Heather Moor & Edgecomb Ltd, R (on the application of) v Financial Ombudsman Service & Anor

This is an application for judicial review of the decision of the Financial Ombudsman Service dated 23 November 2006 which upheld a complaint against the Claimant (“HME”) made by the Interested Party, Simon Lodge. The Ombudsman made directions that HME arrange an assessment of Mr Lodge’s loss resulting from his acceptance of HME’s advice and that HME pay the amount of that loss up to the sum of £100,000 (the maximum sum that the Ombudsman may direct be paid by a firm) and recommended that if the amount of Mr Lodge’s loss determined in accordance with the decision exceeded £100,000 HME should pay the balance into his current pension arrangements.

Permission to apply for judicial review was refused on the papers by Lloyd Jones J. The Claimant’s renewed application for permission was refused by Simon J on 8 October 2007. Permission to apply for judicial review was granted by Laws LJ who directed that the substantive application should be heard by the Court of Appeal.

HME’s advice to Mr Lodge

HME are independent financial advisers. Mr Lodge’s complaint arose as a result of advice given to him by HME in 1999. He was then aged 55 and was employed by British Airways as a pilot. He was approaching compulsory retirement from that employment, but he was intending to continue to work as a pilot for Airtours until aged 60. He was married, with two children. His wife was significantly younger than him.

Mr Pickering of HME advised Mr Lodge to leave the BA pension scheme on his retirement and to invest the proceeds in a section 32 pension plan with his fund invested in equities. That advice was given at an initial meeting between Mr Pickering and Mr and Mrs Lodge on 16 June 1999, evidenced by a long note made by Mr Pickering typed on 20 June 1999, and confirmed in his letter to them dated 21 June 1999. The illustration enclosed with that letter was based on 9 per cent per annum growth in the section 32 fund, and in the letter Mr Pickering stated:

… I have illustrated Simon at 60 plus one day having worked for the 5 years with Airtours. His pension fund would have gone up to somewhere around £730,000 minimum based on 9% per annum growth which I believe is very modest (12% would produce £840,000).

….

To offer a brief summary, if it is possible (!) bearing in mind the circumstances Simon is now in with regards to the Airtours position and the opportunity of being given a command, I have to say that I would consider it illogical not to take up the option that British Airways are offering by way of the transfer value. … Being my usual frank and blunt self, I cannot see that there is any sound reason not to elect for the Section 32 Buy Out Plan. ….The point I wish to emphasise to you both is that we are in no way having to rely on a very heavy fund performance to achieve what I am suggesting to you is achievable under your present circumstances.

Following that advice, on 28 June 1999 Mr and Mrs Lodge again met with Mr Pickering, and on that date Mr Lodge signed an election to opt out of the British Airways Pension Scheme and to transfer his pension fund to a Section 32 plan with AXA Sun Life. Mr Pickering made a note of that meeting that was typed on 30 June 1999.

However, Mr and Mrs Lodge were not entirely comfortable with Mr Pickering’s advice. They consulted another independent financial adviser, Mr Cooper. Following his meeting with them, in his letter to them of 7 July 1999, he reiterated his view that some of Mr Pickering’s comments breached the guidance issued by their regulator. By way of example, he referred to the assumption of 9% growth, which Mr Cooper considered to be “anything but modest”, and he stated that the PIA (the Personal Investment Authority, the then Regulator) had “recently introduced lower investment growth assumptions that have to be used by all life offices and advisers when projecting pension benefits”.

There were further meetings between Mr Pickering and Mr and Mrs Lodge. Mr Lodge sent Mr Pickering a copy of Mr Cooper’s letter. In Mr Pickering’s letter of 9 July 1999, he repeated his advice that the section 32 scheme was appropriate, and that a 9 per cent per annum assumed growth rate was “anything but modest”. As indicated above, ultimately Mr Lodge accepted Mr Pickering’s advice.

Unfortunately, the assumed growth rate of 9 per cent per annum was not achieved. By letter dated 20 October 2003, Mr Lodge informed HME that he felt obliged to claim compensation from them. His pension fund had in fact fallen in value by some 23 per cent. He calculated that he required a sum of over £340,000 to obtain the benefits he would have had if he had remained in the BA Pension Scheme. By letter dated 23 October 2003 HME rejected his complaint.

The complaint to the Financial Ombudsman Service and the decision of the Ombudsman

Following HME’s rejection of his complaint, Mr Lodge complained to the Financial Ombudsman Service, to which, in common with the parties, I shall refer as “FOS”. His complaint form was dated 11 November 2003. He summarised his complaint of inappropriate advice as follows:

1.

Income drawdown relies [heavily] upon the premise that investment returns and annuity rates will improve or continue at an acceptable level, [sic] This has obviously not been the case.

2.

The security and peace of mind of a good final salary pension with its associated benefits for dependant family members against a high risk investment scheme were not emphasised at any meetings.

3.

The figures used to illustrate and sell me the drawdown plan were inflated or at least anything but [conservative]. Mr Pickering considered a fund growth rate of 9% p.a. to be a modest figure which has proved to be totally unreal. I am [reliably] informed that within the financial services industry at that time a sustainable growth figure of 9% would have been considered very optimistic.

By letter dated 18 November 2003, FOS sent a copy of the complaint form to HME and asked for copies of relevant documents from its file and “any evidence you wish us to take into account when considering this case”. By letter dated 3 December 2001, HME sought the dismissal of the claim without consideration of the merits. In a further letter dated 2 February 2004, Mr Pickering enclosed a copy of HME’s file and gave a “detailed outline” of HME’s case.

David Oliver, an adjudicator in FOS, by letter dated 7 April 2004, gave his opinion on Mr Lodge’s complaint. He set out the circumstances in which Mr Lodge had been advised by HME, referred to HME’s letters of advice, made a number of relevant findings and came to the following conclusions:

Mr Lodge has considered that you failed to explain the risks inherent with investment performance and annuity rates. However, he consulted another independent financial adviser who mentioned both these aspects. He should, therefore, have been aware of these risks. For this reason, I am unable to uphold his complaint in this regard.

In addition, he has stated that the growth rates used in your projection were very optimistic. You repeatedly stressed that you considered 9% annual growth to be modest in light of past performance. As you will be aware, past performance should not be used as a guide to future performance.

It is widely recognised that occupational pension schemes, such as the (British Airways) New Airways Pension Scheme, offer greater security than either a Section 32 policy or a personal pension. That is not to say that transferring from an occupational pension scheme may not be advantageous. However, in making a recommendation to transfer, I would expect clear evidence that the differences had been explained. This would include the advantages and disadvantages as well as setting out compelling reasons for the transfer.

In my view, the various letters you wrote to Mr Lodge failed to adequately caution Mr Lodge of the risks associated with the transfer. While those risks may have been discussed during the various meetings, the letters do not give any balance between the advantages and disadvantages. Nor have you shown that all the options were properly considered.

When considering whether Mr Lodge was aware of the risks I have looked not just at the information provided but also at the investment funds you recommended. Mr Lodge had indicated that he was prepared to accept a medium amount of risk with the investment of the transfer value. However, the funds that you recommended did not [meet] your definition of medium risk and there is no evidence that Mr Lodge was aware of, or prepared to accept, the higher risk associated.

The transfer and the investment funds you recommended may, therefore, have been unsuitable.

I recommend that you carry out a loss assessment in accordance with the Pension Review methodology. If a loss is found to exist then redress should be paid in accordance with the Pension Review guidance.

Please let me know no later than 21 April 2004 if you are prepared to make such an offer to Mr Lodge. If you are unable to reply fully by then, please tell me how – with reasons.

HME rejected Mr Oliver’s opinion. Their substantial response was enclosed with a letter dated 6 August 2004. Their response addressed the substantive issues, but it also contended that, since the claim greatly exceeded the maximum amount that FOS could require a firm to pay to a complainant, fairness required that it be determined by litigation in court, and that FOS should therefore decline jurisdiction. If that was not accepted by FOS, a hearing was requested so that disputes of fact could be resolved after hearing the witnesses.

By letter dated 14 October 2003, Mr Oliver responded to the procedural points raised by HME. He stated that the financial limitation on the powers of FOS did not prevent them from considering Mr Lodge’s complaint. In relation to the request for a hearing, he said:

A hearing can be helpful where the documentary evidence produced by both sides is contradictory. Mr Lodge has not produced any evidence that is considered contradictory and we do not, at this time, believe that a hearing would be advantageous.

HME made further points in a letter dated 12 January 2005. Following further correspondence, in which they made further representations, Mr Oliver adhered to his findings, and stated that unless there were grounds for a hearing, he would place all the evidence before an ombudsman for a final decision. In their letter of 1 July 2005, HME gave their reasons for seeking a hearing:

Since this firm’s “civil rights and obligations” are affected, we believe that we are entitled to a hearing, and, indeed, a public hearing – see Article 6 of the European Convention on Human Rights.

If The Financial Ombudsman Service does not accept that primary contention then in the alternative we say as follows. We are unclear whether Mr Lodge and Mr Ross now accept the factual evidence which we have presented, in particular accounts that we have given of meetings with Mr Pickering. If they dispute our evidence then a hearing is needed at which they can be cross-examined by counsel, and of course, at which our witnesses can also be cross-examined. We therefore suggest that The Financial Ombudsman Service ask Mr Lodge and Mr Ross whether they are prepared to accept our evidence.

Tony King, one of the ombudsmen, wrote to HME on 11 July 2005. In relation to the request for a hearing, he stated:

Your reasons for requesting a hearing are that

•

Article 6 of ECHR entitles you to one, and/or

•

There may be disputed accounts of meetings and so a hearing will be needed, with cross-examination by counsel.

The Article 6 requirement does not have to be satisfied … at every stage of the process of determining “civil rights and obligations”. The right to a hearing by way of judicial review of the Financial Ombudsman Service’s decision remains open to you after you have received an ombudsman’s decision. If you were right then a hearing would be required (if requested) in every case that reached the Financial Ombudsman Service. It is, I think, clear that more is needed than just that the case concerns civil rights and obligations.

At present it is not clear that there is a dispute about what was said at meetings or, if there is, whether the case would turn on resolving what was in fact said.

But if it was necessary to decide between disputed accounts, it does not follow that it would be necessary for witnesses to be heard in person or be cross-examined. The Financial Ombudsman Service has inquisitional powers. It may be that the dispute can be resolved by reference to other facts – rather than by testing the credibility of the witness. Even where held, oral hearings are intended to be informal and the procedure is set by the Ombudsman concerned. It is uncommon for there to be formal cross-examination. In the event of such a dispute I am not satisfied of the need for cross examination nor for a hearing.

In relation to the request for FOS to decline jurisdiction in favour of litigation, Mr King stated that Mr Lodge understood and accepted that the maximum compulsory award that could be made was £100,000, and accordingly it was not necessarily more appropriate for the complaint to be litigated. Mr King rejected the contention that had been made that litigation was appropriate because the size of the potential award would threaten the viability of HME’s business.

FOS issued a provisional decision on Mr Lodge’s complaint on 17 February 2006. The Ombudsman dealing with Mr Lodge’s complaint, Adrian Hudson, gave extensive reasons for his conclusions, and stated that subject to any further evidence or comment he intended to uphold the complaint and to make an award which, in substance, was the same as that finally made and summarised above.

Mr Pickering responded to the provisional decision in a 21-page letter. It enclosed a witness statement signed by Anthony Marston-Smith, which had previously been provided unsigned. Mr Marston-Smith was a financial adviser of long standing. In his statement he opined on a number of issues raised by Mr Lodge’s complaint. In particular he stated that “there was a respectable school of thought amongst investment advisers in 1999 that 9% nominal growth on a pension fund would be modest” and that there was “a respectable school of thought amongst investment advisers in November 2000 which would have considered it appropriate to quote future growth at 9%”, and he gave reasons for so stating. In response to the question “Was there a respectable school of thought amongst investment advisers in 1999 that would have done other than advise Mr Lodge to retain his pension in the New Airways Pension Scheme? (In other words was staying there the only advice that any competent adviser of any respectable school could have given?)” he answered:

“Some competent advisers would have recommended that Mr Lodge make a transfer …”

The Ombudsman then made his final decision. He set out paragraph 3.8.1 of the scheme rules made under Schedule 17 to the Financial Services and Markets Act 2000. The rules on dispute resolution are referred to as DISP:

Opinion as to fairness and reasonableness

3.8.1

R (1) The Ombudsman will determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case.

(2)

In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman will take into account 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.

The Ombudsman stated:

Although the firm has stated that it has been advised that Mr Lodge’s complaint would not have been upheld in court, it has not submitted a copy of that advice or given further details as to the legal reasoning contained therein. While I have taken into account the relevant law, I have determined this complaint based on what, in my opinion, is fair and reasonable bearing in mind all the circumstances of this case.

The Ombudsman found that HME had advised that Mr Lodge should transfer his BA pension fund into a section 32 Buy Out Policy. He listed Mr Lodge’s investments at the date of the advice, and continued:

The fact that Mr Lodge was willing to accept a medium degree of risk does not automatically mean that the recommendation to transfer into a medium risk fund in a Section 32 Buy Out policy was suitable. By transferring, Mr Lodge was exposed to more than just investment risk. The firm had established in 1999 before the transfer had taken place, that Mr Lodge would not be able to purchase the same annuity on the open market with the transfer value offered by the scheme. This is demonstrated in “The Retirement Options” report.

Mr Lodge, after the transfer, was immediately in the position that the value transferred could not secure benefits equivalent to those given up. This was because amongst other reasons NAPS used standard transfer factors and did not allow for the fact that Mrs Lodge was significantly younger than Mr Lodge. The difference in ages would have been reflected in the cost of buying an annuity that included any spouse’s benefits. Mr Lodge was also exposed to risk after the transfer that any deterioration in annuity rates would further reduce his pension.

Of the assets listed above, I do not consider that the properties would have been considered as disposable in order to cover any shortfall in retirement provision. Excluding the matrimonial home, the transfer value of £549,103.54 represented a very significant proportion of Mr and Mrs Lodge’s overall wealth.

Therefore I conclude that the risk associated with the transfer was significantly higher than medium.

The Ombudsman considered Mr Lodge’s option to remain in the BA pension scheme, referred to as NAPS, and the consequences of his deferring taking his pension benefits until he was aged 60 (which is what he was proposing):

Although the firm has provided a meeting note that refers to the late retirement factor, it has also provided a copy of its report to Mr Lodge setting out “The Retirement Options”. As noted in the Provisional Decision, this report states that the deferred benefits would:

Increase annually by a combination of the Retail Price Index and rate of inflation capped to a maximum of 5% per annum” if the benefits were left in the scheme.

I consider that this report, since it is in written form, carries greater weight than any information provided verbally.

As noted in my Provisional Decision, the Financial Ombudsman Service has been informed that the late retirement factor for a deferment period of five years is 64.8%. Therefore, Mr Lodge would have enjoyed a significant increase in his pension had he not transferred from NAPS and deferred retirement until age 60. This would be to reflect the fact that the pension would be payable later and for a shorter time. I am not persuaded that Mr Lodge would have decided to transfer his benefits if he had been provided with projections showing the benefits that might be provided by the scheme, if he deferred taking his benefits to age 60. In my opinion, this would have been a key factor to investigate when considering whether to leave the benefits in the scheme rather than transfer. By understanding the increase in the deferred pension benefits in late retirement the firm made the option to remain within the NAPS much less attractive than it was.

In relation to Pickering’s assumption of a 9 per cent per annum growth rate, the Ombudsman referred to HME’s description of it as “very modest” and “anything but modest”, and continued:

Therefore, I cannot accept that the firm did not express any opinion on the potential to achieve the projected growth as it has suggested.

Sight of a projection showing benefits based on the new lower assumed growth rates of 5%, 7% and 9% set by the regulator in January 1999, rather than the higher previous growth rates of 6%, 9% and 12% might have caused Mr Lodge to express concern over the viability of the transfer. The use of the new lower projection rates would have caused Mr Lodge to question his understanding that 8% was achievable in a medium risk investment.

In the absence of any such projection, Mr Lodge would have had cause in 1999 to consider that the advice to transfer exposed him to a greater degree of risk than he had understood from the firm’s comment on the projected growth after the transfer.

Under the heading “No Negligence”, the Ombudsman referred to Mr Marston-Smith’s statement and stated:

However, when considering whether the advice was consistent with good industry practice in 1999, I placed greater weight on the contemporaneous comments set out in a letter from another independent financial adviser to Mr Lodge dated 7 July 1999 and the well documented concerns about pensions mis-selling that had resulted in the industry-wide Pension Review.

In the letter of 7 July 1999, the adviser referred to the relatively generous widow’s pension that formed part of a quite substantial benefits package that would “provide a good level of guaranteed income which is not dependant upon investment returns or annuity rates.” The adviser also wrote that he believed growth of 9% a year was not a modest growth rate. However, whilst he noted that he was unable to give formal advice, he was “somewhat negative” about the advice given to Mr Lodge. I am not persuaded that the adviser was supportive of the advice given by the firm.

The statement dated 18 May 2005 made by the other adviser does not directly answer whether there was a respectable school of thought amongst investment advisers in 1999 that would have done other than advise Mr Lodge to retain his pension in NAPS. The respondent stated only that “some competent advisers” would have recommended transfer, referring in particular to the benefits that could be received by Mrs Lodge in the likely event that Mr Lodge would die before her.

I consider that a competent adviser would have established the value of the widow’s benefit payable before recommending a transfer because of the large difference in the ages of Mr and Mrs Lodge and the potential requirement for any widow’s pension to have been paid for a significant period. A competent adviser would also have looked at the benefits payable on late retirement from NAPS and compared those with the projected benefits from the Section 32 Buy Out Policy.

The respondent stated that:

“…the regulatory system discourages advisers from recommending transfer as to the best of my knowledge nobody has been ordered to pay compensation for saying ‘stay put’ even if the client dies early and the advice causes his estate to suffer a loss. Advisers know they run the risk of being found at fault for recommending a transfer but not for advising ‘stay put’. There is a clear benefit to the adviser in advising a client to stay put.”

I am satisfied, in my opinion, that good industry practice in 1999 would have been to recommend against transfer in the particular circumstances of this case.

In January 1999, the regulator issued instructions for firms to alter the assumed growth-rates used when producing projections. That same instruction requires firms to alter the generic rate for pensions from a range with a mid-rate of 9% to a range with a new lower mid-rate of 7%. Firms were given a period of grace in which to implement the change, although all firms were required to be using the new rates by 1 July 1999. However, in its letter of 9 July 1999, the firm provided no projections on the reduced mid-rate and restated that assumed growth of 9% was modest.

I had given due consideration to the firm’s letter of 19 May 2005 prior to my Provisional Decision. Tony King, another ombudsman, considered the request for a hearing in his letter of 11 July 2005. He wrote that he was not satisfied of the need for a cross examination or for a hearing. I have seen nothing that would cause me to reach an alternative conclusion on the request for a hearing or on the request that the firm be allowed to cross examine Mr Lodge. The Financial Ombudsman Service has an inquisitorial role; it is not an adversarial process.

Under the heading “Quantum”, the Ombudsman considered the consequences of the increase in value of the fund into which Mr Lodge had transferred his pension fund, and accepted that although Mr Lodge had transferred his pension out of that fund, HME should be given credit for that increase. But he also considered the death and widow’s benefits that would have been payable under the BA NAPS scheme. He stated:

The benefits payable in the event of Mr Lodge’s death rightly should have been considered when the firm recommended that Mr Lodge transfer. However those benefits should have been viewed against the risk that Mr Lodge might be worse off in retirement. Mr Lodge was known to be in excellent health and I am not convinced that it was appropriate for his pension benefits to be placed at risk in order to increase the potential death benefits.

As noted in the Provisional Decision, “The large age difference between Mr and Mrs Lodge, with only a small reduction in the widow’s pension percentage would mean that the transfer value offered by NAPS represented poor value to Mr and Mrs Lodge”. This factor alone would have made the decision to transfer questionable.

The loss of the value of the widow’s pension that would have been paid by NAPS in the event of Mr Lodge’s death would, in any case, have undermined any perceived increase in the potential death benefits resulting from the transfer.

For the reasons set out in the letter of 23 November 2006, the Ombudsman upheld Mr Lodge’s complaint and made the direction and recommendation summarised in paragraph 1 above.

HME contend:

FOS disputes each of these contentions.

The grounds for judicial review include certain additional contentions, to which I refer below.

FOS operates under the provisions of Part XVI of the 2000 Act. It is the scheme operator referred to in the Act. Section 225 provides:

225 The scheme and the scheme operator

(1)

This Part provides for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person.

(2)

The scheme is to be administered by a body corporate (“the scheme operator”).

(3)

The scheme is to be operated under a name chosen by the scheme operator but is referred to in this Act as “the ombudsman scheme”.

(4)

Schedule 17 makes provision in connection with the ombudsman scheme and the scheme operator.

Mr Lodge’s complaint was determined under the compulsory jurisdiction of FOS. Sections 228 and 229 provide:

228 Determination under the compulsory jurisdiction

(1)

This section applies only in relation to the compulsory jurisdiction.

(2)

A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.

(3)

When the ombudsman has determined a complaint he must give a written statement of his determination to the respondent and to the complainant.

(4)

The statement must–

(a)

give the ombudsman’s reasons for his determination;

(b)

be signed by him; and

(c)

require the complainant to notify him in writing, before a date specified in the statement, whether he accepts or rejects the determination.

(5)

If the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and final.

(6)

If, by the specified date, the complainant has not notified the ombudsman of his acceptance or rejection of the determination he is to be treated as having rejected it.

(7)

The ombudsman must notify the respondent of the outcome.

…

229 Awards

(1)

This section applies only in relation to the compulsory jurisdiction.

(2)

If a complaint which has been dealt with under the scheme is determined in favour of the complainant, the determination may include–

(a)

an award against the respondent of such amount as the ombudsman considers fair compensation for loss or damage (of a kind falling within subsection (3)) suffered by the complainant (“a money award”);

(b)

a direction that the respondent take such steps in relation to the complainant as the ombudsman considers just and appropriate (whether or not a court could order those steps to be taken).

(3)

A money award may compensate for–

(a)

financial loss; or

(b)

any other loss, or any damage, of a specified kind.

(4)

…

(5)

A money award may not exceed the monetary limit; but the ombudsman may, if he considers that fair compensation requires payment of a larger amount, recommend that the respondent pay the complainant the balance.

(6)

The monetary limit is such amount as may be specified.

(7)

Different amounts may be specified in relation to different kinds of complaint.

….

(11)

“Specified” means specified in compulsory jurisdiction rules.

As appears from the decision in the present case, the monetary limit for a money award is £100,000. An award of compensation not exceeding that sum is binding on the respondent if the award is accepted by the complainant. Where the assessed loss of the complainant exceeds £100,000, the Ombudsman may recommend payment of the excess, but such a recommendation is not binding on the respondent.

Schedule 17 to the Act contains provisions requiring the establishment of a panel of ombudsmen. Part III concerns the Compulsory Jurisdiction, and provides for the making of procedural rules. Paragraph 13 requires the Authority (i.e., the Financial Services Authority) to make rules providing that a complaint is not to be entertained unless the complainant has referred it under the ombudsman scheme before the applicable time limit (determined in accordance with the rules) has expired; but the rules may provide that an ombudsman may extend that time limit in specified circumstances. Paragraph 14 is as follows:

14 (1) The scheme operator must make rules, to be known as “scheme rules”, which are to set out the procedure for reference of complaints and for their investigation, consideration and determination by an ombudsman.

(2)

Scheme rules may, among other things–

(a)

specify matters which are to be taken into account in determining whether an act or omission was fair and reasonable;

…

(d)

make provision as to the evidence which may be required or admitted, the extent to which it should be oral or written and the consequences of a person’s failure to produce any information or document which he has been required (under section 231 or otherwise) to produce;

…

As mentioned above, the rules made under paragraph 14 are referred to as DISP. DISP 3.8.1 is as follows:

(1)

The Ombudsman will determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case.

(2)

In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman will take into account 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.

On behalf of HME, Mr Speaight QC submitted:

Mr Flint QC, for FOS, submitted that the Ombudsman is free to depart from the common law rules relating to advice that is alleged to have been negligent or unsuitable, provided he complies with section 228 and DISP 3.8.1.

If I confine myself to the wording of section 228 and the other relevant provisions of the 2000 Act, in my judgment they do not require the Ombudsman to determine a complaint in accordance with the common law. If section 228 had simply provided that a complaint is to be determined by the ombudsman, it would have been implicit that it was to be determined in accordance with the law apart from that section. But Parliament did not so provide. The words “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case” in section 228 are inappropriate and unnecessary if what Parliament intended was a determination in accordance with the law apart from section 228. Furthermore, in my judgment on HME’s case the reference to the opinion of the ombudsman is inexplicable. If a tribunal is required to decide in accordance with the law, it must decide in accordance with what the law is, not with what in its opinion it is, and a failure to apply the law correctly will lead to its decision being quashed for error of law. By the use of the formula in section 228, Parliament excluded that possibility.

Other provisions of the Act reinforce this conclusion. An award under section 229(2)(a) is not of the amount of the respondent’s liability to the complainant, but again of the amount that “the ombudsman considers fair compensation for loss or damage”. I note the similar reference to the subjective view of the ombudsman as to what is fair. Paragraph (b) of section 229(2) explicitly confers power to make an order that a court could not make. It is difficult to see how the ombudsman could apply any rule of the law apart from the 2000 Act in order to decide whether to make a direction that a court cannot make: ex hypothesi, no court could have had occasion to formulate any such rule. Paragraph 14(2)(a) of Schedule 17 authorises the rules made under that paragraph to specify matters that are to be taken into account in determining not the (legal) liability of the respondent, but what was fair and reasonable. Moreover, the common law determines what may and what may not be taken into account in determining liability for negligence or breach of contract or statutory duty. If the ombudsman is to apply the common law, it is therefore difficult, if not impossible, to explain why paragraph 14(2)(a) was included in the Act.

Mr Speaight referred us to Part 6 of the Legal Services Act 2007. It establishes a scheme apparently similar to that created by Part XVI of the 2000 Act. The wording of section 137(1) of the 2007 Act is identical to that of section 228(2) of the 2000 Act. Subsection (2) sets out the directions that may be made when a complaint is upheld. Subsection (5) expressly provides:

The power of the ombudsman to make a direction under subsection (2) is not confined to cases where the complainant may have a cause of action against the respondent for negligence.

I do not think that this express provision affects the issue. The drafting of a later statute cannot be a guide to the interpretation of an earlier statute: if this were not so, in theory a later statute would change the effect of an earlier statute without amending it. It may be that express provision was made because the draftsman was aware of the decision in R (IFG Financial Service Ltd) v Financial Ombudsman Service [2005] EWHC 1153 (Admin), to which I refer below, and therefore of the question that had been raised as to the effect of section 228(2) of the 2000 Act; but that is speculation.

In the IFG case, the claimant challenged the amount of compensation that had been awarded by FOS. The claimant in that case accepted that an ombudsman is free to depart from the law, and none of the matters raised by HME in the present case as to the requirements of the Convention and the Rule of Law was argued. I said:

13.

Section 228(2) is at the heart of this case. It is to be noted that it does not require, as it might have done, a complaint to be determined in accordance with the law. The ombudsman is required to determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case. The words “in the opinion of the ombudsman” themselves make it clear that he may be subjective in arriving at his opinion of what is fair and reasonable in all the circumstances of the case. Of course, if his opinion as to what is fair and reasonable in all the circumstances of the case is perverse or irrational, that opinion, and any determination made pursuant to it, is liable to be set aside on conventional judicial review grounds.

And later in my judgment:

74.

The challenge made to the final decision turns entirely on the application of Rule 3.8.1 of the scheme. Mr Pooles (counsel for the claimant) accepted, and indeed in my judgment had to accept, that the scheme does not require the ombudsman to make a decision in accordance with English law. If the ombudsman considers that what is fair and reasonable differs from English law, or the result that there would be in English law, he is free to make an award in accordance with that view, assuming it to be a reasonable view in all the circumstances.

Having considered the matter afresh, subject to the effect of the Human Rights Act 1998 and the contentions based on the Rule of Law, I have come to the same conclusion as to the intended effect of the statutory provisions. I do not find this conclusion surprising, given that their expressed object is to create “a scheme under which … disputes may be resolved quickly and with minimum formality”.

It is common ground that for the purposes of Article 6 the ombudsman determines the civil rights of respondents, so that their Article 6 rights are engaged. Article 6.1 is as follows:

In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interest of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice.

The effect of an award under the scheme directing the respondent to make a payment to a complainant is to deprive the respondent of his property to the extent of the award. A1P1 is therefore also engaged. So far as is material, it provides:

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

A1P1 must be read alongside Article 6, which envisages decisions of courts or tribunals in civil proceedings holding a respondent liable to a claimant. A determination by a court or tribunal complying with Article 6 requiring a respondent to pay a sum of money to a claimant does not infringe the respondent’s rights under A1P1. Provided the scheme established under the 2000 Act satisfies the requirements of “law”, and satisfies the requirements of Article 6, no question of incompatibility arises.

A statutory provision is only incompatible with a Convention right if and to the extent that it necessarily involves infringing that right. It is not suggested that the ombudsman is not an independent and impartial tribunal. The scheme does not preclude the ombudsman from hearing cases in public, or from pronouncing his decision in public: whether and to what extent he may decide not to do so I consider below. And so the only question is whether the ombudsman scheme satisfies the requirements of the Convention as to the law to be applied to a dispute and as to the fairness of the applicable procedure.

HME contend that if the ombudsman is not required to decide complaints in accordance with the law (leaving aside, for the present, the provisions of the 2000 Act and the rules), the Convention requirements relating to the law are not satisfied. The ombudsman would be able to decide cases unpredictably and arbitrarily. A firm subject to the compulsory jurisdiction would not know the basis on which he decides cases, and therefore could not ensure that it conducted itself so as to avoid incurring liability to its clients; if a client made a complaint against it, it could not present a case with knowledge of the rules the ombudsman would apply to the complaint. Thus the basis of decision is not predictable and the hearing cannot be fair.

It seems to me that if these submissions are well founded, section 137(5) of the Legal Services Act 2007 is incompatible with the Convention. However, we are concerned with the 2000 Act, and the rules made under it.

The Rule of Law is undoubtedly a basic principle, perhaps the basic principle, of our unwritten constitution and of the Convention. In his lecture entitled “The Rule of Law” published in [2007] CLJ 67, Lord Bingham emphasised the importance of the law being “accessible, and so far as possible intelligible, clear and predictable.” Professor Paul Craig, in his paper on the Rule of Law appended to the Report of the Select Committee of the House of Lords (HL Paper 151), referred to the importance of the law being “capable of guiding one’s conduct in order that one can plan one’s life”, and of clarity as to the consequences of breach of the rule of law. So far as Convention jurisprudence is concerned, it is sufficient to refer to the preamble to the Convention, to paragraph 34 of the judgment of the European Court of Human Rights in Golder v UK (1975) 1 EHRR 524, and to the judgment of the Court in The Sunday Times v UK Case 9538/74 [1979] ECHR 1 at paragraph 49:

49.

In the Court’s opinion, the following are two of the requirements that flow from the expression “prescribed by law”. Firstly, the law must be adequately accessible: the citizen must be able to have an indication that is adequate in the circumstances of the legal rules applicable to a given case. Secondly, a norm cannot be regarded as a “law” unless it is formulated with sufficient precision to enable the citizen to regulate his conduct: he must be able - if need be with appropriate advice - to foresee, to a degree that is reasonable in the circumstances, the consequences which a given action may entail. Those consequences need not be foreseeable with absolute certainty: experience shows this to be unattainable. Again, whilst certainty is highly desirable, it may bring in its train excessive rigidity and the law must be able to keep pace with changing circumstances. Accordingly, many laws are inevitably couched in terms which, to a greater or lesser extent, are vague and whose interpretation and application are questions of practice.

Does the scheme established under the 2000 Act, interpreted in accordance with its natural meaning, comply with these requirements? In my judgment, it can and does. The ombudsman is required by DISP 3.8.1 to take into account 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. He is free to depart from the relevant law, but if he does so he should say so in his decision and explain why. The other matters referred to in this rule are matters that a court would take into account in determining whether a professional financial adviser had been guilty of negligence or breach of his contract with his client. Again, if the ombudsman is to find an advisor liable to his client notwithstanding his compliance with all those matters, the ombudsman would have to so state in his decision and explain why, in such circumstances, assuming it to be possible, he came to the conclusion that it was fair and reasonable to hold the adviser liable. In these circumstances, I consider that the rules applied by the ombudsman are sufficiently predictable. All the matters listed in DISP 3.8.1 are formulated or ascertainable with sufficient precision. So far as guiding the conduct of financial advisors are concerned, provided that they comply with “the relevant law, regulations, regulators’ rules and guidance and standards, relevant codes of practice and, where appropriate, … good industry practice”, they can be assured that they will not be liable to their client in the absence of some exceptional factor requiring a different decision. Lastly, the common law requires consistency: that like cases are treated alike. Arbitrariness on the part of the ombudsman, including an unreasoned and unjustified failure to treat like cases alike, would be a ground for judicial review.

In fact, it seems that FOS seeks to comply with these requirements. In his speech to the Financial Regulation Industry Group on 6 June 2001, available on the FOS website, Walter Merricks, the Chief Ombudsman, stated:

… if aspects of common law seem to the judges manifestly wrong, while they are bound by the doctrine of precedent, their only route to changing it is to purport to “find” what the “true” law was all along. By contrast, if we need to change, we do so openly, giving as much notice as we can and saying why. The ombudsmen are not bound by the doctrine of precedent, but we do aim for consistency. …

Our “fair and reasonable” jurisdiction has attracted a fair amount of attention. It allows us to look beyond the law, beyond wording of the small print, to take into account the large print in the promotional materials, good industry practice, and, if necessary, adopt a modern and fairer approach where it is clear that the law has lagged behind. This is not dissimilar to the approach of the regulations governing Unfair Terms in Consumer Contracts, except that we can look at core terms of a contract which are specifically excluded from the ambit of the regulations. … Some time ago the insurance ombudsman adopted the continental doctrine of proportionality to deal with cases where the consequence of policy cancellation following a minor non-disclosure would be unduly harsh - a proposal made by the Law Commission but never adopted in English law. Where therefore a policyholder has without fraudulent intent failed to inform an insurer of a fact that would have increased his premium, the result that we apply (but the courts would not) is that his claim should not be rejected entirely, but be paid subject to a reduction proportionate to the premium he should have paid.

It follows that I do not consider that the Convention and section 3 of the Human Rights Act 1998, or the principle of the Rule of Law, require the Court to depart from the natural and ordinary meaning of section 228(2) of the 2000 Act.

Furthermore, the contention that a respondent is unable to know the principles that will be applied in determining a complaint that has been made against him ignores DISP 3.2.11(2) R, which, following the opportunity given to the parties under DISP 3.2.11(1) R to make representations, requires the ombudsman to send to the parties a provisional assessment, setting out his reasons, and a time limit within which either party must respond. The principles that the ombudsman proposes to apply will be evident from the provisional assessment. If either party disagrees with it, he may so inform the ombudsman, who must then proceed to determination. At that stage DISP 3.2.12 R confers on the parties the right to make further representations.

The requirements of DISP 3.2.11 R and 3.2.12 R were complied with in the present case. HME knew from the provisional decision dated 17 February 2006 what principles were applied by the Ombudsman and what matters it had to address if he was to reject Mr Lodge’s complaint. There was no unfairness in that respect.

In order to succeed on their case as to the substantive law applied by the Ombudsman, HME must show both that he was required to apply the substantive common law to Mr Lodge’s complaint and that he did not do so. In my judgment, HME have failed to establish the first of these contentions: in my judgment, he was free to depart from the common law. In relation to the second contention, that the Ombudsman did not apply the common law, it is correct that the Ombudsman stated that he was not applying the relevant law, but had taken it into account in deciding what was fair and reasonable in the circumstances of the case. However, the specific contention of HME is that the Ombudsman failed to apply what is conveniently referred to as the rule in Bolam’s case, Bolam v Friern Barnet Hospital Management [1957] 1 WLR 582. That case is authority for the proposition that a professional man is not to be held negligent if what he did was in accordance with a practice accepted by responsible persons in his profession. Thus the contention of HME was and is that their advice to Mr Lodge was in accordance with the practice accepted by responsible financial advisers at the time, and that they were therefore not negligent and should not have been held liable to Mr Lodge.

The rule in Bolam is subject to the qualification formulated in Bolitho v City and Hackney Health Authority [1998] 1 AC 232: in applying the test the court has to be satisfied that the exponents of a body of professional opinion relied upon had demonstrated that such opinion had a logical basis and in particular had directed their minds where appropriate to the question of comparative risks and benefits and had reached a defensible conclusion. Lord Browne-Wilkinson, in a speech with which the other members of the Appellate Committee agreed, said at 241-2:

My Lords, I agree with these submissions to the extent that, in my view, the court is not bound to hold that a defendant doctor escapes liability for negligent treatment or diagnosis just because he leads evidence from a number of medical experts who are genuinely of opinion that the defendant’s treatment or diagnosis accorded with sound medical practice. In the Bolam  case itself, McNair J. [1957] 1 W.L.R. 583, 587 stated that the defendant had to have acted in accordance with the practice accepted as proper by a “responsible body of medical men.” Later, at p. 588, he referred to “a standard of practice recognised as proper by a competent reasonable body of opinion.” Again, in the passage which I have cited from Maynard’s case [1984] 1 W.L.R. 634, 639, Lord Scarman refers to a “respectable” body of professional opinion. The use of these adjectives - responsible, reasonable and respectable - all show that the court has to be satisfied that the exponents of the body of opinion relied upon can demonstrate that such opinion has a logical basis. In particular in cases involving, as they so often do, the weighing of risks against benefits, the judge before accepting a body of opinion as being responsible, reasonable or respectable, will need to be satisfied that, in forming their views, the experts have directed their minds to the question of comparative risks and benefits and have reached a defensible conclusion on the matter.

In the present case, the evidence relied upon by HME as establishing that the advice they gave to Mr Lodge was in accordance with a practice accepted by responsible financial advisers was the statement of Mr Marston-Smith. It was considered by the Ombudsman in his final decision under the heading “No Negligence”, in the passage set out above under paragraph 23. The Ombudsman clearly had the Bolam test in mind, since he explicitly referred to the question “whether there was a respectable school of thought amongst investment advisers in 1999 that would have done other than advise Mr Lodge to retain his pension in NAPS”. Having considered that question, the Ombudsman concluded that the answer was no; and he gave adequate reasons why he had rejected HME’s contention. The Ombudsman was entitled to reach this conclusion on the evidence before him. Indeed, in my judgment his conclusion that the requirements of Bolam were not satisfied was not only reasonable, but correct. As mentioned above, in answer to the question “Was there any respectable school of thought amongst investment advisers in 1999 that would have done other than advise Mr Lodge to retain his pension in the New Airways Pension Scheme?” Mr Marston-Smith had stated only that some competent advisers would have recommended Mr Lodge to make the transfer out of the BA scheme. This does not satisfy the Bolam test, let alone Bolitho. In any event, the Ombudsman was entitled to consider Mr Marston-Smith’s evidence critically in the light of contemporaneous evidence and guidelines, as he did. Thus this ground for judicial review fails on the facts.

The rules relevant to this issue are DISP 3.2.13 and 3.5.1. DISP 3.2.13 is as follows:

3.2.13

R A party who wishes to request a hearing must do so in writing, setting out the issues he wishes to raise and (if appropriate) any reasons why he considers the hearing should be in private, so that the Ombudsman may consider whether the issues are material, whether a hearing should take place and, if so, whether it should be held in public or private.

3.2.14

G In deciding if there should be a hearing and, if so, whether it should be in public or private, the Ombudsman will have regard to the provisions of the European Convention on Human Rights.

(As elsewhere in DISP, R indicates a rule and G guidance. Thus paragraph 3.2.13 is the rule; paragraph 3.2.14 is guidance as to the application of the rule.) DISP 3.5.1 R authorises the ombudsman to give directions as to the extent to which the evidence required to determine a complaint should be oral or written.

It is quite clear from the correspondence that the object of HME’s request for an oral hearing was to cross-examine, or to have the Ombudsman examine, Mr Lodge as to the advice he had received and his reliance on it. If the determination of his complaint involved the resolution of disputes as to what was said in the meetings between Mr and Mrs Lodge and Mr Pickering, or if it could sensibly be argued that if Mr Lodge had received the advice that the Ombudsman ultimately held he should have received he would have acted no differently, the contention that fairness required an oral hearing might have been substantial. However, even if there had been disputes as to what was said at a meeting, the availability of a contemporaneous written record would normally make an oral hearing unnecessary.

In fact, I have been unable to identify any issue as to HME’s advice to Mr Lodge that arguably required an oral hearing in order fairly to determine his complaint. Perhaps more importantly, Mr Speaight did not identify any such evidence. The advice given in meetings was the subject of Mr Pickering’s extensive notes, and was confirmed in correspondence. HME did not suggest that Mr Pickering’s notes were inaccurate. In any event, given the length of time between the meetings and Mr Lodge’s complaint, any such contention would have been highly unlikely to succeed. HME did not suggest that Mr Pickering had contradicted or modified orally the advice he had previously given in writing. In any event, the Ombudsman, sensibly in my view, considered that the written report provided by HME to Mr Lodge carried greater weight than information provided orally.

In relation to the issue of reliance, I think it obvious that if Mr Lodge had received the advice that the Ombudsman held he should have received, it is inconceivable that he would have removed his pension fund from the BA scheme. It would have been pointless to ask him whether he would have acted differently if differently advised: he undoubtedly would have answered affirmatively.

The principles applicable to the issues considered under this head, i.e., whether oral evidence should be heard and whether a public hearing is required, were considered by the Court of Appeal in R (Thompson) v the Law Society [2004] EWCA Civ 167, [2004] 1 WLR 2522. The Court had before it applications for judicial review of decisions of disciplinary tribunals of the Law Society. In one of the cases, the adjudication panel had refused an oral hearing on the basis that the matter was not sufficiently complex to warrant an oral hearing and the written material was sufficient for it to reach a fair conclusion. Dealing with the matter at common law, Clarke LJ, who gave the only substantive judgment, with which Kennedy and Jacob LJJ agreed, said:

45.

The question under this head is whether the claimant was entitled to an oral hearing in either case either before the Adjudicator (or equivalent) at first instance or before the Adjudication Panel on appeal. The duty of each was to act fairly. What is fair depends upon the circumstances of the particular case. I can imagine circumstances in which an adjudicator or appeal panel might think it appropriate to hold an oral hearing and there may even be cases in which the court would intervene to quash a decision refusing to do so.

46.

The relevant principles have recently been considered by this court in Smith v The Parole Board [2003] EWCA Civ 1269, where this court considered and rejected a submission that the Parole Board should have held an oral hearing. In that context, in paragraph 37 Kennedy LJ approved the following test proposed by counsel. An oral hearing should be ordered where there is a disputed issue of fact which is central to the Board’s assessment and which cannot fairly be resolved without hearing oral evidence. In the present context it is to my mind difficult to think of such an issue, but nothing is impossible.

47.

…the claimant did ask for an oral hearing before the Adjudication Panel. However, the Law Society was in my judgment entitled to leave it to the panel to decide whether to accede to an application for an oral hearing. In reaching its conclusion the panel or (in a case where an application is made to the adjudicator) the adjudicator must of course act fairly. However, the documents show that the Adjudication Panel gave careful consideration to the application for an oral hearing and gave reasons for its refusal of it. It seems to me to be clear that, although its decision was made long before the decision in Smith v The Parole Board, the Adjudication Panel essentially applied the test approved there. As stated above, it decided that a hearing was not necessary because the matter was not one of such complexity as to warrant an oral hearing and the written evidence was sufficiently detailed. It plainly considered that fairness did not require an oral hearing and that the issues could fairly be resolved on the documents.

…

49.

In Smith v The Parole Board the court emphasised in that context the principles applied by the House of Lords in R v Secretary of State for the Home Department ex p Doody [1994] 1 AC 531 per Lord Mustill at pages 560D-561A, which was concerned with the case where an Act of Parliament has conferred an administrative power. It seems to me that similar principles apply here. In particular, for present purposes I should I think refer to an important principle in Lord Mustill’s speech which was followed in Smith. He expressed it thus:

“ …. The respondents acknowledge that it is not enough to persuade the court that some procedure other than the one adopted by the decision-maker would be better or more fair. Rather, they must show that the procedure is unfair. The court must constantly bear in mind that it is to the decision maker, not the court, that Parliament had entrusted not only the making of the decision but also the choice as to how the decision is made”.

50.

In my opinion, that approach applies equally to the challenge in this case. To succeed the claimant would have to show that the procedure adopted was unfair. In this case, the only question before this court at common law is, as I see it, whether he can show, in the case of each decision impugned, that it was unfair to make it on the documents without any form of oral hearing.

51.

I have reached the clear conclusion that he cannot. As already stated, my conclusion is that each of the complaints could be fairly determined on the documents. The same is in my opinion true in Mrs Anderson’s case. As explained earlier, whatever view the claimant may hold (or have held), he was not being accused of dishonesty. It was to my mind an entirely sensible decision to determine the complaints on the documents, of which there were many. There was no need for an oral hearing or oral evidence. Moreover, the Adjudication Panel applied the correct test in refusing the claimant’s application and in any event the decision cannot be impugned as unfair or unlawful by whatever test is adopted. That is for the simple reason (as I see it) that there was no disputed issue of fact which was central to the Adjudication Panel’s assessment in her case and which could not fairly be resolved without hearing oral evidence and without an oral hearing (my emphasis).

In relation to the Convention right to a public hearing, Clarke LJ held that the entirety of the proceedings had to be considered, including the opportunity to bring proceedings for judicial review, which would be heard in public and in which, of course, judgment would be given in public. He said:

69.

The key point as a matter of principle is that the question whether the procedure satisfies article 6(1), where there is a determination of civil rights and obligations, must be answered by reference to the whole process. The question in each case is whether the process involves a court or courts having “full jurisdiction to deal with the case as the nature of the decision requires”. There may be cases in which a public and oral hearing is required at first instance and other cases where it is not, just as there may be cases in which the potential availability of judicial review will not be sufficient to avoid a breach of article 6(1).

Having referred to the jurisprudence of the European Court of Human Rights, he continued:

72.

In the context of a case like the present, the position was well put by Lord Mackay of Drumadoon in the Court of Session in Tehrani v United Kingdom v Central Council for Nursing Midwifery and Health Visiting [2001] IRLR 208, which is discussed in more detail below. He summarised the position referable to disciplinary tribunals in this way in paragraph 55:

“In my opinion, cases such as Le Compte, Van Leuven and De Meyere, Albert and Le Compte and Bryan establish that, as far such tribunals are concerned, no breach of the Convention arises if the tribunal is subject to control by a court that has full jurisdiction and itself complies with the requirements of Article 6(1). In other words, when dealing with a disciplinary tribunal, such as the PCC, a right of appeal to a court of full jurisdiction does not purge a breach of the Convention. It prevents such a breach from occurring in the first place.”

I entirely agree. …

73.

We were also referred to statements in some textbooks but to my mind none of them carries the matter any further. In short, all depends upon the circumstances.

Accordingly, Clarke LJ held that Article 6 had not required a public hearing by the disciplinary tribunal. He went on to hold that the disciplinary proceedings had not involved a determination of the civil rights or obligations of the claimants within the meaning of Article 6, but the compliance of the proceedings as a whole with the requirements of Article 6 was clearly a separate ground of decision.

The Convention requirement of a public hearing was subsequently considered by the European Court of Human Rights in Jussila v Finland (Application no. 73053/01). The case concerned proceedings that had resulted in a tax surcharge being imposed on the applicant, who complained that the proceedings were unfair because he was not given an oral hearing. The following passages in the judgment are relevant:

40.

An oral, and public, hearing constitutes a fundamental principle enshrined in Article 6 § 1. This principle is particularly important in the criminal context, where generally there must be at first instance a tribunal which fully meets the requirements of Article 6 (see Findlay v. the United Kingdom, judgment of 25 February 1997, Reports of Judgments and Decisions 1997-I, § 79) and where an applicant has an entitlement to have his case “heard”, with the opportunity inter alia to give evidence in his own defence, hear the evidence against him and examine and cross-examine the witnesses.

41.

That said, the obligation to hold a hearing is not absolute (see Håkansson and Sturesson v. Sweden, judgment of 21 February 1990, Series A no. 171-A, § 66). There may be proceedings in which an oral hearing may not be required: for example where there are no issues of credibility or contested facts which necessitate a hearing and the courts may fairly and reasonably decide the case on the basis of the parties’ submissions and other written materials (see, for example, Döry v. Sweden, no. 28394/95, § 37, 12 November 2002; Pursiheimo v. Finland (dec.), no. 57795/00, 25 November 2003; cf. Lundevall v. Sweden, no. 38629/97, § 39, 12 November 2002 and Salomonsson v. Sweden, no. 38978/97, § 39, 12 November 2002, and see also Göç v. Turkey [GC], no. 36590/97, § 51, ECHR 2002-V, where the applicant should have been heard on elements of personal suffering relevant to levels of compensation).

42.

The Court has further acknowledged that the national authorities may have regard to the demands of efficiency and economy and found, for example, that the systematic holding of hearings could be an obstacle to the particular diligence required in social security cases and ultimately prevent compliance with the reasonable time requirement of Article 6 § 1 (see Schuler-Zgraggen v. Switzerland, judgment of 24 June 1993, Series A no. 263, § 58 and the cases cited therein). Although the earlier cases emphasised that a hearing must be held before a court of first and only instance unless there were exceptional circumstances that justified dispensing with one (see, for instance, Håkansson and Sturesson v. Sweden, cited above, p. 20, § 64; Fredin v. Sweden (no. 2), judgment of 23 February 1994, Series A no. 283-A, pp. 10-11, §§ 21-22; and Allan Jacobsson v. Sweden (no. 2) judgment of 19 February 1998, Reports 1998-I, p. 168, § 46), the Court has clarified that the character of the circumstances that may justify dispensing with an oral hearing essentially comes down to the nature of the issues to be decided by the competent national court, not to the frequency of such situations. It does not mean that refusing to hold an oral hearing may be justified only in rare cases (see Miller v. Sweden, no. 55853/00, § 29, 8 February 2005). The overarching principle of fairness embodied in Article 6 is, as always, the key consideration (see, mutatis mutandis, Pélissier and Sassi v. France [GC], no. 25444/94, § 52, ECHR 1999-II; Sejdovic v. Italy [GC], no. 56581/00, § 90, ECHR 2006-...).

…

46.

In the present case, the applicant’s purpose in requesting a hearing was to challenge the reliability and accuracy of the report on the tax inspection by cross-examining the tax inspector and obtaining supporting testimony from his own expert since, in his view, the tax inspector had misinterpreted the requirements laid down by the relevant legislation and given an inaccurate account of his financial state. His reasons for requesting a hearing therefore concerned in large part the validity of the tax assessment, which as such fell outside the scope of Article 6, although there was the additional question of whether the applicant’s bookkeeping had been so deficient so as to justify a surcharge. The Administrative Court, which took the measure of inviting written observations from the tax inspector and after that a statement from an expert chosen by the applicant, found in the circumstances that an oral hearing was manifestly unnecessary as the information provided by the applicant himself formed a sufficient factual basis for the consideration of the case.

47.

The Court does not doubt that checking and ensuring that the taxpayer has given an accurate account of his or her affairs and that supporting documents have been properly produced may often be more efficiently dealt with in writing than in oral argument. Nor is it persuaded by the applicant that in this particular case any issues of credibility arose in the proceedings which required oral presentation of evidence or cross-examination of witnesses and it finds force in the Government’s argument that any issues of fact and law could be adequately addressed in, and decided on the basis of, written submissions.

48.

The Court further observes that the applicant was not denied the possibility of requesting an oral hearing, although it was for the courts to decide whether a hearing was necessary (see, mutatis mutandis, Martinie v. France [GC], no. 58675/00, § 44, 12 April 2006). The Administrative Court gave such consideration with reasons. The Court also notes the minor sum of money at stake. Since the applicant was given ample opportunity to put forward his case in writing and to comment on the submissions of the tax authority, the Court finds that the requirements of fairness were complied with and did not, in the particular circumstances of this case, necessitate an oral hearing.

49.

There has, accordingly, been no violation of Article 6 § 1 of the Convention.

In my judgment, the principles applied in Jussila v Finland are no different from those applied in Thompson. There are a number of similarities between Jussila v Finland and the present case. As in that case, the purpose of the request for an oral hearing was cross-examination, which in that case and in this the tribunal reasonably found to be unnecessary. The Court accepted that “demands of efficiency and economy” may justify a lack of a public hearing; in the present case, the Court is concerned with a scheme “under which … disputes may be resolved quickly and with minimum formality”, a consideration that justifies holding a public oral hearing only when that is necessary fairly to determine the dispute in question.

For the reasons I have given, I see no unfairness in the present case in the Ombudsman’s decision that the evidence should be entirely written.

So far as the requirement under Article 6 of a public hearing is concerned, there has been a public hearing before this Court, and a public hearing in judicial review proceedings is available to any complainant or respondent who considers that the ombudsman has made an unlawful decision. More generally, where, as in the present case, a complaint can fairly be determined on written evidence and without oral submissions, Jussila v Finland shows that, given the nature of the jurisdiction and the desirability of speedy decision at minimum cost and with minimum formality, it is normally not necessary for the ombudsman to hold a public hearing.

In its amended detailed statement of grounds, HME complains that FOS failed to pronounce judgment publicly.

In my judgment, this ground does not assist HME. In the first place, it did not ask FOS to publish its decision. If it had done so, the Ombudsman would have had to consider DISP 3.10:

3.10.1

R (1) In dealing with any information received in relation to the consideration or investigation of a complaint, the Financial Ombudsman Service must have regard to the parties’ rights of privacy.

(2)

Paragraph (1) does not prevent the Ombudsman disclosing information (either in full, or where he considers it necessary or appropriate under DISP 3.5.2R (2), in the form of an edited version or (where this is not practicable) a summary or description):

(a)

to the extent that he is required or authorised to do so by law; or

(b)

to the parties to the complaint; or

(c)

in his determination; or

(d)

at a hearing in connection with the complaint.

Secondly, the Ombudsman’s decision on Mr Lodge’s complaint has now been made public, during the hearing before this Court, and the ultimate decision, of this Court, will be published. The requirements of Article 6 have been satisfied: see the judgment of the European Court of Human Rights in Lamanna v Austria (Application no. 28923/95):

1.

The Court has frequently emphasised the importance of the public character of proceedings. It protects litigants against the administration of justice in secret with no public scrutiny; it is also one of the means whereby confidence in the courts is maintained. By rendering the administration of justice visible, publicity contributes to the achievement of the aim of Article 6 § 1, a fair hearing, the guarantee of which is one of the foundations of a democratic society (see as the most recent authority, B. and Pickering. v. the United Kingdom, nos. 36337/97 and 35974/97, 24.4.2001, § 36, to be published in ECHR 2001).

2.

Nevertheless, the Court has applied the requirement of the public pronouncement of judgments with some degree of flexibility. Thus, it has held that despite the wording which would seem to suggest that reading out in open court is required, other means of rendering a judgment public may be compatible with Article 6 § 1. As a general rule, the form of publicity to be given to the judgment under domestic law must be assessed in the light of the special features of the proceedings in question and by reference to the object and purpose of Article 6 § 1. In making this assessment, account must be taken of the entirety of the proceedings (see the Pretto and Others v. Italy judgment of 8 December 1983, Series A no. 71, p. 12, §§ 25-27, and the Axen v. Germany judgment of 8 December 1983, Series A no. 72, pp. 13-14, §§ 30-32; see also, B. and Pickering. v. the United Kingdom, previously cited, § 45).

3.

Further, it does not follow from the Court’s case-law that the public delivery of a judgment is required at each level of jurisdiction, as the applicant seems to suggest. On the one hand, for instance in the Axen case, the Court found that public delivery of a supreme court decision was unnecessary, given that the judgment of the lower court had been pronounced publicly (ibid., § 32). On the other hand, in the Szücs and Werner cases, the Court found a violation of Article 6 § 1 as none of the decisions given in the proceedings under the 1969 Act had been delivered publicly and publicity was not sufficiently ensured by other means (see the Szücs judgment, previously cited, p. 2482, § 48, and the Werner judgment, also previously cited, p. 2513, § 60).

4.

In the present case, the Salzburg Regional Court’s decision of 10 October 1994 – although taken after a public hearing of the applicant’s compensation claim – was not delivered publicly as it was dependent on his acquittal becoming final. Instead, it was served in writing on 4 November 1994. The decision by the Linz Court of Appeal of 1 February 1995, which contained a summary of the Regional Court’s decision, confirmed its application of section 2 § 1 (b) of the 1969 Act and rendered its decision final, was initially also delivered in writing and was not rendered public by any other means. However, following the Supreme Court’s judgment of 9 November 2000, it was delivered publicly on 9 February 2001.

5.

Having regard to the compensation proceedings as a whole as well as to their specific features, the Court finds that the purpose of Article 6 § 1, namely subjecting court decisions to public scrutiny, thus enabling the public to study the manner in which the courts generally approach compensation claims for detention on remand, was achieved in the present case by the public delivery of the appellate court’s judgment.

Accordingly, there has been no violation of Article 6 § 1 of the Convention.

I would hold that the purpose of ensuring public scrutiny of the decisions of FOS is satisfied by the availability of judicial review proceedings in which any decision alleged to have been unfair or arbitrary or otherwise unlawful will be published. It follows that no breach of Article 6 has been established.

I add that, in so far as HME complains that previous decisions of FOS were not published, I have already held that it was able to address the principles applied by it to Mr Lodge’s complaint, and that it was not disadvantaged by any inability to do so.

The contention in the detailed grounds that there was no equality of arms between Mr Lodge and HME before the Ombudsman was not pursued by Mr Speaight, rightly in my judgment, since it is unarguable.

Similarly, I did not understand Mr Speaight to pursue the contention that the Ombudsman was required to decline jurisdiction so that Mr Lodge’s complaint could be the subject of litigation. DISP 3.3.1A R is as follows:

3.3.1A R The Ombudsman may dismiss a complaint without considering its merits if:

(1)

before he has made a determination, he has received in writing from the firm or licensee:

(a)

a detailed statement of how and why, in the firm’s or licensee’s opinion, the complaint raises an important or novel point of law with significant consequences; and

(b)

an undertaking in favour of the complainant that, if the complainant or the firm or the licensee commences court proceedings against the other in respect of the complaint in any court in the United Kingdom, within six months of the complaint being dismissed, the firm or licensee will: pay the complainant’s reasonable costs and disbursements (to be assessed if not agreed on an indemnity basis) in connection with the proceedings at first instance and any subsequent appeal proceedings brought by the firm or licensee; and make interim payments on account of such costs if and to the extent that it appears reasonable to do so; and

(2)

the Ombudsman considers that the complaint:

(a)

raises an important or novel point of law, which has important consequences; and

(b)

would more suitably be dealt with by a court as a test case.

FOS had published guidance under this rule, which it is unnecessary to refer to.

The requirements of paragraph (1) of DISP 3.3.1A R were not satisfied by HME. In any event, the Ombudsman was entitled to refuse to decline jurisdiction, for the reasons he gave. The alternative to determination of the dispute by FOS, namely litigation, would have been expensive; it would have exposed Mr Lodge to a very considerable costs risk, sufficient to deter many complainants from proceeding; and Mr Lodge would have been deprived of consideration of his complaint by a tribunal with considerable experience of its subject matter. No important issue of principle was involved. I see no basis on which the Ombudsman’s decision could be said to have been perverse.

For the reasons I have set out above, I would dismiss the claim for judicial review.

I am grateful to Lord Justice Stanley Burnton for his judgment, which I have read in draft, and I agree with it. On any view, it has not been demonstrated that the Ombudsman’s determination was contrary to law. The determination rightly rejected Mr Marston-Smith’s evidence as proving a “respectable body of professional opinion” (see Lord Browne-Wilkinson in Bolitho v. City and Hackney Health Authority [1998] 1 AC 232 at 241/2) in support of HME’s advice to Mr Lodge; and rightly found fault with HME’s advice both oral and written on the ground of breach of suitability and “good industry practice” guidelines.

I would, however, like to make some further observations on the subject of the rule of law and publicity, in the light of the interesting arguments which we have heard on these matters.

The role of the ombudsman is created and governed by statute. The critical provision is contained in section 228(2)’s direction that a complaint is to be determined “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”. Schedule 17 to the Act supplements that direction by providing that the scheme operator “must” make scheme rules which are to set out the procedure and that such rules “may…specify matters which are to be taken into account in determining whether an act or omission was fair and reasonable”. Pursuant to that statutory power, scheme rules have been promulgated in DISP, para 3.8.1(2) of which provides:

“In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman will take into account 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.”

The effect of these provisions is not to leave the Ombudsman’s determination to his entirely subjective views, as though he was operating according to the length of his foot, so to speak. That, it seems to me, is not the effect of the statutory language which defers to the “opinion of the Ombudsman”. Rather, that is typical language to emphasise that the decision is for the Ombudsman, not for a judge. However, the Ombudsman remains amenable, through the ordinary process of judicial review, to a challenge on such grounds as perversity or irrationality. That was not in dispute. It was the view of Stanley Burnton J, as he then was, in R v. FOS Ltd ex parte IFG Financial Services Ltd [2005] EWHC 1153 (Admin), unreported 19 May 2005, at para 13. That is not the same, however, as saying that the Ombudsman is bound to apply the common law in all its particulars. He is, after all, dealing with complaints, and not legal causes of action, within a particular regulatory setting. Rather, he is obliged (“will”) to take relevant law, among other defined matters, into account.

Is such a jurisdiction compatible with the rule of law, generally regarded as requiring accessibility, clarity and predictability? Stanley Burnton LJ has referred to the writings of Lord Bingham of Cornhill and Professor Craig in this regard (at para 48 above). In my judgment, that question can be approached in two separate ways. One is to consider whether the statutory provisions, and the scheme rules adopted pursuant to them, promote a jurisdiction which in its essentials meets the requirements of the rule of law. It seems to me that the provisions which I have cited above achieve at least that much. The compulsory jurisdiction is set up by statute, provides for an over-arching test of “fair and reasonable” and allows for the statement of rules which elaborate that test, and the whole process is subject to judicial review in the courts. As such, the jurisdiction is not unlike, at that structural level, much other administrative or quasi-judicial decision-making found in a modern state.

The second consideration, however, is to ask whether the jurisdiction in practice works compatibly with the desiderata of the rule of law as a doctrine. If it were to be concluded that it does not, then it might be necessary, in a nation which prides itself on its adherence to the rule of law, to undertake some rethinking. That would primarily be a matter for Parliament and the FOS rather than the courts, as long at any rate as there is no breach of constitutional safeguards such as might be found either in the common law or, now, in the Human Rights Act. In connection with this second consideration, there are interesting discussions to be found in the speech given to the Financial Regulation Industry Group by the Chief Ombudsman, Walter Merricks, on 6 June 2001 (see para 50 above, and see also his similar speech to the Cardiff Faculty of Law in October 2002), in an article by Richard Nobles (“Keeping ombudsmen in their place – the courts and the Pensions Ombudsman”) in 2001 Public Law 308, and in the Hunt Review (an independent review of FOS by Lord Hunt of Wirral, recently published in 2008).

In these materials Walter Merricks speaks to the unusual nature of the FOS (“An alternative dispute resolution forum optional for applicants, but with compulsory jurisdiction over bodies complained about…A jurisdiction required by law to be based not on legal rights”), the benefits for the industry and for consumers alike, in part borne of the fact that the FOS stands outside the court system and thus can consult about making “new law” (“we can have a dialogue with the industry, with regulators and consumer bodies about our approach to key issues”), and the opportunity, as he puts it of “re-inventing equity”:

“Our “fair and reasonable” jurisdiction has attracted a fair amount of attention. It allows us to look beyond the law, beyond wording of the small print, to take into account the large print in the promotional materials, good industry practice, and, if necessary, adopt a modern and fairer approach where it is clear that the law has lagged behind.”

Richard Nobles, on the other hand, although speaking principally about the Pensions Ombudsman, where the statutory provisions are different and provide for appeal on matters of law to the High Court, sets out an informative historical review of private ombudsmen in general. He comments (at 314/315):

“While the idea of an ombudsman who can redress the balance of power in favour of consumers of important services has its appeals, it runs contrary to modern western views of formally rational justice and the rule of law. The fact that ombudsmen are created to redress inequalities is not a relevant consideration to formal justice that treats rich and poor alike: wealthy respondents deserve as much respect for their legal rights as poor complainants. The rule of law does not sit easily with concepts of individuated justice, for example those based on the sense of equity of an experienced official…

One must not exaggerate the importance of these objections…This is, at least in part, a recognition that formal justice and the rule of law reproduce structural inequalities, favouring those parties who can most easily configure their private rights and obligations and seek to have them enforced through the courts. A corporation which is held to standards of fairness that were not known by it prior to an ombudsman’s determination may cry “foul”, but its position is not necessarily worse than that suffered by an individual who finds that his rights and duties bear no relation to his reasonable expectations. As in other areas of public law, one looks for a pragmatic resolution of these oppositions…”

Lord Hunt has, after extensive consultation, conducted a thorough review of the working of FOS, a second review building on its predecessor published in 2004 by Professor Elaine Kempson. He refers to the 111,673 complaints considered by FOS in 2006/7. His core brief was to consider transparency and accessibility. In sections marked Foreword and Conclusions respectively he sums up his 73 conclusions and recommendations in part by emphasising the principle that FOS must become “more predictable, investing more in policy-making and communication in order to set realistic expectations of how it will react.” Thus along the way, for this purpose, he recommends that FOS should develop “a public interactive system – which I call “FOSBOOK” – as the main means of recording and promulgating details of its developing practice and decisions” (para 5.5). Such FOSBOOK would contain “mock-ups” of how FOS might respond to possible future complaints categories to guide the development of industry practice (para 5.8). In relation to publication of individual decisions he writes as follows:

“5.18

In the context of developing FOSBOOK, I have considered how far individual case decisions should be published. As noted in my call for evidence document, FOS practice on this issue is relatively conservative compared to some of its sister services overseas, some of whom publish all decisions in full, and some other UK Ombudsmen, who publish summaries of all their decisions. Swiss Re UK urged me to recommend full publication to help provide reassurance of consistency of decision-making, but they were a lone voice in the debate. Other respondents from both industry and consumer worlds argued against. Some arguments were practical: volumes would simply be too large to manage. Others started from the principle that no decision should be seen as precedent-setting and argued that publication could create false and undesirable misapprehension. I agree strongly with the practical point. I return to the second below, in discussing test cases.

5.19

I do not, however, see how the FOS can become more transparent without significantly more decisions being published, and those decisions being published in full, rather than in summary form. I believe that decisions need to be published for two purposes:

• first, in the context of FOSBOOK, to guide practitioners about developing FOS thinking and practice;

• secondly, to facilitate debate on the evolution of practice over time…

5.20

I therefore recommend that the FOS should:

• select and publish suitable decisions in full, but anonymised, form in FOSBOOK, to show the relationships between the broad principles applied to resolution of categories of cases and their application in practice;

• commission and publish regular academic analysis of the full range of Ombudsman decisions alongside future independent reviews.”

FOS will no doubt make its own well-informed decisions on such matters, and for myself I would be reluctant in anything I say in these remarks to suggest any direction that it should go in. However, in the light of the submissions which we have heard on this appeal, I would venture these observations. FOS’s case-load, as indicated above, is a heavy one, indicating a need for the alternative dispute resolution service that it provides. That service is the dominant purpose of the statutory scheme: as section 225(1) states – “This Part provides for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person”. It is a special feature of that scheme that it is voluntary so far as consumers are concerned, and only compulsory (within the limit of £100,000) on the part of the financial firms which provide services to such consumers. Those financial firms, however, are operating within a regulatory and commercial environment whose rules, guidance, standards and codes of practice should be well-known to them. Those matters are not equally well-known to consumers, however, who rather approach the relevant transactions with general notions of what they might reasonably expect.

It is a feature of our commercial law, robust, pragmatic and internationally respected as it may be, that it grew up in an age of commerce between merchants, when what we now think of as financial consumer contracts must have been relatively few in number, limited in their scope, and entered into by a small range of professional, mercantile and land-owning people. I speak of contracts outside ordinary sale of goods. Nowadays, however, huge numbers of consumers have pensions, make investments, and enter into insurance contracts of all kinds. Our insurance law, for instance, has been based on a statute, the Marine Insurance Act 1906, designed for marine insurance but given a dominant status over insurance contracts in general, which encapsulates the common law of over a century ago. For some years the insurance ombudsman (now within the FOS scheme) has been developing a new common law of insurance for consumer contracts, without which the courts would have been constrained to find, or alternatively to reject, solutions to problems from which they have been in the main shielded. This new ombudsman developed law is in turn being considered by the Law Commission as part of its current review of certain areas of our insurance law: see Insurance Contract Law, Issues Paper 1, Misrepresentation and Non-Disclosure, September 2006 and Insurance Contract Law, Issue Paper 2, Warranties, November 2006. We await to see what emerges from the Law Commission’s consultations. Ultimately, of course, it will be for Parliament to decide on changes, if any, to our law. However, it is possible to see in the “fair and reasonable” jurisdiction of the ombudsman the source not merely of an alternative dispute resolution service but of an important new source of law.

That “fair and reasonable” jurisdiction may be flexible and (subject to judicial review) for the ombudsman and not for the courts to discern: nevertheless, these are concepts long familiar to English law, and, given the legal and industry background to which the scheme rules bid the ombudsman to have regard, it is hard to think that the parties to complaints submitted to the ombudsman’s jurisdiction will find themselves in unrecognised country. Nevertheless, it can well be appreciated that moves to greater transparency and accessibility such as have been discussed and recommended by Lord Hunt’s review can do much to allay any concerns, in an important area of consumer dispute resolution, about the values and principles of what we know by the expression “the rule of law”.

It is in such a context that the submissions we have heard in this case have been made. In my judgment, the following values are all to be appreciated and brought into a pragmatic balance: that an efficient and cost-effective and relatively informal type of alternative dispute resolution should not be stifled by the imposition of legal doctrine; that the opportunity for the development of new ideas fitting to financial service industries operating in consumer markets should be appreciated for the benefits they can bring; that on the other hand transparency, consistency and accessibility as to the principles which inform the ombudsman’s determinations remain virtues in this new setting; and that publicity as to those principles and those determinations can assist in that regard.

Finally, I would like to say something about the matter of the FOS “register”. This has been the subject of written submissions, but has not figured in oral argument, no doubt because the parties appreciated that it would not affect the outcome of this appeal. Nevertheless, it remains the case that the Act’s Schedule 17, at para 16, in providing for the enforcement of an ombudsman’s money award in the county courts of England and Wales and by similar means in Northern Ireland and Scotland speaks of such an award “which has been registered in accordance with scheme rules”. Thus it is a statutory requirement that the scheme rules provide for the registration of money awards. Accordingly, DISP 3.9.15 R requires the Ombudsman to keep a register: “The Ombudsman must maintain a register of each money award and direction made.” In referring to directions, the scheme rules go beyond the statute. FOS seeks to comply with its rule by keeping an internal data base. It is not available to public inspection. I have my doubts as to whether such an internal data base amounts to a “register” properly so called. A register is an official list or record. It may be that it can be kept in any form, but I suspect that it needs to be open to public inspection. Since we have not heard oral argument on this matter, I merely refer to this point in passing.

I agree with both judgments.