The recent case of R (Aviva Life and Pensions) v Financial Ombudsman Service discusses and reaffirms the position that the Financial Ombudsman is not bound to follow the law when making its determinations but must instead make decisions that are “fair and reasonable in all the circumstances”. This reaffirms the Court of Appeal decision in R (Heather Moor & Edgecomb) v FOS from 2008, but casts some doubt upon whether the law in this area should remain as it is.

The Facts

Mr McCulloch took out a life insurance policy with Aviva but, due to an impairment of his mental state brought on by early onset dementia, he did not disclose to Aviva that he had already been referred to a doctor to begin investigations into his possible dementia. Once the dementia diagnosis was confirmed, Mr McCulloch made a claim under the policy but Aviva refused to provide cover on the basis that the illness was pre-existing at the time the policy was taken out and had not been disclosed.

It was agreed that Aviva had acted correctly in accordance with the law in declining cover because Aviva would not have issued the policy had Mr McCulloch given them the information regarding the ongoing medical investigations into his possible dementia. Despite that, the ombudsman made an award in Mr McCulloch’s favour on the basis that it was not reasonable to expect him to have made the proper disclosures to Aviva given the illness from which he was suffering. It was therefore a classic law v morality decision for the ombudsman and, as one may expect, morality and sympathy were victorious over legal considerations. Aviva sought  judicial review of the ombudsman’s decision.

The Findings

The Court found that the law in this area was already settled and contained within the Court of Appeal case of R (Heather Moor & Edgecomb) v FOS which had to be followed. The Court reaffirmed the following points:

  • The authority of the ombudsman comes from FSMA 2000 and DISP and questions regarding the authority and conduct of FOS must be decided by reference to those rules.
  • The ombudsman was obliged to determine complaints “with reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”.
  • DISP 3.6.4 R requires the ombudsman to take into consideration a) laws and regulations b) regulators’ rules, guidance and standards c) codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time.
  • An ombudsman is therefore obliged to take into account the relevant law but is free to depart from it. If he does so, however, he must say so in his decision and explain why.
  • Careful reasons will need to be given for any departure from the law.
  • The breadth of its jurisdiction under section 228 (2) of FSMA does not absolve the ombudsman from consistency in decision making.


Financial institutions dealing with FOS complaints must still therefore be aware that in difficult cases such as this, ombudsmen have the power to (and are likely to) follow the morality of the complaint rather than closely following the law. What financial institutions can demand, however, is that any departure from the law is explicitly acknowledged by the ombudsman, that careful reasons are given for the departure and that the findings are consistent with previous decisions of FOS. It is therefore worth developing a bank of FOS decisions to deploy in new cases in an effort to seek consistency.

The ease with which ombudsmen are allowed to set aside the law in making their findings was clearly troubling to the Court in this case and hints at the possibility of closer scrutiny of FOS in the future if this judge’s views gain traction. Set out below are the final paragraphs of Mr Justice Jay’s judgment which do suggest that a change is needed:

“By way of postscript, I do have personal concerns about a jurisdiction such as this which occupies an uncertain space outside the common law and statute. The relationship between what is fair and reasonable, and what the law lays down, is not altogether clear. The approach of the Court of Appeal has been to say that a sufficient nexus exists between these two normative categories because (i) the corpus of legal principles and rules is clear, and (ii) the Ombudsman must give clear reasons when she departs from the law. Speaking entirely personally, I am not wholly satisfied that this adequately bridges the gap, or gives sufficient definition to the norms under scrutiny. Who, or what, defines the contours and content of fairness and reasonableness? If the law takes one policy direction, what can rationally survive of a policy which has been eschewed? During the course of oral argument, I suggested that fairness and reasonableness may occupy some sort of penumbral space, by implication contiguous with the much larger body of principles and rules which are visible to all, but I have begun to wonder where this metaphor leads. It might be said that this jurisdiction is penumbral because its shadows cannot be illuminated.

 All these things having been said, I recognise what Parliament has laid down in section 228(2) of the FMSA (and in other similar jurisdictions), and it is also my duty to follow Court of Appeal authority.”