Bamber & Anor, R (on the application of) v Financial Ombudsman Service

Between 1989 and 13 June 1992 Mr Bamber was the partner in a firm of financial advisers subject to voluntary regulation by FIMBRA. When one partner left, the partnership was dissolved. Between June 1992 and July 1994 he continued in practice with the former partners excluding that one partner. Some partners then left and the partnership was dissolved.

Between 31 July 1994 and 30 April 2003 Mr Bamber continued in practice with the remaining partners and the firm was called Richard Bamber & Co. The partnership was dissolved when the business was incorporated as Richard Bamber & Co Limited, trading as Richard Bamber & Co.

The proposed judicial review relates to a complaint by Mr and Mrs Sullivan to the Financial Ombudsman Service (“FOS”) regarding the advice given by one of the Bamber offices concerning their mortgage endowment policy. The policy was with the Clerical Medical Investment Group Ltd. The application form in respect of it was dated 8 April 1989. The policy was dated 20 April 1989. The sum assured was £25,000. The term was 25 years. The policy matures in 2014.

In January 2004 the insurers informed the Sullivans that there was a “high risk” that the payment would be less than the £38,000 target amount. The reason was that the rate of growth required to achieve the target was higher than the maximum set by the Financial Services Agency for illustrating future investment returns. Having complained to Richard Bamber & Co on 4 July 2004, the Sullivans complained to the FOS.

It is unnecessary to go into the detail of the facts in the BP Financial Services case. They also relate to an old endowment mortgage insurance policy in respect of which it is said there will be a financial shortfall.

Before going into the basis of the application for judicial review, I need to set out a little of the history as far as regulation is concerned.

From 29 April 1988 until 31 July 1994, the firm (and I shall simply refer to “Bamber” for these purposes) was regulated on a voluntary basis by FIMBRA. From 1 August 1994 until 30 November 2001 it was regulated by the PIA. Both were self-regulating bodies under the Financial Services Act 1986. Different rules apply to FIMBRA and the PIA. The maximum award under FIMBRA was £50,000. Under its arbitration scheme FIMBRA had to apply the law. That meant that compensation was awarded only if there was negligence and if there was proved damage. The PIA could deal with complaints that arose when the firm was a member of FIMBRA. The PIA ombudsman could award up to £100,000. The ombudsman had to apply the law. The application of the law meant, among other things, that the provisions of the Limitation Act 1980 applied.

The Financial Services and Markets Act 2000 (“FSMA”) is the statute which sets up the FOS. Section 225 of that Act provides:

“(1)

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

It provides by subsection (4):

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

Section 226, in the context of the present applications, provides that the FOS shall have compulsory jurisdiction. Its awards are enforceable by the court, with all the implications for the financial firm which is the subject of any adjudication.

Section 228 provides, under the heading “Determination under the compulsory jurisdiction”, in subsection (2) 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.”

The maximum award is £100,000. If the complaint to the ombudsman fails, it can be taken through the courts.

Part III of Schedule 17 of FSMA, under the heading “Introduction”, provides that:

“12 This Part of this Schedule applies only in relation to the compulsory jurisdiction.”

Under the heading “Authority’s Procedural Rules” it provides, starting from section 13(1):

“(1)

The Authority must 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.

(2)

The rules may provide that an ombudsman may extend that time limit in specified circumstances.”

Section 426 provides that “regulations can be made under the Act”. Section 427 provides for transitional provisions. It is not necessary to refer to Section 428.

There were transitional provisions under what has been referred to as “the TPO”. It is not, I think, necessary for me to go through them, although they are helpfully laid out in paragraph 18 of the skeleton of Mr Stafford, who represents the appellant before me.

The FSA has made rules which extend the time limits for complaints involving the sale of mortgage endowment policies. Those rules are known as DISP. The relevant ones are DISP 2.3.1R and 2.3.6R. It is not necessary to read them out.

The policy statement of January 2005 by the FSA announcing rule changes further extending the time limits stated that it was intended to provide better protection for consumers. It rejected, and this is at the heart of the first ground of application for judicial review, a proposal for the inclusion of a 15-year longstop period. That 15-year longstop period reflected the limitation under the Limitation Act 1980. In other words, by those rules the Limitation Act provisions are purported to be disapplied.

The claimant in the Bamber case, Mr Bamber, raises essentially three issues. They relate to jurisdiction. They were raised with the FOS. It was said that the FOS did not have jurisdiction to decide the cases.

The first issue concerned limitation. It relied upon the 15-year longstop limitation period. It suggested that DISP 2.3.6R was unlawful. It suggested that, retrospectively, the FOS was abrogating the appellant’s accrued rights under the Limitation Act 1980. The FOS rejected that suggestion in its decision letter Among other things, it said:

“The firm is not precluded from raising this issue again, in this particular case, when we go on to consider the merits of the complaint.

In general terms FSMA expressly permits the FSA to make rules governing the time limits for complaints to be entertained by the FOS. FSMA conspicuously does not seek to apply the Limitation Act to such rules. If that had been the intention of Parliament, it would have been very easy for it to have specified within the statutory framework applicable to the FOS. There is, therefore, no basis for saying that the FSA-made rules on time limits subject to the separate provisions relating to court proceedings contained in the Limitation Act 1980, including the 15 year longstop provision”.

The second matter raised by Mr Bamber can be described broadly in terms of abuse of power and legitimate expectation. The argument came to this: that the retrospective application of the new compulsory provisions amounted to an abuse of power and was in breach of Mr Bamber’s legitimate expectation. He had an expectation that any complaint would be determined in accordance with the law; the criterion would be negligence, as under the FIMBRA regime in 1989. The quantum would be calculated by reference to the actual loss suffered. The new regime provides a fair and reasonable test. That is different. It applies it retrospectively. Compensation may be awarded before any loss has been suffered.

In response the FOS said:

“S228 FSMA is law. When determining a complaint by reference to what is, in the ombudsman’s opinion, fair and reasonable in all the circumstances of the case, the ombudsman will take into account the relevant law, regulations, regulator’s 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. And in determining in relation to a relevant new complaint, what is fair and reasonable in all the circumstances of the case, the ombudsman is required to take into account what determination the former ombudsman scheme might have been expected to reach. So the ombudsman will take into account the relevant substantive law, regulator’s rules and guidance and standards, including the FIMBRA and PIA rules.”

A third issue was raised which I need only mention and need not go into. That related to jurisdiction and the change of partnership members and is not a matter that falls for present decision.

One matter not raised with the ombudsman was an alleged lack of independence. That featured in the judicial review application in the Bamber case and the judge dealt with it. It is the only issue in the BP case. It is an issue upon which I have heard submissions. It is said in broad terms that the legislative structure of FSMA indicated that the FOS lacked independence from the FSA. The FSA, as the regulator, had used the ‘re-projection’ exercise on outstanding endowment mortgages to generate complaints. The FSA had then extended the time limits so that the FOS could investigate them. The FSA had done this when FOS had a budget approved by the FSA and received fees from regulated persons. The nature of this aspect of the application will become clearer when I deal with Mr Stafford’s submissions regarding them.

Another point also raised, and repeated by Mr Stafford to me, and one about which Mr Bamber feels very strongly, is that the present provisions do not provide for any recovery by Mr Bamber from his partners from 1989. The importance of this application to the appellants is emphasised. Behind them lie very many similar complaints. Substantial fees are payable in respect of each once FOS accepts jurisdiction.

I turn then to the limitation argument advanced by Mr Stafford. I can summarise it in this way. It was not Parliament’s intention that rules, said to be procedural, made under paragraph 13 of Schedule 17 were substantive in the sense that they were to derogate from accrued substantive legal rights. The test, he submits, is whether the extension of the period within which to bring complaints promotes the policy and object of the Act in question: in this case FSMA. Mr Stafford relies upon Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997. There is nothing, he submits, to suggest that Parliament intended to make substantial alterations to the law. The policy and object of the FSMA is the protection of consumers. There is no corresponding object or duty to consider financial advisers. He emphasises the jurisdiction would be applicable, if the FOS is right, to events as long ago as 1989. He emphasises too that the test under section 228(2) is not clear enough, when coupled with the other provisions, to suggest Parliament intended that the time limit under the Limitation Act should be extended. He refers to the use of the word “procedural” preceding paragraph 13. As to informality arising by reason of section 228(2), he suggests that, given the possible outcome to the financial company, it is far from an informal scheme.

I do not accept Mr Stafford’s submissions so far as they go to jurisdiction at this stage. I agree with the judge that the statute provides an informal complaints procedure outside the common law. Paragraph 13 provides that time may be extended by the rules. Presumably that was seen as an element of providing protection for consumers. There is no reference to the extension being limited by the common law or the Limitation Act. Of course the fact that the FOS must do what is fair and reasonable does not exclude, as I have indicated in argument, her taking the view that she is bound to have regard to what the law was in 1989.

It is secondly submitted by Mr Stafford that this is effectively a retrospective provision. He focuses on the provisions of section 228(2) and the broad discretion which it gives to the ombudsman. He submits, rightly, that there is a presumption against retrospectivity. Changes relating to the past, he accepts, are only objectionable if they alter the legal nature of a past Act and that some vested right must be affected or a penalty imposed when previously there was no penalty. In essence the submission is that a fresh test is now being applied by the statute retrospectively to previous acts which were tested in a completely different way. That is, he submits, unfair and not reasonable. Moreover, it is compounded by the inability of obtaining compensation from former partners.

It is important in my view to have regard to the fact that this application is made simply on the grounds of jurisdiction. The merits have not been considered. It does not seem to me that until the merits have been decided and the basis of the decision known it can be said that the rule against retrospectivity has been infringed or that it is bound to be so. In deciding what is fair and reasonable, the ombudsman is bound, it seems to me, to have regard to what the law was at the time of the transaction in question, something which seemingly was accepted in the decision letter to which I have referred.

The other matters raised by Mr Bamber may also be matters for her consideration although I say no more about that. If the ombudsman errs in her consideration of the previous law, her decision would be liable to be quashed in any judicial review. It does seem to me too, as Moses LJ observed when refusing permission on paper, that essentially these rules were designed to ensure that a member of a firm should remain susceptible to the informal complaints procedure which is set up by FSMA 2000.

I turn now to Mr Stafford’s submissions in relation to bias. He is defining it in terms of subconscious bias, as referred to in paragraph 21 of Lawal v Northern Spirit Limited [2003] UKHL 35, where in his speech Lord Steyn said that the principle to be applied was:

“whether a fair minded and informed observer, having considered the given facts, would conclude that there was a real possibility that the tribunal was biased. Concretely, would such an observer consider that it was reasonably possible that the wing member may be subconsciously biased?”

He draws my attention to section 2 of the 2000 Act. He refers in particular to Schedule 17, which relates to the ombudsman’s scheme. By paragraph 3(2):

“The chairman and other members of the board must be persons appointed, and liable to removal from office, by the Authority (acting, in the case of the chairman, with the approval of the Treasury).

(3)

But the terms of their appointment (and in particular those governing removal from office) must be such as to secure their independence from the Authority in the operation of the scheme.

He submits that the practical proposition contradicts “those fine words”, as he puts it.

It is useful to refer to paragraph 4(1) which, under the heading “the panel of ombudsmen”, states that:

“The scheme operator must appoint and maintain a panel of persons, appearing to it to have appropriate qualifications and experience, to act as ombudsmen for the purposes of the scheme.”

Mr Stafford draws my attention to paragraph 7(1) under the heading “Annual reports”.

“(1)

At least once a year --

(a)

the scheme operator must make a report to the Authority on the discharge of its functions; and

(b)

the Chief Ombudsman must make a report to the Authority on the discharge of his functions.

(2)

Each report must distinguish between functions in relation to the scheme’s compulsory jurisdiction and functions in relation to its voluntary jurisdiction.”

The lack of independence is not met because, submits Mr Stafford, the statutory duty is to protect consumers and not those in the position of financial companies. The ombudsman is responsible to the FSA. The jurisdiction is compulsory. There is no parallel anywhere within the civil justice system to that which is set up by these provisions and it is hard to reconcile the scheme with real independence. The provisions to which I have referred underline the lack of independence. I have referred already to the complaint made to the effect that the FSA initiated the reprojection exercise. The extension of time to enable the FOS to consider the consequences was then, it is said, provided for.

Mr Stafford submits that the FOS ombudsman is in a position where she knows that the FSA, a body to which her own employer reports and which approves her employer’s budget, has a statutory objective to protect consumers and makes policy in pursuance of that objective. More generous rules than those under the common law are provided for. Further extension has been provided for. He also relies upon observations made by Stanley Burnton LJ in Financial Ombudsman Service v Heather Moore and Edgecomb Ltd [2008] EWCA Civ 643 at paragraph 31 where he said:

“…it could be said that under the present scheme FOS has a financial interest in deciding that a complaint should not be summarily dismissed.”

And in paragraph 32:

“…a scheme under which the decision-maker’s decision on the merits of a complaint affects the income of the decision maker is, I think, undesirable.”

That seems to me to be applying to a somewhat different situation than that which obtains here. As Mr Strachan, on behalf of the respondent, observes, what essentially Stanley Burnton LJ appears to be saying is the outcome should not affect the case fees. It is somewhat different in relation to fees payable once jurisdiction is accepted and before the merits are even considered. It must be a balancing exercise as to how the ombudsman’s enquiry is financed. That seems to me, I am bound to say, to be correct.

As far as the broad submissions made by Mr Stafford are concerned, it does not seem to me that there is the lack of independence of which he complains. The statutory provisions specifically provide for independence. I do not think that the matters of which complaint is made would lead to any unconscious bias by those who comprise the panel of ombudsmen appointed, as I have just observed, in the way that they are. Moreover, there is available, by way of judicial review, independent and judicial scrutiny, on any view, by the Administrative Court. That of itself would be enough, as it seems to me, to dispose of the argument of subconscious bias in all the circumstances.

Having made those observations, it follows that I do not give permission to appeal the refusal of permission by Forbes J. As I have indicated in argument, however, and as Forbes J observed in his hearing, and as Ouseley J observed when refusing permission on paper, that is not to say that in due course some of the matters aired before me may not be relevant when the ombudsman has decided the case on its merits. Indeed that seems to have been foreshadowed by the ombudsman herself in the decision letter to which I referred.