Garrison Investment Analysis, R (on the application of) v Financial Ombudsman Service

An Ombudsman’s decision letter must be read as a whole and in a common-sense, rather than legalistic, manner. Reasons are adequate where they make the basis of the decision reasonably clear in the context of the issues and procedure. However, redress must have a logical connection with the error identified. Where the error is excessive concentration in one high-risk product, rather than unsuitable investment in equities generally, it is irrational to assume without evidential basis that the complainant would have reduced investment risk. The redress must realistically represent the position the complainant would have occupied but for the particular error.

The claimant sought judicial review of a Financial Ombudsman Service decision partly upholding a complaint by Mr and Mrs Bell concerning investments in NDF Extra Income and Growth Plans 3 and 5. The Ombudsman found that the recommendation of Plan 3 was acceptable but that too much reliance had been placed on Plan 5, and ordered redress calculated by reference to the original capital plus a return of 1 per cent above the Bank of England repo rate.

The claimant argued that the Ombudsman’s reasons were inadequate and that the redress was unreasonable. The central issues were whether the decision letter sufficiently explained the liability finding and whether the redress methodology was rationally connected to the error identified.

1. The claim succeeded in part. Mr Justice Sullivan held that the Ombudsman’s reasons on liability were adequate. The decision letter, including the second provisional decision, had to be read as a whole and in a common-sense way. It made clear that Plan 3 was acceptable, but that recommending Plan 5 placed too much reliance on one type of high-risk product in the complainants’ wider circumstances, particularly given their age.
2. The Ombudsman was not required to address every submission in detail. The letter sufficiently showed that the relevant arguments had been considered, including the submission that the NDF investments replaced investments in at least as high a risk category.
3. The redress decision was different. The Ombudsman had stated that the aim was to place the complainants in the position they would have occupied but for the claimant’s error. His findings showed that the error was not recommending high-risk products as such, but recommending too large a proportion of one particular type of product. The complainants had continued to invest in equities and had not established a wish to reduce risk.
4. Against those findings, the assumption that reasonable advice would have led the complainants to preserve their capital and obtain a return of 1 per cent above base rate was speculative. The appropriate assessment should have considered what return they would have obtained had they remained invested in equities generally, potentially by reference to the FTSE index. There was no logical connection between the redress ordered and the error found. The redress was therefore irrational.
5. The decision was quashed and remitted to the Ombudsman solely for determination of the appropriate redress in light of the earlier conclusion as to the claimant’s error. The claimant was awarded 50 per cent of its costs, subject to detailed assessment, with £7,000 payable on account within 14 days.