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Court of Appeal Judgement: The Financial Ombudsman Service Last Updated: 2 July, 2008 In Heather Moor & Edgecomb Limited v Financial Ombudsman Service [2008] EWCA Civ 642, the Court of Appeal ruled that the Financial Services & Markets Act 2000, does not require the Financial Ombudsman Service to determine a complaint in accordance with the common law.
Rather, the Ombudsman is entitled to decide a case 'by reference to what is, in the opinion of the Ombudsman, fair and reasonable in all the circumstances of the case'.
In the event of a perverse decision by the Ombudsman, such a decision would be liable to be set aside by judicial review.
Case fees: In a related judgement, handed down on the same day (Financial Ombudsman Service v Heather Moor & Edgecomb Limited [2008] EWCA Civ 643), the Court of Appeal held that a company was still liable to the FOS for a case fee, even if the case is found in found in favour of the company.
FLA :: News :: Article
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R v FOS | OUT-LAW.COM
R v FOS
The Court of Appeal has confirmed that the Financial Ombudsman Service does not have to decide cases strictly in accordance with English law, but by reference to what is, in the ombudsman's opinion, fair and reasonable in all the circumstances of the case.
R (On the Application of Heather Moor & Edgecomb Limited) v FOS and Simon Lodge Citation 1
Help with citations
Facts
Mr Lodge complained to the FOS about advice he was given in 1999 by an independent financial adviser (IFA) to transfer out of his British Airways pension scheme and invest in a personal pension plan.
The advice failed to take into account all Mr Lodge's circumstances. He was 55 but his wife was significantly younger and they had two young children. Moreover, the assumed growth rate of 9% per annum was not achieved.
The ombudsman was satisfied that good industry practice in 1999 would have been to recommend against transfer. The factors the IFA took into account did not include the large age difference between Mr and Mrs Lodge and the need to secure equivalent spouse's benefits. And the 9% assumed annual growth rate was "anything but modest".
In reaching this decision, the ombudsman stated "while I have taken into account the relevant law, I have determined this complaint based on what, in my opinion, is fair and reasonable bearing in mind all the circumstances of this case".
The IFA applied for judicial review, arguing that the FOS was obliged to determine complaints in accordance with English law and that failure to do so was an infringement of the European Convention on Human Rights. The IFA had advised in accordance with good practice at the time and was therefore not negligent under the law.
In addition, the ombudsman should have held an oral hearing in public and he should have given his decision in public but wrongfully refused to do so.
Judgment
The application for judicial review was refused. Had the rules required the ombudsman to determine cases in accordance with English law, they would have said so.
Instead, section 228 of the Financial Services and Markets Act 2000 provides that the ombudsman will determine a complaint by reference to what is, in his opinion, "fair and reasonable in all the circumstances of the case".
And the FOS scheme rules (set out in the DISP section of the FSA Handbook) state "in considering what is fair and reasonable in all the circumstances of the case, the ombudsman will take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time".
In the Court of Appeal's view, the ombudsman was entitled to reach the conclusion he did on the evidence. The fact that some competent advisers would have recommended the transfer did not amount to a practice accepted by responsible financial advisers.
The court was also satisfied that the scheme did not breach the right to a fair trial under the European Convention. The ombudsman was free to depart from the relevant law, as long as he said so in his decision and explained why.
Nor did the scheme rules prevent him from hearing cases in public or pronouncing his decision in public.
There was no issue in this case that had made a public hearing necessary and there had been no unfairness in the ombudsman's decision to decide the matter on written evidence. The decision had been made public by these proceedings and the availability of the judicial review procedure meant there was no breach of the Convention.
Commentary
This case was heard at the same time as FOS v Heather Moor, which confirmed the right of the FOS to charge a firm the standard case fee, even when the case against the firm had been unsuccessful.
Another recent case that tested the boundaries of the FOS was Bunney v Burns [2007], in which the High Court confirmed that the FOS did not have the power to make a binding award over the statutory limit of £100,000.
------------------------------- merged -------------------------------
FOS v Heather Moor
The Court of Appeal has upheld the right of the Financial Ombudsman Service to charge a firm the standard case fee, irrespective of outcome.
The Financial Ombudsman Services v Heather Moor & Edgecomb Limited
Help with citations
Facts
Four complaints relating to endowment mortgages were brought against a firm of financial advisers. The claims were initially considered by a consumer consultant at the FOS, who decided they should not be summarily dismissed. They were then investigated and determined on their merits by an ombudsman. In each case, the complaint was rejected.
Nevertheless, the FOS sought payment of the standard £360 case fee per claim from the firm. But the firm argued that the rule requiring it to pay a fee in these circumstances was unreasonable and therefore unlawful.
In addition, it maintained that no fee would have been payable had the claims been summarily dismissed. The FOS in this case had failed in its duty to weed out claims that had no real prospect of success. Instead, it had adopted a policy of never dismissing a complaint relating to an endowment mortgage scheme. And the decision had been left to a consumer consultant, not an ombudsman, which was against the scheme rules.
County Court judgment
The District Judge agreed with the firm that the requirement to pay a fee irrespective of outcome was unreasonable and unlawful.
Although he did not find that the FOS had a policy of letting all mortgage endowment claims proceed to full determination and he concluded that none of complaints in this case should have been summarily dismissed, nevertheless, the fee was unjust.
In his decision, he pointed to a body of opinion in the industry aggrieved at the imposition of the fee, particularly because of the high volume of unmeritorious endowment complaints. The intention had been that the FOS would get half its funding from case fees and half from the annual levy. But the increase in the number of mortgage endowment cases in recent years has meant a far greater proportion has come from case fees.
Court of Appeal judgment
The Court of Appeal overturned the decision. The system imposing a flat fee for the services of the ombudsman in investigating and deciding complaints was a perfectly rational response to the need to fund the scheme. The judge's reasoning went to the question whether the rule should be reconsidered, not to the original decision to adopt it.
If a fee were payable only if a complaint were upheld, the amount of the fee would have to go up dramatically. There would also be unsatisfactory grey areas over negotiated settlements or cases where there was no clear winner or loser, or where the complaint was upheld but the award was lower than an earlier offer. And it could provide a financial incentive to the FOS to uphold complaints, so that it would no longer be an independent tribunal.
The decision also confirmed that FOS rules entitle the ombudsman to delegate the initial decision on summary dismissal to a designated member of staff, such as a consumer consultant.
The Court of Appeal brushed aside a suggestion that the requirement to pay the fee was conditional on summary dismissal having been considered. Such a rule would introduce the question whether or not there had been consideration, making the collection of fees a complicated and expensive exercise.
Commentary
This decision joins a batch of recent cases testing the boundaries of the FOS. The case was heard at the same time as R v FOS, which confirmed the FOS' remit to decide cases on the basis of what the ombudsman considers fair and reasonable in all the circumstances.
Last year, in Bunney v Burns [2007], the High Court confirmed that the FOS did not have the power to make a binding award over the statutory limit of £100,000.
FOS v Heather Moor | OUT-LAW.COM
Bit more on CASE on post 1
Rather, the Ombudsman is entitled to decide a case 'by reference to what is, in the opinion of the Ombudsman, fair and reasonable in all the circumstances of the case'.
In the event of a perverse decision by the Ombudsman, such a decision would be liable to be set aside by judicial review.
Case fees: In a related judgement, handed down on the same day (Financial Ombudsman Service v Heather Moor & Edgecomb Limited [2008] EWCA Civ 643), the Court of Appeal held that a company was still liable to the FOS for a case fee, even if the case is found in found in favour of the company.
FLA :: News :: Article
------------------------------- merged -------------------------------
R v FOS | OUT-LAW.COM
R v FOS
The Court of Appeal has confirmed that the Financial Ombudsman Service does not have to decide cases strictly in accordance with English law, but by reference to what is, in the ombudsman's opinion, fair and reasonable in all the circumstances of the case.
R (On the Application of Heather Moor & Edgecomb Limited) v FOS and Simon Lodge Citation 1
- [2008] EWCA Civ 642
Help with citations
Facts
Mr Lodge complained to the FOS about advice he was given in 1999 by an independent financial adviser (IFA) to transfer out of his British Airways pension scheme and invest in a personal pension plan.
The advice failed to take into account all Mr Lodge's circumstances. He was 55 but his wife was significantly younger and they had two young children. Moreover, the assumed growth rate of 9% per annum was not achieved.
The ombudsman was satisfied that good industry practice in 1999 would have been to recommend against transfer. The factors the IFA took into account did not include the large age difference between Mr and Mrs Lodge and the need to secure equivalent spouse's benefits. And the 9% assumed annual growth rate was "anything but modest".
In reaching this decision, the ombudsman stated "while I have taken into account the relevant law, I have determined this complaint based on what, in my opinion, is fair and reasonable bearing in mind all the circumstances of this case".
The IFA applied for judicial review, arguing that the FOS was obliged to determine complaints in accordance with English law and that failure to do so was an infringement of the European Convention on Human Rights. The IFA had advised in accordance with good practice at the time and was therefore not negligent under the law.
In addition, the ombudsman should have held an oral hearing in public and he should have given his decision in public but wrongfully refused to do so.
Judgment
The application for judicial review was refused. Had the rules required the ombudsman to determine cases in accordance with English law, they would have said so.
Instead, section 228 of the Financial Services and Markets Act 2000 provides that the ombudsman will determine a complaint by reference to what is, in his opinion, "fair and reasonable in all the circumstances of the case".
And the FOS scheme rules (set out in the DISP section of the FSA Handbook) state "in considering what is fair and reasonable in all the circumstances of the case, the ombudsman will take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time".
In the Court of Appeal's view, the ombudsman was entitled to reach the conclusion he did on the evidence. The fact that some competent advisers would have recommended the transfer did not amount to a practice accepted by responsible financial advisers.
The court was also satisfied that the scheme did not breach the right to a fair trial under the European Convention. The ombudsman was free to depart from the relevant law, as long as he said so in his decision and explained why.
Nor did the scheme rules prevent him from hearing cases in public or pronouncing his decision in public.
There was no issue in this case that had made a public hearing necessary and there had been no unfairness in the ombudsman's decision to decide the matter on written evidence. The decision had been made public by these proceedings and the availability of the judicial review procedure meant there was no breach of the Convention.
Commentary
This case was heard at the same time as FOS v Heather Moor, which confirmed the right of the FOS to charge a firm the standard case fee, even when the case against the firm had been unsuccessful.
Another recent case that tested the boundaries of the FOS was Bunney v Burns [2007], in which the High Court confirmed that the FOS did not have the power to make a binding award over the statutory limit of £100,000.
------------------------------- merged -------------------------------
FOS v Heather Moor
The Court of Appeal has upheld the right of the Financial Ombudsman Service to charge a firm the standard case fee, irrespective of outcome.
The Financial Ombudsman Services v Heather Moor & Edgecomb Limited
- [2008] EWCA Civ 643
Help with citations
Facts
Four complaints relating to endowment mortgages were brought against a firm of financial advisers. The claims were initially considered by a consumer consultant at the FOS, who decided they should not be summarily dismissed. They were then investigated and determined on their merits by an ombudsman. In each case, the complaint was rejected.
Nevertheless, the FOS sought payment of the standard £360 case fee per claim from the firm. But the firm argued that the rule requiring it to pay a fee in these circumstances was unreasonable and therefore unlawful.
In addition, it maintained that no fee would have been payable had the claims been summarily dismissed. The FOS in this case had failed in its duty to weed out claims that had no real prospect of success. Instead, it had adopted a policy of never dismissing a complaint relating to an endowment mortgage scheme. And the decision had been left to a consumer consultant, not an ombudsman, which was against the scheme rules.
County Court judgment
The District Judge agreed with the firm that the requirement to pay a fee irrespective of outcome was unreasonable and unlawful.
Although he did not find that the FOS had a policy of letting all mortgage endowment claims proceed to full determination and he concluded that none of complaints in this case should have been summarily dismissed, nevertheless, the fee was unjust.
In his decision, he pointed to a body of opinion in the industry aggrieved at the imposition of the fee, particularly because of the high volume of unmeritorious endowment complaints. The intention had been that the FOS would get half its funding from case fees and half from the annual levy. But the increase in the number of mortgage endowment cases in recent years has meant a far greater proportion has come from case fees.
Court of Appeal judgment
The Court of Appeal overturned the decision. The system imposing a flat fee for the services of the ombudsman in investigating and deciding complaints was a perfectly rational response to the need to fund the scheme. The judge's reasoning went to the question whether the rule should be reconsidered, not to the original decision to adopt it.
If a fee were payable only if a complaint were upheld, the amount of the fee would have to go up dramatically. There would also be unsatisfactory grey areas over negotiated settlements or cases where there was no clear winner or loser, or where the complaint was upheld but the award was lower than an earlier offer. And it could provide a financial incentive to the FOS to uphold complaints, so that it would no longer be an independent tribunal.
The decision also confirmed that FOS rules entitle the ombudsman to delegate the initial decision on summary dismissal to a designated member of staff, such as a consumer consultant.
The Court of Appeal brushed aside a suggestion that the requirement to pay the fee was conditional on summary dismissal having been considered. Such a rule would introduce the question whether or not there had been consideration, making the collection of fees a complicated and expensive exercise.
Commentary
This decision joins a batch of recent cases testing the boundaries of the FOS. The case was heard at the same time as R v FOS, which confirmed the FOS' remit to decide cases on the basis of what the ombudsman considers fair and reasonable in all the circumstances.
Last year, in Bunney v Burns [2007], the High Court confirmed that the FOS did not have the power to make a binding award over the statutory limit of £100,000.
FOS v Heather Moor | OUT-LAW.COM
Bit more on CASE on post 1
