Linear Investments Limited, R (on the application of) v Financial Ombudsman Service Limited

On judicial review of a Financial Ombudsman Service decision, factual issues remain primarily for the Ombudsman, but questions of law and construction are for the court. A person may be both a professional client for investment-regulation purposes and a consumer in relation to the relevant activity.

Elective professional-client status requires an adequate assessment of expertise, experience and knowledge, as well as the applicable quantitative and procedural requirements. Unsupported or contradictory tick-box information may be insufficient. The Ombudsman has broad inquisitorial powers and wide latitude to determine fair compensation, provided its decision is rationally connected to the loss and the relevant failings.

Linear sought judicial review of a Financial Ombudsman Service determination upholding Professor Leslie Willcocks’s complaint concerning investment-management services. The Ombudsman found that he was an eligible complainant despite his classification by Linear as an elective professional client, and awarded compensation by reference to the FTSE UK Private Investors Income Total Return Index.

Linear challenged the Ombudsman’s jurisdictional conclusion, its review of the client classification, the compensation benchmark and its refusal to reduce redress for contributory fault. The central issues concerned the proper construction and application of the FCA’s DISP and COBS rules and whether the Ombudsman’s conclusions were unlawful or irrational.

The claim for judicial review was dismissed on all grounds.

1. Standard of review. Following Assurant [2023] EWCA Civ 1049, factual issues, including jurisdictional facts, are primarily for the Ombudsman and are reviewable on conventional public-law grounds. Questions of law and construction are for the court.

2. Jurisdiction. The Ombudsman’s remit is inquisitorial rather than adversarial. It was entitled, and required, to consider whether the complaint was within jurisdiction, even though the classification issue had been raised only obliquely. Under DISP 2.7.9AR, a person may be a professional client and nevertheless be a consumer in relation to the activity concerned.

3. Client classification. COBS 3.5.3R required an adequate qualitative assessment, satisfaction of the quantitative test and compliance with procedural requirements. The question was whether the regulatory procedure had been complied with, rather than whether the client objectively possessed professional characteristics. Unsupported tick-box answers, inconsistent employment information and the absence of evidence of CFD experience entitled the Ombudsman to find that the qualitative test was not met. The Ombudsman was not confined to irrationality review.

4. Redress. Section 229(2) of the Financial Services and Markets Act 2000 gave the Ombudsman wide latitude to award fair compensation. The benchmark selected was supported by rational reasons and reflected the circumstances of the case. Information about later investments was not relevant to restoring the position that should have existed in 2017.

5. Contributory fault. The Ombudsman considered the issue, explained his change of view and rationally concluded that the inaccurate application-form information was not causative of the losses. Other regulatory failings independently justified full redress. The alternative issue under section 31(2A) of the Supreme Court Act 1981 did not arise.

The judgment was a first-instance judicial-review decision. Permission had been granted by Lang J on four grounds. A fifth proposed ground was dismissed on renewal by Sir Ross Cranston.