Companies can be surprised by the Financial Ombudsman Service (FOS)’s final – and binding – decisions, particularly in satisfactory quality cases. Eversheds Sutherland’s Martin Ward looks at challenging them through judicial review.
The purpose of judicial review is to ensure that public bodies, including the FOS, act lawfully.
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Grounds
The grounds for seeking judicial review are generally:
- Error of Law – an error of law by a public body in exercising its powers;
Procedural Impropriety – breach of common law rules of natural justice or procedural fairness (e.g. right to a fair hearing, bias); - Irrationality/Wednesbury unreasonableness – no person properly directing itself as to the relevant law could have possibly reached the decision made;
- Abuse of power generally – a public body has not used its powers in order to further the relevant statutory purpose but rather an improper or ulterior purpose.
To give permission for a judicial review to progress, the Court must be satisfied the claim gives rise to an arguable case under one or more of the above grounds, which merits full investigation at a hearing. This is a high threshold and many applications are refused at the permission stage.
Remedies
Available remedies from judicial review are limited:
- A mandatory order (requiring a public body to make a decision it is refusing to make)
- A prohibiting order (preventing a public body from acting outside its jurisdiction or otherwise abusing its power)
- An injunction under s.30 of the Supreme Court Act 1981 (restraining someone from holding a public office)
- A quashing order (setting aside an existing order/decision)
Due to the limited grounds available and high threshold test, judicial review proceedings of FOS decisions are relatively rare. However, two decisions of note in the early part of this year, while not concerning motor finance, reveal the process of decision-making within the FOS, and the implications for finance companies generally in dealing with FOS complaints.
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By GlobalDataIn the case of R (Aviva Life & Pensions (UK) Ltd) v Financial Ombudsman Service (February 2017), the High Court upheld an application for judicial review by Aviva challenging an FOS decision.
An individual held an Aviva joint life policy with his wife. He cancelled the joint policy following the couple’s separation. He was later referred to his GP by his family as they had concerns regarding significant behavioural changes. Although not formally diagnosed, his GP had concerns to refer him for a brain scan. Before the scan, the customer reverted to Aviva and was accepted for a single-person life policy. The customer was later diagnosed with a form of dementia. He claimed under the policy and Aviva avoided cover on the basis of non-disclosure. The customer complained to the FOS and an Ombudsman upheld the complaint, despite the contractual position between the parties being clear that Aviva was entitled to act as it did.
Aviva judicially reviewed the decision. The FOS had accepted in advance of the hearing that the decision should be quashed on the basis that it did not sufficiently set out in the body of the decision the Ombudsman’s reasons for upholding the complaint. Aviva also made the case strongly that the decision was wrong in law.
The Court agreed that the outcome in the complaint would have been different had a Court considered the position. It also considered the fact that the FOS is obliged to “take into account” relevant law and regulations under DISP 3.6.4R when considering what is fair and reasonable.
However, this was not the basis of the Court’s decision to quash the FOS decision. In fact, the Court made it clear that the FOS departing from even settled positions in law would not, in itself, be grounds for judicial review. The Court reiterated the wide discretion of the FOS, while concluding that if the FOS decides to depart from settled legal principles or makes a finding different than the outcome would be in law, its reasoning for the overall decision should be sufficiently clear for the parties to understand why. The Court therefore quashed the decision but only on the grounds already conceded by the FOS.
The parties were at odds as to what should happen to the complaint in circumstances where the final decision of the FOS had been quashed. The Court made it clear that in such circumstances, the customer’s complaint had not been finally dealt with, and the complaint would revert to the FOS for another decision.
Interestingly, the decision also dealt with the point that a final decision to reinstate the policy would result in the insured being eligible to claim up to £500,000 under the policy (this exceeds the £150,000 limit of the FOS’s powers). The Court held that the FOS cannot circumvent its financial statutory limit by giving directions rather than a monetary award, but that it should be implied in the FOS decision that the limit should apply.
Summary
The decision highlights that judicial review of an FOS decision is difficult even where the FOS has departed from settled legal principles (provided a full explanation is given), or where the FOS has made a decision upon issues not strictly complained of.
Given the FOS’s wide discretion, it is important to ensure complaints are fully and properly assessed especially at Ombudsman level where decisions are published. <
