On 9 February 2012, the Financial Ombudsman Service ("FOS") issued a provisional decision in a financial mis-selling claim, rejecting the argument that losses caused by the financial crisis were not reasonably foreseeable.
In coming to this decision, the principal ombudsman expressly departed from the approach taken by the High Court in the recent mis-selling case of Rubenstein v HSBC Bank Plc [2011], which held that the unprecedented market turbulence caused by the financial crisis broke the chain of causation on grounds of remoteness and forseeability.
This decision clearly demonstrates that, when discharging its duty to decide claims "fairly and reasonably in the circumstances", the FOS will not shy away from coming to conclusions which are diametrically opposed to established case law, often resulting in markedly pro-claimant decisions.
Surprising approach
The approach of the ombudsman is perhaps particularly surprising when one considers the factual similarities between the two mis-selling claims, namely (i) both claims related to investments in the AIG Life PAB Enhanced Fund (the "Enhanced Fund"), (ii) both defendant banks were held to have provided unsuitable investment advice and (iii) both claimants suffered a considerable capital loss following the suspension, and ultimate closure, of the Enhanced Fund after the collapse of Lehman Brothers in September 2008.
In coming to the decision, the ombudsman acknowledged that, when considering what was fair and reasonable, he had to take into account relevant law and regulations (such as the Rubenstein decision), however, he held that:
The ombudsman awarded compensation of £100,000 to the claimants, and recommended that the defendant bank make up any shortfall in the claimants' capital loss. This is in stark contrast to the nominal damages awarded to Mr Rubenstein for breaches of the FSA's code of business, after his claim for substantial damages failed.
In Mr Rubenstein's case, the High Court held that, whilst HSBC had provided negligent investment advice, the claim for substantial damages failed on causation. Whilst the simple "but for" test was satisfied (i.e. "but for" HSBC's negligent investment advice, Mr Rubenstein would not have invested in the Enhanced Fund), the chain of causation was broken because the financial crisis, and consequent run on the Enhanced Fund, was so remote that no financial advisor would have been required to point it out as a risk.
As HHJ Havelock-Allan QC summed:
The idea that one of the worlds largest insurance companies might go bankrupt was unthinkable in September 2005...if those were not events of a kind which were foreseeable when the investment was made, I do not think it can be said that the structure of the product truly caused the loss.
Points to note
Whilst the FOS' decision is only provisional (further written submissions are to be made by the parties on 7 March 2012, and it may ultimately be the subject of judicial review proceedings), it clearly demonstrates that the FOS, in determining what is fair and reasonable, is willing to go against the grain of established law (albeit that Mr Rubenstein has now been granted permission to appeal the High Court ruling).
In addition, on 1 January 2012, the FOS' single claim award limit was increased from £100,000 to £150,000. This, teamed with the FOS' "fair and reasonable" (and markedly pro-claimant) approach, may mean that the FOS becomes an increasingly attractive forum for claimants in financial services disputes.
The full text FOS provisional decision is available to download here.
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