Judicial review of the FOS – a rare success

Judgment was recently handed down in the case of R (Wills & Trust Independent Financial Planning Ltd) v Financial Ombudsman Service Ltd [2026] EWHC 1566 (Admin). This case concerned judicial review of a FOS final decision. The decision was challenged on 5 grounds:

1. Ground 1 – that the Ombudsman had exceeded his jurisdiction by determining matters that did not form part of the complaint;
2. Grounds 2 – 4 - concerned elements of the decision being irrational or not properly explained; and
3. Ground 5 - concerned quantum, specifically that the method applied for calculating redress was irrational..

The outcome was perhaps as rare as the record breaking temperatures we've seen in the past week, in that the Court did actually decide that part of the final decision was not rational, upholding ground 5. Proving irrationality is notoriously difficult and this will be welcome reading for anyone who has struggled with FOS' decision making process.

The matter concerned a financial planning firm (Wills and & Trust Independent Financial Planning Ltd – "W&T") and their clients, Mr & Mrs Booth. The complaint itself concerned the investment of around £1.3 million of the Booth's assets. W&T were appointed on behalf of the Booths in March 2017 and FOS noted that the personal relationship between the Booths and Mr Batchelor of W&T was important to their decision to make the appointment.

In July 2018 Mr Batchelor sent a letter to the Booths discussing the establishment of a discretionary management firm (WTDFM). The purpose of this was to allow W&T clients to benefit from discretionary fund management, as W&T itself did not have the necessary permissions. The letter stated that the new entity would be wholly owned by the same staff and shareholders who owned W&T and that investment decisions would be made by the same investment committee. The Booths accepted the recommendation to transfer and this was completed in September 2018.

The Booths were ultimately unhappy with some elements of the service and first complained in December 2021 and the relationship was terminated in October 2023. In brief, the complaint alleged that W&T had failed to properly manage the investments or to communicate with the Booths adequately. The Ombudsman published a final decision on 29 April 2024, upholding the complaint. This held that the transfer to the DFM and a subsequent migration to a new platform were 'significantly misrepresented' and, but for the misrepresentations, the Booths probably would not have accepted the recommendation. The Ombudsman found that W&T were acting as agent for the Booths, contrary to the letter of 2018 which stated they would be direct clients. It also held that the information on ownership of WTDFM, whilst correct at the time of the letter, subsequently changed, as WTDFM became partially owned by other financial advisors, in addition to the persons who owned W&T. FOS held that prior notice of the change should have communicated to the Booths. It was also concluded that the decision making process for investment was not as was presented to the Booths in 2018 (noting that the investment committee had no share in decision making for portfolio management services). In effect WTDFM was held to be an independent firm outside of W&T's control.

The Ombudsman held that the Booths would not have agreed to the transfer if the relationship accurately set out the terms of the proposal. Redress was awarded from the date of the transfer, in September 2018 and was calculated as being the difference between the actual value of the portfolio and what the funds would have been worth had they produced a return in line with a benchmark index. The calculation ran to the 'date of settlement', being the date on which compensation was paid. Crucially, this included the period post October 2023, when the Booths transferred away from WTDFM to a new provider.

The first four grounds of challenge were unsuccessful and we have only touched upon these briefly. It was held that:

1. The Ombudsman's interpretation of the complaint was one that was reasonably open to him.
2. That the Ombudsman had not been irrational in deciding that the Booths were not provided with full, accurate and suitable advice in 2018.
3. That there was no irrationality or error of aw in ascertaining the contractual relationship concerning agency; and
4. That there was no irrationality or failure to explain departure from the law concerning the obligation to give prior notice of changes in ownership / client base of WTDFM.

Ground 5 concerned irrationality in relation to redress. It was submitted that W&T had no role in the performance of the Booth's portfolio post October 2023, when they moved to a new advisor. W&T argued that it was irrational to award redress after this date as they had no control over the portfolio after this point. FOS argued that this was not irrational, as noting that it had a wide discretion in awarding compensation.

The Court noted that, under FSMA 2000 FOS is able to award "such amount as the ombudsman considers fair compensation for loss and damage" and noted that any award need not be one that would be awarded by a court. The Court also noted that such a decision can only be challenged on the grounds of irrationality. It was noted however that FOS' discretion is not unlimited – noting that the reference to 'compensation' provided a limit, and that an award of compensation for financial loss should be a sum that seeks to reflect the amount a complainant has lost financially as a result of the acts or failures of a respondent.

The Court went on to consider whether there was a logical error in calculating compensation by reference to the value of the portfolio as at the date of settlement, when that would inevitably depend on investment decisions taken by the new advisor.

The Court referenced that case of R (Garrison Investment Analysis) v FOS [2026] EWHC 2366 in noting that if there is no logical connection between the redress and the error in respect of which compensation is being paid, the method of calculation could be irrational. In considering ground 5, the Court noted that the Ombudsman's rationale for the settlement date applied was that the DFM portfolio would not have come into existence but for the errors, and the effects of this continued despite the move. A witness statement provided by the Ombudsman expanded on this, noting that a portfolio's value will not crystalise until it is sold and that there can be a compounding effect in the performance, whereby a gain will potentially produce subsequent gains. The Ombudsman argued that it's approach was designed to reset the Booths' position altogether.

The Court looked at a series of hypotheticals and noted that the level of compensation to the Booths would inevitably increase or decrease based on the actions of a third party, if FOS' methodology was adopted. The Court considered that this showed a 'demonstrable flaw in the reasoning' of FOS. The Court highlighted that Ombudsman's final decision had stated that any delay to settlement would not be in W&T's interests as it could increase the amount of redress to be paid – the Court noted that this demonstrated that the level of compensation depended on investment decisions over which W&T had no control and that were unrelated to the failings being compensated. This was "not a rational way of calculating loss."

The Court also noted that any issues with compounding could effectively be dealt with by calculating how much the compensation payment itself would have grown from the date the fund was transferred to present, based on the appropriate index.

The judgment seems eminently sensible, and it's certainly welcome in that this hopefully means any future decisions will tie redress more closely to the act or omission complained of. This is also welcome in that it demonstrates that, in the right circumstances, a challenge based on the FOS' discretion can be successful. However, we don’t want to get too far ahead of ourselves the redress issue was fairly black and white, and it remains the case that challenging FOS on how it determines a complaint on its merits is very difficult (and indeed, this element of the judicial review was unsuccessful). Still a welcome development and hopefully this sensible approach will last longer than the current heatwave!

To read the judgment, click here.