R (Options UK Personal Pensions LLP) v Financial Ombudsman Service Ltd

The Court of Appeal dismissed the claimant's challenge to the Financial Ombudsman Service's determination upholding Mr Fletcher's complaint. The court held that an ombudsman, determining complaints under section 228 FSMA 2000, may determine what is fair and reasonable in all the circumstances having regard to DISP 3.6.4R and the FCA Principles (PRIN), even where the breach relied on is not a provision actionable in private law.

The court concluded that the ombudsman had not departed from the law or created a novel, unenforceable duty: Principles such as PRIN 2, 3 and 6 form part of the relevant regulatory framework and may properly be taken into account in deciding fair and reasonable redress under section 229 FSMA 2000. The ombudsman had given adequate reasons, had distinguished the Adams decisions, and had applied relevant FCA guidance and thematic material.

On the facts the court held there was no legal error or irrationality in the ombudsman's conclusions that the SIPP operator (Carey/Options) ought to have carried out higher-standard pre-contract due diligence on the unregulated introducer and on the Store First investment and that, on the material available or reasonably obtainable, it should not have accepted the application.

Background and parties. The claimant (formerly Carey Pensions UK LLP, trading as Options) is a regulated SIPP operator and administrator. The complaint arose from the acceptance of a client (Mr Fletcher) introduced by an unregulated introducer (CL&P) and the acceptance of a Store First "Store Pod" investment into the SIPP. The investment failed and the member lost his pension fund. The member's complaint to the Financial Ombudsman Service was upheld by Ombudsman Mr Bird (Decision dated 28 March 2022).

Procedural history. Permission to bring judicial review was refused on the papers and at renewed oral hearing in the High Court (see Bourne J [2022] EWHC 3325 (Admin)); permission to appeal/for judicial review was later granted by Carr LJ on 22 March 2023 and the claim was retained for determination in the Court of Appeal.

Nature of the application and issues. The claimant sought to quash the Ombudsman's Decision on three principal grounds: (1) the ombudsman must identify and explain any departure from legal standards (relying on Heather Moor principle); (2) legal error in finding a duty to carry out due diligence on introducers and investments despite an "execution-only" contractual relationship and absence of authorised investment advice; and (3) irrationality / unreasonableness in the Ombudsman's factual conclusions about the adequacy of due diligence and the information available.

Issues framed by the court. The court framed its task as whether the ombudsman lawfully exercised his statutory discretion under s.228 and s.229 FSMA 2000 by: (a) taking into account DISP 3.6.4R, the FCA Principles (notably PRIN 2, 3 and 6), and FCA guidance; (b) giving adequate reasons if departing from what a court would recognise as actionable duties; and (c) reaching conclusions which were not irrational on the evidence about what due diligence ought to have been carried out and whether the SIPP operator should have accepted the application.

Court's reasoning and conclusions. The court accepted that the ombudsman is not confined to applying common law causes of action but must take into account the law, the regulator's rules and guidance and good industry practice (DISP 3.6.4R). The court followed the reasoning in R (British Bankers Association) v FSA and R (Berkeley Burke) v FOS that the Principles form an overarching regulatory framework which the ombudsman must consider. The court held that the ombudsman did not unlawfully create a novel duty: he applied the Principles and guidance to conclude that, in the particular factual matrix, pre-contract due diligence on CL&P and appropriate enquiries into Store First should have led Carey not to accept the application. The ombudsman had given adequate reasons, had explained why Adams did not determine the complaint before him, and his findings were not irrational. The claim for judicial review was therefore dismissed.

Appeal dismissed. The court held that the Ombudsman lawfully exercised his statutory jurisdiction under sections 228 and 229 FSMA 2000 by taking into account DISP 3.6.4R, the FCA Principles and guidance; the Principles may inform an opinion that redress is fair and reasonable even where they are not themselves actionable; the Ombudsman gave adequate reasons and did not err in law or act irrationally in finding a failure of pre-contract due diligence by the SIPP operator.

Permission to bring judicial review was initially refused on the papers by Cockerill J and again by Bourne J (see [2022] EWHC 3325 (Admin)). Permission to appeal and to apply for judicial review was subsequently granted by Carr LJ on 22 March 2023 and the judicial review claim was retained in the Court of Appeal (CPR 52.8(6)). The Court of Appeal ([2024] EWCA Civ 541) dismissed the claim for judicial review.