Bunney v Burns Anderson Plc
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE LEWISON |
| Judgment Date | 25 May 2007 |
| Neutral Citation | [2007] EWHC 1240 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC05C03907 |
| Date | 25 May 2007 |
[2007] EWHC 1240 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lewison
Case No: HC05C03907
Mr Nicholas Randall (instructed by Thompsons Solicitors) for the Claimant (Mr Bunney)
Mr John Virgo (instructed by Clarke Willmott Solicitors) for the Claimant (Mr Cahill)
Mr Andrew Bartlett QC and Mr Simon Howarth (instructed by CMS Cameron McKenna) for the First Defendant and for the Defendant Timothy James & Partners Limited
Mr James Strachan (instructed by Financial Ombudsman Service Ltd) for the Second Defendant
Hearing dates: 3, 4 May 2007
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.
Mr. Justice Lewison:
| The issues | 2 |
| The facts | 2 |
| Bunney v Burns Anderson plc | 2 |
| Cahill v Timothy James & Partners Ltd | 3 |
| The statutory framework | 4 |
| The arguments in a nutshell | 7 |
| The Ombudsman's powers | 7 |
| Challenging an award | 7 |
| Some features of the scheme | 8 |
| Mounting a challenge | 8 |
| Can the court intervene at all? | 8 |
| Is judicial review the only means of challenge? | 9 |
| Summary | 18 |
| Construing the scheme | 19 |
| Conclusion | 21 |
| The Ombudsman's powers | 21 |
| The statutory provisions | 21 |
| Are the powers in section 229 (2) (a) and section 229 (2) (b) mutually exclusive? | 21 |
| Can a direction under section 229 (2) (b) require the payment of money? | 22 |
| The determinations in this case | 26 |
| Mr Bunney | 26 |
| Mr Cahill | 27 |
| The grant of injunctions in aid of directions | 27 |
| Disposition | 28 |
|
|
The issues
If the Financial Services Ombudsman makes a direction which, if implemented, would require a firm to pay a complaining customer more than £100,000:
i) Is that outside the ambit of the Ombudsman's powers; and
ii) If it is, can the firm make that assertion in proceedings to enforce the direction, or is it confined to an application for judicial review?
Those are the two main questions raised by these actions; although logically, I must answer them in the reverse order to that in which I have posed them. Neither is easy; and the answers may have far reaching consequences.
The facts
Fortunately the facts have been agreed, so I can summarise them shortly.
Bunney v Burns Anderson plc
Until 1992, when he was made redundant, Mr Bunney was an employee of TVS. He was also a member of the TVS Pension Scheme. Following his redundancy he approached a financial adviser employed by a company with the Burns Anderson Group for advice about a possible transfer of his deferred benefits under the scheme. He was given advice in the summer of 1992 which he took. In his decision dated 18 December 2002 Mr Richard Prior, the Ombudsman, decided that the advice that Mr Bunney received was unsuitable advice. In consequence he said:
“I direct that for the firm, adopting the regulatory guidance (using the non-profit deferred annuity as representing the benefit of the scheme) carry out a loss assessment, and, if a loss is shown, make redress in accordance with that guidance. If any unresolved issue arises between the parties as to loss or redress then, subject to our rules, it may be referred to the Service.”
Mr Bunney accepted that decision on 2 January 2003. Burns Anderson complied with the first part of the Ombudsman's direction by arranging for a loss assessment to be carried out in the manner that the Ombudsman had specified. That loss assessment revealed that the effect of the second part of the Ombudsman's direction would be that Burns Anderson would have to pay Mr Bunney £228,055. Mr Bunney also arranged for a loss assessment to be carried out; and that produced the higher figure of £280,953. Burns Anderson are willing to pay him £100,000; but no more. Mr Bunney has begun proceedings seeking an injunction to compel Burns Anderson to comply with the Ombudsman's direction. Burns Anderson wish to raise the defence that the Ombudsman's direction exceeded his powers.
Cahill v Timothy James & Partners Ltd
Mr Cahill was an employee of Olivetti and was a member of its pension scheme. It was a final salary scheme. He retired early due to ill health. Between February and November 2000 he was advised by Timothy James & Partners Ltd to transfer his benefits into an income drawdown plan. He had (incorrectly) understood that 70 per cent of his investment funds would be protected against downturns in the stock market; but this was not the case. In his decision dated 16 April 2004 Mr Philip Roberts, the Ombudsman, decided that the advice that Mr Cahill had received was non-compliant and unsuitable. In consequence he said:
“I therefore order Timothy James and Partners Ltd to use the drawdown fund to set up an annuity at the same level and on the same basis as the pension that would have been taken under the final salary scheme, making any additional payment necessary to provide the purchase price so that the same income is payable in future as would have been payable under the final salary scheme, including widow's and other benefits. I also order Timothy James and Partners Ltd to compensate Mr Cahill for any past shortfall in tax free cash and pension instalments (relative to the amount that he actually received) with compound interest at Bank of England base rate plus 1% per annum, less tax on the interest if it is legally deductible, on each separate payment date from the date that it would have been received until the date of settlement. If Timothy James and Partners Ltd have not paid redress for the past loss within 28 days of my award it should instead pay simple interest at 8% per year on the outstanding amounts, from the date of my award until the date of settlement, less tax on the interest if it is legally deductible.”
Mr Cahill accepted that decision on 20 April 2004. Mr Young, an actuary instructed by Mr Cahill quantified the effect of the Ombudsman's direction as follows:
i) A sum of £157,936 represents Mr Cahill's loss attributable to a shortfall in payments up to 1 May 2005;
ii) The cost of setting up an annuity to replicate the benefits that Mr Cahill would have enjoyed under his occupational pension scheme would be over £1.8 million.
Timothy James & Partners have not agreed these figures. However, they are willing to pay Mr Cahill £100,000; but no more. Mr Cahill has also begun proceedings seeking an injunction to compel Timothy James & Partners to comply with the Ombudsman's direction. Timothy James & Partners also wish to raise the defence that the Ombudsman's direction exceeded his powers.
The statutory framework
The Financial Services and Markets Act 2000 (“the Act”) was a major re-organisation of the regulation of financial services. In place of some eight different regulators, the regulation of financial services was allocated to the Financial Services Authority (“the FSA”). One of the previous regulators was the Personal Investment Authority, which operated its own Ombudsman scheme (as did each of the other regulators). One of the rules of that scheme has featured in the arguments in these cases. I will mention it later. Part of the new regime was the establishment of a new Ombudsman scheme. The Ombudsman scheme is established under Part XVI of the Act. Section 225 of the Act describes the Ombudsman scheme as one “under which certain disputes may be resolved quickly and with minimum formality by an independent person.”
The Ombudsman's jurisdiction consists of his compulsory jurisdiction (Section 226) and his voluntary jurisdiction (Section 227). It is common ground that the Ombudsman was exercising his compulsory jurisdiction in these two cases. Section 228 applies to the Ombudsman's compulsory jurisdiction. Section 228 (2) says that:
“A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.”
The Ombudsman is required to give his determination in writing, with reasons. He must require the complainant to notify him, within a given period, whether he accepts or rejects the determination. He must also notify the firm of his decision. Section 228 (5) says:
“If the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and is final.”
If the complainant fails to notify the ombudsman within the period allowed, he is deemed to have rejected the determination. The ombudsman must also notify the respondent of “the outcome”: section 228 (7). Under section 228 (8) a copy of the determination on which appears a certificate signed by the ombudsman is evidence that the determination was made under the scheme. Section 228 (9) says that a certificate purporting to be signed by the ombudsman is to be taken to have been duly signed “unless the contrary is shown”.
Section 229 deals with the kinds of awards that the ombudsman may make in the exercise of his compulsory jurisdiction. It is at the heart of this dispute; and I must set it out in full:
“(1) This section applies only in relation to the compulsory jurisdiction.
(2) If a complaint which has been dealt with under the scheme is determined in favour of the complainant, the determination may include—
(a) an award against the respondent of such amount as the ombudsman considers fair compensation for loss or damage (of a kind falling within subsection (3)) suffered by the complainant (“a money award”);
(b) a direction that the...
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