Green, R (on the application of) v Gillian & Edward Gunner

The court considered a judicial review challenge to final decisions of the Financial Ombudsman Service under Part XVI, Schedule 17 and ss.225 and 228 of the Financial Services and Markets Act 2000. The ombudsman had found that the claimant financial adviser gave misleading advice by relying on the then-maximum projected growth rate of 9% and by failing adequately to explain the nature and extent of the downside risk associated with income drawdown. The ombudsman further found, on the balance of probabilities, that but for that misleading advice the complainants would not have entered the drawdown arrangements. The court applied the Wednesbury/irrationality standard of review to the ombudsman’s discretionary conclusions, accepted that causation was a factual issue not dependent on specialist expertise, and concluded that the ombudsman’s findings were not irrational. Permission was therefore refused and the claim dismissed.

Background and parties: The claimant was a financial adviser who advised the interested parties, Mr and Mrs Gunner, in 1999 to enter income drawdown arrangements with expected tax-favoured growth of 9% per annum. The Gunners suffered substantial losses after market falls. The Financial Ombudsman Service investigated complaints made in 2003 and issued final decisions in March 2008 finding the adviser had given misleading advice and awarding compensation.

Nature of the claim: The claimant sought judicial review of the ombudsman’s decisions, challenging (i) the finding that the adviser’s advice was defective and misleading and (ii) the ombudsman’s causation finding that but for the misleading advice the Gunners would not have entered the drawdown scheme. The remedy sought was quashing of the ombudsman’s decisions.

Procedural posture: The claim was issued in June 2008; permission to apply for judicial review was refused on paper and on oral renewal before other judges but Elias LJ later granted permission on two grounds and remitted the claim for hearing before this court.

Issues framed by the court:

• Whether the ombudsman, exercising the wide discretion given by FSMA (in particular s.228(2) and Schedule 17 and the associated handbook guidance), had acted irrationally (Wednesbury) in finding the adviser’s communications were misleading.
• Whether the ombudsman’s factual finding on causation — that the Gunners would not have adopted drawdown had they been properly advised — was irrational.
• Ancillary issues included the adequacy of record-keeping, compliance with PIA guidance and whether a loss-of-chance approach to compensation should be considered.

Reasoning and subsidiary findings: The court recognised the ombudsman’s wide discretion to determine what is fair and reasonable under s.228(2) FSMA and the handbook (paragraph 3.8.1R). Where expertise and broad discretion exist, review is highly deferential. The court accepted the ombudsman was entitled to conclude the advice underplayed the real risk of permanent reduction in pension income and that reliance on the highest permitted projection (9%) without adequate warning was misleading, given contemporaneous Regulatory Updates and PIA guidance. The court treated causation as a question of fact rather than a specialist technical judgment; on the material before the ombudsman the court could not say his conclusion on causation was irrational. The judge noted the claimant’s dilatory and prolix conduct, the long delay in the complaint process and considered but rejected a late-raised loss-of-chance alternative as not grounds to overturn the ombudsman’s decision. The claim was dismissed.

The claim is dismissed. The court held that the Financial Ombudsman had a wide discretion under FSMA and related rules and the ombudsman’s factual and causation findings — that the adviser’s reliance on a 9% projection underplayed the real risk and that, on the balance of probabilities, the complainants would not have entered drawdown if properly warned — could not be impugned as irrational. The court therefore refused judicial review.

Permission to bring judicial review was initially refused on the papers (15 September 2008) and that refusal was confirmed after an oral hearing by Hickinbottom J (27 July 2009). An application to the Court of Appeal was refused by Stanley Burnton LJ on the papers (28 May 2010). An attempted renewal was adjourned by the Chancellor (24 June 2010). Elias LJ subsequently granted permission on two grounds and remitted the claim for hearing before the Administrative Court (23 February 2011).