FINANCIAL SERVICES— FINANCIAL SERVICES OMBUDSMAN—FEES CHARGED FOR INVESTIGATING COMPLAINTS

Court of Appeal, Civil Division

Laws, Rix and Stanley Burnton LJJ

11 June 2008

The present fee scheme operated by the financial services ombudsman is not unfair or unreasonable.

Charles Flint QC and Sarah McCann (instructed by the Financial Ombudsman Service) for the ombudsman. Anthony Speaight QC and Kate Livesey (directly instructed) for the company.

Four complaints were made to the appellant ombudsman against the respondent company, concerning endowment mortgage schemes issued by the latter. Each claim was investigated by the ombudsman and determined on its merits. In each case, the complaint was rejected, and the ombudsman sought the standard case fee of £360 from the company. The fee was derived from s 234 of the Financial Services and Markets Act 2000 (FSMA 2000), which provided that the authority “may make rules requiring the payment to it or to the scheme operator, by authorised persons”. The relevant scheme was known as “DISP”. DISP 3.3 provided that the ombudsman could dismiss a complaint without considering its merits if satisfied that the case had no prospect of success, or was frivolous or vexatious, or the complainant had suffered no loss. The company contested in the county court the imposition of the standard fee in the four cases. The district judge found that the requirement of payment of the standard case fee was unreasonable and unlawful. He held that the ombudsman had an obligation to consider summary dismissal of every complaint, and could not delegate that obligation. He ruled in favour of the company. The ombudsman appealed.

STANLEY BURNTON LJ:
The issues for determination were: (i) whether the rule requiring payment of the standard case fee was unreasonable and unlawful; (ii) whether or not the ombudsman was under an obligation to consider dismissal of all complaints under DISP 3.3; (iii) whether the ombudsman could lawfully delegate consideration and exercise of the power under DISP 3.3 to a suitably qualified member of staff; (iv) whether the district judge had been entitled to find that each of the complaints had been considered for summary dismissal, albeit by a consumer consultant; (v) if a complaint was not lawfully considered for summary dismissal, and as a result was investigated, and after investigation determined by the ombudsman adversely to the complainant, whether the firm was nonetheless liable to pay the standard case fee; and (vi) whether the answer to (v) depended on whether the complaint should have been dismissed under DISP 3.3.

The company argued that it could be said that under the present scheme the ombudsman had a financial interest in deciding that a complaint should not be summarily dismissed. Furthermore, since the ombudsman was a non-profit-making body, no one would profit from a decision to uphold a complaint. There was some substance in the first of those points, but not the second.

As to the first, a scheme under which the decision-maker’s decision on the merits of a complaint affected the income of the decisionmaker was undesirable. However, if a complaint was not summarily dismissed, the ombudsman incurred the burden, and the cost, of investigating it and determining it. Thus the financial impact of a decision not to dismiss summarily was not one way: the case fee became payable to the ombudsman, but that cost was incurred by it. Where, however, the liability for a fee was determined after the ombudsman’s investigation and was dependent on his decision following his investigation, the work and cost of deal- ing with the complaint had been incurred; so that the financial impact of a decision upholding the complaint was largely one way. Furthermore, the present scheme mitigated the financial consequences for a firm of a wholly unfounded complaint.

As to the second point, any public body was under pressure to meet its budget; and if the income of the scheme did not meet its forecast, the deficit had to be carried forward to the following financial year, leading to an increase in levy or case fees for that year or a need to reduce costs, which usually involved reducing staff. Hence there was a real financial interest in maintaining the income of a scheme such as that in this case.

Looking at the matter generally, the company had failed to show that the present fee scheme was not one of the possible and rational responses to the need to finance the Ombudsman Service.

Summary dismissal
His lordship turned to whether or not the ombudsman was under a duty to consider summary dismissal of complaints under DISP 3.3.

The express requirement under DISP 3.2.1 was that “the Ombudsman must have regard to …whether or not the complaint is one which should be dismissed without consideration of its merits under DISP 3.3”. The rule should be interpreted to give content to the obligation, and therefore that it did require the ombudsman to consider whether a complaint should be summarily dismissed.

It should, however, be borne in mind that summary dismissal under DISP 3.3 was not limited to cases which the ombudsman considered to be frivolous or vexatious or without a reasonable prospect of success. DISP 3.2.1 did not require a detailed consideration of each complaint for summary dismissal: whether or not any of the sub-paras of DISP 3.3.1 were applicable, or DISP 3.3.1A actually or potentially applicable, should be sufficiently apparent from the perusal of the complaint. Second, DISP 3.3.1 conferred a discretion on the ombudsman. Its wording was that he might dismiss a complaint without considering its merits if any of its sub-paras were applicable to it, not that he had to do so.

His lordship further held that the power conferred by para 14(2)(f ) of Sch 17 to FSM 2000 included power to delegate the exercise of the power of summary dismissal to designated members of the ombudsman.

His lordship dealt with the remainder of the appeal on the facts and held that the issues would be answered: (i) no; (ii) yes; (iii) yes; (iv) yes; (v) yes; and (vi) no.

Rix and Laws LJJ agreed.