PORTAL (R on the application of) v FINANCIAL OMBUDSMAN SERVICE LIMITED

An Ombudsman’s decision under section 228(2) of the Financial Services and Markets Act 2000 is a subjective assessment of what is fair and reasonable in all the circumstances. Judicial review distinguishes the construction of applicable rules, which is for the court, from their application to the facts, which is for the Ombudsman. The court should allow considerable latitude and should not substitute its own view of the merits.

Where a firm advises on transferring pension funds into a SIPP, it may be required to consider the suitability of the intended underlying investments. An Ombudsman may hold the advising firm responsible for the resulting loss without conducting a notional civil-liability apportionment exercise, provided the decision gives adequate reasons and is rational.

Portal sought permission to challenge 16 decisions of the Financial Ombudsman Service concerning pension-transfer advice given to 16 customers. A further claim concerned 11 materially similar decisions. The Ombudsmen concluded that Portal could not separate the suitability of the pension transfers from the underlying investments, and that Portal was responsible for the customers’ losses.

The renewed applications challenged the Ombudsmen’s treatment of regulatory alerts and FCA rules, their assessment of transfers from defined-benefit schemes, and their allocation of 100% of the loss to Portal. The central issue was whether any ground had a realistic prospect of success on judicial review.

1. Permission refused. The applications were not arguable. The Additional Claim raised no additional legal or factual issue.

2. The permission threshold was whether there was an arguable ground for judicial review with a realistic prospect of success. The court adopted the approach in Sharma v Brown-Antoine [2006] UKPC 57.

3. Under section 228(2) of the Financial Services and Markets Act 2000, the Ombudsman makes a subjective assessment of what is fair and reasonable. The Ombudsman must take relevant law, regulations, regulatory rules and guidance into account, but the breadth of the assessment permits reasonable disagreement. Judicial review is concerned with legality and rationality, not the substantive merits.

4. The court applied the distinction explained in Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Ltd [2019] Bus LR 437 and R v Financial Ombudsman Service ex p Norwich and Peterborough Building Society [2002] EWHC 2379: construction of the rules is for the court, whereas application of those rules to the facts attracts considerable leeway. Intervention is justified only where errors of reasoning deprive the decision of logic.

5. The Ombudsmen were entitled to treat the regulatory alerts, the FCA Principles and COBS as indicators of good industry practice. They rationally concluded that Portal had its own duty to obtain meaningful information about the intended investments and could not rely on a general statement from another firm. The challenge concerned application of the principles to the facts, not an error of law.

6. In the defined-benefit cases, the Ombudsmen considered the comparative exercise required by COBS 19.1.2R, the reasonable assumptions relied upon, and the contemporaneous material. Their conclusion that the transfers were unsuitable was not amenable to judicial review merely because Portal considered the approach too narrow.

7. The fair-and-reasonable jurisdiction did not require a notional civil action to apportion loss between Portal and other firms. The distinction identified in Manchester Building Society v Grant Thornton LLP [2021] 3 WLR 81 was material. The Ombudsmen gave reasons based on causation, Portal’s ability to prevent the transfers and investments, and the resulting fairness of requiring Portal to account for the full loss. The approach was lawful and rational.

8. The order concerning the initial claim’s costs stood. Costs of £3,300 were awarded for the Additional Claim, reflecting the substantially repetitive nature of that claim.

May J refused permission on the papers on 9 December 2021. Mr Justice Sweeting renewed the applications and refused permission in both claims.