The Court of Appeal has confirmed that the Financial Ombudsman Service does not have to decide cases strictly in accordance with English law, but by reference to what is, in the ombudsman's opinion, fair and reasonable in all the circumstances of the case.

R (On the Application of Heather Moor & Edgecomb Limited) v FOS and Simon Lodge Citation 1

  • [2008] EWCA Civ 642

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Mr Lodge complained to the FOS about advice he was given in 1999 by an independent financial adviser (IFA) to transfer out of his British Airways pension scheme and invest in a personal pension plan.

The advice failed to take into account all Mr Lodge's circumstances. He was 55 but his wife was significantly younger and they had two young children. Moreover, the assumed growth rate of 9% per annum was not achieved. 

The ombudsman was satisfied that good industry practice in 1999 would have been to recommend against transfer. The factors the IFA took into account did not include the large age difference between Mr and Mrs Lodge and the need to secure equivalent spouse's benefits. And the 9% assumed annual growth rate was "anything but modest". 

In reaching this decision, the ombudsman stated "while I have taken into account the relevant law, I have determined this complaint based on what, in my opinion, is fair and reasonable bearing in mind all the circumstances of this case".

The IFA applied for judicial review, arguing that the FOS was obliged to determine complaints in accordance with English law and that failure to do so was an infringement of the European Convention on Human Rights. The IFA had advised in accordance with good practice at the time and was therefore not negligent under the law.

In addition, the ombudsman should have held an oral hearing in public and he should have given his decision in public but wrongfully refused to do so.


The application for judicial review was refused. Had the rules required the ombudsman to determine cases in accordance with English law, they would have said so.

Instead, section 228 of the Financial Services and Markets Act 2000 provides that the ombudsman will determine a complaint by reference to what is, in his opinion, "fair and reasonable in all the circumstances of the case".

And the FOS scheme rules (set out in the DISP section of the FSA Handbook) state "in considering what is fair and reasonable in all the circumstances of the case, the ombudsman will take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time". 

In the Court of Appeal's view, the ombudsman was entitled to reach the conclusion he did on the evidence. The fact that some competent advisers would have recommended the transfer did not amount to a practice accepted by responsible financial advisers.

The court was also satisfied that the scheme did not breach the right to a fair trial under the European Convention. The ombudsman was free to depart from the relevant law, as long as he said so in his decision and explained why.

Nor did the scheme rules prevent him from hearing cases in public or pronouncing his decision in public.

There was no issue in this case that had made a public hearing necessary and there had been no unfairness in the ombudsman's decision to decide the matter on written evidence. The decision had been made public by these proceedings and the availability of the judicial review procedure meant there was no breach of the Convention.


This case was heard at the same time as FOS v Heather Moor, which confirmed the right of the FOS to charge a firm the standard case fee, even when the case against the firm had been unsuccessful.

Another recent case that tested the boundaries of the FOS was Bunney v Burns [2007], in which the High Court confirmed that the FOS did not have the power to make a binding award over the statutory limit of £100,000.

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