In Berkeley Burke SIPP Administration LLP v Charlton [2017] EWHC 2396 (Comm), the High Court held that a determination of the FOS was not an arbitral award and therefore cannot be appealed under section 69 Arbitration Act 1996 (the “Act”).

The facts

In 2011, Mr Charlton made a complaint to the Financial Ombudsman Service (the “FOS”) against Berkeley Burke (“BB”) in respect of the loss of his personal pension.  His pension had been invested in a self-invested personal pension (“SIPP”) administered by BB, which had in turn been invested in an unregulated investment which went into receivership following intervention by the SFO.

In 2014, the FOS upheld Mr Charlton’s complaint and Mr Charlton, pursuant to section 228(5) of the FSMA 2000, accepted the FOS’s decision as the final determination of his claim.

BB indicated its intention to apply for judicial review of the FOS’s determination.  However, to avoid the need for court determination, the FOS and Mr Charlton agreed that the FOS would reconsider the complaint afresh.

In 2017, the FOS issued a second determination, again upholding Mr Charlton’s complaint, which Mr Charlton duly accepted as final.

BB applied for judicial review of the FOS’s second determination. However, apparently fearful that the second determination would not be susceptible to judicial review, BB also applied under section 69 of the Act for permission to appeal from an arbitral award.  BB accepted that the statutory scheme under schedule 17 FSMA 2000 contemplated that the FOS could reconsider a complaint after a decision was quashed by judicial review (or if the complainant and the FOS agreed to a consent order quashing the initial decision).  However, in BB’s view, where there is no court order but all parties had simply agreed that the FOS should reconsider the complaint, the FOS has no power within the statutory scheme to do so and therefore an application for judicial review may not be available.

It therefore fell to the High Court to determine, as a preliminary issue, whether the FOS’s second determination was made pursuant to an “arbitration agreement”, as defined in section 6 of the Act.

The decision

Mr Justice Teare held that the second determination was not made pursuant to an arbitration agreement, and therefore it was not susceptible to appeal under section 69 of the Act.

First he found that, whilst the statutory scheme under schedule 17 FSMA 2000 does not contain an express power for an ombudsman to reconsider a complaint, the power to reconsider a complaint is part and parcel of the FOS's duty to consider a complaint which has been properly brought before it. Therefore, the parties continued to participate in the statutory complaints scheme.

In any event, the parties’ agreement that the complaint be reconsidered was not an arbitration agreement.  Section 228(5) of the FSMA 2000 provides that the decision of the FOS only becomes binding upon the respondent of a complaint when the complainant accepts the decision.  The complainant (Mr Charlton) could choose not to accept the decision of the FOS and would be free to pursue a legal remedy, if any, against the respondent in court.  Mr Justice Teare held that an agreement with this feature could not be an arbitration agreement because the parties had not given the FOS the authority to determine the matter with finality. 

The consequence of Mr Justice Teare’s decision was therefore that the second determination of the FOS would have to be challenged by way of judicial review.  In his view, the effect of the 2014 agreement between the parties to reconsider the complaint was that Mr Charlton’s acceptance of the first determination had been withdrawn and therefore that the parties continued to participate in the statutory complaint resolution scheme.  A decision of the FOS made pursuant to that statutory scheme could only be challenged by way of judicial review.

Comment

Mr Justice Teare’s decision makes clear that financial services firms seeking to challenge, in the courts, decisions made by the FOS are limited to judicial review.  They will not be able to challenge such decisions using section 69 of the Act.

Presumably, BB will now proceed with a judicial review application against the second determination, however, as the details of the second determination are not publicly available, it is difficult to assess what the outcome of such an application might be. 

 

Joanne Finnegan

Associate
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