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FOS Decisions are not Arbitral Awards

The High Court recently considered whether a decision made by the Financial Ombudsman Service is a decision made under an arbitration agreement and so appealable under the Arbitration Act 1996.

Background to the application

Back in 2011 a Mr Wayne Charlton invested in a self-administered personal pension (a “SIPP”) administered by Berkeley Burke. After one of the companies invested in by the SIPP was investigated by the Serious Fraud Office and went into receivership, Mr Charlton made a complaint against Berkeley Burke to the FOS.

In 2014 FOS upheld Mr Charlton’s complaint. As is usual with FOS cases, the decision became binding only once accepted by Mr Charlton. Berkeley Burke maintained the decision was incorrect and stated that they were minded to seek a judicial review of it. Following correspondence between FOS, Mr Charlton and Berkeley Burke, all parties agreed that the FOS would reconsider Mr Charlton’s complaint. A further decision was issued by the FOS in February 2017, again in Mr Charlton’s favour. Mr Charlton accepted the outcome once more.

In response to this, Berkeley Burke took two steps: (1) they issued an application for judicial review of the decision (subsequently stayed); and (2) they issued a claim under the Arbitration Act to appeal the decision. On the latter application the first issue of whether the decision was made under an arbitration agreement has just been considered by the Court.

The decision

Section 6 of the Act defines an arbitration agreement as “an agreement to submit to arbitration present or future disputes (whether they are contractual or not).” The Court found that the FOS regime did not satisfy this test. Given that the decision of the Ombudsman would only become binding if Mr Charlton accepted it, the Ombudsman did not have the necessary authority to determine the dispute.

Berkeley Burke argued that section 58 of the Act also required consideration. Section 58 provides that “Unless otherwise agreed by the parties, an award made by the tribunal pursuant to an arbitration agreement is final and binding both on the parties and on any persons claiming through or under them.” Berkeley Burke suggested that the use of “unless otherwise agreed” meant that the agreement to resolve the dispute through FOS could be an arbitration agreement even though Mr Charlton had the option to reject the outcome.

The Court disagreed. It said that the wording in section 58 was to deal with the situation of multi-tiered arbitration arrangements, such as those providing for a first tier arbitrator to consider the decision with a right of appeal to an appellate arbitral panel. The outcome of those arrangements would always lead to a binding award, unlike the consideration of disputes by the FOS. Section 58 did not extend to bring the regime for referral of decisions to FOS within the Act.

Conclusion

Whilst the decision itself is not particularly surprising (indeed Berkeley Burke indicated it would have preferred to proceed by way of judicial review) it is useful to have clarification of the point.

The decision means that financial services firms facing a negative FOS decision are limited to the judicial review process if they wish to challenge findings. The potential alternative avenue under the Arbitration Act has now been ruled out.

Katherine Wakeham​ also contributed to this article.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Partner

Chris Webber specializes in resolving financial services disputes and regulatory investigations. He represents clients including banks, broker dealers, corporate trustees, bondholders, issuers, mortgage servicers, borrowers, insolvency office-holders, regulatory bodies, investment funds, and individuals. He also acts for corporate clients in contractual, investment, and shareholder disputes.

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