Originally posted by Amethyst
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Sorry me dear - been away for a bit but better late than never I spose.
The judgment is the very best of what we could have hoped for- a categorical win on all 3 grounds.
As Tom pointed out, Justice Ousley, rather than simply refusing permission for Judicial Review (which could have been easily achieved without a hearing or even a judgment by simply ruling that their were insufficient grounds for the case to be heard), in having the case heard and comprehensively dismissing the BBA’s claim in stone, it leaves the banks with not just their claim to re-sell but a high court judgment to overturn. Any appeal to the Court of Appeal will be fought not on the basis of proving their case but disproving the view of the court - a more difficult task.
On the issue of the claim against the FOS being nearly 2 years out of time the judge ruled that even if he had accepted the BBA’s claim against them he wouldn’t have back-dated it to the date that the online resource was first published:
’I would not have refused relief on the grounds of delay if I had concluded that the FOS was applying and continuing to apply a legally erroneous construction of the rules since that ongoing error would have needed correction for the future as Mr Malek accepted. I would not have granted any relief which affected its past decisions, requiring it to carry out a review of past findings.’’
The judgment takes the form of 3 separate chapters that deal with the 3 grounds for the claim:
1) The Actionability or otherwise of the Principles
2) Principles augmenting or replacing Rules
3) The FSA’s decision to use Root Cause Analysis in favour of s404.
The BBA’s original claim included a fourth ground - Common Failings - which was dropped by the time the case made it to the hearing. This was arguably what the BBA claimed was their strongest ground and the one on which they most relied to accuse the FSA of imposing retrospective rule changes. The BBA had argued that the Common Failings which appeared in the open letter section of the Policy Statement ‘’superceded the existing rules‘’. But, embarrassingly, shortly after the BBA filed their claim the FSA wrote to them saying that they had completely mistaken the common failings for new rules as opposed to simply examples of breaches of existing rules. It beggars belief that the BBA could make such a fundamental error and this was not lost on Justice Ousley who remarked in the judgment that:
‘’After the commencement of these proceedings, the FSA made a statement saying that it feared that the Open Letter was being misinterpreted. This was seen as something of a climb down by the BBA’’.
Ground 1) Actionability of Principles
This ground challenged the FSA’s and FOS’s use of the Principles - the breaching alone of which cannot be used by a private individual in the courts to claim financial redress. The BBA argued that if the court doesn’t recognise Principles as giving rise to a legal liability then the FSA & FOS shouldn’t have any legal right to either.
But Justice Ousley thought differently and concluded that although Parliament indeed prevented the use of the Principles being relied on in a private action in a court of law, there is nothing in any legislation that precludes their use by either the FSA or FOS:
‘’I do not find the Claimant's submissions persuasive, preferring instead those of the FSA and FOS. The statutory provision being construed is s150. S150(1) deals with contraventions of rules by making them actionable as breaches of statutory duty. "Actionable" means giving rise to a cause of action in a court of law. S150(2) removes that actionability. S150(2) does nothing else. "Actionable" in s150(1) simply does not mean "capable of giving rise to obligations or compensation". So s150 does not apply to the Principles. It does not alter their function in any other way. It leaves intact any other function or effect which a non-actionable rule might have. The clear words of the section are wholly inapt to prevent rules which are not actionable giving rise to obligations as between firms and customers.’’
‘’The words which would have to be imported into the section to give effect to Lord Pannick's submissions are not there by necessary implication either. If the Ombudsman can take the Principles into account in construing other rules but not as free standing sources of obligations, (even where using them in that way did not fall foul of BBA's second main submission that they cannot apply where specific rules have been made), an exclusion of unclear effect yet of some legal sophistication would be required. It is clearly not possible let alone necessary to imply such words.’’
‘’Indeed, it is my view that it would be a breach of statutory duty for the Ombudsman to reach a view on a case without taking the Principles into account.......they [the principles] are of the essence of what is fair and reasonable..............whether the Principles had been formulated or not, and whether they could or could not be considered, the FOS would be bound to consider such essential points as whether the information given to a customer was clear, fair and not misleading, putting him in a position to make an informed choice, and whether the policy was a suitable one to be recommended for this particular individual. I accept that point. It is in reality unanswerable.’’
‘’Second, there is some sense in such a limitation. One major purpose of the s404 scheme is to require firms to examine cases whether there has been a complaint or not, and if the failure has caused loss, they have to make redress to the consumers. The consumer may have made no complaint at all. They may complain only when they hear of the consumer redress scheme. The limitation to legal liability limits the liability of the firms in a situation when they are likely to be paying compensation to a number of people who did not or otherwise would not have complained. There is one class of consumer who could lose out, and that is the person whose complaint would fail under the s404 scheme but would succeed under the Ombudsman scheme as ordinarily applied. That is a form of trade-off for the consumer in general.’’
Ground 2) Principles augmenting rules
This ground of the BBA’s case was an ‘occupied field test’. The theory being that the rules in ICOB and ICOBS exclusively were the only rules that should govern the selling of insurance and that there was no room for additional rules (Principles) to supplement them.
In general Justice Ousley ruled that the Principles were not an addition to the existing rules but an ‘’amplification’’ or ‘’restatement’’ of them. Although he did conclude that there were some instances where the principles were additional to the existing rules but that there was good reason for them being so.
To illustrate this he used some really interesting examples given in the FSA’s witness statement - which we never got to see in the court documentation we obtained:
’Ms Sinclair gave illustrations in her Witness Statement of the regulatory gap which the BBA's contention would open up. There is no specific ICOB rule which prohibits the selling of a PPI policy to someone who can never claim under it, even where the seller knows that to be the case. Such conduct would be covered by Principles 1, 3 and 6, but not if the BBA argument were correct since there were specific rules governing the sale of PPI policies.
There is no specific ICOB rule which prevents the non-advised sale of a PPI policy where the cost of the premium plus interest payable, when added to the loan, exceeds any amount which could ever be paid out under the policy. Yet that would engage Principles 1 and 6. There is no ICOB rule which prohibits, on a non-advised sale, the sale of a single premium PPI policy with a refund provision which is not proportionate to the duration of the policy where the seller knows that it is likely that the loan to which the policy was related would be refinanced shortly after the policy was taken out. This would be a breach of the Principles as explained in common failing 15. She accepted that all such conduct might, on particular facts, involve breaches of specific rules in ICOB.
The first example was used by Mr Brindle to test the true position of the BBA: was it saying that this could be dealt with by the application of the Principles, or that the application of the Principles had been exhausted by the specific ICOB rules? If the former, then the application of the Principles was accepted by the BBA and its point was limited to a debate, which it was agreed was not fruitfully for resolution by this court, as to which factual situations gave rise in practice to the application of conflicting or exhaustive specific provisions.’’
So in effect what he is saying is that the Principles passed the occupied field test by virtue of them occupying parts of the field that ICOB and ICOBS didn‘t. Neat huh?
’The unhelpful concept of the specific rules "occupying the field" is inapt to express the true position. The Principles "occupy the field"; they stand over the specific rules. It is the general performing its role as the overarching requirement which cannot be displaced by compliance with specific rules if the overarching requirement is breached. The Principles are the overarching framework for regulation. The overarching or underlying Principles are simply being applied where the rules do not cover the point.’’
Ground 3) The s404 scheme
This ground was another occupied field test. The BBA attacked the requirement for banks to conduct a Root Cause Analysis in the Policy Statement which would mean them having to pro-actively review past PPI sales and offer redress where appropriate even in cases where no complaint had been made. The BBA argued that the FSA should instead use the more formal s404 scheme - for which it was designed - because it offered the banks ‘’certain protections’’. I’d always wondered what exactly these ‘protections’ were and in his judgment Justice Ousley concluded that because of the time-consuming and cumbersome nature of setting up an s404 scheme, the ’’protections’’ amounted to nothing more than providing them with a stalling tactic:
‘’Mr Fordham put considerable weight on what he described as the protections for the industry in the need for the Treasury to make the scheme on certain bases, and for Parliament to approve it. I am not sure that those procedures are only protections for firms as opposed to means of oversight of the FSA. Be that as it may, there were different protections in the new section but the important point was that there were protections which showed that measures should not be devised to achieve the same result as a scheme would achieve, unless formulated and processed as a statutory scheme. The FSA did not want to follow the scheme route in part because of what it saw as the cumbersome procedures. Those cumbersome procedures were what Mr Fordham regarded as procedural protections. I do not see that the nature of the measures in the Policy Statement, costly though they will be, and destructive of a number of businesses, can be seen as evading procedural protections which firms were intended by Parliament to enjoy.’’
‘’Mr Fordham contended that s404 exclusively occupied the field
Although it is a necessary condition for the making of a scheme that the Treasury be satisfied of widespread misselling and loss by private persons upon a report to it by the FSA, the existence of circumstances which would warrant a report by the FSA and the Treasury being satisfied of those two requirements, is not by itself sufficient to deprive the FSA of all power to act in any other way to deal with misselling of PPI. It would be absurd if the regulatory powers diminished in range and scope the more serious the circumstances in which they were needed’’
‘’I do not think that it is useful to ask and answer the question of what field is occupied by s404, and then ask whether the changes in the Policy Statement occupy it. That rather distracts from and misstates the issue of statutory construction. The question is whether or not the provision for a scheme in s404 carries with it the necessary implication that what the FSA has set out in the Policy Statement is excluded from the FSA's powers as regulator. It is certainly not excluded by any express words. A specific provision is capable of carrying an implied exclusion of other general or other specific powers, but I do not consider that s404 implicitly excludes what the FSA has done, even though it would have been possible for a scheme to have been set up to achieve much or rather more of the same end, and part of the reason why it was not was the cumbersome nature of the remedy, and the fact that it would not apply to breaches of the Principles…… I have already said that the existence of circumstances in which a scheme could successfully be promoted is not of itself a basis for the exclusion of other remedies.’’
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