Consumers' complaints about financial advice given to them can, at the option of the consumer only, be dealt with by the alternative dispute resolution scheme provided for in the Financial Services and Markets Act 2000. The scheme's purpose is to resolve certain disputes quickly and with the minimum formality by an independent person – the ombudsman. While voluntary for the consumer, the scheme is compulsory (within the limit of £100,000) for the body complained about.
The Act provides that a complaint has to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case. In considering what is fair and reasonable, the ombudsman should take into account a number of factors. These are the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time.
In this case, Mr Lodge complained to the Financial Ombudsman Service about advice given to him by independent financial advisers Heather Moor & Edgecomb Ltd (HME) to leave his final salary pension scheme. The complaint eventually came before the ombudsman, who upheld it. While he had taken account of the relevant law, the ombudsman had determined the complaint based on what, in his opinion, was fair and reasonable bearing in mind all the circumstances of the case.
HME sought judicial review of that decision on several grounds including:
- the Act required the Financial Ombudsman Service to determine complaints in accordance with the rules of English law. The ombudsman had failed to do so having instead made the decision by reference to what he considered fair and reasonable. The decision should, therefore, be quashed for error of law.
- HME had a right to an oral hearing in public and to have the decision given in public under Article 6 Human Rights Act 1988 (right to a fair trial). The ombudsman had wrongly refused to do either.
The case came before the Court of Appeal. It found that the words "by reference to what is, in the opinion of the ombudsman fair and reasonable in all the circumstances of the case" made it clear that Parliament had not intended the ombudsman to be bound to determine the complaint in accordance with the common law.
Had its intention been otherwise, such subjective words would not have been included. Other, subjective provisions of the Act, such as the ombudsman being able to make an award that he "considers fair compensation for loss or damage," reinforced that conclusion. The ombudsman was free to depart from the relevant law and be subjective in arriving at his decision but, if he did so, he should say so in his decision and explain why.
The court found that the ombudsman had not, in any event, departed from the relevant law. He had to consider whether the advice given to Mr Lodge was such as would be given by responsible persons in that profession and whether, if it was, the advice had a logical basis with comparative risks and benefits having been considered so that the advice given was defensible. He had considered the relevant provisos and concluded, with reasons, that the provisos had not been met and the advice had, therefore, been negligent.
Further, there had been no unfairness in the ombudsman's decision not to have a hearing but to deal with written evidence. There were detailed contemporaneous notes of meetings between the parties detailing the advice given and there was no real dispute as to what had been said.
Where a complaint can fairly be determined on the written evidence, given the nature of the jurisdiction under the scheme and the desirability for speedy decisions at minimal cost and with minimal formality, a public oral hearing is normally not necessary. The availability of a public hearing in these judicial review proceedings and the fact that the ombudsman's decision had been made public in these proceedings meant that there had been no breach of HME's right to a fair trial.
If the ombudsman considers that what is fair and reasonable differs from what the result would be in English law, he is free to make an award in accordance with that view so long as it is a reasonable view in all the circumstances.
The scheme was implemented to allow the ombudsman to look beyond the law and the small print, to take into account good industry practice and to adopt a fair and modern approach. Although not bound by the common law, any perversity, irrationality and arbitrariness on the part of the ombudsman, including an unreasoned and unjustified failure to treat like cases alike, would be grounds for seeking judicial review.
Trying to second guess what decision an ombudsman is likely to reach based on established principles of law may, therefore, prove to be a difficult exercise. Such uncertainty may need to be taken into consideration by the body being complained about in the way it resolves the complaint in advance of the ombudsman arriving at a final decision.