R(Csse) v Fos
| Jurisdiction | England & Wales |
| Judge | Mr Justice Murray |
| Judgment Date | 26 September 2022 |
| Neutral Citation | [2022] EWHC 2401 (KB) |
| Docket Number | Case No: CO/1716/2021 |
| Court | King's Bench Division (Administrative Court) |
and
[2022] EWHC 2401 (KB)
THE HONOURABLE Mr Justice Murray
Case No: CO/1716/2021
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Adam Chichester-Clark and Ms Amelia Walker (instructed by CANDEY) for the Claimant
Mr Stephen Kosmin (instructed by The Financial Ombudsman Service) for the Defendant
Hearing date: 30 November 2021
Approved Judgment
This judgment was handed down remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down are deemed to be 26 September 2022 at 10:30 am.
The claimant, Charles Street Securities Europe LLP (“CSSE”), renews its application for permission to apply for judicial review (“the Renewal Application”) of a decision dated 12 February 2021 (“the Jurisdiction Decision”) made by Ms Nina Walter (“the Ombudsman”), who is an ombudsman of the defendant, the Financial Ombudsman Service (“the FOS”). CSSE renews the application following the refusal of permission by Eyre J after consideration of the application on the papers. In the Jurisdiction Decision, the Ombudsman found that she had jurisdiction to consider a complaint made against CSSE to the FOS by the interested party, Mr David Rees (“the Complaint”).
By application dated 24 November 2021, CSSE also seek to amend its Statement of Facts and Grounds (“SFG”) to include an additional ground of challenge to the Jurisdiction Decision (“the Amendment Application”).
Having determined that she had jurisdiction, the Ombudsman went on to consider the Complaint, upholding it in her decision of 27 March 2021 (“the Substantive Decision”), which was re-issued with a revision that is not material for present purposes on 17 June 2021.
On 14 May 2021, CSSE issued its claim seeking to challenge the Jurisdiction Decision on four grounds and to challenge the Substantive Decision on six grounds.
In its Summary Grounds of Resistance dated 8 June 2021 (“SGR”), the FOS invited the court to refuse CSSE's application for permission on all grounds and to award the FOS its costs. In addition to addressing each ground separately, the FOS also argued that the claim was time-barred under CPR r 54.5(1) for CSSE's lack of promptness in filing the claim.
On 26 July 2022, CSSE filed its Reply to the SGR.
On 7 October 2021, Eyre J refused permission to challenge the Jurisdiction Decision on all four grounds set out in the SFG and refused permission to challenge the Substantive Decision on Grounds 1 and 6 set out in the SFG. He granted permission to challenge the Substantive Decision on Grounds 2 to 5. Eyre J did not consider that the claim was time-barred under CPR r 54.5(1) in relation to the Jurisdiction Decision or the Substantive Decision.
The background
CSSE is a limited liability partnership authorised and regulated by the Financial Conduct Authority (“FCA”). It manages a fund and provides equity and debt financing for early stage growth companies and related finance and investment advisory services. It has an appointed representative under section 39 of the Financial Services and Markets Act 2000 (“the FSMA”), namely, CSS Partners LLP (“CSSP”), which carries on business comprising regulated activities for which CSSE has accepted responsibility. CSSE invests as principal and raises money through private placements arranged by CSSP.
The FOS is established and operated pursuant to Part XVI of, and Schedule 17 to, the FSMA. It provides an independent and informal complaint resolution procedure for the financial services industry that permits complaints to be made by eligible complainants about the provision of financial services without the necessity of a court hearing.
Mr Rees is an individual who formerly owned and ran two hearing aid businesses. He first contacted CSSP in January 2006, by which time he had retired and was in the process of selling his business.
The Complaint relates to investment opportunities presented to Mr Rees between 2006 and 2009 by CSSP pursuant to a contract Mr Rees entered into with CSSP on 3 May 2006. It is CSSE's position that all of the investments were specifically identified by CSSP to Mr Rees as high risk versus high reward.
On 26 May 2015, Mr Rees made the Complaint to the FOS. The essence of the Complaint was that CSSP was at fault for his losses due to the poor performance of various investments he made as a result of investment opportunities presented to him by CSSP. He invested over £640,000 in shares of unlisted companies between 2006 and 2009. He complained that the subsequent performance of the investments demonstrated that they had not met his stated objective of “obtaining a balanced return from income and capital growth, primar[il]y to maximise growth”.
An ombudsman of the FOS made a final decision upholding the Complaint on 15 February 2018. CSSE challenged this decision by way of a claim for judicial review that was issued in June 2018.
On 26 July 2018, the ombudsman's decision was quashed by consent, with the Complaint to be remitted to a new ombudsman for reconsideration.
On 20 March 2019, the FOS informed CSSE that it was now taking steps to remit the Complaint.
On 14 August 2020, the Ombudsman issued a provisional decision finding that she had jurisdiction to consider the Complaint. On 12 October 2020, CSSE provided a detailed submission to the FOS, with a further detailed response to the FOS on 23 December 2020 dealing with information that had been provided to the FOS by Mr Rees.
The Jurisdiction Decision was made by the Ombudsman and issued by the FOS on 12 February 2021. The Jurisdiction Decision expressly incorporates findings made by the Ombudsman in her provisional jurisdiction decision dated 14 August 2020.
On 24 February 2021 the FOS issued a provisional substantive decision on the Complaint, to which CSSE responded on 21 March 2021.
The Substantive Decision was made by the Ombudsman and issued by the FOS on 27 March 2021. In the Substantive Decision, the Ombudsman:
i) upheld the Complaint;
ii) made a money award to Mr Rees of up to the statutory cap of £150,000 then applicable under the Financial Ombudsman Scheme, plus interest, in accordance with the calculation of fair compensation set out in the Substantive Decision; and
iii) recommended under section 229(5) of FSMA that if the calculation referred to in (ii) above exceeded the statutory cap, then CSSE should pay Mr Rees the balance plus interest.
On 28 March 2021, Mr Rees notified the Ombudsman that he accepted the Substantive Decision, upon which it became binding on CSSE and Mr Rees and final pursuant to section 228(5) of the FSMA.
As noted above, on 17 June 2021, the Ombudsman revised the Substantive Decision to correct a “clerical mistake” under the scheme rules made by the FOS under paragraph 14 (and, in particular, paragraph 14(2)(fa)) of Schedule 17 to the FSMA (see also FCA Handbook, DISP 3.6.7(1)R). That revision is not relevant for present purposes.
The Renewal Application
By the Renewal Application, CSSE renews its application for permission to apply for judicial review of the Jurisdiction Decision on its Grounds 1, 2 and 3. CSSE has not renewed its application in respect of Ground 4 in which CSSE had alleged procedural unfairness against the FOS in reaching the Jurisdiction Decision. CSSE has also not renewed its application for permission in respect of Grounds 1 and 6 of its challenge to the Substantive Decision, Ground 1 having alleged procedural unfairness and Ground 6 having alleged that the Ombudsman gave inadequate reasons for her decision.
The three grounds on which CSSE renews its application for permission in relation to the Jurisdiction Decision are:
i) Ground 1: the Ombudsman's conclusion in the Jurisdiction Decision that Mr Rees was not an intermediate customer under the rule set out in COB 4.1.9 R of the Handbook of the Financial Services Authority (“FSA”) as in effect at the relevant time was irrational;
ii) Ground 2: the Ombudsman applied the wrong test in the Jurisdiction Decision when considering whether CSSP had taken “reasonable care” as required by paragraph 1(a) of COB 4.1.9 R; and
iii) Ground 3: the Ombudsman failed in the Jurisdiction Decision to take into account evidence that was material to the criteria set out in paragraph 1 of the guidance set out in COB 4.1.10.1 G of the FSA Handbook as in effect at the relevant time.
In refusing permission on Grounds 1, 2 and 3 of the challenge to the Jurisdiction Decision, Eyre J gave the following reasons:
“Grounds 1 – 3 of the challenge to the Jurisdiction Decision amount to a disagreement with the conclusion that the Claimant had failed to take reasonable care in determining whether the Interested Party was properly to be seen as an intermediate client. That was very much a factual assessment and the arguments advanced by the Claimant do not disclose a case with a real prospect of success that this conclusion was not open to the Ombudsman.”
In its Grounds for Renewal filed with the Renewed Application, CSSE said:
“2. The issue of the IP's eligibility turned on whether he was properly classified as a “professional elective client” at the time of IP's complaint and/or an “intermediate customer” at the time C agreed to communicate investment promotions to him. In either case, IP's classification depended on whether IP had sufficient knowledge/experience to understand the type of investment opportunity communicated to him by C and the degree of risk each carried. On the issue of whether C took reasonable steps to establish IP's knowledge/experience,...
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