Last week, Adviser Alliance disclosed it had failed in its attempts to secure a judicial review into the loss of the long-stop defence.
The underlying message within Lord Justice Burnton’s ruling is that the Financial Ombudsman Service is at liberty to interpret both primary and delegated legislation as best suits its own purposes.
There are two main arguments regarding the FOS ignoring the 15-year long stop. One relates to the reality that the law has never been amended while the other attaches to Statutory Instrument 2326.
Many contend that the long-stop defence still exists and that it was ignored by the FSA when drawing up the FOS dispute resolution rules. Certainly, the Limitation Act has not been repealed and some years back, ex-FSA managing director David Kenmir confirmed the FSA was not able to override statute. It seems that the FOS is not restricted when determining what is “fair and reasonable” and we now find that the judiciary favour upholding this freedom.
Lord Myners headed off the human rights committee by claiming Parliament had debated its removal and also that the FSA had consulted on its removal – both untrue. On these arguments alone, the long stop should be restored.
Let us look at the alternative, where we accept that the long stop has been lawfully removed and where the FSA has correctly removed its mention from the FOS jurisdiction procedures. In June 2001, the Treasury issued Statutory Instrument 2326. Section 5.2.(c), which deals with complaints about advice prior to December 2001, states that “an ombudsman is to take into account whether an equivalent complaint would have been so dismissed under the former scheme in question”.
This translates as an instruction that the FOS must look at what the PIA Ombudsman Bureau would have done when determining jurisdiction of a case. We are all aware the PIAOB worked within the law and accepted the long-stop defence. In such a relevant situation the complaint would have been eligible for time-barring.
Lord Justice Burnton contends that SI2326 merely demands that the FOS take into account what the previous ombudsman would have done.
It surely was the Treasury’s intention, in those pre-Mark Hoban days, for SI2326 to remove the blatant retrospectivity of the FOS accepting jurisdiction over such complaints. If not, then why issue the statutory instrument?
Lord Scott, in his judgement on the Haward v Fawcett case, explained it thus: “Parliament has had to strike a balance between the interests of claimants and the interests of defendants. It is a hardship, and in a sense an injustice, to a claimant with a good cause of action for damages to which…there is no defence on the merits to be barred from prosecuting it on account simply of the lapse of time since the occurrence of the injury…But it is also a hard-ship to a defendant to have a cause of action hanging over him, like the sword of Damocles, for an indefinite period. Lapse of time may lead to the loss of vital evidence, it is very likely to lead to a blurring of the memories of witnesses and to the litigation becoming even more of a lottery than would anyway be the case, and uncertainty as to whether an action will or will not be prosecuted may make a sensible and rational arrangement by the defendant of his affairs very difficult and sometimes impossible. Each of the various statutes of limi-tation that over the years Parliament has enacted, starting with the Limitation Act 1623 and coming down to the 1980 Act, represents Parliament’s attempt to strike a balance between these irreconcilable interests, both legitimate.”
Alan Lakey is partner at Highclere Financial Services