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

HIS HONOUR JUDGE DAVIS: This court has two applications before it. First, a renewed application for permission to apply for judicial review in what I shall call the Ross case, because it concerns a decision of the Financial Ombudsman Service in relation to a man referred to, at that stage at least, as Captain Ross. An application for permission to apply for judicial review was made some time ago and refused some time ago by the honourable Mitting J. He dealt with two issues, and they are the same issues with which I have to deal, namely whether this is a case in order to satisfy the applicant's rights to a fair trial there should have been an oral hearing, and second, whether the whole scheme should be attacked as being unfair and unlawful.

I then have an application that has been referred to the court to be heard in open court on oral application by the honourable Burton J, which is a freestanding application for a declaration that the Financial Ombudsman scheme fails to provide an independent and impartial tribunal and that the scheme is incompatible with the requirement in Article 6 of the European Convention on Human Rights for an independent and impartial Tribunal. That freestanding application in essence being encouraged, in the sense of highlighted, by Mitting J's refusal in the first case.

Both of these applications concern an independent financial advisor trading as Heather Moor and Edgecomb Limited, and I have heard from Mr Brian Pickering who, for all intents and purposes, is that company. He is an independent financial advisor of many years' standing. There is no doubt that in about 2000/2001 he had a number of discussions with Captain Ross, at the conclusion of which, to use very much lay terms (I stress that so that Mr Pickering does not stand up and correct me), he transferred his pension arrangements out of the British Airways scheme into a stand alone scheme.

Some little time after that occurred in 2003, Captain Ross became concerned about what he had done. He terminated his relationship with the claimant and in due course complained about the advice he had been given. The complaint was rejected and so at the end of 2003 that is when Captain Ross complained to the defendant in this case, the Financial Ombudsman Service.

The matter progressed thereafter, as set out in the chronology provided by the defendant. The initial reference was to an Adjudicator as the scheme sets out. That Adjudicator, after investigation, expressed the view that there had been unsuitable advice given. The claimant rejected that view and, because of the difference of views, it was referred to an Ombudsman in April 2005. Thereafter, there was a further investigation by the Ombudsman which included representations by the claimant for an oral hearing. The Ombudsman declined to grant an oral hearing, provided a provisional decision which was the subject of further discussion and correspondence between the claimant and the Ombudsman's office, leading to the final decision which was issued on 9th February 2007. That is the decision in respect of which the first application is brought, and out of which the second application arises.

I do not rehearse the history of the applications but, as I have already indicated, it was on 10th March 2009 that Mitting J refused permission on a reading of the papers. He concluded that an oral hearing was not necessary for the Financial Ombudsman Service fairly to determine, as it did, that the relevant recommendation should not have been made. Mitting J referred to a decision of the Court of Appeal in respect of a man called Lodge. He declined permission to add any challenge in relation to the Article 6 rights, as he put it, on grounds of delay and irrelevance to the hearing of the complaint made by the interested party. I am now considering that, of course, as part of the application that has been referred to this court by Burton J. So there is the history.

I have heard from Mr Pickering at some length (and I do not criticise him for that) and it is apparent that he finds the statutory scheme under which he was having to operate when the complaint was made, as he puts it, "terribly, terribly frustrating". He does not understand why it is that, under that scheme, today his renewed application for leave is the first time he has ever had the opportunity to stand up in a court and say his piece. The explanation is that Parliament has set up a scheme, and did so in the 2000 Act. I do not set out the statutory framework. I refer to the Court of Appeal judgment in the case of R (on the application of Heather Moor and Edgecomb Limited) v Financial Ombudsman Service (the interested party being Simon Lodge) [2008] EWCA Civ 642, and at paragraphs 29 to 33 the statutory scheme under which the Financial Ombudsman Service operates is set out in clear and straightforward terms.

It is not intended as a strictly legal proceeding in the sense that civil courts, and indeed criminal courts, in this country are. It is more inquisitorial than adversarial, and it is intended to deal in a way that ensures that the person dealing with it is conversant with the language and with the practices of the people whose activities it is monitoring.

Mr Pickering asks rhetorically: why it is that that service is reluctant to hold oral hearings? The answer almost certainly is that in most cases -- and this is one of them because Mr Pickering has taken me through the documents -- what actually happened in terms of what was said and what was done is there in writing. Mr Pickering has helpfully taken me to a number of the letters and meeting notes that he himself prepared.

Plainly, as is made clear in what I shall call the Lodge case, there may be cases in which oral and/or public hearing is necessary. As Stanley Burnton LJ said, if the determination of the complaint involved the resolution of disputes as to what was said in meetings, or if it could sensibly be argued that if the person being advised would have acted no differently irrespective of the advice being given, then in such cases it may well be that an oral hearing will be necessary. But in terms of disputes, as I have already indicated, as in this case, the reality is that almost inevitably a very comprehensive written record of what has been said, advised or recommended, whatever verb one seeks to attach to it.

In terms of what I shall call causation (in the Court of Appeal what Stanley Burnton LJ referred to as "reliance"), in general terms where the Ombudsman says the person concerned should have received different advice to that which he actually received and that is why he suffered his loss, then, said Stanley Burnton LJ, it is inconceivable that the person would have acted any differently and it is pretty pointless to have him there to ask "Would you have done?" because undoubtedly he would have answered affirmatively.

In this case, in the very extensive detailed statement of grounds in relation to what I will call the Ross case, where I am considering the renewed application, it is said in terms that an oral hearing was required rather than a paper determination because, and I look at paragraph 20(d), the central issue of dispute in the case was the adequacy of risk advice and the information as to investment objectives provided in the course of face-to-face meetings at the claimant's offices and home. The Financial Ombudsman Service needed to understand why, on the basis of those meetings, Captain Ross decided to transfer, despite having been advised of the risks by another independent advisor. To understand that, the Service needed to hear evidence about the Captain's investment priorities and his attitude to risk.

In my judgment, though the facts are different, the overall position is exactly the same as it was in the case of Mr Lodge. The finding of the Ombudsman -- which I fully understand Mr Pickering does not accept but it is his finding -- in broad terms is that what should have been said to Captain Ross was precisely the opposite to what was actually said. To be more accurate, Captain Ross should have been advised not to do that which he eventually did. With the great respect to Mr Pickering, it is self-evident that if that had happened then, at the very least on the balance of probabilities, he would not have done it. It is, in my judgment, wholly pointless to suggest that an oral hearing would have made any difference whatsoever to that. On the facts of the case there was no need for an oral hearing, and the procedural unfairness that is alleged simply does not arise because, as I have already indicated in the chronology, there was ample opportunity for Mr Pickering, and the claimant through him, to make its views known in the representations put forward. An oral hearing would have added nothing to that.

I will return to what Mr Pickering said to me, that because it is all on paper he finds it terribly frustrating. That may be so, but that is the nature of the beast. It is there because Parliament has decreed it, and it is a system that is not intended to act as a civil hearing in terms of a County Court or High Court hearing. It is there for the determination of this kind of dispute by those with expertise in terms of financial advice and financial management. I say in parentheses, Mr Pickering asserts, by reference to a variety of matters, that in his view the Ombudsman got things wrong; in some cases wrong about financial matters. As I have said in the course of argument, this court is not here, and cannot be here, to engage in a rehearing of the facts. We can only, in this court, review, in essence, procedural unfairness. Of course, if there was clear evidence that relevant facts were plainly ignored by the Ombudsman that would be something different, but that is not the case here.

What is referred to in the amended detailed statement of grounds as ground two, unreasonably refusing the claimant's request for a hearing, in my judgment is not made out and the original decision of Mitting J was plainly right.

The other ground that is relied on as a freestanding ground is that the Financial Ombudsman Service is not independent and impartial. In support of that I heard, of course, from Mr Pickering, but I also have received a legal submission on behalf of the claimant dated 16th September 2009 from Mr Anthony Speaight QC.

Two issues, in essence, are raised in the course of that legal submission. First, it is identified, as is the case, that there is a close connection between the Financial Ombudsman Service and the Financial Services Agency ("FSA"), not least because, statutorily, the latter appoints significant figures within the former and exercises budgetary control. Mr Speaight QC quotes in his submission the opinion of Lord Neill of Bladen QC (in his report in relation to Equitable Life) namely the fact that some of the powers vested invested in the FSA in relation to the FOS (and he sets them out) suggesting a structural superiority of the FSA and a corresponding inferiority of the FOS might be hard to reconcile with real independence. Of course that has to be recognised. It has pertinent, however, to quote from Lord Neill's paragraph immediately preceding that section where he said there is nothing to suggest that the FSA has any responsibility for telling the FOS how to decide particular complaints, nor does it have the right to see, or approve, or disapprove draft decisions by the Ombudsman. Similarly, there is nothing in paragraph 6 of the Memorandum of Understanding between the two to suggest that the FOS is subordinate to the FSA in its decision-making role. Plainly that is the crucial matter. The relevant partiality or otherwise of the FOS is as between the people who come and complain to it, essentially consumers, and the people against whom complaints are made, financial advisors or institutions of one sort or another.

In my judgment, there is nothing in the general material that I have seen that could conceivably suggest that the FSA supervisory role in relation to the FOS creates any appearance of bias, so far as the FOS is concerned, in favour of one side or the other of those parties who come before the FOS. Indeed, it is worth observing that Lord Neill of Bladen's report was prepared in the context of complaints that the FSA was actually biased towards the other side of the coin in terms of this case; in other words not the unfortunate consumers but the financial institution, who were Equitable Life. That is en passant. The reality is that the general structure of the FOS discloses no hint of bias of the kind referred to in the passage headed "Legal Principles" in Mr Speaight's submissions.

What is said is that there is a particular piece of information which this court should use now to draw the conclusion that there is an appearance of bias, in that in relation to some kind of investigation that the FSA was carrying out into a company that either was bankrupt or had gone into administration or receivership, the FSA passed on to the FOS directly complaints in a kind of pro forma fashion, which it was decided subsequently by the independent assessor were in effect solicited by the FSA and therefore inappropriate. The person concerned, Mr Callan, was awarded a modest amount of compensation as a result of that. That was a particular case involving a particular set of transactions wholly different to the one with which this case is concerned. It is submitted on behalf of the defendants that, assuming for the moment that in that particular instance there was indeed bias, if actual or perceived, then the way of dealing with it in terms of meeting it is not to undermine the entire scheme, but to impugn whichever transactions actually were affected by the facts set out by Mr Callan. As it happens, Mr Callan's evidence has been considered by this court on a renewed application for permission in circumstances I do not know fully, but whatever the weight of his evidence it did not carry the day in that case either. But I give that no particular weight, as it has been conceded that it is not a persuasive authority. What I do conclude is that the "Callan story", as Mr Speaight puts it, does not demonstrate that the scheme is fatally flawed and undermined.

It follows that the declarations sought in the second application are, in my judgment, not declarations that I can or should make. The Financial Ombudsman scheme does provide an independent and impartial tribunal and is not incompatible with the Article 6 rights of whichever party comes before it.

I return to the fact that Mr Pickering profoundly disagrees with the decision that the FOS made, both in this case and plainly in the case of Mr Lodge. He has set out at some length the various reasons why he disagreed with it. But none of those reasons are amenable to judicial review, where I am concerned, as I say, either with wholly irrational or perverse decisions in terms of fact, or procedural irregularity in terms of form. In this case neither apply, and therefore both applications are refused.

MR STRACHAN: My Lord, in those circumstances I would ask for an order to that effect, that both applications are refused. There is the issue of costs, my Lord. So far as costs are concerned, I submit that I am entitled to the costs of preparing the acknowledgment of service in each case, subject to anything Mr Pickering has to say about the quantum. As to the costs of attendance today, I also submit I am entitled to the costs of attending in relation to the new set of proceedings, because they were adjourned by Burton J into open court therefore we were entitled to appear to assist the court with those.

So far as the renewed application on the Ross proceedings is concerned, for our attendance today we would not normally be entitled to costs unless I could demonstrate exceptional circumstances within the meaning laid down in the Mount Cook case in relation to part 54. I read from the White Book at page 1637.

HIS HONOUR JUDGE DAVIS: We are in the wrong court for this sort of thing. We have Archbold.

MR STRACHAN: Shall I read it out and then hand it up:

There are four costs schedules for your Lordship to look at. Can I just hand them up. (Handed). I have prepared four because of the separate permutations I have just indicated. I think the Pickerings have copies as well.

HIS HONOUR JUDGE DAVIS: I have the first one.

MR STRACHAN: It might be best to identify the number at the top.

HIS HONOUR JUDGE DAVIS: I have 3316, which is the new claim, is it not?

MR STRACHAN: It is, my Lord. There is one schedule for --

HIS HONOUR JUDGE DAVIS: Coming here today.

MR STRACHAN: Yes, my Lord, which is £1,150. There is costs of the acknowledgment of service which is £2,379. For the reasons I have identified we seek both of those costs.

In relation to 3717, which is the Ross proceedings, there are the original costs of summary grounds for resisting the claim, £1,325, and then costs of attendance today £2,164.

HIS HONOUR JUDGE DAVIS: Right. So far as your attendance here today on 3316, suppose for the sake of argument that Burton J had said no, and Mr Pickering, or rather his firm, had renewed the application, then subject to the matters you have raised about exceptional circumstances, you would be entitled to your AOS costs, would you not, and no more? Subject to exceptional circumstances.

MR STRACHAN: Yes. The difference I identify in that case is that Burton J did not order that it was unarguable in his order. He adjourned it to be heard alongside. In those circumstances, where an application for permission is not dealt with on the papers but adjourned to open court, the defendant is entitled to come along as part of that oral hearing to make representations, and the distinction being the principle that you do not normally recover your costs on renewed permission because you have had no encouragement from the court to attend.

HIS HONOUR JUDGE DAVIS: I will say straight away that I have been sitting in this court long enough to know, particularly if the Treasury Solicitor is involved, it is pretty remarkable if nobody does turn up on a renewed application, encouraged or not.

MR STRACHAN: It is certainly common for defendants to turn up on renewed applications. That is certainly right. I suspect, in fairness, had Burton J refused permission and they renewed, we would have turned up anyway.

HIS HONOUR JUDGE DAVIS: I do not suspect. I know.

MR STRACHAN: I suspect. I have not been instructed on that basis because he did not do that. But, my Lord, the distinction being that where he adjourns it to open court, in those circumstances the exceptional circumstances test does apply.

HIS HONOUR JUDGE DAVIS: I follow that. It is still my discretion.

MR STRACHAN: Indeed, my Lord. I am making a point of distinction. I accept that, my Lord. In relation to the 3717 case, we seek similarly the acknowledgment of service costs but also the costs of attendance, but I do have to rely on exceptional circumstances which I have sought to identify.

HIS HONOUR JUDGE DAVIS: Right. Thank you very much. Can I tell you, Mr Pickering, I do not propose to find that there are exceptional circumstances requiring you to pay the costs of the oral hearing, because at least part of the reason you have come is because you have submissions by Queen's Counsel supporting the application. I do not propose either to require you to pay the costs of the oral hearing in the case that was adjourned into open court by Burton J because, in my judgment, if he had refused you permission no doubt you would have renewed it, I have absolutely no doubt that the Financial Ombudsman Service would have attended to oppose your renewed application, and, following normal principles, they would not have got it. So it is simply a question of the two sets of costs relating to the acknowledgment of service which I should tell you are, as a general rule, awarded against the unsuccessful party. You are, of course, entitled to make submissions to me as to why the general rule should not apply or, alternatively, why the amount claimed is inappropriate and I shall assess it summarily at some lesser sum. What would you like to say?

MR PICKERING: I will leave it in your hands, my Lord.

HIS HONOUR JUDGE DAVIS: Very well. Thank you very much. This is a case of substantial complication and, whereas in most cases the costs on the acknowledgment of service run into the hundreds rather than the thousands of pounds, I summarily assess in this case the costs in case 3316 in the sum of £2,379 inclusive of VAT, and in case 3717, £1,325 inclusive of VAT. I decline to find exceptional circumstances in relation to the renewed application and, for the reasons I have already given in argument, in my discretion I do not grant the costs of the oral hearing in the case that was adjourned into open court by Burton J. Thank you very much indeed.