The FOS’ compliance with fundamental principles of justice was thrown into the spotlight by last week’s ECHR decision in the cause célèbre case of Heather Moor & Edgecomb Limited (HME) v UK (FOS). In front of the ECHR, accused of failing to guarantee a fair and public hearing, the FOS was forced to defend claims that its complaints procedure breaches the right to a fair hearing and is incompatible with the rule of law. The FOS succeeded in showing it is European Convention and Human Rights Act compliant and shows no signs of giving ground to its critics.
Right to an oral and public hearing
The rules governing FOS’s procedure provide no guarantee of an oral or public hearing (DISP 3.5.5). Parliament established the FOS as a means of resolving certain consumer complaints quickly and with minimum formality (s.225 FSMA). It is at the Ombudsman’s discretion whether a hearing is necessary. Only if the Ombudsman feels the complaint cannot be fairly determined without one will a hearing be held. This creates a presumption against a hearing which is out of touch with the right to a fair hearing under Art 6 ECHR (despite guidance that the Ombudsman will have regard to the ECHR). FOS’ Annual Review confirmed that only 20 of the 200,000 cases resolved last year involved a hearing.
In HME’s case, the ECHR concluded that a hearing would not have added any additional fairness. I believe the Court’s logic was strained in placing considerable weight on the option of Judicial Review of an Ombudsman’s decision as a sufficient counter-balance to the lack of a formal hearing of the facts and merits of each case. Judicial Review is only available for decisions that are irrational, unlawful or result from procedural impropriety. Any review undertaken does not - as of right – allow the respondent to demand a review of the facts or the merits on which the decision was based.
As FOS’ maximum award limit is due to increase to £150K, firms threatened by larger financial awards will likely fight for a hearing before such a potentially costly decision is made.
Publication of FOS’s decisions and certainty for firms
FOS is currently required to keep a register of its decisions but the decisions are not publicised nor accessible to the public. The ECHR recognised that publication of decisions is essential to create legal certainty and prevent arbitrary decision making. Firms should be able to compare the judgment they receive with those of similar cases.
The ECHR found that there was ‘no compelling reason to withhold the Ombudsman’s decision from publication’. This chimes with the proposal in the Financial Services Bill for publication of every Ombudsman determination. Only when FOS is obliged to publicise all determinations can the judicial principles of legal certainty and equality be guaranteed. As previously noted, it is doubtful whether equality can be achieved for so long as the legislation requires only the respondent firm to be named. Given that firms probably prefer not to be named, it is harsh to criticise FOS for not publishing its decisions at the moment.
The most contentious aspect of FOS has long been its ability to depart from established legal principles. The Ombudsman is required to take account of relevant law, regulations, rules, codes of practice and good industry practice. The ECHR confirmed that ‘the Ombudsman’s decision is not limited to the rules of common law, but allows for subjective appraisal of what is “fair and reasonable in all the circumstances of the case”‘ (s.228(2) FSMA). This is no surprise and a direct result of Parliament’s clear intention.
The ECHR decision has protected FOS still further from complaints about its extra-judicial decision making powers by declaring that, in the Court’s opinion, the scope of the Ombudsman’s discretion is not so broad as to contravene automatically the principle of foreseeability. Unfortunately, given that the Adjudicators and even Ombudsmen at FOS are not necessarily lawyers or financial services experts, the exercise of that discretion is often criticised.
As the new rules require determinations to be taken into account, the FOS’s decisions should be predictable and consistent but all too often they are not. To this end, the ECHR’s decision includes a useful reminder that the Ombudsmen must declare when, and clearly explain why, they are departing from an established legal principle.