Heather Moor & Edgecomb Ltd, R (on the application of) v Financial Ombudsman Service & Anor

Under section 228(2) of the Financial Services and Markets Act 2000, the Financial Ombudsman determines compulsory-jurisdiction complaints by reference to what it considers fair and reasonable in all the circumstances. It must take relevant law into account under DISP, but it is not bound to decide strictly in accordance with common-law causes of action.

That jurisdiction is compatible with Article 6 where the applicable rules are sufficiently predictable, reasons are given for any departure from law, and judicial review remains available to restrain irrationality or arbitrariness. An oral or public hearing is required only where fairness requires it. Written evidence may suffice where no central factual dispute needs oral resolution.

An independent financial adviser recommended that a client transfer out of his British Airways final-salary pension scheme into a section 32 policy invested in equities. The client complained after the investment underperformed. The Financial Ombudsman Service upheld the complaint, directed a loss assessment and payment up to its £100,000 compulsory-award limit, and recommended payment of any balance.

The firm sought judicial review. It argued that the Ombudsman had to apply English common law, had wrongly rejected its professional-negligence defence, and should have held a public oral hearing. Permission had been refused by Lloyd Jones J and then by Simon J, but Laws LJ granted permission and directed that the substantive claim be heard by the Court of Appeal.

The central issues were the meaning of section 228(2) of the Financial Services and Markets Act 2000 and the procedural requirements imposed by Article 6.

1. The claim for judicial review was dismissed. Section 228(2) of the Financial Services and Markets Act 2000 did not require the Ombudsman to determine a compulsory-jurisdiction complaint in accordance with common law. Its express requirement was a determination by reference to what, in the Ombudsman’s opinion, was fair and reasonable in all the circumstances. DISP 3.8.1(2) required relevant law and specified regulatory and industry materials to be taken into account, but permitted a justified departure from the result at common law.
2. That construction did not infringe Article 6 or Article 1 of the First Protocol. The statutory scheme and DISP gave sufficiently predictable standards. Financial firms complying with the specified legal, regulatory and industry standards would not ordinarily be held liable without an explained exceptional basis. Irrationality, inconsistency and arbitrariness remained reviewable. The court approved the earlier analysis in R (IFG Financial Service Ltd) v Financial Ombudsman Service [2005] EWHC 1153 (Admin).
3. In any event, the Ombudsman had been entitled to reject the alleged Bolam defence. The evidence that some competent advisers might have recommended a transfer did not establish a responsible or respectable body of professional opinion. It did not satisfy the test in Bolam v Friern Barnet Hospital Management [1957] 1 WLR 582, still less the requirement in Bolitho v City and Hackney Health Authority [1998] 1 AC 232 that professional opinion have a logical and defensible basis after considering comparative risks and benefits.
4. No oral hearing was required. Following R (Thompson) v the Law Society [2004] EWCA Civ 167, fairness required an oral hearing only where a central factual dispute could not fairly be resolved on written material. The advice and its effect were adequately documented, and no such dispute was identified. Applying Jussila v Finland, Article 6 did not normally require a public oral hearing where written procedures fairly resolved the issues and the scheme’s speedy, informal character was relevant.
5. There was also no breach through the absence of a public pronouncement by FOS. The Ombudsman’s decision had become public in the judicial-review proceedings, and the Court of Appeal’s judgment would be public. In the circumstances, that satisfied Article 6.

• Court of Appeal (Civil Division): The court dismissed the judicial-review claim in [2008] EWCA Civ 642.
• Administrative Court: Lloyd Jones J refused permission on the papers. Simon J refused the renewed permission application on 8 October 2007. Laws LJ subsequently granted permission and directed that the substantive claim be heard by the Court of Appeal.