Complaints - Fees - Financial advisers - Financial Ombudsman Service - Case fee payable where complaint rejected.

Dominic Preston (instructed by Glazer Delmar) for the appellant; Christopher Heather (instructed by the in-house solicitor) for the respondent.

Financial Ombudsman Service v Heather Moor & Edgecomb Ltd: CA (Civ Div) (Lords Justice Laws, Rix, Stanley Burnton): 11 June 2008.

The appellant Financial Ombudsman Service appealed against a decision dismissing its claim against the respondent (H) for the standard case fee of £360 in relation to each of four complaints against H investigated, and in the end rejected, by the ombudsman, in the exercise of the statutory compulsory jurisdiction under part XVI of the Financial Services and Markets Act 2000.

The four complaints against H to the Financial Ombudsman Service related to endowment mortgage schemes. Each of them had been investigated by the service and determined on its merits. In each case, the complaint was rejected. Each of the complaints was a chargeable case in respect of which the standard case fee was payable by H as an authorised person under the rules of the ombudsman scheme.

In proceedings by the service to recover the fees, H contended that the rule that required a firm to pay a fee even though it had been ­exonerated was unreasonable and therefore unlawful, and that the fee had become payable only as a result of the service’s failure properly to consider dismissing the claims summarily.

The district judge dismissed the claim against H on the basis that the relevant case fee rules were ­unreasonable and unlawful.

He further held that the service had an obligation to consider summary dismissal of every complaint; the service did not have a policy of determining every complaint relating to an endowment mortgage arrangement on its merits without considering summary ­dismissal; the complaints had been considered for summary dismissal, but by a consumer consultant rather than an ombudsman; none of the complaints should have been summarily dismissed.

Held: (1) The grounds set out in the district judge’s judgment, individually and collectively, did not justify the finding that the decision to impose case fees was perverse or irrational and unreasonable in the Wednesbury sense.

The 2000 act restricted the recovery of the costs of the scheme from complainants. Awards of costs against complainants, to the extent permitted, could not be a reliable or predictable or a substantial source of funding for the scheme.

A levy was borne by exemplary firms and those who were the subject of well-founded complaints alike. A system under which firms made a payment of a fee in respect of the services of the ombudsman in ­investigating and deciding complaints against them was a perfectly rational response to the need to fund the scheme.

The practicality of a case fee payable only in respect of successful complaints had been considered. H had failed to show that the fee scheme was not a possible and ­rational response to the need to finance the service.

(2) The relevant rules should be interpreted as obliging the ­ombudsman to consider whether a complaint should be summarily ­dismissed.

(3) Schedule 17 of paragraph 14(2)(f) to the 2000 act expressly reserved the determination of a ­complaint to an ombudsman. A ­summary dismissal was not a determination for those ­purposes. The power conferred by paragraph 14(2) included power to delegate the exercise of the power of summary dismissal to designated members of the staff of the service.

(4) The district judge had been ­entitled to find that all four complaints had been considered by a consumer consultant who had ­decided that they should not be ­summarily dismissed.

(5) On the true construction of the scheme rules, H’s liability for the case fees was not dependent on summary dismissal having been lawfully ­considered by the service. H’s ­submission that its liability was so dependent involved reading additional words into the rules.

It was far from clear that the ombudsman owed a duty to the respondent firm when considering exercising his power of summary dismissal, Alghussein Establishment v Eton College [1988] 1 WLR 587 HL considered.

Furthermore, the interpretation put forward by H was unreasonable and capable of producing unmeritorious consequences, since it would be quite unreasonable for a firm to be relieved of its liability to pay the fee because summary dismissal was not ­considered, if, had it been considered, the complaint would in any event have been passed for investigation and determination by an ombudsman.

H’s interpretation would also potentially make the collection of case fees ­subject to inquiry and dispute by firms and to litigation in which the ­respondent firm would challenge whether the complaint in question was or should have been summarily ­dismissed.

Appeal allowed.