HEATHER MOOR & EDGECOMB LTD. v. THE UNITED KINGDOM
Inadmissible
Lech Garlicki;Ledi Bianku;Nicolas Bratza;Päivi Hirvelä;Sverre Erik Jebens;Vincent A. De Gaetano
The applicant, Heather Moor and Edgecomb Limited (HME), is a company based in Wiltshire. The application was lodged on its behalf by Mr B. Pickering, its managing director. The applicant was advised by Mr A. Speaight Q.C., a barrister practising in London. The United Kingdom Government were represented by their Agent, Mr M. Kuzmicki. The facts of the case, as submitted by the parties and as presented in the judgment of the Court of Appeal, may be summarised as follows. HME is a small family company founded in 1970. It provides independent financial advice, and is authorised and regulated by the Financial Services Authority. In June 1999, the company was approached by L, a pilot with British Airways who was soon to reach the company retirement age of 55 years. He was covered by his employer’s occupational pension scheme. There was a significant difference in age between L and his wife, with whom he had two children. He intended to continue working as a pilot until the age of 60, and beyond that if possible. He sought HME’s advice about his pension arrangements. HME arranged two lengthy meetings with L. At the first of these, a company representative discussed two alternatives in detail: remaining in the company scheme but deferring his pension until the age of 60 (viewed as the safer option), or leaving the scheme on retirement and using the funds to purchase a private pension plan. HME wrote to L a few days later recapitulating the points made at the meeting. It referred to the potential advantage of making alternative pension arrangements, assuming a fund growth rate of 9% per annum, which it described as “very modest”. HME considered it “illogical” not to take up the option in view of the transfer value offered by the company scheme, and emphasised that the projected return on the investment did not presume “a very heavy fund performance”. At the second meeting, which involved the same company representative, the option of transferring to a private plan was discussed at length, including the associated risks and possible choice of fund. HME sent L a written note of the meeting shortly afterwards. Having doubts, L then consulted another independent financial adviser, C. The balance of the latter’s advice was against leaving the company scheme, on the ground that it offered a quite substantial benefit package and a good level of guaranteed income which was not dependent upon investment returns or annuity rates. C took the view that some of HME’s comments were in breach of the regulator’s guidance. In particular, he considered that the assumption of 9% growth was “anything but modest”, and contrary to the lower investment growth assumptions that the regulator had recently introduced and had to be used by all advisers when projecting pension benefits. L provided a copy of this letter to HME’s representative, who nevertheless maintained his advice. L ultimately decided to accept the advice tendered by HME. He left his employer’s scheme and invested with another fund. The investment performed strongly in the first year, increasing by 18%, but by 2003 the value of L’s pension fund had fallen by some 23%. In October of that year, L wrote to HME, claiming compensation in the sum of GBP 340,089. HME rejected his complaint, pointing out that L had made a free choice in full knowledge of the potential risks, and having considered contrary advice from another adviser. L filed a complaint with the Financial Ombudsman Service (FOS) on 11 November 2003, alleging that HME had given him inappropriate advice regarding his pension. He claimed that the relative security of his company’s scheme compared to the high risk of the investment he had been advised to choose had not been adequately emphasised during his meetings with HME. The figures used by HME had been very optimistic and far above actual performance. FOS forwarded the complaint to HME and requested copies of the relevant documents and any evidence that the company wished to have taken into account. HME initially asked that the complaint be dismissed without consideration of its merits. It subsequently provided the requested documents and submitted a detailed outline of its case, by letter of 2 February 2004. The complaint was considered by an FOS adjudicator, who communicated his opinion on it in a letter to HME dated 7 April 2004. He found that L should have been aware of the risks inherent in the investment he chose to make, in view of the second opinion he had obtained from C, and so the complaint should not be upheld in that respect. Pointing out the greater security offered by occupational pension schemes, he stated that the advantages and disadvantages of a transfer should have been explained and compelling reasons should have been given. He considered that the meeting notes that HME provided to L did not adequately caution him in this respect. While the risks may have been discussed during the meetings, the notes did not balance the advantages and disadvantages, nor did they show that all options had been duly considered. Further, the adjudicator took the view that the investment funds recommended to L entailed a higher risk than he was prepared to accept. He concluded that the transfer and investment funds recommended to L may have been unsuitable. He recommended that HME carry out a loss assessment and, if this revealed a loss, to pay redress. HME was asked whether it was prepared to make such an offer to L. HME disagreed with the adjudicator’s opinion and gave a substantial response to it by letter dated 6 August 2004. It argued that since the amount involved greatly exceeded the maximum amount that FOS could order a firm to pay a complainant (GBP 100,000), FOS should decline jurisdiction so that the complaint could be determined in court. If this was not accepted, HME requested an oral hearing to establish the facts of the complaint. By letter dated 14 October 2004, the adjudicator rejected the request for a hearing on the ground that there were no contradictions in the documentary evidence. A hearing would not therefore be advantageous. HME maintained its request for a hearing, arguing that since the complaint concerned HME’s “civil rights and obligations” Article 6 of the Convention applied. If its version of events was not accepted by L then a hearing, with cross-examination, would be necessary. On 11 July 2005 an FOS ombudsman wrote to HME in relation to its request for a hearing. He observed that Article 6 did not require a hearing at every stage of the determination of civil rights and obligations and that HME would be able to seek judicial review of the decision. If the company’s view was correct, then every complaint to the FOS would have to include a hearing. There did not appear to be any dispute over the facts in L’s complaint. Even if there were, it did not follow that there should be cross-examination of witnesses at a hearing. With its inquisitional powers, FOS could use other means to establish the facts. Where hearings were held, they were informal and the procedure was set by the Ombudsman. Crossexamination was uncommon. The Ombudsman also rejected the argument that FOS decline jurisdiction in view of the amount of money potentially involved, which, HME said, would endanger its commercial viability. A provisional decision on the complaint was issued by another FOS Ombudsman on 17 February 2006. Giving detailed reasons, he indicated that he intended to uphold the complaint, subject to any further evidence or comment received. On 27 April 2006 HME responded in detail to the provisional decision. It again sought a hearing to allow L to be cross-examined. It also submitted a witness statement from an experienced financial adviser, M. The latter stated that, in his opinion, there had been a “respectable school of thought” in 1999 that an assumed growth rate of 9% was modest. He considered that “some competent advisers” would have recommended that L transfer his pension fund. more clearly. Understating the increase in the deferred pension benefits made the option of remaining in the company scheme appear much less attractive than it was. Had HME shown L the lower assumed growth rates, this might have caused the latter to express concern over the viability of the transfer. Having regard to the opinions received from the other financial advisers, C and M, the Ombudsman placed greater weight on the former’s view, as it was contemporaneous. He considered that a competent adviser would, in view of L’s family situation, have established the value of the widow’s benefit payable and would also have looked at the benefits payable on late retirement and compared these to the benefits available on transfer. He was therefore satisfied that good industry practice in 1999 would have been to advise L against transfer. He agreed with the previous decisions that a hearing had not been necessary, observing that the FOS had an inquisitorial role, not an adversarial one. He directed HME to pay the maximum sum to L (GBP 100,000) and recommended that it also pay compensation for any loss in excess of that amount. L accepted that decision, which therefore became binding on HME. HME sought judicial review of the decision. The claim was initially rejected on the papers on 21 May 2007. A renewed application involving an oral hearing in the Administrative Court was rejected on 8 October 2007. Permission to appeal was granted on 11 December 2007. Following a threeday hearing before the Court of Appeal, the claim was dismissed on 11 June 2008. The main judgment was given by Stanley Burnton LJ. HME first argued that FOS was required by the relevant statutory provision – section 228(1) of the Financial Services and Markets Act 2000 (see below) – to determine complaints solely in accordance with the rules of English law. Stanley Burnton LJ rejected this, finding that it was clear from the wording of the provision that Parliament had not intended to limit the basis for FOS decisions in this way. Certain other provisions of the Act reinforced this view, as did the general objective of the complaints scheme, which was to resolve disputes quickly and with minimum formality. Accordingly, FOS could reach a subjective opinion on the merits of a complaint; if that opinion was perverse or irrational it could be set aside by judicial review. HME claimed that Article 6 of the Convention applied, since their civil rights had been determined by the Ombudsman’s decision. Moreover, since the decision deprived the company of its property, Article 1 of Protocol No. 1 was also engaged. A decision that was not entirely based on law would be contrary to both of these provisions. The scope for subjectivity in FOS decisions meant that they were unpredictable and arbitrary. Companies could not know how to regulate their behaviour so as to avoid complaints, or how to defend themselves where complaints were made against them. Stanley Burnton LJ observed: “45. A statutory provision is only incompatible with a Convention right if and to the extent that it necessarily involves infringing that right. It is not suggested that the ombudsman is not an independent and impartial tribunal. The scheme does not preclude the ombudsman from hearing cases in public, or from pronouncing his decision in public: whether and to what extent he may decide not to do so I consider below. And so the only question is whether the ombudsman scheme satisfies the requirements of the Convention as to the law to be applied to a dispute and as to the fairness of the applicable procedure.” He then referred to the criteria of accessibility and precision set down in Sunday Times v. the United Kingdom (no. 1), 26 April 1979, Series A no. 30, and continued: “47. Does the scheme established under the 2000 Act, interpreted in accordance with its natural meaning, comply with these requirements? In my judgment, it can and does. The Ombudsman is required by DISP 3.8.1 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. The other matters referred to in this rule are matters that a court would take into account in determining whether a professional financial adviser had been guilty of negligence or breach of his contract with his client. Again, if the Ombudsman is to find an advisor liable to his client notwithstanding his compliance with all those matters, the Ombudsman would have to so state in his decision and explain why, in such circumstances, assuming it to be possible, he came to the conclusion that it was fair and reasonable to hold the adviser liable. In these circumstances, I consider that the rules applied by the Ombudsman are sufficiently predictable. All the matters listed in DISP 3.8.1 are formulated or ascertainable with sufficient precision. So far as guiding the conduct of financial advisers are concerned, provided that 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.” He rejected the argument that firms were unable to know the principles on which FOS would decide complaints. The procedure followed meant that the Ombudsman’s provisional assessment was copied to the parties, who could indicate their disagreement with it and make further representations. Since that had been done in the present case, there was no unfairness. HME argued that the Ombudsman should have accepted the request for an oral hearing. Stanley Burnton LJ considered that if the determination of the complaint involved the resolution of a dispute as to what had been said at the meetings, or if it could be sensibly argued that L would have taken the same course of action even if he had been advised differently, then the case for an oral hearing might have been substantial. However, the existence of contemporaneous records would normally make a hearing unnecessary. He stated: “59. ... I have been unable to identify any issue as to HME’s advice to [L] that arguably required an oral hearing in order fairly to determine his complaint. Perhaps more importantly, [HME’s counsel] did not identify any such evidence. The advice given in meetings was the subject of Mr Pickering’s extensive notes, and was confirmed in correspondence. HME did not suggest that Mr Pickering’s notes were inaccurate. In any event, given the length of time between the meetings and [L’s] complaint, any such contention would have been highly unlikely to succeed. HME did not suggest that Mr Pickering had contradicted or modified orally the advice he had previously given in writing. In any event, the Ombudsman, sensibly in my view, considered that the written report provided by HME to [L] carried greater weight than information provided orally. 60. In relation to the issue of reliance, I think it obvious that if [L] had received the advice that the Ombudsman held he should have received, it is inconceivable that he would have removed his pension fund from the BA scheme. It would have been pointless to ask him whether he would have acted differently if differently advised: he undoubtedly would have answered affirmatively.” He considered the Court’s judgment in Jussila v. Finland ([GC], no. 73053/01, ECHR 2006XIII and found a number of similarities with the facts of the present case: the purpose of the oral hearing was crossexamination, which was reasonably found to be unnecessary; the demands of efficiency and economy referred to in Jussila resembled the objective of the complaints scheme in the present case. There was therefore no unfairness about the Ombudsman’s decision not to hold a hearing. There had in any event been a public hearing before the Court of Appeal in the context of the judicial review proceedings, and this was available to any complainant or respondent who considered that the Ombudsman had made an unlawful decision. The complaint that the Ombudsman’s decision had not been pronounced publicly was rejected for the same reason. The decision would be made public with the publication of the Court of Appeal’s judgment, which achieved the purpose of ensuring public scrutiny of FOS decisions, as required by Article 6 of the Convention. Lord Justice Rix agreed with the judgment of Stanley Burnton LJ. He added some further observations on the rule of law and publicity. Regarding the latter, he said: “90. Finally, I would like to say something about the matter of the FOS "register". This has been the subject of written submissions, but has not figured in oral argument, no doubt because the parties appreciated that it would not affect the outcome of this appeal. Nevertheless, it remains the case that the Act’s Schedule 17, at para 16, in providing for the enforcement of an Ombudsman’s money award in the county courts of England and Wales and by similar means in Northern Ireland and Scotland speaks of such an award "which has been registered in accordance with scheme rules". Thus it is a statutory requirement that the scheme rules provide for the registration of money awards. Accordingly, DISP 3.9.15 R requires the Ombudsman to keep a register: "The Ombudsman must maintain a register of each money award and direction made." In referring to directions, the scheme rules go beyond the statute. FOS seeks to comply with its rule by keeping an internal data base. It is not available to public inspection. I have my doubts as to whether such an internal data base amounts to a "register" properly so called. A register is an official list or record. It may be that it can be kept in any form, but I suspect that it needs to be open to public inspection. Since we have not heard oral argument on this matter, I merely refer to this point in passing.” Permission to appeal to the House of Lords was refused on 30 October 2008. The applicable primary legislation is the Financial Services and Markets Act, 2000. Section 225(1) of the Act reads: “This Part provides for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person.” Section 228(2) provides: “A complaint is to be determined by reference to what is, in the opinion of the Ombudsman” Section 229 refers to the awards that an Ombudsman may make. These cannot exceed the monetary limit, which is set at GBP 100,000. Where the assessed loss is higher than this, the Ombudsman may recommend that the respondent pay the excess, but this is not binding on the firm. Schedule 17 to the Act provides for the making of rules for the complaints procedure. These are referred to as DISP. The relevant DISP provisions that were in force at the time read as follows: “DISP 3.8.1 R ’ 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. DISP 3.2.12 R The parties will be informed of their right to make representations before the Ombudsman makes a determination. If he considers that the complaint can be fairly determined without convening a hearing, he will determine the complaint. If not, he will invite the parties to attend a hearing. No hearing will be held after the Ombudsman has determined the complaint. DISP 3.2.13 R A party who wishes to request a hearing must do so in writing, setting out the issues he wishes to raise and (if appropriate) any reasons why he considers the hearing should be in private, so that the Ombudsman may consider whether the issues are material, whether a hearing should take place and, if so, whether it should be held in public or private. DISP 3.2.14 G In deciding if there should be a hearing and, if so, whether it should be in public or private, the Ombudsman will have regard to the provisions of the European Convention on Human Rights. DISP 3.10.1 R (1) In dealing with any information received in relation to the consideration or investigation of a complaint, the Financial Ombudsman Service must have regard to the parties’ rights of privacy. (2) Paragraph (1) does not prevent the Ombudsman disclosing information (either in full, or where he considers it necessary or appropriate under DISP 3.5.2R (2), in the form of an edited version or (where this is not practicable) a summary or description): (a) to the extent that he is required or authorised to do so by law; or (b) to the parties to the complaint; or (c) in his determination; or (d) at a hearing in connection with the complaint.”