Clydesdale Financial Services Ltd, R (on the application of) v Financial Ombudsman Service Ltd

The claimant sought judicial review of an ombudsman decision of the Financial Ombudsman Service (the FOS) dated 10 January 2024 which upheld a complaint by Ms Lewis and made a monetary award against Clydesdale arising from dealer/lender commission arrangements. Central legal questions were the proper interpretation and application of parts of the FCA Handbook (notably CONC 4.5.3R and CONC 4.5.2G) and the FCA Principles (Principles 6, 7 and 8), whether the dealer’s commission arrangements should have been disclosed to the consumer, whether the discretionary commission arrangement was objectionable, whether the ombudsman acted unfairly in procedure and whether the Ombudsman lawfully made a monetary award; the court also considered statutory deeming of agency under section 56 of the Consumer Credit Act 1974 and the unfair-relationship power in section 140A CCA.

The court held that (i) the Ombudsman did not misinterpret the relevant Handbook provisions and it was open to him to conclude that the disclosures made were insufficient under CONC 4.5.3R read with CONC 3.3.1R and the Principles; (ii) the discretionary commission arrangement was within the compass of CONC 4.5.2G as guidance to which regard should be had and the Ombudsman was entitled to treat such a model as a red flag that could give rise to unfair treatment under Principle 6; (iii) assertions of procedural unfairness by the dealer (Arnold Clark) were not made out and the FOS was not obliged to invoke the test-case route; (iv) expert market evidence sought to be relied on after the ombudsman decision was refused admission; (v) the Ombudsman’s monetary award was not irrational and was a permissible exercise of the DISP money-award powers under the FSMA; and (vi) the Ombudsman was entitled to treat the dealer’s conduct as attributed to the lender under s.56(2) CCA in the circumstances and to treat the creditor–debtor relationship as unfair under s.140A CCA. The claimant’s judicial review challenge was therefore dismissed.

This was a rolled-up judicial review hearing of an FOS final decision of 10 January 2024 upholding a complaint made by Ms Lewis about the sale and financing of a used car in November 2018. The claimant, the finance company Clydesdale (trading as Barclays Partner Finance), challenged the Ombudsman’s findings that the dealer’s commission arrangements were inadequately disclosed, that the discretionary commission arrangement created an unfair relationship, and that compensation should be awarded. Interested parties included the dealer (Arnold Clark) and the FCA.

The issues framed for the court were (summarised):

• whether the Ombudsman misinterpreted FCA Handbook provisions (CONC 4.5.3R, CONC 4.5.2G and related CONC/PRIN provisions) and thus misapplied them;
• whether the dealer should have disclosed the commission model and the effect of the dealer’s power to set interest rates;
• whether the Ombudsman was required to invite or admit Arnold Clark as a party or to use the scheme’s test-case procedure and whether there was procedural unfairness;
• whether late expert evidence should be admitted;
• whether the Ombudsman lawfully and rationally made a monetary award of compensation;
• whether the dealer’s acts were properly attributed to the lender under s.56 CCA and whether the relationship was unfair under s.140A CCA;
• whether relief should be refused under s.31(2A) SCA as having no substantial effect.

The court analysed the FCA Handbook provisions using the usual purposive and contextual approach. It accepted that the word "existence" in CONC 4.5.3R was capable, in some circumstances, of requiring more than a bare statement that commission may be paid, when read with CONC 3.3.1R and Principles 7 and 8. The court held that the Ombudsman was entitled to conclude the IDD and agreement wording here did not sufficiently and prominently disclose the dealer's commission model and the dealer’s power to set an interest rate which affected the dealer’s commission. It also held that discretionary commission arrangements of the type used were within the scope of CONC 4.5.2G and could legitimately be treated as a source of unfairness under Principle 6 absent justification tied to extra work by the broker.

On procedure, the court rejected Arnold Clark’s complaint that it was treated unfairly or should have been made a party or that the test-case procedure should have been invoked. The court refused the application to admit an expert market report produced after the Ombudsman decision and (while granting permission to seek judicial review on the grounds pressed) concluded that the Ombudsman’s findings on compensation were not irrational. Finally, the court held that antecedent negotiations relating to the sale and its finance were properly treated as "in relation to" the goods for the purposes of s.56(1)(b) and thus that the dealer’s conduct could be attributed to the creditor under s.56(2); the Ombudsman was entitled also to find an unfair relationship under s.140A CCA. The claim was dismissed: the Ombudsman's decision was lawful and should stand.

The claim is dismissed. The court held (briefly) that the Ombudsman did not misinterpret the FCA Handbook provisions (CONC 4.5.3R and CONC 4.5.2G) or the FCA Principles and was entitled to conclude that the dealer’s commission model and dealer interest‑setting power should have been more prominently disclosed; that discretionary commission arrangements of this kind were caught by CONC 4.5.2G and could give rise to unfair treatment under Principle 6; that procedural unfairness and a requirement to use the test-case route were not made out; that late expert evidence need not be admitted; that the Ombudsman’s monetary award was not irrational; and that the dealer’s antecedent negotiations were properly attributed to the lender under section 56(2) CCA so that an unfair-relationship finding under section 140A CCA was open. The claimant’s legal challenge therefore fails.