Emma RadmoreThe High Court has refused an application for judicial review of the FSCS’s refusal to reconsider a compensation determination in respect of three investors who lost money after transferring funds from their occupational pension schemes to a SIPP that invested in a high-risk fund. The individuals made the transfer on the advice of an unregulated adviser (Avacade Limited). The SIPP provider, Liberty SIPP Limited, was regulated but offered its SIPP on an execution-only basis. The claimants brought applications to the FSCS in May 2020 saying that Avacade had wrongly advised them to invest in a high risk fund through the SIPP. The FSCS accepted the claims and paid compensation on the basis that the investors would not have made the investment if Liberty had conducted adequate due diligence on it and warned the investors of the risks. The FSCS assessed and paid compensation on the basis of refunding the original investment plus any fees incurred. It said the value of the fund was too uncertain to have any value ascribed to it and so there were no deductions for any underlying value.
In 2021, the Court of Appeal judgment in the Adams v Options case found that a regulated SIPP provider was liable for the advice of an unregulated intermediary even where the SIPP provider offered only an execution-only service, and should not only repay the investment but also compensation for any loss to investors. As a result, the 3 Liberty investors appealed against their compensation awards, saying they were entitled to additional compensation. The FSCS said that compensation should be paid on the basis of the law as it was understood at the time of the assessment – so, because the claims had been finally assessed before the Adams judgment, it refused to consider the appeals.
The Court noted that the COMP rules do not expressly require the FSCS to provide a right of appeal, but must have procedures that are fair. In these cases, the decision letters invited the investors to contact the FSCS if they had any questions about the decisions or the payment and explained how they could complain if they believed the FSCS was wrong. The FSCS website also included information on how to “appeal”.
The Court noted the principle that, following a change in the law or an understanding of the law, a public body responsible for administering a compensation fund affected by the change would have to consider whether and how it should review its earlier decisions. Following the FSCS’s decision not to reopen cases that had been finally determined, the High Court at the time refused another application for judicial review on the basis that the FSCS should take into account the information then available to it – and, at the time of the relevant determination, the Court of Appeal judgment in Adams had not been published – only the first-instance one which did not support the broader claim for compensation.
The FSCS also updated it website to explain its policy in the light of the Adams Court of Appeal decision.
The three claimants asserted that, they had validly exercised their right to appeal within a reasonable time and that, therefore, the FSCS should now consider them under the post-Adams situation. They alleged that the FSCS’ decision to treat their appeals as defunct after 2 years of silence was irrational or procedurally unfair, and that, having originally committed to considering the appeals, the FSCS did nothing to suggest it would not deal with the appeals in accordance with the stated policy. The FSCS said that it had paid compensation in full and final discharge and that there was no basis for reopening the decisions, given the payments had not been returned. It disputed the context of its communications in relation to the appeal, saying it had reiterated its decision and that the challenge was therefore significantly out of time.
The Court found that the claim for judicial review would not automatically be defeated by the claimants’ failure to repay the compensation and that there was no express time limit in place at the time on lodging appeals – just that appeals should be made within a reasonable time. It then moved to discuss the reasonableness of the FSCS policy and noted that it had blurred its previously clear distinction between when it would, or would not, consider the Adams judgment as relevant and gave examples of where investors receiving decisions or making appeals round about 1 April 2021 could have been treated differently depending on timings of receipt of decision and speed of making appeals. While the Court said it was reasonable to have a “bright line” policy and also rational to consider appeals that were extant at the judgment date, it noted it was troubling that the policy effectively curtailed appeal rights by those who had only just received letters and so was arbitrary.
Ultimately, the Court found that the FSCS’ position in respect of its reviews was clear, and that the correspondence it had had with the claimants did not give rise to expectations that it would be changing its decision – the correspondence was essentially holding letters with a clear indication that the issues would be considered, but not that there would be any particular outcome or that the FSCS was reopening its earlier compensation decisions. So, it rejected the claims for judicial review.