In Utopia Financial Services Pty Ltd -V- Financial Ombudsman Service Ltd [2012] WASC 279 the Supreme Court of Western Australia rejected an application by a financial planning business to set aside an order by the Financial Ombudsman Service that the financial planning business pay A$142,015 in compensation to two clients.

Utopia had provided Mr and Mrs Rees with advice to borrow in order to make certain investments and they accepted its recommendations.

But they complained when the dividends on their investments and their tax benefits had not been sufficient to cover the interest payments on their loans and the capital value of their investments had diminished.

FOS found that, but for the inappropriate advice and inadequate risk disclosure, Mr and Mrs Rees would not have invested as they did.

Utopia did not challenge that finding but challenged FOS’s determination on the basis that it acted outside its terms of reference by ordering payment of damages which were not “direct financial loss or damage”.

The Supreme Court decided that the Rees had suffered actual economic loss and damage.

“FOS did not decide that Utopia pay to the Rees a sum of money for something other than direct financial loss. In deciding the amount of compensation FOS is required to do what in its opinion is fair in all the circumstances, having regard to legal principles, applicable industry codes or guidance as to practice, good industry practice and previous relevant decisions of FOS or a predecessor scheme: Terms of Reference [8.2]. The Panel decided that in its opinion it was fair in all the circumstances that Utopia pay compensation to the Rees in relation to the economic loss suffered by them with respect to the Property Trust Investment by repaying to the Rees the amount of the liability they had incurred under the home loan and for the Rees to transfer the Property Trust Investment to Utopia at its request. The Panel further decided that Utopia should pay to the Rees the financial loss they had suffered by reason of the loan repayments having exceeded the income from the investments together with tax benefits.”