Tenetconnect Services Ltd v Financial Ombudsman
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ouseley |
| Judgment Date | 13 March 2018 |
| Neutral Citation | [2018] EWHC 459 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/3152/2017 |
| Date | 13 March 2018 |
The Queen on the application of
and
[2018] EWHC 459 (Admin)
Mr Justice Ouseley
Case No: CO/3152/2017
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Ben Hubble QC AND Mr Simon Pritchard (instructed by KENNEDYS LAW LLP) for the Claimant
Mr Jonathan Moffett QC (instructed by THE FINANCIAL OMBUDSMAN SERVICE) for the Defendant
The Interested Parties did not appear and were not represented
Hearing dates: 21 February 2018
Mr Dhanda is a convicted fraudster, serving a sentence of imprisonment for defrauding 37 people of some £2.9m in a Ponzi-type fraud. Among those defrauded are Mr and Mrs Thorpe, Interested Parties to these proceedings. They lost in the order of £65,000 from their life savings. Mr Dhanda was their financial adviser, trading as Dhanda Financial. Nothing turns on that distinction, and I call them Dhanda, indifferently. Dhanda was an “appointed representative” of TenetConnect Services Ltd, the Claimant, Tenet. “Appointed representative” is a status provided for under s39 Financial Services and Markets Act 2000, FSMA. Dhanda advised them to sell “specified investments”, a Friends Life Policy, bonds and ISAs, and to send £55,000 to him for him to invest in a property in Goa, and lesser sums for him to use as business-related loans to Dhanda. In fact, Dhanda never invested the money in property in Goa. He gambled the money away or used it to pay off his gambling debts. He may have done the same with the loans.
Mr and Mrs Thorpe, among 20 or so others, complained to Tenet about the activities of Dhanda but without obtaining redress. They then complained to the Financial Ombudsman Service. After two Provisional Decisions, the Ombudsman's Final Decision, dated 3 April 2017, was that it would be fair and reasonable for Tenet to compensate Mr and Mrs Thorpe for the loss caused to them by the fraudulent activities of Dhanda in relation to “regulated activities”.
Tenet contended that, although Dhanda, in advising Mr and Mrs Thorpe to dispose of their specified investments, was undertaking a regulated activity, and was doing so as its appointed representative, Dhanda was not undertaking a regulated activity, nor was he acting as Tenet's appointed representative, when he advised Mr and Mrs Thorpe on what to do with the money realised from the disposal of the specified investments. It was that advice which caused the losses to Mr and Mrs Thorpe. Tenet also contended that the advice on the disposal of the specified investments fell outside the scope of the complaints made to the Ombudsman, which had focused on advice related to the further investments, rather than on the advice to sell their existing specified investments, which was the only regulated activity. Accordingly, the Ombudsman had no jurisdiction to find as he did. The Ombudsman rejected those arguments because of what he saw as the close connection between the two aspects of Dhanda's advice to Mr and Mrs Thorpe. It is that jurisdictional decision which is challenged in this case by judicial review.
As the arguments progressed, it became clear that a central issue was how closely those two aspects of the advice were entwined, and whether or not a bright or smudgy line could or should be drawn between them.
The FOS's jurisdiction
The FOS scheme, created by s225 FSMA, grants compulsory jurisdiction to the Ombudsman over complaints in the following terms, so far as material, as provided by s226:
“(1) A complaint which relates to an act or omission of a person (the respondent) in carrying on an activity to which compulsory jurisdiction rules apply is to be dealt with under the ombudsman scheme if the conditions mentioned in subsection (2) are satisfied.
(2) The conditions are that –
…(c) the act or omission to which the complaint relates occurred at a time when compulsory jurisdiction rules were in force in relation to the activity in question.
(3) “Compulsory jurisdiction rules” means rules –
(a) made by the FCA for the purposes of this section; and
(b) specifying the activities to which they apply.
(4) Only activities which are regulated activities, or which could be made regulated activities by an order under section 22, may be specified.”
The “compulsory jurisdiction rules” are in the Financial Conduct Authority's Handbook, in the section entitled “DISP2 Jurisdiction of the Financial Ombudsman Services”. Rule 2.3.1.R provides that:
“The Ombudsman can consider a complaint under the Compulsory jurisdiction if it relates to an act or omission by a firm carrying on one or more of the following activities:
(1) regulated activities …;
…or any ancillary activities, including advice, carried on by the firm in connection with them.”
DISP2 also contains the following relevant guidance:
21.4.1G interprets “carrying on an activity” as including:
“(1) offering, providing or failing to provide a service in relation to an activity;
(2) administering or failing to administer a service in relation to an activity;”
2.3.3G interprets “complaints” in this way:
“ Complaints about acts or omissions include those in respect of activities for which the firm…is responsible (including business of any appointed representative or agent for which the firm…has accepted responsibility).”
The provisions governing “regulated activities”, “specified investments” and “appointed representatives”
S19 FSMA prohibits a person from carrying on “a regulated activity” or purporting to do so unless he is “an authorised person” or “an exempt person”.
S22 defines “regulated activities” and, up to a point, “specified activities” as follows:
“(1) An activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and
(a) relates to an investment of a specified kind; or…
(4) “Investment” includes any asset, right or interest.
(5) “Specified” means specified in an order made by the Treasury.”
The relevant Order is the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 S.I. No. 544, which yields this nugget in article 4:
“ 4. – Specified activities: general
(1) The following provisions of this Part specify kinds of activity for the purposes of section 22(1) of the Act (and accordingly any activity of one of those kinds, which is carried on by way of business and relates to an investment of a kind specified by any provision of Part III and applicable to that activity, is regulated activity for the purposes of the Act).”
The upshot of this is that the investments sold by Mr and Mrs Thorpe were “specified investments”; the use of the money in their bank account was not a specified investment.
Paragraph 53, so far as material provides:
“(1) Advising a person is a specified kind of activity if the advice is —
(a) given to the person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor; and
(b) advice on the merits of his doing any of the following (whether as principal or agent) –
(i) buying, selling, subscribing for exchanging, redeeming, holding
or underwriting a particular investment which is a security structured deposit or a relevant investment, or…”
It was not at issue that Dhanda's advice to Mr and Mrs Thorpe on the sale of their Friends Life investment fell within paragraph 53, and was a regulated activity.
Tenet was an authorised person; Dhanda was not. He was an “exempt person”. S39(1) and (3) create an exemption from s19 for “appointed representatives” in these terms:
“(1) If a person (other than an authorised person) –
(a) is a party to a contract with an authorised person (“his principal”) which –
(i) permits or requires him to carry on business of a prescribed description, and
(ii) complies with such requirements as may be prescribed, and
(b) is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing,
he is exempt from the general prohibition in relation to any regulated activity comprised in the carrying on of that business for which his principal has accepted responsibility…
(3) The principal of an appointed representative is responsible, to the same extent as if he had expressly permitted it, for anything done or omitted by the representative in carrying on the business for which he has accepted responsibility.”
The Financial Conduct Authority's Handbook deals with “appointed representatives” in SUP Chapter 12. It gives this guidance at 12.1.3G:
“The main purpose of these rules is to place responsibility on a firm for seeking to ensure that:
(1) its appointed representatives are fit and proper to deal with clients in its name; and
(2) clients dealing with its appointed representatives are afforded the same level of protection as if they had dealt with the firm itself.”
12.4.1A G says that the effect of ss20 and 39 is that the regulated activities covered by the appointed representative's appointment need to fall within the scope of the principal's permission.
I set out here the relevant terms of the Appointed Representative Agreement between Tenet and Dhanda. By clause 4.1:
“The Company hereby appoints the Member as an Appointed Representative of the Company and grants the Member during the Term a non-exclusive agency to carry on the Business and to obtain Applications upon the terms set out in this Agreement.”
“Applications” are defined as “applications for any contracts”. “Contracts” is widely defined as “any policies of assurance, annuity contracts, pension plans…instruments and insurance or financial products and services of such other nature as...
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