Consumers have the right to take their complaints to court if they are dissatisfied with the Financial Ombudsman Service’s final decision but firms have no such right and are, in effect, deprived of a proper appeal process.
Generally, the only challenge a firm is able to make against a FOS decision is by means of judicial review under one or more of four available grounds, namely error of law, irrationality, serious procedural irregularity, and action for an improper purpose. It is extremely difficult to succeed in such an application.
The FOS was established under the Financial Services and Markets Act 2000, which provides for an independent person to run a scheme under which certain disputes may be resolved quickly, with minimal formality and without cost to the complainant.
Some recent court cases provide useful guidance as to how the courts will view applications for judicial review against the FOS and their views on how it should investigate complaints and make decisions. Set out below are the elements that the courts have recently taken into consideration.
Wrong assuming jurisdiction
An initial ground for challenge is where the ombudsman wrongly assumes jurisdiction, for example where the complaint is time-barred on a correct application of the relevant FSA rules.
In such a case, the issue can be relatively straightforward as the matter falls outside the ambit of the “fair and reasonable” jurisdiction and turns on the interpretation and application of the FSA rules, where the ombudsman’s discretion should not play a role.
The ombudsman has discretion, but not an obligation, to dismiss a complaint in certain circumstances. One of these circumstances is where the FOS has already considered the complaint, unless the complainant subsequently produces new material evidence.
The question arises what is material new evidence? The test has recently been held to be “material new evidence not available at the time of the investigations”, this necessarily excludes evidence that could reasonably have been obtained at the time.
An example of evidence failing this test is an expert report obtained by the complainants after the ombudsman has made his determination and their acceptance of it, which could have been obtained before the ombudsman’s determination. Such evidence would not place an obligation on the FOS to reopen the case and not be deemed to be an error of law if it did not do so.
If, on the other hand, fresh evidence is produced by the complainant which was not available at the time the FOS would make an error of law in the exercise of its powers if it did not reopen the case.
Exceeding award-making powers
The value of any monetary award is limited to a statutory cap of not more than £100,000 and describing the balance of an award over £100,000 as “directional” will not circumvent its status.
Accordingly, any awards made by the FOS which requires a firm, whether directly or indirectly, to pay money to, or for the benefit of, a complainant must be no more than £100,000. The FOS does not have the power to make a direction for a higher payment of money. If it does so, this is a recommendation and not binding on a firm above the statutory cap.
A challenge could be based on the ombudsman having misapplied the law or failed to take the relevant law into account. When the FOS reaches a decision, it need not follow the relevant law but it does need to show that it has considered the law in reaching its decision.
Failing to properly apply a code
The ombudsman can be challenged for failing to apply a code correctly. The ombudsman will sometimes need to take into account a code, such as the Banking Code, and the court is prepared to review his interpretation and substitute its interpretation if it believes that he has got it wrong.
This is because misinterpreting a code amounts to failing to take it properly into account. This approach may extend to where the ombudsman is interpreting an FSA rule or stating what he believes to be good industry practice.
A challenge might be on the basis that the ombudsman’s opinion of what is fair and reasonable is perverse or irrational. But this is difficult to show – the ombudsman’s decision will only be irrational if it contains such errors of reasoning as to deprive it of logic and the courts are reluctant to reach such a conclusion.
Getting the facts wrong
A further ground for challenge is if the ombudsman gets his facts wrong. This must, though, be a serious error in relation to a material fact.
The court cannot quash the ombudsman’s decision because he has made an immaterial error of fact or because the court would make a different assessment based on the facts. But a decision is liable to be quashed if it is a material error of fact.
Examples may include where the ombudsman has either misunderstood or ignored a fact which is established, relevant and material; where there was no evidence to support the ombudsman’s finding of fact; or the ombudsman took into account an irrelevant fact.
However, provided that the ombudsman does not fall foul of these obligations and reaches a rational decision, he does not need to take account of the entirety of the evidence put before him in reaching that decision.
The ombudsman must not act with actual or apparent bias in reaching a decision so that the decision is not independently made. For example, forming a view not based on and regardless of the information and evidence submitted by the parties.
Refusing to hold a hearing
Refusing to hold a hearing cannot on its own be the subject of a judicial review because there is no entitlement as of right to an oral hearing, especially if the ombudsman believes that there is ample material before him to enable a decision to be made.
However, the position may be otherwise where there is insufficient information to hand or there is a conflict of evidence that an oral hearing could help to resolve.
Further, article 6 of the European Convention of Human Rights provides a general right to a hearing and an obligation on statutory bodies to act fairly. Therefore, as the Human Rights Act requires legislation to be compatible with the ECHR, this means that the ombudsman must consider the need for and, in certain circumstances grant a hearing in order to comply with article 6.
Whatever the grounds, the challenge must be brought promptly. The Civil Procedure Rules, which govern court procedure, require an application to be made within three months after the grounds to make a claim first arose. This is a strict time limit and, in FOS cases, it is usually deemed to be three months from the date of the FOS’s final decision on a complaint.