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

MR JUSTICE WALKER:

Introduction

1. In early 2000 Mr and Mrs Cook sought advice from an Independent Financial Adviser ("IFA") named Finance Together Limited ("Finance Together"). Mr Lamont of that firm gave advice in a letter dated 18th May 2000. At that stage Mr and Mrs Cook were aged 58 and 55 respectively. Under relevant pensions legislation, Mr and Mrs Cook had various options open to them. The traditional means of taking a personal pension would have been an annuity in return for an assured annual income for life. In such a case the annuitants cede their capital to the annuity provider. Mr and Mrs Cook preferred an alternative option known as Pension Fund Withdrawal ("PFW"). This was a means of drawing pension income without ceding control of the capital. It also allowed flexibility as to what income to draw. Finance Together gave advice as to how this could be done by investing in managed funds. From July 2000 to September 2002 it implemented PFW portfolios for the Cooks accordingly. Unfortunately, the investments in these portfolios during that period lost about £46,000 in value net of charges and income drawn.

2. The Financial Ombudsman ("FOS") was established pursuant to Part XVI of the Financial Services and Markets Act 2002 ("FSMA"). Unless the context otherwise requires, references in this judgment to Part XVI and to sections are references to FSMA. Under Part XVI FOS provides an independent and informal complaint resolution procedure for certain complaints concerning the financial services industry. A "complaint" can be submitted to FOS. FOS then conducts an investigation. That investigation has various stages, usually leading after a provisional decision to a determination of an Ombudsman.

3. This case involves such an investigation. It was conducted pursuant to rules and guidance, which I shall refer together as “the Scheme.” I describe the detail of the investigation later in this judgment. In summary, by a complaint form dated 7th July 2003 Mr and Mrs Cook submitted a complaint to FOS concerning Finance Together. They complained that they had been advised to invest excessively in equities and that they had not been given full information about the range of funds available; and in particular those that were less heavily weighted towards equities. This complaint fell within what is known under Part XVI and the Scheme as the "compulsory jurisdiction of FOS." The procedure there is that the Ombudsman, when issuing a determination, sets a time limit within which the complainant may accept it. There is no obligation on the complainant to accept the determination. A complainant may reject it and pursue his or her rights elsewhere. If the complainant accepts the determination within the time limit s 228(5) describes the consequence in this way:

4. In the present case the Ombudsman issued a provisional decision in the Cooks' favour. A question then arose as to the amount of redress proposed in the provisional decision. It was not as great as the Cooks would have wished. They lodged further submissions and documents in support.

5. Having considered this material the Ombudsman issued what the Scheme describes as a “final decision” on 18 May 2005. This terminology involves scope for confusion, as under s 228(5) what the Ombudsman decides is only “binding … and final” if the complainant notifies acceptance. I prefer to use the statutory language, which refers to a “determination”, and accordingly I shall refer to the Ombudsman’s decision of 18 May 2005 as “the Determination”. The Ombudsman concluded in the Determination not to increase the amount of redress to that which the Cooks had sought.

6. Mr and Mrs Cook accepted the Determination by submitting a signed acceptance dated 21st May 2005. However in July 2005 they wrote letters to various arms of the FOS raising grievances about what had happened. After an unsuccessful complaint to the independent assessor the Cooks consulted their member of parliament. He suggested submitting an expert report.

7. This suggestion was taken up. In April 2006 via their MP the Cooks asked the FOS Chief Ombudsman, Mr Merricks, to review the amount of redress in the light of a new report from Professor Blake. In a letter to the Cooks’ MP dated 24th May 2006, Mr Merricks replied:

8. Mr and Mrs Cook were dissatisfied with the stance taken by the FOS in the letter of 24th May 2006. On 4th September 2006, they lodged an application for permission to apply for judicial review. The application was carefully prepared and specifically identified the decision of 24th May 2006 as the decision under challenge; not the earlier determination of 18th May 2005. Two grounds only were relied upon. The first was that the FOS had misdirected itself in law in thinking that s 228(5) prevented reopening of the determination. The second was that the FOS had been in error in asserting that Professor Blake's opinion did not constitute "material new evidence not available at the time of the investigation."

Course of events .

12. I now turn to give more detail of the investigation and what happened later. Under the Scheme the first relevant stage involved consideration of the complaint by an FOS adjudicator, Mr Baker, who formed the view that the Cooks’ complaint should be upheld. He thought that a suitable selection of funds had not been recommended, in that none of the investments put in place contained a mixture of assets suited to short, medium and long term investment objectives. The consequences of this conclusion were canvassed in correspondence with Finance Together and the Cooks. After some toing and froing, a key issue became apparent. In order to calculate a sum which Finance Together should pay by way of redress to the Cooks, it was necessary to form a view about what would have been an appropriate equity mix. The Cooks said that equities should not have been more than 50% of the total portfolio. Mr Baker thought it more appropriate to calculate redress on the basis of an equity holding in the region of 65% of the total portfolio including cash. The matter then came before an FOS Ombudsman, Mr Roy Milne. In a provisional decision he discussed the income and equity requirements for PFW, and continued:

10. The Cooks continued to urge a 50% equity mix and submitted representations and documents in support. On 18 May 2005, having considered this material, the Ombudsman issued the Determination. After considering all the material, he remained of the view that what was fair and reasonable in all the circumstances of the case in his opinion was redress calculated by reference to a 65-75% investment in equities. He acknowledged that a wide range of alternative recommendations could have been made, but considered that Mr Baker’s suggested portfolio as an appropriate basis for calculating redress and was fair. He set out his reasons for that view, and he accordingly made an award that the firm should pay an amount of £17,826 plus the investment growth that the amount would have achieved if invested in the Cooks’ SIPP from August 2002 until the date of the Determination. He directed that if settlement were not paid within 30 days of his Determination, the award should bear interest at the rate of 8%.

11. By letter dated 18 May 2005 the Determination was sent to both Mr and Mrs Cook and the firm. The letter explained under the heading “What you need to do now” as follows:

12. Under the heading “Our Procedure” the letter explained:

13. On 21 May 2005 the Cooks wrote to the FOS enclosing their signed acceptance of the Ombudsman’s Determination. By letter dated 25 May 2005, the FOS wrote to the Cooks confirming receipt of the signed acceptance of the Determination and confirming that it was now binding on the Cooks and the firm, and stating that the file on their complaint was now closed.

14. By letters dated 3 July 2005 the Cooks wrote to Mr Merricks, the Chief Ombudsman of the FOS, to Mr Barnes, the Independent Assessor of the FOS, and to the FOS’s Service Review Manager. They expressed concern about the manner in which their complaint had been handled. They sought to make a number of allegations regarding the Determination and alleged it was seriously flawed and grossly unprofessional.

15. Mr Merricks responded on 28 July 2005 stating that he was sorry to note that the Cooks were dissatisfied with the quality and professionalism of the FOS. He pointed out that the Determination was final now that it had been accepted by the Cooks and he had no power to interfere with the decision. He explained that complaints about the service were, in the first instance, dealt with by their Service Review Team and that a Manager of the team would contact them shortly.

16. By letter dated 29 July 2005 the FOS Service Review Team wrote to the Cooks stating that they had found no evidence suggesting that the FOS had departed from its normal investigation process or otherwise dealt with the case inappropriately. The letter stated:

17. The Cooks responded to Mr Merricks by letter dated 5 August 2005 repeating their dissatisfaction. Mr Merricks replied on 19 August 2005. On 1st September 2005 the FOS Service Review Manager wrote to the Cooks to the same effect as the Service Review Team. The Cooks wrote again to Mr Merricks on 7 September 2005 setting out their complaint against Mr Milne’s decision, and Mr Merricks responded again to this on 5 October 2005.

18. The Cooks wrote again to the Independent Assessor on 16 September 2005 enclosing further details of their complaint. This letter was acknowledged by the Independent Assessor on 21 September 2005 and he responded substantively on 1 November 2005. He explained that he could not challenge the merits of the Ombudsman’s decision, or the weight attached to evidence considered relevant, and he went on to explain why he considered the complaint about the merits of the Ombudsman’s decision to be outside his terms of reference.

19. The Cooks responded to the Independent Assessor on 11 November 2005 setting out further elements of their complaint. The Independent Assessor responded on 24 November 2005 and 7 December 2005. As to the issue of new evidence, his letter of 7 December 2005 stated:

20. There was no further contact between the Cooks and the FOS until four months later on 19 April 2006, when the Cooks’ MP wrote to Mr Merricks enclosing a letter from the Cooks to Mr Merricks dated 9 April 2006. That letter in turn enclosed a document entitled ‘Observations on Pension Asset Allocation by Professor David Blake.’ The Cooks’ letter noted the Independent Assessor’s reference to new evidence which was not available at the time of the investigation and continued:

22. Mr Merricks responded to the Cooks’ MP by the letter dated 24 May 2006 which is the subject of these proceedings.

Judicial review proceedings .

23. On 4 September 2006 the Cooks lodged their application for permission to apply for judicial review. It is a matter of very great regret that the huge workload on the Administrative Court has meant that this application has not come on for hearing until January 2009. The history is that a backlog of paper applications meant that it was not until September 2007 that the application for permission to apply for judicial review was considered on the papers.

24. By an order dated 10 September 2007 Stanley Burnton J refused permission. He considered that s 228(5) deprived the FOS of any power or discretion to reopen the determination. The Cooks sought reconsideration at an oral hearing. This took place on 14 February 2008 when King J granted permission in these terms:

The legislative framework and the framework of the scheme .

25. The opening provision of Part XVI is s 225(1):

26. The statutory basis for the compulsory and a voluntary jurisdiction of the FOS can be found in ss 226, 227 and 228. I have set out earlier the terms of s 228 as to the binding nature of a determination accepted by the complainant.

27. The skeleton argument lodged on behalf of the FOS stated, and the Cooks did not dispute, that the statutory duty placed on the Ombudsman to determine a complaint by reference to what is, in the Ombudsman’s opinion, fair and reasonable in all the circumstances, gives a wide statutory discretion to the Ombudsman in the exercise of his inquisitorial jurisdiction. The Ombudsman is not required to determine complaints in accordance with the law, and this discretion under the statutory regime complies with Article 6 of the Convention: see R (IFG) v Financial Ombudsman Service Ltd [2005] EWHC 1153 (Admin) at [12] and [13]; R(Heather Moor & Edgecomb) v Financial Ombudsman Service Ltd [2008] EWCA Civ 642 at [36]-[41] and [48] – [53]; and R(Williams) v Financial Ombudsman Service Ltd [2008] EWHC 2142 (Admin) Irwin J at [26].

28. Rules and guidance, issued pursuant to Schedule 17, are published in the FSA Handbook. Those concerning complaints are found in a part of the handbook entitled “DISP 3: Complaint Handling Procedures of the Financial Ombudsman Service.”

29. DISP 3.3.1R makes provision for the Ombudsman to exercise his discretion to dismiss a complaint without consideration of its merits. There are a number of circumstances under which such discretion may be exercised, and they include under DISP 3.3.1R (so far as material):

30. Under DISP 3.2.11R, if the Ombudsman decides that an investigation is necessary into a complaint, then the Ombudsman will:

(1) during the investigation, give both parties an opportunity of making representations;

(2) send to the parties a provisional assessment, setting out his reasons and a time limit within which either party must respond; and

(3) if either party indicates disagreement with the provisional assessment within the time limit prescribed, proceed to a determination.

31. Under DISP 3.6 the Ombudsman is entitled to set time limits for any aspect of consideration of a complaint.

32. Under DISP 3.7.1R, only an Ombudsman may finally determine a complaint, but the Ombudsman may designate other members of the staff of the FOS to exercise any of the other powers of the Ombudsman relating to the reference, investigation or consideration of a complaint.

33 DISP 3.8.1R sets out the Ombudsman’s functions in determining a complaint. It provides :

34. An account of the practical effect of these provisions was given by the FOS, and was not disputed by the Cooks. If a complaint is considered to be within the Ombudsman’s jurisdiction, and it is not otherwise dismissed without consideration of its merits, it will be investigated and both parties will be given an opportunity of making representations. The parties will be given a provisional assessment with reasons of the complaint, with an opportunity to respond. Where this provisional assessment is not accepted by either party within the time limits specified in that assessment, the Ombudsman will proceed to a final determination under DISP 3.8 in accordance with the requirements of DISP 3.2.11. In accordance with DISP 3.2.12R, the parties will be informed of their right to make representations before the Ombudsman makes a determination.

The new evidence test .

35. I consider first the challenge by Mr and Mrs Cook to the finding that Professor Blake's opinion was not, "material new evidence not available at the time of the investigation."

36. The case advanced for the FOS in these proceedings is helpfully set out in a skeleton argument prepared by Mr James Strachan of counsel. The FOS says that the Cooks could with reasonable diligence have obtained an expert report from Professor Blake, if they had thought it desirable, at the stage when they were commenting on the provisional decision. The requirement for "material new evidence ... that has become available" can, submits the FOS, only reasonably be met if the evidence in question was not available at the time of the original complaint. This necessarily excludes evidence that could reasonably have been obtained at the time.

37. Mr and Mrs Cook have appeared in person at the hearing today. They draw my attention to the well known principles under which fresh evidence can be relied upon in civil cases. They agree with an observation made on behalf of the FOS that the FOS puts the matter is consistent with the principles found in Ladd v Marshall [1954] 1 WLR 1489. They suggest, however, that a better way of expressing the position might be to say that fresh evidence cannot be advanced when it could have been obtained at the time with the exercise of reasonable diligence.

38. I see no real difference in meaning between these two ways of expressing the matter. The question is whether, adopting the terminology preferred by Mr and Mrs Cook, it was open to the FOS as a matter of public law to conclude that with the exercise of reasonable diligence Mr and Mrs Cook could, when preparing their comments on the provisional decision, have obtained the expert view of Professor Blake. The Cooks accept that even if they are right in their construction of section 228 (5), they must show good grounds as a matter of public law for complaining about the FOS's decision of 24th May 2006 in this regard. Thus it becomes crucial for this court to consider the assertion by FOS that the Cooks could with reasonable diligence have obtained that report.

39. There is an important difference, however, between the role of this court and the role of the FOS. It is not, on classic public law principles, the task of this court to decide the question. What this court must decide is whether as a matter of public law it was open to the FOS to reach such a conclusion.

40. A first group of points made by the Cooks is put under a heading, "The FOS discourages paid experts and claims 'redress expertise' for itself." They rely on material which is made available to complainants. This includes a comment to the effect that the Ombudsman looks at the facts of the case, not at how well a particular complainant presents a complaint. It stresses that the FOS prefer to hear from a complainant in that complainants own words. If the complainant employs someone to present the case, then the complainant will almost certainly have to pay that person's costs.

41. Experience, it said, showed no difference in the outcome of complaints whether consumers brought them themselves or whether they used a claims management company. The Cooks comment that the thrust is clear: to avoid the formality and the expense of the courts FOS quite properly encourages consumers to lodge complaints in their own words without any form of paid assistance. They add that material in relation to calculating redress does not expressly give any role to complainants. They accept that the FOS rules allow the taking of evidence from experts, and assert that in fact they did themselves lodge expert evidence apart from the report of Professor Blake.

42. This leads to a further suggestion that the Ombudsman may be said to be encouraged by the rules to obtain expert evidence for himself. That particular suggestion I can dismiss at once. As the Cooks acknowledge the Ombudsman is a financial Ombudsman. He can, if he wishes, take into account evidence from experts. I reject any suggestion, however, that there is encouragement, still less an obligation, on him to do so. It is suggested that the Ombudsman could have asked the Cooks for more data on particular aspects, and indeed for further expert opinions, but did not do so.

43. The conclusion propounded by the Cooks under this heading is that given the nature of the FOS it was reasonable for them not to have thought, still less to have chosen, to commission an expert during the course of their complaint. It would, they submit, have been surprising and unusual for them to instruct an expert. I comment at this stage that it might well have been surprising for the Cooks to instruct an expert, but nonetheless, as they themselves acknowledge, in certain respects they submitted to the Ombudsman material setting out expert views.

44. A second set of points was advanced under the heading, "Improper process meant expert rebuttal could only be commissioned too late." I was taken in some detail through the history. The general thrust of the points, however, can be summarised relatively briefly.

45. The first way in which this aspect of the matter is put is to say that the process made it unlikely that the Cooks would offer an expert opinion for consideration by the Ombudsman. They assert that the determination of the Ombudsman involved, "inconsistency, wrong data or fudge." Their submission is that this contention is relevant because they formed their own view that the Ombudsman's arguments in the provisional decision were absurd, and there was not anything of real substance to dispute.

46. Next, they suggest that the first response that they could make was after the provisional decision. Having offered that response, the determination simply said that the Ombudsman had not been persuaded by what the Cooks had had to say. In submissions to me today, the Cooks have alleged that most of their evidence went unanswered. I must comment at this point that that is not the subject of the present challenge by way of judicial review, as I noted earlier. The challenge is not to the determination of the Ombudsman. The only matter that is before me in these proceedings is the decision of the FOS concerning the proposed reliance today by the Cooks on the new report of Professor Blake.

47. It is submitted by the Cooks that they ought to have had the Ombudsman's points before the provisional decision. That would have meant that at the provisional stage they could have commissioned Professor Blake. They summarised the point in this way, "you don't go for paid evidence when free evidence ought to suffice." They added that given their earlier treatment by the FOS, which they submit involved various failings, it was reasonable not to commission further evidence for, "the FOS to ignore".

48. Here the Cooks rely upon an account of the history, both before and after the provisional decision, as showing that the FOS had ignored evidence. Again, I comment at once that this challenge is confined to the approach taken by FOS to the new report of Professor Blake. It would not be right to allow this challenge to offer an opportunity long out of time to question the public law validity of the determination.

49. I acknowledge that the Cooks are entitled to ask me to have regard to the history where this has a bearing on their challenge to the decision of the FOS that prior to the Determination the Cooks could with reasonable diligence have obtained the expert report of Professor Blake. Their contention under this head, however, is that they were reasonable to work on the basis that they should not commission further evidence because it would be ignored. I can at once rule that out as a tenable contention. If the Cooks thought that their evidence was going to be ignored then there was no point in carrying on with the procedure. Any criticism that there was misconduct on the part of the FOS in this regard is a criticism which ought to have been made at the stage of the provisional decision and the Determination.

50. In oral submissions the Cooks added that if the Ombudsman had produced an expert report at the provisional stage then they would have responded. It seems to me that this does not address the real question. The fact of the matter is that the Ombudsman did not produce an expert report at the provisional stage. The only question which arises concerns the approach taken by FOS to the question of whether the Cooks could with reasonable diligence have produced such a report when submitting their comments on the provisional decision.

51. The Cooks also complained that the Ombudsman did not engage. They put forward their arguments but, they say, they did not receive comments on those arguments from the Ombudsman. In that regard I observe that the process adopted by the FOS, in fact, resulted in revisions of the view taken by the FOS in response to the submission made by the Cooks. The Cooks now complain that in the Determination the Ombudsman failed to answer their evidence. In that sense, it again seems to me, that the matter is not advanced because that point goes to the validity of the Determination rather than the question whether it was open to the FOS to conclude that the Cooks could, with reasonable diligence, have obtained the report of Professor Blake.

52. The same is true, as it seems to me, of the final observation made orally by the Cooks under this general heading. It was submitted that, as they were under an obligation to use reasonable diligence, similarly there should have been corresponding diligence by the FOS. Instead of which, it was said by the Cooks, the FOS simply countered their evidence on spurious grounds. I am not permitted by the rules of procedure to go into the question of whether that is right or wrong. If it were right it would have been a ground for seeking judicial review of the Determination. As to whether there would be any foundation for that I express no view at all. I simply observe that it is not a matter which is relevant to the question that is before me.

53. The Cooks add that Professors Blake's report is material and new and strengthens other evidence. I am prepared to assume for the purposes of the present hearing that the questions addressed by Professor Blake in his report were questions which were material. They were, as it seems to me, questions which were in fact raised by the submissions which Mr and Mrs Cook advanced in response to the provisional determination.

54. In answer to the Cooks' skeleton argument, the skeleton argument of the FOS makes a number of observations. Two of those observations seem to me to be particularly important. At paragraph 3.15, the FOS states as follows:

55. I asked Mr and Mrs Cook for their comments on this paragraph. They stressed that this was not a case where they decided, at the time of preparation of their comments on a provisional decision, that they would seek at a later stage to have a second bite at the cherry. They told me that they had no concept at that stage that there could be any entitlement to produce fresh evidence after the determination had been made. Moreover, the first suggestion that they use an expert came from their member of parliament.

56. The second observation on the part of the FOS is at paragraph 3.20 in these terms:

57. In response, the Cooks told me that it was only on receipt of the determination that at last some of their evidence had been addressed. At that stage they realised that the difference between them and the Ombudsman was not a small difference but more, in their words, "like a chasm." They had thought that he would be persuaded by their submissions on timing and on "mortality drag" and whether their IFA had misled them. In the determination he totally rejected their points on timing, apparently saying, according to the Cooks, that the stock market was not going down when in fact it was; this they criticised as an unreasonable opinion. Similarly they said "mortality drag" did not warrant the Ombudsman's approach. They criticised the Ombudsman's failure to accept their explanation for their focus on equities – namely that they were misled by the IFA. Again, it seems to me, that these last points are all points which go not to the decision of the FOS as regards the new report of Professor Blake but to a possible challenge to the Ombudsman's determination.

58. The hurdle that the Cooks must surmount is to show that what was said by FOS in its of letter of 24th May 2006 was unreasonable or discloses an error of law. Only then could there be a challenge on public law grounds. An error of law might be shown if, for example, the FOS took into account something which the statute plainly intended not to be taken into account. Conversely it might be shown if the FOS omitted to consider something which the statute plainly required to be considered.

59. The observations by the FOS discussed above, in my view, make it plainly impossible for the Cooks to surmount this hurdle. There was a judgment to be made by the Cooks as to how much time, effort and money they should spend when commenting on the provisional decision. I accept that the Cooks did not deliberately plan to have two bites at the cherry. They devoted a good deal of time and effort to their submissions in response to the provisional decision. They took the view that they had a compelling case. In those circumstances, they did not give further consideration to additional steps that they might take. If they had wanted to seek an expert's report it would, in my view, have required no great additional diligence to do so. I do not think the Cooks can answer this by saying, "We thought the Ombudsman would agree with us."

60. That leads to the second point made on behalf of the FOS. The Cooks say that only on reading the determination did they appreciate the huge difference between their views and those of the Ombudsman. I accept their account when they say that it was only at this stage that they themselves appreciated how huge the difference was. That does not make their stance reasonable. Still less does it make it one which the FOS, properly directing itself in law, was bound to hold to be reasonable. In all the circumstances it seems to me clear that the FOS could reasonably reach the conclusion that it did.

61. Accordingly I conclude that on this aspect the Cook's application for judicial review is bound to fail.

Construction of section 228 (5 ).

62. In these circumstances it is not necessary to decide whether the FOS is right to say that on its true construction section 228 (5) prevents the determination from being reopened. The point is one of potential importance. With all respect to Mr and Mrs Cook, I think it would be undesirable to reach any view on the point in a case where the Cooks have appeared in person and the court has not had the benefit of legal argument on both sides. In those circumstances, I shall say nothing more about the true construction of s 228(5).

Conclusion .

63. For these reasons, I conclude that this application for judicial review must be dismissed.