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High Court rules against FSCS in landmark advice case

Royal Court of Justice High Court 480

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.


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There are 18 comments at the moment, we would love to hear your opinion too.

  1. Here we go the flood gates have been unlocked and are ready to opened by CMC over evry claim the FSCS settle. It really is now time to pack up and go get a job stacking Tesco shevles (if they will employ me)

  2. doubt it Anonymous 10:43, not with your negative attitude.

  3. Why does the FSCS carry the can for this advice failure? Did the advisors Pi not become liable and with the absence of Pi, the advisor falls liable? or the firm?
    Also, when people invest in Spanish property, is there no account taken of the buyers greed? and intelligence..? Why is a Spanish property collapse the advisors fault alone?

  4. Am I being very thick here or could it not be argued that this lady come to the adviser asking for a remortgage to capital raise to buy a Spanish property. Why is it assumed that the broker would have advised here. I get enquiries like this on a regular basis. ” I would lilke to buy this and need to raise the funds on my property… ” Have I missed something….

  5. Another question: if somebody capital raise on their domestic to fund a deposit on a BTL, do I now need to check viability of the investment property before agreeing to the remortgage?

  6. Anonymous was not being negative but entirely realistic. So anyone that wants to stay in a game that will bring untold claims on investments that went bad (due to some large Financial Institutions greed) then more fool you. Especially when your’re on the hook for all of your life

  7. ken170647 youtube 12th October 2012 at 11:22 am

    No nothing about the case, but plenty about people wanting to buy a second (or more) property and asking for advice on how to get finance for their venture. The investment choice is theirs. Obviously if there is a link between the adviser and the Spanish property then that’s a different matter.

  8. wonder when all those investors in foreign holiday properties via sipps with funds of £30-£40k will starting knocking the door?

  9. Surely there is more here than we have been told? We cannot be held liable for the performance of an investment, providing all the risks have been explained and documented. Anyone got any further information?

  10. ken170647 youtube 12th October 2012 at 11:46 am

    “Know nothing…” I meant to say. Age related!

  11. What did the Suitability Report say? “I recommend you invest in property in a foreign land?” “Property is risk free?” More info please…..

  12. Those of us who conduct our affairs in a professional manner never cease to be amazed & down heartened by the antics of the tiny minority that don’t. But this case underlines the profound position of influence over the naive and gullible that those in our profession sometimes exploit (as perhaps here…)

    If Sharratt said, “why not take more money and buy this property in Spain you’ll make a load of dosh” then clearly the advice was dodgy and compensation is due.

    If Sharratt allowed a client to take money from a UK property to buy in Spain without covering his paperwork in huge risk warnings his advice was deficient, and in this climate compensation is still due.

    I have not seen the court papers but the report above says the client was advised to buy in Spain -so on those facts the advice was dodgy.

    We then turn to the issue of who pays. Clearly where the adviser is corrupt and negligent morally, the adviser should pay personally. The trouble is the facts are often not black and white and we then risk giving the regulatory classes the right to choose who among us should become personally bankrupt. In my experience the corrupt usually manage to stash their assets away and enjoy a good lifestyle while the rest of us don’t. So given the choice between a higher FOS fee or giving the regulatory classes even more control over my personal financial future I’d suffer the higher fee.

  13. Hello Playmates!

    A nasty outbreak of hindsight occurred in the Strand today. Contamination has already been detected in Canary Towers. Citizens are advised to avoid all regulated areas until further notice.

    Bye bye, baby bye bye

    Larrykins xxxx

  14. What if the client said to the adviser ” I was in Spain on holiday, saw a lovely property, put down a deposit and now need to raise the rest of the money”

  15. What if this, or what if it was that? The adviser sat with a client to discuss a mortgage and somehow this became you should get rid of your 40k repayment mortgage, borrow nearly 3 times as much and on interest only, of which you should invest 70k of it in a Spanish property. Why? Was he connected to a Spanish property company? What was in it for him apart from a bigger mortgage?
    I can’t think of one time where I was discussing mortgages and suddenly decided my client was better off buying property in a different country.
    Not knowing all the facts I would really like to know why this person thought that was a good idea? And, why the client appears to have readily agreed to do this? Also, someone is making a nice little packet out of all this as the legal costs so far which are to be paid by the FSCS (us in other words) are £150k. Nice work if you can get it.

  16. I think the points made by james and Simon above hammer home the Advice issue. It seems to me IFAs are far to defensive and unwilling to take any criticism of another IFA .

    maybe those quick to jump to such a defence are those also on the UCIS/Absolute return/SIPP for the sake of a SIPP/poor pension switch/IO mortgage gravy trains?

    It’s very likely this advice was unsuitable or deficient in relation to record keeping. If this wasn’t the case the FSCS, and then later a high court (who would have had an independent adviser look over the advice for their counsel) wouldnt have ruled in this way.

    The only headline here really is that the FSCS has been ‘under compensating’ so we all know what this means….higher levy in the future!

  17. If you read the article properly it does say the client was advised to re mortgage her home AND invest the funds into a Spanish property. This client may well have taken a mortgage on the property in Spain too. It’s one thing for a client to ask for a re-mortgage and invest the money of their own volition but quite another when they’ve been advised to do it.

  18. Those above who have been saying in effect “surely he can’t have advised on a property out of the blue” and wondered whether he had a connection with the Spanish property are, sadly, correct. The judgment is now on BAILII at and is worth a read.

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