Neutral Citation Number: [2012] EWHC 1253 (Admin)

Case No: CO/6036/2008

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 18 May 2012

Before :

MR JUSTICE COLLINS
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Between :

The Queen on the application of
	Kenneth Green	Claimant	
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	The Financial Ombudsman Service Ltd	Defendant	
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	Gillian & Edward Gunner	Interested Party 	

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Mr Benjamin Hawkin (instructed by the Bar Pro Bono Unit) for the Claimant
Mr Jonathan Moffett (instructed by the Financial Ombudsman Service) for the Defendant

Hearing date: 20 March 2012
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Judgment Approved by the court
for handing down
(subject to editorial corrections)

Mr Justice Collins : 

1.	As the CO number of this claim indicates, it has taken far too long to be heard.  The complaint by the interested parties which led eventually to the defendant’s decisions which this claim challenges was made in April 2003.  It was not until 25 March 2008 that the Ombudsman made his final decisions.  There were two in identical terms save for the compensation awarded  because the interested parties, who are husband and wife, each made a complaint and separate consideration had to be given to the complaints, albeit they were based on the same advice given by the claimant, if only because if they were upheld differing amounts of compensation were appropriate.  To add to the delay, the advice which the interested parties alleged was misleading and which caused them to enter into arrangements which resulted in substantial losses to them was given in 1999.  They entered into the arrangements in December 1999.
2.	The ombudsman’s procedure involves initial investigation of a complaint by an adjudicator.  The adjudicator sought information from all those concerned.  He informed the parties of points made by each side.  At one stage in late 2004 there seemed to be a possibility that there could be a settlement of the dispute, but that came to nothing.  By the summer of 2005 it became clear to the adjudicator that he would not be able to mediate to produce an agreed settlement and so in August 2005 he passed the complaints to an ombudsman, Mr Roy Milne, and the ombudsman proceeded to carry out his own investigation, taking into account the material that had been produced to the adjudicator.
3.	That material was voluminous.  One unfortunate feature of this case is that the claimant has been incapable of dealing with anything other than in an unforgivably lengthy manner.  This has not only placed a burden on the defendant but also on the court.  For example, the pre-action protocol letter ran to no less than 49 pages.  The adjudicator was burdened with submissions running on one occasion to nearly 100 pages.  I found myself having to consider documentation running to 1493 pages, much of which was repetitive and which made submissions which had no merit at all.  That conduct by the claimant has not helped to reduce delay.
4.	The ombudsman produced two pairs of provisional decisions on 23 June 2006 and 1 November 2007 respectively.  Following consideration of representations, the final decisions were, as I have said, made on 25 March 2008.
5.	This claim was lodged on 25 June 2008, the last day of the maximum period allowed by the Rules for instituting claims for judicial review.  It relied on the pre-action protocol letter which raised some 19 separate grounds of challenge, most of which were clearly unarguable.  On 15 September 2008 permission was refused on the papers and on 27 July 2009 that refusal was confirmed by Hickinbottom J following an oral hearing.  The claimant sought to appeal to the Court of Appeal and his application was refused by Stanley Burnton LJ on the papers on 28 May 2010.  He stated that he based his decision on “the lack of merits of all of the substantive grounds for judicial review”.  The claimant attempted to renew his application for leave to appeal but on 24 June 2010 the Chancellor refused to hear the claimant’s son who sought to represent him and adjourned the application generally.  Eventually the claimant managed to secure the assistance of Mr Hawkin through the Bar Pro Bono Unit and on 23 February 2011, Elias LJ decided (in the absence of the defendant) to grant permission on two grounds only and remitted the claim for hearing before this court.  I shall have to refer to his decision in more detail in due course.
6.	At all material times the claimant was a financial adviser.  He traded as Green Denman and Company.  He was initially approached by Mrs Gunner in December 1995 when she indicated that she and her husband wanted, as she put it, a ‘comfortable retirement’ and so a considered decision based on all pension benefits together with maximum tax free cash.  
7.	In September 1997 the claimant wrote to Mrs Gunner enclosing a draft letter of authority to allow him to obtain all necessary information to establish whether their existing pension arrangements could be restructured to their advantage.  The next development was in the summer of 1999 when Mrs Gunner spoke to the claimant over the telephone.  He made a full note of that conversation which took place on 25 June 1999 (albeit the Gunners have subsequently stated that they do not accept the full accuracy of the notes which in any event record a number of separate conversations).  However, since the defendant did not hold any hearing to resolve any disputes, it is accepted that for the purposes of determining this claim I should accept the claimant’s evidence.  Following further discussion and advice, in due course in December 1999 the Gunners entered into what is known as an income drawdown arrangement.  It was anticipated that this would be based on tax favoured growth of no less than 9% to meet their requirements.  Unfortunately the market did not flourish as it had and there then came the events of 9/11 in 2001 which made the situation much worse.  This meant that the anticipated growth did not materialise and so they foundthemselves in a position where their respective pension funds had, after the first 3 years, reduced substantially and so had their income.   What they had expected as a result of what the claimant had told them had not materialised and each had as a result suffered serious financial loss.
8.	As he advised on pension funds, the claimant was subject to control by the Personal Investment Authority (PIA) and was obliged to follow guidance issued by the PIA when advising clients on pension fund withdrawals.  Guidance was issued from time to time in the form of what are called Regulatory Updates and all advisers such as the claimant were obliged to take account of and to follow such guidance.
9.	The defendant was established pursuant to Part XVI of the Financial Services and Markets Act 2000 (FSMA).  Ss s.225(1) of FSMA states:-
“This Part provides for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person.”
The defendant is that independent person and he can only entertain complaints from individuals or small businesses and his power to award compensation is subject to an upper limit, the amount of which is not material for the purposes of this case.
10.	The complaints alleged that proper advice was not given.  In dealing with them the defendant was required by s.228(2) of FSMA to determine them “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”.  He is thus given a wide discretion.   Schedule 17 of the FSMA provides for the making of rules dealing with the operation and jurisdiction of the defendant.  In the handbook issued in accordance with the provisions of Schedule 17, this was said in paragraph 3.8.1R, under the heading ‘Opinion as to fairness and reasonableness’:-
“(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 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.”
11.	The discretion is wide but must be exercised reasonably.  The decision can be challenged by judicial review but in most cases (assuming no procedural unfairness or failure to follow particular law) that will require any challenger to a decision to establish that it was irrational in Wednesbury terms.  Mr Moffett submitted, relying on dicta in immigration cases concerning challenges to decisions of tribunals, that the hurdle to be surmounted to establish irrationality was set very high.  Certainly where the decision maker has an expertise and is given a wide discretion, it will inevitably be more difficult to establish that a particular decision was irrational.  That is not because the hurdle is set at a higher level but because the court must respect the expertise and the powers expressly conferred by Parliament.  But where no particular expertise is required to reach a conclusion of fact and that conclusion is challenged as being irrational, there is no reason to approach the matter in any different way from that generally applied in judicial review claims.  That is material since, as will become clear, there are two grounds which Elias LJ permitted to be argued.  The first, broadly speaking, was a challenge to the ombudsman’s decision that the advice given was defective and the second was that because of that defective advice the Gunners entered into the arrangement which led to financial loss.    The ombudsman decided that he was satisfied on the balance of probabilities that if the Gunners had received the advice they ought to have received they would not have entered into the arrangement.  That conclusion depended on an assessment of the evidence before him and did not depend on expertise in financial affairs or what advice was required to comply with an adviser’s obligations.  It was an issue of causation and the width of his discretion and considerations of what was fair or reasonable could play no part in reaching his conclusions of fact.
12.	The possibility of income drawdown was introduced in the Pensions Act 1995.  It was an alternative to an annuity which might be particularly attractive to those approaching retirement who wished to maintain income flexibility, not to commit themselves to an annuity, to be able to invest accumulated funds while drawing an income from them and to receive a tax free cash withdrawal without purchasing an annuity.  It was possible, depending on an individual’s circumstances, to take the maximum lump sum together with maximum income, described as a “full format” or to phase matters by a lesser lump sum and a smaller income.  But all would depend on there being sufficient tax favoured growth which, if the Gunners were to take a full format, would need to be at least 9% per annum.  The fund available and so the possible income would be set at the end of every third year.  Thus if things did not work out, there could be a significant reduction at the end of year three instead of the increase which had been forecast by the claimant.
13.	While I do not intend to go through the material which was before the ombudsman and is before me in any detail, it is necessary to see what advice was given based on the contemporaneous notes made by the claimant and the correspondence.  It is also relevant to bear in mind that the Gunners had themselves invested in the stock market and so were aware that there was always a risk that, whether due to a general recession or particular losses by major companies, anticipated growth rates might not be achieved.  The adjudicator stated in a letter to the claimant of 24 November 2004:-
“Essentially our role is to consider whether your firm complied with its legal and regulatory obligations when advising Mr & Mrs Gunner to take their pension income in conjunction with income drawdown arrangements, rather than purchase annuities.  Our role is not to satisfy ourselves whether Mr & Mrs Gunner were told about, and properly understood, all of the relevant risks and I do not believe that the outcomes of their complaints will turn on whether that was the case or otherwise.”
14.	That was at a time when it was thought that the  issue was drawdown or annuity.  In due course it became apparent that the Gunners were not interested in an annuity at that time and would, they said, have decided against full retirement if they believed that the drawdown would not be beneficial.  Thus the nature of the risk rather than the existence of any risk was the important factor and the real issue was whether the advice given had properly identified the nature of the risk.  This would inevitably mean that they had to be given all relevant information so that they could understand the possible risks of the drawdown scheme which they decided to pursue.  The adjudicator’s initial approach was, I think, badly expressed since when it came to the question of compensation whether the Gunners had properly understood the risk, whatever they may or may not have been told by the claimant, was of obvious importance.  But, as I have said, it was not pursued in the ombudsman’s final decisions and I only refer to it because Mr Hawkin sought to draw some benefit from it.
15.	The notes of the telephone call (or calls) in June 1999 include the following, some of which is relied on by each party.  The claimant told Mrs Gunner, with whom most of the relevant discussions and correspondence took place, that he needed ‘the full picture to establish attitude to risk’.  He wanted to be able to assess within a scale of 1 to 10 whether the Gunners were ignorant or fully aware of how the stock market worked and the effect its fluctuations could have on any scheme, whether drawdown or annuity, or neither, which they might enter into.  In due course, they were assessed as average.  At that stage, Mr Gunner had not retired and she said he wanted to retire and she was going to continue part time consultancy work but was considering retirement.  Since neither had reached the age of 60 they were still capable of working for some years to come.
16.	They were, she said, comparatively better off, had no mortgage or dependents and had been investing money successfully in PEPs and ISAs.  Over the past two years they had decided to stop putting their money into pensions but had invested it themselves and had achieved a better return.  The claimant suggested income drawdown as an option.  They wanted ‘equal pensions’ based on a joint life last survivor basis.  Pension income would depend on how this investment grew and interest rates on retirement and one advantage of drawdown was that the anticipated higher initial income would continue after the death of a spouse.  But “the income in future years (reviewed every 3 years) would depend on investment growth and interest rates”.  It might not, he said, be a good idea to take maximum income straight away.
17.	He then notes that Mrs Gunner had read about and liked the idea of drawdown. She felt that she and her husband were far too young to take the plunge with annuities.  Her attitude to risk was assessed at 5/6 out of 10, erring on the side of caution.  He then records:-
“I stressed that with income drawdown I would normally invest at least the equivalent of the first year’s income in a “Cautious” fund.  This would allow the higher risk funds to grow without any income being initially drawn from them.  Because of the flexibility of choice of funds the risk profile could be changed at any time.  Also an annuity could be purchased at any time too (e.g.: if suffered from ill health then a better rate could be available at that time).
Gillian said their basic objective was to be able to retire comfortably with the maximum tax-free cash and maximum possible income.  She will continue working part-time.  They would invest the tax-free cash themselves as they had already done very well in PEPs and high tech stocks.  Gillian particularly liked the idea of the flexible death benefits under the income drawdown.  She also liked the flexibility of changing the fund choice and risk profile.
I stressed that the most important factor with drawdown was the investment performance.  With 9% pa tax-favoured growth and reasonably stable GAD rates, the income could increase every 3 years.  Lower investment growth could mean the exact opposite, especially if they were taking the maximum level of income from their funds.  This did not seem to bother her.  Gillian was very positive about the future investment growth and she like the idea of being able to influence the choice of investment funds and managers.  Pension fund performance had been good in the last 5 years.  Some funds had enjoyed in excess of 12% tax-favoured growth per annum.  However, I repeated my point that it may not be a good idea to take the maximum income from the start. “
18.	He notes that she refused to give details of their other assets.  He said he stressed that ‘it would be helpful to establish the level of retirement income they required in the future because they need to plan against the possibility that income may reduce (e.g. how would they cope if the income reduced?)’.  He records that she wanted him ‘to stress the advantages of income drawdown over annuity purchase’.  There is no positive indication of why she wanted him to do that.  All one can say is that it might have been to persuade her husband to agree to drawdown rather than annuity if, of course, it was shown to be the sensible thing to do.
19.	The final note records that they wanted to be able to invest the tax free cash as soon as possible themselves and the acquisition of the most flexible death benefits was very important.  As was earlier indicated, they did not want an annuity at that stage.
20.	On 6 August 1999 the claimant wrote to Mrs Gunner enclosing outline reports for the information of and consideration by both of them.  He recommended income drawdown which, he said, would in summary give an initial joint gross income of over £15,000 as opposed to just over £11,000.  He said:-
“This level of income should increase every three years as illustrated in the report e.g. by the beginning of year 4 it could be £15,551, assuming tax favoured growth of only 9% p.a.”
He also said that if partial retirement was under consideration then a lower amount of tax free cash and income could be chosen initially.  Mr Moffett has emphasised the inclusion of the adjective  ‘only’ in the reference to 9% growth.  As will be seen, it is, he says, consistent with the advice given that indicated that 9% growth was likely to result and there was no real risk that it would not.
21.	The reports themselves set out the available pension fund at age 75 assuming only 9% growth.  So far as the likelihood of achieving 9% was concerned, the report stated:-
“As far as investment performance is concerned, while past performance is no certain guarantee to future performance, most leading pension insurance have comfortably exceeded 9 % per annum tax favoured growth.”
In setting out the advantages of income drawdown, it was said that:-
“The income withdrawal limits are tested every three years.  Provided the appropriate tax free growth is achieved this can mean increased income being available as well as increased value in the underlying fund.”
There is a manuscript note on the copy of the report in the bundle before me which indicates as I understand it that Mrs Gunner was informed that illustrations using 5% and 7% would be available and that 9% was the maximum permitted by the regulator.  However, there is nothing in the reports to suggest that there was any real risk that 9% might not be achievable.
22.	On 2 September 1999 Mrs Gunner wrote to the claimant raising a number of questions.  For the purpose of this case, there were two which are material (numbered 2 and 3):-
“2. You have quoted an assumed growth rate of 9% for the purpose of forecasting the figures.  Is this 9% based on the record of the proposed managers of the fund?  If the performance of the company managing the fund were to go below this figure, would we have the flexibility of transferring it somewhere else?
3. If the investments yielded more or less than 9%, presumably our fund and pensions would vary in direct proportion to the actual yield.  What would be the best and worst case scenario if (say) there were another stock market boom, or another recession?”
23.	On 9 September 1999 the claimant records a telephone call to Mrs Gunner in which he told her that he could not do a worst case scenario but that she was correct and if investments yielded more or less than 9% the fund and pensions would vary in direct proportion to the actual yield.  On 16 September 1999 he sent a further report which dealt with the questions Mrs Gunner had asked in her letter of 2 September 1999.  In answer to questions 2 and 3 this was said:-
“2. The assumed growth tax favoured rate of 9% per annum is the maximum rate permitted by the Regulator.  While past performance is no certain guide to future performance all of the insurers illustrated have produced growth rates of higher than 9% per annum.  If the fund is underperforming you would have a choice of switching funds.  As stated earlier this choice varies between insurers. While the funds would remain within the chosen Personal Pension Income Plan it is possible to invest outside of that Insurer if desired.
3. The initial income is based on the size of the initial fund, the tax free cash taken and the prevailing Government Actuaries Department (GAD) rates.  The initial income levels are set for three years.  They are then tested every three years.  Provided that 9% per annum tax favoured growth, or more, is achieved, and the GAD rates remain reasonably stable your income should increase over the years.  It is worth noting that recovering from the 1987 stock market crash took about 1 ½ years.  Also it is interesting to note that the BZW Equity Gilt study shows that between 1919 and 1992 equity returns averaged 14.51% p.a. (10.02% real return).  Between 1946 and 1992 equity returns averaged 16.41 p.a. (real return 9.29%).  When inflation was less than 6% real returns were in excess of 10%.
During any three year period you can vary the income to any amount between the Maximum and Minimum levels permitted.  You should also remember that your funds can be chosen to reflect your chosen risk profile.  You can also switch investments at any time. ”
Nothing is said to suggest that there was any risk of 9% not being achieved.  Figures were given for 7% and 5% and these showed that a diminution of income and of the fund would occur after the third year and would thereafter show a continuing diminution.
24.	On 2 October 1999 Mrs Gunner wrote to the claimant confirming that she and her husband had decided in favour of the income drawdown scheme and wished to take the maximum initial gross income.  They were then contacted by the pension provider Skandia Life.  On 7 October 1999 Skandia sent copies of their income plan to the Gunners.  This set out risk factors, essentially the obvious ones that fluctuation in investment returns, which were likely to occur, would mean if they were less than those shown in the enclosed leaflet a lower pension would result.  A warning was given that to take the maximum withdrawals might mean that they were unable to sustain the income throughout their retirement.  These warnings added nothing to the advice given since that advice did not suggest that there was any real risk that 9% or more would not be achieved.  Finally in December 1999 the Gunners signed up to the transfer to Skandia of their pension rights on the basis of the income drawdown which they had been advised on by the claimant having waived their cancellation rights, which involved a 14 day period during which they were entitled at no cost to back out of the agreement (subject only to an unexpected reduction in return which would have caused a reduction in the amount to be regarded to be loss, which did not occur over the short reconsideration period).  Reliance has been placed by Mr Hawkin on this waiver, which recorded that they had read and understood the details of the plan and decided to proceed with it.  I do not think it assists one way or the other.  They had understood the details but  that had been based on the advice they had received.  They wanted tax free sums to use for their purposes as soon as possible and so it is hardly surprising that they signed the waiver.  Their understanding was, as I have said, driven by the advice given.
25.	The ombudsman has properly stressed the importance of advisers having regard to and passing on as advice the guidance given by the PIA in its guidance notes.  In its update of August 1998, it stated:-
“The risk factors which need to be taken into account include the fact that-
•	High income withdrawals may not be sustainable during the deferral period.
•	Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken.  This could result in a lesser income when the annuity is eventually purchased.
•	The investment returns may be less than those shown in the illustrations.
•	Annuity rates may be at a worse level when purchase annuity takes place. ”
It is to be noted that in answering the concerns of Mrs Gunner, the claimant had made the point that the last recession had only lasted for 1 ½ years.  If that was intended to suggest that even if a recession occurred it would not have an overall damaging effect since history showed that the recovery brought returns up to their previous levels, it was misleading because it could mean, as happened, that at the end of the 3 year initial period there was a loss which then could not be overcome without a better than 9% return thereafter.  The Gunners were never explicitly warned of the effect of such a recession within the initial 3 year period or any such period thereafter.
26.	In January 1999 there was a Regulatory Update.  This revised the Rules prescribing the rates of return which would be used in projections.  That revision took account, it was said, of ‘lower expected investment returns, improving mortality and changes to the taxation of products since the Rules were last updated in 1993’.  The rates had been a higher of 12%, an intermediate of 9% and a lower of 6%.  These became a higher of 9%, an intermediate of 7% and a lower of 5%.  Thus 9% was when the claimant was giving his advice the highest rate he could properly indicate and this reflected a view of the Regulatory Authority that rates were likely to be lower.  This, it is said, should have been drawn to the Gunners’ attention since the optimism expressed in the advice that 9% in effect risk free was unwarranted.
27.	The update emphasised the importance of keeping records that were sufficient to show that a firm had complied with the Authority’s Rules and providing investors with a clear explanation of the nature of the risks involved in such a transaction.  In June 1999 a further update emphasised the importance of a letter to a client considering pension withdrawal containing an explanation of why the scheme suggested was believed to be suitable and including evidence that the risk factors involved had been considered in the light of the investor’s attitude to risk.  It had to also demonstrate that the risks had been drawn to the investor’s attention.  The risk factors referred to in paragraph 25 above were to be identified.
28.	In his provisional decisions, the ombudsman had indicated that he was satisfied that the claimant’s reference to the highest growth rate allowed by the Regulator and to past performance was misleading.  This was because the advice given was very positive and this caused Mrs Gunner to believe that there was in reality no risk if she and her husband took the maximum lump sum and income from the pension plans and that both income and capital were likely to increase after 3 years.  The key conclusions of the ombudsman are to be found in paragraphs 87 to 92 of his decision (I have taken that relating to Mrs Gunner).  These read as follows:-
“87. … For the avoidance of doubt, I accept that Mrs Gunner knew that starting to take her pension income in 1999 using an income drawdown arrangement exposed her to the risk that her future pension income could fall.  However I am not satisfied that she understood either the true nature of that risk, which was materially heightened by starting to draw the maximum allowable pension income, or the extent to which her future pension income could potentially fall.
88. The evidence that I consider provides me with the best indication of Mr and Mrs Gunner’s true intentions in 1999 is contained in the written correspondence and particularly the letter to Mrs Gunner of 6 August 1999 and in the accompanying report.  In my judgment the statements contained in those documents were misleading.  The statements underplayed the risk involved by referring to the likely increase in her pension income after three years if a growth rate of 9% p.a. was achieved, which was the highest rate that could have been used to illustrate prospective future benefits.  I referred to this in my first provisional decision as reminding me of one of the tests set out by the PIA for the review of past pension sales.  I also consider that following the PIA’s regulatory update 62 issued in January 1999 that the regulator expected lower interest rates, lower investment returns and increasing longevity.  These factors all lead me to conclude that there was a significant prospect that Mrs Gunner’s income would actually fall.
89. In her letter to KWG dated 2 September 1999, Mrs Gunner asked ‘What would be the best and worst case scenarios if (say) there were another stock market boom, or another recession’.”  Although KWG said he could not give a worse case scenario, at least in terms of giving projections of future benefits using growth rates of less than 5% p.a., that did not prevent KWG from saying, words to the effect that, ‘if everything works against you, your future pension income could be substantially and permanently reduced, and from as early as three years after starting income drawdown.’
90. AKCG also argued on many occasions that Mrs Gunner did not intend to retire and has provided a significant amount of evidence about the business ventures set up by both Mr and Mrs Gunner.  He has also argued that they intended to continue with the established business.  I am not persuaded by these arguments.  It is clear to me that Mr and Mrs Gunner intended to retire in 1999.  The evidence provided about their earnings after they started to draw their pension benefits supports this conclusion.  Mr and Mrs Gunner’s explanations about the income produced are in my view credible and I do not consider that they intended to rely upon any earnings from the internet ventures.  It may well be that some income has been generated from these businesses, but I am satisfied that they intended to rely upon the income from the pension funds for their basic living expenses.
91. Green Denman has made much of Mrs Gunner’s decision to waive her cancellation rights in order to obtain the tax free cash lump sum as quickly as possible.  AKCG said that Mrs Gunner was an insistent investor and this demonstrates she had an overriding desire to obtain the tax free cash lump sum regardless of what she did with the rest of her pension fund(s).  I do not place much weight on that argument.  It is understandable that, having decided to start taking her pension income, and having also decided to take as much as possible of her pension savings as a tax free cash lump sum, she would want that tax free cash lump sum as soon as possible if only to reinvest it.  However, and according to the figures shown in the September 1999 report, that decision was based on her having to use over 85% of her pension fund(s) to provide her with regular pension income.  None of the evidence and none of Green Denman’s arguments persuade me that Mrs Gunner would knowingly have exposed her future pension income to the substantial risks inherent in taking the maximum allowable pension income from an income drawdown plan just to obtain the illustrated tax free cash lump sum of £14,084.
92. I am satisfied that Mr and Mrs Gunner approached Green Denman for advice about the options available to them. If Mrs Gunner had not been misled by KWG’s letter dated 2 September 1999, and if she had been told, at least in generic terms, that her future pension income could be substantially and permanently reduced after only three years,  I am satisfied that, on the balance of probabilities, she would not have bought her income drawdown plan and/or started taking the maximum allowable pension income from such an arrangement in 1999.”
29.	The ombudsman was in the exercise of the wide discretion conferred upon him to judge what advice in any given case should have been given in order to comply with a financial adviser’s obligations.  While no doubt the Gunners were told and knew that there were always risks in investing and that there could be lower returns than were expected, they were clearly on the material which I have set out given to believe that there was no real risk of loss.  I do not doubt that the ombudsman was correct in stating that the statements did underplay the risk by relying on the highest growth rate permitted by the Regulator.  The existence of a risk was obvious but its nature in the circumstances was not properly identified.  In my judgment the ombudsman was entitled to decide that  in the circumstances there had been a failure to provide proper advice and that what had been conveyed was indeed misleading.
30.	In paragraph 89 the ombudsman criticises the claimant for not spelling out what might happen in a worst case scenario.  It seems to me that the question asked by Mrs Gunner needed a response which did indeed inform her what could happen if things went wrong.  To say that it could not be given since the lowest projected figure was 5% was not a sensible response.  There was no reason to give details of the returns if less than 5% was achieved.  What was needed was to identify the risk and the effect of a failure to meet the 9% growth during the first 3 years.  This was not done and was not achieved by the figures given of 5% and 7%.  What the Gunners needed to know was whether the risk might materialise.  What they were told clearly led them to believe that they were  safe if they took the maximum lump sum  and the maximum income.  Thus they were misled.
31.	After the hearing had concluded, Mr Moffett put in further submissions because he thought that in reply Mr Hawkin had raised a new point, namely that since the claimant had explained that the rate of 9% was one albeit the maximum of three rates specified by the PIA it was irrational to conclude that proper and fair advice had not been given.  He submitted that the ombudsman had dealt with this in particular in Paragraph 88 of the decision which I have already set out.  I do not think that there was a need for the further submissions since it was clear that the ombudsman’s conclusions were that, while no doubt there had been reference to the three rates, the Gunners had never been properly advised of the effect of or the real possibility of a failure to achieve 9% in the first three year review period.  As I have said, the whole tenor of the advice was that there was nothing to fear since 9% would be achieved.  In his response, Mr Hawkin understandably repeated his submissions made in the hearing.
32.	The further decision under attack is that the Gunners were entitled to redress on the basis that if they had not been given misleading advice they would not have adopted the scheme.  In Paragraph 92, which I have already cited, the ombudsman decided that question on the balance of probabilities.  In Paragraph 93 he stated:-
“If Mr and Mrs Gunner had not been misled, I consider that they would have continued working and reviewed the position in October 2003 when Mrs Gunner was 60.  I am satisfied that the pension funds would have provided sufficient income for them to retire at that time.”
33.	In a preliminary report, the ombudsman had said that in his view, although 9% growth a year was not unrealistic, it was certainly on the optimistic side.  Mr Moffett accepted that, if the risks had been properly identified, the claimant could not have been criticised if he had advised the Gunners that in his view the scheme was one they could properly take up.  This has led me to consider carefully whether the finding that they would if not misled have decided not to enter the scheme was reasonable. The ombudsman records in paragraph 58 that the Gunners informed him that if they had been presented with the options and the risks of income drawdown had been explained it is likely that they would have concluded that annuities would not have provided enough income and income drawdown was too risky.  They would accordingly have continued working and reviewed their plans when Mrs Gunner reached 60 in October 2003.
34.	The Gunners had lost substantially and so it was in their interests to assert that they would not have entered into a drawdown arrangement if given proper advice.  I do not by this mean to indicate that they were deliberately intending to mislead the ombudsman, but hindsight does sometimes change perceptions.  However, they were misled and I have to consider whether the ombudsman’s conclusion was irrational.
35.	As a result of the claimant’s failure to explain as he should have done the risks involved in the proposed scheme, the Gunners were not given the opportunity to decide on a proper basis whether or not to enter it.  If he had given all proper warnings, the claimant would clearly have advised them that the risks were not such as should in the circumstances persuade them to decline.  The supportive material that growth was unlikely to fall below 9% was apparently reasonably powerful.  Nonetheless, a recognition that the regulator had reduced the highest permissible projected rate to 9% and was expressing some concerns that such growth might not be maintained, and that anything less than 9% could produce a loss which was likely to be permanent if there was a recession which bit and continued for the latter part of the 3 year period might have  made them change their minds.  Against that is the recognition that on the evidence they were clearly keen to retire and were attracted by income drawdown.
36.	It occurred to me when considering this judgment that I might decide that the conclusion that the Gunners would, if properly advised, not have entered the scheme was not sustainable because it was irrational.  It was, however, clear that, since they had not been given proper advice, they had lost the opportunity of deciding on a correct basis whether to follow the claimant’s proposal.  The ombudsman has a wide power in assessing compensation and such a decision by me would not deprive the Gunners of all compensation but would justify an award of a percentage of the full losses.  This had not been raised by the claimant in argument nor was it part of his pleaded case.  I notified counsel of this and invited submissions on it either in writing or orally at their choice.  Each has made written submissions.
37.	Mr Moffett submits that this was not a point taken by the claimant and he should not be allowed to raise it at such a late stage.  Causation was a ground Elias LJ allowed to be argued.  It seems to me that inevitably the effect of overturning the defendant’s decision on causation must be considered. It would be grossly unfair to the Gunners if the advice was misleading that they receive nothing even if it would be wrong to assume that if given proper advice they would not have decided on income drawdown.  The loss of the chance could and should properly be compensated.  Accordingly, I am satisfied that Mr Moffett’s assertion that the point cannot now be considered should be rejected.
38.	While I have said that I do not think that there is a particular expertise which is material in deciding on the factual issue of causation, I have to bear in mind that I can only quash the decision if persuaded that the ombudsman could not reasonably on the facts found by him have concluded as he did.  He had the evidence of the Gunners as to what they would have done and he had reached proper conclusions on the deficiencies in the advice they had been given.  Whether or not I would have been persuaded that causation had been established is not the relevant test.  On the material before him, I do not think it is possible to determine that the ombudsman’s decision on causation was irrational.  He did not misdirect himself.
39.	It follows this claim must be dismissed.