R entered into terms of engagement with the firm to provide "investment advice". He was advised to enter a scheme whereby members formed a limited liability partnership to exploit commercial rights in film and television products. According to the scheme, each member would take part in the day-to-day activity of the partnership. R contributed £1.8 million to the scheme, partly funded by a loan. The Revenue refused part of R's claim for tax relief on his contribution. R complained that the scheme was an unregulated collective investment scheme (CIS) and that the level of risk involved made it unsuitable. The FOS reached a provisional decision that it had jurisdiction to determine the complaint and expressed the view that R's activity did not amount to day-to-day control, so that the scheme fell within the definition of a CIS under the Financial Services and Markets Act 2000 s.235. The FOS issued a final decision, concluding that the investment did not correspond with R's recorded attitude to risk. The firm disputed that the scheme was a CIS and contended that the advice it had given concerned tax avoidance rather than investment which therefore fell outside the jurisdiction of the FOS. It also claimed that the FOS should have exercised its discretion against considering the complaint, leaving R to pursue a common law remedy.
HELD: (1) It was for the court, not the FOS, to decide whether the latter had acted with or without jurisdiction. The limits of jurisdiction were a matter of statutory construction. The court had to determine, on the facts found by the FOS, whether the application of the law to those facts was correct. Therefore, the question of whether there was a distinction between tax and investment advice, and whether the advice given was a regulated activity, were matters for the court on the facts as rationally found by the FOS. The meaning of "day-to-day control" was a matter of law. Parliament could not have intended that the High Court should act as the primary fact-finder on jurisdiction issues, especially as those issues would often overlap with merits issues as in the instant case. Otherwise, two bodies would be involved in considering the same issues but on potentially different evidence, R. (on the application of Bankole) v Financial Ombudsman Service  EWHC 3555 (Admin) applied, R. (on the application of R. (on the application of Bluefin Insurance Ltd) v Financial Ombudsman Service Ltd  EWHC 3413 (Admin),  A.C.D. 4 considered. The court had to rule that the FOS lacked jurisdiction if it considered that the FOS had understood the law but had wrongly applied it on the facts found. Where the issues of jurisdiction and merits overlapped, the issue of jurisdiction should be kept open beyond the final decision if the evidence or argument showed that it remained in issue (see paras 66-79 of judgment). (2) Tax advice might include investment advice: no distinction could sensibly be drawn between the two where there were mixed reasons behind the advice. In the instant case, the advice was not confined to the tax effect of investment in film schemes since R had been advised to put money into a scheme. Although that might have been mainly for tax purposes, R also had to repay the loan and there was the prospect of profit. Whether there was day-to-day control was an issue not just to be resolved on the documentation, but also by considering what happened in practice, Russell-Cooke Trust Co v Elliott (Unreported, July 16, 2001) applied, R. (on the application of London Capital Group) v Financial Ombudsman Service Ltd  EWHC 2425 (Admin),  A.C.D. 3 not applied. The FOS had been entitled to conclude that the scheme was a CIS because there was no evidence that R had actual day-to-day control (paras 93-97, 105-108, 114). (3) With regard to the exercise of discretion by the FOS, the question was whether the nature of the issues between the parties, and the material which was required to resolve them, were such that it was irrational for the FOS to conclude that it could resolve them justly, fairly and reasonably within its jurisdiction. The FOS's decisions so far in the case had been carefully considered, drawing on its expertise, and dealing properly with the points made by the claimant. It could not be said, therefore, that its decisions had been irrational (para.133).
For the claimant: Alison Foster QC, Saima Hanif
For the defendant: James Strachan QC, Stephen Kosmin
For the Interested Party: No appearance or representation
For the claimant: Reynolds Porter Chamberlain LLP
For the defendant: In-house solicitor
Link to full judgment - http://www.bailii.org/ew/cases/EWHC/Admin/2015/407.html