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Judicial review of FOS jurisdiction

R (On Application of Chancery (UK) LLP) v Financial Ombudsman Services Ltd and Ian Robinson [2015] EWHC 407 (Admin)

The High Court considered a challenge by a firm of accountants against a decision of FOS relating to the handling of a complaint received in respect of a film finance scheme.

Facts

In October 2006 a firm of accountants, Chancery (UK) LLP, recommended that Mr Robinson should enter into a film finance scheme. Both the firm’s suitability report and the terms of engagement referred to “investment business”. However, the suitability report went on to state that “the service that we have provided is that of tax planning involving participation in a real business opportunity. The business opportunity used does not mean that Chancery have researched the whole market place”.

Mr Robinson subsequently contributed over £2.3 million (by way of own capital and bank finance) to the film finance scheme.

In May 2012 Mr Robinson complained that the scheme constituted an Unregulated Collective Investment Scheme and was unsuitable for him for a variety of reasons, including the level of risk involved. The firm responded stating that the scheme did not constitute a Collective Investment Scheme (“CIS”) and that since Mr Robinson had been concerned with tax mitigation he could not properly complain about a retrospective attempt of HMRC to close off tax mitigation schemes.

The complaint was subsequently referred to FOS. The firm replied to FOS in November 2012 contending that the complaint fell outside FOS’s jurisdiction.  The firm contended that it was a specialist tax advisor, advising on tax deferral for Mr Robinson and that the advice it gave was not an FSMA regulated activity and it fell outside the scope of FOS’s jurisdiction.  The firm also contended that the scheme did not amount to a CIS, most notably because the participants in the scheme had day to day control over the management. Finally, the firm argued that the case was more suitable to be heard by a court because the compensation which Mr Robinson would be seeking was likely to exceed  FOS’s limit of £150,000.

FOS decision

FOS’s Provisional Decision concluded that Mr Robinson did not have sufficient day to day control to be in effective control of the scheme despite his active participation, and on that basis, it was satisfied that the scheme was a CIS and therefore fell within FOS’s jurisdiction.

In its Final Decision FOS held that the advice was provided to Mr Robinson in his capacity as an investor, regardless of whether taxation advice was also provided or not. FOS remained of the view that the scheme constituted a CIS.

The firm subsequently applied to the High Court challenging the FOS’s decision on the basis that (1) the advice was that of a taxation nature which took the recommendation outside of the scope of a regulated activity and (2) the day to day control of Mr Robinson took the scheme outside of the scope of a CIS.

Decision

The Court dismissed the firm’s application. It agreed with FOS that no distinction could necessarily be drawn between taxation and investment advice where there were mixed reasons for the advice. Accordingly, the advice was not confined to that of a taxation nature in circumstances where Mr Robinson had been advised to put money into a scheme and would expect to receive a profit upon that investment.

In considering whether Mr Robinson had day to day control it was necessary to consider what happened in practice and accordingly FOS had been entitled to conclude that the scheme was a CIS in the circumstances.

The Court also commented that FOS regularly considers complaints where the compensation might exceed £150,000.

Finally the Court stated 

…the FOS decisions have been carefully considered, drawing on its expertise, and dealing properly with the points which [the firm] did make. I would have to hold that its estimation of its ability to carry out its functions was a long way from reality, before I could hold that this decision was irrational”.

Comment

This decision demonstrates that a Court may be reluctant to uphold a challenge to FOS’s jurisdiction unless the decision is fundamentally irrational and would have been unreasonable for FOS “to conclude that [it] could resolve [the issues] justly, fairly and reasonably within [its] jurisdiction”.

Accountants should remain mindful when providing taxation advice that such advice might also be interpreted as that of an investment nature and thus within FOS’s jurisdiction.

Contact

For further information please contact Alexia Drew, Senior Solicitor on 0117 301 7395

By Alexia Drew

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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