A financial planner took FOS to court to dispute a determination. The financial planner did not seek judicial review of the decision but rather argued that the FOS determination was in breach of contract (the contract being the FOS terms of reference).
The judge emphasised that a party signs up to an EDR it is throwing itself at the mercy of the EDR who can create new rights and obligations between it and the complainant according to the EDR’s conception of fairness (which, as this case made clear, is quite different from what a court of law would think is fair). The judge said:
A Determination creates new rights and obligations. It does not amount to the performance of a judicial function that is the ascertainment and enforcement of existing legal rights. The power to create new rights and obligations arises from the contract between FOS and a member.
The judge emphasised that the new regime marks a departure from the restraints of the common law and equity, which, being restricted to the rule of law, predictability and precedent, apparently have not been doing “justice between the parties”. The judge said:
FOS’s discretion in deciding a remedy is very wide. Its powers should not be narrowly construed to decisions that could only be made at common law or in equity. Such an approach is inconsistent with the purpose of the terms of reference which is to provide FOS with wide and flexible powers in order to do justice between the parties.
The financial planner argued that FOS had incorrectly quantified the loss. The judge scorned this, commenting that there is nothing in the terms of reference requiring the damages awarded by FOS to be an accurate representation of the complainant’s loss. The judge said:
It is not necessary to enquire whether or not the Panel correctly quantified that loss or damage. The contract between FOS and Utopia required FOS to deal with the dispute between Utopia and the Rees in accordance with the Terms of Reference. The Terms of Reference require FOS to decide upon a remedy, on the basis of what in its opinion is fair in all the circumstances.
The financial planner argued that FOS failed to make a deduction for future family tax benefits to be received by the complainant–this essentially gave the complainant a windfall gain at the expense of the financial planner. The judge said:
A Determination does not involve the performance of a judicial function. FOS does not ascertain or enforce existing legal rights; it creates new rights and obligations. Its contractual duty is to do what in its opinion is fair in all the circumstances.
FOS counter claimed, seeking the remedy of specific performance–that is, a court order that the financial planner comply with its determination of the complaint. This was granted, with the judge commenting:
The remedy of specific performance is appropriate where damages is not an adequate remedy. Taking action to expel the Financial Services Provider from membership of FOS is not strictly a remedy for breach of contract. It is an action that FOS may take if the Financial Services Provider fails to meet its obligations under the Terms of Reference. That failure will usually also constitute a breach of contract but the expulsion of the member is not an alternative common law or equitable remedy for breach of contract.
However, the capacity of FOS to expel Utopia from membership is not a sufficient justification for refusing an order for specific performance. Expelling Utopia from membership does not achieve the performance of Utopia’s obligations, nor provide an adequate alternative remedy. This is an appropriate case for an order for specific performance.