England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT

		Royal Courts of Justice Strand London WC2
		19th May 2005

Thursday, 19th May 2005

1. MR JUSTICE STANLEY BURNTON: This is an application by IFG Financial Services Limited for judicial review of a decision made by The Financial Ombudsman Service Limited by Mr Vaughan-Payne, an ombudsman, dated, so far as the final decision is concerned, 2nd August 2004, requiring the claimant to pay compensation to a Mr and Mrs Jenkins in respect of investments made on their behalf by the claimant in two investment funds which ultimately, it is common ground, did not comply with Mr and Mrs Jenkins' stated requirements for investments.
2. Mr and Mrs Jenkins had a fund available for investment. They turned to the claimant for advice. Their requirement was for investment in investments carrying a medium level of risk. Mr and Mrs Jenkins' complaint related to investments made on their behalf, referred to as the FCS investments and the Aspire investment, both of which were investment funds which invested in currencies and derivatives and were high risk funds.
3. Not only were they high risk funds, but in the case of FCS Investment, the investment manager was, it appears, dishonest. The investments held by the fund were charged to a creditor improperly. The creditor took possession of the assets which were the subject of his charge. The result of that was a very substantial depletion in the assets available to the investors. Even after litigation in the United States in respect of the conduct of the fund, the assets available to investors were very substantially depleted.
4. There is no challenge to the decision of the ombudsman insofar as it relates to the Aspire investments, the second of the higher risk investments which, it is conceded for the purposes of these proceedings, should not have been made on behalf of Mr and Mrs Jenkins. The issue relates to the investment made on their behalf by the claimant with FCS.
5. It is common ground that the dishonesty of the management of that fund was not, and could not reasonably have been, anticipated by the claimant. The claimant contended to the ombudsman that on the facts of the present case, in those circumstances, the loss due to the dishonesty of the fund manager was not a loss in respect of which compensation should be payable or should be ordered to be paid by them to Mr and Mrs Jenkins. That was outside the scope of their responsibility and their liability.
6. In summary, the ombudsman held that the claimant should pay to Mr and Mrs Jenkins the entirety of their loss resulting from their investment in FCS Investment, including the loss due to the unforeseeable dishonesty of the fund managers.
7. The ombudsman's decision was made under a compensation scheme created pursuant to the Financial Services and Markets Act 2000. Section 225(1) of that Act provides that Part XVI of the Act, the heading of which is "The Ombudsman Scheme":

"...provides for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person."

8. The scheme is to be administered by a body corporate, the scheme operator, that is the Financial Ombudsman Service Limited, and is to be referred to as "The Ombudsman Scheme". Subsection (4) of section 225 provides that schedule 17 makes provision in connection with the ombudsman scheme and the scheme operator. Section 228(1) provides that that section applies only in relation to the compulsory jurisdiction of the scheme.
9. The claimant is an investment adviser and, as such, it is common ground, subject to the scheme. The scheme has a cap of £100,000 in terms of the maximum compensation that may be awarded with compulsory effect. The claim of the Jenkins' was well within that cap and the matters of which they complained were matters which were properly the subject of the jurisdiction of the ombudsman under the scheme.
10. Section 228(2) provides that:

"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."

11. Subsection (3) provides for a written statement of the determination to be given to the parties when the ombudsman has determined a complaint. That statement must, pursuant to subsection (4), give reasons for the determination, be signed by the ombudsman, and require the complainant to notify him in writing whether he accepts or rejects the determination.
12. The scheme is one which is compulsory so far as the financial adviser is concerned, but the result of a determination is not binding on a complainant such as Mr and Mrs Jenkins. They have an option to accept or to reject the determination. If they reject it they may, if they think fit, take legal proceedings in respect of their complaint. Nonetheless, the scheme as a whole is intended to provide, as required by section 225(1), a quick resolution of disputes within its scope with a minimum formality by an independent person.
13. Section 228(2) is at the heart of this case. It is to be noted that it does not require, as it might have done, a complaint to be determined in accordance with the law. The ombudsman is required to determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case. The words "in the opinion of the ombudsman" themselves make it clear that he may be subjective in arriving at his opinion of what is fair and reasonable in all the circumstances of the case. Of course, if his opinion as to what is fair and reasonable in all the circumstances of the case is perverse or irrational, that opinion, and any determination made pursuant to it, is liable to be set aside on conventional judicial review grounds.
14. The determination of a complaint involves consideration of the conduct, including any omission, that is relevant and any relevant advice of an investment adviser. Where the advice given is considered to be improper, that is to say unfair and unreasonable in the circumstances of the case, the ombudsman must consider whether it is appropriate to make an award of compensation or to direct that the adviser takes specified steps in relation to the matter in question.
15. Section 229 of the Act deals specifically, however, with the consequences of the upholding of a complaint in favour of a complainant. It applies only in relation to the compulsory jurisdiction. Subsection (2) provides:

"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)."

16. Section 229(3) provides that a money award, that is to say an award of the kind referred to in subsection (2)(a), may compensate for (a) financial loss, or (b), any other loss or damage of a specified kind. The monetary limit for compensation under the compulsory scheme is the subject of subsection (5) and subsection (6), but its provisions, as I have already indicated, are irrelevant to the present case.
17. It can be seen that the language of section 229(2) reflects, to some extent, the language of section 228(2). The financial award that is required to be made, if one is made at all, is of such amount as the ombudsman considers fair compensation for loss or damage of the kinds referred to in subsection (3). As I have already stated, that includes financial loss and the claim in the present case was indeed a claim in respect of financial loss, namely the difference between the amount invested in the funds in question and the amount realised when the investments were realised.
18. It is not suggested that the requirement that a complaint be determined by reference to what is fair and reasonable in all the circumstances of the case is materially any different from the requirement that a money award should be of such amount as the ombudsman considers fair compensation for loss or damage.
19. Again, it is to be pointed out that the ombudsman is not, at least in terms of section 229(2), limited to awarding that which would be awarded by law. It is an award of the amount which he considers (and again that implies a subjective consideration), subject to the limits of reasonableness, fair compensation for loss or damage falling within subsection (3).
20. The conclusion that fair compensation will not necessarily be the same as the amount of damages which would be awarded at law received some support from section 229 (2)(b) which authorises the ombudsman to include, in his determination of a complaint, a direction that the respondent take specified steps even though a court could not order those steps to be taken. Again, the qualification of the steps which the ombudsman may order imports subjectivity. They are steps which he considers (which connotes a subjective view) just and appropriate.
21. Again, were an ombudsman to direct steps to be taken pursuant to section 229 (2)(b) which he considered to be just and appropriate, in circumstances where his consideration, or the results of his consideration, were irrational or perverse, his decision would be liable to be quashed on conventional judicial review grounds.
22. Part III of schedule 17 to the Act is headed "The Compulsory Jurisdiction". That part of that schedule applies only in relation to the compulsory jurisdiction which is the jurisdiction which is concerned in the present case.
23. Paragraph 13 of schedule 17 is concerned with the procedural rules of the Financial Services Authority. They are not relevant to the present case.
24. The rules of the scheme operator are the subject of paragraphs 14 and 15 of schedule 17. It is headed "The scheme operator's rules". The scheme operator is the defendant.
25. Sub-paragraph (1) of paragraph 14 requires the scheme operator to 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. That sub-paragraph applies only to rules relating to procedure.
26. Sub-paragraph (2) of paragraph 14, provides that:

"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."

Sub-paragraphs (c) to (g) refer to other procedural rules.

27. One might have thought that paragraph 14(2), following as it does from 14(1), was dealing only with procedure, but paragraph 14(2)(a) is referring to matters which are substantive rather than procedural, namely the matters to be taken into account in determining whether an act or omission was fair and reasonable.
28. Sub-paragraph (7) of paragraph 14 requires the consent of the Financial Services Authority to the making of scheme rules.
29. Scheme rules were duly made by the defendant with the consent of the Financial Services Authority. The Rules relevant to the present case are Rules 3.8.1 - 3.8.3.
30. 3.8.1(1) 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."

31. That paragraph of the Rule does no more than restate the terms of 228(2) of the Act. It is, however, supplemented by paragraph (2):

"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."

32. Rule 3.8.2 provides for a determination as to what is fair and reasonable in all the circumstances of the case in relation to relevant new complaints. It is a rule which has no application, as I understand it, to the case presently before me.
33. Rule 3.8.3 requires the ombudsman's determination to include the provision of a signed written statement to the determination setting out the reasons for it. That too is a reflection of the requirements of the Act.
34. It is common ground before me that Rule 3.8.1(2), in requiring the ombudsman to take into account the relevant law, relates not only to whether an act or omission of an investment adviser was fair and reasonable, but also the determination of the ombudsman as to whether a money award should be made and if so its amount. I proceed with this case on that basis.
35. In order to understand the grounds for judicial review now relied upon by the claimant, it is necessary, to some extent, to address the facts leading up to the making of the ombudsman's determination.
36. Under the scheme it is the ombudsman who makes the final decision, which is binding on the investment adviser, referred to in parts of the Rules as "the firm". But before the matter comes to the ombudsman a complaint is considered by members of the staff of the defendant referred to as "adjudicators". They make a preliminary and provisional examination of the facts and come to a preliminary, and what may be a provisional, view as to what award should be made.
37. If the parties agree as to the result recommended by the adjudicator, as I understand it, it will become the determination under the scheme. But if they do not the matter is referred to an ombudsman and it is the ombudsman's decision which is binding on an investment adviser and which is the decision which may be accepted or rejected by the complainant under the statutory provisions.
38. The substantial issue taken by the claimant in responding to Mr and Mrs Jenkins' claim was that it should not be made liable for losses consequent upon the fraud of the investment management of which they knew nothing, which they could not have reasonably predicted, and from which they could not reasonably have safeguarded Mr and Mrs Jenkins. That loss, being outside the scope of their legal responsibility, in circumstances where they could not have foreseen it, they contended, should not be the subject of a money award under the scheme.
39. For the purposes of their submissions to the Ombudsman Service the claimant's solicitors obtained an Opinion from Mr Michael Pooles QC who has appeared on behalf of the claimant before me. His Opinion is a comprehensive review of the law relating to the recoverability of damages in circumstances such as those suffered by Mr and Mrs Jenkins. He concluded that as a matter of English law Mr and Mrs Jenkins were not entitled to recover damages from the claimant in respect of loss due to that unforeseeable fraud of the investment manager of the FCS fund, notwithstanding that that fund was not a fund into which the claimant should, in fulfilment of its duties to the Jenkins', have placed the Jenkins' assets.
40. His Opinion, understandably, relied principally on the House of Lords in South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191. It is unnecessary to consider that case or its facts, or to analyse Mr Pooles' Opinion, since it is accepted on behalf of the ombudsman that it, that is to say Mr Pooles' Opinion, correctly sets out English law on this subject, and that his conclusion as to the irrecoverability of the loss resulting from the fraud of the FCS investment managers was a correct conclusion under English law.
41. The Opinion was considered by the adjudicator initially dealing with the Jenkins' complaint, Ms Elizabeth D'Costa. As I have stated, the Ombudsman Service had been provided with Mr Pooles' Opinion enclosed with a letter of 6th May 2003. On 4th August 2003, Ms D'Costa wrote to the claimant a letter summarising her view of the case, concluding that the investments in question were not suitable for Mr and Mrs Jenkins and asking the claimant to reconsider its position, so far as the payment of compensation is concerned, and to give proposals for redress. The letter did not refer to Mr Pooles' Opinion.
42. The compliance officer of the claimant responded on 19th August 2003 with a long and detailed letter in which she referred to Mr Pooles' Opinion. She said:

"As for the FCS Managed Currency Fund, you have through our solicitors been provided with a copy of an Opinion from Leading Counsel, Mr Michael Pooles QC in which he explains why the losses suffered in respect of this investment are not recoverable in law from ourselves. As you are aware DISP 3.8.1 states that the Ombudsman will take into account the relevant law. In your letter you make no reference to the Opinion of Mr Pooles QC and so I should be grateful for your confirmation that you have considered it, and have taken into account the law as set out in that Opinion. If you remain of the view that redress is due, please explain precisely how you have taken the law into account when reaching that conclusion."

43. Ms D'Costa responded in a letter of 26th August 2003. She said:

"In terms of your reference to the Counsel's Opinion, I would respond as follows. The basis on which I feel this complaint should succeed is based on the fact that the original advice to invest in the three funds in the Allied Dunbar International Portfolio was inappropriate to Mr & Mrs Jenkins attitude to risk. It is in fact accepted in the Opinion that the FCS Managed Currency Fund should have been rated as high risk, it is my contention that that Aberdeen Unit Trust Technology Fund and the Allied Dunbar European Fund are also in excess of medium risk.

"The subsequent misappropriation of monies in the Fund and the duty of care referred to in your Counsel's Opinion, would only be a consideration if I had not found the contract to have been appropriate at the time of the advice as I agree that this would have not been a foreseeable event.

"As a result my view remains unchanged and I would ask that you let me have your proposals for redress."

44. The point made by Mr Pooles in relation to that letter is that Ms D'Costa was not taking into account English law as set out in his Opinion but was rejecting his Opinion as irrelevant. It is a point, in my judgment, which is well made.
45. On 8th September 2003 the claimant's compliance officer responded to Ms D'Costa. For present purposes it is unnecessary to refer to that part of the correspondence which concerned the Aberdeen Unit Trust Technology Fund or the Allied Dunbar European Fund because the issue between the claimant and the defendant in the present proceedings, as I have already stated, is confined to the consequences of the Jenkins' investment in the FCS Managed Currency Fund. So far as that is concerned the compliance officer, Mrs Morris, in her letter said:

"With regard to FCS Currency Fund and Leading Counsel's Opinion, I presume that when you say "appropriate" you in fact mean "inappropriate". It is not clear to me whether or not you are saying that you have had regard to the Opinion; nor do you indicate how you have taken the legal position into account when reaching your conclusion that redress should be offered. It does seem to me that not only is the position clear at law but it is also a principle that is wholly in accordance with common sense."

46. Then she referred to the example given in the House of Lords of the doctor who negligently advised a mountaineer that his knee is sound with the consequence that the mountaineer embarks on an expedition which he would otherwise not have undertaken and then suffers an injury wholly unconnected with his knee condition, such as a rock fall. In those circumstances, as Lord Hoffmann said in the House of Lords, the doctor would not be liable in respect of that injury because it was not within the scope of the doctor's advice or responsibility.
47. Ms D'Costa replied on 11th September 2003. She said:

"The Financial Ombudsman Services, when dealing with a complaint of this nature, looks at whether the advice at the point of sale is appropriate to the client based on the contemporaneous information available from that time.

"The events within subsequently transpired are irrelevant to the basis on which I feel this complaint should succeed. In my view, the Counsel Opinion and your assertions about relevant case law are not relevant to the outcome of this complaint, as these are events which occurred subsequent to the advice which I agree could not have been foreseen. I do not however agree that because these events were unforeseen the logical conclusion would be that the advice was appropriate and therefore no redress is payable.

"I would ask again that you reconsider you[r] position, if at this time you are not prepared to do so, then I feel that the case should be progressed to the Ombudsman for a Final Decision."

48. Again, Mr Pooles comments, rightly, that Ms D'Costa here was stating that his legal Opinion and the law as summarised in it, were irrelevant to the question of a money award; that is to say, whether it should be made and its amount. The terms of the letter suggest that his Opinion was relevant only to the question whether the advice to invest in the FCS fund was appropriate or not; not, therefore, relevant to the question of a money award in principle or as to its amount. Again, it seems to me, that that is a criticism which is justified.
49. The claimant's compliance officer replied on 16th September 2003 saying:

"I cannot agree that council's [sic] opinion or the case law is irrelevant and I do not understand your own view on causation.

She accepted that procedurally it was the next step for the matter to go to the Ombudsman for a final decision.

50. At that point a different adjudicator came on the scene, namely Miss Catherine Langley, as a result of Ms D'Costa leaving the team which had been concerned with the Jenkins' complaint. She said that she agreed in general with Ms D'Costa's view of the complaint. She referred to an error that Ms D'Costa had made about other investments and asked for information for her to be able to assess the suitability of the investments in fact made.
51. Miss Langley set out her opinion of the claim in a letter of 15th December 2003. In relation to that part of the Jenkins' complaint with which these proceedings are concerned she said:

"The second area of the complaint that I am upholding is the investment into FCS Managed Currency Fund. Again, the funds aim was 'to seek profits by trading and arbitraging a portfolio of investments in Futures, Options and Interbank Foreign Exchange Markets. The Fund will concentrate its activities to trade and arbitrage such price differentials'. Again, I cannot see anything here that suggests the fund is anything lower than high risk.

"I appreciate you forwarding on the Opinion of Michael Pooles QC but I suggest that this is mainly irrelevant, as I do not consider a currency fund a suitable investment. Indeed, in Mr Pooles' Opinion (number seven) he states that 'I am advised that Hedley Willgrass informed its investing clients that FCS Managed Currency Fund would be considered as an investment of medium risk. For the purposes of this opinion it is accepted that such advice was incorrect. A managed currency fund of the type identified by FCS ought to have been categorised as a high risk investment.'

"I consider it evident that both investments were high risk and therefore unsuitable for Mr and Mrs Jenkins.

"In light of this information I should be grateful if you would reconsider your firm's position and forward to me your proposals for redress."

Again, nothing in that letter indicated an appreciation of the Opinion of Mr Pooles and the law it set out as to the issue whether compensation was, or should be, recoverable, and, if so, its amount.

52. Mrs Morris, the compliance officer for the claimant, responded on 19th January 2004. I might say that although there is considerable correspondence here Mrs Morris' letters are by no means over long. They are clearly and cogently written. She said this in the letter of 19th January 2004:

"So far as FCS Managed Currency Fund is concerned I am surprised that you consider the opinions of Mr Pooles' QC to be irrelevant. It does set out the legal (and common sense) position on causation and it cannot be right for you simply to ignore the position at law and indeed the whole position regarding causation. I think that the mistake that both Ms Costa and yourself are making is that you want to assume that if we made any error when originally assessing the risks of this investment then we must be responsible for any losses that subsequently were suffered."

53. Then she pointed out that that was a fallacy which had been rejected by the House of Lords and said:

"You still have to consider whether the losses complained of were caused by that unsuitability. [That is to say, the unsuitability of the investment]. It is only if there is a causal link that any compensation can be said to be due. So far as FCS Managed Currency Fund is concerned we have already agreed in correspondence that the actual losses were caused by a non-foreseeable event ie the dishonesty of the New York trading consultant and therefore I remain of the view that they do not fall to be compensated by this company."

54. She also referred to the position of Aspire. I need not refer to that. She ended by saying:

"For the reasons set out above we are not prepared to make an offer of settlement to Mr and Mrs Jenkins and request that you refer the papers to the Ombudsman."

55. On 17th March 2004 the ombudsman, Mr Vaughan-Payne, wrote to Mrs Morris, the claimant's compliance officer, saying that he had carefully considered all the representations and evidence submitted by the Jenkins' and the claimant about the complaint, together with Miss Langley's investigation and adjudication, and that subject to any further representations and evidence received from either the Jenkins' or the claimant he was minded to issue a final decision along the lines of the provisional decision which he had enclosed, a copy of which was also sent to the Jenkins'. He asked Mrs Morris to write as soon as she could with any further representations, or to confirm that the claimant had no more to add.
56. The provisional decision, like the letter enclosing it, is dated 17th March 2004. It sets out under the heading "Complaints" the complaints made by Mr and Mrs Jenkins, namely that two investments recommended to them by the claimant were of a higher risk than the level which they requested which was medium. They have also made a complaint about charges, but that need not be addressed in this judgment.
57. Under the heading "Background" the ombudsman set out the history of the complaint referring to what Ms D'Costa had done and the error that she had made in respects which are irrelevant to the issue I have to decide.
58. He then dealt with Mr and Mrs Jenkins' contact with the claimant; that they had a certain amount of capital to invest and required some income from it, that they had completed the requisite confidential information form in September 1999 stating that they were prepared to accept a medium level of risk, and they had originally, in accordance with the advice given by the claimant, made investments into Allied Dunbar and Norwich Union and Scottish Equitable bonds; the Allied Dunbar bond itself was to be split, 60 per cent into the FCS Managed Currency Fund. The other parts need not be referred to for present purposes.
59. He also dealt with the realisation of some of the investments and the transfer of the proceeds into another currency trading fund, the Aspire Currency Trading One Ltd Fund.
60. He stated that Miss Langley, the second adjudicator, had found it hard to justify any of the investments that were referred to as being anything other than high risk. He said:

"The FCS Managed Currency Fund, which was one of the original purchases, was retained at this time and Miss Langley considers that this was also a high risk investment and not in line with the complainants' requirement for medium risk. The fund was designed 'to seek profits by trading and arbitraging a portfolio of investments in Futures, Options and Interbank Foreign Exchange markets. The Fund will concentrate its activities to trade and arbitrage such price differentials'. Ultimately, because of fraud, the fund was embroiled in litigation in the US and in October 2002 [£8,275.21] was returned to the Jenkins out of their original investment of £30,000.

"The firm has requested that the Financial Ombudsman Service consider the Opinion of Michael Pooles QC. Both Miss D'Costa and Miss Langley consider that the contents would not appear to be relevant to this complaint as ultimately, this investment should never have been recommended to medium risk investors. Mr Pooles states in his Opinion..."

Then he referred to the acceptance that the FCS Managed Currency Fund was inappropriate.

61. The ombudsman continued:

"The firm does not accept Miss Langley's adjudication of 15 December 2003 of the complaint on two points. Firstly they are surprised that she considers the Aspire Currency Trading One Limited fund was high risk...

"Secondly, the firm considers that Mr Pooles' opinion regarding the FCS Managed Currency Fund should be taken into consideration particularly with reference to causation. Miss Langley maintains that losses were caused by the unsuitability of the investment at the outset, and that the issue of causation in relation to the subsequent fraud is not relevant.

"The firm has drawn attention to the fact that the complainants redeemed their holding in Aspire Currency Trading One Limited..."

62. He then referred to the management of the FCS Managed Currency Fund and of the Aspire Currency Trading and to the complaint that had been made.
63. So far, therefore, he was dealing with background, in the course of which he mentioned that the firm, that is to say the claimant, had not accepted Miss Langley's view that it should offer compensation to the Jenkins.
64. Under the heading of "Discussion" he said this:

"The Financial Services & Markets Act 2000 (Chapter 8 para 228(2)) states that a complaint is to be determined by reference to what is fair and reasonable in all the circumstances of the case. In considering what is fair and reasonable I will take into account the relevant law, regulations, regulator's rules and guidance and standards, relevant codes of practice, and where appropriate what I consider to have been good industry practice at the relevant time."

65. That, of course, was a restatement of the terms of Rule 3.8.1. He said:

"I have considered the counsel's opinion by the firm in relation to the matter of causation. That opinion states quite categorically that the classification of the FCS fund by Mr Willgrass [of the claimant] as medium risk was wrong and that the FCS fund was a high risk investment. Its stated activities were to trade and arbitrage in futures, options, and Foreign Exchange markets. This is a high risk strategy, quite unsuitable for Mr and Mrs Jenkins' medium attitude to risk. The firm have argued that they could not have foreseen the fraudulent activities which damaged the performance of the fund. I agree with that view.

"They further argue that, as the fraud was unforeseeable they are not liable for any result of their unsuitable advice given to Mr and Mrs Jenkins. I do not consider that view to be fair and reasonable under all the circumstances. The firm were responsible for investing Mr and Mrs Jenkins' funds where they should never have been invested. It is neither fair nor reasonable to expect Mr and Mrs Jenkins to absorb any loss on their investment as it was not suitable for them in the first place. If a firm chooses to make an unsuitable recommendation to its customers it does so entirely at its own risk, and not that of the customer. Had the investment been suitable I would have agreed that the firm could not be liable for the outcome. However in the circumstances it is reasonable to find that the firm is liable and should therefore pay appropriate compensation."

66. He, later in that provisional decision, set out the basis on which compensation should be paid as appears from that part which I have quoted. It included liability for the consequences of the fraud of the manager of the FCS Managed Currency Fund.
67. The claimant responded to the provisional decision by letter dated 22nd April 2004. In paragraph 1 they took issue with a statement made by the ombudsman that:

"If a firm chooses to make an unsuitable recommendation to its customers it does so entirely at its own risk, and not that of the customer."

68. The letter pointed out that no one had suggested that the claimant had deliberately chosen to put the Jenkins' assets into an unsuitable recommendation. Very fairly, the letter said:

"We have... assumed that this phrase is not to be interpreted in this manner. Could you please make this clear."

69. The second point made in the letter of 22nd April 2004 was that:

"The same paragraph [of the provisional decision] appears to suggest that your provisional decision would be the same even if the firm had mistakenly included in its selection of potential investments a low risk rather than medium risk scheme."

It was then asked whether that meaning was intended. I was referred, during the course of argument, to that question as a good question and indeed it is.

70. The third point made in the letter was this:

"Given your acceptance that the cause of the loss was unforeseeable, if our interpretation set out in the previous paragraph is correct, we cannot see how the relevant law of causation set out in the Opinion to which reference has been made has been taken into account. We would ask you to make clear the respects in which you have taken into account the operative law and whether you disagree with the annunciation of legal principle, which has been propounded."

71. The adjudicator made his final decision in a document dated 2nd August 2004. He attached his provisional decision. He referred to the calculation of redress which the claimant had provided and said:

"I have considered the contents of the firm's letter dated 22 April 2004. In my provisional decision I set out my remit, which was to consider both the law and what is fair and reasonable. The firm has questioned my statement 'If a firm chooses to make an unsuitable recommendation to its customers it does so entirely at its own risk, and not that of the customer'. I am happy to rephrase my original statement. I wished to infer that if any firm chose to recommend an investment that was judged unsuitable they were liable for the outcome. There is no suggestion that the firm made that recommendation deliberately, knowing it to be unsuitable."

72. He then dealt with matters of calculation and said under the heading "Findings":

"I have considered all of the evidence and arguments from the outset, in order to decide what is fair and reasonable in the circumstances. Having done so, my final decision remains on principal the same as my provisional decision."

73. He then sets out the final conclusions and his decision on the following page that in full and final settlement of the complaint, the firm should pay Mr and Mrs Jenkins some £11,000 and interest.
74. The challenge made to the final decision turns entirely on the application of Rule 3.8.1 of the scheme. Mr Pooles accepted, and indeed in my judgment had to accept, that the scheme does not require the ombudsman to make a decision in accordance with English law. If the ombudsman considers that what is fair and reasonable differs from English law, or the result that there would be in English law, he is free to make an award in accordance with that view assuming it to be a reasonable view in all the circumstances.
75. Mr Pooles gave an example of the workings of the English law of limitation of proceedings under which a claim might be statute barred, but in particular circumstances the ombudsman might consider it appropriate to accept the claim and make a money award because the result of the application of the English law of limitation, assuming it to be applicable to proceedings before an ombudsman, would be unfair and unreasonable in all the circumstances of the case.
76. But, in my judgment, precisely the same must apply to the quantification of any money award. That is to say, the ombudsman is free to make an award which differs from that which a court applying the law would make, provided he concludes that the award he wishes to make is one which is fair and reasonable in all the circumstances of the case and provided he has taken into account the matters identified in Rule 3.8.1, paragraph 2.
77. What happened in the present case, Mr Pooles submits, however, is that the ombudsman failed to take into account the relevant law. It was considered to be irrelevant to the question whether there should be a money award and its amount. Effectively it was taken into account only insofar as it confirmed that the advice given by the claimant had been unsuitable. Certainly, as one has seen, it was only for that purpose that it was taken into account by the adjudicators.
78. By way of confirmation that the ombudsman failed to take into account the relevant law, Mr Pooles points to the lack of any specific or clear reason for the failure to apply English law as set out in his Opinion, and it is common ground that he correctly set out English law in his Opinion, notwithstanding the clear and cogent invitation by the claimant for the ombudsman to do so. He submitted that the reason that no clear and cogent reason was given for the non-application of English law was that it had not been taken into account.
79. The challenge is not a reasons challenge, that has not been pleaded in the claim form, but the absence of adequate reasoning is relied on in support of the substantial challenge that there has been a failure to take into account the relevant law.
80. Whether the ombudsman did take account of the relevant law is to be determined on the basis of the reasons he gave for his decision. In his provisional decision the ombudsman stated in terms that he had considered counsel's Opinion in relation to the matter of causation. That is to say, he had considered it not simply in relation to the question whether the advice given to invest in the FCS Managed Currency Fund was appropriate, but also in relation to the question of the causation of loss which was one of the principal matters dealt with in Mr Pooles' Opinion.
81. He also referred, in terms, to the argument put forward in the Opinion and elsewhere, that the claimant could not have foreseen the fraudulent activities which damaged the performance of the FCS Fund and accepted that view, a view which clearly was material to the conclusion as to recoverability under English law.
82. He went on to say:

"They [that is to say, the claimant] further argue that, as the fraud was unforeseeable they are not liable for any result of their unsuitable advice given to Mr and Mrs Jenkins."

83. It seems to me that that too demonstrates that he did take into account the contents of Mr Pooles' Opinion and the conclusion he had reached. That was a conclusion as to law. The ombudsman does not refer to the law as such, but the argument that is referred to is an argument based on English law as set out in the Opinion.
84. He continues:

"I do not consider that view to be fair and reasonable under all the circumstances."

85. And concluded:

"... in the circumstances it is reasonable to find that the firm is liable and should therefore pay appropriate compensation."

86. In the middle of that paragraph he said that the firm were responsible for investing the Jenkins' funds where they should not have been invested. He asserted that it was neither fair nor reasonable to expect them to absorb the loss of their investment that was not suitable for them in the first place.
87. In my judgment those passages confirm that the ombudsman did take into account English law as set out in Mr Pooles' Opinion. That result receives further confirmation from the terms of the final decision and the ombudsman's statement that he had set out his remit, which was to consider both the law and what is fair and reasonable.
88. Mr Pooles rightly, as I have already indicated, points out that here there is no clear articulation of the reason for departing from English law. But the ombudsman's decision, sufficiently clearly expressed, was that the result of the application of English law, that is to say, that in the circumstances of the present case there should be no recovery for unforeseeable consequences of fraud, was not a result which was fair and reasonable in all the circumstances.
89. That, in my judgment, was a conclusion he was entitled to come to. Indeed, there is no challenge to his decision on grounds of rationality.
90. So far as the lack of a clear reason for coming to that conclusion, rather than the conclusion required by English law is concerned, it does seem to me that it is sufficient for an ombudsman to make clear that which he considers to be fair and reasonable in the circumstances, at least in a case such as this. What is fair and reasonable will often be a matter of judgment and it may be difficult to articulate why one result is considered to be fair and another to be unfair or insufficiently fair. I am therefore not surprised that the ombudsman did no more than to say that a lack of recovery in the present case would have been neither fair nor reasonable.
91. I would add that it is, in terms of fairness and reasonableness, not irrational to conclude that there should be recovery in circumstances such as the present, as indeed the fact that the House of Lords in the South Australia case differed from the Court of Appeal itself demonstrates.
92. In my judgment, on the assumption which I have made, and which is common ground between the parties, that the requirement to take into account the law under the Rules applies to the quantification of compensation, the ombudsman did demonstrate in his provisional final decisions that he took it into account. He was entitled to depart from the result mandated by the law if he considered that another result provided the result that was fair and reasonable in the circumstances. He did, and it follows that his decision is binding on the claimant and does not fall to be set aside.
93. Accordingly, the application for judicial review will be dismissed.
94. MR STRACHAN: My Lord, I am grateful. I ask for an order in those terms. My Lord, there is one matter in relation to your Lordship's judgment, and I endeavoured -- and no doubt it is my fault -- but I endeavoured in agreeing that the position as to English law was as set out in Mr Pooles' --
95. MR JUSTICE STANLEY BURNTON: To say so for the purposes of these proceedings.
96. MR STRACHAN: For the purposes of this application, because that is the way the ombudsman proceeded. I did not mean to concede any wider principal --
97. MR JUSTICE STANLEY BURNTON: You did not do so and the transcript will show that that was the extent of your concession.
98. MR STRACHAN: I am very grateful, my Lord. I also ask for an order that the claimant pay the defendant's costs. There is a schedule for assessment, my Lord. I understand that the sum, the quantum, is agreed in principle -- sorry, the quantum is agreed, as to the principle I seek my costs and wait to hear from my learned friend. I apologise, my Lord, I seek it in that sum.
99. MR JUSTICE STANLEY BURNTON: You seek summary assessment in the sum of £11,870.
100. MR STRACHAN: Indeed.
101. MR JUSTICE STANLEY BURNTON: Mr Pooles?
102. MR POOLES: My Lord, I do not oppose any of that. I do ask for permission to try again. There is a point of principle here, that is to say, the extent to which, in circumstances such as this, where the ombudsman is clearly departing from the law which he is bound to take into account. Circumstances such as the present demonstrate that it has been taken into account. I appreciate your Lordship has made a finding against me, but I do ask for permission.
103. MR JUSTICE STANLEY BURNTON: I think in the light of my judgment, and indeed Owen J's order and Munby J's judgment, you should ask the Court of Appeal. I will complete a form for you.
104. Good. Thank you very much.