Chancery (UK) LLP, R (on the application of) v The Financial Ombudsman Service Ltd & Anor

The Financial Ombudsman Service determines the facts relevant to its compulsory jurisdiction, subject to traditional judicial review. The court determines the governing law and whether, on the facts rationally found, the jurisdictional conditions are satisfied. A reasonable legal error cannot confer jurisdiction.

Tax advice and investment advice are not mutually exclusive. Advice to enter a specified investment may be regulated investment advice even where tax avoidance is its dominant purpose.

Whether arrangements are a collective investment scheme depends on their documents and practical operation. Day-to-day control requires actual operational control by every participant, rather than activity, oversight or an unexercised power. Profits include unrealised gains and other economic benefits, including a tax advantage.

A firm of chartered accountants sought judicial review of the Financial Ombudsman Service's decision that it had compulsory jurisdiction over a client's complaint. The firm had recommended entry into a film partnership intended to produce tax relief and commercial returns.

The firm contended that it had supplied tax advice rather than regulated investment advice, that the partnership was not a collective investment scheme because its members had day-to-day control, and that the complaint was better suited to court proceedings. It also challenged the Ombudsman's approach to determining the limits of his jurisdiction.

The central questions were how the court should review a jurisdictional decision by the Ombudsman, whether advice predominantly motivated by tax avoidance could also be investment advice, whether the partnership satisfied section 235 of the Financial Services and Markets Act 2000, and whether the Ombudsman had irrationally refused to dismiss the complaint in favour of court proceedings.

1. The application was dismissed. The Financial Ombudsman Service was entitled to find the relevant facts, subject to traditional judicial review. The court was responsible for determining the governing law and whether that law, applied to the facts rationally found, gave the Ombudsman jurisdiction. A jurisdictional conclusion which was reasonable but legally wrong could not confer jurisdiction. The specialist body's assessment nevertheless deserved due weight.

2. The Ombudsman should ordinarily decide jurisdiction at the outset, but a contested jurisdictional issue must remain open where later evidence or argument may affect it. When jurisdictional and merits issues overlap, judicial intervention should normally await the final merits decision unless a clear-cut and determinative question of law can be resolved independently of disputed facts.

3. Tax advice and investment advice were not mutually exclusive. Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 contained no dominant-purpose test for advice. Advice recommending entry into an investment could therefore be regulated investment advice even where tax avoidance was its sole or dominant motivation. On the documents and facts then available, the claimant had advised the complainant to invest money in a genuine film-financing venture which offered tax advantages, repayment of borrowing and possible profits.

4. The partnership was a collective investment scheme within section 235 of the Financial Services and Markets Act 2000. Day-to-day control depended on the scheme's documents and its operation in practice. Mere activity, supervisory oversight, participation in selected important decisions or an unexercised power to intervene did not amount to day-to-day management. Each participant needed the requisite control. Neither the complainant nor all the participants possessed it on the facts found.

5. The scheme also enabled participants to receive profits or income. Those expressions included unrealised gains and other economic benefits. The intended tax advantage therefore fell within the statutory language, while the prospect of commercial returns independently supported the conclusion.

6. The refusal to dismiss the complaint in favour of court proceedings was not irrational. The Ombudsman could address complex evidence, obtain expert material and, where fairness required, hold an oral hearing. The size of the claim, the complainant's wealth, possible factual disputes and the existence of similar complaints did not establish that the statutory procedure was incapable of resolving the dispute fairly and reasonably.

This was a first-instance judicial review of the Financial Ombudsman Service's final jurisdictional decision dated 23 January 2014. An adjudicator had initially declined jurisdiction, but the Ombudsman subsequently decided provisionally and then finally that the complaint fell within the compulsory jurisdiction. The High Court dismissed the judicial review claim.