Factual and Procedural Background
This case concerns an application for judicial review of a decision by the Financial Ombudsman Service (FOS) dated 23 November 2006, which upheld a complaint against the Claimant, an independent financial advisory firm ("Company A"), made by the Interested Party ("Appellant"). The Ombudsman directed Company A to arrange an assessment of the Appellant's loss resulting from acceptance of the advice given and to pay compensation up to £100,000, with a recommendation to pay any excess into the Appellant's pension arrangements.
The Appellant's complaint arose from advice given in 1999 by Company A to transfer his pension from an occupational pension scheme to a Section 32 pension plan invested in equities, based on an assumed growth rate of 9% per annum. The Appellant was a pilot approaching compulsory retirement and intended to continue working for another employer until age 60. After following the advice, the Appellant's pension fund decreased significantly, leading to a claim for compensation.
The Appellant initially complained to Company A, which rejected the claim. Subsequently, the complaint was made to FOS. The Ombudsman found that the advice was unsuitable, particularly criticizing the optimistic growth assumptions and failure to adequately explain risks and alternatives, and upheld the complaint. Company A sought judicial review of the Ombudsman's decision, initially refused permission by lower courts, but later granted by the Court of Appeal for substantive hearing.
Legal Issues Presented
- Whether section 228(1) of the Financial Services and Markets Act 2000 requires the Ombudsman to determine complaints strictly in accordance with English law.
- Whether the Ombudsman's departure from applying common law principles, relying instead on what is "fair and reasonable," constitutes an error of law.
- Whether the Ombudsman was obliged to hold an oral hearing, including cross-examination of witnesses, and whether such hearing should have been public.
- Whether the Ombudsman’s procedures and decisions comply with the requirements of Article 6 and Article 1 of the First Protocol of the European Convention on Human Rights concerning fair trial and peaceful enjoyment of possessions.
- Whether the Financial Ombudsman Service should have declined jurisdiction in favor of litigation due to the size of the potential award and complexity of the case.
Arguments of the Parties
Appellant's Arguments
- The Ombudsman is legally required to apply English law when determining complaints and failed to do so.
- This failure infringes the Appellant's Convention rights under Article 6 and Article 1 of the First Protocol.
- The decision was one that no reasonable Ombudsman could have made, constituting an error of law.
- The Ombudsman should have held an oral hearing, including cross-examination of witnesses, and should have delivered the decision publicly.
Respondent's Arguments (Financial Ombudsman Service)
- The Ombudsman is empowered to determine complaints by reference to what is fair and reasonable in all circumstances, not strictly by the common law.
- The statutory scheme and rules expressly allow departure from strict legal rules to achieve fair outcomes.
- The procedural rules and the inquisitorial nature of the Ombudsman’s process do not require oral hearings in cases without disputed material facts.
- The maximum award limit and the availability of judicial review ensure fairness and protect rights under the Convention.
- The Ombudsman was entitled to refuse a hearing and to decide the case on written evidence.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Bolitho v City and Hackney Health Authority [1998] 1 AC 232 |
Qualification of the Bolam test requiring logical basis and defensible conclusions for professional opinion. |
The Court applied Bolitho to assess whether the financial advice met the standard of a respectable body of professional opinion and found it did not. |
| Bolam v Friern Barnet Hospital Management [1957] 1 WLR 582 |
Standard for professional negligence based on accepted practice by responsible professionals. |
The Court considered whether the advice was in accordance with accepted practice and concluded it was not. |
| R (IFG Financial Service Ltd) v Financial Ombudsman Service [2005] EWHC 1153 (Admin) |
Interpretation of section 228(2) of the Financial Services and Markets Act 2000 regarding Ombudsman’s discretion. |
Confirmed that the Ombudsman is not bound to decide strictly in accordance with the law but by what is fair and reasonable. |
| R (Thompson) v The Law Society [2004] EWCA Civ 167 |
Requirements for oral hearings and fairness in administrative proceedings. |
Affirmed that oral hearings are required only when there is a disputed fact central to the decision that cannot be fairly resolved on documents. |
| Jussila v Finland (Application no. 73053/01) |
Article 6 ECHR requirements on oral and public hearings in civil matters. |
Confirmed that oral hearings are not always required if the case can be fairly decided on written submissions and no issues of credibility arise. |
| Lamanna v Austria (Application no. 28923/95) |
Public pronouncement of judgments and public scrutiny under Article 6(1) ECHR. |
Held that public delivery of judgments at some stage satisfies Article 6 requirements, even if not at every level. |
| The Sunday Times v UK Case 9538/74 [1979] ECHR 1 |
Requirements of law being accessible, intelligible, clear and predictable under Article 6 ECHR. |
Used to assess whether the Ombudsman’s scheme meets the rule of law requirements. |
Court's Reasoning and Analysis
The Court examined the statutory framework under the Financial Services and Markets Act 2000, particularly sections 225-229 and Schedule 17, which establish the Financial Ombudsman Service and its compulsory jurisdiction. The Court found that section 228(2) mandates the Ombudsman to determine complaints by reference to what is "fair and reasonable" in his opinion, not strictly in accordance with English law or common law principles.
The Court rejected the Appellant’s argument that the Ombudsman must apply the common law, including the Bolam test for professional negligence, holding that Parliament deliberately conferred discretion on the Ombudsman to depart from strict legal rules to achieve fair outcomes. The Ombudsman must, however, take relevant law, regulations, codes of practice, and good industry practice into account and provide reasons for his determinations, remaining subject to judicial review on grounds such as irrationality or perversity.
Regarding the substantive complaint, the Court found the Ombudsman’s conclusion that the advice was unsuitable and not supported by a respectable body of professional opinion was reasonable and correct, applying the Bolam/Bolitho principles critically and considering contemporaneous evidence and regulatory guidance.
On procedural fairness, the Court held that the Ombudsman was not required to hold an oral hearing or allow cross-examination where there were no disputed material facts that could not be resolved on written evidence. The extensive contemporaneous notes and correspondence provided sufficient basis for decision. The Court also found no requirement for a public hearing at the Ombudsman level, given the availability of judicial review proceedings in public and the nature of the Ombudsman’s informal, inquisitorial process.
The Court further rejected the submission that the Ombudsman should have declined jurisdiction in favor of litigation, noting that the Ombudsman’s decision to proceed was neither perverse nor unreasonable, considering the cost, expertise, and accessibility of the Ombudsman scheme compared to court proceedings.
Finally, the Court addressed concerns about the rule of law and predictability, concluding that the Ombudsman’s scheme provides sufficient clarity and accessibility. The Ombudsman’s requirement to take into account law and industry practice, the availability of provisional decisions and representations, and judicial review mechanisms ensure compliance with constitutional and Convention standards.
Holding and Implications
The Court DISMISSED the claim for judicial review, affirming the Ombudsman's decision to uphold the complaint against Company A.
The direct effect is that the Ombudsman’s determination stands, including the directions for compensation payment up to the statutory limit and recommendations concerning amounts exceeding that limit. No new precedent was established beyond confirming the statutory framework and the Ombudsman’s discretion under the Financial Services and Markets Act 2000. The decision reinforces the principle that the Ombudsman’s jurisdiction is to determine complaints on a fair and reasonable basis rather than strict legal liability, and procedural fairness does not necessarily require oral or public hearings at the Ombudsman level.