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ombudsman news

issue 19

August 2002

a selection of recent cases

Here is a selection of cases our investigation teams have dealt with recently. Some of them could have been resolved at the assessment stage if the customer or the firm, or both, had not been intransigent.


When Mr R paid £2,500 to a time-share company, he used a credit card cheque that the firm had issued for use with his credit card account. He said he specifically used this type of cheque because he wanted the "backing of the refund service if anything went wrong".

Only a few weeks later, the time-share company went into liquidation. Since it therefore breached its contract with Mr R, he approached the firm for a refund. But the firm refused to give Mr R his money back. It explained that the Consumer Credit Act does not give credit card cheques the same protection as ordinary credit card transactions.

Mr R then brought his complaint to us. We concluded from the terms and conditions of his credit card account that it was reasonable of him to have thought his transaction would be protected, in the same way as an ordinary credit card transaction. We wrote to the firm to outline our view. In response, it offered to meet Mr R's claim in full, and to pay him an extra £100 for inconvenience. Mr R accepted that offer.


Mr and Mrs G were the joint executors of Mr G's father's estate. Although the estate was fairly straightforward, the couple opened an executors' account with the firm in order to keep things clear and above-board. They gave the firm a mandate that said they would both sign any cheques on the account.

Mr and Mrs G sent a cheque to Mr G's sister, Mrs H, for her share of the estate - about £80,000. Mrs H lives in America and paid the cheque into her American bank account - where it was converted into US dollars at the then going rate. But when the cheque was presented to the firm for payment, it sent the cheque back to the American bank. It said the cheque only bore one signature - and had therefore not been drawn in accordance with the account mandate.

When the American bank received the cheque back, it took no action for about four months. By the time it debited Mrs H's account (and told her it had done so) - the exchange rate had moved significantly against her. That meant she lost about £16,000.

Both Mr and Mrs G and Mrs H complained to the firm, saying it should have honoured the cheque because they had both signed it. However, in the meantime the American bank had lost the original cheque. Oddly enough, the firm's copy of it appeared to bear only one signature. So on the face of it, the firm had been right to bounce the cheque.

When we started to look into the complaint, we noted apparent discrepancies between Mr and Mrs G's copy of the cheque and those held by the firm and by the American bank. We discovered that the American bank's UK clearing agents had attached a white sticky label to the cheque, masking the second signature.

We felt that, despite this, the firm should have realised that the second signature was likely to have been on the cheque. It should at least have contacted Mr and Mrs G to check things out. After all, it was a high-value cheque - and one that was always going to take a lot longer than usual to get back to the bank where it had been paid in.

However, we felt it would be wrong to hold the firm responsible for any exchange loss arising from the American bank's delay. We calculated that, without the delay, Mrs H would have lost only around £3,000 as a result of exchange rate differences. So we suggested the firm should offer Mrs H that sum, together with a further £500 for inconvenience. We also suggested that it should offer Mr and Mrs G £500 for their inconvenience. The firm agreed, and the offers were accepted. Mrs H then used our findings to make a claim on her American bank - which, she's since told us, has been successful too.


Mr P frequently visited casinos and, rather than using his own chequebook to buy gambling chips, he signed the casino's "special" cheques (which are processed outside the normal clearing system).

Mr P occasionally tried to stop the casino cheques by phoning the firm - but sometimes he was too late. These transactions were usually for large amounts of money and the firm was not happy with the time it often took to sort them out. So, in early 2000, the firm asked Mr P to stop using these casino cheques. It also told him that, from then on, it would only accept written instructions to stop a cheque - although it would accept these instructions by fax.

Later that year, Mr P's assistant, Miss M, phoned the firm on his behalf. There is a dispute about what precisely was said during that conversation. But the end result was that a cheque for £100,000 was paid when Mr P claims the firm was told to stop it.

After Mr P brought the dispute to us, we told him, in an "initial view" letter, that it was very unlikely we would be able to uphold the complaint. The firm had made it clear to him that it was not prepared to accept a phone call to stop a cheque - it wanted the instruction in writing. But perhaps more importantly, it was not clear that - even if the firm had failed to carry out an instruction - Mr P had suffered loss as a result. Presumably, he had received gambling chips to the value of £100,000, so he had received goods or services to the value of the cheque he had issued, irrespective of how lucky he had been on the night.

Mr P's legal representatives rejected the adjudicator's initial view, and asked for an ombudsman to review the case. But before the ombudsman could complete her review, Mr P withdrew the complaint. He said he intended to take legal action against the firm. Although the ombudsman had not yet issued her decision, she had taken the view that it would probably only be by his going to court that the case could be decided. This was because the claim centred on the undocumented phone conversation between the firm and Mr P's assistant, Miss M. We cannot compel third parties, such as Miss M, to give evidence - and we cannot take sworn evidence.


In 1998 Mr W and his two sisters, Miss W and Mrs J, were given power of attorney over their mother's affairs. However, some family members made accusations that some of their mother's money had "gone missing". Mr W therefore contacted the solicitor who had drawn up the power of attorney and asked how he might get access to his mother's money to "keep it safe". Mrs W was, by this stage, unable to look after her affairs.

The solicitor told Mr W that the power of attorney his mother had signed allowed two of the three named attorneys to operate her accounts. So Mr W and Miss W opened a joint account with the firm and transferred all their mother's money into it.

A year later, the police approached Mr and Miss W after other members of the family reported "fraudulent transactions" on their mother's account. The pair were arrested and charged with theft, although the Crown Prosecution Service decided not to pursue the case.

Shortly afterwards, the firm wrote to Mr W and to Miss W, demanding repayment of £5,500 - the amount they had transferred from their mother's account. The firm had by then refunded the money to their mother's account, after the other attorney - Mrs J - complained that the firm should not have allowed the transfer without the authorisation of all three attorneys.

We felt that because the firm had refunded the money to Mrs W's account, Mr W and Miss W were probably not entitled to keep it - even though they were adamant that they had done nothing wrong and they had checked the position with their solicitor and with the firm.

We approached the firm to try to find a compromise solution. The firm said it would accept £4,000 of the £5,500 it had originally claimed from Mr W and Miss W and the pair eventually decided to accept the firm's proposal.


D Trust Ltd is a local branch of a national charity. A couple of years ago, the Trust discovered that its treasurer had been defrauding it over a number of years. More than £80,000 was involved.

Every so often, the treasurer had asked the trustees to sign a small number of blank cheques to pay specific invoices, which he showed them. But he then drew cash on just one of the cheques to pay all the invoices, making out the remaining cheques either in favour of himself, or for cash.

The treasurer died shortly after the fraud came to light. The trustees who had signed the blank cheques resigned. The new trustees claimed that the firm had assisted the fraud by failing to spot some obvious signs, and by acting outside the Trust's mandate. But the firm said that, as the cheques had been properly signed, there had been no obvious signs that anything was amiss. However, it did accept that it should not have granted the Trust short-term overdrafts solely at the treasurer's request. The mandate specifically said that at least two trustees had to authorise any overdraft requests. The firm offered the Trust £1,000 compensation for that breach of the mandate.

In response, the Trust took the view that the granting of the overdraft had masked the position. The fraud would otherwise have come to light very much earlier. So it rejected the firm's offer and brought the whole matter to us.

Most of the fraudulent cheques were for less than £1,000. We concluded that they had not been drawn in a way that would reasonably have raised the firm's suspicion that something was amiss. The over-riding factor was that the treasurer would not have been able to commit the fraud if the trustees had not signed so many blank cheques. So we did not uphold this aspect of the complaint.

The firm had granted short-term overdrafts to the Trust, over a period of about three years. The amount borrowed at any one time was modest - no more than £1,500. This was a small sum compared with the total amount of the fraud. But we did not think that the fraud would have been prevented, even if the firm had bounced the Trust's cheques and refused the overdrafts. The treasurer was clearly a skilled fraudster. And since he was the firm's point of contact at the Trust, it seemed unlikely that the trustees would have found out what was happening. Furthermore, although the treasurer had apparently had the Trust's accounts audited by an independent auditor, it later came to light that the auditor knew nothing of the Trust's affairs and had never seen its accounts.

We decided that the Trust's losses were not the firm's fault; the trustees had not only placed too much faith in the treasurer, but had facilitated the fraud. However, there had been some maladministration by the firm - both in the granting of overdrafts contrary to the mandate, and in the way in which it dealt with the complaint. So we told the firm to pay the Trust £1,200 for that maladministration.


Mr and Mrs T had a savings account with the firm for many years. After Mrs T's death, Mr T kept the account open as a memorial to her - even though the firm kept on encouraging him to transfer his money into other accounts that paid higher rates of interest.

After a while, Mr T decided that the firm should pay him the higher interest rate that it offered on other accounts. But he did not think it should require him to transfer to one of those different accounts. In his view, since he was a long-standing customer, the firm should understand why he did not want to close the existing account, and should "do the decent thing".

We understood Mr T's sentiments. But we did not feel that the firm was under any obligation to make such an exception. It was neither practical nor cost-effective for it to do so and we did not uphold Mr T's complaint.


Mr C had a business account with the firm. To secure his business borrowing, he and his wife mortgaged their (otherwise unmortgaged) home with the firm. Unfortunately, things rapidly went from bad to worse with Mr C's business, and about a year later the firm called in his borrowing. Mr C was unable to repay, so the firm began proceedings to get possession of his house. Mr C then abandoned his family home, leaving his wife to deal with everything.

Mrs C complained to us about the way the firm had lent money to her husband, and about how it had gone about getting the mortgage. Since we are unable to look into complaints if they are the subject of court proceedings, the firm agreed to delay proceedings until we had finished dealing with the matter.

From the papers provided, we took the view that the firm had obtained its mortgage (in part at least) because Mr C had "undue influence" over his wife, or had misrepresentated the financial status of his business to her. It was also clear that the firm had been alerted to the possibility of this and that it knew, or should have known, that there was a high risk it would have to call in the mortgage. Despite this, the firm had not insisted on Mrs C taking independent legal advice, and the mortgage form had been signed during a very short meeting at the branch.

We concluded that it was right for the firm to release Mrs C from the mortgage. She had made some payments to the firm to try to make inroads into the debt, so we recommended that the firm should, in addition:

  • repay this money to Mrs C;
  • give her a further £2,000 to take into account the distress and inconvenience she had experienced; and
  • make some contribution towards her legal costs.

Initially, the firm refused to accept this and said it was going to appeal. However, it eventually offered to settle the matter with Mrs C on the basis of our recommendations.


In 1994, Mr and Mrs E paid off their mortgage with the firm. The firm's central mortgage unit sent Mr and Mrs E's deeds to its local branch for them to collect. Mr and Mrs E claimed they never collected them; the firm disputed this - but no one now knows where they are.

The firm had no evidence that the deeds were ever collected from the branch. And it had no record of having arranged with Mr and Mrs E to keep the deeds in safe custody for them. Back in 1994, it levied an annual charge of £10 for keeping deeds but it never claimed any charges from the couple.

We thought it likely that the local branch had received the deeds but that it had never given them back to Mr and Mrs E. In order to re-constitute the couple's absolute title to their property, the Land Registry required a statutory declaration of loss. So we recommended that the firm should arrange this and that it should meet any other costs that Mr and Mrs E might incur in sorting things out - together with another £300 to compensate them for the inconvenience they experienced. The firm agreed to this.


A Ltd is a small firm of plumbers and heating engineers. It works mostly as a sub-contractor to large and medium-sized house-builders - installing plumbing and heating in their developments.

Last September, A Ltd told NL, the developer it was then working for, that if it didn't pay at least some of the money it owed, its men would walk off site and take all their materials with them. It had always been difficult to get money out of the developer. But it had never been a question of cheques bouncing; rather just of A Ltd having to keep on reminding the developer to pay the invoices.

On 5 September 2001, NL gave A Ltd a cheque for just over £6,000, expecting the men to return to the site straightaway. But that wasn't all of the money that NL owed. So A Ltd said its men would only return once the cheque had been cleared. A Ltd had no reason to expect the cheque to bounce; it was simply signalling to NL that it expected to be treated in a business-like way.

A Ltd's Company Secretary got in touch with her regular contact at her branch of the firm and asked about the quickest way to get the developer's cheque cleared. As a result, A Ltd decided to "specially present" the cheque - on the basis that it would then find out within 24 hours if the cheque had been paid.

"Special Presentation" cheques are sent by first class post to the branch they're drawn on. So A Ltd expected everything to have been sorted out by the following day - 6 September. But the cheque was delayed in the post. It didn't arrive until 7 September (the day it would have arrived if had it been paid in through the clearing system in the normal way).

First thing that same day, NL phoned its bank to say it was going into liquidation. So A Ltd's cheque was returned unpaid - marked "account stopped, liquidators appointed". Had that not happened, the cheque would probably have been paid, because NL had over £200,000 in its account on the morning of 7 September.

A Ltd complained to the firm, saying that it hadn't made it clear that "specially presented" cheques were sent through the post. It might well not have decided to follow that route, if it had known. But the firm said it believed it had made everything clear, so it refused to meet A Ltd's claim - the value of the unpaid cheque.

We decided the firm had probably not explained that the cheque would be posted. But the real question we had to consider was what difference that failure had made. If A Ltd had decided not to have the cheque specially presented, what else could it have done- It wanted to get its men back on site as quickly as possible because keeping them off site was costing it money.

Perhaps the most obvious answer was that A Ltd could simply have paid in the cheque in the normal way. But things then would have been no different. By the time the cheque arrived in the clearing at NL's bank, it would have been too late anyway.

We felt we also had to consider the precise question A Ltd had asked - which was "what is the quickest way to get a cheque cleared-" In the particular circumstances of this case, the correct answer would have been for A Ltd to present it at NL's own bank. A Ltd was given the cheque at NL's office - just round the corner from NL's bank. A Ltd's branch was over 50 miles away and it took the person who collected the cheque almost two hours to get back there to pay in the cheque. He risked a speeding fine in the process, to make sure of getting to the branch before it closed.

If A Ltd had paid in the cheque at NL's own bank on 5 September, it would probably have been paid that day. There was plenty of money in NL's account. So we decided that the firm's failure to answer A Ltd's question properly or completely amounted to a breach of duty. And that breach of duty was the direct cause of A Ltd's loss. As a result, we told the firm to pay A Ltd the value of the cheque, plus another £350 for inconvenience. That all came to just over £6,500.


Mr Y was wealthy but in poor health. He set up a joint account at the firm with his friend, Mr N. The idea was that Mr N would have ready access to funds to help him care for Mr Y. Mr Y transferred £50,000 into the account.

Some months later, Mr N - who lived at the same address as Mr Y - transferred £30,000 from the joint account into another account with the firm, in his own name. Soon after that Mr C, another friend of Mr Y, phoned the firm. He said that Mr N had tricked Mr Y into opening the joint account and was not entitled to any of the money in it.

The firm immediately froze Mr N's account. Mr N only found out when he tried (and failed) to draw £50 from a cash machine. And when he returned to Mr Y's house, Mr C had changed the locks so he couldn't get back in.

After complaining unsuccessfully to the firm about the freezing of the account, Mr N brought his complaint to us. The firm maintained that its actions had been correct, in the light of the information it received from Mr C. It also said that if Mr N had contacted the firm and asked for the money that was in his account before the transfer from the joint account, it would have been prepared to let him have it. The firm was only interested in the "disputed" £30,000.

Mr N supplied us with lots of information to try to demonstrate the true intentions of the various parties. But the only question for us to address was whether the firm had reacted appropriately to the information it received, and whether it had breached any duty it owed to Mr N when it froze his account.

We concluded that the firm had acted properly and responsibly in freezing Mr N's account. A local solicitor had backed up Mr C's allegation. The alternative of not freezing the account would have been a much less satisfactory and responsible option for the firm. Its actions ensured that the money was ‘safe' until its true ownership had been decided.

We did not uphold Mr N's complaint. But Mr N voluntarily returned most of the money to Mr Y.


Miss K's complaint against the firm had two distinct aspects. First, she claimed that the firm had wrongly entered an adverse entry on to her credit history that prevented her from obtaining a mortgage to buy a property. Second, she considered that, by offering credit card facilities at 0% interest to new customers only, the firm was discriminating against existing customers and acting in contravention of the Banking Code. Miss K claimed compensation for the "excess" interest she had paid on her credit card, and £50,000 for the lost capital appreciation on the property she had been unable to buy.

After our caseworker mediated between Miss K and the firm, the firm offered to write off her then outstanding credit card balance of £500, and to pay a further £200. Miss K refused this offer. It was clear that further mediation was unlikely to succeed, so the case was passed to an adjudicator.

The adjudicator felt that neither aspect of Miss K's complaint had any reasonable prospect of success. He thought the actions the firm had already taken were perfectly sufficient and that the compensation it had offered was generous, in the circumstances. The adverse credit entry amounted to little more than £200. It had come about because Miss K had not settled her credit card account when it was due. So, in large measure she had brought the problem on herself. Moreover, it was far from certain that she would have gone ahead to buy the property - and the losses claimed were entirely speculative.

As to the second aspect of Miss K's complaint, the adjudicator concluded that there was nothing wrong with what the firm had done, and that it had not contravened the Banking Code.

Miss K reacted very angrily to this and asked us to pass on her complaint to an ombudsman for a final decision. When the ombudsman upheld the views already expressed to Miss K, she complained to our Independent Assessor. The Independent Assessor does not act as a final "court of appeal" on the merits of any decision we make on a complaint. The final decision in such matters lies with the ombudsman. The Independent Assessor's role is to look into complaints about the level of service we provide - for example, if someone thinks we have treated them rudely or unfairly, failed to explain things properly or caused delays.

The Independent Assessor did not find anything to criticise in the way in which the Financial Ombudsman Service handled Miss K's complaint.


Mr S had a business account with the firm. His business was in difficulties, not helped by the fact that he suffered from ill-health, although his wife, who had three small children to look after, took on a part-time job to help out where she could.

The firm would not lend him any more money. In fact, it was bouncing his cheques and eventually it concluded that it could no longer provide Mr S with business banking facilities. It asked him to repay what he owed, and to close his business account. However, there was some confusion about this request. Mr S had still not realised what the bank wanted him to do, even after the notice period that the firm said it had given him had run out.

After giving up on the business, Mr S put in a large claim against the firm. He did this on the grounds that:

  • its failure to support him and lend him the money he needed had effectively led to his business "going under"; and
  • it had not given him enough time to close the account and try to find alternative banking facilities.

The complaint was eventually referred to us. We explained to Mr S we could not deal with the main part of it. We do not normally interfere with firms' legitimate commercial decisions - and it was purely a commercial decision not to lend Mr S more money.

However, there had clearly been some confusion about how the firm had told Mr S to close his account, mainly because it had not put its requirements in writing. Its records showed that it had intended to give him a month in which to do this, but it did not appear to have made things that clear.

We considered that this constituted "maladministration" on the part of the firm, and we recommended that it should pay Mr S £400 compensation.

The firm accepted our recommendations but Mr S did not. He asked for his case to be reviewed by an ombudsman, but he did not add any fresh evidence. The ombudsman had considerable sympathy for the difficulties both Mr and Mrs S had faced. But she confirmed the adjudicator's recommendation.


Mr L sold some goods to a new customer and paid his cheque for £7,500 into his account with the firm. However, it transpired that his "customer" was not genuine; the cheque had been stolen and the name of the payee fraudulently altered.

Mr D, who had actually written the cheque, found out it had been stolen the day after Mr L received it. This was after Mr L had paid it in to his account, but before it was presented to Mr D's bank. When the cheque was presented for payment the following day, Mr D's bank phoned him to check whether to send it back. It couldn't get hold of him - so held the cheque over until the following day - Friday. It was then sent back as a "late return".

On the Monday, Mr L phoned the firm and it gave him a cleared balance of his account. This indicated that the cheque had been paid. He therefore released the goods to his "customer". The next day he received a letter from the firm telling him that the cheque had bounced.

The "late return" system requires a bank which is sending back a large cheque (such as Mr L's) to phone the bank where it was paid in. Mr D's bank said it had done so, and provided evidence to back up its story. But the firm said it had not received such a call. Setting aside whether or not the cheque should have been sent back as a late return (because the complaint had not been made against Mr D's bank) we thought, on the balance of probabilities, that the late return phone call had been made. However, we didn't think the firm had followed its procedures properly when it received the call. Had it done so, it would have updated its computer system on the Friday. And had that happened, then when Mr L got his balance on the following Monday he would very probably have realised that something was amiss and made some enquiries.

So we concluded that Mr L's loss had arisen through the firm's failure to follow its own procedures. We recommended that the firm should pay Mr L the £7,500, together with a further £100 for the inconvenience he experienced.

The firm was very unhappy. It said that the adjudicator had failed to understand how late return cheques were processed. And it felt that the evidence pointed to Mr D's bank not having phoned.

But the ombudsman to whom the case was then referred took the view that, even if that had been the case (which she considered unlikely) the firm hadn't followed its procedures properly on the Monday anyway. So the ombudsman came to the same conclusion as to liability as the adjudicator had done. However, she felt that £100 was on the light side as far as Mr L's inconvenience was concerned - so she upped that figure to £250.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.