England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/11/2007

Mr Justice Wyn Williams :

1. In these proceedings the Claimant seeks to challenge the decision of the Defendant to the effect that it has jurisdiction to hear and determine a complaint made against the Claimant by two former clients. The final decision to assume jurisdiction was made by the Defendant on 18 September 2006. I should say at the outset that the Defendant was constituted by Part XVI of the Financial Services and Markets Act 2000 and that in general terms its intended role is to investigate and adjudicate upon complaints brought by dissatisfied clients or former clients of those who engage in giving advice about investments.
2. The application for permission was considered by Silber J on 2 May 2007. He ordered an oral hearing of the permission application and he made consequential directions.
3. The hearing came before me on 31 August 2007. As it happened it was the only substantial case in my list and, with the consent of the parties, I decided to treat the hearing as if it was the substantive hearing. I granted permission to the Claimant to seek judicial review and, to repeat, I then proceeded to a substantive hearing.

The Facts

4. There is no dispute of substance about the relevant facts and I take my recital from the Detailed Statement of Grounds filed on behalf of the Claimant in these proceedings. The Claimant is a firm of Chartered Surveyors and Estate Agents. Prior to March 2002 the firm had, incidental to its principal business, arranged mortgage linked endowment policies for some of its clients. Two such clients were a Mr Pullen and a Miss Harrington. In or about March 1992 they agreed to purchase a property known as 3 Bryntalwg, Treharris in the County of Mid Glamorgan. The purchase price of the property was £39,950 and in order to pay that purchase price Mr Pullen and Miss Harrington borrowed the sum of £38,506 which was secured by way of a mortgage over the property.
5. The Claimant arranged an endowment policy for its clients with Friends Provident. The policy had a minimum value of £38,506 in the event of the death of Mr Pullen or Miss Harrington prior to the maturity date of the policy. As is set out in the Detailed Statement of Grounds, the sum of £38,506 was also the "target sum" in respect of the mortgage borrowing. Immediately prior to the arrangement of the endowment policy Mr Pullen and Miss Harrington were provided with an illustration prepared by Friends Provident showing future returns to the maturity date of the policy (August 2017). At an annual rate of return of 7% the future return was set to be £31,800; at an annual rate of 10.5% the sum was predicted to be £53,700.
6. On 9 December 2004 Mr and Mrs Pullen (as they had become) made a complaint to the Claimant that the endowment policy had been "mis-sold". By letter dated 11 February 2005 the Claimant rejected the complaint and, in consequence, on 13 February 2005 Mr and Mrs Pullen referred the complaint to the Defendant.
7. The Claimant became aware of the referral when it received a letter from the Defendant dated 24 February 2005. That letter enclosed the complaint which had been made by Mr and Mrs Pullen and sought from the Claimant various documents and other information. In response, by letter of 8 March 2005, the Claimant disputed the jurisdiction of the Defendant.
8. Following a significant delay the Defendant responded. The response was a letter dated 15 September 2005 which set out, in detail, the basis upon which it was then asserting that it had jurisdiction. During the course of the following year, the Claimant and the Defendant debated this issue in correspondence. However by a letter dated 18 September 2006 the Defendant made it clear that it had made a final decision to the effect that it considered it had jurisdiction over the complaint.
9. The remainder of the relevant facts must be seen in their statutory context. Section 3 of the Financial Services Act 1986 (when it was in force) provided that no person should carry on investment business in the United Kingdom unless he was authorised so to do. Under the same Act "investment business" was defined to include "arranging and advising on investments" and endowment policies were included in the definition of investments.
10. A person might become an authorised person or an exempt person under section 3 of the 1986 Act by a number of routes. By virtue of section 7(1) of the Act a member of a recognised self-regulating organisation was an authorised person by virtue of his membership of that organisation.
11. Two such organisations which existed at times material to this dispute were the organisation known as "Financial Intermediaries Managers & Brokers Regulatory Association" (hereinafter referred to as "FIMBRA") and the organisation known as the "Personal Investment Authority" (hereinafter referred to as "PIA"). By section 44 of the 1986 Act "an appointed representative [was] an exempted person as respects investment business carried on by him as such a representative."
12. Between April 1988 and October 1994 the Claimant was a member of FIMBRA. Between October 1994 and July 1997 it was a member of PIA. Between July 1997 and March 2002 it was an appointed representative of an authorised firm (Burns Anderson Network). Since March 2002 it has not been authorised and has conducted no regulated investment business. It follows that the Claimant ceased to be an authorised person in July 1997 and it was an exempted person between July 1997 and March 2002.

Current Relevant Legislation

13. As from 1 December 2001 the relevant parts of the Financial Services Act 1986 were repealed and replaced by the Financial Services and Markets Act 2000. Amongst other things the 2000 Act introduced a new Ombudsman scheme. In effect, as I explained above, the Defendant came into existence. The Act also empowered the making of secondary legislation and on 27 June 2001 the Financial Services and Markets Act 2000 (Transitional Provisions) (Ombudsman Complaints Scheme) Order 2001 was made. This statutory instrument makes provision for how complaints are to be treated if they relate to acts or omissions occurring before the commencement of the 2000 Act but are not made until after it had come into force. In effect, paragraph 3 of the Order provides that the compulsory jurisdiction conferred upon the Defendant (by virtue of section 226 of the 2000 Act) is to apply to a complaint made after commencement which relates to an act or omission occurring before commencement if the conditions laid down in paragraph 3(2) are met. These conditions are as follows:-

"(a) the act or omission is that of a person who was, immediately before commencement, subject to a former scheme;

(b) the act or omission occurred in the carrying on by that person of an activity to which that former scheme applied; and

(c) the complainant is eligible and wishes to have the complaint dealt with under the new scheme."

14. The phrase "former scheme" is defined in the interpretation section of the Order. A former scheme includes a scheme operated by PIA.
15. The crucial condition is the one set out in sub-paragraph (a). Is the Claimant a person who was subject to a former scheme immediately before commencement? In this context commencement means the coming into force of section 19 of the 2000 Act. That section came into force on the 1 December 2001. I turn to consider this issue, which, as it seems to me, is determinative of the proceedings before me. I say that since, as I understand it, the Claimant accepts that if he was a person within sub-paragraph (a), conditions (b) and (c) would be also satisfied.

Discussion

16. At the time the Claimant arranged the endowment policy on behalf of Mr and Mrs Pullen it was a member of FIMBRA. As I have said it is common ground that FIMBRA was a self-regulating organisation under the 1986 Act. In his Witness Statement on behalf of the Claimant Mr Roderick Brinson says that, thereafter, the Claimant was "grandfathered" into PIA. Whatever, precisely, is meant by that term it seems to me that the Claimant must have become a member of the PIA. After all that is the word which the Claimant, itself, uses in paragraph 12 of its detailed Statement of Grounds.
17. At the time it became a member of PIA there existed detailed rules which governed that organisation. Further there was in place what I will call a complaints procedure whereby clients of members of PIA who were dissatisfied with the way in which some aspect of their investment business had been undertaken by the member could make a complaint to an ombudsman. I have before me the PIA's Ombudsman terms of reference. It suffices that I say in relation to those terms of reference that there would have been no bar, in the instant case, to the PIA Ombudsman investigating and determining Mr and Mrs Pullen's complaint had they made it during the period when the Claimant was a member of PIA. That is common ground.
18. The principal point taken on behalf of the Claimant is as follows. In 1997 it ceased to be a member of PIA. As at the date of its cessation of membership from PIA it ceased to be susceptible to an investigation and determination by the PIA Ombudsman. In consequence submits Mr Virgo on behalf of the Claimant, the Claimant is not a person who was on 19 December 2001 a person who was subject to a former scheme.
19. It seems to me that in order to determine whether that submission is correct one must interpret the rules of PIA as they were at the time when the Claimant was a member. I deal first with the rules contained in chapter 8 under the heading "Complaints". Rule 8.1.1 provides as follows:-

"The Rules in this part apply to complaints which are received by Members …… on or after 18 July 1994 and which

(1) (a) are made in connection with, or arise out of, the business of the Member which is regulated by PIA, or

(b) are made in connection with, or arise out of, the business of the Member prior to that date in respect of which the Member was subject to the rules of the Securities and Investments Board or of any recognised self-regulating organisation or recognised professional body (where the Member is no longer is regulated by that regulator in respect of that business)…"

Rule 8.5.1 provides: -

"A Member must co-operate with the PIA Ombudsman in any procedure which he may adopt with a view to the conciliation or adjudication of a complaint"

Rule 8.6 specifies that:-

"A Member must comply promptly with any award made against him by the PIA Ombudsman except only where a Member exercises in good faith a right of appeal, or applies for other relief, to the court."

20. Rule 8.7 is a rule in respect of the payment of fees. Somewhat unusually following rule 8.7 there is a heading "Former Members". No rule is then specified but the following appears under the heading:-

"Guidance – All applicants for membership of PIA are required to give an undertaking to PIA that they will comply with the obligations contained in these Rules in relation to complaints to which the Rules in this Chapter apply and which they may receive after they have ceased to be a Member of PIA. In particular that undertaking acknowledges that PIA may take civil action against a former Member which does not comply with and satisfy an award made by the PIA Ombudsman in respect of any such complaint."

21. It is to the forefront of the Claimant's argument that no evidence had been adduced which establishes that any such undertaking as is mentioned in that passage was given in this case. Indeed, Mr Brinson in his Witness Statement, says that no such undertaking was given. That being the only evidence, submits Mr Virgo, I should (a) accept it and therefore (b) conclude that as from the date of its resignation from membership the Claimant was no longer susceptible to investigation and determination by the PIA Ombudsman.
22. I accept, of course, that the language of the passage quoted above does tend to suggest the need for the existence of an undertaking before a former Member of PIA can be under the jurisdiction of the PIA Ombudsman.
23. In my judgment, however, that passage cannot dispel the effect of the following express rules. Rule 1.9.3 (1) makes it clear that a Member who wishes to resign must apply for permission to do so on the resignation form obtainable from PIA. Rule 1.9.3(2) provides that the membership committee of PIA has discretion as to whether to accept the resignation. That discretion is qualified, however, in that a resignation may only be accepted if the Committee is satisfied that a member has complied with all requirements specified in the application form, and has otherwise complied with its obligations as a member.
24. Rule 1.9.4 is headed "Obligations after Resignation or Termination of Membership" and, in my judgment, is crucial to the resolution of this case. It is in the following terms:

(1) A person which is to cease or has ceased to be a Member of PIA whether in consequence of resignation or termination, must continue co-operate fully

(a) in fulfilment of any undertaking given or obligations accepted by the Member in its application for resignation;

(b) with any individual carrying out on behalf of PIA enquiries into the activities of the Member or former Member;

(c ) in any investigation into a complaint made by a customer of the Member or former Member,

(d) in any conciliation or adjudication by the PIA Ombudsman of a complaint and with any request or direction of the Ombudsman relating to such conciliation or adjudication".

25. In my judgment the "Guidance" in the passage quoted in paragraph 20 above has to be read in the light of these two express rules. In my judgment when that is done I am constrained to arrive at the following interpretation of the rules. Upon an application for membership of PIA an applicant has an obligation to give an undertaking in a specified form to the effect that they will comply with the obligations contained in the rules. Regardless of that undertaking, however, the Rules themselves provide obligations which are binding on members who have resigned or had their membership terminated. Those are the Rules which are contained in 1.9.4 and of particular significance in this case are the rules at 1.9.4 (c) and (d). In my judgment the only sensible interpretation of those rules is that even after membership has ceased a former member has an obligation to co-operate fully in the investigation of a complaint and in the adjudication of that complaint by the PIA Ombudsman.
26. On the basis that this is the correct interpretation of those Rules there is no reason to conclude other than the Claimant remained bound by the rules until 19 December 2001. That being so, of course, there can be no dispute but that the Claimant was "subject to a former scheme" on that date and within the conditions specified in paragraph 3 of the 2001 Order.
27. It follows that I conclude that the Claimant is subject to the jurisdiction of the Defendant.
28. In reaching this conclusion I am conscious, as Mr Virgo points out with some considerable justification, that the basis for confirming jurisdiction accepted by me has not been the only basis upon which the Defendant has claimed jurisdiction. No doubt that is of forensic interest. However, it does not seem to me that I should be deflected from what I regard to be the proper interpretation of the relevant rules and statutory provisions simply because the Defendant, itself, has vacillated in the way that it has sought to explain its assumption of jurisdiction.
29. In resisting this Claim, the Defendant also asserted that an application for judicial review was premature. In effect, it invited this Court to say that the Claimant should have accepted jurisdiction, waited for determination on the merits and then made a challenge. I do not accept that. It seems to me that it was wholly proper to challenge the jurisdiction of the Defendant at the first point in time that it was reasonable so to do. Had I been prepared to accede to the Claimant's submissions on the interpretation of the relevant legislation and rules the investigation would have come to a halt with a consequent saving in time, effort, and money. To repeat, had my view been that the Defendant did not have jurisdiction to investigate and determine this complaint I would not have refused relief on the grounds of a premature application.
30. However, for the reasons set out above, I have reached the clear conclusion that the Defendant's decision to assume jurisdiction in this case was valid and lawful and, accordingly, I dismiss this application for judicial review.
31. The parties have filed a draft order. I propose the make an order in the terms of that draft.