Navigating policy pitfalls: Public bodies' discretion as to whether to re-evaluate a decision in light of a change in the law

The recent High Court decision in R (on the application of Chong & Ors v Financial Services Compensation Scheme Ltd [2024] EWHC 3374 (Admin) looks at the tricky situation that public bodies face when there is a change of law that impacts previous decisions they have taken. The case also examines what can truly be considered a trigger for judicial review, specifically whether targeting a later reiteration of an earlier policy or decision is merely a 'collateral challenge'.

Key points

• Public bodies will be given considerable discretion to determine their own policies, including those that draw a "bright line" resulting in inevitable winners and losers.
• However, such policies must be rational to be lawful, meaning public bodies must be wary of formulating arbitrary policies drawing unjustified distinctions.
• The court is alive to, and not impressed by, claimants merely writing to a public body to request a re-evaluation or confirmation of a previous decision in order to create a later trigger for judicial review.

Background

The case concerns three individuals who all claimed that they lost money after being advised by an unregulated advisor to transfer funds from their occupational pension schemes into a self-invested personal pension ("SIPP"). In each case, the Financial Services Compensation Scheme Limited (the "FSCS") upheld the investor's claim and paid compensation in accordance with its then understanding of the law.

The initial compensation that was awarded to the claimants was calculated on a 'monies in, monies out' basis, meaning that the original investments into the SIPPs were refunded together with any fees incurred.

Decision in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474

The Court of Appeal's decision in Adams was handed down on 1 April 2021 and held that, following advice from an unregulated intermediary, a SIPP provider was liable to repay both the investment and compensation for any loss. This meant that a SIPP provider may be liable to pay more than just 'monies in, monies out', but also any loss caused by transferring the pension from the original fund. On 15 April 2021 the claimants lodged appeals against their compensation awards on the basis that they believed they were entitled to additional compensation in light of Adams.

The FSCS accepted that it needed to reassess its approach to compensation awards, in light of Adams, but given the decision was appealed to the Supreme Court, it decided that any SIPP compensation payments on outstanding claims would be made on an interim basis until the law was settled.

Around this time the High Court confirmed in R (New) v Financial Services Compensation Scheme [2021] EWHC 2203 that the FSCS had to take into account the information that was available to it at the time of its decision within the context of the statutory scheme, which at the time of the award for these claimants did not include the Adams judgment.

FSCS policy decision

In March 2022, the Supreme Court refused permission to appeal in Adams. By July 2022, the FSCS made the final policy decision that it 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 challenging the quantification method that had been previously accepted when compensation was paid. The FSCS subsequently clarified that it would consider appeals from compensation decisions made prior to 1 April 2021 which were extant as at that date.

In letters dated June and July 2023 the FSCS made it clear that it would not decide the claimants' appeals and their compensation claims were closed. Those decision letters were the target of the judicial review.

Judgment

The claimants brought a judicial review on two grounds: (i) that the decision to treat their appeals as defunct after two years was procedurally unfair and irregular, and (ii) having initially committed to considering the appeals in line with Adams, the FSCS had established a legitimate expectation that had been breached. They argued that their claims for compensation had not been finally determined at the relevant cut-off date because they validly exercised their right of appeal within a reasonable time of the original decisions.

It was common ground that the payments of compensation to the claimants were not made by way of interim payments. The court therefore held that the claims must be considered as 'finally determined' with compensation paid 'in final settlement'. The fact that investors could still raise an appeal did not affect this conclusion. Notably there was no time limit expressly imposed in 2021 for bringing such an appeal, but it was common ground that any appeal was required to be brought within a reasonable time.

The FSCS must administer its statutory scheme in a way that is procedurally fair and in compliance with the European Convention on Human Rights, but it must also have regard to the need to ensure efficiency and use its resources in the most efficient and economic way. The court considered previous authority relating to compensation schemes affected by a change in the understanding of the law, and noted that a decision maker may adopt a lawful policy for the reconsideration of previous decisions. Such a policy may further the statutory objective of administering the scheme efficiently and economically. The nature of any bright line policy is that there will be winners and losers, and that factor alone does not make a policy unlawful as long as it is rational.

Since the challenge was not to the policy, but to the specific decisions of June and July 2023, Pepperall J held that it was not necessary for him to come to a decision on whether the policy of the FSCS was lawful or not, however he did comment that he had "reservations about the FSCS's policy in respect of appeals from pre-April decisions". The clarification allowing consideration of appeals extant as at 1 April 2021 meant the previous bright line position was compromised, and the court questioned what the justification then was for not allowing other claimants with pre-April decisions to bring in-time appeals. The reasons put forward for this justification by FSCS were said not to be "robust". The distinction was really between cases that were live on 1 April 2021 and those that were not live. However, given appeals form an important part of the scheme, and having decided to include extant appeals within those being reconsidered, Pepperall J was "troubled by the policy of restricting the timely exercise of appeal rights to those who had not yet launched their appeals by the end of March 2021. Such policy was arbitrary in that … it curtailed appeal rights even by those who had only just received their decision letters". Although he was not expressing a conclusion on the lawfulness of the policy, since that was not the target of the judicial review, this language is a significant red flag which must cast doubt on the appropriateness of that policy.

Timing issue

The FSCS argued that this judicial review was a 'collateral challenge', in that, although it was challenging decision letters from June and July 2023 the real substance of the claim was earlier decisions that were simply being reiterated in those letters.

Pepperall J devoted a large part of his judgment to discussing this issue and retracing the chronology of events. He ultimately decided that the decision that was determinative of these claimants' legal position was the policy decision, taken and communicated to the claimants at the latest in October 2022, to only consider appeals from pre-April 2021 compensation decisions if they had been lodged by 1 April 2021. This meant that "the letters of 20 June and 20 July 2023 simply confirmed the application of such existing policy to these claimants' cases". This judicial review was therefore considered to be a collateral change to an earlier policy, which the claimants were now out of time to challenge. The court considered that it would be an abuse of process to allow this claim to proceed in the circumstances, referring to the lack of proper grounds for allowing a substantial extension of time.

Legitimate expectation

Notwithstanding the above conclusion, Pepperall J did consider the possibility of the claimants having a legitimate expectation that their appeals were to be considered.

Generic holding letters were sent in April 2021, following receipt of the claimants' applications to appeal, however the court did not consider that these created a legitimate expectation that the appeal would be heard other than in accordance with the FSCS policy. Later correspondence, it was held, "displayed a greater understanding of the issues raised" and Pepperall J thought that they gave a "clear, unambiguous representation" that appeals were being considered in light of Adams, but not that the FSCS would reopen earlier decisions or as to any particular outcome. Ultimately, these subsequent letters did not make any representation that the appeals would be heard outwith the policy of dealing with appeals from pre-April 2021 decisions. On this basis, there was no breach of legitimate expectation since the FSCS formulated a policy and applied it to these claimants.

Comment

This case serves as an important touchstone for the latitude given to public bodies in deciding their own policies, especially in scenarios where a change of law has taken place. In particular, the court acknowledged that public bodies can take 'bright-line' approaches to policies, which inevitably mean there are winners and losers, as long as those policies are lawful and rational.

Although in this case the court did not have to reach a conclusion on the lawfulness of the specific policy, the strongly worded concerns in the judgment cast doubt as to the justification and rationality of the policy. Public bodies should therefore be mindful, when considering a policy in light of a change of law, of making arbitrary decisions that deprive individuals or organisations of the right to have their decision reconsidered in light of current law.