High Court finds that Ombudsman’s decision on compensation was not rational

Why should I read this?

In Wills & Trust Independent Financial Planning Limited v Financial Ombudsman Service Limited (2026) , the High Court dismissed four of five grounds of challenge brought by a financial advisory firm against a decision of the Financial Ombudsman Service (“FOS”), but upheld the fifth ground of challenge on the basis that FOS’s determination of compensation was not rational.

The judgment is the third recent decision where the courts have found errors in the approach of the FOS, with the Court of Appeal and the High Court having found that FOS made errors of law in Linear Investments Ltd v Financial Ombudsman Service Ltd [2025] EWCA Civ 1369 and R. (on the application of Barclays Bank UK Plc) v Financial Ombudsman Service Ltd  [2026] EWHC 1555 (Admin) respectively.  The decision comes as FOS faces the most significant reform since its inception (see our earlier briefings here).

In this case, FOS had upheld a complaint that the adviser misrepresented the nature of a transfer of clients' investments to a discretionary investment company, and that the clients were not given full, accurate and suitable advice. The Court confirmed the FOS’s wide latitude to interpret complaints and to determine what is fair and reasonable. However, the Court found a flaw in the FOS’s method of calculating compensation, because the formula made the award dependent on investment decisions taken by a subsequent adviser over which the firm had no control. 

Background

Wills & Trust Independent Financial Planning Limited (“W&T”), is an advisory firm authorised by the FCA. In 2017, Mr and Mrs Booth engaged W&T to manage approximately £1.3 million in investments. 

In July 2018, W&T wrote to the Booths recommending that their portfolio be transferred to a discretionary investment company (“Trust DFM”). The letter presented the move as primarily regulatory, to enable W&T to manage investments on a discretionary basis without needing the Booths' approval for each transaction. The Booths were assured that their investments would still be managed by the existing investment committee and team, that Trust DFM was wholly owned by the same staff and shareholders who owned W&T, and that there would be no increase in fees. Only two "downsides" were identified: minor administrative hassle and the loss of the right to approve changes beforehand, described as a "very slight disadvantage". The Booths accepted the recommendation, and the transfer took effect on 1 September 2018.

Separately, in September 2020, W&T recommended migrating the Booths' portfolio from the Transact platform to a new platform called Multrees. The migration was delayed until April 2021, causing the Booths to miss a quarterly rebalancing of their portfolio and, they believed, to suffer a financial loss as a result.

The Booths first complained to W&T in December 2021, alleging a failure to actively manage their portfolio and to communicate with them adequately. The relationship was terminated in October 2023, when the Booths moved their portfolio to another financial adviser, Strategic Solutions.

FOS’s final decision in April 2024 upheld the complaint. It held that the transfer to Trust DFM and the subsequent Multrees migration were "significantly misrepresented" and that, but for the misrepresentations, the Booths probably would not have accepted the recommendation. In particular, FOS found that: (1) W&T had been acting as agent for the Booths in dealings with Trust DFM, contrary to the 2018 letter which indicated they would be direct clients; (2) the ownership of Trust DFM, whilst accurately described at the time of the 2018 letter, had subsequently changed without the Booths being given prior notice; and (3) FOS also concluded that the investment decision-making process was not as presented in 2018. The Ombudsman awarded £750 for distress, trouble and inconvenience, and directed W&T to pay compensation calculated as the difference between the "actual value" and "fair value" of the portfolio at the date of settlement, using the FTSE UK Private Investor Income Total Return Index as a benchmark, subject to the applicable statutory cap of £170,000. 

W&T brought judicial review proceedings challenging the FOS’s decision on five grounds.

What did the Court decide?

The Court dismissed four of the five grounds of challenge and allowed one:

• Ground 1 - Jurisdiction and/or irrationality (dismissed): W&T argued that FOS exceeded its jurisdiction by determining issues about the Trust DFM relationship that were not part of the Booths' complaint. The Court held that it was for the FOS to interpret the scope of a complaint, and that it was rational for FOS to treat the Trust DFM issues as underpinning the complaint. 
• Grounds 2-4 - Irrationality and error of law in relation to misrepresentation, agency and notification (all dismissed): W&T challenged FOS’s findings that the 2018 recommendation misrepresented the Trust DFM arrangement, that an agency relationship had been in place since 2018, and that W&T should have notified the Booths of subsequent changes to Trust DFM's ownership and client base. The Court dismissed all three grounds. It held that the FOS was using "misrepresented" in a colloquial sense to convey that full, accurate and suitable advice had not been given, and that it was open to FOS to conclude that the Booths should have been told about subsequent changes. On agency, the Court found that FOS was entitled to draw the inference that the arrangement existed from the outset, particularly where W&T had failed to provide evidence expressly invited on the point. On the duty to notify, the Court held, following R (Options UK Personal Pensions LLP) v FOS , that FOS had applied explicable criteria - namely the FCA Principles for Businesses and COBS 2.1 - and was not required to list every applicable rule and explain why it was going beyond them.
• Ground 5 - Redress calculation (allowed): FOS had directed compensation be calculated as the difference between the "actual value" and "fair value" of the portfolio at the date of settlement (i.e. the date that compensation is paid). W&T argued that this was  irrational, because the Booths had terminated their relationship with W&T and moved their portfolio to Strategic Solutions in October 2023, and from that date, W&T had no role in the performance of the Booths' portfolio. FOS argued its approach was necessary to capture the compounding losses, on the basis that the present portfolio would not have existed but for the unsuitable communication in July 2018. The Court held this was irrational because it made the level of compensation dependent on investment decisions taken by  Strategic Solutions, over which W&T had no control. That created the potential for both over- and under-compensation, and even a perverse incentive to delay paying an award. While the Court did not make an alternative order for redress and it is likely that the issue will be remitted to FOS, the Court observed that a rational method of compensating the Booths could be to calculate the loss as of October 2023 and then apply benchmark returns or compensatory interest on that sum. 
• The Court rejected submissions by FOS under section 31(2A) of the Senior Courts Act 1981, which requires the Court to refuse relief on judicial review where the outcome for the applicant would not have been substantially different absent the impugned conduct. 

What are the takeaways?

This case is a reminder that challenging a FOS decision by way of judicial review is difficult. FOS operates within a wide discretion, determining complaints by reference to what is, in its opinion, fair and reasonable in all the circumstances. The Court will not substitute its own view for that of FOS and will only intervene where there has been an error of law, procedural impropriety or where a decision is irrational. These are high bars.  However, the case also serves as a reminder that FOS makes mistakes, is not immune from review and the courts will quash decisions (in part or in whole), where FOS has erred.

Reforms to the operation of the FOS are currently underway (see the link above to our previous articles).  The reforms have been criticised in some quarters for not including any new routes to appeal decisions of FOS.  In the House of Lords, at Committee Stage, an amendment to the Financial Services and Markets Bill was proposed that would have replaced FOS with a “Financial Adjudication Service”, required complaints to be determined by reference to law rather than fairness, and established a new Financial Services Chamber of the First-Tier Tribunal to hear appeals. That amendment was subsequently withdrawn and, at present, judicial review remains the sole route of challenging a FOS decision.