Berkeley Burke Sipp Administration LLP v Wayne Charlton & Anor

This is the determination of a Preliminary Issue in an application for permission to appeal from an arbitral award pursuant to section 69 of the Arbitration Act 1996. The court had not ordered the determination of a preliminary issue but the parties had agreed that one would be sensible. This is not appropriate. The question whether a preliminary issue should be determined is one for the court, not for the parties. In the present case the parties agreed that there should be a preliminary issue without being able to agree upon the formulation of the issue. That is most unsatisfactory. Having considered the respective formulations, and bearing in mind that this court is concerned solely with an application under the Arbitration Act 1996, I consider that the preliminary issue can best be stated as follows:

“Whether or not the decision of Mr. Colin Brown dated 2 February 2017 was given by him pursuant to an arbitration agreement under section 6 of the Arbitration Act 1996.”

This question arises for decision because, although the Applicant, Berkeley Burke SIPP Administration LLP, has commenced a s.69 application seeking permission to appeal from a decision of Mr. Brown, an Ombudsman of the Financial Ombudsman Service (“FOS”), neither Mr. Charlton (who made a complaint to FOS) nor FOS accept that his decision was an arbitration award.

Both Mr. Charlton and FOS say that the decision is susceptible to Judicial Review. The Applicant appears to agree but fears that a court may say that it is not and therefore wishes to avail itself of the only other possible manner of challenging the decision, an appeal pursuant to section 69.

It is first necessary to summarise the facts. Mr. Charlton brought a complaint to FOS in respect of the loss of his personal pension which he had invested in a SIPP administered by the Applicant in 2011. The investments in the SIPP included an interest in Sustainable AgroEnergy PLC, a company which purported to extract biofuel from trees grown in Cambodia. In 2012 Sustainable AgroEnergy PLC entered receivership following intervention by the Serious Fraud Office as part of a criminal investigation. In 2014 the Ombudsman upheld Mr. Charlton’s complaint which Mr. Charlton accepted as the final determination of his claim. Subsequently the Applicant, who maintains that it had not given any advice to Mr. Charlton, stated its intention of seeking Judicial Review of the Ombudsman’s decision. In correspondence between the parties it was agreed that Mr. Charlton’s complaint would be reconsidered by another ombudsman without the need for a formal court order quashing the decision.

The correspondence was exchanged in August 2014. It is necessary to refer to it in a little more detail. On 6 August 2014 the Applicant sent a letter before claim to FOS and Mr. Charlton. The Applicant stated its intention of seeking Judicial Review and sought the quashing of the decision with the complaint being remitted for reconsideration. On 19 August 2014 FOS wrote to the Applicant accepting that the decision was vulnerable to Judicial Review on the grounds that the reasoning was not sufficient for the findings which were made. FOS offered to reconsider the matter afresh in the interests of preventing further costs. On the same date FOS wrote to Mr. Charlton stating that the proposed course of action was “the most appropriate” course of action. The offer made by FOS was accepted the same day by the Applicant. The Applicant noted that it was important that Mr. Charlton agreed not to enforce the existing decision but to treat it as if it had not been made and to treat the new decision of a new Ombudsman “in all respects” as if it were the original decision. Mr. Charlton, who was unrepresented, agreed on 20 August 2014 to the complaint being reconsidered. On 21 August 2014 FOS said that the decision had been removed from its register. Also on 21 August 2014 the Applicant sought the express agreement of Mr. Charlton that the matter be reconsidered afresh and that he would not rely upon or enforce the existing decision. Mr. Charlton, still unrepresented, agreed on 22 August 2014.

Mr. Colin Brown, who was appointed by FOS to consider the complaint, issued a provisional decision on 30 June 2015. Mr. Charlton sought legal advice and on 1 September 2015 challenged the lawfulness of his agreement that the matter be reconsidered. A final decision was issued by Mr. Brown on 2 February 2017. It was in favour of Mr. Charlton. Mr Charlton accepted the decision on 13 February 2017.

I was told that the Applicant has issued an application seeking Judicial Review of Mr. Brown’s decision and that that application has been stayed pending the determination of the claim under section 69 of the Arbitration Act 1996. Although the skeleton argument of Mr. Kirk QC, on behalf of the Applicant, states that “the claim” should properly be brought under the Arbitration Act 1996 it appeared at the hearing that the Applicant would much prefer to proceed by way of Judicial Review but feared that such an application might be regarded by the court as misconceived and therefore has made its application under s.69 to cater for that possibility.

Mr. Kirk submitted that FOS has no statutory power to reconsider a complaint and that the parties have no power to confer on FOS a power which statute does not give it. The Applicant accepts, however, that where, following a successful judicial review application, the court quashes a decision of FOS, FOS may reconsider the complaint. The Applicant also accepts that if FOS, together with the complainant, recognise that a judicial review may well be successful and therefore agree, in order to save the time and expense of a judicial review application, to a consent order quashing the decision, the FOS may reconsider the complaint. But where there is no court order but an agreement of all concerned that FOS reconsider the complaint, the position is, according to the Applicant, different. FOS has no power to reconsider the complaint and an application for judicial review may not be available.

I am surprised by this contention. It has the effect that a sensible, cost-saving agreement entered into in the course of correspondence between the parties as part of the pre-action protocol does not have the effect that the parties considered it had.

It is true that the relevant legislation (Schedule 17 to the Financial Services and Markets Act 2000, paragraph 14) does not contain an express power for an Ombudsman to reconsider a complaint. But I consider that Mr. Strachan QC, on behalf of FOS, was right in his submission that the power to reconsider a complaint is part and parcel of FOS’s duty to consider a complaint which has been properly brought before it. Of course, where the decision of the Ombudsman has been accepted by the complainant it is binding upon the respondent to the complaint (see section 228(5) of the FSMA 2000) and the role of the Ombudsman is at an end (save possibly where the complaint has been dismissed and new evidence has come to light; see paragraph 3.3.4(6) of DISP 3, the Dispute Resolution rules of FOS). But in this case, whilst Mr. Charlton initially accepted the decision of the Ombudsman, the effect of the agreement reached between the parties was, as it was put by Mr. Strachan, that that acceptance was withdrawn. That appears to me to be implicit in the agreement reached between the parties. Having specifically requested Mr. Charlton to agree not to rely on or enforce the original decision the Applicant can hardly contend that the matter should be addressed on the basis that Mr. Charlton has accepted the decision.

Thus in my judgment the parties continued to participate in the complaint resolution scheme established by the FSMA 2000 after August 2014. That is a statutory scheme with which the Applicant, as a provider of financial services, is bound to comply. It is accepted by Mr. Kirk that that scheme is not an arbitration agreement and that the decision of the Ombudsman, if accepted by the complainant, can only be challenged by means of Judicial Review. The scheme is not an agreement at all because the Applicant, as the provider of financial services, is bound to comply with it by statute.

If I am wrong in accepting Mr. Strachan’s submission that the parties were participating in the complaint resolution scheme established by the FMSA 2000 they were nevertheless agreeing to seek to resolve the complaint of Mr. Charlton by a process which followed the procedure of that scheme. Mr. Strachan submitted that if that were so the Ombudsman would still be exercising a public function and his decision, if accepted by Mr. Charlton, would still be susceptible to Judicial Review. He may well be right in that submission but that is not a decision for this court on a section 69 application. The question for this court is whether the parties’ agreement was an arbitration agreement.

One aspect of the scheme which the parties agreed to follow is that the decision of the Ombudsman only becomes binding upon the respondent to the complaint when the complainant accepts the decision. Thus section 228(5) of the FSMA 2000 provides:

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

It follows that the Ombudsman is not clothed with jurisdiction by the parties to resolve the dispute between them. If the complainant chooses not to accept the decision of the Ombudsman he is free to pursue his legal remedy, if any, against the respondent in court, notwithstanding the decision of the Ombudsman. The question is whether an agreement with that feature is an arbitration agreement.

An arbitration agreement means an agreement to submit to arbitration present or future disputes; see section 6 of the Arbitration Act. The agreement between the Applicant and Mr. Charlton did not submit to arbitration the dispute between the parties because FOS, or an ombudsman nominated by FOS, was not clothed with authority to determine the dispute between Mr. Charlton and the Claimant. That suggests that the agreement they reached was not an arbitration agreement.

Mr. Kirk submitted that that is not a conclusive indication. He referred to section 58 of the Arbitration Act 1996 which provides as follows:

“Unless otherwise agreed by the parties, an award made by the tribunal pursuant to an arbitration agreement is final and binding both on the parties and on any persons claiming through or under them”

Mr. Kirk noted the words “unless otherwise agreed” and submitted that it was not necessary that the agreement clothes the arbitrator with authority to determine the dispute. In my judgment those words cannot reasonably be understood to encompass within the meaning of “arbitration agreement” an agreement pursuant to which a third party is asked to resolve a dispute but on terms which do not bind the complainant to accept the decision of the third party. Such an agreement would not be an arbitration agreement within section 6 of the Arbitration Act 1996 because the dispute would not have been “submitted to arbitration”. The words “unless otherwise agreed” are designed to encompass within the meaning of “arbitration agreement” those agreements, such as one finds in the commodity trades or in Lloyd’s Open Form of Salvage Agreement, which provide for a first tier arbitration panel and an appellate arbitration panel. The first tier arbitrator cannot finally determine the dispute between the parties in the event that the appeal process is properly invoked. But the agreement remains an arbitration agreement because the dispute will be resolved by arbitration, either by the first tier arbitrator, in the event that there is no appeal, or by the appellate arbitrator, in the event of an appeal. I note in this regard that the experienced editors of The Arbitration Act 1996 5^th.ed., Messrs. Harris, Planterose and Tecks suggest at paragraph 58B that the words enable parties “to arbitrate initially before a sole arbitrator, on the basis that the losing party may require the issues to be dealt with again by a multiple tribunal if he pays a proportion of the original (non-binding) award.” My understanding of that comment is that the resulting award of the multiple tribunal will be binding upon the parties.

My understanding of section 58 of the Arbitration Act 1996 is supported by the decision of the Court of Appeal in David Wilson Homes v Survey Services [2001] EWCA Civ 34. At paragraph 11 Longmore LJ said:

“The important thing is that there should be an agreement to refer disputes to a person other than the court who is to resolve the dispute in a manner binding on the parties to the agreement.”

With regard to section 58 Longmore LJ said, at paragraph 16, that that section “presupposes that there is an arbitration agreement”. I respectfully agree.

For these reasons I have reached the clear conclusion that the parties’ agreement reached in 2014 was not an arbitration agreement within the meaning of the Arbitration Act 1996.

I was also referred to the Scots decision of Clark v Argyle Consulting Limited [2010] CSOH 154 which concerned the question whether the Financial Ombudsman was an arbitrator. The court held that he was not, in part because in an arbitration both parties were bound by the decision whereas the complainant has an option to accept or reject the decision; see paragraph 21. I respectfully agree with this approach but note that section 11 of the Arbitration (Scotland) Act 2010 is not in the same terms as section 58 of the Arbitration Act 1996 (there are no comparable words to “unless otherwise agreed”).

It follows from my conclusion that the answer to the Preliminary Issue is that the decision of Mr. Brown was not given pursuant to an arbitration agreement within section 6 of the Arbitration Act 1996. It must also follow that his decision was not an arbitration award and that the Applicant’s application for permission to appeal from that decision pursuant to section 69 of the Arbitration Act 1996 must be dismissed.