The High Court has made a landmark ruling against the Financial Services Compensation Scheme which could have wide implications for the way the FSCS assesses compensation claims for poor investment advice.
The Telegraph reports the FSCS awarded Charmaine Emptage over £11,500 in compensation after negligent mortgage and investment advice saw her lose up to £70,000.
But yesterday a High Court judge ruled the payout did not represent “fair compensation” and said she should be put back in the financial position she was in prior to the unsuitable advice.
Emptage 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 over £70,000 in Spanish property.
She took her claim to the FSCS after Berkeley went bust and the Spanish property bubble burst in 2009.
In December 2010 the FSCS awarded Emptage £11,522.98, saying they would only award compensation in respect of the bad mortgage advice and not on the bad investment advice to invest in Spanish property.
Mr Justice Haddon-Cave ruled Sharratt’s advice was “drastically incorrect” and there was no dispute it was negligent.
He said: “This case raises issues regarding the approach taken by the FSCS to assessing claims for compensation. This case may have implications for other similar cases.”
He ordered the FSCS to pay Emptage’s £150,000 legal costs, and suggested she should be put in the financial position she was in before receiving Sharratt’s advice.
A lawyer involved in the case told the Telegraph the FSCS had been assessing claims on the basis of not paying out on bad investment advice in similar cases since 2010, and that other cases were in the pipeline.
An FSCS spokesman says: “We based our decision in this case on a detailed analysis of the legal and factual position. The FSCS determines each claim on its own merits according to the available information and by the application of the rules that are set for us.
“We are now considering our position following the judgment and cannot comment further at this stage.”
The judge granted the FSCS permission to appeal given the wide implications of the ruling.