IFG Financial Services Ltd, R (on the application of) v Financial Ombudsman Services Ltd & Ors

The Financial Ombudsman may determine complaints by what is fair and reasonable, even where that produces a result different from English law. The statutory duty to take relevant law into account does not require the ombudsman to apply it. The ombudsman must, however, consider the relevant legal principles and act rationally. A decision may depart from the legal measure of damages where the ombudsman reasonably considers another outcome fair and reasonable in all the circumstances. The court assesses compliance from the reasons given. A detailed explanation for rejecting the legal result is not invariably required.

IFG Financial Services Ltd sought judicial review of a final determination by the Financial Ombudsman Service requiring compensation to Mr and Mrs Jenkins for unsuitable investments. The challenge was confined to losses from the FCS Managed Currency Fund, whose assets were substantially depleted by unforeseeable fraud by its managers. The claimant accepted that the advice was unsuitable but argued that English law did not make it liable for the fraudulent loss. The central issue was whether the ombudsman had complied with the requirement under the Financial Services and Markets Act 2000 and the scheme rules to take relevant law into account.

1. Application dismissed. The ombudsman’s determination was not liable to be quashed.
2. Under section 228(2) of the Financial Services and Markets Act 2000, a complaint is determined by reference to what, in the ombudsman’s opinion, is fair and reasonable in all the circumstances. The scheme does not require determination in accordance with English law. The ombudsman’s opinion remains subject to conventional judicial review where it is irrational or perverse.
3. The same principle applies to compensation under section 229(2). The ombudsman may award an amount which differs from damages recoverable at law, or direct steps which a court could not order, provided the outcome is reasonably considered fair and reasonable and the matters required by Rule 3.8.1(2) are taken into account.
4. It was common ground that the obligation to take relevant law into account applied to deciding whether compensation should be awarded and to its quantification. That obligation did not compel the ombudsman to follow English law. Compliance was assessed from the reasons given.
5. The ombudsman expressly considered counsel’s opinion on causation, accepted that the fraud was unforeseeable, and addressed the argument that the claimant was therefore not liable. He rejected that argument as unfair and unreasonable because the funds had been invested where they should never have been invested and it was inappropriate for the customers to absorb the loss. The final decision also confirmed that he had considered both law and fairness.
6. The absence of a fuller explanation for departing from English law did not invalidate the decision. In a judgment-based assessment of fairness and reasonableness, it was sufficient to identify the result considered fair. The reference to South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 supported the distinction between the legal result and the scheme’s broader statutory standard; the court proceeded on the accepted position for this application without analysing that authority.
7. The claimant was ordered to pay the defendant’s costs, summarily assessed at £11,870.

The claim was brought for judicial review of the Financial Ombudsman Service’s final determination dated 2 August 2004. The High Court (Administrative Court) dismissed the application.