THE QUEEN On the application of NORWICH AND PETERBOROUGH BUILDING SOCIETY v FINANCIAL OMBUDSMAN SERVICE LIMITED (formerly Building Societies Ombudsman Company Limited) [2002] EWHC 2379 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

ADMINISTRATIVE COURT

[2002] EWHC 2379 (Admin)

Case No Case No: CO/1076/02

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Between

THE QUEEN On the application of NORWICH AND PETERBOROUGH BUILDING SOCIETYClaimant

FINANCIAL OMBUDSMAN SERVICE LIMITED (formerly Building Societies Ombudsman Company Limited)Defendant

Before

Mr Justice Ouseley

Anthony Boswood QC and Deepak Nambisan (instructed by Slaughter & May) for the Claimant

David Pannick QC and James Strachan (instructed by D.J. Freeman) for the Defendant

Hearing dates : 19th & 20th September 2002

Date 14 November 2002

[1]Mr Justice Ouseley: Mr. Jones has a TESSA Select Account with the Norwich and Peterborough Building Society, which he opened in September 1998 with an investment of £3000. It was a variable rate account. In April 1999, the Government substituted a new type of tax free savings account for the TESSA; no new TESSAs could be opened although existing TESSAs would continue to enjoy the tax benefits which they had always had. The new accounts were ISAs which, in order to encourage the less well off to save, had different requirements and different tax benefits. One of the components of the ISA is the ability, now, to invest up to £3000 a year in cash with a bank or building society; this is the mini-cash ISA. In May 1999, Mr. Jones opened a mini-cash ISA with the N &P. The interest rates offered by the N&P were so attractive to customers that on 19 th June 1999 it closed its mini-cash ISA account to further applicants. It did not follow the alternative route, in reducing demand to levels with which it could cope, of lowering the rates. The mini-cash ISA too is a variable rate account. N&P also operated another account of relevance to these proceedings, a TESSA Only ISA or TOISA. This was available to those whose TESSAs had matured and enabled them to continue to enjoy tax free savings benefits on the capital from their TESSAs for a further five years. Mr. Jones’ TESSA has not matured because he has not held it for five years and so this account was not available to him.

[2]From 6 th April 1999, when the N&P first offered a mini-cash ISA, until 20 th September 2000, when N&P equalised the rates which it paid on its TESSAs and TOISAs, the rates of interest paid on its TESSAs had always been lower than it paid on both its TOISAs and on its mini-cash ISAs. Its TOISA and ISA rates had always been the same. N&P equalised its rates by increasing its TESSA rates rather than by reducing its other rates.

[3]On 21 st July 2000, Mr. Jones complained to the N&P about the fact that he was receiving a lower interest rate on his TESSA than he was on his ISA. He was not satisfied with N&P’s response and complained to the Building Societies Ombudsman. On 8 th February 2001, the Ombudsman, having considered N&P’s response to Mr Jones’ complaint, delivered his Preliminary Conclusion in which he upheld the complaint that it was unfair for N&P to pay less on its TESSAs than on its ISAs.

[4]N&P, as it was entitled to, took issue with the Ombudsman’s Preliminary Conclusion and made further representations. On 29 th August 2001, the Ombudsman delivered his Provisional Decision. He accepted that he had been wrong to hold that N&P had been unfair in not paying the same rate on its TESSAs as on its ISAs, but he held that N&P had been unfair in not paying the same rate as on its TOISAs. The reason which the Ombudsman gave for his change of view on the fairness of comparing the N & P TESSA interest rate with its ISA rate, was that the ISA was not within N & P’s current range of services after 19 th June 1999. The effect, so far as Mr Jones was concerned, was the same.

[5]Again, N&P as it was entitled to, took issue with that conclusion and made further written representations to the Ombudsman. On 28 th November 2001, the Ombudsman delivered his Final Decision. He adhered to the conclusion reached in his Provisional Decision that it was unfair for N & P to pay less interest on its TESSAs than on its TOISAs because the terms of the TOISA notably as to notice and loss of interest, were less onerous overall than those of the TESSA. He ordered N&P to pay to Mr. Jones the difference between the two interest rates for the period from 6 th April 1999 to 11 th September 2000 plus £30 for inconvenience and further loss of interest, a figure increased, mysteriously says N&P, from £20 in the Provisional Decision.

[6]The date of 11 th September 2000 was taken as the date when the payment of compensation for loss of interest should cease, rather than 20 th September 2000, when the interest rates were equalised, because it was on that date that N&P had written to Mr. Jones telling him that he could move his account to another TESSA account provider, without having to give notice and without suffering the sixty day penalty loss of interest to which, even having given notice, he was subject by the terms of his TESSA account. The TOISA and ISA terms both permitted transfer to another account provider without notice or interest penalty. The Ombudsman took the view that the unfairness in paying a lower interest rate could be remedied either by equalising the comparable rates or by notifying the account-holder that he could move without notice or penalty. As I understand matters, Mr. Jones has not taken advantage of his new found freedom because the interest rates at N&P are generally better than elsewhere.

[7]Mr Jones accepted the Final Decision, whereupon N & P became obliged to implement it, subject to these proceedings.

[8]N&P challenges the decision by way of judicial review; it contends that the finding of unfairness involved a misconstruction of the Banking Code and the application of a test of unfairness, the "relative onerousness" test, which is itself illogical, in a manner which is irrational. It contends that, because the interest rates which it offered were amongst the highest in the market, Mr. Jones suffered no actual loss and the Ombudsman’s approach to compensation was misguided. As final proof of the Ombudsman’s failings in his decision, Mr. Boswood QC for N&P contended, with commensurate brevity in his oral submissions, that the increase of £10, or on his calculation £9.63, in additional compensation had no rational basis. No challenge is made to the fact that the finding of unfair treatment was based on a comparison of TESSA and TOISA rates, whereas Mr Jones had only complained of unfairness in receiving less interest on his TESSA than on his mini-cash ISAs. This did not go to a jurisdictional point or to any procedural unfairness; it did, however, submitted Mr Boswood, underscore the irrationality of the Ombudsman’s decision when Mr Jones had never perceived the unfairness which the Ombudsman discerned.

[9]This case is of importance to N&P because the basis upon which it has been found to have acted unfairly towards Mr. Jones, is applicable to all its TESSA holders and indeed it equalised its rates for all such account holders at the same time as it did for Mr. Jones. It is a mutual society and if the Ombudsman’s decision is upheld, it will pay compensation to its other TESSA holders. This, it estimates, would cost some £1.3m, and some 53,000 out of its 380,000 investing members would receive compensation. This case did not turn on some peculiarity of the terms of Mr. Jones’ account or of his personal circumstances or dealings with N&P. Indeed, the decision is of general application to all banks and building societies, amongst whom different interest rates between TESSA and other accounts, such as ISAs or TOISAs is or was common. Unlike at least some of those other institutions, N&P did not, and it was accepted before me by Mr. Pannick QC for the Ombudsman that it did not, "downgrade" its TESSAs upon the introduction of ISAs, a malpractice which has been the subject of much adverse public comment.

[10]N&P feels particularly aggrieved by the obligation to pay compensation because its rates are among the best in the market and there is no evidence that its customers could have done better elsewhere. The Statutory Framework

[11]Before I set out the statutory provisions with which I am concerned, I should deal briefly with two points. First, these proceedings were brought, and brought correctly, by way of judicial review rather than on appeal by way of case stated. The availability of that particular route expired a day before these proceedings were commenced, as a consequence of the coming into force on 1 st December 2001 of the relevant provisions of the Financial Services and Markets Act 2000 and its associated transitional Regulations. That procedural change has no effect upon the principles applicable to the case or to the outcome. Second, that Act replaces the August 1998 Building Societies Ombudsman Scheme with a new and overarching Financial Ombudsman Service and Scheme, on 1 st December 2001; it applies to the remaining procedures of this case as at 1 st December 2001 because the case had not been finally determined by then as the Ombudsman’s decision was awaiting Mr Jones’ acceptance of it (hence the challenge by way of judicial review instead of appeal by way of case stated). Again, that change does not bite upon the Scheme which I have to consider, nor on any relevant principles.

[12]Sections 83 and 83A of the Building Societies Act 1986 provide for building societies to be members of a scheme whereby individuals and small companies can make complaints about the actions of a building society. The Building Society Ombudsman Scheme was the only scheme set up and recognised under the 1986 Act. N & P is a member of that scheme, as are all authorised building societies.

[13]Section 84(2) of the 1986 Act provides:

"(2) Determinations of complaints under recognised schemes shall be made by reference to what is, in the adjudicator’s opinion, fair in all the circumstances of the case and any direction given to a building society or [connected undertaking] by an adjudicator may (if the complainant accepts the determination) require it or the complainant not to exercise or require the performance of any of the contractual or other obligations or rights subsisting between them."

The Building Society Ombudsman fulfils the adjudicator’s role.

[14]Schedule 12 sets out the content of the scheme. Part III paragraph 1 sets out the grounds upon which complaints can be made. It provides:

"1. (1) The grounds for making action by a building society or connected undertaking subject to investigation under the scheme must be that the action constitutes – (a) in the case of a building society, a breach of the society’s obligations under this Act, its rules or any contract, or (b) in the case of a connected undertaking, a breach of the undertaking’s obligations under its rules (if any) or any contract, or (c ) unfair treatment, or (d) maladministration, or (e) a decision to which sub-paragraph (2) below applies, or action consequential on such a decision, in relation to the complainant and has caused him pecuniary loss or expense or inconvenience. (2) This sub-paragraph applies to any decision in connection with the provision of a relevant service which is made otherwise than in the legitimate exercise of commercial judgment."

[15]This case only concerns unfair treatment.

[16]Paragraph 4 deals with the adjudicator’s functions. Paragraph 4(2) provides:

"A scheme must impose on the adjudicator a duty, in reaching his decision, to have regard to – (a) the rules (if any) of the society or [connected undertaking]; (b) the provisions of any deed or contract binding the society and the complainant or, as the case may be, the [connected undertaking] and the complainant; (c) the provisions of any code of conduct applicable to the conduct by the society or [connected undertaking] of its affairs or business; (d) any advertisement issued by the society or [connected undertaking] in connection with any aspect of its activities and any communication with the complainant."

[17]The relevant code is the Banking Code, 1998 revision. This case raises the question of whether the Ombudsman had regard to or instead misinterpreted the Banking Code. This is a voluntary Code which aims to set standards of good banking practice for banks and building societies to follow when dealing with personal customers. Institutional compliance is monitored by the independent Banking Code Standards Board; this Board does not write the Code but describes itself as working "to interpret and develop" the Code. A majority of its ten directors are independent of the sponsoring financial associations.

[18]The Banking Code 1998, in effect from 31 st March 1999, provided for "Key Commitments" which included:

"We, the subscribers to this Code, promise that we will: act fairly and reasonably in all our dealings with you: ensure that all services and products comply with this Code, even if they have their own terms and conditions; give you information on our services and products in plain language, and offer help there is any aspect which you do not understand; …"

[19]2.6 is indirectly relevant:

"We will take care to give you clear and appropriate information on the different types of savings and investment accounts available from us to help you to make an informed choice the product to fit your needs. We will help you understand how your savings and investment accounts work, including any additional charges or loss of interest for withdrawal or cancellation."

[20]2.17 and 2.18 are directly relevant to the issues here:

"Superseded accounts: 2.17 From time to time, we offer new savings and investments accounts. If you have any type of savings and investment account, other than a fixed rate account, which has been "superseded" because: New accounts are no longer opened; or The account is not actively promoted: We will either: (a) keep the interest rate on the superseded account at the same level as an account with similar features from the current range: or (b) switch the superseded account to an account with similar features from the current range. Examples of similar features include notice periods, types of withdrawals, numbers of free withdrawals, how deposits and withdrawals from the account are made. This means that the interest rate on your account will always be at least as good as the interest rate on an account with similar features from the current range." "2.18 Where there is no account with "similar features" we will, within 30 days of your account becoming superseded, contact you to: Tell you that the account is superseded: Tell you about our other accounts: and Help you switch accounts without any notice period and without any additional charges."

[21]It is unnecessary to refer to any parts of the 1998 Scheme itself, because the grounds of complaint and the basis of determination as set out in it replicate the statutory provisions, in paragraph 14 and 16 above. The Ombudsman’s Final Decision

[22]The Decision summarises fairly the representations made to the Ombudsman by N & P at the various stages of the decision-making process and sets out his conclusion and reasons. There are two tests which he applied in reaching his conclusion about unfairness : the Banking Code and his own "relative onerousness" test. In paragraph 8.6, he says that in this case, the application of his own "relative onerousness" test and the Banking Code lead to the same result.

[23]He discusses the Government’s purpose in introducing TESSAs and then ISAs: a key difference which he identifies in the tax treatment of those two accounts is that capital cannot be withdrawn from a TESSA during its 5 year life without the loss of the tax-free status of the interest, whereas no such restrictions applied to an ISA; there were differences also in the limits on annual investment. Both types of account were subject to the service provider’s terms and conditions. A TESSA could however be moved to another institution’s TESSA without loss of tax free benefits.

[24]The Ombudsman then set out the provisions of the 1998 revision of the Banking Code, introducing them with a reference to the similar provisions of the 2000 edition, in force from 1 st January 2001. He comments in paragraph 21:

"The Code is not a set of regulations, to be observed only according to the letter. It is a code of practice, to be observed also according to its spirit. The guidance to the current edition of the Code states - "

The Code is not intended to be read as a rigorous legal document. It has been written for practitioners and customers, not for lawyers, and this guide should help to aid interpretation. Subscribers should ensure that they abide by the spirit, as encompassed by the key commitments, as well as the letter of the Code. Common sense should be used in interpreting the Code." [Emphasis as in the original.]

[25]Mr Boswood submitted that this guidance was not part of the 1998 revision, the applicable edition, but rightly recognised that the guidance did reflect the approach which should guide the Ombudsman in applying the 1998 Code. At all events it would be difficult to show an error of law in such an approach. I consider it to be no more than the expression of what is in inherent in the nature of the Code.

[26]The Ombudsman explained his approach to paragraphs 2.17 and 2.18 of the Code in paragraphs 25 and 29 respectively: 25. "Because of the framework laid down by the Government, a TESSA has unique features. So there is unlikely to be another kind of account with similar features to a TESSA. But, if a superseded account should pay interest which is at least as good as an account with similar features (where the firm has one), the Building Societies Ombudsmen consider it follows, in accordance with the principles of the Code, that where there is no account in the current range with similar features, a superseded account such as a TESSA should not pay worse interest than any accounts in the firm’s current range with less onerous features. The Banking Ombudsmen have taken the same view in relation to banks." 29. "Since there is unlikely to be any comparable account in the current range, the Building Societies Ombudsmen consider that, in accordance with the principles of the Code, it follows that the Firm should remind the investor, at the same time, that the TESSA can be transferred to another building society or bank – and indicate that this can be done without any notice period or additional charge. It is then up to the investor, not the building society or bank, to review what alternative competitive rates of interest are available in the market. The Banking Ombudsmen have taken the same view in relation to banks."

[27]The Ombudsman then set out the guidance of the Banking Code Standards Board. The Banking Code Standards Board had issued a newsletter of 25 th January 2000. A topical Code compliance issue concerned superseded accounts. The Ombudsman quoted it:

" - Despite the strengthening of the Code at the last revision over the treatment of obsolete and superseded accounts, this remains an issue. The media are rightly ready to question whether banks and building societies are complying with the spirit of the Code, even if there is technical compliance with the letter." " - We recognise the need for financial institutions to act commercially, and the Code explicitly seeks to allow market forces to operate where this benefits customers. However this should not extend to exploiting loopholes and we would not, for example, expect to see an account being kept theoretically "open", probably with minimal or very localised promotion, merely to avoid its classification as superseded under paragraph 2.17 of the Code." " - Recently the Press has commented on variations, and in some cases significant declines, in the rates paid on TESSAs. The fact is that TESSAs are now "superseded" under the Code, even though this has been the result of Government action rather than a commercial decision by any bank or building society. Compliance Officers may therefore want to monitor that TESSA rates in their institutions are indeed kept at least as good as those on suitable benchmark accounts from the current range. Inevitably the public will make comparisons with ISAs, but there will be other accounts with similar features and the TESSA rate could be benchmarked against the gross rate paid on these."

[28]On 22 nd September 2000, the BCSB issued Bulletin No. 3 in which it dealt with superseded accounts and variable rate TESSAs. It referred to its January newsletter to the effect that TESSAs were now "superseded" under the Banking Code and continued:

"It has now become apparent that more specific advice is required on the treatment of TESSAs and the BCSB accordingly issues the following guidance. We wish it to be applied immediately. "- The BCSB considers variable rate TESSAs to be superseded and they should be dealt with accordingly. There is difficulty in interpreting section 2.17 of the Code in relation to TESSAs, since no single account from an institution’s current range will have similar features. A cash ISA has similar although not identical tax treatment, but differs as regards maximum investment limits and access. Other accounts may be similar as to investment period and types of withdrawal allowed, but are not tax-free. To be fair and reasonable, a subscriber should compare its current TESSA rates with a number of accounts that have at least some similar features from its current range." "- If a subscriber concludes that it is not possible to determine a TESSA rate in compliance with the spirit of section 2.17, then section 2.18 must be considered. Although section 2.18 will rarely be directly applicable to TESSAs, in that few subscribers offer more than one TESSA account, the application of this provision by analogy would mean that in the absence of an account with similar features in the same institution, customers should be informed by personal notification that they may move their TESSA to another provider without notice or penalty (such as loss of interest or a charge)." "

This interpretation reflects our view that, although new TESSAs cannot be opened, existing TESSAs can be transferred to other providers, and it is in the interests of consumers that there should be an active market. There is unlikely to be an account with the same institution to which customers could transfer their balance, as envisaged by 2.18 of the Code, without losing their tax benefits. In this situation we consider that the Key Commitment "to act fairly and reasonably in all our dealings" demands that there is no penalty for transferring a TESSA to another TESSA account provider". (The first and last paragraphs above were not quoted in the decision letter; I quote them here because they are relevant to the submissions – that omission is not itself significant).

[29]The Ombudsman dealt next with the September 2000 Joint Guidance of the Banking and Building Societies Ombudsmen in relation to TESSAs, which emphasised that in each case what was fair depended on the particular facts and that it was not their stance that a bank or building society "must always pay the same rate of interest on their TESSAs as on their mini-ISAs". He said that his decision in Mr Jones’ case had been considered "in the light of its individual facts".

[30]I interpose that, whilst no doubt true in fact, such an avowal does not reflect the real impact of the decision. As Mr Pannick accepted before me, when asked about the earlier decisions of the Ombudsman to which the Ombudsman next turned in dealing with "relative onerousness", the conclusions of the Ombudsman as to unfairness in this type of case were of general application; it would only be where some particular aspect of the terms of the accounts or of the personal dealings of the complainant or some other exceptional circumstance applied, that the Ombudsman would conclude that a lower interest rate on a more onerous account was fair.

[31]The Ombudsman introduced his analysis of "relative onerousness" as follows:

"33. In a number of earlier decisions the Building Societies Ombudsmen have decided that (subject to one important qualification, explained below) it is unfair treatment for a building society to pay a lower rate of interest on one investment account to which the society has attached more onerous terms than it pays on another investment account to which the society has attached less onerous terms. And it has not mattered whether the two accounts being compared were closed to new investors ("superseded") or not. 34. The issue is whether a society has treated one investor unfairly in comparison to the way it has treated another. So comparisons are made only between accounts of the same society. The Ombudsmen’s role has never been a regulatory one, and the interest rates paid by other building societies or by banks have never featured in the comparison. Thus, society A has not been found guilty of unfair treatment, or been excused from a charge of unfair treatment, by reference to the interest rate paid by society B or bank C."

Mr Pannick suggested that the last sentence of paragraph 33 should be read so as to mean that it did not matter whether "either of" the two accounts being compared were or were not closed to new investors.

[32]The Ombudsman said that he looked first at the interest rate and other financial returns on an account and then at other terms, notably those covering withdrawals: 30 days’ notice was less onerous than 60 days’ notice.

[33]He then summarised what he had said about those matters in the 1994/1995 Annual Report of the BSOS:

"37. This Approach was set out in the 1994/1995 annual report of the Building Societies Ombudsman Scheme. That explained the important qualification that the Ombudsmen did not apply this approach if details of the interest rates were reasonably accessible to the investor and the account was instant access- so that the investor was able to check the interest rate and to move his/her money immediately if dissatisfied with the rate. 38. Under the Building Societies Ombudsmen’s approach, the investor was expected to minimise his loss, without the prompting that section 2.18 of the Code now provides for in respect of a superseded account. 39. However, the 1994/1995 annual report also considered the effect of a 90 days’ interest penalty that investors had to pay before moving their money. It explained that the Ombudsman considered that such a penalty provided a powerful disincentive against investors withdrawing any of their funds, and in effect "locked them in" to their account."

[34]Some emphasis was placed by Mr Boswood on what that Annual Report actually said, so I set out below further extracts. In part 4.1 the Ombudsman dealt with the problems of obsolete accounts and his "Reasonably Accessible Test". He said:

"The typical complaint I have received relates to the discovery, after many years in some cases, that a society has withdrawn the complainant’s account from new investors, replaced it with a new one paying an attractive rate of interest whilst, at the same time, reducing the rate of interest paid on the old obsolete account, usually, to nothing more than a token level. Complainants are aggrieved that they were not aware of the situation and consequently missed an early opportunity to transfer their investments to new accounts paying realistic rates of interest."

[35]The answer to this was for the societies to "ensure that relevant information about all accounts (and in particular about interest rates on obsolete accounts) is reasonably accessible". Experience enabled him to elaborate on the methods adopted to bring information to the attention of investors. There was no suggestion then by the Ombudsman, submitted Mr Boswood, of any obligation to provide assistance in relation to the accounts of other institutions.

[36]The Ombudsman also dealt with his interest rate policy generally in the 1994/1995 Annual Report, describing what he saw as fairness, as measured by his "relative onerousness" test. In Part 4(2)(b)(i) he said this in relation to notice and term accounts generally:

"(i) The more onerous the terms a society attaches to a variable rate investment account, the higher the rate of interest investors are entitled to expect relative to that society’s accounts having less onerous terms. In the absence of evidence to justify it, I consider that failure to pay such higher rates constitutes unfair treatment."

[37]This did not apply to fixed interest rates.

(c) :

"The following examples refer to 90 days notice accounts but the principles apply equally to accounts with other notice periods. (i) Where a society pays less interest on an investor’s 90 days notice account than on another 90 days notice account, but more than the interest paid on accounts with less onerous terms, my view as to fairness or otherwise will depend on whether the society passes the "

Reasonably Accessible Test": (a) Where information was reasonably accessible, the society will not normally be found to be at fault; (b) Where information was not reasonably accessible, the society will normally be required to pay compensation from the date the investor could have gained access to his funds, after giving notice, until the information became reasonably accessible, plus a period equivalent to the notice period. (ii) Where a society pays less interest on an investor’s 90 days notice account than on an account with a less onerous notice provision, the society will normally be required to pay compensation from the day the unfair treatment began. The length of the period for which compensation will be awarded will depend upon whether the society made information reasonably accessible: …"

[38]I return to the Decision Letter. The Ombudsman pointed out the relative interest rates – the TOISA and ISA rates had always been the same and higher than the TESSA rates between 6 th April 1999 and 19 th September 2000. He then compared, not the statutory terms applicable to TESSAs, ISAs and TOISAs but only the terms imposed by N & P. This was a deliberate decision. It meant, as Mr Boswood emphasised, that the fact that Mr Jones could not open a TOISA because he did not fulfil the statutory requirement of having a matured TESSA, was regarded as immaterial. The Ombudsman concluded that the TOISA was more onerous for new customers in requiring a £1000 minimum investment, but otherwise the minimum investments of £100 were identical. The TOISA was less onerous than the TESSA on transfer, because unlike the TESSA, transfer of which incurred a 60 day penalty loss of interest, it was transferable without notice or loss of interest. Again, terms similar to those applicable to transfer applied to the closure of the two types of account, making the TOISA again less onerous.

[39]The Ombudsman rejected N & P’s arguments that the TOISA was more onerous because it was restricted to those with matured TESSAs. He said that that had not had the effect of producing a very narrow range of investors, and the restriction by N & P from 19 th June 1999 of the availability of its TOISSA to those with a matured N & P TESSA "could not alter the terms of the account for those who had already made their investment". He also said that if he had taken the statutory terms of TESSAs and TOISAs into account "this would have reinforced the relative onerousness of the TESSA in a number of respects". He did not elaborate but said that it would not be even-handed to bring into account the statutory restriction on the availability of TOISAs to those with matured TESSAs.

[40]The Ombudsman then dealt with what he described as N & P’s modified argument that it was not unfair to treat someone who failed to meet a statutory requirement for a particular account differently from someone who did meet that statutory requirement. N & P likened the Ombudsman’s approach to compelling similar treatment for those who qualified e.g. for student rates and benefits, and those who did not, an approach which it said would destroy the market.

[41]The Ombudsman rejected that argument in paragraph 46:

"46.1 My approach and that of my predecessors has been that more onerous accounts should pay at least as much as less onerous accounts. An account in which a customer has to invest and maintain a balance of at least £10,000 is other things being equal, more onerous than one where a customer has to invest and maintain a balance of £1,000. So I see no unfairness in the former account paying higher interest than the latter account, including on the first £1,000 of the investment. Nor would my predecessors. 46.2. If anything, it adds to the feeling of unfairness – and to Mr Jones’ sense of being "locked in" – if the only reason Mr Jones cannot use his money in his TESSA Select to earn higher interest on the less onerous terms offered by the Firm’s TESSA Only ISA, is a statutory condition over which he has no control. 46.3. The central issue for me to decide here is whether the statutory condition renders fair what I would otherwise find to be unfair. I do not think it does, any more than (by analogy) the "quality" or "condition" of being female or black would justify different treatment."

Overall, the Ombudsman considered the ISA to be significantly the less onerous account.

[42]The Ombudsman next gave his conclusions: 1. The TESSA was a "superseded account" within the Banking Code as the BCSB agreed, as shown by its 25 th January 2000 letter. 2. It did not matter that the supersession was the consequence of legislative provision rather than the consequence of an N & P decision; that did not affect whether differences in treatment were fair. 3. It did not matter if N & P were correct in saying that the industry had not thought that the Banking Code might apply in the circumstances, because that simply demonstrated a common error rather than the soundness of the view. Widespread malpractice did not become good practice. 4. TESSA holders were more captive than most and needed more protection. 5. Paragraph 2.18 of the Code did not suit superseded TESSAs ideally, but that did not mean that N & P was entitled to do nothing. "The Code is not a regulation or a piece of legislation. It is not an exhaustive statement of good practice". The arguments of N & P were at times too literalist to respect the obligation, as the new Guidance made clear, to follow the spirit, and not just the letter, of the Code. 6. Mr Jones, as the holder of a superseded TESSA, should not have been treated any less favourably under paragraph 2.18 of the Code, than the holders of any other superseded accounts. 7. It was wrong for N & P to suppose that the Ombudsman was finding it at fault because of a failure to anticipate the BCSB’s "pronouncements"; the BCSB might have a view on the way in which borrowers complied with the Code but it did not write or amend the Code. It was, in the end, for the Ombudsman to decide what N & P could reasonably be expected to have done in the light of the Code.

[43]The Ombudsman then set out his position on sections 2.17 and 2.18 of the Banking Code:

"Position on section 2.17 of the Code 60. The strict wording was not directly applicable, as there was no account in the Firm’s current range of savings products with sufficiently similar features to Mr Jones’ TESSA Select after 6 April 1999. 61. However, as I have explained, it is implicit in section 2.17 that a superseded account such as the TESSA should not pay worse interest than any accounts in the Firm’s current range with less onerous features. I regard that as a fair way of interpreting the spirit of section 2.17. 62. I have found that the TESSA Only ISA paid better rates, and had less onerous terms. I therefore find that the Firm treated Mr Jones unfairly by paying higher interest rates on the ISA than on his TESSA Select, for the period from 6 April 1999 until 19 September 2000." "

Position on section 2.18 of the Code 63. I consider it implicit – and fair – that the Firm should have contacted Mr Jones within 30 days of 6 April 1999 to tell him that the TESSA Select was superseded and tell him that the account could be transferred to another building society or bank without loss of interest. The Firm did not do this. 64. This was not affected by the fact that Mr Jones’ (statutory) right to transfer the account was referred to in the account literature that he had seen earlier, in September 1998. Nearly every superseded account will include a contractual right to move the money in the account, which the investor may or may not recall if he brings the account to the forefront of his mind. 65. In January 2000 the BCSB confirmed its view that TESSAs were superseded accounts. However, the Firm says it has no trace of receiving that letter and it did not send Mr Jones notice that complied with section 2.18 of the Code until 11 September 2000. 66. I have explained how I consider that section 2.17 of the Code required the Firm to pay at least as much interest on superseded accounts as it paid on less onerous accounts in the current range of products. Since I am of the opinion that the TESSA Only ISA had less onerous terms than those of the TESSA Select, I am of the view that the Firm did treat Mr Jones unfairly in comparison with its TESSA Only ISA investors. The loss resulting from that unfair treatment is the difference between the ISA interest and the TESSA interest. That loss is not caused by a failure to comply with section 2.18. What compliance with section 2.18 does is to put savers in a position to minimise that loss."

[44]His position on "Onerous Terms" was this:

"67. I have already explained the approach of the Building Societies Ombudsmen to the "onerous terms" principle, which has been applied whether the accounts being compared were ‘superseded’ or not. Under that well-established approach: 67.1 I find in Mr Jones’ favour. I find that the Firm treated Mr Jones unfairly by paying a lower rate of interest on his TESSA Select than on the TESSA Only ISA, as I consider the ISA had less onerous terms for the reasons I have already explained. 67.2. I do not think it fair to expect Mr Jones to have mitigated his loss by transferring elsewhere while the 60-day interest penalty effectively locked him in to the account. 67.3 Compensation should therefore run until the Firm put him in a position to minimise his losses, i.e. until 11 September 2000, by which time the Firm had told Mr Jones he was free to transfer elsewhere without the interest penalty. 68. I therefore find in favour of Mr Jones under the ‘onerous terms’ approach, as well as in the light of the Banking Code. The extent of the Firm’s liability and my order for compensation is the same under each. 69. This is not inconsistent with the view I took in my Provisional Decision, where I wrote "

It would not be fair to apply both the Ombudsmen’s [onerous terms] approach and the [Banking] Code, if to do so meant that the Firm would be subject to greater liability than if I applied just the one or just the other."

[45]I have already pointed out the Ombudsman’s acceptance before me that N & P did not "downgrade" its TESSAs, a matter which I raised because I was not clear as to whether his conclusion as to unfairness was based on "downgrading" or not. The Ombudsman, under the heading "other matters", rejected N & P’s contention that he should take account of the competitiveness of its TESSA interest rate when compared with other institutions’ TESSA rates. He said:

"70. .… I can only repeat that I do not adjudicate on questions of general competitiveness; nor do I excuse unfair treatment on the basis that the complainant would be even worse off if he went elsewhere. 71. Both the Banking Code and the Building Societies Ombudsmen’s ‘onerous terms’ principle are concerned with comparisons between the interest rates paid on different accounts by the same institution, not differences between one institution and another. 72. A code subscriber cannot ignore its obligations under section 2.17 – for example, by refusing to pay the same rate on a superseded account as on a similar account in the current range – on the ground that the rate on the superseded account is nonetheless competitive with the accounts of its rivals."

[46]Finally, the Ombudsman rejected N & P’s contention, which it has not pursued, that the Ombudsman was restricted by the terms of Mr Jones’ complaint to comparing TESSA rates with mini-cash ISA rates, an issue upon which in effect the Ombudsman found no unfairness. But he said that he was not restricted by "pleading points" and could and did adopt an inquistorial approach to his investigations. The approach to be adopted by the Court

[47]Mr Boswood submitted that the interpretation of the Banking Code was a matter for the Court. If misinterpreted, a material consideration would have been ignored. A document did not mean just what the decision-maker said it meant. He contrasted the interpretation or construction of a document with the application of the phrase in question to a given set of facts; application was a matter for the reasonable decision-maker and could only be reviewed on normal judicial review grounds.

[48]I was referred to R v Hillington LBC ex p Puhlhofer

[1986] AC 484

in which at p517, Lord Brightman said that what was properly to be regarded as "accommodation" for the purposes of housing and homelessness legislation was a question of fact to be decided by the local authority : it had to ask whether a person "has what can properly be described as accommodation within the ordinary meaning of that word in the English language." This illustrated the application of a word, the meaning of which was a matter of fact, to a given set of facts as being the province of the decision-maker, subject only to review.

[49]Mr Boswood relied on R v Director of Passenger Rail Franchising, ex parte Save our Railways [1996] CLH Commercial Law Cases 589, in the Court of Appeal, as showing how the interpretation of a Code should be approached by the Courts. Mr Pannick sought to distinguish it by reference to its particular statutory provisions. Sir Thomas Bingham MR said at p 596-7:

"Section 5 of the Act lies at the heart of this appeal and should be quoted in full: (1) It shall be the duty of the Franchising Director to exercise any functions assigned or transferred to him under or by virtue of this Act in the manner which he considers best calculated – (a) to fulfil, in accordance with such instructions and guidance as may be given to him from time to time by the Secretary of State, any objectives given to him from time to time by the Secretary of State … ."

[50]The Guidance required the specification of minimum service levels for passenger services "to be based on that being provided by BR immediately prior to franchising, taking into account" various matters. It was argued before the Court for the Applicants that that phrase meant that the levels specified had to correspond, at least approximately, to the levels provided by BR. The franchising director argued that "based on" meant no more than that the immediately pre-existing BR service levels had to be taken as a starting point whereafter markedly different service levels could be specified. The Master of the Rolls said of the franchising director:

"He is to perform those duties in the manner which he considers best calculated to comply with the objects specified in (a) and (b): from this it is plain that reliance is placed in the statute on his exercise of a considered professional judgment. This is what one would expect of an officer holding so demanding an office."

[51]The Master of the Rolls dealt with the nature of the legal argument as to the meaning of "based on" in the Guidance in this way at p601:

"(1) The legal argument Although we have described this as a legal argument it is not a pure legal argument. In reading the objectives, instructions and guidance the court is not construing a statute, or even subordinate legislation. The document must be read in a practical down-to-earth way as a communication by a Secretary of State to a responsible public official. The language used is not to be invested with more precision than it would naturally bear. Paragraph 18 must be read in the context of the whole document, and of the Act itself. All this we take to be clear. But the statutory duty of the franchising director is, as we read s.5, to exercise his functions in the manner which he considers best calculated to fulfil the objectives given to him in accordance with the Secretary of State’s instructions and guidance. Thus the objectives, instructions and guidance define and circumscribe the franchising director’s statutory duty. The court accordingly cannot, in case of dispute, abdicate its responsibility to give the document its proper meaning. It means what it means, not what anyone – franchising director, Secretary of State or member of the public – would like it to mean."

[52]Mr Boswood emphasised those last two sentences. The Master of the Rolls continued:

" ‘Based on’ is not a term of art, and it is not an exact term. It permits some latitude. It is obvious that every train timetabled by BR need not continue to run. There may be changes, and within limits it is for the franchising director to rule on the extent of the changes. His is the primary judgment. But there is a limit to the changes which may be made without ceasing to comply with the instruction in para. 18 and the guidance in para 23. The changes must in our view be marginal, not significant or substantial, as one deponent put it. We cannot read this document as a warrant for more than relatively minor change." and at p603H: "

The franchising director’s approach seems clear. He has been cautious in including loss-making services in his minimum service level specification because a subsidy would be payable to the operator required to run it. This is an intelligible and in no way irrational approach. But it is not in our view an approach which gives effect to the instruction in para. 18 or the guidance in para.23. No one reading the objectives, instructions and guidance could in our view have appreciated that this approach would be adopted or that the subsidy payment factor would be given so much weight. … We feel bound to accept the applicants’ legal argument. We do so without regard to the parliamentary materials put before us, which are not in our view admissible when considering the proper interpretation of the objectives, instructions and guidance. That being so, we make no comment beyond observing that they do not cause us to doubt what seems to us the inescapable effect of the document."

[53]This Court, he submitted, should follow that lead and state what it thought the Banking Code meant, and not simply whether the Ombudsman’s view was reasonable, although wrong in the eyes of the Court.

[54]Mr Boswood said that further assistance was to be derived from Investors Compensation Scheme Ltd v West Bromwich Building Society

[1998] 1WLR 896

House of Lords. Four of Lord Hoffman’s five principles of contractual interpretation are of some relevance which I take from the headnote:

"That in construing contractual documents the aim was to find the meaning which the document would convey to a reasonable person having all the background knowledge reasonably available to the parties, including anything which would have affected the way a reasonable man would have understood it, but excluding previous negotiations and declarations of subjective intent; that the meaning which a document would convey to a reasonable man was what the parties using its words against the relevant background would reasonably have been supposed to mean and included the possibility of ambiguity and even misuse of words or syntax; that the court was not obliged to ascribe to the parties an intention which plainly they could not have had, and in choosing between competing unnatural meanings was entitled to decide that the parties must have made mistakes of meaning or syntax; … ."

[55]The line between interpretation and application can however become rather blurred in certain circumstances; it is valuable then to examine criteria or relevant and irrelevant factors which determine the scope of the phrase or the approach to be applied by the decision-maker. Mr Boswood referred in this context to R v Monopolies and Merger Commission ex p South Yorkshire Transport Ltd

[1993] 1 WLR 23

, House of Lords. The jurisdictional precondition to the MMC’s acceptance of a reference was that the area to which the proposed merger related was a "substantial part" of the United Kingdom. It accepted a reference in respect of South Yorkshire, parts of Derbyshire and Nottinghamshire, totalling 1.65 per cent of the total area of the UK and containing 3.2 per cent of its population with 4.04 per cent of its total vehicle mileage. Lord Mustill referred to two stages in interpretation at p 28 H:

"Arriving now at the present appeal I believe that the interpretation of section 64(3) must proceed by two stages. First, a general appreciation of what "substantial" means in its present context. Second, a consideration of the elements to be taken into account when deciding whether the requirements of the word, so understood, are satisfied in the individual case."

[56]He pointed out the protean nature of the word "substantial", its many shades of meaning coloured by context. He continued:

"The courts have repeatedly warned against the dangers of taking an inherently imprecise word, and by redefining it thrusting on it a spurious degree of precision."

[57]Having set out his view as to what the approach to the meaning of "substantial" should be in that context, by reference to its purpose and the range of indicia or elements to be taken into account, Lord Mustill continued at p 32C – 33A:

"Applying this test to the present case one will ask first whether any misdirection is established, and secondly whether the decision can be overturned on the facts. As to the first it is quite clear that the approach of the commission was in general accord with what I would propose. It is true that matters such as academic and sports activities, mentioned by the commission, are of marginal importance at the most, but I do not regard their inclusion in the list of features to which the commission paid regard as vitiating an appreciation of "substantive" which was broadly correct. On the second question the parties are at odds as to the proper function of the courts. The respondents say that the two stages of the commission’s inquiry involved wholly different tasks. Once the commission reached the stage of deciding on public interest and remedies it was exercising a broad judgment whose outcome could be overturned only on the ground of irrationality. The question of jurisdiction, by contrast, is a hard-edged question. There is no room for legitimate disagreement. Either the commission had jurisdiction or it had not. The fact that it is quite hard to discover the meaning of section 64(3) makes no difference. It does have a correct meaning, and one meaning alone; and once this is ascertained a correct application of it to the facts of the case will always yield the same answer. If the commission has reached a different answer it is wrong, and the court can and must intervene. I agree with this argument in part, but only in part. Once the criterion for a judgment has been properly understood, the fact that it was formerly part of a range of possible criteria from which it was difficult to choose and on which opinions might legitimately differ becomes a matter of history. The judgment now proceeds unequivocally on the basis of the criterion as ascertained. So far, no room for controversy. But this clear-cut approach cannot be applied to every case, for the criterion so established may itself be so imprecise that different decision-makers, each acting rationally, might reach differing conclusions when applying it to the facts of a given case. In such a case the court is entitled to substitute its own opinion for that of the person to whom the decision has been entrusted only if the decision is to aberrant that it cannot be classed as rational: Edwards v. Bairstow [1956] AC 14 . The present is such a case. Even after eliminating inappropriate sense of "substantial" one is still left with a meaning broad enough to call for the exercise of judgment rather than an exact quantitative measurement. Approaching the matter in this light I am quite satisfied that there is no ground for interference by the court, since the conclusion at which the commission arrived was well within the permissible field of judgment. Indeed I would go further, and say that in my opinion it was right."

[58]Interpretation thus becomes, in certain cases, a matter of identifying an approach and relevant criteria which are capable of leading to different, equally rational, conclusions. Mr Pannick relied on this in support of his broad submissions as to the correct approach to "unfairness" in this case.

[59]Mr Boswood, in characterising the decision as to "relative onerousness" or compensation as "irrational", was doing no more, he submitted, than saying that there were in it errors of reasoning which robbed the decision of logic; it was a decision which did not "add up" – an analysis of "irrationality" which he derived from Sedley J in R v Parliamentary Commissions for Administration ex p Balchin

[1996] 1 PLR 1

. I respectfully agree with that description of legal irrationality.

[60]At the forefront of Mr Pannick’s submissions both on the approach to the interpretation of the Banking Code and on the approach which the Court should adopt towards the Ombudsman’s conclusions on "unfairness" was the contention that the context and nature of his duties called for what is sometimes termed a "light touch" judicial role : a respect for the adjudicator’s function and the specialist expertise of the decision-maker, and an acknowledgement of the breadth of the concept of "unfairness" the application of which in varying circumstances could justify a wide range of views without any being irrational. This approach should affect the interpretative role of the Court in relation to the Banking Code; in any event this case was more about how its provisions should be applied in a purposive and non-technical manner and, guided by its spirit, applied to similar or analogous situations which it might not expressly cover. The Code itself was not the rigid legal document contended for by Mr Boswood.

[61]Mr Pannick referred to a number of cases in turn. In R v Panel on Take-Overs and Mergers ex p Datafin plc

[1987] 1QB 815

, in which a decision of the Panel about whether parties to a potential take-over had breached the City Code was judicially reviewed, Sir John Donaldson M.R. said at p842D-F in the Court of Appeal:

"When it comes to interpreting its own rules, it must clearly be given considerable latitude both because, as legislator, it could properly alter them at any time and because of the form which the rules take, i.e. laying down principles to be applied in spirit as much as in letter in specific situations. Where there might be a legitimate cause for complaint and for the intervention of the court would be if the interpretation were so far removed from the natural and ordinary meaning of the words of the rules that an ordinary user of the market could reasonably be misled. Even then it by no means follows that the court would think it appropriate to quash an interpretative decision of the panel. It might well take the view that a more appropriate course would be to declare the true meaning of the rule, leaving it to the panel to promulgate a new rule accurately expressing its intentions."

[62]Mr Pannick submitted that those remarks were very much in point here. He relied on the similar cautionary words of Lord Woolf MR in R v Press Complaints Commission ex p Stewart-Brady [1996] 9 Admin. LR 274 at p279 :

"In my judgment, it is very important that where you have a body, such as the Press Complaints Commission, that if the court has any jurisdiction over them, it is reserved for cases where it would be clearly desirable for this court to intervene. The Court will not get into a position where it adopts a technical interpretation of the Code of Practice and then relies on that technical interpretation as justification for intervening."

[63]In R v Radio Authority ex p Bull

[1998] QB 294

(in which the Save Our Railways case was not cited), the issue arose as to whether the Authority had lawfully taken the view that the objects of Amnesty International, in seeking to publicise by radio advertising its campaign against human rights violations in central Africa, were "mainly of a political nature", and that, as such, broadcasting them would be contrary to the licensing requirements of the Broadcasting Act 1990 and the provisions of the Radio Authority Advertising Code. Lord Woolf MR said at p 309 A-F:

"Because of the factors to which I have drawn attention I suspect that, notwithstanding Mr Baldwin’s affidavit, the authority did not go about reaching its decision in the way that it should. Despite this, as already indicated, with some hesitation I have come to the conclusion it would not be right to allow this appeal and quash the decision of the authority and require it to reconsider its decision. My reasons for coming to this conclusion are as follows: (a) The authority is a regulatory body consisting of lay members which is intended to take abroad brush approach to its task. In the words of section 92(1) it was required to "do all that they can to secure that the rules specified in subsection (2) are complied with …"

This rather unusual statutory provision does not create an absolute obligation but instead places an obligation to do its best. (b) The onus is on A.I.B.S. to show that the authority transgressed. If the authority did go wrong, which is not clear, it was not because of want of trying to reach the right result. By its officers it leant over backwards to give A.I.B.S. every opportunity to explain its case and some of the contentions put forward on A.I.B.S.’s behalf were misconceived. (c) From an examination of the different elements of section 92(2)(a)(i) it is apparent that it is difficult to identify with precision the parameters of the paragraph. The language of the provision therefore allows the authority a reasonable degree of tolerance in its application. (d) Because of its lay nature and the terms of section 92(1) the court should be prepared in this situation to allow the authority a margin of appreciation and only interfere with its decisions when there is a manifest breach of the principles applied on application for judicial review. (e) A.I.B.S. is entitled to make a fresh application. The position is bound to be affected by the passage of time since the decision in October 1994 and it is preferable that the whole issue should be reconsidered in the light of our judgments on the up to date information as to A.I.B.S.’s objects." Mr Pannick urged the similarities between those provisions, their purpose and breadth and the instant case.

[64]Lastly in this context, Mr Pannick referred to R v Broadcasting Standards Commission ex p BBC

[2001] QB 885

. The Court of Appeal was required to determine the lawfulness of the decision of the BSC that the BBC had been unfair in its treatment of a retailer or had unwarrantedly infringed its privacy in broadcasting film shot secretly in its shops. Lord Woolf MR, at p 892, approached the role of the BSC and of the Courts in this way:

"14. Understandably Parliament has given to the BSC a broad licence as to how they exercise their judgment and discretion. Working in co-operation with the media the BSC will develop an expertise which makes them particularly appropriate to perform their role. Who has the necessary independence and how long a person should remain a member of the BSC are obviously matters of importance and so there are detailed provisions as to this in Schedule 3 to the Act. The nature of their work and their membership are important when considering the role of the courts in relation to adjudications by the BSC. What constitutes an infringement of privacy or bad taste or a failure to conform to proper standards of decency is very much a matter of personal judgment. This is not an area on which the courts are well equipped to adjudicate. In relation to privacy, both the literature and the jurisprudence show an understandable reluctance to propose a comprehensive definition. As Mr Beloff submitted, we are here in an area involving open textured concepts. An interference with privacy is not even like the elephant, of which it can be said it is at least easy to recognise if not define. The meaning of privacy can be influenced by the context in which it appears. 15. The matters to which I have referred do not mean that the court has no role in relation to the activities of the BSC. What it does mean is the role is limited… ." 16. I would also refer to R v Monopolies and Mergers Commission, Ex p South Yorkshire Transport Ltd [1993] 1 WLR 23, 29 and 32H and R v Radio Authority, Ex p Bull [1998] QB 294, 304-305. The BSC, as part of their role in drawing up the code and in making adjudications, have a degree of latitude in determining the situations which are within their remit so that they have statutory authority for laying down standards with which the media are required to comply. So as long as the approach which the BSC adopt is one to which, in their statutory context, the words infringement of privacy are capable of applying, then the courts should not interfere. It is only if an approach to "infringement of privacy" by the BSC goes beyond the area of tolerance that the courts can intervene. There will be situations when it will be obvious that what has happened is or is not within the remit of the BSC. There will be other situations which fall within the grey area where it will be very much a matter of judgment whether they fall within the remit of the BSC or not. In the latter situations, having regard to the role the legislation gives to the BSC, the answer as to the scope of their remit is that it is something for the BSC to determine and not the courts. However, if the BSC stray beyond the grey area into the red area, the court is required to intervene and give its decision that the case does not fall within the remit of the BSC." "38. This is very much a case in which the BSC, in giving that decision, were performing that role of setting standards of what is acceptable and what is not acceptable conduct. This was in an area where the courts, for reasons already explained, should be particularly hesitant about intervening. I would not interfere with the decision of the BSC on this secret filming. The decision was well within the BSC’s discretion. I do emphasise that the degree of infringement was limited and that therefore the justification which would be required on the part of the BBC to avoid an adverse finding would be very modest. However, I am not concerned with adequacy of the justification relied upon by the BBC. The BBC accept the judge’s decision that the adjudication of the BSC that the filming was unwarranted is not open to objection."

Lord Mustill, agreeing, added at p 900:

"To make their powers useful in what is essentially an area of personal judgment and good taste the BSC must have been intended to have a wide margin of appreciation, and I have no doubt that the margin was ample to cover the present case. 48. I do, however, wish to emphasise the degree to which this conclusion is dependent on the language and purpose of this particular statute, for in general I find the concept of a company’s privacy hard to grasp."

[65]I was also referred to a number of decisions concerning the Pensions Ombudsman because of the similar role to that of the Building Societies Ombudsman which he fulfilled. These related to the approach to intervention by the Court in a decision as to what was "unfair". I need only refer to Wakelin v Read[ 2000] OPLR 277 in which at p284 Mummery LJ described the role of the Court thus:

"The only question for the High Court and for this court, on appeal from the High Court, is this: is there an error of law in the determination or direction of the Ombudsman? In answering that restricted question, the appellate court should be astute not to entertain appeals on points of fact dressed up as points of law. A point of law is one which arises from the wrong application of a legal principle, or from the misconstruction of a statutory provision or from a decision that no reasonable Ombudsman, properly directing himself on the facts and the law, could have reached. In this exercise, the written statement of the determination must be read broadly and fairly. The findings of fact and the reasons for the determination should not be subjected to minute, meticulous or over-elaborate critical analysis in an attempt to find a point of law on which the disappointed party to the reference can appeal."

[66]Mr Pannick suggested that Mr Boswood’s arguments could be seen as suffering from those failings. After all, as Mr Pannick rightly pointed out, there was no complaint about any procedural unfairness; the challenge was to the substantive conclusion as to unfairness. Mr Pannick emphasised at p 289 the following parallel between the Ombudsmen’s roles and its significance for the degree of intervention which a Court should permit itself:

"As Robert Walker J said in Westminster City Council v Haywood and others [1996] OPLR 95 at p.103B: "

A very important part of the legislative purpose was to provide a quick, inexpensive and informal means of settling complaints and disputes about occupational pensions, especially where an individual or a small group of individuals (whether employees or pensioners) find themselves in conflict with trustees who have large resources and may sometimes (rightly or wrongly) be thought to be more attentive to the views of the employer than to those of the employees or pensioners." He added that, as recognised by the statutory right of appeal on a point of law, disputes could raise difficult questions of law as well as questions of fact. This case is a timely illustration of the truth of his comment at p.103C that:

"The Pensions Ombudsman’s task in delivering rapid, unlegalistic justice, without cutting too many legal corners, is a dauntingly difficult one."

The decision in that case was reversed on appeal, but the judgment of Millett LJ did not affect the force of these general comments."

[67]Here, submitted Mr Pannick, the statutory criterion required a subjective judgment as to what was "unfair" in a scheme where it was for the Ombudsman to determine and apply what criteria he thought appropriate. He had been given a very wide area of discretion or judgment as befitted his function and experience. He was dealing, through an informal procedure, with the complaints of individuals and small businesses; the Court did not possess his expertise. His financial jurisdiction was limited, and had to be applied in a non-legalistic manner to provide a free adjudication service, the effective functioning of which was important for the retention by the financial services industry of consumer confidence.

[68]I consider that the approach urged by Mr Boswood in relation to the Banking Code is correct and not the approach urged by Mr Pannick. I do accept with some qualification that Mr Pannick’s approach by contrast in relation to "unfairness" is correct, but it was in reality more in relation to the application of the concept of "unfairness" to this case and as to what was or was not rational that the parties differed, rather than on the legal approach to "unfairness".

[69]The task of interpreting the Banking Code 1998 is in my judgment for the Court. The Court has to decide its meaning or, as in the South Yorkshire Transport Ltd case, the approach or range of considerations permissible in its application. The Court undertakes that task using a variety of techniques and materials. It is not confined to those relevant or admissible in the construction of a statute, nor indeed to those more broadly available for the construction of a contract as set out in Investors’ Compensation Scheme Ltd.

[70]The Code requires a broad, purposive and common-sense approach. It is to be interpreted according to its spirit and in a non-technical way. The references to the spirit of the Code introduced into the 2000 edition merely express what was always necessarily implicit in the nature of the Code anyway. However, the obvious need to adopt such an approach does not mean that the task of interpretation is not for the Courts. The Investors’ Compensation Scheme case shows that the task for lawyers may be to adopt, not a non-lawyer approach, but an approach which is not driven by grammar, semantics and sophisticated or purist literalism. In Save Our Railways and South Yorkshire Transport Ltd precisely the same approach was adopted; the need to adopt such an approach did not remove the task of interpretation from the Court. If any particular expertise is required for the Code’s interpretation, that can always be provided by way of evidence.

[71]The Code however is a material consideration for the Ombudsman to take into account. If he misinterprets it, he will have failed to take it into account. It has one meaning. Although people may reasonably differ as to that meaning, it is for the Courts to decide what that one meaning is because it is for the Courts to decide whether a material consideration has been ignored. The Code cannot have as many meanings as reasonable people might attribute to it, all of which have to be considered. The Code is to be applied by banks and other deposit taking institutions; their compliance officers and customers cannot all say that their differing interpretations are right because reasonable. The Code has not simply been produced by or for the Ombudsman’s use and application. The fact that it will be applied by the Ombudsman in informal adjudications using his expertise does not alter the Court’s role in determining the Code’s meaning. The BCSB is not the guardian of its meaning; though its views are relevant, it is for the Court to consider and weigh those views as to the Code’s interpretation and not simply to review them in effect for rationality.

[72]Rather, all those factors point instead to the Ombudsman being afforded considerable leeway in the application of the Code to the circumstances which he finds.

[73]Those conclusions are borne out by the authorities to which I have been referred. The approach of the Master of the Rolls in Save Our Railways is directly in point. I can see no justification for distinguishing it by reference to the wording or nature of the statutory provisions involved. Those provisions led to Guidance, and it was that Guidance which the Court interpreted; I can see no distinction, and none was suggested by the Court of Appeal, in the fact that the Guidance had been laid before Parliament. The Guidance was expressed in broad terms; two reasonable but conflicting interpretations could be given to the words in question. The Guidance was to be applied by an expert, in the carrying out of his functions. The fact that he had to act in accord with it rather than merely have regard to it, cannot affect the Court’s role in interpreting it. Again, in South Yorkshire Transport Ltd , the Courts interpreted the relevant statutory provision, giving guidance as to its scope and intendment and as to the factors legally relevant to applying it accordingly.

[74]The Datafin case is distinguishable, and not merely because it may be to a degree at odds with the later case of Save Our Railways . The Code there was produced by the Panel for its own application; the author could alter it, unlike here.

[75]The Bull and BSC cases are not so much dealing with interpretation as with the degree of judicial interventionism appropriate to the application of the Codes; see Bull p 309 at (c) and (d) and BSC especially paragraph 14. Paragraph 16 is not dealing with the ability of an adjudicator to ascribe a meaning to a Code which is merely reasonable. It does not contradict or deal with Save Our Railways : BSC cannot therefore be taken to qualify it, and BSC can readily be seen as being concerned with judicial review of the application of the very wide words in question by a specialist tribunal to the particular circumstances. The words "mainly of a political nature" and "privacy" are very broad. It was for the relevant body to decide whether those concepts were capable of application. I do not regard those decisions as permitting the Ombudsman to determine the meaning of the Code, even if he is reasonable but wrong.

[76]I am aware that there are planning cases which adopt a review approach to the interpretation of policy documents notably R v Derbyshire CC ex p Woods [1997] JPL 958 Court of Appeal. Bull was cited but not Save Our Railways . The problems of interpreting planning policy documents and the specialist background material may call for a different approach from that in Save Our Railways . But to the extent that they are in conflict, I prefer the approach in Save Our Railways.

[77]However, those latter authorities, together with Wakelin v Read are strong support for Mr Pannick’s submissions as to the approach which the Court should adopt to the review of the Ombudsman’s decision as to what is unfair. The Ombudsman is entitled, and consistency in decision-making probably obliges him to develop criteria as to what constitutes unfairness. Those criteria are a matter for him. The very concept of "unfairness" is very wide, and permits reasonable people to disagree. But its very width serves as a caution against over-active judicial intervention in the approach adopted by the Ombudsman, in the criteria which he develops or in the application of those criteria or of the concept of unfairness to the circumstances of the case.

[78]It is only if the Ombudsman has committed such errors of reasoning as to deprive his decision of logic that it can be said to be legally irrational. The Court should be very wary of reaching such a conclusion. Its own views as to what would be fair are not to be substituted for the Ombudsman’s views when what is at issue is a question of the substantive merits of a decision as to unfairness.

[79]His task is difficult; it has to be accomplished so as to achieve the aim of the inexpensive and quick resolution of complaints by individual and small business consumers of banking services. However, the qualification to which I have referred is this : the Ombudsman’s decision may sometimes, as here, affect many account holders at one institution and may also affect those at many other institutions. They may be important for the members who will have to bear the cost of substantial compensation. Such decisions call for careful consideration and reasoning : a cheap and cheerful robustness may be inadequate, missing important points, internally contradictory or ill-expressed for the weight which the Ombudsman expects it to bear. He has here undoubtedly been careful to give N & P every opportunity to make its points and he has sought to give all of them consideration. The Banking Code

[80]Mr Boswood submitted that the Ombudsman had erred in his interpretation of the Banking Code. He had rewritten the Code by applying an undefined spirit searching for implicit or hidden meanings. Paragraph 2.17 of the Code did not apply to accounts which were superseded as a result of legislative intervention. The BCSB newsletter of 25 th January 2000 which said that the Code did apply to such accounts, had not reached N&P and could not operate retrospectively. N&P only became aware of the BCSB stance after its 22 nd September 2000 Bulletin No. 3. The background to the Banking Code and to the Ombudsman’s concerns was to be found, submitted Mr Boswood, in the malpractice of "downgrading" which had been considered in a number of the Ombudsman’s past Annual Reports.

[81]In 1991-2, the Ombudsman considered complaints about investment rates:- "Typically, the problem arises when a society introduces one or more new investment accounts in order to adapt and improve its product range. The terms of some of them may be similar to existing accounts, but they are rarely identical. The new products are the subject of much publicity, and the existing ones will be closed to new investors. Societies do not usually write to their existing investors individually to inform them of the new accounts. Over time, the interest rate paid on the closed accounts will tend to be less than that available on the new ones." "We finally took the view that the correct test, which is objective, is that investors must be vigilant about their investments; but that, in order to enable them to make an informed choice, societies should ensure that relevant information about all accounts (and in particular about interest rates on obsolete accounts) is reasonably accessible." This was reflected in subsequent Reports. The documents referred to above in paragraphs 26-28 and 33-44 were all dealing with that problem.

[82]As Mr Pannick had accepted, N&P had not engaged in that malpractice. Once the Ombudsman had accepted that the nature of a TESSA meant that a society would probably have no accounts with "similar features" in its current range, it was wrong for him then to import notions of fairness drawn from his "relative onerousness" concept in order to try to find an equivalent. Paragraph 2.18 of the Code did not require a building society or bank to give information to the customer about the accounts offered by another deposit-taking institution, a commercial rival, in order to avoid being "unfair". The only accounts to which it would have made any sense for Mr Jones to transfer his TESSA funds were TESSAs of other institutions: TOISAs were not available to Mr Jones; non TESSAs would have had significant tax disadvantages. But no TESSA of another institution had been identified which paid a better rate than N&P’s; N&P were very competitive in the rates which they offered. Code subscribers such as N&P would not have been aware of the BCSB’s approach, except in relation to the scope of "superseded accounts", until 22 nd September 2000 when it issued Bulletin No. 3 and 26 th September 2000 when the Ombudsman issued further guidance entitled "Interest on Variable Rate TESSAs".

[83]Mr Pannick submitted that the Ombudsman’s approach to the Code, interpreting it according to its spirit meant not only that he could discount interpretations which sought to seize on those technical loopholes which an excessively legalistic approach might discover, but also that if a problem arose which the Code did not expressly address, the Code could be applied by analogy. In that way, it covered unfair treatment of a superseded account whether the replacement account was better because of "downgrading" or whether, if there were no replacement account as here, comparison with other accounts revealed unfairness.

[84]Mr Pannick submitted that both by spirit and letter the Banking Code applied to all superseded accounts, whether superseded through commercial decision or legislative provision. There was no reason within the Code to draw a distinction and the Ombudsman’s approach was supported by the BCSB which highlighted the reasonableness and correctness of the Ombudsman’s view. The Ombudsman was entitled to identify the unfairness at which paragraph 2.17 of the Code was aimed as extending beyond "downgrading", to cover the payment of lower interest rates on superseded accounts than on currently available accounts. Again, this approach was supported by the BCSB. It had not been applied directly because there was no account similar to a TESSA, but it could sensibly be applied in accordance with its spirit to a comparison with equally or less onerous accounts. As to paragraph 2.18, the Ombudsman had fully understood the limits on transfer to which holders of TESSAs were subject, if they wished to retain their tax benefits. However those limits could be seen as increasing the need for flexibility over such transfers as were possible. The obligations in paragraph 2.18 could be applied by analogy according to the spirit of the Code to cover the position of those such as Mr Jones. The Ombudsman was not a regulator and had no power to determine what was fair or unfair by reference to the interest rates offered by other banks or building societies; that was a matter for market competition. The possibility that, despite press criticism of the treatment by banks and building societies of TESSAs in comparison with ISAs, such bodies were unaware of the general approach of the BCSB or of the Ombudsman was neither here nor there.

[85]In my judgment, Mr Pannick is correct in submitting that the Banking Code is applicable to superseded accounts, whether superseded by the decision of the bank or building society or superseded by legislative provision. The Code itself draws no such distinction on the face of it. I accept Mr Boswood’s submissions that the mischief, at which the Code in these paragraphs was aimed, was the practice of "downgrading" accounts so that the new accounts of the bank or building society held a comparative advantage for customers. That much seems clear from the early Annual Reports of the Ombudsman and from the BCSB newsletter of 25 th January 2000 which refers to the loophole of keeping an account open in theory to prevent it being technically superseded. But that is some way from showing that "downgrading" in that sense was the exclusive target of the broad language of the Code and its spirit. It would be an approach overly constrained by that particular cause, to treat the language of paragraphs 2.17 and 2.18 as inapplicable to other situations which the word "superseded" reasonably fits and which can give rise to similar problems. Mr Boswood’s submissions as to what constitutes "downgrading" related it in origin at least to a deliberate act by the bank or building society so as to advantage itself. Yet the Code covers more than deliberate acts, or oversight. It is aimed at the consequence of an account type not being actively promoted for whatever reason.

[86]That is not to say however that the peculiarities of legislative supersession have to be fitted into the solutions which those paragraphs provide if they do not fit. A broad, purposive interpretation of those provisions according to their spirit does not require that they be treated as a Procrustean bed. It is simply that legislative supersession does not of itself preclude the potential for the consequences to be dealt with pursuant to those provisions.

[87]I accept Mr Boswood’s submissions in relation to the meaning of paragraphs 2.17 and 2.18 of the Code. Paragraph 2.17 provides for interest rate levels or switching accounts where there are similar accounts for comparison or transfer. It is clear from paragraphs 25, 60 and 61 of the Ombudsman’s Final Decision that he accepted that there were no accounts with similar features to which the TESSA could be transferred or by reference to which interest rates could be set. The BCSB in its September 2000 Bulletin (paragraph 28 above) recognises too that there are no similar accounts. Paragraph 2.18 provides for the approach to be adopted where that is so. There is no other intelligible interpretation of the language, purpose or spirit of the Code.

[88]There is no reason for the Ombudsman to seek an interpretation of paragraph 2.17 to make it applicable where he accepts that it is not applicable and where specific provision is made for what is to happen in that eventuality. Paragraph 61 of the Final Decision draws on paragraph 25 which states that a superseded account should not pay worse interest than any less onerous accounts in the current range; on his reasoning, these are necessarily not "similar" accounts. The Ombudsman here is not in truth interpreting the Code at all; he is turning the Code into no more or less than a vehicle for the expression of what he considers "fair". He may or may not be justified in his conclusion as to what is "fair" but the spirit and purpose of the Code do not permit it to be interpreted as if it were a cover-all for whatever the Ombudsman thought was fair in any circumstance. The key commitment to act fairly, is not a basis for bringing into the Code a general substantive provision and does not enable the Ombudsman to import his test as to fairness into the Code. Such a process would render it redundant in its statutory role as a material consideration in the analysis of what was fair. Indeed, I do not consider that the Ombudsman’s approach to the Code is reasonably open to him: he has treated himself as having a free hand to extend the Code to cover situations according to what he thinks is fair, regardless of its express provisions as to what happens when part is admittedly inapplicable. He has treated the Code, which may not be perfect, or comprehensive with an answer for every situation, as if it had to be coterminous with his views of fairness, which he does by introducing his "relative onerousness" concept into paragraph 2.17. Its spirit and purpose do not permit that: a simple, clear alternative is provided where there are no accounts with similar features: it is in paragraph 2.18.

[89]However, the Ombudsman’s approach to paragraph 2.18 of the Banking Code as set out in paragraphs 29 and 63 of his Final Decision is itself neither correct nor indeed reasonable. The Code, neither by letter, purpose or spirit, requires a bank or building society to free its customers of notice or interest penalty and to tell them that they can freely transfer their accounts to a competitor. It plainly envisages only that if the bank or building society has no similar account by reference to which interest rates can be raised or to which the superseded account can be transferred, the account holder should be able to transfer freely to the next best dissimilar account which that bank or building society has available for him. That reflects the language, purpose and spirit of this voluntary Code. Paragraph 2.6 of the Code clearly only applies to the accounts "available from" the institution in question.

[90]I appreciate that a "free transfer" to another account at the same institution may enable the account holder to transfer the funds to another institution in two quick stages and so the distinction between telling the account holder that he can move freely to another account at the same institution and telling him that he can move freely elsewhere may not matter much in practice to some of those affected (though it could matter as here in the unusual position of TESSAs). However the Code plainly does not require that the proper response be more than information that the account holder can transfer freely to one of the other accounts at the same institution, details of which can sensibly be provided. The purpose is to require the institution to provide full information about its different accounts so that an informed decision can be made, not to assist departures.

[91]I do not consider that a possible two stage outcome supports the Ombudsman’s interpretation of the Code; rather it underscores the extent to which the Code, interpreted as it should be, still provides considerable scope to benefit account holders but nonetheless only requires the institution to focus on fair treatment and information as between its types of accounts.

[92]The fact that paragraph 2.18 thus approached may not directly assist TESSA holders in the way in which the Ombudsman would wish, is a consequence of the particular feature of a TESSA that its tax advantages are lost by transfer to a non-TESSA. But that is no basis for giving paragraph 2.18 a meaning which it does not generally bear. Its spirit cannot be invoked so as to provide a general implicit provision covering anything else which could usefully be covered in the way in which the BCSB or Ombudsman thinks is fair.

[93]The vice in the Ombudsman’s approach to paragraph 2.17 is found again in his approach to paragraph 2.18: he is trying to make it fit circumstances which it does not fit by bringing in his concept of "relative onerousness" and his view of how more onerous accounts should be treated. He does not need to find an answer to every problem in the Code or its spirit. The Ombudsman is not deprived of the ability to consider something unfair where the Code does not cover it, or even where it does. The views of the BCSB suffer from the same problem: it treats it as a document which must be made to fit all situations and incorporate a general and substantive requirement to achieve fairness according to their particular lights. It fails to follow through the structural logic of paragraphs 2.17 and 2.18. (It also appears to adopt a different approach to the Ombudsman as to the relevance of statutory conditions.)

[94]In this case, N&P did not comply with paragraph 2.18, on the interpretation which I consider correct, until 11 th September 2000, so in a real sense the dispute over the interpretation of the Code could be said to be academic. It did not do so because it did not consider the TESSA to be a superseded account within the Code, which was its error. However, compliance in that way with the Code would have been a matter of form not substance because a transfer to a non TESSA at N&P would have been to lose the tax benefits and N&P had no other TESSAs. It is only a transfer out of N&P to another TESSA which could conceivably have advantaged Mr Jones. Had the Ombudsman interpreted the Code properly, he might have concluded that it was the breach that was technical, and not one which went to the spirit of the Code; he would have had to approach compensation for a breach of the Code alone differently.

[95]The Ombudsman’s approach to paragraph 2.18 of the Code as apparent from paragraph 66 of his Decision Letter involves a further potential error. He appears to suggest that compliance with paragraph 2.18 simply puts savers in a position to minimise the loss caused by unfair treatment under paragraph 2.17. The Code is clear : if paragraph 2.17 does not apply, paragraph 2.18 may do, and if paragraph 2.18 does apply and is complied with, there is no unfairness thereafter. It is not merely a process of mitigating losses which leaves the original unfairness in place.

[96]Mr Pannick helpfully clarified what the Ombudsman might mean in argument: compliance with paragraph 2.18 enabled a line to be drawn; as soon as N&P told Mr Jones that he could move without penalty, thereafter it could again discriminate in interest rates as between its TESSAs and its TOISAs. That, I accept, being the approach which the Ombudsman was trying to convey that he had adopted to paragraph 2.18, there is no further error on that account. Were the approach otherwise, the Ombudsman would be holding that actual loss could continue to accrue after the relevant notification as to a free transfer had been given whilst holding it irrelevant that there was clear evidence that no better account was available externally and that there was no beneficial internal transfer. The notification process to which the Code and the Ombudsman attach importance would be redundant. This would have involved a sequence of irrational errors.

[97]Accordingly, I conclude that the Ombudsman has misinterpreted the Code and has failed thereby to have regard to it as required by paragraph 4(2) of Part III of Schedule 12 to the 1986 Act and the 1998 Scheme itself.

[98]Mr Pannick submitted however that, were I to reach that conclusion, I should not quash the decision because the decision rested on two separate bases, both of which had to be knocked away before the decision could be said to be unlawful. The other basis for the Ombudsman’s decision was that N&P had been unfair in its treatment of TESSA interest rates because it paid less interest on the TESSA than on the less onerous TOISA: the so-called "relative onerousness" test. He submitted that neither the Ombudsman’s conclusion on this issue or on the complaint overall was tainted by any error which I might find in his approach to the Banking Code. Mr Boswood was not disposed to take real issue with that analysis.

[99]I accept Mr Pannick’s point. There are two bases for the decision as the structure of the decision and the specific comment in paragraph 68 make clear. There is an overlap between the reasoning on the two bases, but as I read the decision, it is the "relative onerousness" test which has been erroneously and unnecessarily imported into the Code as an aid to its interpretation rather than the other way round. Nothing in the erroneous interpretation of the Code has been imported into the concept or application of the "relative onerousness" test.

[100]Nor do I see in the decision so significant a degree of comfort being drawn by the Ombudsman in his overall conclusion from the fact that, to him, both the Code and the "relative onerousness" test told in the same direction, that the latter decision is tainted. Paragraph 69 is dealing with cumulative not alternative bases for decision.

[101]The Ombudsman would have had to consider unfairness in the light of a breach of paragraph 2.18, which he might have thought technical and not causative of loss; but it is clear that he would not have regarded even compliance with paragraph 2.18 as making it wrong to hold that N&P had been unfair. That, to him, would simply have highlighted the limited scope of the Code. Accordingly, I turn to consider Mr Boswood’s submissions in respect of "relative onerousness". "Relative onerousness"

[102]Mr Boswood criticised this test as "a meaningless inquiry into a question of [the Ombudsman’s] own devising which is incapable of any logically verifiable answer". At the end of Mr Pannick’s submissions, I concluded that it was only the adjective "meaningless" from which he demurred. However Mr Boswood also stigmatised it as "fundamentally flawed, subjective, arbitrary and capricious".

[103]He sought to illustrate this in a number of ways. The test was incapable of dealing with packages of terms for an account; it could not be measured against an objective yardstick even looking at notice periods and, say, minimum deposits. How could the Ombudsman decide whether a 30 day notice account with a minimum deposit of £10,000 was more or less onerous than a 60 day notice account with a minimum requirement of £5,000? The test was incapable of being fine tuned. It was unpredictable and subjective in application. The Ombudsman had provided no explanation of the test; he had merely referred to it being well-established on the basis of decisions which he was unwilling to disclose to illustrate its application, even on an anonymised basis.

[104]Mr Boswood also submitted that the way in which the test was applied showed it to be an irrational surrogate for fairness: obviously relevant factors which the Ombudsman refused to take into account were: 1) the fact that the interest rates paid by N&P were, or were amongst, the highest available and Mr Jones could not do better by moving to another TESSA provider; it was irrational for the Ombudsman to hold that notification to Mr Jones that he could move freely made it not unfair to pay lesser interest, when there was evidence that there had never been anywhere better for Mr Jones to go; 2) the fact that Mr Jones could not rationally want to move to a non-TESSA account whether with N&P or another building society because he would lose his TESSA tax benefits; 3) the fact that N&P had not engaged in the practice of "downgrading"; 4) the account by reference to which the TESSA interest rate was said to be unfair was a TOISA for which, by statute, Mr Jones’ TESSA money was not eligible; this approach would mean that the special terms available for students, or the old, for local residents or local football club supporters would cease to be available because other account holders could equally measure the fairness of their account terms against those offered on accounts for which they were not qualified or eligible; the Ombudsman could not disregard N&P’s ISAs as a comparator because it was no longer currently available, and treat its TOISA as a comparator when it too was not available to Mr Jones; 5) both the ISA and TOISA had different savings aims to which their different statutory terms and tax advantages were addressed; those made comparison with a TESSA pointless and such a comparison in effect would cause N&P in its interest rate provision to compensate for the differences which statute imposed; the Ombudsman effectively turned a notice account into a notice and penalty free, instant access account at its previous rate.

[105]Mr Boswood also submitted that the nature or pattern of the Ombudsman’s reasoning showed that he was only paying lipservice to his obligation to reach a decision on the particular facts of the case. He was in substance applying inflexibly his "relative onerousness" test in spite of all the particular circumstances which I have set out.

[106]Finally, Mr Boswood submitted that the Ombudsman was applying his "relative onerousness" test retroactively. It was not until 26 th September 2000 when he issued guidance on "Interest on Variable Rate TESSAs" that it would have been apparent what he expected institutions to do to avoid a finding of unfairness. This spelt it out for the first time in this context. His irrational approach was not otherwise foreseeable. The BCSB guidance in Bulletin No. 3 was only a few days earlier, on 22 nd September 2000. N&P had not received its earlier newsletter of 25 th January 2000, which was anyway rather less specific. Moreover, the fact that two bodies were agreed could not convert irrationality into sense.

[107]I do not consider that the attack on the "relative onerousness" test as an irrational or arbitrary measure of fairness is sustainable. Mr Boswood’s submission elevates it into an altogether more sophisticated analytical tool than it is. It is but a very simple test incapable of making fine distinctions or doing more than provide a broad comparison between accounts, which will often not be able to provide an answer to the question of whether one account is less onerous than another. It may provide no answer at all to Mr Boswood’s simple example, let alone to a more elaborate package, but that does not make it an irrational tool of comparison. It does permit of subjectivity in application but it is necessary for the Ombudsman to be able to exercise his own judgment as to what is fair. I accept Mr Pannick’s approach to it.

[108]The Ombudsman is entitled, as Mr Pannick pointed out, to adopt a test, or several tests, to assist him in reaching a view as to what is unfair. The very breadth of that word, and the fact that reasonable people can differ very strongly about what is or is not fair, necessitates the development by the Ombudsman of some guide or criteria which he can apply in his task. It also makes for consistency in decision-making.

[109]If the Ombudsman treated this guide or "relative onerousness" test as a surrogate for unfairness so that factors obviously relevant to fairness were ignored because they did not fit within the framework of "relative onerousness", that would constitute an error of law. I do not consider that the Ombudsman has used the concept as a surrogate for unfairness in that way. True it is that his test is the focus of his analysis of unfairness but even were it the exclusive focus, which to my mind would be too exacting a reading of his decision, it is not the adoption of the test which has caused him to regard certain matters as immaterial but his view as to what is fair. The legal effect of his disregarding various contentious matters can and should be considered against the true scope of "fairness".

[110]I reject also Mr Boswood’s submission that the "relative onerousness" test has caused the Ombudsman to fetter his discretion, and to pay lipservice only to particular circumstances. It is inevitable that a test or criterion will be of general application and will produce similar results in similar cases; that involves no fetter. This is not a case in which N&P relied on peculiarities or idiosyncrasies of its relationship or terms of business with Mr Jones. The factors relied on for its defence by N&P would probably hold good for all its TESSA holders, and for the most part, for most banks or building societies in relation to their TESSA holders. The general applicability of the Ombudsman’s conclusions shows no fetter. In so far as the "fetter" argument merely repeats in another form the contention that the Ombudsman regarded certain factors as irrelevant, that argument stands or falls according to their relevance or irrelevance in law. The refusal to disclose earlier decisions on "relative onerousness" does not support any argument as to the fettering of discretion or the inability of the Ombudsman to explain his test. The test is very simple and does not require disclosure of other decisions for its inscrutable workings to be unmasked.

[111]Although the Ombudsman correctly disclaimed any regulatory role, the impact of a decision that Mr Jones had been treated unfairly will inevitably constitute a decision that in such circumstances, which must be very widespread, a TESSA holder should receive the same interest as an ISA holder, if that account is still available or as a TOISA holder, in the alternative. More precisely, the account holder should do so until informed that the account can be transferred without notice or penalty to another account. But I do not consider that the general application of the conclusion means that the Ombudsman should be seen as having moved from a consistent adjudicator to industry regulator.

[112]I turn to deal with those factors which Mr Boswood submitted were obviously relevant on a rational view as to the scope of "fairness" but which he said the Ombudsman had set aside.

[113]The question of whether Mr Jones would have been better off moving to a TESSA with another institution goes solely to the question of loss and compensation. The Ombudsman is entitled to conclude that it was unfair for the notice or penalty restriction to be maintained, and Mr Jones not to be told that he could move freely elsewhere, regardless of whether the opportunity thus afforded would actually benefit Mr Jones or not. It was for Mr Jones to decide whether he could usefully take advantage of that opportunity rather than for N&P to maintain the restrictions because it judged that he would not benefit. In fact N&P did not go through such a paternalistic thought process. It did not free him of restrictions, because it did not think the TESSA was superseded not because it only had one TESSA or paid better rates. The tax implications bound Mr Jones to a TESSA and it perceived no obligation of fairness (because none arose under the Banking Code) to enable him to move freely to a competitor.

[114]The fact, which I regard as established by the various graphs which N&P produced, that its TESSA and other rates were better than those of its competitors, was legitimately regarded by the Ombudsman as irrelevant to fairness. The Ombudsman was entitled and, to avoid being a regulator, probably obliged, to examine fairness as between account holders of the one institution. Those at N&P all benefited from its competitive rates, but not all were so restricted as its TESSA holders. The Ombudsman is entitled to conclude, within the broad scope of the judgment as to unfairness which it is for him to make, that it is not for him to make the assessment as to whether Mr Jones would be better off transferring his TESSA to another TESSA provider. That is for Mr Jones once he has the necessary opportunity. Were it otherwise, the Ombudsman’s decisions on unfairness would involve a view on comparative terms and interest rates as between institutions. It could lead to a conclusion that it was fair for Mr Jones to be prevented from some transfers but perhaps not others, which would be a considerable extension of his role and could easily shade into a regulatory function.

[115]This point is closely allied to the contention that the "free transfer" provision is of no relevance to a TESSA holder unless the institution has more than one TESSA, or the account holder can change institutions, because of the loss of the tax benefits which a change to a non-TESSA would entail. I do not see this as making it irrational for the Ombudsman to conclude that the choice should be there without penalty as a matter of fairness, just as in theory it was there for TOISA holders. Someone might wish to abandon his TESSA but not be penalised.

[116]What undoubtedly irks N&P, and it is easy to see why the finding would cause resentment and annoyance, is that the Ombudsman concluded that fair treatment required that it tell Mr Jones and its other TESSA holders that they could move freely to competitors, (especially when they were not so competitive), which was not something required by the Banking Code. As I have said, the Banking Code does not provide for all situations, and should not be interpreted so that it does when clearly it does not. But that also means that what is fair or unfair cannot be judged exclusively by reference to it. It is the very fact that a TESSA holder has no real choice, if he is to retain his tax benefits but to stick with a TESSA, that makes the opportunity of a move elsewhere, without penalty, so important. There are powerful arguments as to what is fair or unfair or both sides, but I cannot conclude that in these respects the Ombudsman’s approach is irrational. He deals with that consideration in a lawful manner within the broad scope of fairness.

[117]I accept Mr Pannick’s submission that the fact that N&P had not "downgraded" its TESSAs does not prevent a finding of unfair treatment; the concept is obviously broader. I also accept that the Ombudsman was not acting retrospectively in the sense of changing established rules or guidance, and applying it to earlier decisions of the institutions. He is entitled to reach a conclusion that treatment is unfair based on his analysis of the material presented; he does not have to have signalled in advance that treatment of a particular type would be unfair. Whilst there might be some ground for complaint that the Banking Code was being stretched beyond its previous known confines on the Ombudsman’s approach, that would not have prevented it being applied in that way if the proper interpretation of the Code permitted it. It would be unfair on complainants to do otherwise. A common misunderstanding as to the position cannot fairly make the position other than what it is. Even less can it be said that the Ombudsman must forewarn institutions of his approach. There is also force in Mr Pannick’s point that it had been well known that there was a strong public concern that TESSA holders were being unfairly treated and the fact that they were locked in for 5 years meant at least that they were being taken for granted and not actively courted. The institutions were effectively on notice that they had to be actively looking to ensure that they were not being unfair.

[118]I found more problematic the question of whether it was rational for the Ombudsman to use the TOISA as a comparator account when Mr Jones was not eligible for it and indeed not eligible for it as a matter of law rather than as the result of a decision by N&P. Mr Boswood painted a picture of a world in which the Ombudsman, if this decision stood, would be able to deprive institutions of the opportunity to offer special terms to groups which it wished to attract. Certainly his comment in paragraphs 46.3 of the Decision Letter fails to meet the concern raised; N&P was not concerned to engage in unlawful discrimination on the grounds of race and sex and the Ombudsman’s comment is some distance off the point.

[119]The Ombudsman is correctly looking at fair treatment as between the various account holders at the institution in question, and in my judgment, the fact that a complainant may not be eligible for an account does not preclude a reasonable view that his treatment has been unfair by reference to it. Ineligibility is not by itself a sufficient answer preventing a comparison being made with another account, and a conclusion drawn that the complainant is being unfairly treated. The answer from the institution’s point of view must lie in the justification for the difference rather than in the simple fact of ineligibility. There will often be no difficulty in an institution explaining that one type of account is treated more favourably than another for commercial reasons, to attract and retain accounts in the best ways it can, to compete in the market. But it is for the institution to explain why the ineligibility means that the other differences in treatment are fair. If an institution wishes to favour some account holders with better interest rates, it may be that fewer restrictions on other accounts as to notice of withdrawal would be fair.

[120]Similarly, even though in the case of a TOISA, Mr Jones is not yet eligible as a matter of statutory restriction, N&P nonetheless has a choice as to the other terms which it imposes as to notice and penalties and as to the interest rates which it offers. It is perfectly proper to ask, as in effect the Ombudsman does, why the TOISA, also a tax advantaged savings vehicle should have better terms, both as to interest and transfer, than the TESSA. If there is no reason which satisfies the Ombudsman, he can conclude that the comparative treatment is unfair. It is in examining those aspects over which the institution does have control that comparisons and conclusions as to fairness can be drawn. Mr Jones’ ineligibility for a TOISA does not make it irrational to ask why N&P’s particular TOISA should be so favoured by comparison with its TESSA. The fact that the ineligibility is created by statute does not alter that. Although the Ombudsman gives no reasoning, his description of the nature of the accounts in paragraphs 16 to 18 of his Decision shows his conclusion in paragraph 43, that had he looked at the statutory terms in his comparison the TESSA would not be more favourably regarded, to be not unreasonable. But as paragraph 19 shows, he focuses on those terms for which N&P is responsible.

[121]At all events, whilst many would reasonably take N & P’s side on this point, and agree that it was fair to exclude from comparison accounts for which the complainant was ineligible, I do not consider that the alternative approach is outside the scope of a rational approach to fairness. The comment in paragraph 46.3, for all its deficiencies, does not mean that his whole approach is flawed.

[122]I am by no means satisfied that it is rational for the Ombudsman to conclude that an ISA cannot be used as a comparator, where new ISA accounts are no longer offered but where they are an active part of N&P’s portfolio and also to conclude, as he did in the last sentence of paragraph 33, that it did not matter whether the accounts being compared were superseded i.e. closed to new investors or not. That latter sentence was not happily expressed, said Mr Pannick, but it is repeated in paragraph 67. If there is an irrational contradiction between ignoring the ISA and comparing the TOISA, it is clear that the Ombudsman would resolve it by bringing in the ISA as well rather than omitting the TOISA. There is also a distinction between an account which is no longer available to anyone and an account for which the complainant is not eligible. It is not as stark as the Ombudsman portrays, but any blurring of the distinction by reference to accounts which are not available to new applicants but which are still positively managed such as the N & P ISA, perhaps to maintain competitiveness in view of their ready transferability, would assist Mr Jones and not N&P. If the distinction has not been as carefully drawn as it should have been, it does not help N&P.

[123]The final point raised by Mr Boswood was that the TOISA could not be compared with the TESSA because its statutory purpose was different and justified the different terms as to interest rate, and that N&P should not be forced to compensate Mr Jones for differences imposed by statute. I do not consider this point to be sound. The differences between the accounts are summarised in paragraphs 16-18 of the decision. A more elaborate statement of the background is to be found in Mr Bullock’s witness statement on behalf of N&P, at paragraphs 14-25, a description from which Mr Yeomans, one of the Ombudsmen, did not significantly dissent. His point, in summary, was that the ISA was a different savings vehicle from the TESSA because it was intended to reach more people and in particular those who were less off, and who needed greater flexibility and encouragement in managing their savings so as to increase the numbers of people making savings at all. The ISA aim was to be more attractive to those many to whom TESSAs had not appealed. That was reflected not just in the statutory terms but by N&P in the terms which it imposed. I have no difficulty in accepting that, but to my mind it is beside the point as the Ombudsman found. The crucial difference lay in the terms which N&P imposed; the requirements for notice and penalty on the TESSA, when there were none on the TOISA, were its choice. Removal of them did not equalise the other and statutory aspects of the tax treatment, nor did it by intent or effect compensate for them. The difference in economic or social purpose did not justify the differential in terms imposed by N&P. The statutory restrictions on TESSAs meant that specific justification was required from N & P if they were to be reinforced by the institution’s restrictions, as happened here.

[124]It is also my view that, provided it is properly understood, the Ombudsman’s decision is not irrational in turning the TESSA into a notice and penalty free account, in effect an instant access account. The Ombudsman’s approach to loss is that the losses caused by the interest rate differential ceased, not when the rates were equalised, but at the earlier date when Mr Jones was told that he could move freely. This is not an oversight. Paragraph 67.2 and 67.3 adopt the same position towards the effect of the notification to Mr Jones that he could move freely in relation to onerous terms, as does paragraph 66 in relation to the Banking Code. I have already set out the clarification provided by Mr Pannick in relation to the latter; the same approach was taken by him in relation to the former: loss persisted until notification was given to Mr Jones, whereafter a line was drawn and loss no longer continued. This fits with the extract from the 1994/1995 Annual Report quoted in paragraph 37 above.

[125]To my mind it follows that in substance the Ombudsman is saying that fair treatment did not simply require the equalisation of rates; fair treatment required either the equalisation of rates or the removal of the restriction on movement of the funds. Until the latter step was taken, it was unfair for the rates to be different. If the Ombudsman had concluded that the unfairness continued after notification to Mr Jones that he could move freely but caused no loss, I would have expected that to be spelt out, for in this context it would be an odd conclusion that the treatment had been unfair but had caused no loss; the concept of a technical unfairness is not a sound one to a lawyer’s mind and should be even less so to the Ombudsman. If he had intended his test to be that the interest rates should be equalised and the other terms equalised as well, I would have expected him to say so, because of its far-reaching implications. The "relative onerousness" test, as explained in paragraphs 33 and 37 of the Decision Letter is concerned to prevent a lower interest rate being paid on the account with the more onerous terms. So unfairness can be removed either by reference to rates or terms. The interest rates could have been equalised and the notice restriction maintained, in which case the loss caused by unfair treatment would have ceased upon equalisation of rates. Or, as here, the restrictions were removed so that the unfair interest rate treatment ceased to be unfair.

[126]But it would also be consistent with the expressed reasoning of the Ombudsman as clarified by Mr Pannick for discriminatory interest rates as between TESSAs and TOISAs to be reinstated, provided that the restrictions do not remain. This makes sense of the fact that the Ombudsman appears to require, not a window of opportunity for a transfer but a permanent change either in the interest rate relative to the TOISA rate or in the restrictions imposed. If within 30 days of the TESSA being superseded, Mr Jones had received the notification which he received only on 11 th September 2000, the Ombudsman would have found neither unfairness nor any loss. I also find in this conclusion support for the Ombudsman’s view in relation to fairness, though not in relation to paragraph 2.18 of the Banking Code, that it is legitimate and not irrational to require the institution to notify an account holder that he can move freely to another institution. Differential rates are seen as fair with free movement.

[127]His reasoning is thus all of a piece and internally consistent, as between fair treatment and loss. The reasoning and decision of the Ombudsman does not rationally support a conclusion that his test meant equality of terms and of interest rates, and that he required both. That would not be an application of the "relative onerousness" test, that more onerous accounts should not receive lower interest rates than less onerous accounts, but a requirement of equality as between account types which is not his professed test. Once N & P removed its restrictions, the TESSA is no longer more onerous at N & P’s hands, ignoring the statutory restrictions as the Ombudsman did. Conclusion

[128]At root, the Ombudsman’s view is simply that it is unfair for Mr Jones to be paid less interest on his TESSA than on a TOISA because the TESSA has the greater restrictions. Whether seen as removing unfairness (which is in my view what the Ombudsman means) or as going to loss, the unfairness can be remedied either by equalising the rates or by removing the restrictions, even though the latter may not produce substantial benefits. One can of course sensibly argue that to compare Mr Jones’ account with one for which he is not eligible, is itself unreasonable and that N&P is being put in a position in which it has to pay more interest or reduce restrictions to bring the TESSA in to line with an account for which he is not eligible. I see much force in those points. But I cannot conclude that the Ombudsman’s view of unfairness goes beyond the scope of the broad concept of "unfair treatment", of which statute has made him the judge.

[129]If the Ombudsman’s decision had been that the interest rates had to be equalised and that the restrictions had to be removed, with equalised interest rates prevailing thereafter, that decision would have had to be more carefully reasoned by reference to the role of the adjudicator rather than regulator, the maintenance and development of accounts for different groups, the statutory restrictions and the economic and social purpose of the tax differences. He would have had to explain how that sat with his approach to loss ceasing with notification of freedom of transfer. The strength of N&Ps arguments as to rationality would be enhanced. Loss and compensation

[130]Once the decision is properly understood, the decision on loss follows. Mr Boswood argued that since Mr Jones could have obtained no better rates elsewhere, which I accept, he has suffered no loss. Mr Pannick submitted that as the unfair treatment consisted of paying less interest to TESSA than to TOISA holders until they were notified that they could move freely, that difference in interest was the actual loss suffered. At that point the loss ceased as the unfairness ceased. I accept Mr Pannick’s submission. I also accept that the £10 increase in compensation for inconvenience can be properly seen as reflecting greater delay, uncertainty and more documents for Mr Jones to cope with. It required no more reasoning than was provided. It was not irrational. It evidences no wider irrationality. No point was taken that the loss of interest was overstated by the 30 day period of grace which the Ombudsman thought it was fair that an institution should have in which to notify the holders of superseded accounts that they could move freely.

[131]Accordingly, for the reasons which I have given, this application is dismissed.

Cited in 12 later judgments

and 3 more of the most senior