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 advice.
Charmaine 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.
After initially rejecting Emptage’s complaint, the FSCS awarded Emptage £11,522.98 in December 2010, saying it would only award compensation in respect of the mortgage advice and not on losses associated with the Spanish property purchase as this was an unregulated transaction.
But last week, High Court judge Mr Justice Haddon-Cave said the FSCS “failed to view Sharratt’s negligent advice as an indivisible ‘package’”. He said Emptage should be put back in the financial position she was in prior to the unsuitable advice and ordered the FSCS to pay her legal costs of £150,000.
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.”
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.”
The FSCS has been granted permission to appeal. It says it is “considering its position”.
Atkinson Bolton Consulting director Simon Gibson says: “We already pay a huge amount in levies. If the FSCS starts covering unregulated transactions, then we will all be in trouble.”