High Court reins in Financial Ombudsman’s use of statutory powers

Joanna Gray, University of Newcastle

On 25 May 2007 the High Court handed down a decision, in the conjoined actions of Bunney v Burns Anderson plc and another and Cahill v Timothy James & Partners Ltd [2007] EWHC 1240 (Ch), the true significance of which may only become apparent to the financial services industry over time. Those financial services firms which have a significant retail customer base are subject to the compulsory jurisdiction of the Financial Ombudsman Scheme established by Part XVI of the FSMA if a private customer opts to have his or her dispute resolved by the Ombudsman Scheme as opposed to taking action themselves in a court of law against the firm with which the dispute subsists. How the Ombudsman resolves such individual complaints against firms, both in terms of the substantive criteria to be applied to the question of whether or not the firm is liable to make any redress or reparation to the customer (the liability issue), and in terms of the order or directions he makes (the quantum of nature of redress issue), are important questions for firms that go beyond the individual complaint itself. For, as firms are faced with a mounting barrage of individual customer complaints and referrals to the Ombudsman, then a determination of one single dispute in a particular way (for example with a high level of monetary redress being awarded) could encourage other customers to complain in circumstances where they feel they have been treated similarly and hence may be awarded the same kind of level of monetary award by the Ombudsman. The Ombudsman Scheme was set up to be a framework ‘ under which certain disputes may be resolved quickly and with minimum formality by an independent person .’ (s225 FSMA). Therefore referral of complaints and disputes to the Ombudsman is more likely than private legal action by the courts in the case of the typical retail financial consumer faced with the costs and uncertainties of legal action, to hear whether a judge finds the defendant firm to have breached its duties as set out in common law and/or the regulatory framework under the FSMA. Such litigation is a daunting prospect. The Ombudsman, however, is directed to resolve a complaint not by reference to strict rules of law, but ‘by reference to what is, in the opinion of the Ombudsman, fair and reasonable in all the circumstances of the case’.