Charles Street Securities Europe LLP, R (on the application of) v The Financial Ombudsman Service

On a renewed application for judicial review of a Financial Ombudsman Service jurisdiction decision, the court held that an ombudsman’s factual assessment is reviewable only on traditional public-law grounds. The High Court must not act as the primary fact-finder. Questions of law, including the application of correctly understood legal standards to established facts, remain reviewable.

Reasonable care in classifying a client under the applicable regulatory rules does not require a firm to satisfy every listed guidance criterion, investigate the full extent of the client’s investment history, or set a test of knowledge or competence. However, particular inconsistencies in the information available may reasonably require further inquiry. A later finding that a complainant understood the risks of investments did not determine whether the firm had exercised reasonable care when classifying the client.

Charles Street Securities Europe LLP sought permission to challenge decisions of the Financial Ombudsman Service concerning a complaint by David Rees. The Ombudsman had found jurisdiction because the firm had not taken reasonable care when classifying Mr Rees as an intermediate customer under the applicable FSA Handbook rules. The Ombudsman subsequently upheld the complaint and made an award.

Eyre J refused permission on several grounds but granted permission on three grounds relating to the jurisdiction decision and the claimant renewed that application. The claimant also sought to amend its grounds to argue that the Ombudsman had applied a subjective rather than objective test under the transitional provisions. The issues were whether the renewed grounds were arguable and whether the late amendment should be permitted.

1. Renewed application. The permission test was whether each ground had a realistic, more than fanciful, prospect of success, with no discretionary bar such as delay or an alternative remedy. None of the three renewed grounds met that threshold.
2. Fact-finding and legal review. Applying the approach in R (Chancery (UK) LLP) v The Financial Ombudsman Service, the Ombudsman was the primary fact-finder on issues relevant to jurisdiction. Her factual assessment was reviewable only on ordinary public-law grounds. The court retained responsibility for determining whether the correctly understood law had been applied to the facts.
3. Reasonable care. The Ombudsman had not treated every criterion in COB 4.1.10G as mandatory or required investigation of the full extent of Mr Rees’s investment history. Her conclusion that contradictory information required further inquiry was a fact-sensitive assessment open to her. It did not impose a test of knowledge or competence contrary to the principle stated in Wilson v MF Global UK Ltd. Further questions, where reasonably required, did not amount to setting an examination.
4. The Ombudsman was entitled to give weight to the evidence as she considered appropriate. Her later finding, for the purpose of deciding what was fair and reasonable in the complaint, that Mr Rees understood the nature and risks of the investments did not establish that CSSP had taken reasonable care when classifying him under COB 4.1.9R.
5. Amendment. The late amendment was refused. The claimant had not overcome the heavy burden applicable to a late application, and the proposed ground was in any event not arguable. The Renewal Application on Grounds 1 to 3 and the Amendment Application were refused.

The judgment itself records that Eyre J refused permission on the renewed grounds concerning the Jurisdiction Decision, leading to the renewal application before Murray J. The High Court refused the renewal application and the proposed amendment.