Neutral Citation Number:  EWHC Admin 247
IN THE HIGH COURT OF JUSTICE CO/2317/2000
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday 5th April 2001
THE HONOURABLE MR JUSTICE NEWMAN
B E T W E E N
- on the application of -
- and -
PERSONAL INVESTMENT AUTHORITY
OMBUDSMAN BUREAU LIMITED
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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The Claimant in person assisted by Mr Abdul Halim, his Mackenzie Friend
Nigel Pleming QC and James Strachan, instructed by Respondent, the Personal Investment Authority Ombudsman Bureau Limited
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As Approved by the Court
Crown Copyright ©
MR JUSTICE NEWMAN
1. This is an application for judicial review of a decision dated 3 May 2000 by an Ombudsman of the Personal Investment Authority Ombudsman Bureau Limited ("PIAOB") in determination of a complaint made by the claimant against Royal and Sun Alliance ("RSA").
2. The claimant seeks to challenge the decision of the PIAOB that monthly health insurance benefits had been properly stopped on the ground that the claimant was not disabled and was in gainful employment. On 19 January 200l, after hearing oral argument in support of an application to amend the form 86A, I permitted some, but not all, of the requested amendments.
3. The claimant acts in person but has been assisted by Mr Abdul Halim acting as a Mackenzie friend. The claimant is aged 52 and is severely disabled. In about 1985 he took out permanent health insurance cover with a company called Phoenix Insurance, now known as the Royal and Sun Alliance, but in August 1985 he had to stop work as he was diagnosed as suffering from rheumatoid arthritis. He immediately claimed on his permanent health insurance and he continued to do so until l997. In or about September l997 the RSA wrote to the applicant stating that, according to them, he was no longer disabled, as he was gainfully employed/occupied as a director of Polyfloor Limited. Polyfloor Limited is now in liquidation. The claimant contested that he was working for any kind of gain as alleged by the RSA, and asserted that any work that he could do was limited to a couple of hours a day, as recommended by his doctor and consultant. He approached the First Assist Group Limited ("First Assist"), for legal advice and financial assistance in accordance with the terms of his indemnity insurance in respect of legal costs. From the outset First Assist indicated that the most effective way of dealing with the matter would be to assist the RSA in obtaining the information it wanted and then, should it respond in a way which proved to be unsatisfactory, the matter could then be referred to the PIAOB. In February l999, First Assist sent the papers to Messrs Kennedys, Solicitors, to obtain an opinion on the matter, on behalf of underwriters. That led to First Assist informing the claimant that the grievances which he raised "met the requirements of the merits test set out at claim condition 2" of the policy and they advised him of his need to take reasonable steps to avoid legal proceedings and to minimise the costs of legal proceedings. As a result they explained that he should pursue his complaint to the PIAOB. By letter dated 4 April 2000, First Assist wrote as follows:
"We would advise you that due to the comments contained within the PIAOB's report, we do not consider that you have a viable action, which the policy could support. As such we regret that we are unable to offer you any assistance on this occasion."
4. The claimant submitted that the submission of the matter to the PIAOB cannot be regarded as consensual. It is submitted that the claimant was required to submit his complaint to the PIAOB as a pre-condition to consideration being given to the provision of cover by underwriters under his legal indemnity insurance. In the event it led to the underwriters declining cover. The submission in this regard is of the first importance to a jurisdictional point which is taken by the PIAOB. It is advanced by the claimant to resist the conclusion that his case stands to be determined in accordance with and following the decision in R v The Insurance Ombudsman Bureau ex parte Aegon Life 1994 CLC 88. It is not disputed that the PIAOB is the statutory successor to the Insurance Ombudsman Bureau, but it is said the case did not directly concern a third party to the scheme, like the claimant. In the alternative if he did voluntarily submit to the jurisdiction of the Ombudsman, it is submitted that ex parte Aegon Life was decided per incuriam or was plainly wrong, or that this court should not follow it, notwithstanding it being a decision of the Divisional Court. In support of these alternative grounds the claimant made extensive reference to the well known cases,
R v The Panel of Takeovers and Mergers ex parte Datafin  1 QB 815
R v The Chief Rabbi of the United Hebrew Congregation of Great Britain and the Commonwealth ex parte Wachmann,  1 WLR 1036
R v The Disciplinary Committee of the Jockey Club ex parte Aga Khan  1 WLR 909
The Jurisdiction Issue
5. The PIAOB is an independent body set up primarily to resolve complaints made against firms which are regulated by the Personal Investment Authority (PIA) to conduct investment business pursuant to the Financial Services Act l986 (the l986 Act). PIAOB is a company limited by guarantee with a board, now responsible for PIAOB's overall supervision and setting the terms of reference of the PIAOB. Prior to legislative change these matters were previously carried out by the PIAOB Board of Directors and Council.
6. The PIAOB has two different jurisdictions:
(1) a "compulsory jurisdiction" in respect of complaints against PIA members concerning regulated activities;
(2) a "voluntary jurisdiction", whereby PIAOB offers a free voluntary dispute resolution service for consumers in respect of firms who agree to be subject to this jurisdiction in respect of non-PIA regulated activities.
The PIA is a recognised self-regulatory organisation providing authorisation for its members to conduct investment business. PIA members are firms mostly engaged in the insurance business and as financial advisers whose main investment business activities are the marketing and advising on life assurance products, pensions, unit trusts and investment trust savings schemes. As a self-regulatory organisation, sometimes referred to as an "SRO", the PIA must satisfy the requirements of Schedule 2 to the l986 Act, including the requirement to have effective arrangements for the investigation of complaints made against the PIA or its members. This role may be performed by the PIA or by an independent body. PIAOB performs this role under its compulsory jurisdiction. The PIA membership contract requires members to comply with the PIA rules and thus they are required to submit to the jurisdiction of the PIAOB and to assist with investigation of complaints, and to comply with the PIAOB in respect of investment business. There is no ability for PIA members to opt out and the jurisdiction is compulsory.
7. The voluntary jurisdiction covers complaints in respect of insurance and industry activities which do not constitute investment business. The PIAOB offers a free, independent and voluntary adjudication system for certain complaints arising out of other types of non-investment insurance business (i.e. long term business as defined in the Insurance Companies Act 1982). The jurisdiction is dependent upon firms in the industry choosing to use the service to provide additional service to customers. Such firms voluntarily submit to the PIAOB's complaint resolution service for activities not otherwise regulated by the PIA. There is no regulatory requirement to submit to this jurisdiction. This voluntary jurisdiction dates back to l981 as a voluntary scheme for insurance providers. It continued until the l986 Act, which introduced "a statutory requirement for authorisation in respect of investment business". The SROs for this business were LAUTRO for product providers and FIMBRA for IFAs and insurance brokers. In l994 the PIA was introduced to replace LAUTRO and FIMBRA. The independent PIAOB was set up as the single complaints adjudication scheme for PIA matters. It inherited LAUTRO and IOB's compulsory jurisdiction. In addition, PIAOB took on the role of offering to determine voluntary jurisdiction complaints, namely those relating to long term business. There was no requirement for PIA member firms to submit to the voluntary jurisdiction; they could choose to do so.
8. So far as the compulsory jurisdiction is concerned, the PIAOB is performing a function required under paragraph 6 schedule 2 of the l986 Act. It is not submitted that that jurisdiction is not amenable to judicial review. However, to the contrary, it is submitted that the voluntary jurisdiction is not amenable to judicial review because it is a voluntary jurisdiction and although existing against a statutory background, following the decision in ex parte Aegon Life and the principles which the Divisional Court applied in that case, the position remains unchanged.
9. It is convenient to commence consideration of the argument by reference to ex parte Aegon Life. The Divisional Court, comprising Rose LJ and McKinnon J, had to deal with an application by an insurance company for judicial review of some 23 decisions of the Insurance Ombudsman Bureau in which he made awards against the applicant company. It follows that the consent or contractual area under scrutiny was the members' contract with the IOB and not, as here, a consensual submission to the Ombudsman. But that said, in my judgment the basis for any distinction does not arise, having regard to the terms of the judgment of Rose LJ:
"The foundations of the IOB, initially, conspicuously lacked any trace of governmental underpinning. It was a free-standing independant body whose jurisdiction was dependant on the contractual consent of its members. It provided an alternative means of dispute resolution, outside the courts, for members of the public who chose to use it in relation to insurance companies who were members. I am unable to accept that the Act directly or indirectly changed the character of the IOB's foundations or altered the source of its power. Furthermore, when Sir Thomas Bingham MR spoke to the Jockey Club, not being `woven into any system of governmental control', I do not accept that he was thereby indicating that such interweaving was in itself determinative. On the contrary, a substantial part of his judgment, and that of Farquharson LJ, is devoted to the negative implications as to judicial review if the body's power was derived from consent. I do not accept that their judgments or that of Hoffman LJ, or those of the members of the court in ex parte Datafin, can be construed as contemplating that such a body as the IOB, even if it became interwoven into a governmental system would be susceptible to judicial review.
Since the Act, as before, the public do not have to use the Ombudsman. They can instead sue insurers in the courts. If they go before the Ombudsman, because he is not limited to purely legal considerations, in many cases, their prospects of success will be better. But they have the choice of forum. Likewise, for insurers, although there are the advantages of IOB membership to which I have referred, membership is not obligatory. Those who choose to be members run a greater risk of an adverse decision if a complaint is made to the PIAOB than if the case were decided in the courts by reference to strictly legal principles. This follows from the Ombudsman's terms of reference which expressly contemplate decisions more favourable to complainants than the law would provide. But the very reason why the IOB was set up in the first place was to improve the image of insurers by setting up a cheap, informal and independent procedure so that insurers would not be regarded as sitting as judge and jury in their own cause to protect their own interests."
The court held that the source of the IOB's power over members was solely contractual and it exercised no government functions. The reference to a body having become woven into the fabric of public regulation or into a system of governmental control or being integrated into a system of statutory regulation, or a surrogate organ of government, has its origin in R v The Disciplinary Committee of the Jockey Club ex parte Aga Khan 1993 l WLR 909. The court rejected the argument that such integration into governmental system had occurred, but held that even if it could be said that it had, its decisions were of an arbitrative nature in private law and not, save very remotely, supported by any public law function. It therefore concluded that the IOB was not a body susceptible to judicial review.
10. Mr Pleming QC, for the defendant, submitted that there has been no subsequent shift from the applicability of these principles. He referred to cases concerning religious bodies where the function or authority arises from consensual submission to a jurisdiction and where there was no statutory or governmental function (see R v Beth Din ex parte Bloom 1998 COD 131, R v Imam of Berry Park Jame Masjid Luton ex parte Suleman Ali 1994 COD 142, R v The Provincial Court of the Church in Wales ex parte Rev Clifford Williams transcript Latham J 21 October 1998). Similar principles applied in a trade association case, R v The Panel of the Federation of Communication Services Limited ex parte Kubis (1997) ll AdminLR 43. A charitable housing association providing housing to a local authority was found not to be susceptible to judicial review in view of the fact that the source of its powers were purely contractual and there was no statutory underpinning for its existence, R v Servite Houses ex parte Goldsmith, Moses J transcript 12 May 2000. The Association of British Travel Agents' jurisdiction was held to be derived from purely consensual submission to its jurisdiction in the case of R v The Association of British Travel Agents ex parte Sunspell Limited, 2000 AllER (D) 1368.
11. The claimant submitted that contrary to the conclusion reached by the court in ex parte Aegon, the PIAOB had monopolistic or extensive powers in the financial insurance sector and that it was exercising public functions. He submitted that it provided a service to members of the public in the form of adjudicatory service and that it exercised judicial, or quasi judicial, functions. He emphasized that the decision had a serious impact on those affected. He drew the court's attention to the number of people who would be affected by decisions of this nature, under the voluntary jurisdiction of the Ombudsman and the significance of the decision to those involved. The court was invited to conclude that in reality the Ombudsman was partaking in public regulation and control over the insurance market.
12. Notwithstanding the thorough and careful Skeleton Argument of the claimant and the able submissions advanced by Mr Halim on his behalf, I have concluded as follows:
(1) that the PIAOB jurisdiction and powers are derived from the contractual relationship with the member firms who consent to its jurisdiction;
(2) that it has coercive power as against the members firm, in this case the RSA, but in this case the coercive power arises because the RSA has submitted to its jurisdiction.
(3) the PIAOB has no coercive power against the consumer, in this case the claimant, who consented to the PIAOB's jurisdiction being exercised in connection with the matters he had raised; but
(4) the decision of the Ombudsman is not binding on the claimant as the consumer, and he is entitled to sue the insurer in the courts. The pressure to submit his claim to the PIAOB, relied upon by the claimant, did not vitiate his consent;
(5) the PIAOB has no monopolistic power as asserted, only those firms who opt in are within it;
(6) it is not exercising governmental powers and is providing a voluntary arbitration service and not governmental regulation of the industry;
(7) the case, far from being distinguishable from Aegon Life, is more clearly an example of an exercise of consensual jurisdiction, for the decision is not binding upon the claimant or any third party.
I am satisfied that the voluntary jurisdiction in respect of complaints provides a cheap, informal and independent type of alternative dispute resolution process, which avoids the need to resort to the courts immediately.
13. Under the Financial Services and Markets Act 2000 (FSMA 2000), the PIAOB has been subsumed as one of eight ombudsman services to be provided and established under the Act. The provisions are not yet in force and in any event do not apply to this case. In my judgment they provide no useful reflection on the position which prevails in connection with this application.
14. As the argument proceeded it became apparent that there were no grounds for concluding that ex parte Aegon Life was decided per incuriam or was wrong. Indeed, having regard to its authority as a decision of the Divisional Court, I could see no reason why it should not be regarded as binding upon me, in the sense that no principled reason for a departure from it had been made out. For all the above reasons I am satisfied that the PIAOB is not amenable to judicial review.
15. Having regard to the clear conclusion to which I have come so far as jurisdiction is concerned, it is not necessary for me to determine the argument that even if amenable to judicial review, the claimant's rights so far as the insurers are concerned remain intact and he has a remedy in the courts to sue for damages. The point is, in my judgment, a short one. Plainly the claimant can sue in the courts. In my judgment it is not a principled answer to submit that without the availability of either legal aid or support from insurers as to the costs, that is not a course which is open to him. I do not underestimate the burden involved in bringing proceedings, but nevertheless the claimant has demonstrated by the care and attention which he has applied to the complex legal principles which have arisen on this application, and to the preparation of documents, that he is well up to presenting a case in court. Thus, had I come to a different conclusion on the jurisdiction point, I would have upheld the argument on alternative remedy.
The grounds of challenge to the Ombudsman's decision
16. Since review is outside the court's jurisdiction the following summary is given simply for the purpose of completeness.
The Ombudsman accepted that there was no conclusive evidence on the company accounts to show that the claimant had received remuneration or other financial reward in his capacity as director of Polyfloor Limited. There was an absence of documentary evidence to show that he did receive any payment or other gain. But the conclusion of the Ombudsman was affected by his assessment of the credibility of the claimant's evidence, because in the past he had been prepared to conceal and deny the truth where it suited him to do so. His approach therefore started from that standpoint and what he would regard to be the normal position, that a person who works normally does so for some financial gain. Since the nature of the work which the claimant had given to the company had been to provide general and in particular sales advice, as well as giving advice on design matters, and since he carried out a reasonable amount of work, taking all these factors into account, he concluded that he had been gainfully employed by the company, notwithstanding the absence of documentary evidence to show the nature of that gain or remuneration. I do not accept this conclusion was one which was not open to the Ombudsman on the material before him. The Ombudsman was entitled to form the conclusion that he did as to the concealment of information or the denial of truth which had been occasioned in the past. He had documentary evidence which put the claimant's credibility in issue. He took into account documentary evidence. I do not regard the conclusion that most people do work for some form of remuneration as being fanciful or unreasonable. It is not open to the claimant to suggest that natural justice requires an oral hearing. He did not request one and even if he had and it had been refused, there would not have been a breach of natural justice. In my judgment none of the detailed grounds which have been presented would amount to a challenge which could lead to the decision of the PIAOB, if amenable to judicial review, being quashed. For all these reasons this application for judicial review is refused.