Decision of the Financial Ombudsman partially quashed in judicial review proceedings, as Linear Investments succeeds on issue of contributory negligence; the decision was otherwise upheld in an appeal raising “an important point of principle”.
Linear Investments has obtained an order partially quashing the decision of the Financial Ombudsman in proceedings concerned with the professional client classification rules.
As set out in the judgment, the client, Professor Leslie Willcocks, had applied to become an ‘elective professional client’ of Linear under FCA rules (COBS 3.5.3R). Prof Willcocks wished to trade in Linear’s investment programme, which traded (inter alia) contracts for difference (CFDs). In doing so, Prof Willcocks completed a form indicating significant experience trading CFDs. Prof Willcocks was accepted by Linear as an elective professional client. However, when the investment lost money, he complained to Linear, and subsequently to the Financial Ombudsman.
The Financial Ombudsman found that Linear had not properly classified Prof Willcocks as an elective professional client (largely because, contrary to his statements, he did not have any experience trading in CFDs), that redress should be measured by reference to an investment in an index, and that there should be no discount for contributory fault.
Linear challenged the decision in judicial review proceedings. At first instance, the decision was upheld in full.
Linear was granted permission to appeal on grounds that, in summary, (a) it had been entitled to rely on the statements made in the application form; (b) the measure of redress was irrational and (c) the finding that there should be no discount for contributory negligence departed from the law without proper reasons and was irrational.
The Court of Appeal upheld the decision on the first two grounds, finding, on the key question of principle, that despite the representations made it was not irrational to conclude that Linear’s classification process had not met the regulatory requirements. However, Linear succeeded on the issue of contributory negligence, the Court finding that the Ombudsman had taken an incorrect approach to the issue without giving reasons for departing from the general law in that respect.
Sonia Tolaney KC and Joshua Crow were instructed by Linear for the Court of Appeal hearing (instructed by Trowers & Hamlins LLP).
View Judgment