Financial Services Authority v Matthews & Anor

The Financial Services Authority sought an order under section 382 of the Financial Services and Markets Act 2000 requiring the defendants to pay sums just having regard to losses caused by their failure to comply with two Personal Investment Authority Ombudsman Bureau Awards. The court held that the defendants had contravened a relevant requirement by failing to comply with the Awards and that the clients were qualifying persons for the purposes of section 382. The court rejected the defendants' attempt to re-open or re-argue the Ombudsman Awards (including a collateral Article 6 challenge) because no timely judicial review had been brought and the Awards were binding under the contractual and regulatory framework (including PIA Rules, in particular Rule 8.6).

The court exercised its discretion under section 382 to award compensation on a top-up basis rather than full reinstatement into the Mineworkers Pension Scheme, having regard to the disproportionate cost of reinstatement, the defendants' limited means and an available asset (a £90,000 loan) that could contribute to payment. The court accepted actuarial figures relied on by the FSA (and not challenged by the defendants) and ordered payment of £52,472.23 for Merriman and £29,876.97 for Bayliss, together with assessed FSA costs of £11,500.

Background and parties: The Financial Services Authority (FSA) applied under section 382 of the Financial Services and Markets Act 2000 for orders against Mr and Mrs Matthews (formerly trading as a partnership) to pay sums in respect of clients who suffered losses when transferring pensions out of the Mineworkers Pension Scheme. The awards in question were two Personal Investment Authority Ombudsman Bureau Awards dated 29 March and 7 August 2000 in favour of the clients (Merriman and Bayliss).

Nature of the application: The FSA sought (i) declarations that the defendants contravened a relevant requirement by failing to comply with the Awards; (ii) an order that the defendants pay sums the court considered just having regard to the losses; and (iii) a direction that the FSA pay the compensation to the two clients. The key legal route was section 382 (civil remedial jurisdiction) and the transitional provisions treating PIA rules as relevant requirements.

Issues before the court:

• Whether failure to comply with the PIA Ombudsman Awards constituted a contravention of a "relevant requirement" under section 382;
• Whether the defendants or the clients were entitled to re-open or challenge the Ombudsman Awards (including on Article 6 European Convention on Human Rights grounds);
• Whether compensation should be on a reinstatement basis (reinstatement into the Mineworkers Pension Scheme) or a top-up/augmentation of the personal pension policies; and
• Quantum of any award and the defendants' means to pay (including an actuary's calculations and a disclosed £90,000 loan asset).

Court's reasoning: The court found that members of the PIA were contractually bound by the PIA Rules and the Ombudsman procedure; Rule 8.6 required prompt compliance with Awards except where a good-faith appeal or court application had been made. The only available legal challenge to an Ombudsman Award was by judicial review within the statutory time limit; no such challenge had been pursued. The court therefore held the Awards to be final and binding and rejected the defendants' attempt to re-argue the merits or to rely successfully on Article 6, noting also the non-retrospective effect of the Human Rights Act 1998 in relation to these Awards. On the remedial question the court considered the regulatory preference for reinstatement but exercised its discretion under section 382 to order top-up compensation because reinstatement would be disproportionately burdensome on the defendants and would require them to deplete all assets, whereas top-up would deliver meaningful benefit to the clients. The court accepted the actuarial evidence relied on by the FSA (not challenged) and considered the defendants' means, including treating Mrs Matthews' £90,000 loan to her brother as available for meeting liability.

Result: The court ordered the defendants to pay compensation on a top-up basis in the sums of £52,472.23 (Merriman) and £29,876.97 (Bayliss), and ordered the defendants to pay the FSA's costs assessed at £11,500, with specified payment deadlines.

This first-instance claim was allowed. The court held that the defendants had contravened a relevant requirement by failing to comply with the PIA Ombudsman Awards and that the clients were qualifying persons under section 382. The awards were binding (no timely judicial review had been brought) and the defendants could not re-open the determinations or successfully rely on an Article 6 challenge. Exercising its discretion under section 382, the court ordered compensation on a top-up basis rather than reinstatement because reinstatement would be disproportionately onerous in the light of the defendants' means; specific sums and costs were ordered.