On Friday 20th February 2015, Mr Justice Oustley handed down his decision in R (Chancery (UK) LLP) v Financial Ombudsman Service ( EWHC 407), adding to an increasingly long list of failed attempts to challenge the Ombudsman on judicial review.
Once again, the main issue under review was jurisdiction. And once again, the High Court had to grapple with the question of which standard of review should apply to the challenge. Was it a simple question of assessing whether FOS got its decision on jurisdiction right or wrong, a decision which the Court was entitled to assess independently? Or was FOS only susceptible to challenge if its decision was so irrational that no reasonable ombudsman could have reached it?
Chancery, a firm of accountants, was facing FOS complaints from around 80 clients relating to investments in film partnerships. These film partnerships took advantage of various tax incentives, and as a matter of original intent at least, enabled investors to offset losses against their income tax.
In responding to one of these complaints (alleging an unsuitable investment into an unregulated collective investment scheme), Chancery argued that FOS did not have jurisdiction because it had not been involved in any regulated activity. First, it had given tax advice not investment advice, and second, the film partnership in question was a trading partnership not a collective investment scheme (CIS).
FOS disagreed. Although tax advice was not a regulated activity that fell within its jurisdiction, the recommendation of an investment for tax reasons could still be regulated investment advice. There were many investments which involved special tax treatment and tax planning would therefore be a factor when giving investment advice. In such cases, investment and tax advice could merge or overlap. Further, on the facts, this particular film partnership was a CIS as the investors did not have sufficient day to day control.
Chancery sought judicial review on these two points . It argued that it was open to the Court to substitute its own view on whether FOS had jurisdiction. It would then be a simple case of determining whether FOS had been right or wrong. Unsurprisingly, FOS argued that its decision was unimpeachable if it had been a reasonable one.
The Judge was invited to consider the two recent decisions on FOS jurisdiction: R (Bankole) v FOS ( EWHC 3555) and R (Bluefin Insurance Services Ltd) v FOS ( EWHC 3413).
In Bankole, the issue had been whether a complaint was referred to FOS out of time. On judicial review, the Court found that this kind of procedural, evaluative issue was subject only to the test of rationality. In Bluefin, however, the issue was whether the complainant was a "consumer" and therefore eligible to access FOS under the relevant statutory scheme. That was held to be a question of hard-edged precedent fact, to which there was a right and wrong answer, and which entitled the Court to substitute its own view.
The Judge affirmed the correctness of Bankole for decisions on procedural matters, such as whether a complaint was made on one day or another. However, he held that it would be wrong to read the statutory regime as making FOS the master of the limits of its jurisdiction. FOS could not act without jurisdiction just because it had made an error in determining its own jurisdiction which happened to be a reasonable one. It was for the Court to decide. If FOS had got it wrong, then even if the decision had been reasonable, the Court had to rule that FOS had no jurisdiction.
Notably, he then held that it was not open to the Court to carry out a fresh fact-finding exercise. A judicial assessment on the law would only be based on the facts as they had been found by FOS. This was subject only to the usual requirement that the fact-finding process had been appropriately undertaken.
Accordingly, the two questions for the Court to decide here were: (a) whether there was a distinction between tax and investment advice; and (b) if so, whether (on the facts found by FOS) there had been advice which was a regulated activity. In the Judge's view, there could only be one right answer as to whether the scheme was a CIS, and whether the relevant advice was regulated. And that brought it in line with Bluefin rather than Bankole. The Judge then found in favour of the FOS on the facts.
The Judge was quick to emphasise that his decision did not mean that FOS should not rule on its own jurisdiction. However, in cases where its decision on jurisdiction was contested, FOS must keep the issue open throughout the course of the decision-making process, and should specifically address it in its final decision at the conclusion of the case.
If that has indeed been FOS' approach in the past (and experiences of FOS combatants may well differ significantly on this), then it may not always have been made evident to the parties. That practice must be expected to change after this decision, even if little else.