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Judicial review of decisions of the Financial Ombudsman Service

  • United Kingdom
  • Financial institutions - Retail finance

25-03-2015

Case law update – R (on the application of Chancery (UK) LLP) v Financial Ombudsman Service [2015] EWHC 407 (Admin)

Background

Chancery (UK) LLP (Chancery) challenged the decision of the Financial Ombudsman Service (FOS) by way of judicial review. It argued the complaint against it concerned tax avoidance, rather than investment, which was outside of FOS’ jurisdiction. On that basis, FOS should not have considered the complaint and the complainant should have pursued a remedy in contract or negligence through the courts.

Chancery contended that FOS did not have jurisdiction to hear the complaint because tax avoidance advice was not a regulated activity. Chancery further argued that it is not for FOS to determine the limits to its own jurisdiction and that factual and legal issues determining whether or not a complaint fell into FOS’ jurisdiction should be decided by the courts.

The question for the court was whether FOS’ decision on jurisdiction could only be challenged on the grounds of irrationality or whether the court could consider afresh whether the decision was right or wrong.

Previous case law

FOS relied on the case of R (on the application of Bankole) v FOS [2012] EWHC 3555 (Admin). Mr Justice Sales found that it was for FOS to decide whether a complaint was made within the time limits. The day on which a complaint was made was a procedural decision. That procedural decision made by FOS was subject to the usual judicial review test of rationality.

Chancery relied on the case of R (on the application of Bluefin Insurance Services Ltd) v FOS [2014] EWHC 3413 (Admin). The key question in Bluefin was whether the complainant was a consumer as defined in the DISP rules (Dispute Resolution: Complaints, part of the FCA Handbook) and, therefore, an “eligible complainant”. Mr Justice Blair distinguished the Bankole case because this case required a “hard-edged finding of fact” and was an issue of precedent fact rather than an evaluative answer for determination by FOS.

Decision

Mr Justice Ouseley accepted that the Financial Services and Markets Act 2000 (FSMA), under which FOS was established, should not be construed so as to make FOS master of the limits of its jurisdiction. It is for the court to decide whether it has acted with or without jurisdiction. It cannot act without jurisdiction simply because its error was unreasonable. He concluded that Bankole was rightly decided but that it was distinguishable from Bluefin on clear grounds.

Mr Justice Ouseley went on to explain that it is “a matter of statutory construction as to how the limits of its jurisdiction are resolved: what decisions are challengeable only on traditional judicial review grounds and what decisions require a different approach, whether one in which the court decides the law, finds the facts and applies the law to the facts, deciding whether the FOS’ decision was simply right or wrong and considering new evidence if it wishes, or one in which the Court decides the meaning of the words at issue, and the FOS finds the facts and applies the correct meaning in law to them as a matter of its own reasonable judgment or one in which the Court decides, on the facts found by the FOS, whether the application of the law to them is correct rather than reasonable.”

It is clear from the passage above that there are different types of review available to the courts. Which one is employed in any particular case will depend on the relevant statute and the legal and factual issues in that particular complaint.

In the circumstances of this particular case, it was the last approach outlined above which Mr Justice Ouseley held was appropriate. It was for the court to decide whether there was a distinction between tax advice and investment advice, and if so, on the facts as found by FOS, whether the advice given here was a regulated activity. Mr Justice Ouseley held there could only be one right answer to those questions. So, like in Bluefin a ‘hard edged finding of fact’ was required.

Comment

The case provides useful clarification of when a challenge to FOS’ decision on jurisdiction will be subject to the judicial review test and when it is a question of precedent fact for the court to decide.

Mr Justice Ouseley was keen to emphasise that he was not suggesting that FOS should not decide on jurisdiction at the outset. However, where that jurisdiction is contested, it will need to keep the question open throughout the decision making process. New evidence which comes to light during that process may impact on the merits and the jurisdictional issues. FOS should then specifically tackle the issue of jurisdiction in its final decision. That is likely to mean that courts will be less willing to entertain application for judicial review on jurisdiction until a final merits decision is given.