The claim by Chancery (UK) LLP, a firm of chartered accountants, said it was outside the FOS’s jurisdiction to consider a complaint made by one of its clients regarding advice given to make investments into Prescience Media 1 (PM1), a film partnership founded by Prescience Media and Prescience Film Finance.
The appeal was based around just one of around 80 complaints made against Chancery through legal firm Rebus.
Rebus’ original complaint argued that the client not been made adequately aware of the risks of investing into the film avoidance scheme before investing into it.
It came after HM Revenue & Customs ruled that a “significant balance” of the client’s investment would be lost.
After much deliberation, an ombudsmen from the FOS ruled against Chancery and in favour of the client, on the basis that the complaint was about investment advice in relation to a collective investment scheme (CIS) and that the investor did not have “day to day control” over his assets.
However, Chancery launched a subsequent appeal which argued that the advice it gave to invest into the scheme was tax advice rather than investment advice, and therefore fell outside of the FOS’ remit.
But judge Justice Ouseley dismissed this in his ruling last week, claiming there was no difference between the two in this case.
“There is no necessary sharp distinction requiring advice to be pigeonholed as one or the other, nor could such a distinction be sensibly drawn where there are mixed reasons behind advice,” he said. “The dominant purpose of the advice may be tax avoidance but it can still be investment advice: this case, as it appears at present, is a good example of how the two cannot be separated.”
PM1 used a form of relief known as “sideways relief”, which provides trade loss relief against general income and early trade loss through investments.
This could be used to generate large refunds of tax paid so that a significant loss in the first year of a film scheme could be carried back to cover most of the general income for the previous three years. The avoided tax would be deferred and repaid in later years.
Chancery’s appeal also argued that PR1 did not constitute a collective investment scheme both because it was a tax avoidance scheme and because its participants had the necessary day to day control to prevent it being a CIS for the purposes of the FOS’ jurisdiction.
Day to day control
However, Justice Ouseley said the FOS was not wrong in concluding that the scheme was a CIS, because its participants did not have day to day control over invested assets.
“The level of activity for day to day control is not that of supervisory oversight; the power to exercise day to day control if so minded does not suffice,” he said.
Rebus, a legal group which provides services to investors who may have been mis-sold a complex investment, said last week’s ruling is likely to be carried forward to other complaints against Chancery, of which there are around 80.
The complaints against Chancery have almost all been brought through Rebus.
Following the dismissal of Chancery’s appeal, Rebus said: “On behalf of our clients who were advised by Chancery, we are of course delighted by this decision. Suffice it to say, advisers and their insurers are less so. “
“This decision will form a corner stone of many cases to come and we hope that Chancery and its advisers will agree to settle these matters at the earliest opportunity.”