CoA rules against FSCS in landmark compensation policy ruling

The Court of Appeal has upheld judicial review proceedings against the Financial Services Compensation Scheme (FSCS) in a landmark judgment that could have implications for the way the FSCS assesses compensation claims for poor investment advice.

The appeal marks another victory for 4 New Square’s Mark Cannon QC and Can Yeginsu, who were instructed by Manley Turnbull Solicitors to respond to the appeal for Charmaine Emptage.

Blackstone Chambers’ Monica Carss-Frisk QC led the appeal for the FSCA having been instructed by Dentons partner Richard Caird.

The case centred on how the FSCS calculates compensation packages for those who have suffered a loss as a result of negligent mortgage advice.

The respondent, who launched her claim after the Spanish housing bubble burst, was advised by Berkeley Independent Advisers mortgage broker Peter Sharratt to exchange a £40,000 repayment mortgage for an interest-only mortgage of more than £111,000. She was also advised to invest more than £70,000 in Spanish property.

In January 2010 the FSCS awarded Emptage £11,520 in compensation by the FSCS, which said it would only award compensation in respect of the bad mortgage advice and not on the bad investment advice to invest in Spanish property.

She challenged the FSCS’s approach to compensation packages through JR proceedings, which came before Mr Justice Haddon-Cave and was successful (12 October 2012).

Today the CoA, constituted of Lord Justices Moore-Bick, Sullivan and Underhill, rejected the appeal by the FSCA (see judgment).

Of central importance in the appeal was FSCS Rule COMP 12.4.17, which the CoA was asked to consider and provides: “FSCS may pay compensation for any claim made in connection with protected home finance mediation only to the extent that FSCS considers that the payment of compensation is essential in order to provide the claimant with fair compensation.”

Dismissing each of FSCS’s submissions, the CoA stated: “Once it is accepted (as it was) that the breach of duty consisted in recommending a mortgage which was unsuitable because it exposed Ms Emptage to the risk of being unable to repay the loan at maturity, it is difficult to see how it is possible to assess fair compensation without taking into account the loss caused by the occurrence of that risk.

“Failure to do so inevitably resulted in an award of compensation which bore no relation to the breach of duty or the reason why the mortgage was unsuitable.”

The legal lineup

For the claimant/respondent Ms Emptage

4 New Square’s Mark Cannon QC and Can Yeginsu, instructed by Manley Turnbull Solicitors partner Katy Manley.

For the defendant/appellant FSCS:

Blackstone Chambers’ Monica Carss-Frisk QC and Andreas Gledhill instructed by Denton partner Richard Caird