R (Norwich and Peterborough Building Society) v Financial Ombudsman Service Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ouseley,MR JUSTICE OUSELEY |
| Judgment Date | 14 November 2002 |
| Neutral Citation | [2002] EWHC 2379 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/1076/02 |
| Date | 14 November 2002 |
[2002] EWHC 2379 (Admin)
The Honourable Mr Justice Ouseley
Case No: CO/1076/02
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
Anthony Boswood QC and Deepak Nambisan (instructed by Slaughter & May) for the Claimant
David Pannick QC and James Strachan (instructed by D.J. Freeman) for the Defendant
Mr. Jones has a TESSA Select Account with the Norwich and Peterborough Building Society, which he opened in September 1998 with an investment of £3000. It was a variable rate account. In April 1999, the Government substituted a new type of tax free savings account for the TESSA; no new TESSAs could be opened although existing TESSAs would continue to enjoy the tax benefits which they had always had. The new accounts were ISAs which, in order to encourage the less well off to save, had different requirements and different tax benefits. One of the components of the ISA is the ability, now, to invest up to £3000 a year in cash with a bank or building society; this is the mini-cash ISA. In May 1999, Mr. Jones opened a mini-cash ISA with the N &P. The interest rates offered by the N&P were so attractive to customers that on 19 th June 1999 it closed its mini-cash ISA account to further applicants. It did not follow the alternative route, in reducing demand to levels with which it could cope, of lowering the rates. The mini-cash ISA too is a variable rate account. N&P also operated another account of relevance to these proceedings, a TESSA Only ISA or TOISA. This was available to those whose TESSAs had matured and enabled them to continue to enjoy tax free savings benefits on the capital from their TESSAs for a further five years. Mr. Jones' TESSA has not matured because he has not held it for five years and so this account was not available to him.
From 6 th April 1999, when the N&P first offered a mini-cash ISA, until 20 th September 2000, when N&P equalised the rates which it paid on its TESSAs and TOISAs, the rates of interest paid on its TESSAs had always been lower than it paid on both its TOISAs and on its mini-cash ISAs. Its TOISA and ISA rates had always been the same. N&P equalised its rates by increasing its TESSA rates rather than by reducing its other rates.
On 21 st July 2000, Mr. Jones complained to the N&P about the fact that he was receiving a lower interest rate on his TESSA than he was on his ISA. He was not satisfied with N&P's response and complained to the Building Societies Ombudsman. On 8 th February 2001, the Ombudsman, having considered N&P's response to Mr Jones' complaint, delivered his Preliminary Conclusion in which he upheld the complaint that it was unfair for N&P to pay less on its TESSAs than on its ISAs.
N&P, as it was entitled to, took issue with the Ombudsman's Preliminary Conclusion and made further representations. On 29 th August 2001, the Ombudsman delivered his Provisional Decision. He accepted that he had been wrong to hold that N&P had been unfair in not paying the same rate on its TESSAs as on its ISAs, but he held that N&P had been unfair in not paying the same rate as on its TOISAs. The reason which the Ombudsman gave for his change of view on the fairness of comparing the N & P TESSA interest rate with its ISA rate, was that the ISA was not within N & P's current range of services after 19 th June 1999. The effect, so far as Mr Jones was concerned, was the same.
Again, N&P as it was entitled to, took issue with that conclusion and made further written representations to the Ombudsman. On 28 th November 2001, the Ombudsman delivered his Final Decision. He adhered to the conclusion reached in his Provisional Decision that it was unfair for N & P to pay less interest on its TESSAs than on its TOISAs because the terms of the TOISA notably as to notice and loss of interest, were less onerous overall than those of the TESSA. He ordered N&P to pay to Mr. Jones the difference between the two interest rates for the period from 6 th April 1999 to 11 th September 2000 plus £30 for inconvenience and further loss of interest, a figure increased, mysteriously says N&P, from £20 in the Provisional Decision.
The date of 11 th September 2000 was taken as the date when the payment of compensation for loss of interest should cease, rather than 20 th September 2000, when the interest rates were equalised, because it was on that date that N&P had written to Mr. Jones telling him that he could move his account to another TESSA account provider, without having to give notice and without suffering the sixty day penalty loss of interest to which, even having given notice, he was subject by the terms of his TESSA account. The TOISA and ISA terms both permitted transfer to another account provider without notice or interest penalty. The Ombudsman took the view that the unfairness in paying a lower interest rate could be remedied either by equalising the comparable rates or by notifying the account-holder that he could move without notice or penalty. As I understand matters, Mr. Jones has not taken advantage of his new found freedom because the interest rates at N&P are generally better than elsewhere.
Mr Jones accepted the Final Decision, whereupon N & P became obliged to implement it, subject to these proceedings.
N&P challenges the decision by way of judicial review; it contends that the finding of unfairness involved a misconstruction of the Banking Code and the application of a test of unfairness, the "relative onerousness" test, which is itself illogical, in a manner which is irrational. It contends that, because the interest rates which it offered were amongst the highest in the market, Mr. Jones suffered no actual loss and the Ombudsman's approach to compensation was misguided. As final proof of the Ombudsman's failings in his decision, Mr. Boswood QC for N&P contended, with commensurate brevity in his oral submissions, that the increase of £10, or on his calculation £9.63, in additional compensation had no rational basis. No challenge is made to the fact that the finding of unfair treatment was based on a comparison of TESSA and TOISA rates, whereas Mr Jones had only complained of unfairness in receiving less interest on his TESSA than on his mini-cash ISAs. This did not go to a jurisdictional point or to any procedural unfairness; it did, however, submitted Mr Boswood, underscore the irrationality of the Ombudsman's decision when Mr Jones had never perceived the unfairness which the Ombudsman discerned.
This case is of importance to N&P because the basis upon which it has been found to have acted unfairly towards Mr. Jones, is applicable to all its TESSA holders and indeed it equalised its rates for all such account holders at the same time as it did for Mr. Jones. It is a mutual society and if the Ombudsman's decision is upheld, it will pay compensation to its other TESSA holders. This, it estimates, would cost some £1.3m, and some 53,000 out of its 380,000 investing members would receive compensation. This case did not turn on some peculiarity of the terms of Mr. Jones' account or of his personal circumstances or dealings with N&P. Indeed, the decision is of general application to all banks and building societies, amongst whom different interest rates between TESSA and other accounts, such as ISAs or TOISAs is or was common. Unlike at least some of those other institutions, N&P did not, and it was accepted before me by Mr. Pannick QC for the Ombudsman that it did not, "downgrade" its TESSAs upon the introduction of ISAs, a malpractice which has been the subject of much adverse public comment.
N&P feels particularly aggrieved by the obligation to pay compensation because its rates are among the best in the market and there is no evidence that its customers could have done better elsewhere.
The Statutory Framework
Before I set out the statutory provisions with which I am concerned, I should deal briefly with two points. First, these proceedings were brought, and brought correctly, by way of judicial review rather than on appeal by way of case stated. The availability of that particular route expired a day before these proceedings were commenced, as a consequence of the coming into force on 1 st December 2001 of the relevant provisions of the Financial Services and Markets Act 2000 and its associated transitional Regulations. That procedural change has no effect upon the principles applicable to the case or to the outcome. Second, that Act replaces the August 1998 Building Societies Ombudsman Scheme with a new and overarching Financial Ombudsman Service and Scheme, on 1 st December 2001; it applies to the remaining procedures of this case as at 1 st December 2001 because the case had not been finally determined by then as the Ombudsman's decision was awaiting Mr Jones' acceptance of it (hence the challenge by way of judicial review instead of appeal by way of case stated). Again, that change does not bite upon the Scheme which I have to consider, nor on any relevant principles.
Sections 83 and 83A of the Building Societies Act 1986 provide for building societies to be members of a scheme whereby individuals and small companies can make complaints about the actions of a building society. The Building Society Ombudsman Scheme was the only scheme set up and recognised under the 1986 Act. N & P is a member of that scheme, as are all authorised building societies.
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