R (Heather Moor & Edgecomb Limited) v Financial Ombudsman Service

The Court of Appeal dismissed the claimant's application for judicial review of the Financial Ombudsman Service's decision. The court held that section 228(2) of the Financial Services and Markets Act 2000 and the DISP scheme rules properly authorise the Ombudsman to determine complaints by reference to what he considers ‘fair and reasonable’ rather than being bound to apply the common law in all its particulars. DISP 3.8.1 requires the Ombudsman to take into account relevant law, regulations, regulators' rules and guidance, codes of practice and, where appropriate, contemporary industry practice; if the Ombudsman departs from established law he must say so and explain why. The court applied Bolam and the Bolitho qualification in reviewing the Ombudsman's factual conclusions and found that the Ombudsman was entitled to reject the expert evidence relied on by the firm. The court also held that the Ombudsman was not obliged to hold an oral or public hearing where the issues could fairly be determined on documents and that publication of the Ombudsman's decision was not required to satisfy Article 6 because judicial review proceedings provide public scrutiny.

Background and parties: HME (Heather Moor & Edgecomb Ltd) were independent financial advisers. Simon Lodge (the interested party) complained to the Financial Ombudsman Service (FOS) about advice given in 1999 to transfer his British Airways pension to a Section 32 plan. The Ombudsman upheld the complaint and made directions including an assessment of loss and an award up to the compulsory limit of £100,000 with a recommendation as to any excess.

Procedural posture: Permission to bring judicial review was initially refused on the papers and on renewal; Laws LJ later granted permission and directed that the substantive application proceed to the Court of Appeal.

Nature of the claim / relief sought: HME sought judicial review of the Ombudsman's final decision of 23 November 2006. The grounds included that the Ombudsman had no power to depart from English common law when determining complaints under the compulsory jurisdiction (section 228(2) FSMA 2000), that the Ombudsman breached the firm’s Convention rights under Article 6 and Article 1 of Protocol 1 by failing to apply the law and by refusing an oral and public hearing, and that FOS should have declined jurisdiction because the claimant’s potential exposure exceeded the FOS monetary limit.

Issues framed by the court:

• Whether section 228(2) and the DISP rules require the Ombudsman to determine complaints in accordance with the common law (or whether he may decide by reference to what he considers fair and reasonable).
• Whether construing the scheme as permitting departure from the common law is incompatible with Article 6 ECHR and A1P1 or with the rule of law and Human Rights Act 1998 s.3.
• Whether the Ombudsman misapplied the law in the particular case (including application of the Bolam/Bolitho principles).
• Whether the Ombudsman was required to hold an oral and/or public hearing or to publish his decision, and whether he should have declined jurisdiction in favour of litigation.

Court's reasoning and conclusions: The court concluded that the natural meaning of section 228(2) and the scheme rules is that the Ombudsman determines complaints by reference to what, in his opinion, is fair and reasonable; he is not slavishly bound to the common law. That construction was not incompatible with Article 6 or A1P1 provided that DISP 3.8.1 is applied so as to require the Ombudsman to take account of relevant law, guidance and industry practice and to explain departures. The court held that the DISP provisions and the published procedures (including provisional assessments and opportunities to comment) provide sufficient accessibility and predictability to satisfy the rule of law. On the facts, the Ombudsman had properly considered and rejected the firm's expert evidence under the Bolam/Bolitho tests and was entitled to find the advice unsuitable. The refusal to hold an oral hearing was lawful because the matters could fairly be decided on contemporaneous documents and written submissions; the absence of a public FOS pronouncement did not breach Article 6 given the availability of public judicial review and subsequent publication. The claim for judicial review was dismissed.

Appeal dismissed. The Court held that section 228(2) FSMA 2000 and DISP 3.8.1 permit the Ombudsman to determine complaints by reference to what he considers fair and reasonable rather than being bound to apply the common law in all its particulars; the scheme is compatible with Article 6 and A1P1 so long as the Ombudsman takes relevant law and guidance into account and explains departures; the Ombudsman did not err in law or fact in this case (including on Bolam/Bolitho), the refusal of an oral or public hearing was lawful, and there was no basis to require FOS to decline jurisdiction in favour of litigation.

Permission for judicial review was refused on the papers by Lloyd Jones J; a renewed application for permission was refused by Simon J on 8 October 2007. Laws LJ granted permission and directed that the substantive application be heard in the Court of Appeal, which delivered judgment in [2008] EWCA Civ 642.