R v Financial Ombudsman Service

The Court of Appeal refused permission to pursue judicial review applications challenging the Financial Ombudsman Service's jurisdiction. The claimants contended that FOS time-limit rules (DISP 2.3.6R) unlawfully displaced accrued rights under the Limitation Act 1980 and operated retrospectively; they also relied on legitimate expectation, abuse of power and alleged lack of independence (bias). The court held that FSMA 2000 and Schedule 17 establish an informal complaints scheme in which the FSA may make rules extending time limits, and that nothing in the statutory framework unequivocally restricts that power by reference to the Limitation Act. The court further held that a challenge on retrospectivity or legitimate expectation was premature at the jurisdiction stage because the merits had not been determined and the ombudsman is bound to take into account the law as it was at the relevant time. Allegations of subconscious bias were rejected in light of statutory guarantees of independence and the availability of judicial review. Accordingly permission to appeal was refused and the applications were dismissed.

This is an appeal from the Administrative Court (Forbes J) in which applicants sought permission to judicially review decisions of the Financial Ombudsman Service accepting jurisdiction over historic mortgage endowment complaints. The primary applicants were a former financial adviser (Mr Bamber) and a company (BP Financial). The complaints before the FOS related to historic endowment mortgage advice where projected shortfalls were disclosed years after the policies were taken out.

The nature of the application:

• The applicants sought judicial review to challenge the FOS's jurisdiction (i) on grounds that FSA rules (DISP) extending time limits unlawfully abrogated rights under the Limitation Act 1980 and were impermissibly retrospective; (ii) for abuse of power and breach of legitimate expectation because the old FIMBRA/PIA law-based test (negligence and actual loss) had been displaced by the FSMA 'fair and reasonable' test; and (iii) for lack of independence of the FOS arising from its statutory relationship with the FSA and its funding.

Issues framed by the court:

• Whether Schedule 17 and the FSA's DISP rules lawfully permitted extension of time limits so as to affect rights arising under the Limitation Act 1980;
• Whether retrospective application of the FSMA 'fair and reasonable' test unlawfully altered vested legal rights or breached legitimate expectations;
• Whether the statutory structure and funding of the FOS created a real possibility of subconscious bias, undermining independence.

Court’s reasoning:

• The court analysed FSMA 2000 (sections 225, 226 and 228) and Schedule 17, noting that paragraph 13 allows the Authority to make rules about time limits and to permit extensions. The scheme was designed to be informal and separate from the common law; nothing in the statutory text unambiguously required that time limits be subject to the Limitation Act. Accordingly paragraph 13 and DISP rules were within the statutory scheme.
• On retrospectivity and legitimate expectation, the court applied the usual presumption against retrospective alteration of legal consequences but emphasised that the present challenge was to jurisdiction only. Until the ombudsman has determined the merits it cannot be said that the rule against retrospectivity has been breached; the ombudsman is obliged to consider the law existing at the relevant time and if she errs her decision can be quashed on judicial review.
• On independence and bias the court accepted that Schedule 17 contains provisions designed to secure independence (appointments, removal safeguards, requirement to maintain a panel of ombudsmen, reporting). The statutory framework and the availability of judicial review meant the allegation of subconscious bias was not made out. Comments in other authorities about FOS funding were distinguished as addressing a different point.

The court therefore refused permission to appeal Forbes J's refusal and dismissed the applications, while noting that some of the issues might properly be considered if and when the ombudsman decides the merits.

Appeal dismissed. The court concluded that FSMA 2000 and Schedule 17 validly provide an informal ombudsman scheme in which the FSA may make time‑limit rules; the challenge that those rules unlawfully displace the Limitation Act or operate impermissibly retrospectively was premature at the jurisdiction stage because the merits had not been decided and the ombudsman must take into account the law at the relevant time; allegations of unconscious bias were not established given statutory safeguards and the availability of judicial review. Permission to appeal was refused and the applications were dismissed.

Appeal from the Queen's Bench Division, Administrative Court (Forbes J) in which permission to apply for judicial review had been refused. Permission had previously been refused on paper (referral to other judges is recorded). The present decision (Court of Appeal) refused permission to appeal and dismissed the applications. Neutral citation: [2009] EWCA Civ 593.