The scope of the Ombudsman’s powers has been undermined once again by the decision in the recent cases of Bunney and Cahill 1. The FOS cannot make a nonmonetary award resulting in a payment above its £100k maximum for enforceable monetary awards.
The two financial advisers in these two cases were ordered by the FOS to assess and pay losses that turned out to be £280,953 and £157,936 respectively. The firms and their insurers however refused to pay more than the FOS' statutory maximum of £100k. The claimants then applied to the High Court for injunctions to compel the firms to pay the full amounts.
The firms argued that the Ombudsman’s directions exceeded its powers since, under s229(2) FSMA - the power to make directions it had no power to direct a respondent to pay monetary compensation. Its only power to require the payment of money arose under s229(2)(a) - a monetary award, capped at £100k. If that was incorrect, they said any power under s229(2)(b) to require the payment of money was limited to £100k. The applicants submitted that the powers were cumulative rather than alternative so the Ombudsman did have power to direct the firms to pay money under s229(2)(b). They also said that power was not limited by the statutory cap, which only applied to a money award under s229(2)(a).
The court decided that the applications for injunctions would be dismissed. The Ombudsman did not have the power to make a direction that would require a firm to make a payment in excess of the statutory cap. If the cost of complying with a direction was unknown at the time when the direction was made, it was subject to an implicit limitation that it would not be enforceable beyond the statutory cap, once reached.
Lewison J said “it is always open to the FSA to change the amount of the cap if this is unsatisfactory”, thus cementing the FSA’s supremacy over the FOS.
The judge does not deal with the issue of Pensions Review cases and we do not therefore know how this judgment will apply to any future s404 review of past business. Unlike Cahill, the Bunney claim arose from a reviewable transfer in 1992. As the judge was asked to consider the FOS’s powers, he was not required to consider other issues, however significant. If Bunney was a Pensions Review case, the obligation to assess the file and pay any redress due remains - with statutory force - regardless of whether or not the FOS has the power to enforce it. We will have to wait and see whether Bunney or indeed any future s404 review complainants simply bypass the FOS and opt instead to enforce their right to compensation by threatening to report the firm to the FSA for failing to comply with its statutory obligations. There is no limit on the amount payable under s404. The threat of disciplinary action by the FSA for failure to comply will have much the same effect as a complaint to the FOS would have had were it able to direct firms to pay amounts that exceed £100k.
We believe this judgment lends yet more weight to our view that claimants who recover the statutory maximum award from the FOS cannot then sue in the courts for the balance of their losses. However, the point remains unanswered by the courts.
The FOS is also reportedly facing yet further challenges over its failure to apply the 15 year longstop time bar that applies in courts under the Limitation Act. We doubt this challenge will succeed - not least because it is probably timebarred itself - but it is clear the FOS’s jurisdiction and powers are being tested in ever more novel ways.