In its determination of the complaint, the FOS told the complainants that they must notify the FOS in writing before July 30, 2008 whether they accept or reject the decision.
The FOS also told the firm in a letter that if the FOS did not receive written acceptance from the complainants before July 30, 2008, then neither the complainants nor the firm would be bound by the final decision.
The FOS received the complainants’ acceptance letter on July 30, which was the day after the deadline had passed. Notwithstanding that, the FOS has tried to coerce the firm into paying the amount awarded in the FOS’s decision but the firm has refused to do so.
The FOS has recognised that it has no power to compel the firm to honour the final decision but it has added that: “In light of the more principle-based regulation being championed by the Financial Services Authority under their treating customers fairly banner, [we are] sure that they will want to hear from us about a firm which is not prepared to honour an ombudsman’s award in circumstances such as these.”
In other words, the FOS is looking to the FSA to take some form of disciplinary or other regulatory action against the firm on the grounds that the firm has not treated its customers fairly.
There are a number of comments which spring to mind.
In the first place, it should be emphasised that the FOS has not suggested anything about the firm’s conduct, other than its refusal to pay the award, which could be regarded as being in breach of the FSA’s sixth principle for businesses that requires all firms to pay due regard to the interests of their customers and to treat them fairly.
Second, the Financial Services and Markets Act 2000, provides at section 228(3) that the FOS must give the complainant and the firm a written statement of the FOS’s determination of the complaint. Sub-section (4) says that that statement must “require the comp- lainant to notify [the FOS] in writing, before a date specified in the statement, whether he accepts or rejects the determination”.
Then sub-section (6) goes on to say: “If, by the specified date, the complainant has not notified the [FOS] of his acceptance or rejection of he determination he is to be treated as having rejected it”.
These extracts set out the law as laid down by Parliament. They do not come from rules which the FOS or the FSA have made – and can change. They are the law.
Neither are they difficult to understand. The FOS has to specify in its written determination of the complaint a date before which the complainant must notify the FOS whether the determination is accepted or rejected.
If the complainant does not get his acceptance to the FOS before the specified date, the consequence is not just that the determination is not binding on the parties to the dispute but also that the complainant “is to be treated as having rejected it”.
On the facts as set out above, the complainants failed to get their acceptance to the FOS before the specified date.
The consequence is that they must be treated as having rejected the determination.
Third, therefore, if the law requires the complainants in this case to be treated as having rejected the determination, it is beyond comprehension that the FOS can consider that the firm has failed to treat its customers fairly by refusing to implement the award.
Even if the act had simply said that the determination is to be regarded as not binding either party, it would still be incomprehensible and illogical for the FOS to maintain that the firm was not treating its customers fairly by refusing to implement such a non-binding decision.
It is unbelievable that a spokesman from the FOS should have felt in a position to say: “While we would not comment in detail on an individual case, it seems wholly inconsistent with a firm’s obligations under the FSA’s treating customers fairly principles to try to avoid paying an ombudsman’s award in these sorts of circumstances.”
Fourth, the question then arises, what powers does the FOS think it has in these circumstances? And what powers does it think that the FSA has?
Both the FSA and FOS are bodies established by the Financial Services and Markets Act 2000. They both have to operate within the terms of the act or in accordance with applicable rules made lawfully.
It is absolutely clear that neither the FOS nor the FSA has power to override the clear words of section 228(6) as set out above. Yet that is what the FOS is attempting to do. It is attempting to make the firm part with money without legal authority.
It is not difficult to sympathise with the complainants for being out of time by one day and to understand the FOS’s wish that the firm should nevertheless pay up. But Parliament has provided a clear and hard-edged rule – acceptance must be notified in writing before the specified day.
The consequence of failing to meet the deadline is equally clear and hard-edged – the complainants must be treated as having rejected the award.
As a general principle, it is not open to anyone to disregard or override the law, whether out of sympathy or for any other reason. That applies to both the FOS and the FSA.
The FSA could not reasonably or logically maintain that the firm has failed to treat its customers fairly because it has refused to pay up under an award which by law is to be treated as having been rejected.
If the FSA sought to discipline the firm in these circumstances, it would be attempting to circumvent or override the effect of failure by the complainants to meet the dead-line. The FSA would also be seeking to force the firm to part with its money without having any legal authority to do so.
In 1931, one of the outstanding judges of his time, Lord Atkin said in the course of a judgment in the Privy Council: “In accordance with British jurisprudence, no member of the executive [that is, the Government] can interfere with the liberty or property of a British subject except on the condition that he can support the legality of his action before a court of justice.”
The FSA is not part of the executive but Lord Atkin’s principle must apply at least equally to the FSA.
To put the matter another way – it would be a flagrant breach of the rule of law for the FOS or the FSA to seek to force the firm to pay out under an award which the law says is to be treated as having been rejected by the complainants.
It is appropriate that Lord Bingham, who has recently retired as the senior law lord, should have the last word. He said in a lecture in 2007 that: “All persons and authorities within the state, whether public or private, should be bound by and entitled to the benefit of laws…publicly administered in the courts.”
The FOS must learn to live within the law.