Facts
Mr Lodge complained to the FOS about advice he was given in 1999
by an independent financial adviser (IFA) to transfer out of his
British Airways pension scheme and invest in a personal pension
plan.
The advice failed to take into account all Mr Lodge's
circumstances. He was 55 but his wife was significantly
younger and they had two young children. Moreover, the assumed
growth rate of 9% per annum was not achieved.
The ombudsman was satisfied that good industry practice in 1999
would have been to recommend against transfer. The factors the IFA
took into account did not include the large age difference between
Mr and Mrs Lodge and the need to secure equivalent spouse's
benefits. And the 9% assumed annual growth rate was "anything but
modest".
In reaching this decision, the ombudsman stated "while I have
taken into account the relevant law, I have determined this
complaint based on what, in my opinion, is fair and reasonable
bearing in mind all the circumstances of this case".
The IFA applied for judicial review, arguing that the FOS was
obliged to determine complaints in accordance with English law and
that failure to do so was an infringement of the European
Convention on Human Rights. The IFA had advised in accordance with
good practice at the time and was therefore not negligent under the
law.
In addition, the ombudsman should have held an oral hearing in
public and he should have given his decision in public but
wrongfully refused to do so.
Judgment
The application for judicial review was refused. Had the rules
required the ombudsman to determine cases in accordance with
English law, they would have said so.
Instead, section 228 of the Financial Services and Markets Act
2000 provides that the ombudsman will determine a complaint by
reference to what is, in his opinion, "fair and reasonable in all
the circumstances of the case".
And the FOS scheme rules (set out in the DISP section of the FSA
Handbook) state "in considering what is fair and reasonable in all
the circumstances of the case, the ombudsman will 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".
In the Court of Appeal's view, the ombudsman was entitled to
reach the conclusion he did on the evidence. The fact that some
competent advisers would have recommended the transfer did not
amount to a practice accepted by responsible financial
advisers.
The court was also satisfied that the scheme did not breach the
right to a fair trial under the European Convention. The ombudsman
was free to depart from the relevant law, as long as he said so in
his decision and explained why.
Nor did the scheme rules prevent him from hearing cases in
public or pronouncing his decision in public.
There was no issue in this case that had made a public hearing
necessary and there had been no unfairness in the ombudsman's
decision to decide the matter on written evidence. The decision had
been made public by these proceedings and the availability of the
judicial review procedure meant there was no breach of
the Convention.
Commentary
This case was heard at the same time as FOS v Heather Moor, which confirmed the right of
the FOS to charge a firm the standard case fee, even when the case
against the firm had been unsuccessful.
Another recent case that tested the boundaries of the FOS was
Bunney v Burns [2007], in which the High Court confirmed that the
FOS did not have the power to make a binding award over the
statutory limit of £100,000.
