UK: To Be Or Not To Be A "Consumer": A Question For The Court, Not FOS

Last Updated: 30 October 2014
Article by Richard Caird, Sam Coulthard and Alexandra Doucas

R (on the application of Bluefin Insurance Services Ltd) v. Financial Ombudsman Service [2014] EWHC 3413 (Admin)

The court has recently considered an application for judicial review of a decision made by the Financial Ombudsman Service (FOS) to entertain a complaint against the applicant (Bluefin).

The court decided:

  1. the question whether a complainant was eligible to complain to FOS was one of precedent fact to be decided by the court and therefore not within FOS's discretion; and
  2. the complainant was not a consumer within the meaning of the Financial Services Handbook and accordingly was not an eligible claimant.

This means that FOS has no room for error in making judgement calls about eligibility, even if the case is a difficult one where different reasonable conclusions might be reached: if FOS makes the wrong decision, the Court will overturn it.


The complainant to FOS was Mr Lochner, who had been CEO of an online gaming business, Betbroker. Betbroker had taken out a D&O policy using Bluefin as a broker, and Mr Lochner was an "insured person" by the terms of that policy. Betbroker went into administration in August 2008, and the D&O policy expired in September 2008. Prior to that, Betbroker had secured an investment of some £500,000 from Aberdeen Asset Management (AAM). AAM argued that such investment was procured by misrepresentations made to it by Mr Lochner, in respect of which it later sued him. AAM's claim was issued in September 2011.

Mr Lochner alleged that he had notified Bluefin of the possible claim in August 2008, but that it had failed then to pass on his notification to the insurers, such that when Mr Lochner later sought confirmation that the D&O policy would cover the claim made against him, his insurers declined to provide cover, claiming that they had not been notified of the claim before the D&O policy expired.

FOS decided that Mr Lochner was an "eligible complainant" on the basis that he was a "consumer", and that it would consider his complaint against Bluefin. In the judicial review proceedings, Bluefin challenged that decision, on the grounds that Mr Lochner was not in fact a consumer, and that FOS therefore had no jurisdiction to consider his complaint.

The disputed definition and the grounds of review

Under section 226 of FSMA, FOS has compulsory jurisdiction in relation to complaints made by complainants who are "eligible". The criteria for eligibility are contained in the FCA's rules. There are four categories of eligible complainants in DISP 2.7.3R, of which the first is "a consumer". "Consumer" is defined in the Glossary to the FCA Handbook as "... any natural person acting for purposes outside his trade, business or profession".

FOS reasoned that it must consider whether Mr Lochner was acting as a consumer in making his complaint against Bluefin, not whether he had been acting as a consumer when he carried out the acts for which he was sued by AAM. It concluded that he was, citing among other things the fact that he was claiming in a personal capacity in respect of benefits which would have accrued to him personally rather than to his employer.

Bluefin argued that FOS's conclusion was wrong in that: (a) it should have looked at whether Mr Lochner was acting as a consumer as at a different point in time, which it said should be no later than the date of the acts which were the subject of his complaint, i.e. Bluefin's alleged failure to notify insurers in August 2008; and (b) in any event, Mr Lochner was not a consumer for the purposes of his complaint.

However, there was an initial disagreement between the parties as to the basis on which the court should consider the issue.

Precedent fact?

That disagreement was whether the question of a complainant's status as a "consumer" was one of precedent fact, which the court should determine if asked to do so, or whether (as FOS argued) it was a question for FOS alone to determine, such that the court would only be able to interfere on normal judicial review principles.

The principle of precedent fact is, in summary, that where a tribunal has been created by Parliament with jurisdiction over specific matters, it decides those matters without appeal to the courts, other than the more limited oversight afforded by judicial review proceedings. However, such tribunals cannot overstep the boundaries of their jurisdiction and carve out additional remits for themselves. On that basis, where a set of facts must exist in order for the jurisdiction of the tribunal to come into play, the courts are permitted to determine whether such a set of precedent facts actually exists.

In considering the authorities, the judge determined that the relevant test was set out by Lady Hale in R (A) v. Croydon London Borough Council and was the requirement "to decide which questions are to be regarded as setting the limits to the jurisdiction of the public authority and which questions simply relate to the exercise of that jurisdiction. This too must be a question of statutory construction ...". The judge noted that in the same speech, Lady Hale referred to the court's obligation to make a decision on questions which had "a right or a wrong answer", whether or not those questions were matters of precedent fact.

Bluefin asserted that the question of whether someone was a consumer or not was indeed a question of precedent fact as a matter of statutory construction. FOS disputed that it was, relying (among other things) on a previous decision of the courts that the question of whether or not a complaint was brought within the relevant time period was not a matter of precedent fact, but of FOS's jurisdiction.

The judge agreed with Bluefin. He noted in particular that each of the other three eligibility criteria in DISP relied on "a hard-edged finding of an objective fact" (such as whether a company was a micro-enterprise). He also noted that "consumer", and its definition within the FCA Handbook, originated from various EU materials and had been defined by the courts on the basis of objective decision-making a number of times. The judge came to the view that access to the compulsory jurisdiction of FOS was to be determined by reference to limiting conditions stated in objective terms, and that on that basis, this was a case where FOS's decision was one of precedent fact, where the court should make the relevant decision itself where asked to do so. 

The judge also held that in any event, this was a decision which had a "right or wrong" answer which he would have to determine as part of his consideration of Bluefin's second ground of challenge, that FOS had misdirected itself in law.

Was Mr Lochner a "consumer"?

(a) When was the test to be applied?

Bluefin argued that the test of a complainant's eligibility, while it must be made at the time of the complaint, could be based on a complainant's status at an earlier time. It contended that the relevant point in time was that when the transactions creating the relevant relationship were entered into. Alternatively, it argued for the time of commission of the acts which were the subject of the complaint as an appropriate point of reference.

The judge dismissed this argument, holding that the clear meaning of section 226 of FSMA was that the complainant must be eligible at the time when the complaint was made, not at any other time.

(b) Was Mr Lochner a consumer at the time of his complaint?

This question is of some wider relevance, particularly given the widespread use of D&O policies. It was clear that Mr Lochner had been acting within the course of his trade, business or profession at the time during which the D&O policy was live, and in carrying out the acts complained of by AAM. However, at the time when his complaint was made to the FOS, his involvement with Betbroker was long past, and he wished to secure compensation for a personal loss he had incurred in settling the claims made by AAM.

FOS argued that such policies were akin to other group policies which employers often take out, such as private health insurance for their employees, income protection or critical illness cover. It said that in making a complaint, Mr Lochner was seeking to protect purely personal rather than business interests, and that Betbroker would not benefit in any way from the complaint.

Bluefin argued that FOS had conflated "natural person" with "consumer", such that it had not given effect to the second part of the FCA Handbook's definition of the latter. It argued that Mr Lochner had only been an insured person under the D&O policy for the purposes of his trade, business or profession, and that the claims made against him by AAM (in respect of which he sought cover) related to his actions in that capacity.

The judge agreed, holding that there was no proper basis on which FOS could have concluded that Mr Lochner's purposes were outside his trade, business or profession. The subject matter of Mr Lochner's complaint was wholly concerned with the lack of insurance cover relating to his professional activities. The judge further noted that any compensation that FOS could have awarded to Mr Lochner would have been to compensate him for losses for which the D&O policy would otherwise have indemnified him. The complaint to FOS was inextricably linked to Mr Lochner's professional activities.


The significance of this decision is twofold. 

First, in any future case where a respondent to a complaint believes that FOS has misapplied the definition of "a consumer", it will be entitled to ask a court to take that decision, rather than just consider whether FOS was entitled to do so on normal judicial review grounds (of lawfulness, rationality and procedural fairness). It may well also be the case that the same conclusion will apply to arguments in relation to other aspects of the eligibility criteria applied to complainants.

Second, this decision is relevant to the future ability of insured individuals under D&O policies to make complaints to FOS in connection with such policies. It is likely that in future, such complainants are unlikely to be eligible where, as here, the subject matter of the complaint relates to a claim or potential claim on the policy arising out of their own professional activities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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