IT IS being talked of as the legal duel of the year in some corners of the City. On Monday, in a nondescript London courtroom near Regent’s Park, two of the best-known figures in the financial services industry will do battle.

Neither of the men will be there in person. But by the time a judgment is reached in six weeks’ time, the reputation of one will be badly dented.

The conflict pitches John Tiner, chief executive of the Financial Services Authority (FSA), the powerful City regulator, against David Prosser, the veteran chief executive of Legal & General, the insurance group.

L&G is appealing against a £1.1 million fine meted out by the FSA for mis-selling mortgage endowments. Mr Prosser argues not only that L&G is innocent of mis-selling, but also that the FSA’s investigation and punishment process is grossly unfair.

It is the latter aspect of the affair that is gripping the City. Many financial institutions feel that FSA officials abuse their power, in effect acting as judge, jury and executioner in cases of alleged wrongdoing. In short they want Mr Tiner given a bloody nose.

Some consumer champions are gunning for the FSA. They fear that a victory by L&G could set in motion a wave of appeals. The FSA desperately needs some big “scalps” to encourage more responsible behaviour from others.

The hearing takes place in the Financial Services and Markets Tribunal, the court of appeal for FSA enforcement decisions. It is the first time that a big financial institution has dared to challenge the watchdog. And for the first time senior FSA officials, as well as L&G salesmen and customers, will be cross-examined in open court.

The case will be decided by Judge David Mackie and two lay persons, Peter Burdon and Sandy O’Neill, who are familiar with financial services.

For Mr Prosser the stakes are high and not just because the fine can be increased if he loses. Soon after he became chief executive in 1991, L&G was forced to pay £600 million in damages and fines for mis-selling pensions. He vowed such a thing would never happen again on his watch.

The decision to appeal was taken unanimously by the board. But it is Mr Prosser who has been the driving force behind the challenge. Some have even suggested he might be tempted to resign if the case goes against him.

For Mr Tiner this is a key test of his stewardship of the City’s main regulator. The accusation by John McFall, chairman of the Treasury Select Committee, that the FSA was “not so much sleeping on the job as comatose” during the endowment scandal is embarrassing enough.

But he has also been accused of not doing enough to prevent other recent scandals, including the mis-selling of split capital investment trusts and so-called precipice bonds.

At the Canary Wharf headquarters of the FSA, the desire for a legal win is strong after the so-called “plumber debacle”. A separate tribunal case, that of the speculator Paul “The Plumber” Davidson, recently had to be abandoned because a senior FSA figure spoke about the case with a tribunal member, which could have been prejudicial.

In recent days Mr Tiner has tried to cool the temperature. Last week he said that the L&G case had no symbolic importance.

But compliance officers across the City, many of whom feel bruised by the FSA’s sometimes heavy-handed approach, will be following the case every step of the way.

LEGAL & GENERAL COUNTS ON SEVEN-YEAR HITCH

Legal & General plans to call on a memory expert in an effort to question whether complaining customers can accurately recall events of up to seven years previously.

David Shanks, a psychology professor at University College London, is to be called as an expert witness by Charles Flint, QC, L&G’s lead counsel.

Professor Shanks counts human memory, amnesia, economic psychology and the hippocampus — which is thought to be the centre of emotion in the brain — as particular areas of research interest. A PhD from Cambridge, he is scientific director of the Economic and Social Research Council’s Centre for Economic Learning and Social Evolution.

The events relating to the accusations of mis-selling against L&G took place between 1997 and 1999. The FSA is calling 17 customers to back its case.

JOHN TINER

Position: Chief executive, Financial Services Authority
Age: 47
Pay: £471,656
Career high: Masterminded the reform of insurance regulation in midst of 2000-2003 bear market
Career low: Berated by Treasury Select Committee for being “comatose” during endowment mis-selling scandal
Legal firepower: Hodge Malek QC and in-house FSA legal team
Supporting witnesses: 17 unhappy L&G customers; Michael Folger, FSA director; Peter Standish, Ernst & Young partner

DAVID PROSSER

Position: Chief executive, Legal & General
Age: 60
Pay: £1.218 million
Career high: Praised for spearheading the low-cost, high-volume sales strategy that has been L&G’s hallmark for ten years
Career low: L&G paid out £600 million in compensation and fines for pensions mis-selling shortly after he became chief executive in 1991
Legal firepower: Charles Flint, QC, Freshfields
Supporting witnesses: Diana Miller, L&G compliance director; Bob Worcester, Mori; Professor David Shanks, memory expert; L&G sales staff