A View From The Exchange: Linear loses FOS judicial review

Last week, the High Court rejected Linear Investment Ltd's judicial review of a FOS decision. 

The FOS upheld a complaint against Linear by a former client relating to misleading performance information, account fees and mismanagement. Linear then sought to judicially review the FOS' decision on five grounds, each of which was rejected by the Court. We focus on the grounds concerning the FOS' jurisdiction.  

The Decision

Central to the claim was whether Linear's former client, who was categorised as an "elective professional client", could be deemed an eligible complainant, i.e. a consumer, for the purposes of the FOS' jurisdiction. The decision provides a helpful insight into the FOS' jurisdiction and scope of its powers.

Linear argued that the former client was not an eligible complainant for the purpose of the FOS' jurisdiction as he was not a "consumer" under the relevant FCA Handbook. The complainant could not be both an elective professional client and a consumer – he could not ride both horses. The FOS disagreed and gave the reasons why it considered the client had been miscategorised under COBS. 

Rejecting Linear's submissions on this ground, the Court concluded that the FOS gave clear and rational reasons why it decided that Linear was not permitted to treat the former client as an elective professional client, had appropriately applied the wording in the relevant Handbook and that one could be both a consumer while satisfying the definition of professional client. 

What next

The result is not surprising, as it follows a run of unsuccessful attempts to judicially review the FOS, with the Court of Appeal recently siding with the FOS in Options UK Personal Pensions LLP.  

Firms could be forgiven for thinking that the FOS scheme does not operate in their favour. By taking into account what is fair and reasonable in the circumstances, the FOS may uphold complaints which a court would not, not least because there is no obligation to apply civil law principles, merely to take them into account. A FOS decision may then be overturned by judicial review; but this is a high bar given that the court can only consider public law grounds, such as irrationality.

Will that stop firms from trying? This is unlikely to be the last judicial review of a FOS decision, particularly as compensation limits keep rising (the FOS redress cap is £430,000 for post-1 April 2019 breaches). Irrespective of value, firms may challenge FOS decisions if there is concern that a complaint decision would set a precedent for how the FOS will decide similar complaints.

An important takeaway for firms is to be aware that where they classify customers as 'professional clients', the onus is on them to assess the client properly – reliance on what clients say may not be viewed as enough by the FOS. If they fail to do this properly, any complaint made by that client may end up being within the FOS' jurisdiction. 

Author: Robert Anderegg, Associate