Margaret Chong & Ors, R (on the application of) v Financial Services Compensation Scheme Ltd [2024] EWHC 3374 (Admin)

“The point of principle to be derived from Ex parte Cheung … is that if there is a change in the law, or the law is suddenly ‘discovered’, the decision-maker may adopt a policy for reconsideration of previous decisions, as long as that policy is lawful.”

“For SIPP claims for which FSCS has already paid compensation (i.e. for due diligence failings), it is not proposed that FSCS would re-open these to assess them for an additional s.27 liability. FSCS would seek to rely on the ‘full and final’ nature of our previous payment.” 30.2 Option B was to rely on the FSCS’s discretion to decline to investigate s.27 claims as a matter of routine save where the court had already ruled on a particular s.27 case. The paper noted that this approach afforded less emphasis to consumer protection and that its decisions might be subject to challenge. 30.3 Option C was to pay SIPP claims on an interim basis pending the outcome of any further appeal in Adams. Again, it was noted that this approach could be challenged. Option C then added: “The Executive Team are not proposing to reopen any SIPP Operator claim to assess s.27 liability (whether proactively or in response to an appeal) where we have already paid compensation on the basis of SIPP Operator due diligence failings, and this payment has been accepted by the customer in full and final settlement.”

“Overall, it is considered that Option C strikes the right balance between preserving customers’ positions and maintaining sufficient flexibility for FSCS to respond dynamically in changing and uncertain circumstances.”

“The Board noted that FSCS currently paid compensation predominantly in relation to SIPP claims for investment due diligence failings by SIPP operators, but that the type of protected claim emerging from the Adams case could potentially be compensatable by FSCS. Directors took into account the requirement for FSCS to have regard to the need to ensure efficiency and effectiveness in the discharge of its functions and to use its resources efficiently and economically. The Board also acknowledged that FSCS had discretions under the COMP Rules when considering whether to investigate, assess and pay compensation to claimants. In this regard … directors recognised the need to consider striking an appropriate and fair balance between consumer protection and a potentially significant increase to the levy.”

“It was confirmed that the court had stated, amongst other things, that FSCS was correct to apply the law as it stood at the time (FSCS’s final decision in respect of Mrs New’s claim having been issued before the Court of Appeal’s decision in Adams). The Board took this principle into account when considering the approach to be taken when assessing the eligibility of s.27 claims against SIPP operators.”

“This approach would involve paying SIPP claims where an unregulated introducer appeared to have been involved, on an interim basis, pending a decision by the Supreme Court in the Adams case (even where the court had ruled on a particular s.27 case). The Board considered that there was a sufficient basis for FSCS to exercise its discretion to switch to paying relevant claims on an interim basis rather than on the ‘full and settlement’ basis, and acknowledged that FSCS would be appropriately applying the law as it currently stood. Paying such claims on an interim basis would mean that customers would be no worse-off than under FSCS’s current approach to SIPP claims, and would leave the option open to decide to revisit paid claims in the future, depending on the Supreme Court’s decision, by assessing whether claims under s.27 were eligible and protected claims, and potentially paying further compensation. The Board agreed that this approach should apply to FSCS’s decisions made since 1 April 2021, the date of the judgment in the Adams case, on the basis that claims prior to that date had been subject to FSCS applying the law as it stood at the time (as upheld by the court in the claim brought by Mrs New). As a more general point, the Board noted that this matter was a further example of a situation where discretions could be exercised by FSCS, so there could be potential to explore the availability of discretions further if, for example, there was any additional background and context that could be given on the types and levels of discretions available.”

“Given that the High Court and the Court of Appeal took opposing approaches to the application of a s.27 claim to the same set [of] facts, and an appeal remains outstanding to the Supreme Court in the same case FSCS does not consider that it would be acting efficiently, effectively, or economically if it were to invest significant resource now in circumstances where the law as it applies to s.27 claims is currently unsettled. FSCS also notes that taking this approach mitigates the risk of compensation being wrongly paid, and therefore FSCS having to consider taking action to recover compensation.”

“FSCS will then write to customers who have received interim payments on account to notify them of FSCS’s final decision as to whether it will make a further payment of compensation to customers who can prove an eligible s.27 claim, or whether FSCS will treat the interim payment already made as the full and final settlement of the claim(s) against the SIPP Operator. For those customers who were not eligible for an interim payment in respect of due diligence failures, and may only have a s.27 claim, FSCS will reopen the claim and provide a final decision.”

“It was agreed that this approach would only apply to claims determined by the FSCS on or after 1 April 2021, the date the Court of Appeal reached its decision in the Adams case (and, therefore, the date that the law was clarified). It was noted that FSCS’s right to apply the law as it was understood at the time when deciding claims (e.g. prior to the Court of Appeal’s decision on 1 April 2021) had previously received judicial backing in the unsuccessful judicial review of FSCS by Mrs New. The board also endorsed the proposed treatment of appeals, in that, in order to mitigate against unmeritorious appeals, FSCS would not consider appeals brought by customers whose SIPP claims had been paid on a full and final basis before 1 April 2021, if the appeal was primarily seeking consideration of additional s.27 liability or challenging the quantification method that had been previously accepted when compensation was paid.”

“That claim for compensation was decided by FSCS in late 2020. We upheld the claim on the basis of investment due diligence failings by the SIPP operator only. The compensation due to the customer was therefore calculated by reference to our approach to investment due diligence claims. Permission for that claim for judicial review was refused, both on the papers and at an oral reconsideration hearing. In doing so, Peter Marquand (sitting as a Deputy High Court Judge) considered the impact of the Court of Appeal’s judgment in Adams, which had overturned the High Court’s judgment in so far as s.27 claims are concerned. The reasons given by the judge for refusing permission to bring the legal challenge included the fact that FSCS had properly had regard to the relevant law at the time it decided the claim for compensation, including the first instance judgment in Adams, which was handed down on 18 May 2020. This means that s.27 FSMA as a valid basis of claim is relevant for claims decided by FSCS (whether on appeal or not) on or after 01 April 2021. Accordingly, when making its most recent decision, the FSCS Board decided that FSCS should not accept appeals from customers who FSCS had paid compensation to prior to 1 April 2021 in relation to due diligence failings of a SIPP operator, where the primary purpose of the appeal would be to assert additional liability under s.27 FSMA.”

“For the avoidance of doubt, FSCS considers that an appeal response from CET [the customer escalation team] is the final stage in FSCS’ decision-making process.”

“If FSCS finds my claim eligible, sends me a compensation payment, and I do not return that payment as specified in the payment letter, I agree and acknowledge as follows: … 2. I accept the offer of compensation in full and final discharge and settlement of the obligations of FSCS, under the relevant rules and laws (save that, where compensation is paid on an interim basis, I may become eligible for further compensation in accordance with the relevant rules and laws) … 3. All my rights against the Firm (or any third party involved in or connected to the Claim) will pass to and be assigned to FSCS absolutely on payment of compensation (or any part of it). 4. All my rights against any other person (which constitute ‘Third Party Claim’ as defined in paragraph 13 below) will pass to and be assigned to FSCS absolutely on payment of compensation (or any part of it). 5. On payment of compensation (or any part of it) I will no longer have the right to make any claim against the Firm or any other person in respect of the Claim or a Third Party Claim, and the right to make any such claims will be vested in FSCS. Any sums that would otherwise be payable to me in respect of the Claim (including any dividend or other payment in a liquidation or compromise with creditors or scheme of arrangement) or a Third Party Claim will be paid instead to FSCS.” 57.2 The decisions in this case explained that payments would be made within ten business days directly into the bank accounts nominated by the investors. The accompanying notes reminded the investors of their agreement that upon payment their rights against the firm would be transferred to the FSCS and confirmed: “The payment settles your claim for compensation to FSCS about the Firm in full.”

“One does not overcome the problems created by [what is now r.54.5] by writing a fresh letter to the decision-maker and thereby obtaining a reply which one then seeks to characterise as a fresh decision. That would render that provision in the Rules wholly ineffective.”

“... exemplify a common principle whose nature is not dependent upon an appeal to the rules relating to delay. It is that a judicial review applicant must move against the substantive act or decision which is the real basis of his complaint. If after that act has been done he takes no steps but merely waits until something consequential and dependent upon it takes place and then challenges that, he runs the risk of being put out of court for being too late.”

“The court in its discretion, whether so directed by rules of court or not, will impose a strict discipline in proceedings before it. It is marked by an insistence that applicants identify the real substance of their complaint and then act promptly so as to ensure that the proper business of Government and the reasonable interests of third parties are not overborne or unjustly prejudiced by litigation brought in circumstances where the point in question could have been exposed and adjudicated without unacceptable damage.”

“The claimant should challenge the decision which brings about the legal situation of which complaint is made. There are occasions when a claimant does not challenge that decision but waits until some consequential or ancillary decision is taken and then challenges that later decision on the ground that the earlier decision is unlawful. If the substance of the dispute relates to the lawfulness of that earlier decision and if it is that earlier decision which is, in reality, determinative of the legal position and the later decision does not, in fact, produce any change in the legal position, then the courts may well rule that the time-limit runs from that earlier decision. Similarly, where a decision has been taken, a claimant cannot avoid the application of the time-limits in relation to a challenge to that decision by writing a fresh letter to the decision-maker and obtaining a reply and then characterising that reply as a fresh decision. The position may be different if the decision-maker actually does reconsider the decision and reaches a fresh decision.”

“FSCS considers that its decisions in respect of s.27 Claims, in similar circumstances to those raised in New, were clearly lawful and any challenge to those decisions pursued now would be both without merit and out of time. For the avoidance of doubt, FSCS does not waive its right to rely on claimants having accepted its offers of compensation in full and final settlement, and in discharge of FSCS’ statutory function, in respect of any decision taken before 1 April 2021.” d) Had that been successfully communicated to these claimants, I observe that they were not in fact in the same factual position as Ms New in that she did not have an extant right of appeal on 1 April 2021. It is not in any event the whole picture in that it is now clear that the FSCS does waive its right to rely on the full and final settlement clause where claimants had an extant appeal on 1 April 2021. 87.2 22 February 2022: a) Bevan Brittan’s letter of 22 February 2022 appeared to be written generically and not in response to any particular group of clients. Indeed, both the claimants and the FSCS relied on the letter in their statements of case. b) The letter noted that APJ had been chasing appeal decisions and summarised the board’s July 2021 decision: “By way of reminder, FSCS’ Board decided on 20 July 2021 that where it has already paid compensation to your clients due to being satisfied that they had an eligible claim under FSCS’ rules, which arose from a SIPP Operator’s investment due diligence failings, FSCS will waive its right to rely on your clients’ acceptance of that compensation in full and final settlement. This will apply in circumstances where your clients may also have a potential s.27 Claim (i.e. where an unauthorised introducer has been involved in the relevant transactions which caused your clients to suffer a loss).” c) After referring to the uncertainty pending the outcome of the further appeal to the Supreme Court, the FSCS explained that in the meantime it would treat compensation already paid in such circumstances as an interim payment on account. The letter continued: “For the avoidance of doubt, FSCS considers that an appeal response from CET [the customer escalation team] is the final stage in FSCS’ decision-making process. Where CET has already responded to an appeal before 1 April 2021, i.e. the date on which the Court of Appeal’s judgment in the Adams case was handed down, FSCS considers that those decisions are final and no further decision will be issued. The reasons for this were set out in our letter dated 3 August 2021, and is consistent with the High Court’s decision in R (New) v. FSCS [2021] EWHC 2203 (Admin).”

“Accordingly, where FSCS has paid compensation on an interim basis, or agreed to waive its right to rely on compensation payments accepted since 1 April 2021 as being in full and final settlement and in discharge of its functions, FSCS will now complete its assessment of those s.27 Claims and issue final decisions to claimants. This is consistent with the previous decision of FSCS’ Board which we communicated to you on 3 August 2021.” c) The letter did not expressly deal with the position of those who had received compensation payments and had lodged timely appeals whether before or after the Adams judgment was handed down on 1 April 2021. 87.4 13 September 2022: a) The FSCS relies on Bevan Brittan’s letter dated 13 September 2022 which was written in response to APJ’s letter dated 23 August 2022. By its letter, APJ had sought clarification as to the board decision made on 18 July 2022 and published on the FSCS website on 5 August. APJ argued that the law was uncertain from 29 September 2020 when the Court of Appeal’s civil appeals tracker service showed that the High Court’s decision Adams was to be appealed. Further, it observed that the appeal had been listed for 2 March 2021. APJ cited the case of Mr Hood, a claimant who had received his compensation decision on 18 March 2021 which the FSCS later accepted should be treated as interim. It argued that the correct decision had been taken in the Hood case and that the FSCS should review all compensation decisions made between September 2020 and 31 Match 2021. b) Bevan Brittan’s letter of 13 September 2022 rejected the suggestion that the law had been unsettled from 29 September 2020 and explained: “c. Further, FSCS’ assessment of s.27 Claims prior to 1 April 2021, based on the approach taken in the High Court in Adams, was considered and endorsed by the court in New. The points made in your letter dated 23 August 2022 do not set out any arguable grounds why our client would be required to take a different approach now. d. In any event, we wrote to you on 3 August 2021 explaining the decision taken by our client’s Board on 20 July 2021, including that: (i) it would unilaterally waive its right to rely on compensation payments as having been accepted on or after 1 April 2021 in full and final settlement; and (ii) compensation paid for final decisions issued before 1 April 2021 remained final and would not be re-opened. e. You did not seek to challenge the cut-off date applied by our client (1 April 2021), until your recent letter dated 23 August 2022. This is despite your client having previously brought a challenge to our client’s decision to make interim compensation payments, on exactly the same grounds you now advance in your letter, in the Fortt proceedings. As you know, your client’s claim in Fortt was dismissed by the court on both substantive and procedural grounds given your client’s delay in bringing the claim. Clearly, any further Judicial Review challenge to our client’s decision dated 20 July 2021 would now be even further out of time and, in light of the court’s decision in Fortt, we suggest would amount to an abuse of process. For the avoidance of doubt, FSCS does not agree to waive its right to rely on compensation payments received prior to 1 April 2021 as having been accepted in full and final settlement and discharge of our client’s functions. Our client reserves the right to bring this letter to the attention of the court on the question of costs should your client(s) decide to bring legal proceedings for the reasons set out in your letter.” c) While referencing the decision in Mr Hood’s case, this correspondence was generic to APJ’s clients – like these claimants – who received compensation decisions between 29 September and 31 March 2022. It made clear that final decisions taken before 31 March would not be reopened. 87.5 26 October 2022: a) The FSCS relies on Bevan Brittan’s letter of 26 October 2022. That letter was written in response to APJ’s letter of 12 October 2022 which focused more closely on appeals from pre-April decisions. APJ explained that it sought “clarity on decisions issued prior to 1st April 2021 where the claimants have already engaged the FSCS appeal process against the decision.”

“We are also growing concerned with the apparent pattern of you persistently submitting repeated correspondence to FSCS, in an attempt to persuade it to re-open claims which you are aware are closed, with no extant appeal outstanding, and in many cases after a significant delay. You have then repeatedly sought to challenge FSCS’ refusals to re-open those closed claims. We have also seen a number of cases in which you have asserted that an appeal was requested by your clients before 1 April 2021 where FSCS has no record of receiving any such appeal. When requested to provide evidence to substantiate your purported appeal requests having been submitted, you have in many cases been unable to do so. We consider that your approach in these matters appears to be no more than an attempt to obtain replies from FSCS which you can subsequently characterise as fresh decisions to be the target of Judicial Review proceedings. Such conduct is clearly an abuse of process and has repeatedly been discouraged by the courts.”

“However, FSCS has been clear throughout – including in our letter to you dated 3 August 2021 – that claims that were finally decided before 1 April 2021, either because: (i) a decision had been issued at the final stage of FSCS’ post-decision review procedure by that date; or (ii) no appeal against a decision issued before that date was requested within a reasonable time, would remain closed and would not be re-opened by FSCS. This is because those decisions were made lawfully by FSCS having regard to all relevant considerations at the material time.”

“We are considering the issues raised in your appeal. We are doing so in light of the judgment handed down by the Court of Appeal in Adams v. Options. We will respond as soon as we are able to.”