Chancery (UK) LLP, R (on the application of) v The Financial Ombudsman Service Ltd & Anor [2015] EWHC 407 (Admin)

Case No CO/1832/2014[2015] EWHC 407 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20/02/2015
Before
MR JUSTICE OUSELEY
Between
THE QUEEN on the application of CHANCERY (UK) LLPClaimantTHE FINANCIAL OMBUDSMAN SERVICE LtdDefendantSIR IAN ROBINSONInterested Party
Alison Foster QC and Saima Hanif (instructed by Reynolds Porter Chamberlain LLP) for ClaimantJames Strachan QC and Stephen Kosmin (instructed by Financial Ombudsman Service Limited) for Defendant for The Interested Party did not appear and was not represented.Hearing Hearing dates: 19th and 20th November 2014
Judgment
[1]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

[2]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.[3]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.” (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]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.” (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.”
[5]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.[6]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.” (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.”
[7]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.[8]The Financial Conduct Authority’s Rules for the FOS jurisdiction are contained in its Handbook “Dispute Resolution: Complaints”: DISP for short. DISP 2.2.1G(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 2.3.1R(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

[9]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.[10]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.[11]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 purposes even where the cash point of the expenditure occurred later.[12]The typical film scheme involved a limited liability partnership, LLP, being set up to produce, distribute, finance and exploit the film. This LLP would be financed by individual members making a capital contribution typically consisting of 20% cash and 80% loan finance from a 3rd party lender. The interest paid on the borrowing would be eligible for tax relief as well. The tax repayment in the light of those percentages would provide a tax repayment, at 40% tax rate, double the cash contribution. Mr Nichols, the Claimant’s senior partner, said that by 2008 HMRC had ceased to support and instead had sought to curtail activity in these schemes. He said that the whole purpose of entry into these schemes including that of the Interested Party was to take advantage of the loss, because if the film generated a profit no tax relief could be obtained at all. “Tax relief is premised on the fact that the loss is a genuine trading loss for the partnership…. If it were an investment business it would not qualify for the tax relief”.[13]According to the minutes of a meeting dated 2 October 2006, the Interested Party first met the Claimant with a view to advice on tax planning of a non-controversial nature. Ideas were discussed, including film schemes. The fee would be nil. Terms of engagement were signed on 18 October 2007. Both Claimant and FOS referred to them in the course of the argument about whether what was given was tax advice or investment advice, though the FOS did not accept the premise of the Claimant’s argument that tax advice necessarily, let alone investment advice motivated predominantly by tax implications, fell outside the scope of regulated activities.[14]The letter containing the terms of engagement is headed “Re: Investment business: Terms of Engagement”. Instructions are confirmed for the provision of “the following investment business services”. There then follow three paragraphs under the heading “Investment Business”. Chancery would be pleased to provide “any investment advice” required. It was authorised by the Financial Services Authority, FSA, to conduct such business, for which it sets out its terms, but has to set them out separately from its terms for other services such as tax consultancy. It could advise on the merits of “a broad range of investments” but might introduce the client to other authorised persons so as to achieve the best advice. Under the heading “Tax Mitigation Schemes”, it said:
“In particular you have asked us to provide advice in respect of tax mitigation and property investment schemes, some of which may be regulated by the FSA.”
[15]Chancery carried out a “Client Fact Find”, a necessary part of an authorised person’s understanding of the needs of its client. Part of this was assessing attitude to risk. The Interested Party expressed his attitude as “realistic”, half way on the scale between the extremes of “ultra-conservative” and “highly speculative”, and immediately between “cautious to realistic” and “realistic to aggressive”, i.e. ensuring short–term financial security through low risk investment but also wishing to benefit from long-term investment returns to provide for future security.[16]Chancery recommended that the Interested Party should enter one of the film schemes, Prescience Media 1 LLP, PM1. It provided him with a Suitability Report dated 18 October 2007. Again both sides referred to its terms in support of their contentions. The Introduction said that the Report provided a “comprehensive explanation of the investment business Chancery (UK) LLP… carried out for you”. It included “The service that we have provided is that of tax planning involving participation in a real business opportunity. The business opportunity used does not mean that Chancery have researched the whole market place”. It had recommended an opportunity suited to his needs for the reasons it was about to give.[17]The “Aims & Objectives” section stated that the Interested Party’s initial concern was to undertake tax planning to mitigate or eliminate tax paid for two past years. It noted that there were other areas for the Interested Party to consider, including investments and savings. He was warned that “Investment risk does apply”.[18]Ms Foster highlighted the recommendations. There had been a tax planning meeting on 18 October 2007 where there was a generic presentation of the use of film schemes. The PM1 Scheme had been recommended because: the tax relief available was based on Generally Accepted Accounting Principles, GAAP; PM1 “intends to provide an opportunity to participate in an integrated media business… including film and television production and expects to produce real returns sufficient to repay Members’ loans and with prospects for additional income”; PM1’s life was intended to be relatively short at 5-7 years; “only 25%-50% of production spend needs to be recouped to repay the investor’s original deposit, borrowings and income tax on income from the LLP”; 85% of the gross investment should qualify for tax relief; 85% of all films recoup all of their budget; “loans to investors in the LLP are secured by lender against various film and media related securities”; “only films where at least 75% of the budget has already been raised will be considered for investment by the LLP”.[19]The Report then described the structure and purpose of PM1. Investors would become members of the LLP, the objective of which was to build an integrated media business by producing film and television products and exploiting commercial rights in them “thereby seeking to generate significant profits and revenue streams from a variety of entertainment activities and providing some benefits to members”. A key requirement was that each member should commit on average at least 10 hours work each week to the business of PM1 for at least 6 months. (The purpose of that was to satisfy a HMRC requirement for tax relief to be available). Each member would be a party to all PM1 decisions and in terms of “day to day activity, will focus on the general tasks outlined in the “Activity Handbook”.” Its commercial arrangements would seek to provide “a reasonable level of Risk Mitigation and allow the LLP (and thereby the members) to share in the worldwide revenues….”; they would aim to benefit from certain positions which would ensure equity return when average net sales reached between 25-50% of production budgets. PM1 would draw on a management team whose members had four decades of entertainment industry experience over a wide range of skills. Its advisory committee, which would recommend productions, included leading industry experts. Through this committee’s relationship with PM1, PM1 should have access to leading studios and producers.[20]The section headed “Risk mitigation” said that in the first accounting period PM1 would aim only to participate in films where funding was in place for at least 75% of the total production budgets. A reputable sales agent had been appointed. PM1’s recoupment position ensured the return of an amount equivalent to a member’s equity when average net sales reached between 25-50% of production cost. It pointed out that claiming the tax refund was not excessively complex but had to be approached correctly, and the scheme might be disclosed to HMRC; but Chancery would deal with that function if it were engaged to do so. It concluded “otherwise we suggest you discuss this investment with your own tax advisor as soon as possible.” Chancery further pointed out that it had recommended suitable life insurance be taken out “to cover all borrowings involved with this investment”. Mr James Strachan QC for the FOS referred to the number of times in which participation in this scheme was described by Chancery as an “investment”.[21]The “Risk Warnings” section of the report pointed out that PM1 had no previous history and that film exploitation was “highly competitive and involves significant risk”. The potential returns quoted by PM1 were based on several assumptions which were not guaranteed: for example the higher rate of tax could increase and a lack of information on films and the return on films and the return to producers from distributor sales “makes accurate returns analysis difficult”. There was no certainty that sufficient films would be identified to meet the full amount of capital subscribed. Tax legislation might change, and the availability of tax relief was not guaranteed as each individual partnership was assessed by HMRC. The investment in PM1 would generally be illiquid and therefore long term. Trading losses could have a detrimental effect on relevant earnings and hence the level of pension contributions which could be made. There was no established market for a share in PM1 and the investment therefore might only be sold with difficulty. “Accordingly, you should carefully consider whether such investments are suitable for you”. The investment was not covered by the FSA’s Financial Services Compensation Scheme; members would be part of a “true trading partnership, a speculative, geared venture in an integrated media business”.[22]Chancery would receive a base commission of 3% of the gross investment from PM1, which Mr Strachan submitted showed that this was in reality an investment to which the Interested Party was being introduced.[23]The Ombudsman also had the relevant documents produced by PM1 itself which the Interested Party had also had. PM1 produced the Proposal document which described the LLP as a trading partnership and not an unregulated collective investment scheme. The introduction used much of the same language as is found in the Suitability Report. PM1 provided an opportunity to participate in an integrated media business. “For members prepared to commit substantial time to the business of the partnership… there is the prospect of medium term profits as well as the possibility of tax advantages”. PM1’s proposed commercial arrangements were key to the proposition. It would seek to provide a reasonable level of risk mitigation and allow the partnership to share in the worldwide revenues from the range of film activities. PM1 would aim to benefit from primary, preferential recruitment positions in media productions and, in addition to the management resources of its own members, it would have access to members with two decades of entertainment industry experience. Its summary of key points included this in relation to participation of members: “members will be required to be engaged actively in the operation and management of the LLP” which engagement was likely to include identification of suitable film productions including script reading, review and renegotiation of legal documentation, liaison with sales and distribution agents, assistance with non-production projects and attendance at regular monthly partnership meetings.[24]It pointed out that if a loan facility was used to finance a part of the member’s contribution, the individual member should “in relation to the first Accounting Period, have access to Loss Relief without having to utilise his or her own funds for more than 25% of his or her total contribution.” However such Individual Members would be at risk for any such Loan Facility which would be a full recourse personal loan. After the first Accounting Period, income received would be used to support further media productions. The risk mitigation factors were those referred to in the Suitability report.[25]The “Business Overview” in the Proposal document pointed out that the partnership would be seeking from its activities “to generate significant profits and revenue streams from a variety of entertainment activities and to provide income benefits to members”. The criteria for the partnership to participate in films “subject to the direction and control of members” was set out, the quality of producers and the prospect of international sales as well as risk limitation measures. Non-production activities, which were less speculative, provided “an opportunity for enhanced returns”. After the first Accounting Period, the partnership might continue to produce films using revenues generated from completed profits; it would aim to negotiate for a large proportion of revenues from each film to go first to PM1, “some of which should be distributed to Members for the purpose of repaying any Loan Facilities”. The partnership’s founding members, their advisers and their experience in the media business were emphasised.[26]There would be a partnership agreement which would govern the relationship between members. Members were obliged to manage the partnership within the parameters set out in this proposal and the partnership agreement. Under it, the authority of members to act independently was restricted and, unless specifically authorised, “only an elected committee of members would be authorised (subject to the direction of the Members) to bind or contract on behalf of the Partnership”. There was a substantial discussion of the current film and television market. There was also a substantial section on partnership taxation which describes the availability of sideways losses and the importance of partners being active in the light of changes in the Finance Act 2007. For those purposes an “active” partner was one spending on average 10 hours or more per week for at least a six month period personally engaged in activities carried out for the purposes of the partnership’s trade. That section said that the tax position however was dependant on HMRC agreeing that the partnership did constitute “a trade for business”.[27]The Proposal document provided its own list of risk factors about which individuals should consult their own appropriate professional advisors “including an investment advisor and a specialist taxation advisor”. Participation in any trading partnership, it warned, carried its own risk particularly given the speculative nature of the film, television and media rights industries although extensive steps would be taken to mitigate those risks. Thus any profit would be purely speculative; the value of the interests and assets might go down as well as up and a member might not get back what he had contributed. No guarantees as to performance, income or gain were given. The partnership had to be engaged in trading activity and each individual member had to be actively involved in the way described. Income might fluctuate and a member should not rely on estimates of income which might be zero. Its share of production expenditure might be diluted where equity finance was provided by third parties. The interpretation of, and changes to, tax legislation was also a risk. As Ms Foster pointed out, there was quite an extensive description of the risks in tax terms. However the risk factors also included the difficulty of disposing of interests, for there was no established market. There was a risk there might be no second series of productions or that a catastrophic event might prevent the completion of a film, the commercial success of which could not be guaranteed anyway. A film might go over budget, sales might be insufficient to generate an income. Members had no right to withdraw their contributions.[28]Under the heading “Management”, the Proposal document said:
“the members, all of whom will be Designated Members, will be responsible for the overall management of the Partnership and its affairs with the cooperation of the Founding Members and an executive committee of two members”
. The Founding Members were Prescience Media Ltd and Prescience Film Finance Ltd, “PFFL”. Monthly management meetings would be held, which each member covenanted to use all reasonable endeavours to attend. Failure to attend a sufficient number could lead to expulsion. Each member covenanted to spend at least 10 hours per week on average on the business of the partnership, to keep a log of such activity and to report on it to the other members at meetings.[29]The principal role of PFFL was referred to at the end of the Proposal document in the context of the Production Services Agreement: it would be to assist with the sourcing of suitable film and television productions and their exploitation, advising on a total funding package for each film for which it would be entitled to receive a fee from the film’s budget as well as a fee of 1% of total contributions in the first Accounting Period.[30]The partnership agreement provided for an executive committee of two members to carry out certain obligations on behalf of the 8-10 members. The “business of the LLP shall be managed by the Members”. By clause 10.11, the members could delegate their powers of managing PM1 to this committee and such other third parties as might be appointed. Prescience Film Finance Limited was to be engaged under the terms of a Production Services Agreement to provide services in respect of the sourcing, production and exploitation of films. (Ms Foster said that that agreement had not been produced and instanced that as an important advantage of Court proceedings over the FOS complaint jurisdiction, but its non-production was not directly in evidence.) Clause 10.3 provides that the executive committee would:
“represent the LLP in all things and generally do all things and discharge all duties or requirements in regard to the ongoing administration of the LLP and may exercise all the powers of the LLP and shall have full power and authority to do so accordingly”
. The agreement also precluded members withdrawing a capital contribution unless it was chargeable to income tax as a profit on the trade, and provided that distributions to members would be limited to the amounts they required to satisfy tax obligations.[31]PM1 produced an Activity Handbook. It sets out the partners’ “day to day responsibilities”. This is to take “an active role in the decision making process and implementation” of PM1’s business strategy, working closely with its professional advisers and founding members. The partners would be kept informed of development and progress on a weekly basis. There would be a weekly email and they would receive certain parts of the trade press electronically. Partners would be given a complete background to the UK film industry and would be supplied with their own business cards, email address, stationery, and expenses would be paid in the execution of partnership business. They would be expected to attend certain major film festivals, they would be asked to read and assess between 1-4 scripts a month, to approve individual projects, to review budgets, selected contracts and the overall financial structure on projects, and to attend film events. They should visit film locations and studios; local knowledge might assist in finding movie locations; they should visit film production facilities to review the finishing processes for a film and attend any launch event. Once the contribution had been received “the Investors will be expected from this point to actively engage in the running of the partnership”.[32]The Interested Party contributed £1.8m to PM1, £450,000 from his own capital, and £1.35m via a bank loan. In 2008, he made a further capital contribution of £500,000. He was elected Chairman from 2009-2013. Minutes show concern about the resolution of the tax position in 2008. Mr Nichols also said, in his witness statement not before the FOS, that the Interested Party had “never once asked me specifically about the economic performance of PM1”.

The complaint

[33]What precisely led to the Interested Party making a complaint to the FOS is unclear but in March 2011 he reached a settlement with HMRC in which it allowed a claim for sideways loss relief on his cash contributions, but there would be a substantial balance of unclaimed losses which he could not set against tax from other sources. This would appear to mean that the contribution made by way of loan would not receive tax relief.[34]Rebus on behalf of the complainant to the Ombudsman first made its complaint to Chancery in May 2012. It complained that PM1 was an unregulated collective investment scheme, and that its client had not been assessed in relation to the relevant regulations. The “investment” in PM1 was said to be unsuitable for a variety of reasons including the level of risk involved, quite apart from the uncertainty which it was said existed even then in relation to HMRC’s attitude towards such film schemes. Chancery’s reply of 8 October 2012 said that the PM1 was not a collective investment scheme but a trading partnership. Their client had been concerned with tax mitigation and he could not properly complain about a retrospective attempt by HMRC to close off tax mitigation schemes.[35]On 10 October 2012, the FOS sent the Interested Party’s complaint form to Chancery. The complaint added that Mr Nichols, as well as being a partner of Chancery, was also chairman of PM1, thereby creating a conflict of interest. Chancery’s solicitor’s reply to the FOS’ on 13 November 2012 raised issues relating to jurisdiction, contending the complaint fell outside the FOS jurisdiction, or should be dismissed without consideration of the merits. Chancery, it said, was a specialist tax advisor advising on tax deferral for the Interested Party through sideways loss relief. It said that giving tax adviceand advice to invest in a business such as a trading partnership, were not regulated activities and fell outside the scope of the FOS’ jurisdiction. The letter gave various reasons why PM1 did not amount to a collective investment scheme, notably that the participants had day to day control over the management of the property. It cited from the FSA Perimeter Guidance manual (PERG 11.2):
“day-to-day control is not defined and so must be given its ordinary meaning. In our view, this means you will have the power, from day-to-day, to decide how the property is managed. You can delegate actual management so long as you still have day-to-day control over it”
. It set out the facts as to why PM1 was not a collective investment scheme, by reference to the day-to-day control exercised by its members.[36]The letter also contended that the case was more suitable for a court because the compensation which Rebus would be seeking was likely to be far in excess of the FOS’ limit of £150,000. Chancery would wish to challenge the evidence of the Interested Party through cross-examination, to produce expert evidence about the true risk-rating of the scheme and in particular about whether HMRC’s hardening position was foreseeable in October 2007. The Interested Party had sufficient resources to use the courts rather than the FOS and was bound to have been expecting a loss in year one since that was the basis from which tax relief would have been obtained.[37]A further letter on behalf of Chancery dated 12 December 2012 emphasised the primary objective of the complainant’s entry into the scheme as being tax mitigation and it explained how the tax mitigation worked. PM1 provided the FOS with further information about the activity which the Interested Party undertook. He had become a member on 30 January 2008, since when he had performed over 300 hours of work in connection with PM1’s business, participating in an analysis of film projects, reading scripts, reviewing the key personnel involved and hours on learning about the film industry as a whole. He had also visited locations, film sets and screening of films.[38]On 8 February 2013, an adjudicator in the FOS wrote to Rebus saying that it could not consider the complaint further. He cited the level of the complainant’s activity saying that it exceeded the criteria set for participation in a collective investment scheme; that involvement in PM1 went well beyond the requirement for participants not to have day to day control and that the complainant held an active and influential role within the partnership, rather than being a passive investor in a collective investment scheme. Tax advice and recommendations to join a trading partnership were not regulated activities.[39]Rebus responded contending that this decision was wrong, distinguishing between the HMRC “active investor” test and the collective investor scheme “day to day control” test. It contended that the partners had no control over the management of the partnership which should be seen as a collective investment scheme. Solicitors for Chancery replied elaborating points already made.

The decisions

[40]The FOS provisional decision followed on 16 July 2013. The FOS final decision refers back to the Provisional Decision in a number of important areas. The provisional decision came to the conclusion that the Ombudsman did have jurisdiction, but gave the complainant and Chancery the opportunity to send further information which could lead to a final decision different from the Provisional Decision. The Provisional Decision contained this:
“I have considered all the available evidence and arguments to decide what is fair and reasonable in the circumstances of this complaint”
. Ms Foster contended that that was a misconceived approach to jurisdiction.[41]The Provisional Decision said that the crux of the jurisdiction issue was whether or not the complainant had day to day control of the assets of the partnership. It referred to PERG 11.2, and also to High Court decisions including Re Sky Land Consultants Plc [2010] EWHC 399 (Ch) and Financial Services Authority v Asset L. I. Inc (trading as Asset Land Investment Inc) [2013] EWHC 178 (Ch). The Ombudsman concluded that day to day control was a question of fact to be determined on the basis of the reality of how things operated and not just on the basis of the documents alone. Relevant extracts from the documents to which I have referred were then set out. The Ombudsman drew a distinction between activity and day to day control. The 10 hour test was part of HMRC anti-avoidance measures introduced in March 2010. The complainant did not undertake activities such as identifying or negotiating key contracts relating to PM1’s commercial activities or even more mundane activities such as appointing auditors or preparing accounts.[42]Although the complainant was a successful and experienced businessman in the eyes of the FOS, the FOS said:
“it does seem unlikely that he would have the time or relevant expertise to take charge of decision making in an entirely different industry nor the time to allow him to do so. Indeed it does seem unlikely that an investor such as Sir Ian would entrust large sums of money to a group of fellow film amateurs working on a part time basis rather than to a professional in the film industry.”
[43]Actively involved in the partnership though he was, he did not have sufficient day to day control to be in effective control. In reality day to day control was in the hands of film industry professionals: either the executive committee or the founding members. The activity book made no reference to day to day control or effective control. Accordingly the FOS was satisfied that the investment in PM1 was an investment in a collective investment scheme and therefore the complaint fell within its jurisdiction.[44]It was not the FOS’ usual policy to dismiss cases as better dealt with by a court, purely on the basis of the amount in dispute. No other factors showed that the case was better dealt with by oral testimony and cross-examination rather than under the informal FOS process.[45]Chancery’s solicitors put in further representations: the partnership had to be analysed by reference to the documents constituting it at the time the advice was given, even if the partnership had in the end functioned as a collective investment scheme. Chancery had not given advice on the merits of such a scheme. Chancery had not even given the impression that that is what the complainant was entering. It advised on what was presented to it, i.e. a partnership opportunity as shown by the contemporaneous documents, which is what was conveyed to the complainant. There was a considerable amount of relevant activity clearly showing that the complainant had sufficient control to be in effective control rather than being a passive investor. He was experienced in the management and financing of the sort of investment involved in film finance schemes, of which he had entered into six. He was not given advice on the merits of an investment, but tax advice to mitigate his tax affairs. The partnership performed as expected, but he did not obtain the tax deferral reliefs he wanted from HMRC. It remained the case that the complaint was more suitable for determination by a court.[46]The Final Decision on jurisdiction first set out a summary of the complaints made by Rebus: the complainant was not a person to whom an unregulated CIS could be promoted; the investment did not correspond with the complainant’s recorded attitude to risk; the risk warnings were counteracted by the prominence of the positive reasons to invest; some risks were not covered in the Suitability Report; there may have been a conflict of interest in that the chairman of PM1 was a partner in Chancery.[47]The first point the Ombudsman dealt with in his decision was the question of tax advice and jurisdiction. He said:
“Tax advice as such is not a regulated activity and so does not come within the scope of our compulsory jurisdiction. That is not however the end of the matter. Tax advice and investment advice are by no means mutually exclusive. Many investments have special tax treatment, such as ISA accounts and personal pensions. It is therefore important that tax is taken into account when giving investment advice. Some times as with, say, some inheritance tax planning the tax strategy leads to the selection of certain types of investment. In such cases the tax advice and the investment advice may merge or overlap. An investment arrangement may qualify for special tax treatment and so may be considered and recommended for tax reasons. If however the investment is a type of investment that is a specified investment under the Financial Services and Markets Act 2000, the advice may be regulated investment advice.”
[48]After considering the suitability report, the Ombudsman concluded that it was clear that Chancery had recommended that Sir Ian invest in the special “film partnership”. That was advice given to Sir Ian in his capacity as an investor or potential investor and it was advice on the merits of his buying or subscribing for the investment. It is not clear that Chancery (UK) (rather than Chancery Tax) gave any tax advice but in any event, investment advice was given if the film partnership is “a security or a contractually based investment”. Units in a collective investment scheme are a security.[49]Two points were raised on whether PM1 was a CIS. The first was whether or not “the investors had day to day control”. The Ombudsman’s views had not changed from his provisional decision which he set out extensively on this point. He referred to two additional authorities, to which I shall have to come, which led him to conclude that while what the documents said about a scheme was important, the intention of the parties was also relevant.[50]The Ombudsman then considered the time in relation to which the assessment of day to day control should be undertaken. He referred to R (London Capital Group) v Financial Ombudsman Service [2013] EWHC 2425(Admin) which Chancery had cited to support its contention that what mattered was what the scheme documents said and not what the parties did in practice. The Ombudsman rejected that. He pointed out that, in that case, the issue had been whether, under Article 85 of the RAO, the specified investment was “(1) rights under -(a) a contract for differences; or(b) any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations….” The purpose or predominant purpose of the contract was crucial to whether the contract fell within the scope of a specified investment.[51]That was not the position here, where the issue was one of day to day control. It was clear from the more relevant cases, cited in the provisional decision, that it was both the documents and the way “things worked in practice that are important”.[52]He referred to extracts from PM1 documents, which I have set out already. After quoting his views in the provisional decision, the Ombudsman affirmed those views. The fact that the complainant had invested in other film partnerships, and was a very successful and experienced businessman, who did not invest passively, did not mean that his activity amounted to day to day control. The partnership was a CIS. Again he saw no reason to depart from his view that the case should not be dismissed so that it could proceed through an action in court: the availability of resources to the complainant to go to court did not mean that “our more informal dispute resolution service, with the limits on our powers of award that Sir Ian is aware of, should not be available to him if he chooses to use it”. The Ombudsman felt that the issue of day to day control did not involve factual issues which could only be determined fairly in the more formal court process.[53]The Ombudsman also provided a witness statement for the court. He states that he read all the scheme documents, and taking them alone, he concluded that the complaint was about investment advice in respect of a CIS. He also considered it relevant to consider how the scheme operated in practice, which also demonstrated that the scheme was a CIS, and was operated consistently with the scheme documents. He confirmed that Chancery had raised no issue before him relating to s235(3) of the FSMA, whether as to pooling contributions and profits or as to the scheme operator, to contend that the scheme was not a CIS.

The approach to the jurisdictional challenge

[54]The challenge to the FOS’ decision on jurisdiction proceeded on two broad fronts: the role of tax advice, said to take the recommendation outside the scope of a regulated activity, and the issue of day to day control by the members of PM1, which was said to take PM1 outside the scope of a CIS. Chancery also wished to raise an issue about pooling contributions and profits, which, if absent, would also show that the PM1 was not a CIS, although it accepted that this issue had not been raised in representations to the Ombudsman.[55]Ms Foster submitted that it was not open to the FOS to determine the limits of his jurisdiction, and that factual and legal issues which determined whether or not a complaint fell within the FOS’s compulsory jurisdiction were for the Court to decide for itself, and not for the FOS to decide on the basis of a reasonable judgment, which might be wrong, let alone on the basis of what was fair and reasonable.[56]Mr Strachan submitted that the decision of the FOS was right if it were for the court to decide that issue, and if that were not an issue for the court, the decision was reasonable and it should be upheld on either basis. He preferred the latter formulation. But in any event, the issue of jurisdiction should be left until the conclusion of the merits decision, during the course of which Chancery could raise the issues over jurisdiction which troubled it, including those not raised before the FOS as yet.[57]Ms Foster’s submissions drew on R(A) v London Borough of Croydon [2009] UKSC 8, [2009] 1 WLR 2557. This concerned whether the assessment of whether a person was a “child” for the purpose of being a “child in need” within the Children Act 1989 was a matter for the evaluation of the local authority or for the determination of a Court. The question of “need” was an evaluative question for the authority, subject to judicial review; there were no right or wrong answers. By contrast the question whether a person was a “child” was one to which there was a “right or wrong” answer. That made it a question for the Court on whatever evidence it had and however imperfect it might be; see paragraphs 26-27, Baroness Hale. It was a question of statutory construction as to where in any particular enactment, Parliament had intended that the line should be drawn between a public authority and the court in determining whether the conditions existed for the exercise of a statutory power or duty. The Children Act 1989 was drafted by those more aware of that sort of issue than had been those who drafted the National Assistance Act of 1948. And on the construction of the Act, the position was clear.[58]Additionally, whether a person was a “child” or not was an issue of jurisdictional fact; paragraph 29. This would mean that a public body would have to inquire into the facts in order to decide whether or not to take the case but if it got the decision wrong, it could not give itself a jurisdiction it did not have.[59]Baroness Hale contrasted R v London Borough of Barnet, ex parte Shah [1983] 2 AC 309 as an example of a statute in which the court was required to decide what the words meant and the public authority had to decide whether the facts fitted the words: it was for the court to decide what “ordinarily resident” meant for the purposes of s1 of the Education Act 1962, which imposed a duty on local authorities to grant educational awards to those who were “ordinarily resident “ in their areas; it was for the court to decide whether the authority had directed itself correctly in law in relation to whether their absence of a right of abode, and a duty to return to their own country on completion of the course, meant that they could not be “ordinarily resident” in any such area. It was for the authority to decide, subject to rationality, whether the words applied to the facts it found about the residence of the students. She distinguished R v Hillingdon LBC ex p Puhlofer [1986] AC 484; the key words of the Housing (Homeless Persons) Act 1977 were:
“A person is homeless …if he has no accommodation…”
This was a question of fact for the local authority: did he have “what can properly be described as accommodation within the ordinary meaning of that word in the English language;” Lord Brightman at p517B, subject of course to the application of traditional bases of judicial review. Baroness Hale treated this decision as turning on the construction of the Act, in which the discretionary judgment had been left to the housing authority in the light of Lord Brightman’s reference on p518 to the Act abounding with phrases which left judgments to the satisfaction of the authority, even though the actual section in issue did not in fact do that. And his comments were warning against the increasing use of judicial review where traditional grounds meant that the courts should leave such judgments to the statutory authority.[60]There is another earlier House of Lords decision to which I should refer, not held to be wrong in A v Croydon. R v Monopolies and Mergers Commission ex p South Yorkshire Transport Ltd [1993] 1 WLR 23, House of Lords, considered a jurisdictional decision by the Commission. The Fair Trading Act 1973 s64(3) permitted a reference only where the reference area was “a substantial part of the United Kingdom”. The Commission decided that it was. This decision was challenged. The issue arose as to the proper function of the Court. Lord Mustill dealt with this at p32E-H. Although the respondent accepted that the Commission’s decision on where the public interest lay was a broad judgment, challengeable only on grounds of irrationality, the question of jurisdiction, it submitted, “by contrast, is a hard-edged question”, leaving no room for legitimate disagreement: “Either the commission had jurisdiction or it did not. The fact that it is quite hard to discover the meaning of s64(3) makes no difference. It does have a correct meaning, and one alone; and once this is ascertained a correct application of it to the facts of the case will always yield the same answer. If the commission has reached a different answer it is wrong, and the court, must intervene”.[61]Lord Mustill however agreed with this in part only. Once the correct criteria had been established by the court for ascertaining the meaning of “substantial part”, the hard-edged or clear-cut approach may no longer be applicable to every case. This is because the criteria may themselves be:
“so imprecise that different decision-makers, each acting rationally, might reach differing conclusions when applying it to the facts of a given case. In such a case the court is entitled to substitute its own opinion for that of the person to whom the decision has been entrusted only if the decision is so aberrant that it cannot be classed as rational.”
[62]There are two recent decisions in which the FOS’ jurisdiction has been specifically considered. Mr Strachan relied on R (Bankole) v FOS [2012] EWHC 3555 (Admin). Sales J had to consider a challenge by way of judicial review to a decision by the FOS that a complaint was out of time and therefore one which the FOS had no jurisdiction to hear. DISP 2.8.2 reads:
“The Ombudsman cannot consider a complaint if [it is referred to the FOS] (1) more than six months after the date on which the respondent sent the complainant its final response….”
This was held to set out a “binding rule of subordinate legislation”; [13]. It was clear from the rules in the DISP section of the FSA Handbook, that the scheme created by the rules “envisages that it will be the ombudsman who determines whether or not a complaint is made within the time limits specified in those rules…”; [15]. That decision was subject only to review in the court on the usual judicial review grounds. The question of whether a complaint was brought within time could not be categorised as turning on a judgment of precedent fact, in the sense that it was a factual determination for the court to make for itself; [ 20].[63]Ms Foster countered with R(Bluefin Insurance Services Ltd) v FOS [2014] EWHC 3413 (Admin): the issue was whether the FOS was right to hold that a particular person was eligible to bring a complaint. To be an “eligible complainant” as defined by DISP, he had to be a “consumer” in turn defined by DISP, as “any natural person acting for purposes outside his trade, business or profession”. The Claimant said that this was a matter for the Court, the FOS that it was a matter for the FOS subject to judicial review on Wednesbury grounds.[64]Wilkie J concluded, applying A v Croydon, that the issue turned on the proper construction of the statute. He distinguished Bankole, which he regarded as correctly decided, on the grounds that the rule at issue in the context of time limits was part of the scheme for dealing with disputes quickly, and with minimum formality. But the rules defining “eligible complainant” required a hard-edged finding of fact. “Consumer” was also a word used in EU legislations and decisions of the European Courts had regarded the question of who was a “consumer” as one which they “were comfortable to take and involve an objective decision based upon a series of known facts.” In the context of this statutory scheme, access to the compulsory jurisdiction of the FOS, “with its enhanced benefits or burdens, is determined by reference to limiting conditions stated in objective terms.” It was an issue of precedent fact. But even if not, the nature of the decision meant that there was a right or wrong answer, as identified in A v Croydon, rather than an evaluative one for determination by the FOS, subject only to the usual principles of judicial review.[65]Mr Strachan submitted that the approach in Bankole was to be preferred, at least in this case, which did not concern the question of definition in the same way, and the facts relevant to the issues here were not agreed, as they had been agreed in Bluefin. Indeed, in reality Bluefin was not readily distinguishable from Banhole, and was wrongly decided.[66]I accept the proposition that the FSMA should not be construed so as to make the FOS master of the limits of its jurisdiction, right or wrong. It is for the Court to decide whether it has acted with or without jurisdiction. It cannot act without jurisdiction simply because its error was reasonable. It is a matter of statutory construction as to how the limits of its jurisdiction are resolved: what decisions are challengeable only on traditional judicial review grounds and what decisions require a different approach, whether one in which the court decides the law, finds the facts and applies the law to the facts, deciding whether the FOS’ decision was simply right or wrong and considering new evidence if it wishes, or one in which the Court decides the meaning of the words at issue, and the FOS finds the facts and applies the correct meaning in law to them as a matter of its own reasonable judgment, or one in which the Court decides, on the facts found by the FOS, whether the application of the law to them is correct rather than reasonable. Of course, the fact finding is subject to review on traditional grounds.[67]In my judgment, as a matter of statutory construction, it is the last approach which applies here. Is there a distinction between tax advice and investment advice, and if so, on the facts found by the FOS, was advice given here which was a regulated activity? Both of those aspects are for the Court but on the facts as rationally found by the FOS. The meaning of day to day control is a matter of law; on the facts agreed or rationally found, did the FOS correctly conclude that the participants lacked day to day control?[68]The FOS provides an informal but compulsory dispute resolution procedure. It has its own procedures. The cases it has to consider may range from the very simple to those involving complex financial products, and statutory language which may be broad and far-reaching in scope. It is an expert and specialist body. It is not however, the only body which has to construe the words of the FSMA which give it jurisdiction, and apply them to the persons who fall within the remit of the FOS. Of course, where a dispute resolution procedure exists, the decision on the dispute is based on what the decision-maker reasonably believes the position to be, on how the issue appears to him, and on how the words appear to him reasonably to be applied. But where the issue goes to jurisdiction in the first place, the leeway would have to be more clearly expressed to give the decision- maker such scope for deciding the limits of a statutory jurisdiction, or else the leeway would have to be obviously related to those matters which Parliament would have intended to leave for its judgment, such as on procedural matters or the exercise of its discretion not to hear a case within its jurisdiction.[69]Bankole was therefore rightly decided: it concerned the FOS’ judgment on a procedural aspect of a complaint. Parliament cannot have intended that the question of whether a complaint was made to the FOS on one day or another was for determination anew by the High Court. It is distinguishable from Bluefin on very clear grounds. There it was far from a procedural issue but one which, if the FOS were wrong, meant that it would be deciding that someone who was not eligible on the facts to complain was indeed eligible, and so would be giving itself jurisdiction which it did not have. The language there was not so wide or uncertain as to its scope as to put it into the realms of the South Yorkshire Transport case.[70]Of course, the facts were not at issue in Bluefin, but that does not alter the principle. It merely goes to the point at which the Court should deal with the issue, whether before or after the full facts have been found by the FOS. But nothing in that case suggests that it is the Court which would find the facts, or that Wilkie J would have done so if they had not been agreed. Given that the FOS provides an informal but specialist dispute resolution, with its own rules, it is my view that Parliament cannot have intended that the High Court should act as the primary fact finder on jurisdiction issues, especially since those issues will often overlap with merits issues, as they do here. Two bodies would otherwise be involved in considering the same issues, but on potentially different evidence. The facts are not agreed here; the Interested Party has not given evidence to the FOS or the Court. The facts as laid before the Court by the Claimant would require a full trial before the disputes could be resolved by a Court. So I consider that the FOS must be the fact finder and that its fact finding is reviewable only on traditional grounds.[71]But I do not think that the same applies to its application of the law to the facts. Of course, on any view, the FOS must direct itself correctly on the law, as to the meaning of words and phrases, and as to the defining characteristics which must be present for a phrase to apply. The FOS should expect that a reviewing Court would regard its assessment of the way in which the law, correctly understood, applied to the facts, as at least persuasive. But that is not the complete answer. If the Court is persuaded that on the facts found by the FOS, the correctly understood law had been applied wrongly, the Court must rule that the FOS had no jurisdiction. Otherwise, the intention of Parliament that only those who met certain conditions or that only certain activities fell within its jurisdiction would be undermined. There can only be one right answer as to whether the complainant was eligible, whether the scheme was a CIS, and whether, to the extent that tax advice fell outside the FOS’ jurisdiction, the advice given nonetheless fell within it as investment advice. A statutory compulsory jurisdiction, resolving disputes, leading to compensation is rather different from those statutes as in Shah v Barnet, Puhlofer and South Yorkshire Transport where there is clearly an evaluative issue, an issue of application, which must have been intended to be left to the decision-maker.[72]Although the question therefore is not whether the application of the phrase, properly understood, to the facts was reasonable, and the question is whether it was wrong, the reviewing court will have to be satisfied that the body experienced in dealing with these issues was wrong in its jurisdictional decision before overturning it. The court will give due weight to the decision of that body; however if it is wrong but reasonable, it will not have jurisdiction. There may be no great difference in the results between the two approaches. This is consistent with the approach implicitly adopted by Leggatt J, in London Capital Group, which was a challenge to a jurisdictional decision of the FOS, though he did not consider, nor was he asked to decide, on what basis he should resolve the jurisdictional issue.[73]The issues facing the FOS here do not arise exclusively before the FOS. It would not be right to have a decision on a complaint before the FOS going one way on such an issue, and a decision in a civil action going the other way on what might be an action by a person who could have made such a complaint in relation to precisely the same scheme but who chose to go by action instead.[74]Although FSA v Fradley & Woodward [2005] EWCA Civ 1183 concerned the approach on appeal from a judge and not review of a FOS jurisdictional decision, the approach which I have concluded is correct is consistent with the thinking in that case. Arden LJ pointed out at [32] that the application of s235 of the FSMA depended on the specific facts of the case, which would have to be determined by a court of law on the evidence - for court of law, in this context, I substitute the FOS. Once the facts are found, “it is unlikely that an appellate court will set those findings aside unless the judge is plainly wrong”. Yet the Court decided whether the application of fact to law was unjust or wrong. If an appeal is not a full rehearing as Arden LJ said, even less is a review of the jurisdictional decision of the FOS.[75]My conclusion reinforces two points: first, I emphasise that I am not suggesting that the FOS should not decide on jurisdiction, if it is an issue, at the outset. That may be the end of the complaint or of the issue. However, although it is for the FOS to consider jurisdiction at the outset, if it decides that it has jurisdiction where that is contested, it may need to keep the question of jurisdiction open throughout the course of the decision-making process. The issue may not be closed by the final jurisdiction decision. New evidence and issues will have to be considered. The facts are not agreed; the position of the Interested Party in relation to the advice given and in relation to day to day control has yet to be explored fully. It may go to jurisdiction as well as merits. Mr Strachan asserted the general position of the FOS as being that jurisdiction would be kept open as an issue, but offered specific assurances as well in this case. Mr Laird of Reynolds Porter Chamberlain, solicitors for Chancery, says that it is not his firm’s experience that the FOS has revisited jurisdiction in the final decision; its policy was therefore inconsistent. Mr Laird did not suggest that, in the example he gave, there had been any specific assurance as here. But whether he is right about the FOS’ general position in fact, jurisdiction is not closed here, and in the light of what I have said, it should not be closed generally. Where jurisdiction has been and continues to be disputed, the FOS must consider any evidence and argument which goes to his jurisdiction, until the conclusion of the case, and he should identify that in his decision.[76]Second, there is obviously scope for considerable overlap between some jurisdictional issues and some merits issues, as in this case over what constitutes tax advice which is not investment advice. This tells strongly but not necessarily always in favour of the Court’s intervention waiting until the final merits decision, when all the facts are found, provided that the first point above is conscientiously observed. There is a further qualification: the issue of jurisdiction is not one for the fair and reasonable assessment of the FOS: the FOS is right or wrong. The overlap between the factual issues which go to jurisdiction and which go to merits must not obscure that. The finding of facts is obviously to be fair and reasonable but the final decision on jurisdiction must be right as well.[77]In the light of those considerations, I turn to the question of prematurity.

Prematurity

[78]Mr Strachan on behalf of the FOS launched a pre-emptive strike, saying that the FOS was prepared to listen to any argument or evidence which Chancery wished to place before it, in the course of its investigation, on any of those issues which could show that the FOS did not have jurisdiction. The tax and merits issues went together. The dispute over jurisdiction was not closed by the Final Decision on jurisdiction, if the evidence or argument showed that the complaint did not give jurisdiction to the FOS. The same would apply to any other arguments going to that issue. This point had been made in Pre-Action Protocol correspondence, and in the FOS’ Summary Grounds of Defence. There was therefore no point in these judicial review proceedings.[79]This is akin to an alternative remedy or non-exhaustion of remedies argument. There is, it seems to me, much sense in adopting this course, especially as the issues of whether or not the advice was predominantly a form of tax advice, and if so, whether that meant that there was no room at all for regulated investment advice, could go to jurisdiction or to merits, depending on the totality of the evidence, and the same is true of the issue of day to day control. Where the issues of jurisdiction and merits overlap, that should be the normal approach. Indeed, that should be the case unless there is a clear cut issue of law, not dependent on disputed facts, raised in the jurisdiction decision which would be determinative of the claim. It avoids issues being considered twice, and incompletely the first time. What I have said about the approach to jurisdiction is strongly supportive of that approach.[80]But, putting to one side the irrelevant but undeniable attraction of concluding the judgment at this point, I do not consider that I can accept that submission in this case, whatever may be the position in other cases. I have heard the arguments. There are some issues of approach to jurisdiction which I can properly deal with for the assistance of the parties. Mr Laird sets out in his witness statement that there are now 80 complaints against Chancery currently before the FOS, almost all brought through Rebus. Similar issues may arise.[81]Chancery also contends that the Ombudsman should not hear this case, and others like it, in the exercise of his discretion. That issue must be resolved.

Tax advice as a jurisdictional issue

[82]The starting point of Ms Foster’s submissions that tax advice is not covered by the FOS scheme is s226(2)(c ) of the FSMA, which leads to s22. PM1 was not, she submitted, an investment but a tax mitigation scheme. Advice about it was not advice to an investor for the purposes of Article 53 of the RAO, but was advice for the purpose of making a loss for tax advantages. Where a “product” was recommended solely for tax reasons, the advice was only tax advice, even if the type of investment or product was a specified investment.[83]The nature of the advice was essentially a factual issue, in deciding which the FOS had failed to consider the Proposal document, and had ignored passages in the Suitability Report and in the Terms of Engagement which dealt with tax planning. The evidence from those documents, supported by Mr Nichols’ evidence, which described the Interested Party’s attitude towards tax avoidance, the scheme and his involvement in its activities, was that only tax mitigation advice was given and received, which Chancery said was also the view of Rebus. Indeed, Ms Foster submitted that the sole purpose of the Interested Party in joining PM1 had been to obtain sideways loss relief, via a “total accounting loss”; he had had previous experience of tax avoidance schemes. His real complaint was that the effectiveness of the scheme in avoiding tax had fallen short of his expectations, which was not an FOS issue. The advice given was not on the merits of buying or subscribing to an investment. Advice of an investment nature would have been expected to cover future economic performance, and no such advice was given. The Interested Party was told by Chancery that advice of that sort should be sought from someone else under separate Terms of Engagement. Even if making a profit had been a possibility, the overriding purpose in the advice and scheme was tax avoidance.[84]Ms Foster drew support for her distinction between tax advice and investment advice from the Perimeter Guidance produced in the FCA Handbook, which sets out its view of what was likely to constitute “advice or information”. Paragraph 8.28.1G states that advice involves a recommendation on a course of action, whereas information involves statements of facts or figures without comment or value judgment on their relevance for the decision which the investor may make. Instances of information are then given. Advice must relate to the buying or selling of an investment, that is the pros and cons of doing so; paragraph 8.29.1G. Paragraph 8.29.5G says that “Without an explicit or implicit recommendation on the merits of buying or selling and investment, advice will not be covered by article 53 [RAO] if it is advice on: (5) how to structure a transaction to comply with regulatory, competition and taxation requirements….”[85]Although Ms Foster submitted that it was for the Court to decide this issue as a matter of jurisdictional fact, her submission in effect also encompassed the proposition that the FOS had erred in its approach to the distinction between tax advice and investment advice, and its conclusion was simply not open to it on the facts, even excluding the facts newly before the Court in Chancery’s witness statements.[86]The tax avoidance purpose of film schemes had been considered in Acornwood LLP and others v HMRC [2014] UKFTT 416 (TC). HMRC accepted that the film schemes were marketed and entered into for tax avoidance, and that the partnerships were engaged in trade, with a view to profit, but contended that profit was a mere incidental to the real purpose which was the manufacture of artificial losses, not matched by true economic losses, with the aim of generating relief against tax; paragraph 5. Ms Foster pointed to a number of similarities, highlighting paragraphs 186-190: there were no forecasts of trading revenues and profits, no evidence-based projections of future incomefor PM1, the importance of what was said about taxation in the recommendations and scheme documents, showing, as HMRC said in that case, that their primary purpose was to identify how tax relief would be obtained, and those consequences were explained in considerably greater detail than prospective trading profits.[87]Ms Foster drew upon paragraph 194, in which the FTT concluded:
“194. It is in our view quite clear that no investment adviser, and no sophisticated investor, would regard the IIM or the PowerPoint presentation as the means of encouraging investment into a trading partnership, which happened to have tax consequences requiring an explanation. It is perfectly clear that the tax consequences were the central feature of both, and that the investment adviser or sophisticated investor would recognise that fact. In so far as Ms Hamilton gave evidence to the effect that this was a genuine investment opportunity, we reject it. Although we have taken only one example of an IFA’s letter to a prospective investor, we are satisfied that it demonstrates clearly how a typical IFA viewed the scheme, namely as a means of reducing the investor’s tax liability rather than as a conventional investment product.”
[88]She also pointed to the conclusions of the FTT that no serious investor would rationally have chosen an Icebreaker Partnership, and none could have had any rational expectation that any money would ever be returned to them; they had hoped for profits which were a long shot, without any genuine investment motive and had not seen it a worthwhile investment opportunity, paragraphs 207 and 209.[89]The two points raised by HMRC in that case, which are not before me in relation to PM1, were that the schemes were ineffective to achieve the tax aim, and that the borrowings, which were the larger part of the capital contributions, were not capital contributions in reality, but merely a device to increase the size of the apparent losses. As Mr Strachan pointed out, the bank borrowings in those cases were secured by guaranteed returns to be paid to the LLP from an associated “exploitation company”; paragraphs 2-3. The FTT concluded that the bank borrowings were entirely artificial as a means of raising capital, and the economic effect of the scheme would have been the same if there had been no borrowings at all. Mr Strachan contrasted that with the position here, where the loan contributions were to be repaid from the income generated by the LLP.[90]Mr Strachan rejected the distinction drawn by Ms Foster between tax advice and investment advice; investment decisions were often made on the basis of their tax advantages, such as pensions and ISAs. The statutory scheme did not support such a distinction in the way contended for. Even if the advice was limited to the tax advantages of an investment, it was still advice on the merits, albeit of one kind, of buying or subscribing for the investment. The suggested distinction was unworkable where the means of securing special tax treatment was part of the investment, even the whole of its purpose. The Guidance in PERG supported his contentions about where the distinction between tax advice and investment advice was drawn for these purposes. Chancery had not offered advice as to how best to structure a transaction, which the Interested Party was considering entering, so as to maximise the tax advantages of doing so. It had not simply advised either on what the tax consequence of entry into PM1 would be. It had advised on entry into PM1, even if only for tax reasons.[91]In fact, Chancery’s advice had not been so limited anyway, and had referred to the security of the loan and the potential for profits. The documents needed to be read as a whole. The recommendations of the Suitability Report included the opportunity to obtain real returns, repaying the loan and with prospects of additional income. The FOS had considered the Proposal document which referred to the prospect of medium term profits as well as the tax advantages. The recoupment position would lead to equity returns once sales reached between 25 and 50% of budget. The Business Overview objectives sought to generate significant profits and revenue streams, providing income benefits to members.[92]I accept Mr Strachan’s submissions. In my judgment, there are two issues which arise. The first is whether the distinction which Ms Foster draws between tax advice and investment advice is as sharp as she submits, such that if the purpose or dominant purpose of the giving and receipt of the advice is for tax purposes, it cannot be investment advice. The second is whether the advice given here includes as a matter of fact advice about investment to some degree.[93]On the first issue, tax advice may or may not be or include investment advice. There is no necessary sharp distinction requiring advice to be pigeonholed as one or the other, nor could such a distinction be sensibly drawn where there are mixed reasons behind advice. The PERG advice delineates the two properly, but not helpfully to Ms Foster. There is no dominant purpose test. To the extent that advice about an investment is investment advice it is a specified activity. The concept of dominant purpose drawn from R (London Capital Group v FOS), to which I come later, does not relate to the investment advice but to how “purpose” is construed in a different context.This was not a case about structuring a transaction which was to take place anyway. It was not a case in which the advice was confined to the tax effect of investment in film schemes or PM1. The dominant purpose of the advice may be tax avoidance but it can still be investment advice: this case, as it appears at present, is a good example of how the two cannot be separated by a dominant purpose test. Where there is a risk that advice is unsound tax advice or that the scheme will not achieve its tax avoidance aim, and so where the sole or primary purpose of putting money into the vehicle may fail, I do not see why there can be no underlying investment in the tax avoidance vehicle about which specified advice may be given. Even if here the dominant purpose of the advice was tax avoidance, money was invested, repayable loans were taken out, returns were to repay the loans.[94]The advice was to put money into a scheme. There are plenty of investments in which tax considerations will play a part and perhaps the dominant part. The investment does not have to be for a profit in order for advice to be a specified activity; here though there was a clear gain envisaged behind the scheme, in tax advantage and in return. In FSA v Fradley & Woodward [2005] EWCA Civ 1183, the particular scheme related to a betting service which collected money and placed it on the horses, from which they received winnings as profits. Arden LJ rejected the contention that this activity was not investment as it was gambling. She pointed out that the FSMA did not simply regulate investment activity in the usual sense, but contained very widely cast provisions which did not depend on the activity being a conventional investment activity. Once FSMA applied, there was no additional requirement that the activity should be for the purposes of a traditional investment.[95]I do not need to decide whether advice to put money into the Icebreaker Partnership in Acornwood would have been investment advice, but the decision in that case does not preclude such a conclusion, and more importantly, the schemes there and here differ significantly in characteristics relevant to the concept of investment, as Mr Strachan pointed out. I found no assistance for Ms Foster in Acornwood, quite apart from the grounds of distinction which Mr Strachan rightly pointed out. It did not address the issue here, since it did not need to; and it could not hold that all film schemes designed with tax avoidance in mind were merely and only tax avoidance vehicles without underlying investment potential.[96]The FOS did not err in its approach to whether, if tax avoidance had been the purpose of Chancery’s advice, it was also investment advice.[97]If the issue on jurisdiction is whether or not the FOS reached a reasonable decision on the evidence before it as to whether the advice was a specified activity, it would be quite impossible to hold that it had failed in that respect. Indeed, if the decision is for me on the facts set out by the FOS, it is difficult to come to any other conclusion, and I would not do so. I have set out what the documents show, and I have accepted Mr Strachan’s submissions about them. In short, they show that at least largely for tax purposes, the Interested Party was advised to put money into PM1; but it would also have to provide the means to repay the loan and there was the prospect of profit. The investment scheme was not a sham, a disguise for shifting money about with no commercial point; real films were to be financed with a view to a return at the box office. However, it may yet be the case, as the FOS considers the nature of the advice given during its consideration of the complaint, as it will have to do, that the view that it has formed might be affected by the evidence of the parties before it, as to what was asked for and said. That will be relevant to jurisdiction if the advice turns out to be rather more limited than appears at present.[98]I have also considered the evidence not before the FOS; I am not persuaded, on my approach to jurisdiction, that it is admissible, but if so, it would not cause me to change my mind. But I repeat the qualification above.[99]Ms Foster submitted that the FOS had erred in looking at more than the scheme documents when judging the nature of the advice. The question, when jurisdiction was in issue, had to be judged by reference to the documents and the factual matrix at the time the advice was given, as evidencing the objectively judged intention of the parties, and not by reference to the way in which the scheme was implemented in practice. It is the character of the agreement about which advice was given which was crucial, and not how after entry into the scheme, the parties behaved: it was described as a trading partnership and as not being an unregulated CIS; members were advised to get specialist taxation advice; they were required to be actively involved in the business, and it was not said to be a sham arrangement.[100]This issue was more relevant to the question of whether, according to the scheme documents, the members of PM1 exercised day to day control over its management. I deal with it more fully in that context. But if the scheme is a CIS, it is inevitable that the “purpose or effect” of the scheme has to be considered and that involves looking to see how it operated in practice. The characterisation of advice as investment advice should of course focus on what was said, and on how the scheme was expected to operate. But if the nature of the scheme is affected by its effect, it is not easy to see why the nature of the advice should not equally be affected, given that a question is whether advice was given about a CIS. Nonetheless, there is nothing in this point in reality: the advice is investment advice on the scheme documents, on the evidence before the FOS, and on the way it operated.

PM1: was it a Collective Investment Scheme, taken as a jurisdictional issue?

[101]This raised two issues. First, Ms Foster took issue with the factual assessment by the FOS of who had day to day control. It ought reasonably, and as a matter of the evidence, to have concluded that the scheme was not a CIS, in view of the participants’ degree of day to day control. There was also a related issue about whether the FOS ought to have considered anything beyond the scheme documents, and not how the scheme operated in practice. Second, Ms Foster contended that the “purpose or effect” of the scheme was not to “receive profits or income” but a tax advantage, and the FOS ought to have held that the scheme was not a CIS on that ground as well. Each of those decisions was in error and went to his jurisdiction. I deal first with day to day control.[102]In Russell-Cooke Trust Co v Elliott 16 July 2001 (unreported), Laddie J had to consider what constituted day to day control for the purposes of a CIS. In paragraph 20, he said:
“In colloquial terms, what the subsection is directed towards is identifying who is or will be “minding the shop” on a day to day basis. It may be that the person who is involved in a day to day basis is answerable to someone higher up the chain on whose behalf he is acting. But it is the former, not the latter, who has day to day control. If the investors have day to day control, then the investment is not a CIS. If Elliotts have day to day control, and the participants do not, it is a CIS.”
[103]The fact that one or more investor might have a right to be consulted or give directions did not mean that they had control over the management of the property. He held that it was relevant to consider both what happens when the investment is in place and whether the necessary control is shouldered by those who will be contributing to the investment.[104]This decision was appliedin FSA v Fradley & Woodward, paragraph 46. Moreover it was necessary for each member to have day to day control in order for an arrangement not to be a CIS, which would be difficult to show in any case without proper regulation. The existence of day to day control could not be answered by reference to the activities of one member; Asset Land Investment PLC v FCA [2014] EWCA Civ 435, paragraphs 85-88. This affirmed the decision of Andrew Smith J which the FOS decision had referred to. It clarifies that a scheme remains a CIS even if some participants have day to day control; paragraph 46 of Fradley & Woodward could suggest that a scheme could be a CIS for some participants and not for others.[105]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, above. In Secretary of State for Business Innovation and Skills v Sky Land Consultants Plc [2010] EWHC 399 (Ch), the issue on a winding-up petition under the Insolvency Act 1986, was whether the company was operating a CIS, as defined by s235 of the FSMA. At paragraph 15, David Richards J considered the tests in s235(3). The test was directed to the way in which the arrangements in fact operated; they did not require an enforceable right to manage. In Andrew Brown v Innovatorone Plc [2012] EWHC 1321 (Comm), Hamblen J, paragraph 1171, held that even if the documentation was sufficient for day to day control to be exercised, that did not of itself suffice, if it were not exercised in practice. Asset Land in the Court of Appeal accepted that the question of day to day control could involve examination of the actual operation of the scheme and was not confined to an analysis of the documents.[106]Ms Foster relied on R (London Capital Group) v FOS, as Chancery had done before the FOS, to contend that what mattered alone was the documentary material and not what happened in practice, though her submissions went on to rely on what actually happened. Properly understood however, this case does not support her submissions. The issue was very different: as the FOS pointed out in its Final Decision here, it was whether the investment was rights under a contract “the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations….” Leggatt J held that this meant “dominant” purpose since a contract might have more than one purpose. The focus had to be on the purpose of the customer rather than the purpose of the person carrying on what may be the regulated activity. In order to determine that, [20], “[i]n accordance with general principle, the purpose of the contract and the intention of the parties must be ascertained objectively by construing the terms of the contract in its factual setting. It is not relevant to ask what [the parties] subjectively intended. The task for the court is to ascertain what purpose and intention reasonable people in the situation of the parties to the contract may fairly be taken to have had.”[107]At paragraph 24, Leggatt J added that if what was done did not accord with what was agreed, that could not affect whether the rights under the contract were a regulated investment. He construed the documents, rejected the contention that the investment was not regulated, and held that the FOS had jurisdiction. Leggatt J was faced with an issue which, on the proper interpretation of the RAO, he treated as one of construing the contract. The principle he applied was the principle generally applicable to such a task, which is not to admit evidence of how a contract was operated to show what its terms meant. He was not making any more general point about how other issues under the RAO as to whether an investment was regulated or not had to be decided.[108]The issue by contrast in the present case was whether the advice given was “advice on the merits of [the Interested Party] buying…or subscribing for…a security” in the form of a CIS, that is a scheme with respect to any property “the purpose or effect of which is to enable persons taking part in the arrangements to participate in or receive profit or income….” The arrangements must be such “that the persons who are to participate… do not have day to day control over the management of the property….” I have also referred to the other required characteristics. The statutory language makes the practical operation of the scheme relevant to show its nature. Mr Strachan highlighted the relevance of the “purpose or effect” of the scheme as showing that the manner in which it operated could be relevant not just to the purpose of the scheme but also to its effect, either of which could suffice for a CIS.[109]I see nothing in the approach of the FOS to suggest that it erred in law in its approach to day to day control or in the factors he took into account.[110]The next question is whether the FOS was wrong on the facts found to reach the conclusion that PM1 was a CIS. Ms Foster submitted that the Interested Party was one of a small number of members who, collectively, were intended to and did make decisions. He and the others carried out the key tasks, such as choosing a film. PFFL wrote that he had spent hours discussing “deal memoranda” for projects, viewing film proposals, visiting sales markets, and many other types of ancillary work. He was semi-retired, and therefore did have the necessary time for such control. There was no evidence that he was a “film amateur”. The evidence of his activity, as the documents had required of him, satisfied the concept of day to day control, which did not require members to control every conceivable activity that a business might have to engage in. He had become chairman for the period 2009-2013, but that was not in evidence before the FOS. The FOS had not sought any information about the activities of the Founder Members nor of the membership of the Executive Committee or its activities. But the fact that this Committee was made up of two members showed that it was the members themselves who had day to day control over the management of the property.[111]Mr Nichols gave evidence in a witness statement, also not before the FOS, to the effect that no use had been made of an Executive Committee, and the partners made the necessary decisions between themselves, taking such external advice as they thought necessary. They had all been very much involved in attending regular meetings, discussing the existing and potential opportunities for investment, deciding into which films their contributions would be invested. They made all the decisions about the direction of the partnership, the films selected, distributors, the timing and amount of investments; they attended film festivals, the sets, post-production activities, and pre-release screenings. Partners contributed in different ways to different films.[112]Mr Strachan pointed out that the purpose of the PM1 scheme was relevant to understanding who had day to day control. Wealthy investors, who required no expertise or experience in the film industry, injected money into film production to obtain tax benefits. The scheme documents were devised to meet HMRC requirements in relation to activity and not the requirements of a CIS. In reality the FOS was entitled to, and was right to, conclude that effective day to day control rested with the film industry experts who were also partners. What the Interested Party did was not within the concept of day to day control either, although it may have been activity for HMRC purposes. There was no evidence that all the partners had the necessary control even if what the Interested Party did meant that he had day to day control.[113]Mr Strachan submitted that the documents themselves showed that the scheme was a CIS. Its manner of operation was merely supportive of that. The members did not have day to day control on the documents alone. The investors, whatever their general business expertise, needed no film production expertise to participate, especially when PM1’s Founder Members did have that expertise. An Executive Committee was required under the partnership agreement, with the effect that it was not necessary for every partner to participate in day to day control. It had never been suggested that the scheme had operated in a way other than that which the documents suggested. Had it been, Mr Nichols, as Chairman, would have been expected to advise the Interested Party that that was happening, although he did suggest in his witness statement, that no Executive Committee had been set up.[114]I accept Mr Strachan’s submissions. The FOS was not wrong in concluding that PM1 was a CIS because not all participants had day to day control. It is also right in holding that the Interested Party did not either. The level of activity for day to day control is not that of supervisory oversight; the power to exercise day to day control if so minded does not suffice. The evidence is of participation in activities, and of a decision-making role if so minded on some crucial aspects such as whether a particular film should be taken forward. The participation may well satisfy the level and degree of activity required by HMRC. But it was never formulated and considered with a view to providing day to day control. Nor on the evidence, whether or not before the FOS did it do so. I accept the realism of what Mr Strachan submitted about who would actually make the day to day decisions in PM1. But, of course, as I have said already, the issue is not closed off to all evidence by the jurisdiction decision, and further evidence and argument may require it to be reconsidered by the FOS.[115]In one sense, the submission that the issue had to be tested on the scheme documents alone is irrelevant since the Ombudsman, in his witness statement, said that he had considered the scheme to be a CIS based on the scheme documents alone. Its subsequent operation had supported that conclusion. His evidence was not said to be inadmissible, though its adequacy was criticised, and it was said to have contradicted the terms of the Final Decision. I see no reason to doubt what he said, though it does not appear in his decision. This Decision to my mind clearly takes the view that, at least where information about what has happened in practice is available, that is relevant. I infer that the FOS was not saying that no judgment could be reached on the documentation if the scheme had not yet begun operation or if there were no evidence of how it operated. But he clearly rejects the view that he should have confined himself to the documents, and does not suggest that he had reached a view on them alone. Ms Foster submitted that in consequence, the FOS’ analysis of this point was of little weight. That is as may be, but it was correct in my view on the documents or with the additional evidence he considered or which was placed before me.[116]On the second point, Ms Foster contended that PM1 was not a CIS but a trading partnership, as the scheme documentation proclaimed, the “purpose or effect” of which was not to participate in profits or income but to make a loss which could be utilised for tax purposes. Success was an uncovenanted by-product of the true purpose which was to create a loss in the first year of participation so as to provide for tax relief. Mr Strachan submitted that the definition covered both “purpose or effect”. The definition of “profit” included “economic benefit” and that covered making a loss beneficial for tax purposes. “Profit” was also revenue received rather than revenue received in excess of costs.[117]InAsset Land Investment plc v FCA [2014] EWCA Civ 435, Gloster LJ, held [72[ that:
“I accept the FCA’s contention that “receive profits” ought to be construed so as to include the making of notional balance sheet profits and the receipt of any other economic benefit, irrespective of the actual realisation of such benefits. Thus the unrealised increment in value of the Sites would have constituted “profits” within the meaning of the provision. The words “profits” and “income” have a wide meaning. In my judgment, there is no reason why they should be restricted to realised profits or gains.”
[118]I cannot accept Ms Foster’s submission. The FOS was correct in his approach; and his conclusion on it was inevitable. The tax advantage, if consideration is confined to that, is covered by “purpose or effect”, and there are other returns as well which would suffice for “effect” even if not part of the “purpose”.[119]Ms Foster would also wish to argue before the FOS that the contributions, profits and income were not pooled, but accepted that she could not press that issue before me as she had not raised it before the FOS in the representations made on the jurisdictional issue for him to consider in relation to the facts. Although Mr Strachan affirmed that the FOS would examine this issue during his consideration of the complaint, recognising that it could go to jurisdiction, he poured some icy water on the notion that this scheme had not involved pooling. The pooled losses leading to the tax benefit were relevant gains for the purposes of s235 of the FSMA. The issue had been addressed by the FOS in his witness statement. I shall say nothing further about it. The possibility of that argument being made does not warrant quashing the decision. It can be pursued before the FOS for what it is worth, if this decision is upheld.[120]The role of the operator had been drawn to the FOS’ attention in April 2013. Ms Foster submitted that it was not good enough for the FOS in his witness statement to contend that the Founder Members or their directors had been the operators. Ascertaining the operators required evidence as to how the scheme operated in practice. Mr Strachan pointed out that it was sufficient for the purposes of s235(3) that there be either a pooling of contributions or profits, or a scheme operator. The FOS had at least been entitled to conclude that there was a pooling of contributions and profits. The issue of an operator did not therefore arise at this stage. I accept that submission. The FOS may be right to say in his witness statement that the operators were the two Founder Members, but I do not need to resolve that issue, which would be before him again pursuant to his promise to consider all issues relevant to jurisdiction in the consideration of the complaint itself.[121]The FOS did not err on this aspect of his jurisdictional decision either.

The suitability of the FOS’s procedures

[122]Ms Foster recognised that this ground challenged the refusal by the FOS to exercise a discretion not to determine a complaint falling within his jurisdiction, leaving an eligible complainant to pursue relief in Court. Moreover she had to contend that his decision was irrational.[123]She contended that the issues were “pre-eminently more suitable” for a Court: the tax/investment advice distinction was highly technical, requiring a careful factual inquiry with perhaps factual and expert evidence as to risks, tax effects, trading criteria. Evidence would require “extensive testing by cross-examination”. There was clearly a significant factual issue over what the Interested Party had and had not done in terms the fact-sensitive issue of day to day control, judging by Rebus’ representations to the FOS and to Chancery. There were 80 other similar cases before the FOS. This should not be dealt with on the basis of some “rule of thumb” as to what was “just, fair and reasonable”. The FOS could not carry out the sort of analysis which the FTT had carried out in Acornwood.[124]Four partners in PM1 had submitted claims via Rebus; the others had not. Yet the evidence of the participation of all would be necessary on the issue of day to day control; and there was a risk of inconsistent decisions. The identification of the operator could involve a finding that it had been committing an offence in carrying out a regulated activity, unauthorised to do so; that ought to be a matter for the Court. PM1 itself should be a party. The FOS had acknowledged that if compensation for a complaint would exceed £150,000 that complaint would be better handled by a Court. A failure to comply with an FOS recommendation that a higher sum than £150,000 be paid could lead to “attention” from the FCA. The Interested Party had the means to go to Court, supported by an experienced claims management company; the PM1 partners were financially high net worth individuals, contributing a minimum of £1m each to avoid tax. Parliament cannot have intended that they should ventilate their grievance about the tax position under the guise of a complaint about investment advice. As the Interested Party’s loss flowed from a decision by HMRC, the effect of this complaint if upheld would be that the FOS was protecting him from the consequences of participation in a failed tax avoidance scheme.[125]Many of Ms Foster’s points, including the last two, would arise albeit in a modified form were a Court to hold that there had been negligent advice about the tax and non-tax consequences of the investment. Some of her points are not obviously better handled in a Court, including the consequences of the identification of an operator. The wealth of the partners cannot tell against participation in the informal procedures of the FOS.[126]I am not persuaded either that the concept of an outcome which is “just, fair, and reasonable” is intrinsically worrying, or properly encapsulated as a “rule of thumb”, with connotations of a crude or casual assessment. I do not know how the points about the tax avoidance purpose of the scheme, about what the complainants asked Chancery to do and their financial or business acumen will play in that assessment. But it might not necessarily be to Chancery’s disadvantage.[127]If there have been substantial differences in the procedure and evidence as between a Court and the FOS, it will not readily be open to the FCA to hold that any FOS recommendation should be “enforced” through “attention” from the FCA. There are in reality bound to be significant differences in the way the process is conducted, in terms of how the evidence is called, the powers to enforce attendance, and disclosure, and the role of cross-examination. Were such differences not to exist, the FOS could not provide an informal procedure.[128]The FOS is very familiar as well with the concepts of day to day control and pooling, and with what happens in practice. CISs often give rise to difficult factual issues for the FOS to resolve, as do disputes about many clever financial service “products”. The FOS considers expert evidence. It is for the FOS to decide to what extent its procedures require some specific and unusual adaptation for this case.[129]The procedures in DISP permit it to hold a hearing where it considers that necessary in the light of an application made to it with specific justification provided, or where the compliance with the ECHR would require it. This power was discussed in R (Heather Moor & Edgcomb Ltd) v FOS [2008] EWCA Civ 642, at paragraphs 57-67. The Court recognised that an oral hearing would not normally be necessary, but where there was a substantial dispute of fact, which required a hearing for its fair resolution, that would provide a strong basis for the contention that one should be held. That may have been a more straightforward case than this, as Ms Foster submitted, but that is not the point. I accept that the FOS does not usually hold hearings, that a formal request has to be made, and one will only be held where the case cannot fairly be decided without one. The hearing would usually come after the provisional decision. The Claimant would only be able to question the complainant through the FOS, and if legally represented, could be invited to pay for the complainant to be represented as well. But the FOS can hold hearings and its decisions in that respect are subject to judicial review.[130]Ms Foster regarded Mr Strachan’s reference to s231 of the FSMA, and the FOS’ power to require a party to provide information as of no real help. It only applies to the parties to a complaint, and not to others such as the Founder Members of PM1, or other complainants making similar complaints about PM1. There are no specific sanctions for a failure by a party to comply, beyond requiring him to state where to the best of his knowledge and belief the document is, unless under s232, the FOS certifies the failure as a fact, and reports the matter to the court which then, after enquiring into the issue and finding the failure inexcusable, may deal with it as a contempt of court. That is, I agree, a limitation of the informality of the FOS’ procedure. But it is not one which, on the material before me, shows his decision to be unreasonable.[131]Ms Foster asked how the FOS could assess loss unless it had details of the complainant’s tax, and it would need comparator portfolios. But if that is what is necessary to prove loss, the complainant will have to produce it.[132]The FOS does consider each complaint on its merits; there may be some common issues which could be handled more readily by a court but Ms Foster overstates the ease of its managing such cases, and I accept Mr Strachan’s point that the merits will vary from case to case depending on the advice given, and the complainant’s circumstances. The FOS does consider complaints in which the compensation might exceed £150,000, and does so regularly. Mr Strachan also pointed to the iterative process for determining complaints that is a reasoned provisional assessment of the complaint to which both parties can respond.[133]The question to my mind is whether the nature of the issues between the complainant and Chancery, and the material which is required to resolve them, are such that it was irrational for the FOS to conclude that he could resolve them justly, fairly and reasonably within his jurisdiction. The Claimant’s submissions simply do not pass that high test. The decision on the complaint will prove that to be right or wrong, and if wrong Chancery will have a further remedy. I understand its concern about the large number of claims, pursued at no or very little cost risk to the complainants, leading to sizeable compensation awards on a rough and ready basis, with the facts not analysed properly, in decisions lacking the rigour which a High Court Judge should bring. But so far in this case, the FOS decisions have been carefully considered, drawing on its expertise, and dealing properly with the points which Chancery did make. I would have to hold that its estimation of its ability to carry out its functions was a long way from reality, before I could hold that this decision was irrational.

Conclusion

[134]This application is dismissed.

Cited in 12 later judgments

and 3 more of the most senior