20 May 2011

Watching Out for Consumers, Address at the External Dispute Resolution Forum

Thank you Colin [Neave], for that introduction and thank you for extending the invitation to speak at today's forum.

With my portfolio responsibilities for competition policy, consumer affairs, corporate law and financial literacy, I have the great pleasure of interacting with many of you, often in capacities that span each of those policy areas.

I am pleased to see Ombudsman services and other parties involved in helping consumers resolve disputes coming together today to share your knowledge and experiences of External Dispute Resolution (EDR).

At the outset, I would like to acknowledge the enormous contribution of our Ombudsman services, and in particular all of the hard-working staff who field the calls, emails and letters from consumers who, more often than not, are at the end of their tether and in desperate need of assistance by the time they make contact with your services.

While Ombudsmen have been playing an important role in Australia for the last four decades, the concept of an independent umpire interceding on behalf of the least powerful parties to transactions is one that stretches back thousands of years.

During the time of the Roman Empire, the Roman Tribune was the body that championed the interests of the citizenry, providing oversight of decisions made by magistrates and pursuing legal reforms on behalf of the less powerful members of society.

These intercessions, however, were not always welcomed by those who occupied positions of power. In the second century BC, for example, the treatment of one Roman Tribune named Tiberius Gracchus, who was seen to have gone beyond his mandate in pursuit of a just outcome, was rather drastic: the Senators beat him to death with their chairs and threw his body into the River Tiber.1

Against this historical backdrop, it was a courageous decision to hold today's forum so close to Coogee Beach!

Fortunately, the environment in which you now all work is nowhere near as fraught with danger, although I am sure that you have dealt with the odd intransigent business or uncooperative Government agency who has expressed a yearning and nostalgia for the somewhat brutal methods of Roman times.

We've come a long way since the days of Tiberius Gracchus and our modern day Ombudsmen are recognised for the important role they play in protecting the rights of Australians and are generally respected by industry, consumers, government departments and elected representatives.

History of the Industry Ombudsman in Australia

As the role of the Tribune in Roman times demonstrates, the concept of an independent body established to protect the interests of the people from capricious decision-making is not new.

Similar offices appear to have existed in ancient societies, such as China and Korea.

I understand that the modern application of the term 'Ombudsman' – referring to a supervisory body independent from government - can be traced back to the introduction of the Swedish Parliamentary Ombudsman in 1809, which was introduced to safeguard the rights of its citizens.

In Australia, the concept of the Ombudsman emerged in the 1970s.

Our first Ombudsman service began in Western Australia in 1971 and was quickly followed by Ombudsman services in every State and at the Commonwealth level.

Some commentators have indicated that this development was part of a social movement that started to take more interest in the rights of individuals faced with the power of the State, and in particular to address concerns about the accessibility of the Court system.

From the early 1990s, as essential State-owned services were privatised, a range of industry based Ombudsmen also emerged to deal with issues in energy, water, public transport, telecommunications, banking and insurance industries.

The role played by industry Ombudsmen in modern times is arguably more important than the earlier Ombudsmen, as in the case of private sector entities, they do not face Parliamentary oversight or the same political scrutiny of Governments.

Indeed, the increasing prevalence of Ombudsmen is evidence of their low cost, effectiveness and respect among consumers and industry.

Philosophy behind EDR and industry Ombudsmen

A Supreme Court judge in Canada once remarked that the role of an Ombudsman, in part, involves:

bringing the lamp of scrutiny to otherwise dark places.2

That is clearly only one aspect of the role. The philosophy behind the industry Ombudsman is widely accepted as providing an accessible, cost effective and common sense approach to dispute resolution that eliminates the barriers that would otherwise prevent individuals from seeking and obtaining justice.

Beyond their cost-effectiveness, Ombudsmen provide a number of tangible benefits over litigation.

Ombudsmen are in the unique position of being able to act as an honest broker where necessary, facilitating mediation, often in disputes that involve a number of different parties, in a confidential manner that is mindful of the relationships and reputation of all parties involved.

The benefits of the industry Ombudsman are shared between industry and consumers.

An effective industry Ombudsman relies on the support of industry and a motivation to continually improve outcomes for those involved.

The industry Ombudsman can act as a consumer feedback mechanism allowing industry to respond to the changing needs of consumers. This process can help to build confidence in an industry and ultimately reduces the level of consumer complaints.

The role of EDR and the industry Ombudsman in the regulatory environment

In this regard, Ombudsmen are an important part of the consumer protection regulatory framework.

Consumer protection has been a major priority of this Government, so much so that we made sure that it featured on the reform agenda of the Council of Australian Governments.

In 2010 we introduced a new, national consumer credit law and regulatory system. At the beginning of this year, we replaced nine legislative regimes on consumer protection and fair trading with a single national law – the Australian Consumer Law.

The Government is now engaged in a thorough review of insurance, comprehensive reforms to our superannuation system and progressing further reforms to consumer credit and banking. All of these reforms are designed to improve consumer protection, enhance consumer choice, promote competition and foster innovation.

But these legislative and regulatory frameworks only take us so far. Consumers can always benefit from simple, effective and inexpensive avenues when seeking to enforce their rights and this is where Ombudsman services can play a critical role.

Effective dispute resolution mechanisms are essential if consumers are to have confidence when they enter into transactions with Australian businesses.

External Dispute Resolution and Ombudsmen provide consumers with a cost effective and accessible alternative to legal action to seek redress and protect their rights when things go wrong.

Dispute resolution can be a costly and time consuming activity.

Governments devote significant resources to dispute resolution mechanisms and the current Government is progressing a wide ranging agenda to improve access to justice, including through the simplification of laws and the promotion of greater consumer and business awareness of their rights and obligations.

Governments fund Courts, Tribunals, Offices of Fair Trading and regulators like the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC), all of whom play a significant role in dispute resolution.

EDR conducted by Ombudsmen, and other bodies like the Superannuation Complaints Tribunal and state and territory tribunals, is an important complement to those mechanisms.

While some may see the Ombudsman as a champion of the smaller party, its real value is in providing a fair and balanced approach to investigating without pre-judging the outcome or advocating the cause of either side of a dispute.

Its value to the smaller party is in providing an accessible, low-cost approach to resolve their complaint while providing the larger party with an impetus to act in a responsible and just manner and, where appropriate, to improve their systems and procedures.

It is in these areas that EDR and Ombudsmen can really add value to the efficiency of ours markets and the cohesion of our society when compared with other aspects of the legal system, which often can be complex, obscure, expensive and intimidating for everyday Australians.

Ombudsmen vigorously defend their independence – and for good reason.

Their credibility is intrinsically linked to their independence, something reflected in comments made by the first New Zealand Ombudsman, Sir Guy Powles, who said:

I am not looking for any scapegoats or embarking on any witchhunts ... I shall look for reason, justice, sympathy and honour, and if I don't find them, then I shall report accordingly.3

The community attaches value to the findings of an Ombudsman because of its independence. An adverse report or decision by an Ombudsman carries weight largely because stakeholders understand it is free from any undue influence.

Our common law heritage has given us an adversarial system of justice. Through their independence, Ombudsmen can assist people to avoid the costs and angst that can accompany such an approach, even at the lowest levels of the court hierarchy.

Another area in which EDR can add value lies in addressing systemic problems within an industry or process. By working at the coalface, Ombudsmen have the ability to pick up trends in complaints that may reflect more serious problems.

As Robert Fitzgerald commented in a publication celebrating 20 years of the Commonwealth Ombudsman:

It is not just a watchdog but also a forward scout, reaching out into the community ... often alerted to newly emerging problems comparatively early in their genesis.4

By working with industry participants, Ombudsmen can encourage systemic change within organisations, or even entire industries, which delivers benefits beyond the individual parties to a dispute.

This differs markedly from the usual approach taken by our justice system – individual parties often choose to settle a matter between themselves with no regard for others who may be in the same situation.

An interesting example identified in the Financial Ombudsman Services' 2009-10 Annual Review involved a financial institution failing to properly link an offset account to mortgages for some customers. Obviously some customers were not even aware of the problem. Actions by FOS in identifying the systemic issue and having the institution remedy the problem resulted in refunds of interest of $11.6 million for a large number of customers. What a great result.

Where courts and tribunals are focussed on individual outcomes, Ombudsmen are in a position to advance the interests of all consumers by influencing broader industry practices.

Change to industry practices through the action of Ombudsmen fits well with the Government's preference for industry self-regulation over a more interventionist approach.

Governments have a limited armoury with which to effect change to industry practices and many of the tools in the armoury are fairly blunt instruments.

Self-regulation will usually result in more efficient economic outcomes as it is more accurately tailored to industry conditions and more adaptable to change than legislative approaches.

It is worth noting that in many industries the private sector fund the Ombudsman despite the fact that their actions will be subjected to scrutiny by the Ombudsman. This suggests that industry participants see the value of providing consumers with an avenue to resolve disputes because it can enhance the confidence that consumers have in the goods and services that those industry participants supply.

Industry involvement in EDR can help enforce best practice and high operating standards that include notions of fairness that go above and beyond our legal frameworks.

Where a dispute involves manifest unfairness, but the larger, more powerful party has not been in breach of the law, the justice system is powerless to respond.

When an Ombudsman is involved, EDR can sometimes offer a solution where a business might be more willing to compromise to resolve a dispute to maintain goodwill or avoid adverse publicity.

The role of EDR and Ombudsmen in empowering consumers

When we consider those industries where an Ombudsman has a presence – such as in the financial services, energy, water, superannuation and telecommunications industries – I think it is fair to say that they all involve some very large businesses and, by virtue of this, there is generally a significant power imbalance between consumers and their service providers.

Ombudsmen can and do wield countervailing power in disputes between large businesses and consumers, or as someone once remarked they operate by 'pulling beards for the little people'.5

Governments have come a long way in the past 20 years in terms of providing publicly accessible dispute resolution mechanisms – many of our consumer tribunals, for example, involve very small costs and limited formality.

Nevertheless some consumers still face barriers to accessing justice through formal means.

Even consumer tribunals require a consumer to invest time and effort in presenting their own case. They are also adversarial, which can be confronting for many consumers.

External Dispute Resolution cuts through those barriers by allowing complaints to be investigated on behalf of consumers.

This can be of great assistance to consumers who would otherwise find it hard to effectively advocate their own cause. For example, Ombudsmen can play a critical role in representing the interests of disadvantaged or vulnerable consumers.

The EDR services of an Ombudsman can also be of great assistance to consumers who have limited time to devote to a dispute or where the quantum of money in question is too small to justify litigation.

Formal legal processes are notoriously slow and costly, and can lead to a loss of confidence not only in the businesses involved, but in the 'system' itself.

Often a delay in receiving redress can be a denial of justice in itself – particularly if a consumer has a large amount of money at stake and faces financial distress as a result of delays. By offering speedy resolution of a dispute, EDR can fill that widening gap in the justice system.

EDR and Ombudsmen services in the future

Ombudsmen and External Dispute Resolution will continue to have an important presence in our consumer protection framework well into the future, and I am sure that the sector will continue to find new ways to evolve to respond to areas of need.

I note that one interesting trend involves EDR providers extending their operations by providing training on internal dispute resolution procedures.

The unique experience of Ombudsmen hearing complaints from consumers places them in a good position to offer advice to organisations on how to avoid disputes. This should help industry participants to avoid disputes before they require EDR.

Another trend, which is probably an extension of activities that Ombudsmen have engaged in for a long time, is involvement in shaping Government policies.

It is a welcome development that Ombudsmen, with their wealth of experience at the coalface, engage with the policy making process by making submissions, meeting with Ministers, appearing before Parliamentary inquiries and engaging in other advocacy activities. I know that many of you here today have already knocked on my door and the doors of my colleagues.

Another developing trend is the formalisation of some Ombudsman functions within regulation. For example, ASIC Regulatory Guide 139 requires the FOS to identify, resolve and report on systemic issues and serious misconduct. I also understand that membership of FOS is a condition of holding a financial services license, which gives it an even higher level of authority when dealing with disputes.

The role of Ombudsmen also serves to enhance and complement the work now being done to make our laws and regulatory systems more effective, through making them clearer, simpler and better focussed on consumer and business needs.

Thank you again for all your work and for watching out for the interests of consumers. I'm sure you'll all be sparing a thought for poor Tiberius Gracchus when you return to your offices, but rest assured your efforts are welcomed by Australian consumers and Governments alike.

I hope you all have a very productive and thought-provoking day.

Thank you.

1 Plutarch The Life of Tiberius Gracchus in The Parallel Lives Volume X, page 191; Loeb Classical Library (1921) Cambridge Mass., USA

2 Re Alberta Ombudsman Act (1970) 10 DLR (3d) 47 at 61.

3 Powles G, "The New Zealand Ombudsman – the Early Days" (1982) 12 VUWLR 207.

4 Fitzgerald, R. "ACOSS on the 20th Anniversary of the Commonwealth Ombudsman" in Twenty Years of the Commonwealth Ombudsman, p. 56.

5 Queensland Ombudsman, Annual Report 1994-95, p. 8.