It is not clear what the Government meant by “governance and accountability” but it ought to inc-lude a review of the fund- amental structure of the FOS because experience has shown that that is deeply flawed.
The FOS was set up under the Financial Services and Markets Act 2000 as “a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person”. That was a reasonable objective. But one of the flaws is that the FOS’s jurisdiction is much too wide.
At one end of the spectrum, it deals with complaints relating to matters where there has been no financial loss, such as admin mistakes. At the other end, it can deal with serious matters where compensation of up to £100,000 might be awarded. The procedures suitable for one end of the spectrum are not suitable for the other end, yet the FOS procedures are essentially the same for all its cases.
Those procedures cope well enough with simple cases, including those that would never have been tried in the ordinary court system because they do not involve a breach of a legal duty to the complainant, that is, a legal duty recognised by the law.
But in cases where the complainant has the choice of either suing in the ordinary courts or of complaining to the FOS, the defects in the FOS system become evident. Those defects potentially cause injustice because the issues are not explored and analysed with the same rigour, as would happen in a court.
Take as an example a case where a client alleges that his IFA has given him negligent advice and he has suffered a loss of about £100,000.
Let us assume that there is a dispute of fact as to what was said during the initial meetings. Let us also assume that the IFA says in his defence that his advice was what any reasonably competent IFA skilled in the relevant areas would have done. In other words, he denies that he was negligent.
Cases like that are routinely dealt with by the courts. The procedures are formal. Both sides are required to set out in detail what their respective cases are and the process is designed so that the issues in dispute are defined with clarity. The evidence of witnesses of fact are set out in written statements and exchanged between the parties. The experts on both sides write reports for the court.
The claimant’s expert explains what advice the defendant ought to have given and the defendant’s expert sets out the contrary view. Those reports are exchanged between the parties.
The case is tried in open court before a judge who, before he became a judge, will have had many years of experience in the courts as an advocate. The witnesses will give their evidence in the witness box and be cross-examined. Each side addresses arguments to the judge, who then gives his judgment.
His decision will include findings of fact based on his objective assessment of the witnesses he will have seen live in the witness box and he will then apply the law of England to those facts. All this takes place in public. There is also an established system of appeals.
This process, developed and refined over several centuries, meets all the criteria of the rule of law generally and the Human Rights Act 1998 in particular.
Briefly, the essence of the rule of law is, as Lord Bingham has said, that all persons and authorities within the state, whether public or private, should be bound by and entitled to the benefit of the laws publicly and prospectively prom-ulgated and publicly administered in the courts.
Human rights law requires that every person should be entitled to the peaceful enjoyment of his possessions and not to be deprived of those possessions except in the public interest and in accordance with the law. It also provides that a person’s civil rights and obligations are to be decided in a fair and public hearing by an independent and impartial tribunal.
On the other hand, the FOS scheme, although it is established by statute, fails to satisfy the criteria of the rule of law and human rights law. There are many aspects of the FOS scheme that do not measure up to those criteria and they have been discussed in this column in the past.
For present purposes, there are two that stand out. The first is that, in general, nothing takes place in public and the strength of witnesses’ evidence is never tested by cross-examination. The second aspect is that the FOS does not necessarily apply the law. Thus, in cases at the heavy end of the spectrum, where the complainant could have chosen to sue instead of going to the FOS – as in the example above – the result may be one which would not have been reached by a court. That cannot be right and is not just. The decision was one by a tribunal which did not apply the general law and reached its decision behind closed doors. The answer to this injustice is to restrict the FOS jurisdiction to dealing only with complaints which do not require compen- sation for financial loss.
The rest of the current FOS work should be passed over to a specially formed tribunal as part of a new system. The aim of the new system would be to meet the same statutory objective referred to above, namely, to resolve disputes quickly and with minimum formality by an independent person but which would be compatible with human rights law and the rule of law generally and would bear comparison with other courts and tribunals.
The details would need to be worked out but essentially it should be removed from the regulatory regime and become part of the tribunal system run by the Courts Service under the control of the Ministry of Justice.
No doubt it would function as a specialist tribunal – just as employment tribunals are specialist. The main features of the present scheme could be retained. The right of access to the new tribunal could still be free (and funded by a regulatory-based levy), its procedure could still be informal and largely conducted in writing, case workers would still be needed and, with sufficient manpower, it could still be relatively quick. Indeed, the traditional courts could learn a few lessons from the FOS.
But the new tribunal would have judges appointed in the same way as those in other tribunals. It would apply the law. It could sit in all the main court centres. There would be oral hearings in public if fairness required it. Decisions would always be given in public and there would be a right of appeal on the same basis as is available in the traditional court system. The needs of the rule of law and human rights would be met. Justice would be done between citizens – and to seen to be done.