Financial Ombudsman Service v Heather Moor & Edgecomb Ltd (Rev 1)

A standard case fee may lawfully be charged for each chargeable complaint, whether or not the complaint succeeds, where the fee scheme is a rational response to the need to fund the ombudsman service. DISP 3.2.1 requires consideration of summary dismissal, but not a detailed review of every complaint. DISP 3.3.1 confers a discretion, rather than a duty, to dismiss without considering the merits, and that discretion should be exercised cautiously. Summary dismissal is distinct from a merits determination under Part XVI of the Financial Services and Markets Act 2000. The power to delegate consideration of dismissal to suitably designated staff is therefore lawful. Fee liability is not conditional on lawful consideration of summary dismissal, and words will not be implied into the rules unless their literal meaning produces absurd or wholly unreasonable results.

The Financial Ombudsman Service claimed the standard case fee of £360 for each of four complaints concerning endowment mortgage schemes. The complaints had been investigated and rejected on their merits under the compulsory jurisdiction.

The District Judge dismissed the claim, holding that the fee rule was unreasonable and unlawful, that FOS had to consider summary dismissal under DISP 3.3, and that the ombudsman could not delegate that function. FOS appealed. The issues included the rationality of the fee scheme, the scope of the duty to consider dismissal, delegation, the factual finding that dismissal had been considered, and whether fee liability depended on lawful preliminary consideration.

1. Appeal allowed. The Court of Appeal reversed the finding that the standard case fee rule was irrational and unlawful and entered judgment for FOS.
2. The District Judge’s reasons showed, at most, dissatisfaction with the funding structure, the availability of alternative schemes and the possibility that the system might merit reconsideration. They did not establish perversity or irrationality in the Wednesbury sense. A fee payable for investigating and determining chargeable complaints was a rational response to the need to finance the scheme. The structure also exempted the first two complaints in a financial year and excluded wholly unmeritorious complaints dismissed under DISP 3.3.
3. DISP 3.2.1’s requirement that the ombudsman must have regard to whether a complaint should be dismissed was construed as requiring consideration of that question. It did not require detailed consideration of every complaint. It was sufficient that the applicability of a dismissal ground was apparent from the complaint and related material.
4. DISP 3.3.1 conferred a discretion, not a duty, to dismiss. The discretion should be exercised cautiously. Where further investigation might reasonably show that a complaint was well founded, investigation could be warranted even where a dismissal ground appeared applicable.
5. Under the Financial Services and Markets Act 2000, determination referred to a merits decision under section 228, whereas dismissal referred to a decision without consideration of the merits. Schedule 17 paragraph 14(2)(f) therefore authorised delegation of summary dismissal to designated staff. DISP 3.7.1 was intra vires. The District Judge was also entitled to accept that consumer consultants had considered dismissal.
6. Neither FEES 5.5.1 nor the definition of a chargeable case made consideration of summary dismissal a condition of liability. The proposed interpolation would produce unreasonable consequences, including disputes about whether a complaint should have been dismissed. The contractual construction rule in Alghussein Establishment v Eton College [1988] 1 WLR 587 was not authority for a compulsory statutory adjudication. The six issues were answered: no, yes, yes, yes, yes and no.

• Court of Appeal (Civil Division): Allowed FOS’s appeal and entered judgment for FOS on the claim for standard case fees.
• Trowbridge County Court: District Judge Rutherford dismissed FOS’s claim, holding that the fee rule was unreasonable and unlawful and that summary dismissal had been unlawfully delegated, although none of the complaints should have been dismissed.