The High Court has ruled on an application for judicial review of a decision by FSCS to refuse to compensate investors after an investment firm failed. The investors had bought wind bonds, initially before the firm in question, Beaufort Securities Limited, became involved. The issuer then created a new bond to invest in UK wind turbine power, and the claimants were invited to convert their existing wind bonds into power bonds. The marketing document inviting them to do this was issued by Beaufort as the issuer’s corporate broker. The document stated that the recipients would not be deemed a client of Beaufort, that Beaufort would not be giving any advice and was not responsible for providing any client protection. The claimants acted on the document and Beaufort completed the transfer.
After Beaufort was declared in default by FSCS, the claimants said they were mis-sold the bonds. According to the Court, the arguments changed over time, but appeared to hinge on an argument that the firm had breached COBS 10 and should have carried out an appropriateness test.
FSCS, dismissing a variety of claims, said, among other things, that there was no evidence Beaufort was required to assess suitability and insufficient evidence it had been at fault, so the claimants did not have a valid claim against it and therefore had no claim under the FSCS.
The claimants took this to judicial review, where the Court was asked to consider whether FSCS’ decision had been “rational”. The Court ultimately held that even if Beaufort had been at fault (which it did not find it was – and indeed there was little indication it could have been), then it was not its fault that both bonds had failed, and therefore the losses to the claimants were inevitable. Their financial position was not demonstrably worse because of Beaufort’s involvement, and the FSCS was entitled to find that the claimants’ situation was not covered by it.