R Chancery (UK) LLP v The Financial Ombudsman Service Ltd Sir Ian Robinson (Interested Party)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ouseley |
| Judgment Date | 20 February 2015 |
| Neutral Citation | [2015] EWHC 407 (Admin) |
| Docket Number | Case No: CO/1832/2014 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 20 February 2015 |
and
[2015] EWHC 407 (Admin)
Mr Justice Ouseley
Case No: CO/1832/2014
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Alison Foster QC and Saima Hanif (instructed by Reynolds Porter Chamberlain LLP) for the Claimant
James Strachan QC and Stephen Kosmin (instructed by Financial Ombudsman Service Limited) for the Defendant
The Interested Party did not appear and was not represented.
Hearing dates: 19th and 20th November 2014
The Claimant, Chancery (UK) LLP, "Chancery", is a firm of chartered accountants. It challenges by way of judicial review the decision of the Financial Ombudsman Service Ltd, FOS, dated 23 January 2014 holding that it had jurisdiction to consider a complaint made against Chancery by Sir Ian Robinson, the Interested Party, through Rebus Investment Solutions Ltd, Rebus, a claims management company. Chancery contended that the FOS had no jurisdiction to deal with the complaint, because the advice which it had given concerned, to put it neutrally, entry into a tax avoidance scheme rather than investment. Tax avoidance advice, it contended, fell outside the scope of the FOS jurisdiction. Further the scheme was not a "collective investment scheme", both because it was a tax avoidance scheme and because the participants had the necessary day to day control to prevent it being a collective investment scheme for the purposes of the FOS' jurisdiction. Chancery also contended that the FOS should have exercised its discretion against considering the complaint, leaving the Interested Party to pursue his common law remedy in contract or negligence. It had pursued these contentions unsuccessfully before the FOS, and now contended that the FOS' rejection of them was wrong in law.
The Statutory Framework
The FOS was established under Part XVI of the Financial Services and Markets Act 2000, FSMA. Section 225(1) states that the scheme was established so that certain disputes "may be resolved quickly and with minimum formality by an independent person". The decision in question related to the compulsory jurisdiction of the FOS established under s 226. The compulsory jurisdiction exists where the complaint "relates to an act or omission of a person in carrying on an activity to which compulsory jurisdiction rules apply" and if three conditions are satisfied: the complainant was eligible, wished to have the complaint dealt with under the scheme, and made the complaint against an authorised person. Those three conditions were satisfied. Compulsory jurisdiction rules had been made pursuant to Schedule 17 by the Financial Conduct Authority, FCA, specifying the activities to which the rules applied; s226(2)(c). By s226(4) only "regulated activities" could be specified.
Section 22 of the FSMA defines "regulated activity" in these terms:
"22. The classes of activity and categories of investment
(1) An activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and—
(a) relates to an investment of a specified kind; or
(b) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind.
(4) "Investment" includes any asset, right or interest."
The activity "specified" means specified in an order made by the Treasury. The relevant order is the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001 No.544) as amended in 2003, the RAO. This provides in Article 53:
"53. Advising on investments
Advising a person is a specified kind of activity if the advice is—
(a) given to the person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor; and
(b) advice on the merits of his doing any of the following (whether as principal or agent)—
(i) buying, selling, subscribing for or underwriting a particular investment which is a security or a contractually based investment, or
(ii) exercising any right conferred by such an investment to buy, sell, subscribe for or underwrite such an investment."
Units in a collective investment scheme are a type of security, by statutory definition. It is an investment specified for the purposes of s22 by Article 81 of the RAO.
A collective investment scheme, CIS, is defined in s235 of the FSMA as follows:
"235 Collective investment schemes
(1) In this Part "collective investment scheme" means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
(2) The arrangements must be such that the persons who are to participate ("participants") do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.
(3) The arrangements must also have either or both of the following characteristics—
(a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled;
(b) the property is managed as a whole by or on behalf of the operator of the scheme."
I also note section 228 which provides in relation to the compulsory jurisdiction that a complaint is to be determined "by reference to what is, in the opinion of the Ombudsman, fair and reasonable in all the circumstances of the case." A written statement of reasons is required and the amount which may be awarded by monetary compensation cannot exceed £150,000 although the Ombudsman can recommend to the respondent a payment of a larger sum of money if he considers that fair compensation so requires. There are costs rules which enable an award of costs to be made against a respondent, but not against a complainant unless the complainant has acted unreasonably. It has powers to obtain information enforced through a court order where necessary.
The Financial Conduct Authority's Rules for the FOS jurisdiction are contained in its Handbook "Dispute Resolution: Complaints": DISP for short. DISP 2.2.1 G(uidance) states that the scope of the FOS jurisdiction depends on the type of activity to which the complaint relates, where the activity was carried on, the eligibility of the complainant and whether the complaint was referred to the FOS in time. By DISP 2.3.1 R(ule) the Ombudsman can consider a complaint in relation to the act or omission of a firm in carrying on a regulated activity, amongst other matters. Its jurisdiction is dealt with under Rule 3.2.1R which says that the Ombudsman "will have regard to whether a complaint is out of jurisdiction". When he decides that a complaint is not out of jurisdiction he will inform the complainant and give reasons to the respondent; Rule 3.2.6. There are a number of grounds in Rule 3.3.4 under which the Ombudsman may dismiss a complaint without considering its merits including the lack of prospect of success or the existence of previous court proceedings or if (Rule 3.3.4(10)) "it would be more suitable for the subject matter of the complaint to be dealt with by a court, arbitration or other complaint scheme", or (11) if it is a complaint about the legitimate exercise of a respondent's commercial judgment or (13) about investment performance or (17) there are other compelling reasons why it is inappropriate for the FOS to deal with it. There is also provision under Rule 3.3.5 for test cases: "if the case raises an important or novel point of law with important consequences which would be more suitably dealt with by a court as a test case".
The facts
For present purposes I confine myself to the facts as presented to the FOS for its decision on jurisdiction. I say that because Ms Alison Foster QC for the Claimant presented to the Court evidence and documents not placed before the FOS.
A brief introduction to the way in which film schemes worked in relation to tax avoidance is required, which I take from the witness statement of Mr Nichols, senior partner of Chancery.
Tax incentives for the production of films were contained in the Finance Acts of 1992 and 1997. One feature of the relief enabled expenditure on production of a film to be written off upon its completion, which produced losses in the early years of its life. This characteristic of losses in the early years of trading enabled tax payers to mitigate income tax, using those losses. The 2007 Income Tax Act permitted an individual to offset those losses against income in the year of the loss or in the three previous years. This form of relief was known as "sideways relief" because it provided trade loss relief against general income and early trade loss. This could be used to generate large refunds of tax paid such that a significant loss in year 1 of a film scheme could be carried back to cover most of the general income for the previous three years. The avoided tax would be deferred and repaid in later years. The Generally Accepted Accounting Principles, GAAP, were applied to create the trading losses for the partnership: the signing of the film contracts by a film partnership such as Prescience Media 1 LLP meant that it incurred the expenditure for tax...
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