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Peter Hamilton: Reasonable doubts over FOS rulings

The law is relatively well understood, but it’s difficult to know how the FOS will decide that same problem based on what is fair and reasonable


Advisers worry about how the Financial Ombudsman Service will deal with complaints made by their clients. One of the worries is that the FOS does not have to apply the ordinary law.  The Financial Services and Markets Act 2000, section 228(2) provides:

“A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.”

This power to decide cases on the basis of what is fair and reasonable is all very well, but what does it mean?  How can an adviser work out what the FOS will decide was fair and reasonable?

The Court of Appeal said in what is now a familiar passage in its decision in the Pickering case in 2008:

“The ombudsman is required [by the rules] to take into account the relevant law, regulations, regulators’ rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time.  He is free to depart from the relevant law, but if he does so, he should say so in his decision and explain why….  So far as guiding the conduct of financial advisors are concerned, provided they comply with ‘the relevant law, regulations, regulators’ rules and guidance and standards, relevant codes of practice and, where appropriate, …good industry practice’, they can be assured that they will not be liable to their client in the absence of some exceptional factor requiring a different decision.  Lastly, the common law requires consistency: that like cases are treated alike.  Arbitrariness on the part of the ombudsman, including an unreasoned and unjustified failure to treat like cases alike, would be a ground for judicial review.”

Several points can be made.  The FOS must treat like cases alike.  If it fails to do so, the adviser can seek a judicial review of the decision.  That is all very well, but judicial review is a very limited remedy and is very expensive.  It certainly does not provide the same scope as a proper appeal. 

Inconsistency, except in obvious cases, is very difficult to establish.  This is because the facts of each case are almost certainly different from each other.  Even if there is a common factor, such as the cases all concern the same sort of investment, the individual facts will mean that different results are likely, and may well be justifiable on the principles applicable to judicial review.

As the Court of Appeal said, the FOS can, for good and stated reasons, depart from what is understood to be the law.  The law is relatively well understood, and a litigant is likely to get the same answer to his or her problem from different lawyers or judges, but it is much more difficult to know how the FOS will decide that same problem on the basis of what is fair and reasonable in the circumstances. 

The law is the starting point for an ombudsman.  So what are the basic legal principles applying to what an adviser does?  They were helpfully summarised in a decision in 2012 of Mr Justice Coulson in a case concerning solicitors’ negligence.  Although the case concerned a firm of solicitors, the general principles apply to all professional advisers. 

The facts were that the claimant had been assaulted by her former partner.  The solicitors acted for her in the claim to the Criminal Injuries Compensation Authority.  Her claim was unsuccessful.  She immediately alleged negligence against her solicitors.  Her claim against her solicitors also failed.  The further details of the case do not matter for present purposes.

The judge set out the following propositions:

First, a court “must beware of imposing upon solicitors – or upon professional men in other spheres – duties which go beyond the scope of what they are requested and undertake to do. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession.”

Secondly, this test must be applied by reference to the reasonably competent practitioner specialising in whatever areas of his profession he holds himself out as a specialist.

Thirdly, errors of judgement, as opposed to errors that no reasonably well informed and competent member of that profession could have made, will not give rise to a liability for negligence.

Finally, hindsight may prove advice to be wrong, but “hindsight is no touchstone of negligence”.

Those principles of law will apply in all cases.  The advisers’ difficulty is the FOS may take the view for good and stated reasons that although the adviser is not negligent at law, he is nevertheless liable to his client because that is fair and reasonable in his opinion.  But is it fair in the broadest terms that an adviser is subject to both the law and the FOS, and that each system produces different results?

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of



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