Berkeley Burke Sipp Administration Ltd v Financial Ombudsman Service Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Jacobs |
| Judgment Date | 30 October 2018 |
| Neutral Citation | [2018] EWHC 2878 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/1093/2017 |
| Date | 30 October 2018 |
and
and
[2018] EWHC 2878 (Admin)
Mr Justice Jacobs
Case No: CO/1093/2017
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Kirk QC and Thomas Samuels (instructed by Spearing Waite LLP) for the Claimant
James Strachan QC and Stephen Kosmin (instructed by Financial Ombudsman Service) for the Defendant
Simon Howarth (instructed by Shakespeare Martineau) for the First Interested Party
Andrew Henshaw QC (instructed by Financial Conduct Authority) for the Second Interested Party
Hearing dates: 10, 11, 12 October 2018
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
| Contents | Paragraph |
| A: Introduction | 1 |
| B: The Financial Services legislative regime | 6 |
| C: The investment and the Complaint | 16 |
| D: The Ombudsman's decision | 29 |
| E: The grounds of challenge | 41 |
| F: The parties' submissions | 44 |
| G: Analysis and conclusions: Ground One | |
| G1: The approach to the decision of the FOS | 78 |
| G2: The consultation argument | 85 |
| G3: The Augmentation argument | 98 |
| G4: The Conflict argument | 114 |
| H: Analysis and Conclusions: Ground Two | 138 |
A: Introduction
This case involves a challenge by the Claimant (“BBSAL”) to the final decision of one of the Defendant's ombudsmen, Mr. Colin Brown (“the Ombudsman”). The Ombudsman issued a Provisional Decision (“the Provisional Decision”) on 10 November 2016, in which he provisionally concluded that BBSAL had not acted fairly and reasonably in its dealings with Mr. Wayne Charlton (“Mr. Charlton”), who is the First Interested Party in these proceedings. On 2 February 2017, the Ombudsman issued his Final Decision (“the Final Decision”) in which he decided not to depart from his provisional findings, and ordered BBSAL to pay compensation to Mr. Charlton.
BBSAL is a self-invested personal pension (“SIPP”) provider and administrator. The basic concept of a SIPP is that an individual can choose the investments which are to form the assets in his or her pension pot. There are certain assets, such as listed shares in quoted companies, which can be put into a SIPP and which benefit from the tax advantages which apply to SIPPs, and are therefore (to use the word deployed in the course of the case) “SIPPable”. Other assets, such as residential property, do not qualify for those advantages, and there is therefore no benefit to holding such assets in a SIPP.
Mr. Charlton was a gardener. In 2011, he was introduced to BBSAL by a company called Big Pebble Ltd. Mr. Charlton wanted to make an investment in a “green oil” scheme in Cambodia, and to hold that investment in a SIPP. The investment was offered by a company called Sustainable AgroEnergy plc (“SA”). Mr. Charlton applied to transfer his existing personal pension to BBSAL and to use the money for investment in SA's scheme. A large number of other individuals invested in the scheme: some 616 investors invested around £ 12,250,000 in SIPPs operated by BBSAL. However, it transpired that the scheme was a scam. SA lacked basic title to the land in question in Cambodia and the scheme was fraudulent. SA was subsequently placed into receivership following a Serious Fraud Office investigation, and three of its directors were sent to prison for fraud.
The Defendant (“FOS”) deals with certain complaints under a statutory scheme created by the Financial Services and Markets Act 2000. On 20 September 2012, Mr. Charlton complained to FOS about the conduct of BBSAL (“the Complaint”). He sought reimbursement from BBSAL for the sums he had lost as a result of placing his funds in SA. In due course, the Ombudsman issued the Final Decision. This incorporated his earlier Provisional Decision. In upholding Mr. Charlton's Complaint, the Ombudsman considered that he was acting in accordance with his statutory jurisdiction under section 228(2) of the Financial Services and Markets Act 2000 (“ FSMA 2000”), namely to “determine [the Complaint] by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”. BBSAL now challenge the lawfulness of his Final Decision.
Permission for the present claim was granted by order of Yip J on two grounds described hereafter. Permission was also given to join the Financial Conduct Authority (“FCA”), the regulator of financial services in the UK, as an interested party. At the hearing of the application, FOS and Mr. Charlton submitted that the Ombudsman's decision was lawful, and that BBSAL's application for judicial review should be dismissed. The FCA made submissions as to the true interpretation of the laws and rules which comprised the context for the FOS decision under challenge.
B: The Financial Services legislative regime
The FCA is the statutory regulator of SIPP operators. Its predecessor was the Financial Services Authority (“FSA”), which was the regulator at the time that Mr. Charlton made his investment. However, for the purposes of this case it is unnecessary to draw a distinction between the FSA and the FCA, and (unless the context otherwise requires) I will simply refer to the FCA as encompassing both bodies.
The FCA has a statutory function under section 2 (4) of FSMA 2000 to make rules and issue guidance, and with it supporting materials. These rules and guidance are contained within the FCA Handbook (“the Handbook”), which uses acronyms or abbreviations such as “PRIN”, “DISP”, and “COBS” to denote different sections of the Handbook. The rules are denoted by the suffix ‘R’ and guidance by the suffix ‘G’. Rules were more important than guidance, in the sense that FSMA provides that a contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of its contravention. There is no equivalent provision in respect of guidance. Unless the context otherwise requires, references in this judgment to legislation, rules and guidance refer to those provisions in force at the time that Mr. Charlton made his investment.
At the time when Mr. Charlton made his SIPP investment in 2011, the FCA's general rule-making power was contained in Part X of FSMA. Section 138 empowered the FCA to make rules as appeared to it to be necessary or expedient for the purpose of meeting its regulatory objectives. These regulatory objectives included, under FSMA section 2 (2), market confidence, financial stability, the protection of consumers and the reduction of financial crime. Rules could be made by the FCA without Parliamentary oversight. However, FSMA section 155 provided that if the FCA proposed to make any rules, it had to publish a draft of the proposed rules in a way appearing to it to be best calculated to bring them to the attention of the public. The draft had to be accompanied by a number of things: a cost benefit analysis; an explanation of the purpose of the proposed rules; an explanation of the FCA's reasons for believing that making the proposed rules was compatible with its general duties under FSMA section 2; and, importantly, notice that representations about the proposals could be made to the FCA within a specified time. Under section 155 (4), the FCA was required, before making the proposed rules, to “have regard to any representations made to it” in accordance with the notice that had been given. Thus, there was, as the heading to section 155 indicates, a statutory requirement for “consultation” on proposed rules. FSMA section 157 provided, similarly, for consultation in relation to any proposed “guidance”.
The Handbook contains high-level rules called ‘Principles for Businesses’ (“Principles”). It was common ground that these had been consulted upon. The purpose of the Principles, as set out in PRIN 1.1.2G, is that they are a “general statement of the fundamental obligations of firms under the [FCA's] regulatory system”. Amongst the Principles which are set out at PRIN 2.1.1R are:
2. A firm must conduct its business with due skill, care and diligence.
6. A firm must pay due regard to the interests of its customers and treat them fairly.
The relationship of the Principles to the specific rules and guidance promulgated by the FCA in the Handbook was considered in detail by Ouseley J. in R (British Bankers Association) v Financial Services Authority [2011] EWHC 999 (Admin). This is an important decision (to which I shall refer as “ BBA”), both generally and in relation to the issues in the case.
The FCA Handbook also contains guidance and specific rules governing the conduct of a firm, including, in particular, the rules and guidance contained in the Conduct of Business Sourcebook (“COBS”). The rules and guidance in COBS 9 concern the suitability of a firm's recommendation for a client. Thus, COBS 9.2.1 provides that a firm must take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client. The rules and guidance in COBS 10 concern the appropriateness of an investment for a client. Thus, COBS 10.2.1 provides that when providing a service to which COBS 10 applies, a firm “must ask the client to provide information regarding his knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the firm to assess whether the service or product envisaged is appropriate for the client”. It was...
To continue reading
Request your trial
-
The Financial Conduct Authority v Avacade Ltd ((in Liquidation)) (Trading as Avacade Investment Options)
...developing his submissions, Mr Berkley QC relied on R (Berkeley Burke SIPP Administration Ltd) v. Financial Ombudsman Service Ltd [2018] EWHC 2878 (Admin). In that case Jacobs J. dismissed a claim for judicial review of a decision of the Financial Ombudsman Service (“ FOS”), in which the F......
-
The King on the application of Options UK Personal Pensions LLP (formerly Options Sipp UK LLP and Carey Pensions UK LLP) v Financial Ombudsman Service Ltd
...49 of Heather Moor & Edgecomb as supporting the case of FOS in this regard. 24 In R (Berkeley Burke SIPP Administration Ltd) v FOS [2018] EWHC 2878 (Admin), as in the present case, an investor was introduced to a SIPP provider and was persuaded to transfer his pension into an investment of......
-
SIPP Provider Not Responsible For Losses Sustained By Investor When Acting On Execution-only Basis
...was drawn after the trial to the decision of Jacobs J in Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Services Ltd [2018] EWHC 2878 (Admin), in which the High Court sided with the FOS, ruling that it had correctly applied the COBS rules in its finding against Berkeley Burke ......
-
Another Judicial Review Of The Financial Ombudsman: More Verification Of Their Stance
...Burke SIPP Administration Limited v Financial Ombudsman Service Limited (2018) EWHC 2878 (Admin) We reported recently on the Tenet and Sense cases which considered financial networks' liability for dishonest In another judicial review towards the end of last year, again related to fraudulen......