Facts
Four complaints relating to endowment mortgages were brought
against a firm of financial advisers. The claims were initially
considered by a consumer consultant at the FOS, who decided they
should not be summarily dismissed. They were then investigated and
determined on their merits by an ombudsman. In each case, the
complaint was rejected.
Nevertheless, the FOS sought payment of the standard £360 case
fee per claim from the firm. But the firm argued that the rule
requiring it to pay a fee in these circumstances was unreasonable
and therefore unlawful.
In addition, it maintained that no fee would have been payable
had the claims been summarily dismissed. The FOS in this case had
failed in its duty to weed out claims that had no real prospect of
success. Instead, it had adopted a policy of never dismissing a
complaint relating to an endowment mortgage scheme. And the
decision had been left to a consumer consultant, not an ombudsman,
which was against the scheme rules.
County Court judgment
The District Judge agreed with the firm that the requirement to
pay a fee irrespective of outcome was unreasonable and
unlawful.
Although he did not find that the FOS had a policy of letting
all mortgage endowment claims proceed to full determination and he
concluded that none of complaints in this case should have been
summarily dismissed, nevertheless, the fee was unjust.
In his decision, he pointed to a body of opinion in the industry
aggrieved at the imposition of the fee, particularly because of the
high volume of unmeritorious endowment complaints. The intention
had been that the FOS would get half its funding from case fees and
half from the annual levy. But the increase in the number of
mortgage endowment cases in recent years has meant a far greater
proportion has come from case fees.
Court of Appeal judgment
The Court of Appeal overturned the decision. The system imposing
a flat fee for the services of the ombudsman in investigating and
deciding complaints was a perfectly rational response to the need
to fund the scheme. The judge's reasoning went to the question
whether the rule should be reconsidered, not to the original
decision to adopt it.
If a fee were payable only if a complaint were upheld, the
amount of the fee would have to go up dramatically. There would
also be unsatisfactory grey areas over negotiated settlements or
cases where there was no clear winner or loser, or where the
complaint was upheld but the award was lower than an earlier offer.
And it could provide a financial incentive to the FOS to uphold
complaints, so that it would no longer be an independent
tribunal.
The decision also confirmed that FOS rules entitle the ombudsman
to delegate the initial decision on summary dismissal to a
designated member of staff, such as a consumer
consultant.
The Court of Appeal brushed aside a suggestion that the
requirement to pay the fee was conditional on summary dismissal
having been considered. Such a rule would introduce the question
whether or not there had been consideration, making the collection
of fees a complicated and expensive exercise.
Commentary
This decision joins a batch of recent cases testing the
boundaries of the FOS. The case was heard at the same time as
R v FOS, which confirmed the FOS' remit
to decide cases on the basis of what the ombudsman considers fair
and reasonable in all the circumstances.
Last year, in Bunney v Burns [2007], the High Court confirmed
that the FOS did not have the power to make a binding award over
the statutory limit of £100,000.
