Williams, R (on the application of) v Financial Ombudsman Service

An ombudsman determining a complaint under the compulsory financial ombudsman scheme must decide what is fair and reasonable in all the circumstances, taking relevant law and good industry practice into account. The ombudsman may depart from the common law where justified, but must explain that departure. The jurisdiction is inquisitorial and permits a flexible approach to evidence and procedure. The ombudsman may rely on personal knowledge and experience, especially on simple or well-known matters. For complex, rare, rapidly changing or uncertain matters, failure to seek further evidence or expert assistance may be irrational. Suitability depends on both the likelihood of a poor outcome and its consequences for the particular investor. Descriptive labels such as low, medium and high risk are not determinative.

The claimant, an independent financial adviser, sought judicial review of a final decision by the Financial Ombudsman Service upholding a complaint about advice given to a client approaching retirement. The advice concerned a geared portfolio of traded endowment policies, funded largely by borrowing. The policies performed poorly, and the lender stopped funding further premiums.

The adjudicator and ombudsman concluded that the recommendation was unsuitable because the client was exposed to risks greater than he could afford, having regard to the gearing, the possibility of substantial loss and his personal and financial circumstances. The claimant challenged the ombudsman’s assessment of the contemporaneous investment risk, his reliance on personal knowledge, and the adequacy of his reasoning.

1. The claim was dismissed. The ombudsman’s final decision was proper and stood. The claimant was ordered to pay the defendant’s costs, summarily assessed at £7,716.75. Permission to appeal was refused.
2. The statutory scheme under Part XVI of the Financial Services and Markets Act 2000, particularly section 228, required determination by reference to what was fair and reasonable in all the circumstances. The ombudsman was required to take relevant law, regulations, rules, guidance, codes and, where appropriate, good industry practice into account. The scheme concerned complaints rather than causes of action and was inquisitorial rather than adversarial.
3. The ombudsman had a wide latitude in procedure and evidence under section 231, Schedule 17 and DISP. He could rely on his knowledge of good industry practice and could depart from common law if justified, provided that the extent and reasons for the departure were explained. His decision remained reviewable for perversity, irrationality, unfairness or inadequate reasons.
4. Reliance on personal knowledge was fact-sensitive. It was more readily justified for simple and familiar matters than for sophisticated, rare or complex products, or where the relevant market had changed rapidly or unexpectedly. In such circumstances, failure to seek information, evidence or expertise might be irrational and challengeable. Here, it was rational for the ombudsman to rely on his knowledge that returns on endowment policies were declining and that this reflected the industry view at the relevant time.
5. The relevant risk assessment was not confined to the abstract classification of traded endowment policies. It required consideration both of the chance of a poor outcome and of its consequences for the individual investor. The ombudsman was entitled to conclude that the consequences of the geared investment were too severe for this client, without finding that the product was inherently a high-risk investment.
6. An ombudsman could adopt an adjudicator’s findings and conclusions without separately addressing every sentence or point. The reasons nevertheless had to be clear and comprehensible. That requirement was met because the reports explained why the complaint succeeded.
7. Evidence obtained after the ombudsman’s decision could not establish whether the decision was appropriate on its merits. It could be relevant only to the court’s discretion concerning remedy if a legal criticism were otherwise made out.

The claim was a first-instance application for judicial review of the Financial Ombudsman Service’s final decision dated 18 January 2007. The High Court dismissed the claim and refused permission to appeal.