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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Shore v Sedgwick Financial Services Ltd & Ors [2007] EWHC 2509 (Admin) (08 November 2007) URL: https://www.bailii.org/ew/cases/EWHC/Admin/2007/2509.html Cite as: [2007] EWHC 2509 (Admin) |
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
MR. CLIFFORD SHORE |
Claimant |
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- and - |
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SEDGWICK FINANCIAL SERVICES LIMITED BARCLAYS FINANCIAL PLANNING LIMITED (Trading as SEDGWICK INDEPENDENT FINANCIAL CONSULTANTS LIMITED) |
Defendants |
____________________
MR. J. WARDELL QC and MR. T. SEYMOUR (instructed by Messrs. Kirkpatrick & Lockhart Preston Ellis Gates Ellis) for the Defendants
Hearing dates: 10, 11, 12, 13, 16, 17, 18, 19, 20 July 2007
____________________
Crown Copyright ©
Mr. Justice Beatson:
Part 1: Introduction
(a) admits the existence of a duty of care in tort owed by it in relation to advice given by Mr. Ormond to Mr. Shore;
(b) denies that the advice given was negligent, and claims the advice Mr. Shore received was appropriate to his circumstances, wishes and intentions at the time as communicated to Mr. Ormond;
(c) raises defences of limitation, causation, and contributory negligence; and
(d) maintains that it is not open to the Court to determine the case on the basis of breaches of regulatory rules made by IMRO.
Part 2: Issues
(2) The 'breach of duty' issue: Did the advice Mr. Ormond give breach his duty of care? This is a mixed question of fact and law. What advice Mr. Ormond gave, and the basis on which he gave it, are questions of fact. Whether the advice he gave fell below the required standard is a question of law.
If the advice Mr. Ormond gave did breach his duty of care, the following issues arise:-
(3) The 'causation' issue: Did the giving of the negligent advice cause any damage to Mr. Shore?
(4) The 'contributory negligence' issue: Assuming Mr. Ormond was in breach of duty and his negligent advice caused damage to Mr. Shore, was the damage caused or contributed to by relevant contributory negligence on the part of Mr. Shore?
(5) The 'breach of statutory duty' issue: Is Mr. Shore entitled to damages under section 62 of the Financial Services Act 1986? This provides that a contravention of the provisions of the statute or rules made pursuant to it and a contravention by an authorised person of the applicable regulatory rules "shall be actionable at the suit of a person who suffers loss as a result of the contravention subject to the defences and other incidents applying to actions for breach of statutory duty". At the relevant times SFS was regulated by the Personal Investment Authority ("PIA") and was obliged to comply with the principles of the Securities and Investments Board ("SIB") and certain IMRO rules which were adopted by the PIA. As a result of the regulatory changes introduced by the Financial Services and Markets Act 2000 IMRO's regulatory functions were transferred to the Financial Services Authority in 2001.
(6) The 'limitation' issue: Are Mr. Shore's damages in any event barred by the Limitation Act 1980?
Part 3: The Factual Evidence
"…memory, where it is unsupported by documents, must inevitably be suspect. Things which occurred can be forgotten. Things can apparently be remembered which did not in fact occur. What did occur can be remembered with a false slant to it. All of that can happen without dishonesty. So, unless the documents are clear the court's task is difficult".
In the present case the differences between the parties are fundamental and go beyond what can be explained as normal given the passage of time. The key documents are in part unclear on the issues between the parties or, as in the case of the Scottish Equitable illustrations, needed to be explained. The evidence of that explanation is primarily oral.
Part 4: The Expert Evidence
Part 5: Findings of fact
"We have now discussed at length the income drawdown arrangement.
Your objective is to take the maximum cash sum.
As mentioned you require flexibility and control of the account. Also you prefer the fund value on death to cascade down to dependants rather than traditionally ceasing on the death of you and your wife.
I mentioned that there are investment risk (sic) involved in relation to drawdown, you accept the risk being a balanced investor. We need to discuss investment choice."
"[2] You believe that annuity rates may improve and an income withdrawal plan is a vehicle that you can utilise and achieve flexibility with until annuity rates reach a more acceptable level.
[3] You would like to take all of your tax-free cash entitlement at present and a modest level of income. The income withdrawal plan allows you to take a tax-free lump sum of up to 25% of the non-protected rights fund. (choice is given as to whether to refer to taking 'the minimum' or 'a modest level' of income).
[4] You will have a variable income from other sources, eg consultancy work and value the facility of adjusting the income from your pension to accommodate this situation. In addition this will help you with tax planning exercises." (paragraph numbers added)
"Cliff stated that whilst he understood the reason for this advice, his intention was always to take maximum income, since it was his intention to try and take as much out of the pension pot as possible, and that he had substantial other investment assets valued at approximately £800,000, and thus went into this with 'his eyes open', in so much that if the value of his policies fell because of his drawing maximum income, then that was by his choice and his alone."
Mr. Shore's income requirement: It is not in issue that by 9 May 1997, Mr. Shore had told Mr. Ormond that he needed £3,000 pm net to maintain his standard of living. By then, however, he had transferred out of the Avesta scheme, and the consequences are only of relevance to the secondary claim. The issue is as to what he told Mr. Ormond as to his requirements in January and during the period before 28 April when he left the Avesta scheme. Mrs Shore said that they had worked out they would need a minimum of £3,000 pm net to maintain their standard of living and Mr. Shore said that is what he told Mr. Ormond.
"…it was very much going into the fact of taking such a high level and the detrimental effect that it could have on his fund and his future income if that is what he did. He stated that he was quite clear and quite open that he was happy doing this, albeit a temporary measure. He was happy to take that decision and therefore I would have said to him, 'Ok, I want this in your handwriting so therefore please put it in writing that you wish to take the maximum level of income' which Mr. Shore did."
Part 6: The 'duty' issue
"(a) A firm must not recommend a transaction which involves a transfer of accrued pension benefits from an Occupational Pension Scheme to a Personal Pension Scheme unless:
(i) it has carried out a transfer value analysis; and
(ii) the recommendation is consistent with the results of that analysis.
(b) The transfer value analysis carried out under paragraph (a) of rule 6.7(1) must include information concerning the rates of investment return which would need to be achieved for the Package Product to provide benefits which are the same as those afforded under the Occupational Pension Scheme.
(c) The transfer analysis carried out under paragraph (a) of rule 6.7(1) must be given to the customer and the firm must take reasonable steps to enable the customer to understand the nature of the analysis." (emphasis added)
"Part 1. Opt Outs: Prospective investors who are current or prospective members of occupational pension schemes.
(a) Defined benefit occupational pension schemes
(i) The starting point for a Firm considering the situation of an active member of a 'defined benefit' Occupational Pension Scheme should be to assume that it would not be suitable to recommend opting out into a Personal Pension Scheme.
(ii) If an opt out is recommended, the onus is on the Firm to demonstrate that, on the evidence available at the time, it appears bona fide to be in the Customer's best interests. An opt out is presumed to be adverse to the interests of the individual concerned unless the contrary can be affirmatively shown.
(iii) Any Firm contemplating giving advice in favour of an opt out should identify the specific rights and benefits available to the prospective investor under the Occupational Pension Scheme and consider carefully the effects on the investor's situation of their replacement by the very different benefits of a Personal Pension Scheme. An analysis should be carried out, by someone competent to do so, of the Occupational Pension Scheme data compared with the available personal pension products. ….".
…
Part 2: Transfers: Prospective investors who have deferred benefits.
(a) Transfers from defined benefit occupational pension schemes
(i) The position is more finely balanced when a prospective investor currently has deferred benefits from a final salary Occupational Pension Scheme (i.e. a deferred benefits scheme) and is considering transferring these benefits to a Personal Pension Scheme.
(ii) Advice on whether to transfer deferred benefits should be preceded by a detailed consideration of the ceding scheme compared with the Personal Pension Scheme, and of the personal circumstances and objectives of the investor.
(iii) The process should include procedures… to ascertain the prospective investor's career aspirations and desired retirement age and to consider what a realistic retirement would be … for carrying out an analysis of the yield required to match the benefits under the ceding scheme … for enabling the prospective investor to receive sufficient, clear information to make an informed investment decision based on a firm understanding of the risks involved and a knowledge of what protection, rights, expectations and options they may be giving up.
…
(vii) Under Rule 6.7(1) a transfer value analysis must be undertaken or obtained… It should be documented and recorded before firm investment advice is offered to the prospective investor. The results of this analysis should be discussed with the latter in simple clear language.
…
(ix) Relevant items of information for the prospective investor include… the Transfer Value Analysis including an indication of the rate of growth needed to ensure the investor is no worse off.
(c) Conclusion on transfers of deferred benefits to personal pension arrangements
(i) Firms may find it difficult to demonstrate compliance with the relevant Rules if the process outlined above has not been completed and fully documented, including the collection of the relevant information from the ceding scheme and the prospective investor, and clear provision of the necessary information to the latter.
(ii) The process will be no means point to all customers being confirmed as prospects for the sale of personal pension plans… It will confirm that many customers would be better advised to remain in their Occupational Pension Schemes or to transfer to a new employer's scheme."
1 To advise Mr. Shore as to the options open to him, that is as to the benefits under the Avesta scheme and the potential benefits under a PFW scheme as at November 1997 and at the age of 60 in October 2000;
2 To compare the benefits under these options, and the risks involved under both options; and, whether by a transfer value analysis or in some other way, to inform Mr. Shore of the rate of growth under the PFW scheme needed to match the benefits under the Avesta scheme. Given the proximity of Mr. Shore's intended retirement, a transfer value analysis was, however, less crucial.
3 To inform Mr. Shore of the risks of taking a high level or the maximum level of income, and of the risks resulting because of the triennial reviews in the GAD rates;
4 To prepare an adequate personal financial report setting out these comparative benefits and risks fairly and clearly.
1 To advise Mr. Shore as to the options open to him, that is as to the benefits obtainable by purchasing an annuity and the potential benefits under a PFW scheme;
2 To compare the benefits under these options, and the risks involved under both options in circumstances in which Mr. Shore had taken the maximum tax-free lump sum and needed to take the maximum income;
3 To inform Mr. Shore of the risks of taking a high level or the maximum level of income, and of the risks resulting because of the triennial reviews in the GAD rates;
4 To prepare an adequate personal financial report setting out these comparative benefits and risks fairly and clearly.
Part 7: The 'breach of duty' issue
(a) At the meeting on 9 May or thereafter Mr. Ormond did not revisit his advice in the light of Mr. Shore's changed circumstances and his greater need of income. He did not do this by preparing a revised personal financial report or other document, and did not do so orally.
(b) In the light of Mr. Shore's changed circumstances and the fact that the PFW would only provide the income he required on the highest of the three assumed growth rates, the way Mr. Ormond went through the illustrations did not suffice to put the comparison between an annuity and the PFW squarely before Mr. Shore.
(c) Mr. Ormond did not adequately warn Mr. Shore about the risks involved in taking maximum income under his PFW or make him aware of Sedgwick's recommendation that the maximum income withdrawn should not exceed 75% of the maximum GAD limit.
Part 8: The 'causation' issue
Part 9: The 'contributory negligence' issue
Part 10: The 'breach of statutory duty' issue
Part 11: The 'limitation' issue
"despite the breach of duty, the transaction may on balance have originally been advantageous to the [claimant] and some evidence may be necessary to show when he was actually in a worse position".
"[W]hile a defendant's failure to preserve or protect a particular asset by proper performance of his duty in relation to a particular transaction may readily be seen to have caused measurable loss, negligence causing a claimant to enter into a transaction which he would not otherwise have entered may not immediately, or indeed ever, cause measurable loss to any particular asset."
and (at [71]), referring to UBAF Ltd. v European American Banking Corp. [1984] QB 713, at 725; Nykredit's case, and Wardley Australia Ltd, that:
"…the court has made it clear that a claimant does not necessarily suffer loss merely by being caused by negligence to enter into a transaction to which he would not otherwise have agreed."
"It is a commonplace of negligence actions of all sorts that a cause of action may arise long before it is possible to quantify precisely the damages eventually recoverable. But there are other situations in which the correct legal analysis is that, however great may be the prospect (or risk) of economic loss, actionable damage has not yet occurred (just as there are situations in which there is grave and obvious risk of personal injury or damage to property but actionable damage has not yet occurred)."
"(5) For the purposes of this section, the starting date for reckoning the period of limitation … [under section 14A(4)(b)] … is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.
(6) In subsection (5) above "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both--
(a) of the material facts about the damage in respect of which damages are claimed; and
(b) of the other facts relevant to the current action mentioned in subsection (8) below.
(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.
(8) The other facts referred to in subsection (6)(b) above are--
(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and
(b) the identity of the defendant; and
(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.
(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.
(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire--
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;
but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."
"… having regard to the huge scale of his losses from the outset, [the claimant] ought surely to have sought expert advice and set in train the consideration of a possible claim against [the accountants] long before he did". (paragraph 87)
Part 12: Conclusion
NOTE
A draft of this judgment was sent to counsel on 19 October 2007 with the intention of handing down the judgment on 1 November. The parties provided me with a list of typing corrections and obvious errors on 29 October. On 31 October the claimant provided a skeleton argument in relation to costs and draft grounds of appeal. It was apparent from page 1 of the draft grounds of appeal that there was a mistake in paragraphs 99 and 100 of the judgment. The figures given for the fall in the value of the claimant's fund did not take account of the fact that he had received a tax free lump sum. The mistake had led me to refer in paragraphs 214 and 215 to the value of the fund on 22 September 1999. I informed the parties before and at the hearing on 1 November that, in the light of this mistake, I would not hand down judgment but would consider whether the mistake affected the conclusions I reached. I have done so and conclude that it did not. My decision was and is that by the beginning of 1999 the risk the claimant took in 1997 had materialised because of the fall in annuity rates. I have amended the relevant paragraphs to remove the mistake.