Neutral Citation Number: [2008] EWHC 2142 (Admin)
Case No. CO/3334/2007 
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION 
THE ADMINISTRATIVE COURT 
Royal Courts of Justice 
Strand
London WC2A 2LL 

Date: Thursday, 3rd July 2008
 
B e f o r e: 

MR JUSTICE IRWIN
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Between: 
THE QUEEN ON THE APPLICATION OF KEITH WILLIAMS 
Claimant

v 

FINANCIAL OMBUDSMAN SERVICE 
Defendant 
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Mr G Wheeler (instructed by Lawcomm Solicitors) appeared on behalf of the Claimant 
Mr J Moffett (instructed by Financial Ombudsman Service) appeared on behalf of the Defendant 
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J U D G M E N T 

1.	MR JUSTICE IRWIN:  In this case the claimant is an independent financial adviser, or was at the time of the events which give rise to the application for judicial review.  He has now retired, as the court has been informed.
2.	He advised a client, Mr Christopher Bennett, from 1992, and in a number of ways.  In 2002 Mr Bennett was 65 years of age and was contemplating retirement.  Being careful with his money, he made a number of investments, including some by‑to‑ let property and two endowment policies.  He had also acquired some bonds, ISAs and PEPs.
3.	At the same time he was not a rich man and he needed, within limits, to husband his resources.  Nor was he or had he ever been a financial professional; he was by profession an architect.  Nor was he particularly sophisticated in his financial dealings.
4.	Mr Williams wrote a report for Mr Bennett, dated 26th April 2002 recording Mr Bennett's investment objectives as follows: 
"1. Produce sufficient net spendable income from the pensions and investment income to support Christopher's life‑style with the State Pension now being paid, we need to consider carefully what is needed from his other pension funds, if anything at the moment.  
2. Maintain Capital Growth to a level that would provide reserves of income as and when needed in the most tax efficient manner.  Here TEPs would help to build up capital over the next 10 years ‑ as will the purchase of the second property.  
3. Protect the Pension Funds we have set up, particularly in view of the market slump over the past 2 years and 4 months.  Too much was taken out too early but it was needed." 
5.	As the defendants adjudicator, Mr Daubney later accurately summarised it: 
"The overall aims of the planning to be made in April 2002 were therefore to establish security for the pension provision made whilst at the same time trying to increase the level of income available to Mr Bennett with the possibility of some capital growth.  There was no formal analysis of the level of risk Mr Bennett was prepared to accept to meet these requirements."
6.	Mr Bennett met with Mr Williams again on 1st May 2002 to discuss the prospect of investing in geared Traded Endowment Policies ["TEPs"].  Since it was this advice which was later complained of and this investment which proved a failure, it is necessary to summarise what this meant.  An endowment policy is a familiar and long‑standing financial vehicle, by which premiums are paid and an insurance company invests those premiums or the sums accumulated from their previous investment.  There is usually an element of life insurance within the policy.  The product of the investment, after cost is repaid to the policy holder, is largely in the form of bonuses.  Bonuses are normally declared each year meaning that the bonus declared is crystallised and, even if the value of the underlying holdings declines, that bonus has been finally allocated to the credit of the policy holder's account.  It follows that a conservative approach is usually taken by insurers in the declaration of annual bonuses.  There is normally a terminal bonus when the policy matures.  By then the risk is abolished for the insurer, since the total return on the investment over the life of the policy can be seen.  Thus terminal bonuses tend always to be the key element in making an endowment policy a worthwhile investment.  Broadly speaking, with such an investment vehicle as an endowment policy, it is highly desirable to go through to the maturity of the policy.
7.	Every endowment policy has a surrender value, relatively low compared to the prospective total return on the endowment over its life to maturity.  The surrender value is what the policy holder can realise from the insurer, if he or she has to stop paying or chooses to stop paying.  
8.	By at least the 1990s, investors realised that such policies could be traded, precisely because the surrender value was less than value of the policy to someone who could be assigned the interest and carry the policy though to maturity.  Hence the policy holder could sell the interest, get more than the surrender value, and yet still the assignee had the prospect of a return on the exchange.  It was for those reasons that a market grew up in traded endowment policies.  Those are the basics.
9.	The structure of the investment offered to Mr Bennett had some refinements.  He was to invest directly some of his own money in the purchase of the policies offered to him but the majority of the purchase price was to be loaned to him by the Newcastle Building Society, acting as a bank.  The continuing stream of premium payments necessary to carry the policies to maturity would also be funded from that loan.
10.	The building society would take the TEPs themselves as security, valued at a proportion of their surrender value, from time to time, while also taking a charge on other PEPs and investments owned by Mr Bennett.  The premium stream thus had the effect, since it was being funded by loan, of creating a build‑up of debt, the interest on the successive borrowed premiums itself being added to the monies owed, with a compound effect.  The purpose of borrowing to purchase the policies and to fund the premium stream was said to be to enable Mr Bennett to invest enough to make the whole scheme worthwhile.  The policies were deliberately chosen with successive maturity dates from 2008 to 2014, in order to ensure Mr Bennett could maximise his capital gains tax relief, one of the advantages of this scheme being that gains are capital gains and are not subject to income tax.  As I have observed, the adjudicator found there was no formal risk analysis of this transaction to Mr Bennett, a fact which is not itself the subject of criticism.
11.	Mr Bennett entered the contracts with Policy Portfolio on 15th May 2002.  The starting value of the loan for him was £84,942, which purchased seven TEPs for a total price of £79,848, the remainder of the loan being devoted to paying premiums.
12.	One aspect of this deal, present no doubt in the small print, was that the Newcastle Building Society had the right to withdraw from advancing further monies to pay premiums if they felt that their security was becoming insufficient.  Since their principal security consisted of a proportion of the surrender value of the policies themselves, calculated from time to time, this meant in effect that the building society could withdraw if the returns on the policies became too poor.
13.	The security on the surrender values of the policies must of course be taken to have been satisfactory at the outset, otherwise the building society would not have entered the agreement.  Of course the surrender values could change as time went on, depending on the underlying performance of the assets.  It is agreed by Mr Williams that he did not warn Mr Bennett of this factor as a risk.
14.	These policies did not perform well for Mr Bennett.  It was suggested by Mr Wheeler, counsel for the claimant, that this was in fact because of a change in the mix of investments which yielded the gross returns for the endowment policies, whereby a much more cautious investment approach was followed, with reduced equity holdings.  This was not challenged as a major cause by the defendant.  As the claim in this action recites: 
"The Newcastle Building Society continued to pay the premiums due under the policies until September 2005.  At that time, in view of the fact that the TEPs had performed poorly, and the loan value had exceeded the percentage of the surrender values of the TEPs, it would not pay any further premiums.  Mr Bennett has incurred a substantial loss as a result of his investment in TEPs (a loss estimated by the claimant to be in the region £30,000 to £40,000).  He is incurring interest charges under the loan at the rate of £16.39 a day." 
15.	The short procedural history of this complaint and case from that point is as follows.  Mr Bennett made a complaint to the Financial Ombudsman Service about the advice received from the claimant on 6th December 2005.  In accordance with the ombudsman's normal practice, the complaint was considered first by an adjudicator, Mr Daubney, who issued a non‑binding adjudication on 6th September 2006.  The adjudicator concluded that the complaint should be upheld.
16.	Because the claimant did not accept the adjudicator's non‑binding adjudication, the complaint was referred to an ombudsman.  The ombudsman Mr Tilson issued his provisional decision on 13th December 2006 and he indicated that he was minded to uphold the complaint.  The ombudsman subsequently issued a final decision on 18th January 2006 and did the complaint. Thereafter an application for judicial review was issued by this claimant on 13th April 2007. 
17.	It is helpful to recite the complaint which Mr Bennett made in simple terms, so that it can be the focus of later consideration:
"I was never made aware of the high risks attaching to the gearing of this traded endowment policy portfolio.  There was never any indication that it was possible I might have to fund the policy premiums myself.  Had I been made aware of this then I should not have proceeded.  My concern has always been to ensure that I have adequate income in retirement not putting what little I have in jeopardy." 
18.	I now turn to the scheme under which the Financial Ombudsman Service operates.  Part XVI of the Financial Services and Markets Act 2000, which I shall hereafter call "the Act", sets up the ombudsman scheme, including the compulsory scheme under which this case falls.  This scheme is one of those now produced in many areas, where a tribunal or ombudsman with specialist expertise in a given subject is asked to resolve complaints or disputes in that area in a speedy and straightforward way, with a minimum of technicality and, it is hoped, at relatively low cost.
19.	Section 228 of the Act reads as follows: 
"(1) This section applies only in relation to the compulsory jurisdiction. 
(2) A complaint is to be determined by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case. 
(3) When the ombudsman has determined a complaint he must give a written statement of his determination to the respondent and to the complainant. 
(4) The statement must— 
(a) give the ombudsman’s reasons for his determination; 
(b) be signed by him; and. 
(c) require the complainant to notify him in writing, before a date specified in the statement, whether he accepts or rejects the determination. 
(5) If the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and final."
Section 231 of the Act reads: 
(1) An ombudsman may, by notice in writing given to a party to a complaint, require that party—  
(a) to provide specified information or information of a specified description; or. 
(b) to produce specified documents or documents of a specified description. 
(2) The information or documents must be provided or produced— 
(a) before the end of such reasonable period as may be specified; and. 
(b) in the case of information, in such manner or form as may be specified. 
(3) This section applies only to information and documents the production of which the ombudsman considers necessary for the determination of the complaint."
20.	Paragraphs 13 and 14 of Schedule 17 to the Act require that those operating the scheme should create rules to follow and such rules were promulgated and published in the Financial Services Authority Handbook.  They are known, for reasons not explained to this court, as DISP.  Responsibility for the rules is shared between the Financial Services Agency and the Financial Ombudsman Service Limited itself.  The relevant chapter is Chapter 3, which at paragraph 3.1.7, has the following rubric: 
"The purpose of this chapter is to set out the way in which the Financial Ombudsman Services and, in particular, the Ombudsman, will operate to ensure that complaints may be resolved quickly and with minimum formality.  It sets out the procedures for the investigation and consideration of complaints, including the circumstances in which a complaint may be terminated without consideration of its merits; the evidence which may be required or admitted, the provision for fixing and extending time limits for different aspects of the proceedings; the factors of which Ombudsman will take into account in determining what is fair and reasonable; the types of loss or damage for which the Ombudsman can award compensation; the limits on awards and the costs that can be awarded."
It seems to me that this rubric gives a clear picture of the nature of the regime intended set alongside the statutory duties of the intended overall approach.  Rule 3.5.1 of DISP deals with evidence:
"The Ombudsman may, in relation to the evidence which may be required or admitted when he considers and determines a complaint, give directions as to: (1) the issue of the evidence is required; 
 (2) the extent to which the evidence required to decide those issues should be oral or written; and 
 (3) the way in which the evidence should be presented to the Ombudsman. 
The Ombudsman may:
 (1) exclude evidence that would otherwise be admissible in court of law or include evidence that would not be admissible in such a court; 
 (2) where he considers it necessary or appropriate, accept information in confidence, so that only an edited version or (where this is not practicable) a summary or description is disclosed to the other party.  
 (3) reach a decision on the basis of what has been supplied and take account of the failure by a complainant or a firm to provide information that an Ombudsman has requested; and 
 (4) dismiss a complaint if a complainant fails to supply required information." 
At 3.5.6 the rules provide:
"The Ombudsman may, where he considers it appropriate take in account evidence from third parties; including but not limited to the FSA, other regulators experts in industry matters and experts in consumer matters."
21.	It will be seen that the provisions for the receipt of evidence mirror the liberality and the intended simplicity of the legislation itself, giving to the ombudsman a wide discretion as to how he should approach the question of material relevant to the decision he has to take on any given complaint.
22.	Rule 3.7.1 of DISP permits delegation of powers to staff, for our purposes delegation to an adjudicator of the task of providing an adjudication, but prohibits the delegation of the determination of the complaint. Hence an adjudicator may investigate and consider a complaint, but if the adjudication is not accepted by the parties, only an ombudsman can determine the outcome.
23.	The approach of the ombudsman to determination is also set out at this instance shortly in rule 3.8.1: 
"(1) The Ombudsman will determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case.  
 (2) In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman will take into account the relevant law, regulations regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time."
That last phrase mirroring the legislation, as it does, emphasises that the ombudsman may take into account his own knowledge of good industry practice at the relevant period.
24.	The powers of the ombudsman under this scheme have been considered in a number of authorities, but most recently by the Court of Appeal in the case of R ex parte Heather Moor & Edgecomb Ltd v Financial Ombudsman Service Limited [2008] EWCA Civ 642.  That judgment was given very recently on 11th June 2008. It is helpful to quote two paragraphs of the judgment, the first being paragraph 49, a passage of the judgment of Stanley Burnton LJ: 
"Does the scheme established under the 2000 Act, interpreted in accordance with its natural meaning, comply with these requirements? [The requirements in question were conformity with the rule of law.]In my judgment, it can and does. The ombudsman is required by DISP 3.8.1 to take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time. He is free to depart from the relevant law, but if he does so he should say so in his decision and explain why. The other matters referred to in this rule are matters that a court would take into account in determining whether a professional financial adviser had been guilty of negligence or breach of his contract with his client. Again, if the ombudsman is to find an advisor liable to his client notwithstanding his compliance with all those matters, the ombudsman would have to so state in his decision and explain why, in such circumstances, assuming it to be possible, he came to the conclusion that it was fair and reasonable to hold the adviser liable. In these circumstances, I consider that the rules applied by the ombudsman are sufficiently predictable. All the matters listed in DISP 3.8.1 are formulated or ascertainable with sufficient precision. So far as guiding the conduct of financial advisors are concerned, provided that they comply with 'the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, … good industry practice', they can be assured that they will not be liable to their client in the absence of some exceptional factor requiring a different decision. Lastly, the common law requires consistency: that like cases are treated alike. Arbitrariness on the part of the ombudsman, including an unreasoned and unjustified failure to treat like cases alike, would be a ground for judicial review."  
25.	I quote one more passage from the judgment of Rix LJ the Heather Moor case. At paragraph 80 he said: 
"The effect of these provisions is not to leave the Ombudsman's determination to his entirely subjective views, as though he was operating according to the length of his foot, so to speak. That, it seems to me, is not the effect of the statutory language, which defers to the 'opinion of the Ombudsman'. Rather, that is typical language to emphasise that the decision is for the Ombudsman, not for a judge. However, the Ombudsman remains amenable, through the ordinary process of judicial review, to a challenge on such grounds as perversity or irrationality. That was not in dispute. It was the view of Stanley Burnton J, as he then was, in R v. FOS Ltd ex parte IFG Financial Services Ltd [2005] EWHC 1153 (Admin), unreported 19 May 2005, at para 13. That is not the same, however, as saying that the Ombudsman is bound to apply the common law in all its particulars. He is, after all, dealing with complaints, and not legal causes of action, within a particular regulatory setting. Rather, he is obliged ('will') to take relevant law, among other defined matters, into account."  
26.	These two passages, the rest of the judgments in the Heather Moor case and the other authorities which have been cited, are all consistent and they emphasise, in my judgment, the following really rather straightforward points.  The ombudsman is dealing with complaints, not causes of action.  His jurisdiction is inquisitorial not adversarial. There is a wide latitude within which the ombudsman can operate. He can depart from the common law if justified, but must explain the extent to which the reasons for any such departure.  Next, he can import his knowledge of good industry practice at the time, that being stipulated in the rules and emphasised by the judgment of Stanley Burnton LJ in the Heather Moor case.  Next, he must be fair and reasonable in his approach to the case and his conclusions.  Next, he cannot be perverse or merely subjective, and will be susceptible to judicial review if he is, both as to the manner in which the decision is reached and as to the outcome.
27.	Mr Daubney, the adjudicator, made his report on 6th September 2006.  He emphasised that he based his thinking on the relevant rules and regulations in place at the time, that is to say, April 2002, and on the proposition that: 
"There was a general onus on advisers to advise with due skill, care and diligence and to ensure that only those products that can be deemed suited to the personal and financial circumstances of the individual investor are recommended." 
He then went on to recite conclusions as follows:  
"The market situation in 2002 was such that it was reasonable to expect an adviser to have been aware of the situation regarding with‑profits endowments at that time.  There was sufficient coverage in the ordinary, and specialised, financial papers, to know that returns under these types of investments were declining and with‑profits bonuses were reducing each other.  
Traded Endowment Policies provide a slightly higher risk to the investor than ordinary endowment policies due to the fact that the market for such policies is created by supply and demand.  It is also the case that the investor pays a greater amount for the policy than the policy is actually worth, as assessed by the product providers' actuaries and reflected in the surrender value of the contract. As such, there was already some degree of risk to which Mr Bennett being exposed in relation to the traded endowment policies.  
However, in addition to these risks, Mr Bennett was encouraged to commence a loan at that time and this loan was on a deferred interest basis, so that the capital value outstanding on the loan would increase each year in line with the interest rate being charged.  The interest rates at that time represented a reasonable return under any investment.  Therefore, it was evident that the traded endowment policies not only had to produce sufficient returns to outstrip the interests being charged, but also had to produce sufficient returns to repay the capitalised loan value which was increasing by the premium payments also.  
With this in mind, and considering the fact that Mr Bennett was approaching retirement, therefore making it difficult for him to replace any lost amounts of capital, and in consideration of the gearing and the other risks I have mentioned above, I am not persuaded that the advice provided in this instance was suited to the personal and financial circumstances of Mr Bennett and I do not consider that he was willing to take, or was suited to, the level of risk to which he has been exposed within this plan.  
I am aware that the adviser provided literature to Mr Bennett concerning gearing and the operations of TEPs.  However, this is a complex plan and the onus is on the adviser to explain the risks of any products to his client when making any recommendations.  Whilst an adviser can formulate an opinion on the risks of literature of a third party, the onus is on the adviser to evaluate those risks before recommending the contract.  
Overall, I have not seen sufficient evidence to convince me that Mr Bennett was fully appraised of the risks associated with borrowing monies to fund investments as in this instance.  I am also not persuaded that, if he had been, Mr Bennett would have proceeded with this investment, as I consider the potential for the losses to be unlimited (if the loan is not repaid) and Mr Bennett's age, was not something I consider he would have been in agreement with, particularly when one considers he had also taken out further borrowing in conjunction with the buy to let property in Ross on Wye.  
I therefore believe the complaint should be upheld on the balance of probabilities."
28.	The claimant, Mr Williams, as we have observed, did not accept this and pursued the matter, which therefore proceeded to an ombudsman.  Mr Williams sent a response to the ombudsman which was not in fact seen before the ombudsman, Mr Tilson, reached his provisional decision on 13th December 2006, but was seen before the final decision on 18th January 2007.  This last is the decision challenged.  It is sufficient to quote some passages from that final decision to understand the thinking, procedure and conclusions of the ombudsman himself: 
"In my Provisional Decision, I agreed with the conclusions reached by Mr Daubney, the adjudicator, in that the advice provided to Mr Bennett was not suited to his personal and financial circumstances in that the risks the plan exposed Mr Bennett to were greater than he could afford to be exposed to at that time.  
I therefore agreed that the complaint should be upheld and compensation should be provided accordingly.  I allowed the firm and Mr Bennett a period of one month to respond to my provisional decision before making my final decision.  
Mr Bennett responded to my Provisional Decision accepting in full and final settlement of his complaint.  
The firm has now responded to my Provisional Decision requesting a response to its letter to Mr Daubney dated 20 October 2006.  It has been explained that this letter was never received by Mr Daubney and so no mention was made of the points made within it in my Provisional Decision.  Notwithstanding that, I have reviewed the further comments of the firm which can be summarised as follows..."  
29.	I then select some of the points made by the claimant to the ombudsman and recited by him: 
"That TEPs in 2002 were regarded across the financial services industry as being low risk investments.  That the firm has provided articles to demonstrate this point and it does not accept the comments made by Mr Daubney about the state of the market in 2002 ... 
That the firm did evaluate the risk of the plan correctly and adequate warnings about those risks were provided to Mr Bennett during the course of the advice.  
That the firm did not have an obligation to warn Mr Bennett of all of risks associated with the investment.  Instead, it had to provide warnings in line with the duty of care and at a standard of reasonable service in line with the common law.  
That the decline in the market for TEPs and the returns under endowments in general was caused by the tighter controls imposed by the regulator (the Financial Services Authority FSA) in 2003 which resulted in with profit fund managers reducing the equity content of their funds.  The firm says this was not reasonably foreseeable in 2002." 
30.	The ombudsman went on to summarise his findings as follows.  He began by emphasising that he and the FOS were an informal dispute resolution service, that they were not acting as a court, and there was no requirement to have an oral hearing with formal representations made by both parties.  Those points underpin the effect of the legislation and of authority, and in part respond to complaints about the way the matter had been dealt with advanced by Mr Williams in correspondence.  The findings appear as follows:
"I am in agreement with the comments made by Mr Daubney about the position of the financial climate in 2002 when the advice was given.  Whilst the firm provided copies of articles from that time concerning the assessment of TEPs, it is the responsibility of the firm to properly assess the risks of any plan recommended to investors.  Of course, the firm can make reference to relevant articles, but the firm has the ultimate responsibility of determining how reasonable those articles' assessment of that risk is and then how suitable that risk is for the investor.  
All comments made by the firm concerning the risk warnings provided to Mr Bennett in 2002 and the fact that Mr Bennett was made aware of the risks can be answered by myself in the following way.  The obligation on the firm when making the recommendation in 2002 was to ensure that any recommendation made was suited to Mr Bennett's personal and financial circumstances.  This is the overriding obligation on advisers when giving advice.  
The provision of information about the plan, including risk warnings, does not make an unsuitable recommendation suitable.  Therefore, the comments made by the firm about the provision of risk warnings to Mr Bennett do not alter my position on this complaint, namely the plan was not suitable for Mr Bennett and the provision about the operation and risks of the plan do not make the plan suitable.  
I remain persuaded Mr Bennett was not in a position to be exposed to a significant risk with the investment being made at that time.  Mr Bennett was approaching retirement and while he did have pension provision in place, I do not consider he would have proceeded with his investment if the real risks had been detailed to him.  
These risks were not insignificant in April 2002.  The interests rates under the loan required a reasonable return under any investment at that time and there was concern about the returns being experienced by most endowment providers.  The plan meant Mr Bennett was being exposed to a risk of losses on his overall position that were potentially unlimited given that the value of the loan will keep increasing until repaid. The security of the with‑ profits plan meant one of his other counterbalancing risk investments was put at risk of losing significant value if the plan did not meet the expected returns he used at the outset also." 
31.	The reference in the last paragraph I have quoted, to Mr Bennett being exposed to the risks of losses of his overall position, potentially unlimited, is clearly a reference to the opportunity on the part of the building society to withdraw from further funding of premiums, whereupon that open‑ended risk will eventuate.
32.	As I have said, the financial adviser, Mr Williams, filed a claim for judicial review on 30th April 2007.  There were a considerable number of points made in the claim which are no longer pursued.  However, the key complaints now made by the claimant can be summarised as follows.  He asserts that investment in endowment policies in traded endowment policies and in schemes such as this were properly regarded as low risk or low to medium risk by the financial services industry in 2002.  The claimant says the ombudsman was wrong to conclude otherwise, wrong to do so from his own knowledge, and wrong to do so from his own knowledge in the face of written evidence or information to the contrary supplied by the claimant.  The claimant says this information should have caused him to look further and to check his own knowledge, even if that was not necessary beforehand.
33.	The claimant then asks rhetorically:  how could the ombudsman form a view fairly and reasonably, without recourse to the contemporaneous literature?  He therefore says there was no consideration of the contemporaneous views of the industry at the time on these products, or no sufficient consideration.  There was no consideration of the special risks of this investment.  Assuming that Mr Bennett wanted a low to medium risk for his investments, there was no clear finding that these products fell outside that range.
34.	In my judgment, the central factual question in judging the risk level of these products, as opposed to the specific characteristics of this contract or fitness for this investor, is undoubtedly:  what was the contemporaneous view of the likely future returns on endowment policies at the time the product was sold to the investor?  Whether that was something which the ombudsman could decide from his own knowledge, is part of that issue.
35.	Mr Wheeler, for the claimant, relied on the illustrative figures produced by Policy Portfolio Limited, the company who sold this package of policies to Mr Bennett, that is to say, the vendors of this package of policies, introduced to Mr Bennett on the basis of the advice from Mr Williams.  Those illustrative figures are different, as to their absolute numbers, from the eventual investment.  But they do illustrate the prospective profit and risk to Mr Bennett of his investment.
36.	The point made by Mr Wheeler is that these figures demonstrate, on a sensible illustrative basis, that even if there was a change in the reversionary bonus rates ‑ say a decline of 10 per cent and a decline in terminal bonus rates of say 20 per cent ‑ there was still a very considerable margin of return.  The margin would be many hundreds of thousands of pounds, on the face of the illustration.  If this illustration is applied or read across to the figures actually subsequently invested by Mr Bennett, Mr Wheeler suggests the likely outcome on this illustration would have been a total return of some £140,000.  Even if the out‑turn was worse than expected, there would still be an anticipated six figure return on the investment that Mr Bennett eventually made.
37.	It is said on behalf of the claimant that that informed Mr Williams and Mr Bennett as to the margins for the investment.  That was before the ombudsman.  The ombudsman should have paid proper attention to those margins when considering whether there had been any failure to advise properly.  
38.	The claimant also relies on an article provided to the ombudsman, photocopied from a publication called The Financial Adviser, dated 23rd March 2002. This article was of course published only two months or so before the signature by Mr Bennett on the contracts.  The article was describe by Mr Wheeler to this court as being a "peer reviewed" article.  I am entirely unsure of the basis for that assertion and there is no evidence to that effect before this court.  Nevertheless, it was an article published at the time in a journal which ostensibly is a reputable financial journal.  This was the sole piece of contemporaneous literature produced by the claimant to the ombudsman in the course of the whole investigation of the complaint.  The article describes the advantages of this form of investment, suggests that endowment policies are essentially low risk investments, although making clear that the risk is increased where the investor borrows to fund the purchase and/or to fund premiums.  The article notes that endowment policies, and therefore traded endowment policies, tend to under‑perform direct investment in equities, but suggests that there may be tax advantages, advantages of smoothing the fluctuations of the market, advantages of planning and timing of the return on the investment given that there are fixed maturity dates of the policies, enabling detailed planning to take place.  All of that is probably not susceptible to challenge as a matter of generality.  
39.	However, two things are startling to me about this article. Firstly, it does not deal directly in any detail with the key assertion made by the ombudsman, that returns on the endowment policies were known to be declining at this period, and that there was a well established industry view to that effect.  This matter is touched on but only in a very glancing way.  I quote the relevant passage:
"In this context the returns from TEPs compare favourably with other low‑risk and deposit based investments.  Despite a reduction in endowment policy maturity values in recent years, TEPs remain excellent value for money compared with other forms of investment.  
The critical factor is that historically TEPs have outperformed similar low‑risk investments and can be expected to produce a reasonable return in the future for the investor compared with those similar investments.  Depending on personal tax circumstances the returns for many of these policies will be tax‑free." 
That represents a general proposition about the future performance from endowment policies, a glancing reference to the downward trend, and nothing more.  
40.	The other striking thing about this article is that it is written Mr Brian Goldstein, the managing director of Policy Portfolio:  the man who was in charge of the company who sold these policies and who clearly cannot, on any view, be regarded as someone in an independent position vis‑a‑vis the future sales in 2002 of Traded Endowment Policies.
41.	The ombudsman is clear this article did not cause him to change his view, or cause him to go and research his view by looking at other contemporaneous material, before reaching his final decision.  He continued to rely upon his own knowledge and experience as to the industry view of the prospect of the terms from endowment policies at the relevant period.
42.	However, the ombudsman did, as a matter of interest, go on to look at other contemporaneous material after this case was initiated.  Material has been produced to the court, and Mr Wheeler for the claimant says it is mixed in its effect on the issue as to what the industry believed at the relevant time.  With great respect to that submission, I disagree.  In my view, the contemporaneous material on balance provides reasonable support for the ombudsman's view of the industry attitude.  Indeed, as one goes through those other pieces of material chronologically, moving towards the time when Mr Bennett signed his contracts in May 2002, the tone and content become progressively gloomier as to the future returns from endowment policies.
43.	That said, the contents of literature which was obtained after the decision, cannot be directly relevant as the appropriateness of the ombudsman's decision, precisely because the material was obtained after the decision was taken.  Its only relevance might be as to the exercise of the court's discretion on the question of remedy if the criticism were made out.
44.	I have some sympathy with the line taken by the claimant in this case.  There must be a risk, in circumstances like these, of hindsight by an ombudsman.  Here, there have been two contributing factors at least to the declining performance of endowment policy returns.  Firstly, the general reduction in interest rates and on returns on investments.  Secondly, the changed investment strategy by those handling endowment policies, possibly following the debacle of Equitable Life, and possibly following the changed requirements coming from the Financial Services Agency, which were touched on by Mr Williams in his letter to the adjudicator quoted above. When such factors emerge, there must be a risk that it is simply assumed they were predictable.  The ombudsman will no doubt be careful to guard against any use of the retrospectoscope when assessing what was known at a given historical point.
45.	Equally, when the ombudsman is employing his own knowledge and experience of the industry, or of a particular part of the industry, it must be right that it is appropriate to rely on that knowledge and experience more readily, in respect of simpler questions and better known considerations than in respect of the rarer or complex.  In the course of argument it was acknowledged by both counsel that there must be a spectrum in relation to subject matter or in relation to uncertainty of such a question.  If one is considering the returns from cash, or the operation of very straightforward financial instruments, it will be easier and more obviously appropriate for the ombudsman to proceed based on his own knowledge and experience, than in a situation where he is faced with very sophisticated derivative financial products, very rare financial products or very rare practical applications of more familiar products.
46.	The same consideration will apply when change has been rapid or unexpected.  There will be times when the ombudsman will need to use his powers to call for information, evidence or expertise, and when not to do so might very well be irrational and challengeable.
47.	However, in my judgment, this is not such a case.  Even with the stimulus of the material provided by Mr Williams, it seems to me rational on the part of the ombudsman to have said: "I knew that returns were declining" and "I knew that that was the industry view at the time."
48.	Moreover, it is wrong to say that the ombudsman saw this investment in the abstract, as was suggested by Mr Wheeler.  I have recited above the key passages in the adjudication and the decision.  The essence of the approach by the ombudsman here was, firstly, to review and adopt the conclusions of the adjudicator, and secondly to look at this package as a whole for Mr Bennett.  In my view, that is the only conclusion fairly to be derived from a proper reading of the ombudsman's report.
49.	Of course, if there had been no reason to doubt that returns on endowment policies would continue into the future as they had done before the trend of declining returns was observed, then the whole balance of risk for Mr Bennett might well have been different.  If the changed trend of returns had not been in question, then the prospect of the building society pulling out, given the seemingly generous margins demonstrated in the illustration provided by Policy Portfolio, and the risk that Mr Bennett would be left unable to fund the policies to maturity, would all have looked very different.  In that sense, the question of future returns was absolutely crucial to the assessment of risk and thus the suitability of the investment for Mr Bennett.
50.	However, in my view, Mr Wheeler, for the claimant, who has presented his case with great care and in a very attractive way, is nevertheless wrong to treat the question of returns as the only risk and the only relevant question of risk.  A risk assessment must involve assessing the consequences for the individual of a poor outcome, as well as the chances of the poor outcome eventuating.  It seems to me that the ombudsman did that.  It was not irrational or perverse to reach the conclusion that the risks in terms of consequences, as well as the chance of outcome, were too high for Mr Bennett.  In my judgment, there was no need to conclude that TEPs or even this TEP package constituted "a high risk investment" as a stand alone matter.  There is any event no reliable measure of the way of defining what is low, what is medium and what is high risk.  These are descriptive labels only.
51.	Let me add one more point. The ombudsman has a duty to give clear and comprehensible reasons for his decision.  However, he is fully entitled to adopt the findings and conclusions of an adjudicator who has reported on the case, without elaborate adoption of this or that specific sentence, or this or that particular point.  These reports are reports, not pleadings.  A party to a complaint must know why he has won, or perhaps more importantly why he has lost, in clear and comprehensible terms.  That is the requirement, but that is the only requirement and it can be met in a reasonably flexible way.  In my judgment, it was fulfilled here.  For those reasons, therefore, this court will make no order.  The ombudsman's decision was proper and will stand.  
52.	MR MOFFETT:  I am very grateful for that.  I have an application for costs.  I do not know if your Lordship has a copy of the defendant's schedule of costs.  It may be a personal principle and then if your Lordship is prepared to summarily assess them, to deal with the amounts.  If Mr Wheeler has anything to say about principle it might be sensible to deal with that first.  
53.	MR JUSTICE IRWIN:  Yes. 
54.	MR WHEELER:  There is not a lot I can say to resist the costs. 
55.	MR MOFFETT:  Does your Lordship have a copy, I can probably provide a spare.
56.	MR JUSTICE IRWIN:  I think I have one.  I have two copies of the claimant's but not.... 
57.	MR MOFFETT:  I apologise, there is a spare copy, if I could hand it up.  This is probably the only thing to say to anything Mr Wheeler wishes to add, is they are less than half than the claimant's and therefore I ask for them in their entirety.
58.	MR JUSTICE IRWIN:  Let me just have a look.
59.	MR HAYNES:  Your Lordship will see they are just over £7,700, the claimant's cost were in excess of £15,000.
60.	MR JUSTICE IRWIN:  Is there anything to say on what he has asked for? 
61.	MR WHEELER:  My Lord, there is very little I can say. It is obviously a matter for your Lordship to conduct the assessment, I do not think I can have specific objections.
62.	MR JUSTICE IRWIN:  Thank you very much.  
63.	No, I shall award costs to the defendant of £7,716.75.  In case there is any complaint sought to be made about that, I think it is relevant that not only the total claim on the part of the claimant but more than twice that but most of the rates charged are significantly excessive.  Thank you very much.  
64.	MR WHEELER:  My Lord, I am instructed to apply for permission to appeal.  I do not think I can attempt to form any detailed grounds within the immediate decision, but I would submit that on the question as to when the ombudsman made use of his personal knowledge, and a matter on which your Lordship recognises there has to be a spectrum, in my submission, firstly, that is a matter of general importance as to the manner in which the ombudsman conducts his investigation and makes his termination, and secondly, there is a reasonable prospect that the Court of Appeal will consider that in this case the matter falls on the other side of the line.
65.	MR JUSTICE IRWIN:  Thank you.  Eloquently done, Mr Wheeler, but I will not grant permission.  It seems to me that the problem is that the exercise of the discretion as to when you use your own knowledge and when you go for further advice or information is highly fact specific.  Therefore the prospects of appeal are very poor.