Laura Critchley v Financial Ombudsman Service Ltd & Others [2019] EWHC 3036 (Admin)

**Laura Critchley v Financial Ombudsman Service Ltd & Others** [2019] EWHC 3036 (Admin) was a claim for judicial review brought by Mrs Laura Critchley against a decision of the Financial Ombudsman Service not to uphold her complaint that a payment protection insurance policy had been mis-sold to her in 2002 by the Bank of Scotland plc trading as Halifax. Mrs Justice Lang DBE dismissed the claim on all grounds.

Mrs Critchley had applied successfully for a credit card and PPI policy from Halifax on 15 April 2002. The application was completed in a branch with advice from staff. The policy provided life, critical illness, disability and unemployment cover. The premium was payable monthly at 78 pence per £100 of credit. The terms restricted her ability to claim, in particular on disability cover. Mrs Critchley never claimed under the policy and cancelled both card and policy in 2006. In February 2017 she complained to Halifax that the policy had been mis-sold, represented by the claims management company We Fight Any Claim. Halifax dismissed the complaint. The matter was referred to the Financial Ombudsman Service. An adjudicator assessed the complaint and decided the policy had not been mis-sold, guided by Navigator, a software programme used to assess PPI complaints. Mrs Critchley did not accept the adjudicator’s decision and the complaint was referred to an Ombudsman. On 14 December 2018, Mr John Swain, the Ombudsman, made a final decision not to uphold the complaint. He concluded that although Halifax did not act fairly and reasonably and there were failings in the sale, on the evidence available it was more likely than not that Mrs Critchley would still have taken out the policy if things had happened as they should. It would not be fair therefore to make an award of compensation.

Mrs Critchley applied for judicial review of the Ombudsman’s decision. HH Judge Bidder QC granted permission on all save one ground, which Mrs Justice Lang considered at a rolled-up hearing. Mrs Critchley’s grounds of challenge were that the Ombudsman misinterpreted or failed to apply correctly DISP Appendix 3 of the FCA Handbook; that he failed to apply the presumption in paragraph 3.6.2 that where a sale was substantially flawed a complainant would not have bought the policy in the absence of the flaw; that he instead applied a policy or set of counter-presumptions, evidenced in the Navigator software; that his conclusion was irrational and failed to have proper regard to relevant considerations; that his finding that the policy was suitable for Mrs Critchley was flawed; that he erred in failing to conclude there had been a breach of the duty of utmost good faith; and that he failed to give adequate reasons.

Mrs Justice Lang set out the regulatory regime applicable at the time of sale in 2002. The sale pre-dated the FSA’s regulation of general insurance in January 2005 and the unfair relationship provisions of the Consumer Credit Act 1974 as amended. The applicable regulatory regime comprised the General Insurance Standards Council’s General Insurance Code and the Association of British Insurers’ General Insurance Business Code of Practice. The judge explained that the Ombudsman Service was established under Part XVI of the Financial Services and Markets Act 2000 to resolve disputes quickly and with minimum formality. Section 228(2) of FSMA 2000 required complaints to be determined by reference to what was, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case. DISP 3.6.4R required ombudsmen to take into account relevant law, regulations, rules, guidance and codes of practice, and good industry practice. However, the Ombudsman was entitled to depart from these if he rationally concluded there were fair and reasonable grounds for doing so. The standard of review was rationality or perversity.

Mrs Justice Lang emphasised that DISP Appendix 3 was guidance addressed to firms, not the Ombudsman Service. Paragraph 3.6.2 established presumptions that where a sale was substantially flawed a firm should presume the complainant would not have bought the policy. This was an evidential presumption capable of being rebutted, not merely a tie-breaker. Paragraph 3.6.3 provided that relevant evidence might include the complainant’s demands, needs and intentions at the time of sale. The judge held that the Ombudsman was entitled to adopt a holistic approach, evaluating the evidence of the policy and the Claimant’s circumstances as a whole, when deciding whether Mrs Critchley would have purchased the policy absent the flaws. The FSA had justified the non-purchase presumption in consultation papers, stating it was reasonable and rational, but recognised it was open to firms to provide evidence specific to the customer to rebut it.

The Ombudsman found there were significant failings in the sale by Halifax and the sale was substantially flawed within the meaning of paragraph 3.6.2 of DISP Appendix 3. Halifax had recommended the policy but had not acted with reasonable care and skill in establishing suitability. There was no evidence Halifax considered whether Mrs Critchley had pre-existing medical conditions. Halifax should have drawn to her attention the significant limitations on cover for back pain and mental health claims, the definition of disability, and the insurer’s right to vary the premium and cover unilaterally. Information about cost was insufficient. Nevertheless the Ombudsman concluded that the policy was suitable for Mrs Critchley. She met the eligibility criteria, had a need for the policy, the premium was affordable, and the exclusions and limitations did not make the policy unsuitable for her as she had no pre-existing medical condition and was not suffering from back or mental health problems. The Ombudsman considered whether, if Halifax had explained things properly, Mrs Critchley would have acted differently. He gave little weight to her evidence that she would not have wanted the policy, finding her recollections were limited given the passage of time and her complaint closely resembled other complaints made by We Fight Any Claim. He carefully evaluated cost against benefits, taking into account all relevant factors including her eligibility, her interest in taking out PPI, the modest benefit the policy would provide given her low income and no savings, the fact the ultimate position was not dissimilar to what she would reasonably have thought, her entitlement to cancel on notice if terms changed, and the limitations on disability cover. He concluded that, weighing up costs versus benefits with all the information she should have been given, it was more likely than not she would have treated the benefits as outweighing the cost. He considered this was consistent with DISP Appendix 3 and the presumption was rebutted by the evidence. He added that even if he was departing from DISP Appendix 3, he was doing so because it would not represent fair compensation to put Mrs Critchley in the position she would have been in if she had not bought the policy.

Mrs Justice Lang rejected the contention that the Ombudsman was applying a policy or set of counter-presumptions. There was no reference to any such policy in the decision. The Ombudsman undertook a thorough, individualised consideration of Mrs Critchley’s position and gave evidence that he did not use the Navigator tool or rely on the adjudicator’s Navigator summary or cost/benefit matrix. The judge held on a fair reading of the decision that the Ombudsman correctly interpreted DISP Appendix 3 and took into account all relevant considerations. He was entitled to conclude that eligibility was relevant to suitability. He considered what Halifax should have done to assess suitability and the likely outcome if those steps had been taken. The Ombudsman had the limitations on cover, high cost and poor value well in mind but took a different view to Mrs Critchley. He was entitled to reach his rational conclusion in the exercise of his judgment and gave detailed reasons meeting the required standard.

Mrs Justice Lang also rejected the Claimant’s submission based on the duty of utmost good faith. She held that the Ombudsman correctly took into account the common law and applicable industry codes. Mrs Critchley’s case on the scope of an insurer’s pre-contractual duty of utmost good faith was misconceived. The duty did not extend to giving the insured the benefit of the insurer’s market experience, such as that the same risk could be covered for a lower premium. The Ombudsman’s reasons for rejecting the submission that Halifax should have disclosed low claims ratios or contextualised information about limitations on disability cover met the required standard. The alleged breaches based on exclusions and limitations in the policy were academic because the same issues were found to be substantial flaws for the purposes of DISP Appendix 3. The judge held the Ombudsman was entitled to depart from guidance if he rationally concluded there were fair and reasonable grounds for doing so under his statutory duty under section 228(2) of FSMA 2000 to determine the complaint on the basis of what was fair and reasonable in all the circumstances.

The judge granted permission to apply for judicial review on the ground refused by HH Judge Bidder QC, namely that the Ombudsman applied an unlawful policy or set of counter-presumptions evidenced in Navigator, as the point was arguable. However she dismissed the claim on all grounds. In short, the Ombudsman correctly interpreted and applied DISP Appendix 3, conducted an individualised assessment of Mrs Critchley’s complaint taking into account all relevant considerations, was entitled to conclude that the presumption that she would not have purchased the policy was rebutted by the evidence, and gave adequate reasons for his decision.

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