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SIPP provider denied chance to appeal FOS decision

The High Court refused to allow SIPP provider Berkeley Burke (BB) an arbitration appeal in a case that has been on-going since 2012 and which may lead to the Financial Ombudsman Service (FOS) being judicially reviewed.

Brief Background

The complaint related to a failed investment into an unregulated biofuel scheme known as Sustainable AgroEnergy (SAE).  SAE entered receivership a year after the investment was made and the complaint centred around whether BB had performed adequate due diligence on behalf of the complainent. BB claimed that it was not authorised to advise the complainant and had not done so.

An initial decision was provided by the FOS upholding the complaint but conflicted with a decision previously provided by the Pensions Ombudsman (PO) which had very similar facts. The PO held that BB did not owe a duty of care to consider the appropriateness of the investment but the FOS held that BB "should have made further enquiries to establish whether the investment was suitable". At the request of BB and with the complainant's consent this decision was reviewed by a second Ombudsman. Although a provisional decision was provided in 2015, it wasn’t until February 2017 that the final decision to once again uphold the complaint and compensate the investor was communicated. At this juncture, BB applied to Judicially review the FOS on account of the conflicting approach by both it and the PO but at the same time they issued a claim under S.69 of the Arbitration Act 1996 to see if an appeal was available via that route whilst staying the JR application.   

High Court Decision

In the High Court, Mr Justice Teare refused BB's request for an arbitration appeal and gave the following reasons: 1) the decision by FOS was not a binding one and only became binding once accepted by the complainant and 2) the parties had not envisaged arbitration as a means of dealing with a dispute. Teare J stated "the agreement between the parties did not submit to arbitration the dispute between the parties because FOS, or an ombudsman nominated by FOS, was not clothed with authority to determine the dispute between Mr Charlton [the complainant] and the claimant [BB]".

As the decision is legally binding once accepted an appeal to the courts is unavailable and now its been established that any potential route to arbitration has also been ruled out leaving a JR as the only option. The dilemma for BB was no doubt enhanced by the conflicting approach of the ombudsman services and the impact it has for the SIPP industry and their treatment of unregulated investments.

Conclusion

Both FOS and the Financial Services Compensation Scheme (FSCS) have seen increases in the number of complaints regarding SIPP providers and there is continuing uncertainty as to whether HMRC will accept non-cash assets to be transferred into a SIPP and will HMRC attempt to review those non-cash transfers which have taken place in previous years. As such, what is not needed is more uncertainty and one might think that after 5 years, the issue of whether the provider is responsible for advising the investor would have been resolved.    

Following this decision by the High Court, BB will now reignite their JR of the second FOS decision and this long running matter continues. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions

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