Westscott Financial Services Ltd CBHC Llp & Anor v Financial Ombudsman Service

This is a judicial review of five decisions of the Financial Ombudsman Service refusing to stay determinations of complaints about investments in Keydata products pending resolution of separate FSCS litigation in the Commercial Court. The court applied ordinary public law review principles and concluded that the ombudsmen acted within their statutory remit under Part XVI of the Financial Services and Markets Act 2000 (in particular s225 and s228) and the DISP rules in the FCA Handbook (notably DISP 3.3.4R, 3.5.1R and 3.6.xR). The ombudsmen were entitled to take account of the objective to resolve disputes quickly and informally, to accept that the timescale of the FSCS litigation was uncertain, and to decline to delay determinations where the particular complaints had not themselves been referred to court. The court rejected arguments that the ombudsmen misunderstood the relevance of the FSCS litigation, failed to investigate likely timescales, relied on irrelevant considerations, or gave inadequate reasons. The human rights argument (Article 1 of Protocol 1) was not accepted and no heightened standard of scrutiny was applied.

Background and parties

• The claimants are independent financial advisers who had complaints made against them to the Financial Ombudsman Service by former clients who invested in Keydata Lifemark or SLS based products. The defendant is the Financial Ombudsman Service. The disputes arose from recommendations made between 2005 and 2009 and from subsequent investor losses when Keydata and associated bond issuers failed.

Nature of the application and relief sought

• The claimants sought judicial review of five final determinations by the Ombudsman (July and September 2013) which upheld complaints and ordered compensation, on the ground that each ombudsman had refused a request to stay determination pending resolution of FSCS litigation in the Commercial Court.

Issues for the court

• Whether the ombudsmen wrongly understood or ignored the relevance of the FSCS litigation to the factual issue of the inherent risk of the Keydata products;
• Whether the ombudsmen were required to investigate the likely timescales of the FSCS litigation and whether they gave excessive weight to the asserted uncertainty of those timescales;
• Whether the ombudsmen irrationally or unlawfully placed weight on the fact that the individual complaints had not themselves been referred to court;
• Whether the ombudsmen failed to give adequate reasons; and
• Whether a heightened standard of review applied because of an asserted interference with property rights (Article 1 of Protocol 1).

Court’s reasoning and conclusions

• The court emphasised the statutory objective of Part XVI FSMA to resolve disputes quickly and with minimum formality and the distinctive remit of the ombudsman to determine what is "fair and reasonable" (s228 and DISP 3.6.xR).
• The ombudsmen were aware of the FSCS litigation and of its relevance; there was no misunderstanding that the court proceedings addressed the risk of the same Keydata products. The letters refusing stays were to be read in a common-sense way and reflected the position that the individual complaints were not themselves part of the FSCS proceedings.
• The timescale for the FSCS litigation was, on the available material (including positions advanced by the claimants’ own legal advisers), genuinely uncertain. The ombudsmen were entitled to accept that information and there was no duty to investigate further in the circumstances.
• The statutory scheme and DISP permit the ombudsman to proceed with eligible complaints even where related litigation exists, provided the complainant has not themselves referred the same subject matter to court; declining to stay in those circumstances did not frustrate the scheme and was not irrational.
• The decisions contained adequate reasons. The human rights submission did not attract a higher or "anxious" standard of scrutiny and was rejected.

Disposition

• The claims for judicial review were dismissed for failing to establish error of law, irrationality or inadequate reasons.

The claims for judicial review are dismissed. The court held that the ombudsmen acted within their statutory remit under Part XVI of the Financial Services and Markets Act 2000 and the DISP rules, gave adequate reasons, were entitled to treat the FSCS litigation timescale as uncertain on the material before them, and were not required to delay determinations of eligible complaints that had not themselves been referred to court. The human rights argument did not require a heightened standard of review and was not made out.