When a successful financial claim is filed against a firm but the firm is unable or likely to be unable to compensate the customer, The Financial Services Compensation Scheme (FSCS) can step in and pay the customer on their behalf. This is a free service to consumers and since 2001, the FSCS have paid out in excess of £26 billion in compensation claims and helped more than 4.5 million people.
However, the FSCS has recently lost its High Court appeal against a landmark verdict that found that it had offered inadequate compensation to a victim of bad mortgage advice. This case could revolutionise the way in which the FSCS assess compensation claims for victims of Mis-Sold Mortgages and other areas of poor financial advice.
The original case was brought to the attention of the FSCS in 2009, by Charmaine Emptage and related to advice given to her by a mortgage broker from Berkeley Independent Advisors firm, Mr Peter Sharratt.
Mr Sharratt’s poor advice to Ms Emptage saw her exchange a £39,633 repayment mortgage on her existing home for an interest-only mortgage for more than £111,000. The additional monies (more than £70,000) raised on the remortgage were, with Mr Sharratt’s advice, invested in a Spanish property. As we know the Spanish housing market then crashed leading to Ms Emptage suffering great financial loss.
In 2010, the FSCS concluded their investigation in to the claim and decided that whilst Mr Sharratt’s advice had not been to the required standard, Ms Emptage could only claim losses relating to the UK mortgage and they awarded her £11,500 in compensation. FSCS decided that the house purchase in Spain related to poor investment advice which was not within their jurisdiction to investigate, therefore the losses sustained in Spain could not be compensated. Ms Emptage’s lawyers challenged that FSCS decision on the grounds that the claim was not based on unregulated investment advice but rather, poor mortgage advice which FSCS had already determined had been incorrect. On that basis they argued that FSCS should compensate for all financial losses that flowed from that negligent mortgage advice.
Court proceedings were commenced on Ms Emptage’s behalf and in November 2012, FSCS found themselves in front of High Court judge, His Honour Charles Haddon-Cave. His judgement was made in favour the borrower and awarded a massive £150,000 damages to Ms Emptage £150,000 as well as an order requiring FSCS to pay all of her legal costs.
FSCS appealed against this ruling and the case was recently heard at the Court of Appeal in front of His Honour Judge Martin Moore-Bick. The FSCS reiterated its view that it could only deal with losses flowing from the mortgage advice and as the majority of Ms Emptages’s losses related to the collapse of her property investment in Spain it was not linked to the broker’s mortgage advice.
Judge Martin Moore-Bick felt this was not the case, and the FSCS had failed to correctly identify what advice had given rise to Ms Emptage’s claim. In the judges’s view the two aspects of poor advice (i.e. the mortgage advice and the investment advice) were heavily connected; ‘The loss suffered by Ms Emptage flowed from Mr Sharratt’s bad advice in relation to mortgaging her home, which was a regulated activity. FSCS had power under the Act and the rules made under it to pay fair compensation in respect of that loss. I think the judge was right in finding that it was at this point that FSCS went wrong.’
The full ruling quote of Judge Martin Moore-Bick in support of a Mis-Sold Mortgage verdict can be found HERE