its loss arising from the “termination” of the contract and this duty could be fulfilled by lending to Borrower B, and
  • the FSP had an obligation to act fairly and reasonably in its dealings with Borrowers A and B. 


Limitations of FSP’s systems
FOS accepted that the FSP’s systems may not allow for a change of names of borrowers.  However, FOS’s view was that this system limitation did not make any difference to what could fairly be charged to Borrowers A and B. 


Relevance of the FSP’s policy
FOS’s view is that FSP policies and guidelines are intended to ensure an FSP’s staff:

  • comply with legal requirements
  • apply what the FSP considers to be good industry practices to protect its commercial interests, and
  • provide a professional service to its customers. 


However, they are not mandatory and may be departed from (usually with sign-off by senior management) when individual circumstances warrant an exception to be made.


The FSP said that its policy would not allow the removal of one borrower from the loan.


We considered what interest the FSP was reasonably protecting in applying the strict requirements of its policy to Borrowers A and B’s request. 


Our assessment was that there was no justifiable right or interest the FSP could show it was protecting (such as the remaining borrower’s inability to service the loan). We took the view that the FSP could have acceded to the request to remove Borrower A’s name from the loan, and that it was unfair not to do so. 


Again, if new documentation was required (such as a new mortgage in the name of Borrower B) the FSP was reasonably entitled to recover these costs as well as a reasonable charge for assessing serviceability by Borrower B.


The FSP’s reasonable loss recoverable from Borrowers A and B were its costs of assessing serviceability by Borrower B and the costs of documenting the new loan with Borrower B.

Investments case study: payment system problems and the terms of a contract for difference

The transaction


  • On the evening of 21 January, Ms V held open CFDs with more than $13,000 equity
  • Owing to market volatility, on the morning of 22 January, Ms V’s equity was reduced to $1,300
  • Ms V noticed the decline in equity and transferred $2,000 to her account by credit card using the FSP’s online trading platform
  • The FSP, via its online trading platform, issued Ms V with a transaction ID and authorisation code for the transaction
  • After the credit card transaction was completed, Ms V noticed that her account showed a negative equity of $300
  • Ms V telephoned the FSP and spoke with Mr J and told him:

- the credit card payment had been made

- her account had a negative equity position despite the credit card payment

- she had not received a margin call from the FSP

  • Mr J told Ms V:

-  her account was in a negative equity position

-  her account did not show that $2,000 had been deposited

-  the FSP’s credit card facility was not working properly

-  the FSP had to manually input a credit card transaction which would take longer than usual

  • Ms V expressed her concern that the FSP might liquidate her open CFD positions if her credit card payment was not processed quickly enough
  • Mr J told Ms V if her open CFD positions were liquidated, she could be reinstated “if the payment was made” but this was done “on a case by case basis”.


Shortly after the telephone call was terminated, the FSP liquidated Ms V’s open CFD positions without making a margin call.  Ms V’s $2,000 deposit was allocated to her account five minutes after her positions were liquidated.


The complaint
Ms V sought to have her open positions reinstated, but the FSP refused. 


The FSP’s position
The FSP said it wasn’t liable for Ms V’s losses because it had acted in accordance with its contract with Ms V.


The FSP said the contract provided:

  • funds deposited into Ms V’s account had to be cleared funds
  • it had an absolute discretion as to whether it allowed Ms V time to provide cleared funds to meet margin requirements
  • Ms V could only be allowed to maintain open positions on the basis of cleared funds in her account
  • it was the responsibility of Ms V to monitor the amount of margin deposited in her account and to have regard to the time it would take for her to remit sufficient cleared funds to her account
  • it was not obliged to make margin demands, and
  • Ms V’s liability to pay margin accrued throughout the term of the contract and regardless of whether or not a margin demand was made.


The FSP also noted:

  • its Product Disclosure Statement and Terms of Business alerted Ms V to the possibility of her positions being liquidated:

- before she had the opportunity to deposit additional funds, and

- before additional funds that had been deposited in response to a margin call became cleared funds, and

  • its online trading system warns its clients that online credit card payments may take up to 30 minutes to be applied to accounts.


FOS investigation

During the course of the FOS investigation, the FSP acknowledged:

  • it had no specific protocols in place in the event of a “system issue” which affected the electronic application of credit card payments where a client was in margin and a liquidation order had been triggered
  • its system for issuing margin calls was also inoperative at the time of Ms V’s transaction, and
  • it would have been prudent for Mr J to inform Ms V during the telephone call that her open positions were due to be liquidated.


FOS assessment
FOS considered the critical issue to be assessed was that if the FSP:

  • knew its system for electronically allocating online credit card payments was inoperative and causing delays, and
  • had been informed by Ms V that she:

- had made an online credit card deposit

- had the necessary transaction ID and authorisation code to verify the deposit, and

- had not received a margin call notice,


should it have directed its dealing operators to prevent the liquidation of Ms V’s open positions until at least 30 minutes after Ms V had made her deposit.


FOS accepted that the contract appeared to authorise the liquidation of Ms V’s CFD positions on 22 January.  However, it was concerned about the fairness of the liquidation in the circumstances. 


In assessing whether the FSP’s actions were fair, FOS took into account:

  • Mr J had failed to alert Ms V to the imminent liquidation of the open positions
  • that failure appeared to be due to a lack of protocols when there was a failure in the electronic application of credit card payments and the client’s account was in margin
  • the FSP’s reliance on the contractual obligation placed on Ms V to ensure she allowed sufficient time to deposit additional funds to her account in response to a margin call was misplaced as no margin call had been made
  • there was nothing in the contract about taking up to 30 minutes for credit card payments to be processed, and
  • the FSP failed to explain how funds it had received through its own online payment system could be regarded as “in transit” or “promised”.


FOS decision
FOS reached the conclusion that:

  • the manner in which the FSP’s business systems operated on 22 January  was not efficient
  • the FSP’s failure:

- to stop the liquidation of Ms V’s open CFD positions on 22 January  after Ms V had advised Mr J of her $2,000 deposit and had raised her concerns at having her positions liquidated, and

- to reinstate Ms V’s CFD positions;
amounted to a breach of the FSP’s duty to provide financial services efficiently, honestly and fairly as required by s912A(1)(a) of the Corporations Act.


General Insurance case study: proving a third party motorist was uninsured

The claim

  • Ms F had parked her car
  • Mr W collided with Ms F’s parked car and pushed it into another parked car
  • Even though Mr W left the scene of the accident, Ms F managed to obtain Mr W’s name, address and registration number
  • She also obtained a copy of the police incident report for the collision
  • Mr W was prosecuted by the police for his driving which led to the damage to Ms F’s car


Ms F tried to discover whether Mr W was insured against the damage caused to her car. She unsuccessfully attempted to obtain this information from the police and the prosecution.


Ms F held a third party property motor vehicle insurance policy.  She claimed for her motor vehicle damage under her uninsured motorist extension.


The FSP’s position
The FSP declined the claim on the basis Ms F had not proved Mr W was uninsured for Ms F’s loss. The specific policy term required her to satisfy the FSP

“…that the owner or driver of the other vehicle is not insured against that cost”.


The FSP was also unable to verify whether Mr W was uninsured against this damage.


FOS investigation
The main issue in dispute was whether Ms F could satisfy the FSP that Mr W was uninsured.


The investigation revealed that Mr W had committed at least two criminal offences leading to the damage to Ms F’s car. One offence was that the accident was the result of a “burnout”.


Mr W had also failed to stop at the scene; failed to provide his details and been uncooperative with the police.


FOS assessment
FOS took the view that if Mr W had held standard insurance cover for his vehicle, it was likely that a burnout would be an excluded event under the policy. This assumption was consistent with the standard motor vehicle exclusions under the Insurance Contracts Regulations 1985. This would mean the damage caused to Ms F’s car as a result of the burnout would not be covered by a standard insurance policy in Mr W’s name.


FOS also noted that a number of insurance policies have exclusion clauses regarding the third party’s activities, such as failing to stop at the scene, provide/obtain relevant details or assist police at the scene of the collision. As Mr W had failed to stop at the scene; failed to provide his details and been uncooperative with the police, FOS was of the view that Mr W would not have been insured for the cost incurred by Ms F even if a policy was in place.


FOS decision
FOS decided Ms F had done all she could reasonably be expected to do to satisfy the terms of the policy as she had obtained all the relevant particulars. The FSP therefore could not rely on the policy exclusion as to do so would be unfair when all of the circumstances supported the view that Mr W was not insured. Even if he was insured, his policy would not cover him since he breached a number of standard exclusion clauses.


The determination also sounded a word of caution to the FSP that, by requiring Ms F to obtain information regarding Mr W’s insurance contract, the FSP was encouraging Ms F to obtain personal information in possible breach of the privacy legislation. As such, the relevant provision may be struck down because it offends public policy.


General Insurance case study: proving property was damaged by fire

The claim

  • Ms P operated a business
  • A coffee machine at the business was damaged in a fire
  • Ms P’s business was insured with the FSP for various risks
  • She lodged a claim under her policy for replacement of the coffee machine


The FSP’s position
The FSP denied the claim on the basis Ms P had breached the policy terms by:

  • disposing of the coffee machine prior to lodging the claim and
  • being unable to provide any documentation of its purchase.


FOS investigation
Ms P provided the following:

  • An explanation as to why the coffee machine was disposed of
  • A more detailed repairer’s report, which confirmed there was fire damage to the machine, and
  • A statement from the person who sold the original machine to her business, which verified its authenticity, its model details and its approximate purchase date and price.


While the FSP expressed doubts about the competency of the local authorised repairer, it provided no information in support of its assertion.


FOS decision
FOS decided Ms P had done all she could reasonably be expected to do to satisfy the terms of the policy by obtaining all the relevant particulars. It would therefore be unfair for the FSP to rely on the policy exclusion when all of the circumstances supported the view that Ms P had owned a coffee machine which had been damaged by fire.
FOS determined the FSP should reimburse Ms P the cost of a new coffee machine, less the GST component.