A judge has quashed a decision by the Office of the Independent Adjudicator for the first time in a development that could pave the way for legal challenges against the student complaints watchdog.

The OIA has been ordered to revisit a case in which it awarded compensation to a student who argued that the London Business School had failed to deal properly with his claim that prejudice had caused him to lose PhD grants. It is the first time an OIA decision has been overturned since the body was established in 2004.

Delivering his opinion at the Administrative Court at Manchester on 16 February, Judge Andrew Gilbart QC criticised the business school for failing to apply its own appeals procedures properly. He also ruled that the OIA had neither dealt with the issue nor given proper reasons for its decisions.

The case arose after Tiago Card?o-Pito, now a faculty member at the Technical University of Lisbon, claimed that he had suffered prejudice from his supervisor that had left him with grades too low to continue his PhD. He said this had cost him ?17,000 a year in grants and maintenance from the London Business School and the Economic and Social Research Council.

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Dr Card?o-Pito, who went on to obtain a PhD from the University of Strathclyde, took his complaint to the OIA in 2009 after the London Business School ruled that his case was not strong enough to warrant an internal appeal.

The OIA initially partly upheld his complaint and awarded him ?400, but later increased this to ?6,500 after he began legal proceedings challenging the regulator's decision.

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However, the court quashed both rulings and asked the OIA to look again at the case.

Nicola Bennison, a partner in law firm Eversheds' education team, said the outcome was likely to encourage more legal challenges. "There will also be greater pressure now on the OIA to provide some objective justification for the amount of any compensation it awards," she said.

David Palfreyman, director of the Oxford Centre for ÖйúAƬ Policy Studies, said the case had exposed a fundamental issue - that the OIA offered "peanuts in damages".

Formally calculating compensation to include the costs of accommodation, travel and fees would push the figures up, he said.

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Felicity Mitchell, deputy adjudicator at the OIA, said that the watchdog would be more explicit in how it decides awards in future. But she denied that the ruling would encourage more students to appeal.

Dr Card?o-Pito, who represented himself in the case, was awarded ?2,776 in court costs. He said that he deserves about ?64,000 in compensation, but he stated that he was motivated by principle, not money.

"The figure is important to the extent that it demonstrates the seriousness of the wrongdoing," he said.

Summing up the case, Judge Gilbart agreed that the evidence raised "serious issues" about the supervision Dr Card?o-Pito had received, but he was not able to rule on the prejudice issue itself.

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The London Business School said it would take on board the judge's comments and review its appeals procedures, as well as cooperate with the OIA in its new investigation.

elizabeth.gibney@tsleducation.com.