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Binary causation arguments could be turned into percentages as ‘loss of chance’ principle gains judicial support in investment loss case

21 September 2012

The High Court recently considered whether it would be appropriate for FOS to make an award on the basis of an investor’s lost opportunity to decide – with the benefit of proper advice – whether or not to enter into a recommended investment scheme.

An IFA was granted permission to apply for judicial review of an Ombudsman’s decision that, on the balance of probabilities, the complainants would not have accepted his investment recommendation if he had given them suitable advice.

The Ombudsman had found that the complainants would not have invested in the arrangement proposed by the IFA if they had been provided with the correct advice and had not been misled. The Judge, Mr Justice Collins, carefully considered whether the Ombudsman’s finding was reasonable. He held that, as a result of the IFA’s failure to explain the risks involved in the proposed scheme, the complainants were not given the opportunity to decide on a proper basis whether or not to follow his advice. However, if the proper warnings had been given by the IFA, the IFA would not have advised them that the risks were such that, in the circumstances, they should not enter into the scheme.

Mr Justice Collins commented that, since the complainants had not been given proper advice, they had lost the opportunity of deciding on a correct basis whether to accept the IFA’s recommendation. He stated that if he were to make a decision on that basis, it would not deprive the complainants of all compensation, rather it would justify an award of a percentage of the full loss suffered. However, Mr Justice Collins did not take this line of reasoning any further as he noted that the relevant test for the judicial review was to ascertain whether the Ombudsman’s decision on causation was irrational – and he held that it was not.

This case appears to lend judicial support to the argument that FOS could be invited to consider an award on the basis of a percentage of the total investment loss where, due to improper advice, the investor has suffered a loss of opportunity to make an informed decision in relation to the investment.  It need not necessarily be a simple question of whether or not the investor would have proceeded, with the full claim turning on the answer.

Given that Mr Justice Collins did not overturn the Ombudsman’s decision on causation, it does not necessarily follow that the Ombudsman will adopt this ‘loss of chance’ approach. It could pave the way, however, for alternative (more nuanced) causation arguments and settlement offers based on a percentage ‘loss of chance’.  Alternatively, of course, it could simply provide FOS an opportunity to award a percentage for the loss of a chance even where there is strong evidence that the complainant would have done the same thing anyway.