If consumers’ complaints cannot be resolved to their
satisfaction by the body complained of, they have the right to
complain to the Financial Ombudsman Service (FOS) under the
Financial Services and Markets Act 2000. The Act provides for an
alternative dispute resolution scheme, the purpose of which is to
resolve disputes quickly and with minimum formality. While
voluntary for the consumer, the scheme is compulsory (within the
limit of £100,000) for the body complained about. 

Section 228(2) provides that a complaint has to be determined by
reference to what is, in the opinion of the Ombudsman, fair and
reasonable in all the circumstances of the case, taking into
account the relevant law, regulations, regulators’ rules and
guidance and standards, relevant codes of practice and, where
appropriate, what is considered to be good industry practice at the
relevant time.

Court of Appeal case

The Court of Appeal case of R (on the application of Heather
Moor & Edgecomb Ltd) v Financial Ombudsman & Lodge
confirmed that the Financial Ombudsman’s opinion as to what is fair
and reasonable in all the circumstances of the case outweighs the
relevant law.

Mr Lodge complained to the FOS about pension advice given to him
by independent financial advisers Heather Moor & Edgecomb Ltd
(HME). The Ombudsman upheld the complaint based on what, in his
opinion, was fair and reasonable bearing in mind all the
circumstances of the case.

HME sought judicial review on the basis that the Ombudsman had
failed to determine the complaint in accordance with the rules of
English law. As a result, it was argued, his decision was one that
no reasonable Ombudsman could have reached.

The Court of Appeal disagreed. The provision in the Act of the
words “by reference to what is, in the opinion of the Ombudsman
fair and reasonable in all the circumstances of the case” made it
clear that parliament had not intended the Ombudsman to be bound to
determine the complaint in accordance with the common law. The
Ombudsman should take the relevant law into account, but was free
to depart from it and be subjective in arriving at his decision. If
he did so depart, he should say so in his decision and explain
why.

The Court found that the Ombudsman had not, in any event,
departed from the relevant law. 

Comment

The scheme applies to most personal financial matters and allows
the Ombudsman to look beyond the law and the small print, to take
into account good industry practice and to adopt a fair and modern
approach. Although not bound by the common law, any perversity,
irrationality and arbitrariness on the part of the Ombudsman,
including an unreasoned and unjustified failure to treat like cases
alike, will be grounds for seeking judicial review.

The Ombudsman’s subjective decision making should perhaps be
borne in mind when attempting to resolve consumers’ complaints in
advance of the Ombudsman becoming involved.

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The author is a partner in Wragge & Co LLP’s Finance,
Insolvency, Recoveries and Sales team