The High Court has dismissed a claim for judicial review of the final decision of the Financial Ombudsman Service (FOS) in relation to a complaint made against Berkeley Burke SIPP Administration Limited (BBSAL), a self-invested personal pension (SIPP) provider and administrator.

The FOS found that BBSAL had not acted fairly or reasonably in its dealings with the complainant, Mr Charlton, having failed to meet its regulatory obligations in relation to the due diligence of the investment. BBSAL challenged the lawfulness of the FOS decision, but the court held there had been no error of law and dismissed the claim against the FOS (Berkeley Burke SIPP Administration Limited v. Financial Ombudsman Service Limited [2018] EWHC 2878).


The facts of this case are that Mr Charlton, a self-employed gardener, was introduced to BBSAL in 2011 by a company called Big Pebble Limited (BPL), BPL having entered into a "non-regulated introducer agreement" with BBSAL. Mr Charlton met with BPL and applied to transfer his existing personal pension to BBSAL and to make an investment of just over £24,000 in Sustainable AgroEnergy plc (SA) to be held in a SIPP. The SA "green oil" scheme involved leasing plots of land in Cambodia, along with the jatropha trees planted on them, and receiving a return either as annual income payments or as additional land plots. In 2012, following a Serious Fraud Office investigation, SA went into receivership. The scheme was fraudulent: SA lacked basic title to the land in question, the land was unsuitable for growing jatropha and the guaranteed returns offered to UK investors were illusory. Three of its directors were sent to prison.

The complaint

Neither BPL or BBSAL was regulated to advise Mr Charlton on the investment and indeed Mr Charlton did not believe that he had received advice from either of them, although he said he was told by the BPL representative that the investment was better than his existing one and would pay a better return. He had signed various documents which confirmed that he was aware that: the investment was high risk and/or speculative; it may be illiquid and/or difficult to value or sell; he had been recommended to seek professional advice but had chosen not to; and BBSAL had not advised him. Nevertheless, he complained that BBSAL had invested his money in a company that went into receivership resulting in the loss of a large sum from his pension and that BBSAL should provide compensation.

The Ombudsman's decision

Under s.228(2) of the Financial Services and Markets Act 2000 (FSMA) 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. In considering what is fair and reasonable, the Ombudsman will take into account: relevant law and regulations; regulators' rules, guidance and standards; codes of practice; and (where appropriate) what is considered to have been good industry practice at the relevant time. Notably, this is wider than the rules and guidance under the remit of the FCA. The Ombudsman in considering all points material to the outcome of a complaint is also not restricted to the terms in which the complainant has expressed his complaint.

Whilst it was accepted that BBSAL did not have the duty of a financial adviser or portfolio manager to assess the suitability or appropriateness of specific investments (COBS 9 and 10 did not apply to it), it was regulated by the FCA as an administrator and provider of pension schemes and the Ombudsman found that it had not acted fairly and reasonably towards Mr Charlton, in breach of the FCA's Principles for Business (the Principles).

In particular, Principle 2 requires a firm to "conduct its business with due skill, care and diligence" and Principle 6 requires a firm to "pay due regard to the interests of its customers and treat them fairly". The Ombudsman considered that BBSAL had not carried out sufficient due diligence on the SA scheme and should have concluded that the investment was not acceptable for the SIPP. The required due diligence went beyond just verifying whether the investment was "SIPP-able" under the HMRC rules. BBSAL should have:

  • identified SA as a high-risk, speculative investment, so it should have carried out sufficient due diligence; 
  • considered whether SA was appropriate for a pension scheme; 
  • ensured the investment was genuine and not a scam, or linked to fraudulent activity; 
  • independently verified SA's assets were real and secured, and the investment operated as claimed; 
  • ensured that the investment could be independently valued, both at point of purchase and subsequently; and
  • ensured Mr Charlton's SIPP would not become a vehicle for high-risk and speculative investment that was not a secure asset and could be a scam.

BBSAL had carried out little or no investigation into the SA investment. It was that failure of due diligence and BBSAL's acceptance of the SA investment into the SIPP that resulted in Mr Charlton having been treated unfairly and unreasonably in breach of Principles 2 and 6. The Ombudsman rejected BBSAL's position that a SIPP provider's refusal to accept an investment into a SIPP amounted to advice as to the suitability of the investment (which BBSAL was not permitted to give).

In reaching his decision, the Ombudsman took into account the FCA's (and its predecessor, the FSA's) reports and guidance issued following thematic reviews of SIPP operators and a "Dear CEO" letter sent by the FCA to all SIPP operators in 2014. He considered those to offer important indications of how BBSAL should have met its obligations under the Principles. The fact that the majority of these post-dated the inclusion of the SA investment in Mr Charlton's SIPP was not material as the obligations under the Principles existed from the outset of the relationship. The material merely illustrated the type of actions a regulator expected a SIPP operator might undertake to produce outcomes envisaged by the Principles.

The Ombudsman disagreed with BBSAL's position that it could not have refused to accept the SIPP because COBS 11.2.19 meant it had no choice but to go ahead and execute Mr Charlton's instructions given that it states that "whenever there is a specific instruction from the client, the firm must execute the order following the specific instruction". The Ombudsman concluded that this rule related to the execution of an investment, but it would not be relevant where an investment is not accepted in the first place, as should have been the case.

The Ombudsman also disagreed with BBSAL's argument that the complaint should have been determined by the Pensions Ombudsman, concluding that the FOS had jurisdiction to hear the complaint.

After lengthy submissions by both parties, each of which had legal representation, the Ombudsman issued his Provisional Decision on 10 November 2016 requiring BBSAL to compensate Mr Charlton for the whole loss suffered by him although rejecting Mr Charlton's claim to have his legal costs reimbursed by BBSAL. This was followed by the Final Decision on 2 February 2017, incorporating his Provisional Decision, from which he did not depart. To compensate Mr Charlton fairly, the Ombudsman found that BBSAL must compare the performance of Mr Charlton's SIPP with a benchmark (the WMA index) to ascertain the difference between the fair value (i.e. what the amount transferred into the SIPP would have been worth at the date of his decision had it produced a return using the benchmark) and the actual amount payable from his investment at that time and to pay interest at 8 per cent simple per year from the date of his decision until settlement. The Ombudsman also awarded Mr Charlton £500 for the trouble and upset caused to him by the sudden loss of nearly all of his pension fund.

The judicial review

Permission was granted for BBSAL to bring an application for judicial review and for the FCA to be joined as an interested party, alongside the FOS and Mr Charlton. Both the FOS and Mr Charlton submitted that the Ombudsman's decision was lawful and the FCA made submissions as to the true interpretation of the laws and rules that comprised the context of the Ombudsman's decision.  

Grounds for challenge

The challenge was to the lawfulness of the Ombudsman's decision, namely errors in the legal analysis of the rules contained in the FCA Handbook which led to him finding a duty under the Principles, which BBSAL submitted did not exist although BBSAL did not make a challenge based on irrationality.

BBSAL alleged the Ombudsman had erred in law by:

  1. finding BBSAL was not required to execute Mr Charlton's specific instructions in accordance COBS 11.2.19R; and
  2. failing to follow previous decisions of the Pensions Ombudsman Service (POS) or to give cogent reasons for not doing so.

The permission application identified two questions:

  1. In circumstances, where, on an execution-only basis, a client instructs a SIPP provider (who is prohibited from giving investment advice) to include a named unregulated investment in his SIPP, is that SIPP provider under a duty to
    1. undertake extensive legal, regulatory and factual inquiries and/or investigations into that investment in order to ascertain whether it is viable and should or should not be accepted in to the SIPP (apart from ensuring the proposed investment complies with HMRC rules regarding the inclusion in a SIPP); and
    2. where the SIPP provider ascertains that it should not be accepted, refuse to include it within the client's SIPP, notwithstanding his instructions to the contrary?
  2. To what extent was the Ombudsman bound by the principle of consistency as regards a previous decision of the POS in cases in which the facts were the same as or not materially different from the facts of the case before him?

The first ground of challenge

BBSAL contended that the Ombudsman had created an extensive duty under the Principles to investigate whether a foreign high-risk investment is suitable for a SIPP and the Ombudsman had made an error of law by creating such a duty. The argument was put as follows:

  1. The Consultation Argument
  2. BBSAL submitted that the Principles were secondary legislation that cannot become a rule-making power to create new obligations without meeting the statutory obligation under s.155 of FSMA to consult about new rules and guidance.

  3. The Augmentation Argument
  4. BBSAL submitted that the Principles should be used to augment, clarify or enlarge existing duties, rather than create new unexpected duties that have not been the subject of consultation. In a sector that had been subject to specific duties the Principles should not be used to create new and surprising or unexpected duties.

  5. The Conflict Argument
  6. BBSAL submitted that there was a conflicting rule (COBS 11.2.19R) that meant the extensive duty of inquiry was imposed in conflict with a rule that required execution on instruction.

BBSAL's overarching submission was that the Ombudsman erred in using the Principles to find that there was an extensive duty of inquiry or investigation. 

The second ground of challenge

BBSAL contended that the Ombudsman's approach created an inconsistency between the approach of the FOS and the POS (which had previously rejected similar complaints). Although accepting that the FOS and the POS operated according to different statutory standards and neither was bound by the decisions of the other, BBSAL submitted that consistency of decision-making was a fundamental principle in public law.

The judicial review decision

The first ground of challenge

  1. The Consultation Argument
  2. The judge accepted the FOS's submissions on this point. The FOS was not creating a new rule but rather identifying existing rules, that is the Principles, which had been consulted upon, and then deciding how those rules applied in the context of the facts of the case. The test under s.228(2) of FSMA is a subjective one. The Ombudsman has a wide latitude in which to operate so long as he is fair and reasonable in his approach. The decision as to how the Principles apply "in all the circumstances of the case" must be a matter for the Ombudsman.

    The judge also dismissed BBSAL's framing of the new "duty" as a duty to investigate. The concept of due diligence incorporates the concept of inquiry or investigation and the Ombudsman's conclusion did not amount to creating a new rule. 

  3. The Augmentation Argument
  4. Again, agreeing with the FOS, the judge held the Augmentation Argument failed on the same basis as the Consultation Argument. A "new, unexpected" duty had not been created by the FOS; this was merely the application of the existing duties (Principles 2 and 6) to the facts. The judge held BBSAL's argument was inconsistent with the decision in R (British Bankers Association) v. Financial Services Authority [2011] EWHC 999 (Admin) (BBA) and it was trying to advance the argument that had failed in that case. In BBA it was held that "The Principles are best understood as the ever present substrata to which the specific rules are added. The Principles always have to be complied with" and are of general application. In BBA the judge held that "it would be a breach of statutory duty for the Ombudsman to reach a view on a case without taking the Principles into account in deciding what is fair and reasonable".

  5. The Conflict Argument
  6. BBSAL's case that the Ombudsman had created a duty of inquiry in conflict with COBS 11.12.19R failed as the rule did not require BBSAL to execute any order it was given. COBS 11.2.19R is concerned with the manner in which an order is executed to achieve a high quality of "best" execution; it has nothing to do with the question of whether or not the order should be accepted in the first place.

The judge concluded that it was for the Ombudsman to apply the Principles to the particular circumstances of the case and absent a challenge on the grounds of irrationality there was no error of law.

The second ground of challenge

The Ombudsman had declined to follow the POS decision because it applied a different statutory scheme and it was for the Ombudsman to decide, applying the FOS statutory scheme, what is a fair and reasonable outcome to the complaint. The statutory scheme under which the FOS operates, and the criteria under s.288 of FMSA have no parallel in the POS scheme, which the judge considered fatal to the challenge based on public law consistency. The Ombudsman was not bound to follow the POS decision and in reaching his decision he had taken into account, as required, "good industry practice at the relevant time". The Ombudsman did not seek to distinguish the POS cases but his decision had been based on the facts of the case and the statutory framework in which he was operating and there was no error of law in doing so.

The judge therefore dismissed the claim.


The case is a useful reminder of the wide discretion afforded to the FOS under FSMA when deciding how to respond to complaints. Whilst an individual has a right of action under s.138D FSMA for any losses suffered as a result of a breach of the FCA rules, it does not have such a right based on a breach of the Principles and therefore no right of redress in the courts for such breaches. As demonstrated by this case, this is unlike the FOS, whose remit is much broader and it is able, and indeed expected, to consider whether there has been a breach of the Principles when deciding complaints.

This case also highlights the extent of due diligence expected of SIPP operators to meet the obligations under the Principles before accepting an investment into a SIPP. In undertaking that due diligence SIPP operators should be alive to red flags indicating risks in the investment. BBASL described the extensive duty as effectively becoming an "overseas fraud investigator". It complained that neither the Ombudsman nor any other body had explained how it could carry out the level of due diligence required within the modest fee of £250 charged to Mr Charlton for setting up his SIPP. The Ombudsman noted that BBSAL felt it was difficult to meet its regulatory requirements within its business model but ultimately what was fair and reasonable was for Mr Charlton to be offered the full protection required by the regulations. On the same day as the judicial review decision was handed down, the FCA sent a "Dear CEO" letter to SIPP operators drawing attention to this case but also to civil claims in the High Court, all of which concern the due diligence obligations of SIPP operators when accepting customers' investments. The letter said that the FCA expected SIPP operators to consider the implications for their firms and their customers but reminded them that the requirements were not new. Given the limits of s.138D those High Court cases (Adams v. Carey Pensions Ltd (for which judgment is awaited) and the class action of Mohammed Arif and others v. Berkeley Burke SIPP Administration Ltd) will be concerned with rule breaches (not breaches of the Principles). The court will be concerned with statutory and common law duties, establishing whether there has been any breach, and considering issues of causation and remoteness of loss. This is distinct from the Ombudsman's subjective assessment of whether a firm has acted fairly and reasonably.

Given that the award limit of the FOS and the scope of eligible SMEs who can complain to the FOS will increase on 1 April 2019, decisions of the FOS will take on even greater significance. For acts or omissions occurring after 1 April 2019, the award limit will increase from the current limit of £150,000 to £350,000 (and to £160,000 for acts or omissions occurring before 1 April but referred to the FOS after that date). At the same time, greater access will be afforded to SMEs who meet the new threshold of fewer than 50 employees and either an annual turnover of under £6.5 million or an annual balance sheet total of under £5 million. Currently, individuals and "micro-enterprises", the smallest SMEs with fewer than 10 employees and an annual turnover or balance sheet total of less than €2 million, can refer disputes to the FOS. The FOS's fair and reasonable basis of determining complaints rather than the strict legal basis applied in the courts may offer complainants greater ability to obtain redress. 

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