The Package Deal: The Decision In Emptage v FSCS And What It Means For Advisers

In October 2012 the English High Court handed down judgment in Emptage v Financial Services Compensation Scheme Ltd (2012) which is likely to have implications for similar claims against investment advisers and mortgage brokers.

The case involved a judicial review of a compensation award given to Ms Emptage by the Financial Services Compensation Scheme Ltd ("FSCS"). Ms Emptage asked the court to review her FSCS award on the grounds that it did not adequately compensate her for the losses suffered due to negligent advice to take out an interest-only remortgage in order to invest in Spanish property. The FSCS attempted to distinguish between losses arising from regulated mortgage advice and unregulated investment advice regarding the Spanish property. The High Court found in favour of Ms Emptage, stating that the award given did not adequately compensate her.


Ms Emptage's claim arose from advice she received from an IFA in 2005 relating to her mortgage arrangements. At that time, Ms Emptage and her partner (who together had a combined income of £54,000) had a repayment mortgage with an outstanding balance of around £40,000 with 10 years remaining.

The IFA advised Ms Emptage to remortgage her property with an interest-only mortgage for £110,000 and use the £70,000 proceeds to invest in property in Spain. The IFA claimed that the rental income and capital appreciation of the Spanish property would satisfy the mortgage at the end of the term and also provide Ms Emptage with an additional £107,000, unless his calculations were "drastically incorrect".

Following the advice, Ms Emptage remortgaged her property and used the proceeds to invest in a yet-to-be-built Spanish property development. Subsequently, the Spanish property market collapsed and left Ms Emptage with a virtually worthless investment. As a result, Ms Emptage and her partner were left with a £110,000 interest-only mortgage with no means of paying for it.

The FSCS claim

The FSCS is the compensation fund of last resort for customers of FSA-regulated firms which are unable to satisfy claims against them. There are limits on the amount of compensation which the FSCS can pay out - the cap is £50,000 per person per firm in respect of investment and home finance business, but the limit is higher for deposits, being £85,000. The FSCS is required to pay "fair compensation" and, in respect of claims relating to bad or negligent advice, the FSCS generally seeks to return the claimant to...

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