Shawbrook Bank Limited, R (on the application of) v Financial Ombudsman Service Limited

A financial ombudsman must identify relevant law correctly, but may reach a fair and reasonable outcome which differs from a court’s conclusion. Judicial review does not permit a merits appeal against fact-sensitive evaluative findings.

A fractional ownership timeshare contract falls within Regulation 7 of the Timeshare Regulations where it is the operative contractual source of rights to use overnight accommodation, even if equivalent rights existed previously. Regulation 12 does not require pre-contractual valuation information. Regulation 14(3) prohibits marketing or selling such a contract as an investment, but whether that occurred is fact-sensitive.

Section 56 of the Consumer Credit Act 1974 deems antecedent negotiations by a supplier to be conducted as agent of the creditor for section 140A purposes. A serious breach of Regulation 14(3) may alone justify finding an unfair debtor-creditor relationship and unwinding the associated arrangements.

Two lenders applied for judicial review of final decisions by the Financial Ombudsman Service concerning loans used to finance fractional ownership timeshare packages. The ombudsmen had found that the packages were mis-sold and that the associated debtor-creditor relationships were unfair.

The challenges concerned the classification of the contracts under Regulation 7 of the Timeshare Regulations; the prohibition on marketing timeshares as investments under Regulation 14(3); alleged duties to provide valuation information; the effect of supplier conduct under section 56 of the Consumer Credit Act 1974; contractual interpretation; and the availability of relief under sections 140A and 140B.

The central issue was whether the ombudsmen had made errors of law, rather than merely reached evaluative conclusions with which the lenders disagreed.

1. Both claims dismissed. The ombudsmen’s conclusions that the fractional ownership timeshares had been marketed as investments contrary to Regulation 14(3) were fact-sensitive evaluative findings. The first decision was not infected by legal error in applying that provision. A disclaimer that the product was not an investment did not prevent the ombudsman from examining the substance and effect of the marketing.
2. A contract is within Regulation 7 of the Timeshare Regulations where it is the operative contractual source of the consumer’s rights to use overnight accommodation for more than one period and for more than one year. The inquiry concerns the live contractual rights and duties, not a historical comparison with an earlier contract. The first ombudsman therefore erred in treating the like-for-like exchange of accommodation rights as preventing the contract from being a timeshare contract. This conclusion was not determinative because both decisions proceeded alternatively on the basis that the contracts were timeshare contracts.
3. Regulation 12 does not impose a legal obligation to provide valuation information about an allocated property. The statutory definition of “key information” is exhaustive, and “the exact nature and content of the rights” requires description of the rights, not information about their present or future value. The first ombudsman also misstated and misapplied Regulation 6 of the CPUT Regulations by failing to apply the causation and average-consumer requirements.
4. Section 56 of the Consumer Credit Act 1974 creates a deemed agency for antecedent negotiations. For section 140A purposes, the relevant question is whether the supplier’s acts or omissions were done “by or on behalf of” the creditor. No identity of regulatory liability between supplier and lender is required. Scotland & Reast and Plevin supported that conclusion.
5. The Regulation 14(3) breaches were serious and causative of the contractual relationships. They were capable, viewed alone, of establishing unfair relationships under section 140A. Unwinding the timeshare and associated loans fell within the range of remedies available under section 140B.

These were first-instance judicial review claims in the Administrative Court. The court dismissed both claims.