England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TROWBRIDGE COUNTY COURT
DISTRICT JUDGE RUTHERFORD
Claim No. 6SE19301

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/06/2008

Lord Justice Stanley Burnton :

Introduction

1. This is an appeal by the Financial Ombudsman Service ("FOS") against the decision of District Judge Rutherford, sitting in the Trowbridge County Court, dismissing FOS's claim against the Respondent ("HME") for the standard case fee of £360 claimed in relation to each of four complaints against HME investigated, and in the ultimate rejected, by the Ombudsman, in the exercise of the statutory compulsory jurisdiction under Part XVI of the Financial Services and Markets Act 2000 ("the Act").
2. Although the total amount of the claim, £1,440, is small, and the claim was allocated to the Small Claims Track, the defence of HME and the decision of the District Judge raise issues of general importance to FOS and the scheme established under the Act.
3. It is convenient first to consider the statutory framework under which FOS operates and the provisions for the payment of fees by those subject to its compulsory jurisdiction, before addressing the issues raised by HME, the learned Judge's judgment and the submissions before this Court.

The statutory framework and the scheme rules

4. I considered this in my judgment in R (Heather Moor & Edgcomb Limited) v Financial Ombudsman Services Ltd [2008] EWCA Civ 642, the appeal which was heard together with this appeal. FOS is the scheme operator of a scheme under which disputes subject to the scheme may be resolved quickly and with minimum formality by independent persons: see section 225 of the Act. It is convenient to refer first to the provisions concerning the resolution of complaints and secondly to those dealing with the funding of the scheme.

The resolution of complaints

5. Sections 228 and 229, so far as material to this appeal, are as follows:

228 Determination under the compulsory jurisdiction

(1) This section applies only in relation to the compulsory jurisdiction.

(2) A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.

(3) When the ombudsman has determined a complaint he must give a written statement of his determination to the respondent and to the complainant.

(4) The statement must–

(a) give the ombudsman´s reasons for his determination;

(b) be signed by him; and

(c) require the complainant to notify him in writing, before a date specified in the statement, whether he accepts or rejects the determination.

(5) If the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and final.

(6) If, by the specified date, the complainant has not notified the ombudsman of his acceptance or rejection of the determination he is to be treated as having rejected it.

(7) The ombudsman must notify the respondent of the outcome.

…

229 Awards

(1) This section applies only in relation to the compulsory jurisdiction.

(2) If a complaint which has been dealt with under the scheme is determined in favour of the complainant, the determination may include–

(a) an award against the respondent of such amount as the ombudsman considers fair compensation for loss or damage (of a kind falling within subsection (3)) suffered by the complainant ("a money award");

(b) a direction that the respondent take such steps in relation to the complainant as the ombudsman considers just and appropriate (whether or not a court could order those steps to be taken).

Curiously, "the ombudsman" is not a term defined in or for the purposes of the body of the Act.

6. FOS is a body corporate (section 225(2) and schedule 17, paragraph 2(1)) which is required to take such steps as are necessary to ensure that it is capable of exercising the functions conferred on the scheme operator by or under the Act: paragraph 2(2). It has a board and a chairman: paragraph 3. The personnel of FOS include a panel of persons "appearing to it to have appropriate qualifications and experience, to act as ombudsmen for the purposes of the scheme" (paragraph 4) and a Chief Ombudsman (paragraph 5). Paragraph 1 of the Schedule provides that "ombudsman" in the Schedule means a member of the Panel.
7. Paragraph 14 is central to this appeal:

The scheme operator's rules

14 (1) The scheme operator must make rules, to be known as "scheme rules", which are to set out the procedure for reference of complaints and for their investigation, consideration and determination by an ombudsman.

(2) Scheme rules may, among other things–

(a) specify matters which are to be taken into account in determining whether an act or omission was fair and reasonable;

(b) provide that a complaint may, in specified circumstances, be dismissed without consideration of its merits;

(c) provide for the reference of a complaint, in specified circumstances and with the consent of the complainant, to another body with a view to its being determined by that body instead of by an ombudsman;

(d) make provision as to the evidence which may be required or admitted, the extent to which it should be oral or written and the consequences of a person's failure to produce any information or document which he has been required (under section 231 or otherwise) to produce;

(e) allow an ombudsman to fix time limits for any aspect of the proceedings and to extend a time limit;

(f) provide for certain things in relation to the reference, investigation or consideration (but not determination) of a complaint to be done by a member of the scheme operator's staff instead of by an ombudsman;

(g) make different provision in relation to different kinds of complaint.

(3) The circumstances specified under sub-paragraph (2)(b) may include the following–

(a) the ombudsman considers the complaint frivolous or vexatious;

(b) legal proceedings have been brought concerning the subject-matter of the complaint and the ombudsman considers that the complaint is best dealt with in those proceedings; or

(c) the ombudsman is satisfied that there are other compelling reasons why it is inappropriate for the complaint to be dealt with under the ombudsman scheme.

…

8. As can be seen, the Act expressly envisages that there will be staff (other than purely administrative staff) in addition to the ombudsmen: see paragraph 14(2)(f). There are two grades of such staff: consumer consultants, who deal with the receipt of complaints, and adjudicators, who investigate complaints passed to them by consumer consultants, before they are if necessary passed on to an ombudsman.
9. The scheme rules relating to complaints are referred to as DISP. (These rules have recently been amended, and references in this judgment are to the unamended rules.) DISP 3.2.1 is as follows:

3.2 The investigation and consideration of complaints by the Ombudsman

3.2.1 R On receipt of a complaint (and subsequently if necessary) the Ombudsman must have regard to the following matters:

(1) whether or not the complaint meets the criteria in DISP 2.2 (Which complaints can be dealt with under the Financial Ombudsman Service?);

(2) whether or not the complaint is within the time limits in DISP 2.3 (Time limits for referral of complaints to the Financial Ombudsman Service);

(3) whether or not the complainant is an eligible complainant; and

(4) whether or not the complaint is one which should be dismissed without consideration of its merits under DISP 3.3 (Dismissal of complaints without consideration of the merits).

The letter R indicates that this paragraph is a rule; other paragraphs of DISP are guidance, marked by the letter G. Subsequent paragraphs of DISP 3.2 set out the procedure to be followed in order to establish whether the sub-paragraphs of 3.2.1 apply. For example, 3.2.8 provides:

3.2.8 R Where the Ombudsman considers that the complaint may be one which should be dismissed without consideration of its merits, under DISP 3.3 (Dismissal of complaints without consideration of the merits), he must give the complainant an opportunity to make representations before he makes his decision. If he then decides that the complaint should be dismissed, he must give reasons to the complainant for that decision and inform the firm or licensee of that decision.

10. The determination of a complaint is the subject of DISP 3.2.11 and 3.2.12:

3.2.11 R If the Ombudsman decides that an investigation is necessary, he will:

(1) during the investigation, give both parties an opportunity of making representations;

(2) send to the parties a provisional assessment, setting out his reasons and a time limit within which either party must respond; and

(3) if either party indicates disagreement with the provisional assessment within the time limit prescribed in DISP 3.2.11R(2), proceed to determination (see DISP 3.8 (Determination by the Ombudsman)).

3.2.12 R The parties will be informed of their right to make representations before the Ombudsman makes a determination. If he considers that the complaint can be fairly determined without convening a hearing, he will determine the complaint. If not, he will invite the parties to attend a hearing. No hearing will be held after the Ombudsman has determined the complaint.

11. Section 3.3 is entitled "Dismissal of complaints without consideration of the merits". It is sufficient to set out parts of paragraph 3.3.1:

3.3.1 R The Ombudsman may dismiss a complaint without considering its merits if he:

(1) is satisfied that the complainant has not suffered, or is unlikely to suffer, financial loss, material distress or material inconvenience; or

(2) considers the complaint to be frivolous or vexatious; or

(3) considers that the complaint clearly does not have any reasonable prospect of success; or

(4) is satisfied that the firm or licensee has already made an offer of compensation which is fair and reasonable in relation to the circumstances alleged by the complainant and which is still open for acceptance; or

…

(7) is satisfied that the matter has been dealt with, or is being dealt with, by a comparable independent complaints scheme or dispute resolution process; or

(8) is satisfied that the subject matter of the complaint has been the subject of court proceedings where there has been a decision on the merits; or

(9) is satisfied that the subject matter of the complaint is the subject of current court proceedings unless proceedings are stayed or sisted (by agreement of all parties, or order of the court) in order that the matter may be considered under the Financial Ombudsman Service; or

(10) considers that it would be more suitable for the matter to be dealt with by a court, arbitration or another complaints scheme; or

….

12. DISP 3.3.1A sets out conditions for dismissal of a complaint without considering its merits so that it can be the subject of litigation in the courts.
13. DISP 3.7.1 and 3.7.2 are as follows:

3.7 Delegation of the Ombudsman's powers

3.7.1 R (1) Only an Ombudsman may determine a complaint or decide the circumstances in which information may be disclosed under DISP 3.10.1R (3).

(2) The Ombudsman may designate members of the staff of FOS Ltd to exercise any of the other powers of the Ombudsman relating to the reference, investigation or consideration of a complaint.

(3) Where any person is so designated, DISP 2 – DISP 4 apply as if any reference to "the Ombudsman" included a reference to that person.

3.7.2 G The Chief Ombudsman will designate those members of staff of FOS Ltd who are to have these powers.

Funding

14. The Act envisages that the ombudsman scheme will be financed at least in part by those who are subject to its jurisdiction. Section 234 is as follows:

234.—(1) For the purpose of funding—

(a) the establishment of the ombudsman scheme (whenever any relevant expense is incurred), and

(b) its operation in relation to the compulsory jurisdiction,

the Authority may make rules requiring the payment to it or to the scheme operator, by authorised persons or any class of authorised person of specified amounts (or amounts calculated in a specified way).

(2) "Specified" means specified in the rules.

HME is an authorised person, and as such a firm for the purposes of the scheme rules and subject to the compulsory jurisdiction.

15. Section 230 provides, so far as is relevant:

230 Costs

(1) The scheme operator may by rules ("costs rules") provide for an ombudsman to have power, on determining a complaint under the compulsory jurisdiction, to award costs in accordance with the provisions of the rules.

(2) Costs rules require the approval of the Authority.

(3) Costs rules may not provide for the making of an award against the complainant in respect of the respondent's costs.

(4) But they may provide for the making of an award against the complainant in favour of the scheme operator, for the purpose of providing a contribution to resources deployed in dealing with the complaint, if in the opinion of the ombudsman–

(a) the complainant's conduct was improper or unreasonable; or

(b) the complainant was responsible for an unreasonable delay.

The Authority referred to is the Financial Services Authority.

16. Sections 230 and 234 must be read with paragraphs 9, 14 and 15 of schedule 17. Paragraph 9 requires the scheme operator to adopt an annual budget, which must include an indication of the amounts of income of the scheme operator arsing or expected to arise from the operation of the scheme, distinguishing between its compulsory and voluntary jurisdiction. Paragraph 15 is as follows:

15.—(1) Scheme rules may require a respondent to pay to the scheme operator such fees as may be specified in the rules.

(2) The rules may, among other things—

(a) provide for the scheme operator to reduce or waive a fee in a particular case;

(b) set different fees for different stages of the proceedings on a complaint;

(c) provide for fees to be refunded in specified circumstances;

(d) make different provision for different kinds of complaint.

17. Section 5 of the scheme rules relates to the funding of FOS. It provides for funding from, broadly, three sources: a levy towards the cost of operating the compulsory jurisdiction of FOS which each firm must pay to the FSA, calculated on the basis of the amount of a firm's relevant business during the year in question; a standard case fee, payable, subject to the exceptions to which I refer below, by every firm in relation to each complaint against it made to FOS; and special case fees. In relation to standard case fees, the relevant provisions are as follows:

Standard case fee

5.5.1 R A firm or licensee must pay to FOS Ltd the standard case fee specified in part 3 of FEES 5 Annex I in respect of each chargeable case relating to that firm or licensee which is closed by the Financial Ombudsman Service, unless a special case fee is payable or has been paid in respect of that case under FEES 5.5.6R to FEES 5.5.12R.

[…]

Case fee exemption

5.5.15 R Notwithstanding the above, a firm or licensee will only be liable for, and FOS will only invoice for, the standard case fee or, as the case may be, the special case fee, in respect of the third and subsequent chargeable cases in any financial year.

18. The definition of "chargeable case" is in the Glossary to the FSA Handbook:

any complaint referred to the Financial Ombudsman Service, except where:

(a) the Ombudsman considers it apparent from the complaint, when it is received, and from any Final Response which has been issued by the Firm, that the complaint should not proceed because:

(i) The complainant is not an "eligible complainant" in accordance with DISP 2 of the FSA Handbook

(ii) The complaint does not fall within the jurisdiction of the Financial Ombudsman Service (as described in DISP2)

(iii) The Ombudsman considers that the complaint should be dismissed without consideration of its merits under DISP 3.3 (Dismissal of complaints without consideration of the merits) or

(b) The Ombudsman considers at any stage that the complaint should be dismissed under DISP 3.3.1 on the grounds that it is frivolous or vexatious.

19. Paragraph 5.5.2 is guidance rather than a rule, and is as follows:

The standard case fee, which will be subject to consultation each year, will be calculated by dividing the annual budget for the Compulsory Jurisdiction, less the amount to be raised by the general levy, by the estimated number of chargeable cases which the financial Ombudsman expects to close in the relevant financial year.

20. The amounts payable by way of general levy and standard (and special) case fees are set out in Annex 1 to Section 5 of the rules.

The issues before the District Judge

21. The four complaints to FOS that led to the claim before the District Judge all related to endowment mortgage schemes. Each of them had been investigated by FOS and determined on its merits. In each case, the complaint was rejected. On the face of it, therefore, each of the complaints was a chargeable case in respect of which the standard case fee was payable by HME.
22. HME were aggrieved that FOS sought payment of case fees from it even though the complaints in question had been rejected. Their defences to the claim were essentially twofold. First, they contended that the rule that required a firm to pay a fee even though it had been exonerated was unreasonable and therefore unlawful. Secondly, they contended that the fee had become payable only as a result of FOS's failure to comply with its obligations under the scheme. They contended:

(a) That FOS was under a duty to consider whether any complaint to it was frivolous or vexatious or has no reasonable prospect of success and should be dismissed on that account under DISP 3.3.1;

(b) FOS had adopted a policy of never dismissing a complaint relating to an endowment mortgage scheme: that policy was unlawful and ultra vires;

(c) As a result of the application of that policy or otherwise, FOS failed to dismiss the complaints as vexatious or frivolous or without a reasonable prospect of success;

(d) Furthermore, if there had been any consideration given to the dismissal of the complaints, FOS had delegated the decision whether they should be dismissed under DISP 3.3.1 to a member of staff other than an ombudsman. Such delegation was not permitted under the Act and was unlawful.

(e) It followed that there had been no requisite consideration of dismissal under DISP 3.3.1.

(f) If there had been a lawful consideration of the exercise of the power conferred by DISP 3.3.1, they would have been dismissed and the cases would not have been chargeable cases on which the case fee was payable.

23. FOS contended that the requirement that firms pay a standard case fee on all chargeable cases, irrespective of their outcome, was reasonable and lawful. Before the District Judge, it conceded that its claim failed:

(a) if it had a policy of investigating all complaints without consideration of their summary dismissal under DISP 3.3, or

(b) if the complaints in question ought to have been dismissed under that rule.

24. FOS contended that the complaints in question had been duly investigated by a consumer consultant, to whom the ombudsman had duly delegated his powers under DISP 3.3, and that they had correctly concluded that the complaints should not be dismissed under that rule.

The findings of the District Judge

25. The District Judge found:

(a) The requirement of payment of the standard case fee was unreasonable and unlawful.

(b) FOS has an obligation to consider summary dismissal of every complaint under DISP 3.3.

(c) FOS did not have a policy of determining every complaint relating to an endowment mortgage arrangement on its merits without consideration of its summary dismissal under DISP 3.3.

(d) All of the complaints were considered for summary dismissal, but by a consumer consultant rather than an ombudsman.

(e) None of the complaints should have been summarily dismissed.

(f) The ombudsman had no power to delegate the exercise of the power under DISP 3.3. However, because of finding (e), this unlawful delegation made no difference.

The issues before this Court

26. Before this Court, FOS was without objection permitted to withdraw the concessions referred to in paragraph 23 above. HME have not sought to appeal against the finding of fact summarised at paragraph 25(c) above, but challenge the finding at paragraph 25(d). Accordingly, the issues for decision are:

(a) Is the rule requiring payment of the standard case fee unreasonable and unlawful?

(b) Is the ombudsman under an obligation to consider dismissal of all complaints under DISP 3.3?

(c) May the ombudsman lawfully delegate consideration and exercise of the power under DISP 3.3 to a suitably qualified member of staff?

(d) Was the District Judge entitled to find that each of the complaints had been considered for summary dismissal, albeit by a consumer consultant?

(e) If a complaint is not lawfully considered for summary dismissal, and as a result is investigated, and after investigation determined by the ombudsman under DISP 3.8 adversely to the complainant, is the firm nonetheless liable to pay the standard case fee?

(f) Does the answer to (e) depend on whether the complaint should have been dismissed under DISP 3.3?

Discussion

The lawfulness of the imposition of case fees

27. That part of the District Judge's judgment giving his reasons for finding the requirement of payment of case fees unreasonable is as follows:

I consider that the rule is unreasonable in the following basis:

1. the injustice of the fee in the case of firms on the receiving end of numerous fee claims by FOS, falling within their insurance excess, relating to dismissed complaints

2. there is a body of opinion in the industry aggrieved at the fee, including the IFA's representative body AIFA

3. the high volume of unmeritorious endowment complaints currently made since the adverse publicity from around 2003

4. FOS is now reviewing its funding structure thus showing an awareness of a problem

5. despite the fact that FOS is not constrained by FSMA 2000 or by practical considerations to charge case fees to 'innocent' respondents it continues to do so. I am not aware of any other professional body, such as The Law Society, which penalizes innocent parties in this way and it is contrary to the procedure in the Courts where even in the Small Claims Track a successful party can recover Court fees and witness expenses

6. FOS has always recognised the potential for unfairness in so doing and consultation in 1998 came out against charging case fees to 'innocent' respondents

7. there are numerous alternative ways FOS could have chosen and could now adopt to fund itself such as: charging a case fee to respondents against whom complaints are upheld (and, if need be, to respondents who can be said to have generated a complaint dismissed by FOS in failing to comply with their regulatory obligation to respond in correspondence to a customer's complaint); funding itself solely by industry annual levy; changing the proportion of revenue achieved from case fees and annual levy; or increasing the number of "free" claims

8. a proportion of FOS' revenue is already obtained through an industry wide annual levy, so the "case fee rule" effectively means an 'innocent' respondent is paying twice

9. FOS' intention in implementing its funding structure, was to derive its funding 50% from case fees and 50% from an annual levy. The current structure no longer reflects that intention because the increase in the number of mortgage endowment cases means that a far greater proportion of FOS' funding in recent years has come from case fees

10. FOS' recent review (attached to the Reply) identifies an appetite for change within the industry (as Mr Neighbour accepted) but the review appears to have been put on hold for practical reasons due to a declining number of cases

For all the above reasons I find that FOS' case fee rule is unfair in principle and in practice. No reasonable public body would maintain and enforce such as a rule.

The Claim against HME will therefore be dismissed on the ground that FOS' case fee rules are unreasonable/unlawful in the Wednesbury sense and therefore ought not to be enforced against HME.

The underlining is in the original.

28. In my judgment, the grounds set out in the judgment, individually and collectively, do not justify the finding that the decision to impose case fees was perverse or irrational and unreasonable in the Wednesbury sense. They would justify the view that the system is now unsatisfactory, but no more; and I make it clear that I do not share that view. The District Judge's paragraph 2 proves nothing relevant. His paragraphs 3, 4, 6, 9 and 10 go to the question whether the rule should be reconsidered, and say nothing about the original decision to adopt it. The same comment applies to his paragraph 5; and the fact (if it be the case) that no other body has a similar rule does not of itself tend to show that the FOS rule is perverse. His paragraph 7 says no more than that there were alternative schemes that could have been adopted. Paragraphs 1 and 8 say no more than that it is wrong to require a firm to pay a fee in relation to an unfounded complaint.
29. Section 230, set out above, restricts the recovery of the costs of the scheme from complainants. Clearly awards of costs against complainants, in the circumstances permitted by section 230, could not be a reliable or predictable or a substantial source of funding for the scheme. A levy, to which no challenge has been made, is born by exemplary firms and those who are the subject of well-founded complaints alike. A system under which firms make a payment of a fee in respect of the services of the ombudsman in investigating and deciding complaints against them is, in my judgment, a perfectly rational response to the need to fund the scheme. To some extent, complaints are made to FOS because the internal complaints procedures of the firms in question have failed to satisfy the complainant. The FSA rules require firms to deal with complaints fairly and efficiently, and a complaint to FOS is likely to be made only when a firm's response to a complaint is regarded by the complainant as unsatisfactory. Furthermore, the standard case fee is not payable if there are no more than 2 complaints in a year against a firm. Lastly, wholly unmeritorious complaints do not generate a case fee if they are dismissed under DISP 3.3.
30. The practicality of a case fee payable only in respect of successful complaints was considered in a discussion paper entitled "Financial Ombudsman Service compulsory jurisdiction: funding review" published by the FSA and FOS in May 2006. It pointed out that, since most complaints are not upheld, the fee would have to increase from £360 to £1,080, a significant sum for a small firm. Liability for it might reduce negotiated settlements, unless settlements were to be ineligible for a case fee, in which case the amount of the case fee would have to be increased further. It pointed out that there are cases in which there is no clear winner and no clear loser. Questions would arise as to whether the fee should be paid where the complaint was upheld but the amount awarded did not exceed a previous offer made by the firm. These would add to the complexity and cost of the scheme. Further, a firm whose poor internal complaints service resulted in numerous unfiltered ill-considered and insubstantial complaints being made to the ombudsman, and therefore added to the costs of the service, would not pay a fee in respect of those complaints,. Lastly, the discussion paper stated:

4.12 In any event, there is an over-riding issue of principle which makes a case fee based on who 'wins' a non-starter. A fee based on the outcome of the case would appear to give the ombudsman service a financial incentive to uphold cases – meaning it would no longer be an independent tribunal. At present, the ombudsman service budgets on the basis of the number of cases it expects to close. If there were an outcome-related fee, it would have to budget instead on the basis of the number of cases it expected to uphold – creating a clear appearance of bias.

31. Mr Speaight QC, for HME, criticised this last reason. He pointed out that it applied equally to the dismissal of a complaint under DISP 3.3: it could be said that under the present scheme FOS has a financial interest in deciding that a complaint should not be summarily dismissed. Furthermore, since FOS is a non-profit-making body, no one would profit from a decision to uphold a complaint. There is some substance in the first of these points, but not the second.
32. As to the first, a scheme under which the decision maker's decision on the merits of a complaint affects the income of the decision maker is, I think, undesirable. However, if a complaint is not summarily dismissed, FOS incurs the burden, and the cost, of investigating it and determining it. Thus the financial impact of a decision not to dismiss summarily is not one-way: the case fee becomes payable to FOS, but that cost is incurred by it. Where, however, the liability for a fee is determined after the ombudsman's investigation and is dependent on his decision following his investigation, the work and cost of dealing with the complaint have been incurred; so that the financial impact of a decision upholding the complaint is largely one-way. Furthermore, the present scheme mitigates the financial consequences for a firm of a wholly unfounded complaint.
33. As to the second point, any public body is under pressure to meet its budget; and if the income of the scheme does not meet its forecast, the deficit has to be carried forward to the following financial year, leading to an increase in levy or case fees for that year or a need to reduce costs, which usually involves reducing staff. Hence there is a real financial interest in maintaining the income of a scheme such as the FOS.
34. Looking at the matter generally, in my judgment HME have failed to show that the present fee scheme is not one of the possible and rational responses to the need to finance FOS. In my judgment, it is such a response. I would therefore reverse the finding of the District Judge on this issue.

Is FOS under a duty to consider summary dismissal of complaints under DISP 3.3?

35. The express requirement under DISP 3.2.1 is that "the Ombudsman must have regard to … whether or not the complaint is one which should be dismissed without consideration of its merits under DISP 3.3". The verb "must" clearly imposes an obligation, but the wording of the content of the obligation is curious in the extreme. One would have expected the rule to require the ombudsman to consider whether the complaint should be dismissed without consideration of its merits, and it is difficult to see what different obligation the rule was intended to impose. An obligation "to have regard to" whether the complaint should be dismissed seems to me to be so uncertain and devoid of content as to be inconsistent with an obligation. I think that the rule should be interpreted so as to give content to the obligation, and therefore that it does require the ombudsman to consider whether a complaint should be summarily dismissed. This interpretation is consistent with the other paragraphs of DISP 3.2.1: clearly it is sensible that the ombudsman should consider whether he has jurisdiction (paragraph (a)), whether the complaint is time-barred (paragraph (b)) and whether the complainant is entitled to invoke his jurisdiction (paragraph (c)), and should do so before investigating the complaint and without it attracting a case fee.
36. It should, however, be borne in mind that summary dismissal under DISP 3.3 is not limited to cases which the ombudsman considers to be frivolous or vexatious or without a reasonable prospect of success: see DISP 3.3.1 (1) and (4) to (17) and DISP 3.3.1A. In my judgment, DISP 3.2.1 does not require a detailed consideration of each complaint for summary dismissal: whether any of the sub-paragraphs of DISP 3.3.1 is applicable, or DISP 3.3.1A actually or potentially applicable, should be sufficiently apparent from the perusal of the complaint. Secondly, it must be borne in mind that DISP 3.3.1 confers a discretion on the ombudsman. Its wording is that he may dismiss a complaint without considering its merits if any of its sub-paragraphs is applicable to it, not that he must do so. It may well be that the discretion is conferred, rather than a duty imposed, because the power to dismiss summarily is one to be exercised cautiously, and if there is any reasonable possibility of further investigation leading to the conclusion that a complaint is well-founded it should be investigated. In addition, although one would expect the ombudsman normally to exercise the discretion in favour of dismissal, there may be circumstances in which further investigation may be warranted even though it appears, for example, that the complainant is unlikely to suffer loss, as where the complaint suggests that there has been gross negligence or a departure from applicable regulations on the part of the firm that should be brought to the attention of its principals or of the regulator.

Delegation

37. Paragraph 14(2)(f) of Schedule 17, set out above, expressly reserves the determination of a complaint to an ombudsman. The District Judge held that the ombudsman could not delegate the exercise of the power conferred by DISP 3.3 because the dismissal of a complaint is its determination. He said: "A complaint that is dismissed has plainly been 'determined'."
38. HME submit that this interpretation of the Act and the rules is correct. FOS submits that the Act and the rules distinguish between the dismissal of a complaint, and in particular dismissal under DISP 3.3, and its determination under DISP 3.8. Dismissal is a decision on the complaint without consideration of its merits; determination is the decision on the complaint after investigation and adjudication of its merits.
39. In my judgment it is significant that the Act uses dismissal and cognate expressions when referring to a decision made without consideration of the merits, as in paragraph 14(2)(b) of the Schedule, and "determination" to denote a decision made after investigation of and consideration of the merits, as in section 228. "Determined" in section 229 and "determining" in section 230 refer back to a decision under section 228. "Determination" in paragraph 14(1) must similarly mean a determination pursuant to section 228.
40. It follows from paragraph 14(3)(a) of Schedule 17 that Parliament considered that a decision that a complaint is frivolous or vexatious, which might otherwise be considered to involve consideration of its merits, does not involve consideration of the merits for the purposes of paragraph 14(2)(b). Furthermore, it appears from paragraph 14(3)(b) and (c) that Parliament referred to the dismissal of a complaint which might be meritorious, as where the ombudsman considered that it should be dealt with in existing legal proceedings.
41. The use of these two expressions, "determination" and "dismissal", was in my judgment deliberate. I see no reason why "determination" (or "dismissal") should not have been used for both summary decisions and decisions on the merits if Parliament intended the requirements for both decisions to be identical; if, indeed, as the District Judge put it, a dismissal is a determination. The draftsman is noticeably consistent in his use of the two expressions. It follows that the express exclusion of determinations from the power to delegate authorised by paragraph 14(2)(f) does not extend to a dismissal.
42. It does not necessarily follow from this conclusion that the ombudsman may delegate dismissal to a member of staff. The District Judge referred to the principle that a delegate cannot delegate further: delegatus non potest delegare. I am not sure that the ombudsman is a delegate for these purposes, but he certainly is a person on whom there have been conferred statutory powers of a kind that should require statutory authority if they are to be delegated. In addition, the use in the Schedule of "ombudsman" and its definition mean that the starting point must be that a function which is conferred on him is to be carried out by him.
43. FOS relies on paragraph 14(2)(f) of the Schedule as providing the necessary statutory authority. It is not obvious that the dismissal of a complaint is a thing relating to "the reference, investigation or consideration" of a complaint. However, notwithstanding the matters referred to in the preceding paragraph of my judgment, I have concluded that dismissal is such a thing. As Mr Flint QC submitted, this paragraph would have been unnecessary if all that was denoted was administrative in nature; and Parliament is not to be taken to have included a statutory provision that has no effect. The ombudsman does not require statutory authority to delegate correspondence, or the preparation of a briefing note on a complaint. Statutory authority is required only if the delegate is to make a decision having some legal effect. Dismissal is such a thing.
44. Secondly, the Act uses the words "investigation, consideration and determination" to cover the entirety of the procedure that follows from presentation of a complaint: see paragraph 14(1) of the Schedule. That includes summary dismissal. It follows that dismissal of a complaint without consideration of its merits must be within "investigation or consideration". Parenthetically, "reference" of a complaint must refer to its reference to another adjudicatory body for decision by it: see paragraph 14(2)(c).
45. Thirdly, it is significant that Parliament considered it necessary expressly to exclude determination from the power to make provision for delegation, but did not exclude dismissal.
46. Lastly, there is no necessary connection between the incurring of a case fee and the power to dismiss summarily. The Act does not require the liability to pay a case fee to depend on whether or not a complaint is summarily dismissed. I do not find it surprising that Parliament should have conferred on FOS the power to authorise delegation of dismissal in the circumstances envisaged in paragraph 14(2)(b) and (3) of the Schedule.
47. DISP 3.7.1 follows the wording of the Schedule and is clearly intra vires. In my judgment, for the reasons I have given, the power conferred by paragraph (2) includes power to delegate the exercise of the power of summary dismissal to designated members of the staff of FOS.

Did FOS consider the summary dismissal of the four complaints?

48. As I read his judgment, the District Judge found as a fact that all four complaints had been considered by a consumer consultant who had decided that they should not be dismissed as frivolous or vexatious or devoid of any reasonable prospect of success. The Judge heard the evidence as to the procedures of FOS. The written evidence of Mr Kendal of FOS was that consumer consultants always consider summary dismissal before a complaint progresses to investigation, and in cross-examination he explained why there was no written record of that consideration. That evidence was accepted by the Judge. Although the evidence was light, I am not persuaded that he was not entitled to do so.

Was HME's liability for the case fees conditional on summary dismissal having been considered by FOS?

49. Mr Speaight recognised that the contention that liability for the case fee depends on summary dismissal having been lawfully considered by FOS must depend on the true construction of the rules, including the definition of a chargeable case. Neither FEES 5.5.1 nor the definition of chargeable case expressly makes consideration of summary dismissal of a complaint (as distinguished from an actual decision summarily to dismiss it) a condition of liability. Mr Speaight submitted that the definition of a chargeable case should be read as follows as a matter of proper construction, or that the following meaning should be "assumed, implied or imputed":

any complaint referred to the Financial Ombudsman Service, which has been considered by the Ombudsman under DISP 3.2.1, except where:

(a) the Ombudsman considers it apparent from the complaint, when it is received, and from any Final Response which has been issued by the Firm, that the complaint should not proceed because:

(i) The complainant is not an "eligible complainant" in accordance with DISP 2 of the FSA Handbook

(ii) The complaint does not fall within the jurisdiction of the Financial Ombudsman Service (as described in DISP2)

(iii) The Ombudsman considers that the complaint should be dismissed without consideration of its merits under DISP 3.3 (Dismissal of complaints without consideration of the merits) or

(b) The Ombudsman considers at any stage that the complaint should be dismissed under DISP 3.3.1 on the grounds that it is frivolous or vexatious.

The words underlined are those which, Mr Speaight submitted, should be read into the definition.

50. This submission involves reading words into the definition that are not there. This is HME's first, indeed overwhelming, difficulty. In my judgment, the Court should be cautious in the extreme in construing a provision such as this, which has been approved by the FSA, in a manner that writes additional words into it. That result my be appropriate where the provision, read literally, is absurd or produces absurd and wholly unreasonable results that could not have been intended, but not otherwise.
51. In support of his submission, Mr Speaight relied on the well known principle of construction, exemplified by the decision of the House of Lords in Alghussein Establishment v Eton College [1988] 1 WLR 587, that a party should not be permitted to take advantage of its own wrong. However, the rule applied in Alghussein is a rule for the construction of contracts. Lord Jauncey of Tullichettle, who gave the only substantive speech, said, at 591D-E:

My Lords, it is well established by a long line of authority that a contracting party will not in normal circumstances be entitled to take advantage of his own breach as against the other party.

Thus the case is not authority for the application of the rule in the context of a compulsory adjudication which does not depend on contract, and where the liability sought to be enforced is statutory. If, therefore, the principle is applicable in the present context, its application must be considered with caution, although I accept that the Alghussein rule may be seen as an aspect of the rule of construction that leans against interpretations that produce unreasonable or absurd consequences that could not have been intended.

52. I would also question whether the Alghussein principle assists HME. In the first place, it is not clear that FOS is to be treated as owing a duty to a firm when considering summary dismissal under DISP 3.3. The ombudsman exercises an adjudicatory function, akin to that of a court, rather than a power given to one party to a contract that affects the rights and liabilities of the other party. Paragraph 10 of the Schedule confers exemption from liability for damages for anything done or omitted in the discharge or purported discharge of any functions under the Act in relation to the compulsory jurisdiction, unless bad faith is shown or there is a breach of a Convention right. Paragraph 11 requires that for the purposes of the law of defamation the proceedings are to be treated as if they were proceedings before a court. Furthermore, not all of the bases for dismissal involve a decision in favour of the respondent firm. For example, dismissal under paragraph (10) may involve the firm in a greater liability if the alternative involves a higher, or no, limit on its liability. It is difficult to see that the ombudsman owes a duty to the respondent firm when considering exercising his power under that paragraph.
53. Quite apart from these considerations, however, is the fact that the interpretation put forward by HME is, in my judgment, unreasonable and capable of producing unmeritorious consequences, as it would have done in the present case. It would be quite unreasonable for a firm to be relieved of its liability to pay the fee because summary dismissal was not considered, if, had it been considered, the complaint would in any event have been passed for investigation and determination by an ombudsman under DISP 3.8.1. The unreasonableness of this consequence, its lack of merit, is a compelling reason not to imply the words sought to be interpolated by HME. Far from removing unreasonableness, it would create it. Indeed, the interpretation urged on us by HME would relieve even a firm against whom a complaint was upheld of its liability to pay the case fee.
54. HME are, of course, hampered in contending for an interpretation that relieves a firm against whom a complaint should have been dismissed under DISP 3.3 by the finding of the District Judge that none of the complaints in question should have been so dismissed. The difficulty in invoking Alghussein in a case where the complaint could have been dismissed under 3.3 is that it confers a discretion on the ombudsman rather than imposes a duty. It is difficult, therefore, to say that a failure to strike out is a failure to carry out a duty imposed by the rules.
55. But there is another reason why any implication of the kind contended for by HME should be rejected as unreasonable. The definition of chargeable case, read literally, means that it is evident whether a case fee is payable: either the firm has been informed that the complaint has been dismissed under DISP 3.3 or it has been investigated on its merits and the firm informed by the ombudsman of his determination as required by section 228(7) of the Act and DISP 3.8.3. HME's interpretation would potentially make the collection of case fees subject to inquiry and dispute by firms and of litigation of the kind seen in the present case, in which the respondent firm would challenge whether the complaint in question was or should have been summarily dismissed. HME's contention, if accepted, would potentially make the collection of fees, and therefore the funding of the scheme, much more expensive and lead to an increase in the levy and of case fees.
56. In my judgment, the interpolation for which HME contends is unjustified. Its submission as to the interpretation of the definition of chargeable case should be rejected.

Conclusions

57. For the reasons set out above, I would answer the issues set out under paragraph 26 above as follows:

(a) No.

(b) Yes.

(c) Yes.

(d) Yes.

(e) Yes.

(f) No.

58. I would allow the appeal and enter judgment for FOS on its claim against HME.

Lord Justice Rix:

59. I agree.

Lord Justice Laws:

60. I also agree.