Financial Ombudsman Service v Heather Moore and Edgecomb Ltd

The Court of Appeal allowed the Financial Ombudsman Service's appeal and entered judgment for FOS for standard case fees claimed in respect of four endowment mortgage complaints. The court held that the FOS funding scheme requiring a standard case fee for chargeable cases is a rational and lawful means of funding the compulsory jurisdiction under the Financial Services and Markets Act 2000 (notably sections 230 and 234 and Schedule 17). The court interpreted DISP 3.2.1 as requiring the ombudsman to consider whether a complaint should be summarily dismissed under DISP 3.3 but held that the power to dismiss under DISP 3.3 may lawfully be delegated to designated members of FOS staff under Schedule 17 paragraph 14(2)(f) and DISP 3.7.1. The definition of a "chargeable case" does not import an additional, express condition that there must have been a particular form of record of such consideration before the fee becomes payable. The District Judge’s conclusion that the fee rule was Wednesbury unreasonable was reversed because the grounds relied on did not show irrationality; the factual finding that consumer consultants had considered summary dismissal was also upheld.

Background and parties: FOS appealed from a Trowbridge County Court decision (District Judge Rutherford) dismissing FOS's claim for the standard case fee of

Nature of the claim and relief sought: FOS sought recovery of standard case fees of from HME in respect of four complaints which had been investigated by FOS and rejected on the merits. HME resisted payment on grounds that the fee rule was unreasonable and that FOS had failed to consider or had unlawfully delegated consideration under DISP 3.3.

Issues framed by the court:

• Whether the standard case fee rule was unreasonable or unlawful.
• Whether DISP 3.2.1 requires the ombudsman to consider summary dismissal under DISP 3.3 in every case.
• Whether the ombudsman may lawfully delegate consideration of DISP 3.3 to designated staff.
• Whether, on the facts, the four complaints had been lawfully considered for summary dismissal.
• Whether a lawful consideration for summary dismissal is a condition precedent to liability for the standard case fee.

Court’s reasoning and conclusion: The court examined the statutory scheme in FSMA 2000 (including sections 225, 228, 229, 230 and 234 and Schedule 17) and the DISP and FEES rules. It concluded that the District Judge’s Wednesbury challenge to the fee rule failed because the reasons he relied on did not show irrationality; the scheme of a standard case fee was a rational means of funding FOS and avoided outcome-based fees that could create a perception of bias and other practical difficulties. The court construed DISP 3.2.1 as imposing a duty to consider summary dismissal but did not require a detailed inquiry in every case. It held that dismissal under DISP 3.3 falls within the matters that may be delegated under Schedule 17 paragraph 14(2)(f) and DISP 3.7.1, so that properly designated staff may lawfully exercise that function. The appellate court accepted the District Judge’s factual finding that consumer consultants had considered summary dismissal and rejected the submission that the definition of "chargeable case" should be read as importing an additional implied condition that such consideration must have been undertaken by an ombudsman or in a particular recorded form before a fee becomes payable. The appeal was allowed and judgment entered for FOS.

Appeal allowed. The Court of Appeal held that the FOS standard case fee regime was a rational and lawful method of funding the compulsory ombudsman scheme under the Financial Services and Markets Act 2000, that DISP 3.2.1 requires the ombudsman to consider whether to dismiss under DISP 3.3 (but not with an excessive degree of formality), and that the power to consider and dismiss under DISP 3.3 may lawfully be delegated to designated members of FOS staff under Schedule 17 paragraph 14(2)(f) and DISP 3.7.1. The District Judge’s finding of Wednesbury unreasonableness was reversed and judgment was entered for FOS.

Appeal to the Court of Appeal from the decision of District Judge Rutherford at Trowbridge County Court (Claim No. 6SE19301) dismissing FOS's claim for standard case fees. The Court of Appeal heard the appeal alongside R (Heather Moor & Edgcomb Limited) v Financial Ombudsman Services Ltd [2008] EWCA Civ 642 and allowed the FOS appeal in this judgment [2008] EWCA Civ 643.