I am a solicitor with over 15 years experience. I will try to help you with this.
Would I be right in thinking that the airline are arguing that as you only used airmiles to purchase the ticket you are entitled to a lesser refund?
I have not yet received a response from the airline but anticipate they will seek to reduce the refund.
I think that based on what you have said you have an argument. But, this is a breach of contract matter and it will depend on the terms of the contract. You need to check the terms and conditions which will be available on the BA website to see if this particular situation is covered. In the absence of anything specific in those terms I think it is also arguable that, bearing in mind that prices vary from time to time for Airline tickets there is no fixed price fro airline tickets and the price of the ticket is what you paid for the ticket. In terms of contract law the price is what you pay not the advertised price. I think if it came to a legal argument that BA could legitimately say that the price of the tickets was the airmiles used and decide to refund you in airmiles instead.
If you were to threaten and then issue proceedings in the small claims court you would be likely to fail. However that does not mean it is not worth trying. I doubt it would be possible to argue that there was suffering and inconvenience experienced such as to justify the level of money suggested in your question (most District Judges I suspect do not fly club class very often and are unlikely to be very sympathetic) so the correct method for calculating compensation is to re-imburse you the 75% of your ticket price whic brings us back to the points made above.
In short it is with a try but it may well be that yu get less than you are hoping for.
I know this is not the answer you were hoping for but I have a duty to give the correct answer. I would be grateful if you could take the time to rate the service I have given you.
The EC Regulations were in enacted because airlines, for example, did not adequately compensate passengers who are downgraded. I cannot find any refernce in BA's terms and conditions that address the question of downgrading feom one class to another.
Sorry I clicked reply by mistake. In my view it's question of interpreting the Regulations, only a cout can do this.
I think my answer above stands then.
I do not think it is a breach of contract issue as BA are bound by Reulation (EC) 261/2004 Article 10 sub-clause 2(c) ntwirstanding thier T&C's.
The principles of interpreting the language of regulations will be the same as set out above. It is a contract issue, the regulations are there to regulate contracts for flight tickets.