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

An ombudsman exercising the statutory discretion to determine what is fair and reasonable must act reasonably, but the court must respect the expertise and breadth of that discretion. Judicial review does not permit substitution of the court’s view on factual causation. The decision may be quashed only if the ombudsman could not reasonably have reached it on the evidence.

Advice about income drawdown must identify the nature and practical effect of the risks. It is insufficient merely to mention investment risk or provide projections based on the highest permitted growth rate. Where misleading advice deprives consumers of a properly informed choice, the resulting loss of opportunity may in principle justify compensation.

The claimant, a financial adviser, advised Gillian and Edward Gunner in 1999 to enter income drawdown arrangements and take maximum tax-free cash and income. The investments performed poorly, causing substantial losses and reduced pension income.

The Financial Ombudsman Service investigated complaints brought by the Gunners and decided in 2008 that the advice had misleadingly understated the risks. It also concluded, on the balance of probabilities, that proper advice would have led them not to enter the arrangements and awarded redress.

Permission to seek judicial review was ultimately granted on two grounds: whether the finding that the advice was defective was irrational, and whether the finding on causation was irrational.

1. Outcome. The claim for judicial review was dismissed.
2. Under Financial Services and Markets Act 2000, the ombudsman had a wide discretion under section 228(2) to determine complaints by reference to what was fair and reasonable in all the circumstances. That discretion had to be exercised reasonably. The court should respect the ombudsman’s expertise and statutory powers, but this did not create a special or elevated threshold for irrationality.
3. The advice given had referred to the highest permitted projected growth rate of 9 per cent and had failed adequately to explain the possibility that income could fall substantially and permanently, particularly if poor investment performance occurred during a three-year review period. Mentioning that investment returns might be lower, or providing 5 per cent and 7 per cent illustrations, did not sufficiently explain the relevant risk. The ombudsman was entitled to find that the advice was misleading.
4. The causation issue was factual. It did not depend on specialist financial expertise, and considerations of fairness and reasonableness did not determine the factual conclusion. Nevertheless, the court’s task was only to decide whether the ombudsman could reasonably have concluded, on the evidence, that proper advice would have caused the Gunners not to enter the arrangement. That conclusion was not irrational, and the ombudsman had not misdirected himself.
5. Although not necessary to the result, where misleading advice deprived a person of the opportunity to decide on a proper basis, compensation for the lost chance could be appropriate if the precise counterfactual outcome could not be established.

• Administrative Court: Permission for judicial review was initially refused on the papers and after an oral hearing. The Court of Appeal later granted permission on two grounds and remitted the claim for determination. The Administrative Court dismissed the claim.