On refection, I think my statement may have been a little too broad in its application, mainly because it assumes all buyer disputes will be limited to a decision not to make a discretionary payment, whereas in some instances that may not be the case.

Take for instance an item not received claim.

When the buyer makes a claim, implied within the agreement is a requirement that PayPal conduct a proper investigation before making a decision, and if the outcome of that investigation is no recovery right exists, they can say to the buyer, “sorry but as postage is proved there is nothing more we can do” but this of course will erode buyer confidence in PayPal Buyer Protection and the more that confidence is eroded the less likely it is that buyers' will continue to use PayPal to protect their purchases.  On the hand, to retain buy confidence they could say, “as the seller has proved postage we can’t recover.  But fear not because we’ll compensate you by gifting you the money out of our own pocket”; that is make a discretionary payment.

Now there are two issues here. 

The buyer was induced by PayPal to use PayPal because it offered Buyer Protection, and though some (most) buyers may think Protection = Insurance, the User Agreement makes it clear the service on offer is as Recovery Service and not Insurance. 

However, as previously stated, though the protection is limited to the provision of a recovery service, there is an implied obligation on PayPal to conduct a proper investigation before making a determination, and if they find no recovery right exists, then, that decision would be disputable by the buyer.  That is they could turn around to the Ombudsman and say, ‘they got the decision wrong because postage was never proved to the requisite degree, and as such, they should have, on my behalf, taken action against the seller to get my money back.  Now, if the Ombudsman agrees that should have been the investigation outcome, then they could order PayPal to do exactly that.

On the other hand if the Ombudsman finds that PayPal’s decision was correct, the Ombudsman can’t go on say to PayPal, “though your decision was correct, you should have compensated the buyer by way of a discretionary payment”.  That is, if at the core of the dispute is PayPal’s decision not to make a discretionary payment, then the only way the buyer can dispute that decision is by way of a Judicial Review, and the Ombudsman doesn’t have jurisdiction when it comes to Judicial Reviews.

So the short answer is, if the buyer disputes PayPal’s decision that no recovery right exists, the Ombudsman can hear the matter.   On the other hand, if the buyer is disputing PayPal’s decision not to make a discretionary payment, then the Ombudsman must refuse then buyer’s application on the grounds of a want of jurisdiction.