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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Martin & Anor. v Britannia Life Ltd  EWHC 852 (Ch) (21 December 1999)
Cite as:  EWHC 852 (Ch)
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B e f o r e :
|MICHAEL MARTIN & ANOR.||Claimant|
|- and -|
|BRITANNIA LIFE LIMITED||Defendant|
Simon Burrell instructed by Messrs Cripps Harries Hall for the Defendant
Crown Copyright ©
PART 1: INTRODUCTION
1.1 This is the trial of the issue of liability in an action in which Mr Michael Martin and his wife Mrs Isobel Martin claim damages against Britannia Life Ltd ("Britannia").
1.2 In mid-1991 Mr Martin, who was then 50 years of age, sought financial advice from an insurance group, The Life Association of Scotland ("LAS"). This led to a representative of LAS, a Mr Ivan Sherman, visiting Mr and Mrs Martin at their home The Brambles, Quainton Road, North Marston, Buckinghamshire, on 9 May 1991 and 4 June 1991. On the latter occasion, Mr Sherman advised Mr and Mrs Martin to enter into a package of transactions consisting of a remortgage of The Brambles to the Bank of Scotland, the surrender of a number of life policies which had been charged as collateral security for an existing mortgage on The Brambles, the taking out of an endowment policy and a pension policy with LAS, and the charging of the endowment policy to the Bank of Scotland as collateral security for the mortgage advance. Mr and Mrs Martin subsequently entered into those transactions.
1.3 In 1994 the long term insurance business of LAS was transferred to Britannia. It is common ground that for the purposes of this action Britannia is to be treated as the successor to LAS, in that to the extent that LAS would have been liable to Mr and Mrs Martin such liability attaches to Britannia.
1.4 In the action, Mr and Mrs Martin claim that Mr Sherman's advice was negligent, essentially on the grounds that that he failed to advise them of the full extent of the financial commitments involved in such transactions, that he failed to advise them of the disadvantages of surrendering the existing life policies, and that he failed to take proper account of Mr and Mrs Martin's financial circumstances and recommended a package of transactions which was effectively beyond their means. They further allege that Britannia is liable to them in damages pursuant to section 62 of the Financial Services Act 1986 ("the 1986 Act").
1.5 By its Defence, Britannia:
(1) denies that LAS owed Mr and Mrs Martin any contractual duty of care in relation to advice given by Mr Sherman (in the event, the pleaded allegation of a contractual duty of care was abandoned by Mr and Mrs Martin's counsel in the course of the hearing);
(2) admits the existence of a duty of care in tort owed by LAS in relation to advice given by Mr Sherman concerning LAS products, but not in relation to any other advice which Mr Sherman may have given (including, in particular, advice concerning the remortgage of The Brambles);
(3) save in two respects where admissions are made, denies that the advice which Mr Sherman gave breached that tortious duty of care or gave rise to a cause of action under section 62 of the 1986 Act;
(4) denies that the claimants relied on Mr Sherman's alleged advice;
(5) denies that the claimants have suffered loss and damage as a result of Mr Sherman's advice or at all; and
(6) pleads that the claims are in any event statute-barred.
1.6 Mr and Mrs Martin appear by Miss Emily Campbell of counsel; Britannia appears by Mr Simon Burrell of counsel.
* * * * *
PART 2: THE ISSUES
The issues which arise for decision, so far as liability is concerned, are as follows:
(1) What was the extent of the duty of care in tort owed by LAS to Mr and Mrs Martin in relation to advice given to them by Mr Sherman? As I have already noted, although the existence of a tortious duty of care on the part of LAS is admitted (and it is admitted that in two specific respects that duty of care was breached), it is denied that LAS was liable for advice given by Mr Sherman otherwise than in connection with LAS products; in particular, it is denied that LAS was liable for advice concerning the remortgage. The resolution of this issue depends upon the extent of Mr Sherman's actual or ostensible authority to act on behalf of LAS in giving the advice which he in fact gave: that is to say, upon the extent to which Mr Sherman was, or is to be treated as, the agent of LAS in giving such advice. I will refer to this issue hereafter as "the Agency Issue".
(2) Did the advice which Mr Sherman gave breach that duty? This is a mixed issue of fact and law. It raises a question of fact as to what advice Mr Sherman gave, and a question of law as to whether the giving of that advice fell below the requisite standard of care. I will refer to it as "the Breach of Duty Issue".
(3) If so, did the giving of the (ex hypothesi) negligent advice cause any damage to Mr and Mrs Martin? It is Britannia's case on this issue that in the event Mr and Mrs Martin did not rely on Mr Sherman's advice in entering into the package of transactions which he recommended, and accordingly that any resulting loss cannot be laid at the door of Mr Sherman, and hence of LAS/Britannia. I will refer to this issue as "the Causation Issue".
(4) Are Mr and Mrs Martin entitled to damages pursuant to section 62 of the 1986 Act? I will refer to this issue as "the Section 62 issue". And
(5) Are Mr and Mrs Martin's claims for damages in any event statute-barred by virtue of the Limitation Act 1980? I will refer to this issue as "the Limitation Issue". Although initially Miss Campbell was seeking to meet the limitation defence by relying (among other things) on section 32 of the Limitation Act 1980, on the footing that the action is "based upon the defendant's fraud", in her closing submissions she abandoned any reliance on section 32. Miss Campbell's primary submission on limitation is that time did not start to run for limitation purposes until after 29 July 1991 (the action having been commenced on 29 July 1997); but in the alternative she relies on section 14A of the Act as postponing the running of time until a date within three years of the commencement of the action. I will refer to this issue as "the Limitation Issue".
PART 3: THE EVIDENCE
3.1 I turn next to the oral evidence.
First, the witnesses of fact. Mr and Mrs Martin each gave oral evidence in support of their claim. In addition, I heard evidence of fact in support of the claim from Mr Terence Clark (who acted as adviser to Mr and Mrs Martin from about May 1994 onwards), and from Mr Stephen Motley (a former employee of Britannia who visited Mr and Mrs Martin in 1994 and who was instrumental in their retaining Mr Clark). For Britannia, I heard evidence from Mr Sherman, Miss Wagner (who was company secretary of Britannia in 1996 and who had at that time reviewed the file relating to Mr and Mrs Martin), and Mr Hay (a legal services manager with Britannia having the conduct of this action on behalf of Britannia).
3.2 So far as Mr Clarke, Miss Wagner and Mr May are concerned, they were plainly trying to assist the court to the best of their ability, and I have no doubts as to the reliability of their evidence.
3.3 . In relation to Mr Motley, the position is not so straightforward. In his witness statement, which he confirmed in oral evidence in chief, he stated that he had concluded that Mr and Mrs Martin had been badly advised by Mr Sherman, and that when he expressed his concerns to his superior at Britannia, a Mr Mullarky, he was instructed by Mr Mullarky "not to take the matter any further and to turn a blind eye". In cross-examination, however, Mr Motley accepted that he could not remember whether Mr Mullarky had used the words "turn a blind eye", and that in any event it would be for a compliance officer, and not for Mr Motley, to take the matter further. Although Mr Mullarky provided a witness statement denying that he had instructed Mr Motley to turn a blind eye, in the event he was not called to give evidence. However, in the light of Mr Motley's substantive retraction of the allegation in cross-examination I have to approach his evidence with considerable caution.
3.4 In now turn to the three protagonists: Mr Martin, Mrs Martin and Mr Sherman. I start by reminding myself that the events in issue took place more than eight years ago. It is inevitable, therefore, that the recollections of those involved will differ in some degree: it would be surprising if it were otherwise.
3.5 With that in mind, I turn first to Mr Martin. In his case, I must also take into account the possibility (to put it no higher) that in the course of a prolonged quest for what he regards as proper redress, his recollection of events may unwittingly have become distorted in some degree by the benefit of hindsight and the strong feeling (which he plainly has) that he has been the victim of "appalling" advice. That said, I found Mr Martin to be an impressive witness. He gave his evidence thoughtfully and fairly, and had no hesitation in accepting the limits of his recollection. I am satisfied that he was throughout doing his best to assist the court and to give it the benefit of his true recollection of events. Moreover, I regard his explanations of his financial dealings following the implementation of the package recommended by Mr Sherman as being genuine explanations; and I also accept as genuine his frank acceptance of a degree of naivete in financial affairs which a superficial appearance of expertise (for example, in correspondence) might otherwise have belied. In all, I am satisfied that Mr Martin's evidence is generally reliable.
3.6 The same general comments apply to Mrs Martin, who played a relatively minor role in the events in question. She too was plainly a truthful witness, and I am satisfied that in giving her evidence she was not overplaying to any significant degree her ingenuousness in financial matters (save that I regard her description of herself as "practically innumerate" as an obvious exaggeration), or for that matter the extent of her reliance on Mr Martin in such matters.
3.7 I turn next to Mr Sherman. In his case I take into account the fact that he is manifestly not in good health, and I also take into account the inevitable stress of being cross-examined in the context of allegations of negligent advice. Nevertheless, I found him to be an unsatisfactory and at times evasive witness. He was plainly sensitive to those areas where he was vulnerable, and quick to try to protect himself. In so doing, he demonstrated a capacity to embroider and to mould his recollection of events which leads me to approach his evidence with considerable caution. To the extent that Mr Sherman's evidence conflicts with that of Mr and/or Mrs Martin, I have no hesitation in preferring the evidence of Mr and Mrs Martin.
3.8 Next I turn to the expert evidence. Each side called one expert. Mr and Mrs Martin called Mr David Epstein, a chartered accountant with considerable experience in the field of financial services. Britannia called Mr Michael Cohen, a barrister who has worked for many years in the insurance industry. Each gave his evidence with admirable clarity and fairness. In the event, there was little or nothing of significance between them. Such differences as appeared in the course of the evidence were on analysis no more than differences of emphasis. I am extremely grateful to both of them for the assistance which they provided.
PART 4: THE FACTS
4.1 I can now turn to the facts, as I find them.
4.2 LAS was at the material time a group of insurance companies operating under the provisions of the 1986 Act.
4.3 Mr Martin was born on 16 July 1940. On leaving university he qualified as a dentist. Initially he practised dentistry in private practice, but from 1969 until July 1988 he worked almost continuously in industry, selling and marketing dental and other medical equipment.
4.4 Prior to 1986 Mr and Mrs Martin were living at 91 Park Avenue, Worcester. In July 1986 they sold that property and purchased The Brambles. The purchase price was £120,000, of which £85,000 was advanced by Lloyds Bank on mortgage. As collateral security for the mortgage advance Mr Martin charged five life policies, four on his own life and one on the joint lives of himself and Mrs Martin.
4.5 In April 1989 Mr Martin was employed by an American company called American Dental Laser Inc ("ADL") as its European Sales Manager. He subsequently became its UK Managing Director. ADL was not registered under the PAYE system, and in consequence Mr Martin was responsible for paying his own tax until such time as ADL was in a position to operate a PAYE scheme. In addition, and this is a significant fact in the context of this action, ADL did not operate any pension scheme for its UK employees.
4.6 In April 1989 the Bank advanced an additional £30,000 to Mr and Mrs Martin on the security of the mortgage, and as collateral security Mr Martin took out a further policy in the joint names of himself and Mrs Martin, which provided life cover in the sum of £30,000. The purpose of the loan was to fund improvements to The Brambles.
4.7 In October 1989 one of the original life policies matured, and Mr Martin applied the whole of the proceeds (amounting to some £17,800) in taking out another single premium life policy. In addition, he took out a further life policy at the same annual premium as that which he had been paying in respect of the policy which had matured.
4.8 By April 1991 Mr Martin owed the Inland Revenue about £40,000, of which about £20,000 was imminently due for payment. In addition he had other outstanding liabilities amounting to some £21,000, including a loan in respect of a car amounting to some £16,000.
4.9 In April or early May 1991 Mr Martin contacted LAS for advice. I find that his principal reason for doing so was his concern that for the last two years he had made no pension contributions (see paragraph 4.5 above). He was aware that tax relief was available on pension contributions made by a self-employed person and he thought it might be possible to use that tax relief to reduce his outstanding liability to the Revenue. But it was, as I find, the need to (as he put it in evidence) "put together a pension scheme" which prompted him to contact LAS.
4.10 Mr Martin's approach to LAS led in due course to his being contacted by Mr Sherman, and it was arranged that Mr Sherman meet Mr and Mrs Martin on 9 May 1991 at The Brambles.
4.11 Mr Sherman was at the material time a self-employed financial consultant. He was also, by virtue of an Agreement entitled "Self Employed Financial Advisers Agreement" dated 14 September 1990 and made between him and LAS, an authorised company representative of LAS. By clause 2.1 of the Agreement he was obliged (by subparagraph (b)) to give advice "about entering into Investment Agreements with any Member of [LAS]", and (by subparagraph (c)) to give advice "as to the sale of investments issued by any member of [LAS] or as to the exercise of rights conferred by an investment whether or not issued as aforesaid". By virtue of this Agreement he was (and I quote from the then current Rules and Regulations for Financial Advisers in force within LAS) "authorised by [LAS] in terms of the Financial Services Act 1986 as a Financial Adviser and . . . . engaged solely to advise, market and sell the products of [LAS]". The Agreement also had the effect of constituting him a company representative of LAS within the meaning of rule 1.2 of the current rules of the Life Assurance and Unit Trust Regulatory Association ("LAUTRO"), i.e. the LAUTRO Rules 1988. I shall return to this Agreement in Part 5 of this judgment, when I address the Agency Issue.
4.12 Mr Sherman duly met Mr and Mrs Martin at The Brambles on 9 May 1991. As at that date, Mr and Mrs Martin's financial circumstances were as follows:
(1) Mr Martin's basic gross annual salary from ADL was £58,500, in addition to which he expected to receive a further gross sum of £6000 during the current financial year from bonuses and commissions, making a total expected gross income during that year of £64,500 (equivalent to £5,375 per month). This would produce a net annual income after tax of some £46,032 (equivalent to £3,836 per month). His basic gross annual salary in the year 1988/9 had been £42,396, and in the year 1989/90 it had been £53,109: so it had been increasing year by year over the three years. Mr Martin was hopeful (although he could not be certain) that it would continue to increase. (In the event, although it increased in the ensuing year, 1991/2, it declined thereafter.)
(2) Mrs Martin had previously been an English teacher but had retired from teaching and had no income of her own. She had a separate bank account with what she described as a "modest" credit balance, but no other assets in her sole name.
(3) Mr and Mrs Martin's only capital assets were The Brambles, which was then worth about £285,000 (subject to the mortgage, including the further advance, of £115,000), and the policies charged as collateral security for the mortgage advances: they had no other savings or investments of any kind.
(4) Their outstanding liabilities were (as noted earlier):
(i) Mr Martin's tax bill of £40,000;
(ii) the outstanding loan in respect of a car, amounting to £16,000; and
(iii) other liabilities totalling some £21,000.
(5) Their ongoing commitments (excluding living expenses) were:
(i) the regular premiums on the life policies, which amounted to £4,872 per annum (£406 per month);
(ii) the mortgage interest payment of £1310 per month; and
(iii) repayments of £419 per month in respect of the car loan.
4.13 Thus, out of an expected net income for the current year equivalent to some £3,836 per month, Mr and Mrs Martin were committed to paying a total of some £2,135 per month (i.e. £406+£1310+£419) in respect of their ongoing commitments to which I have referred, leaving some £1,700 per month (£20,400 per annum) available to cover living and other expenses.
4.14 At the start of the meeting on 9 May 1991 Mr Sherman presented his business card. The card bears, at the top, the LAS logo. Immediately underneath the logo appears LAS's name, in large capital letters. Below LAS's name appears Mr Sherman's name, in lower case. Below that, in italics, are the words "Financial Adviser". Below those words there is an address in Sawston, near Cambridge, which was the address of the Branch of LAS from which Mr Sherman operated, together with telephone and fax numbers. Lastly, at the foot of the card appears the legend: "LAS Group Members of LAUTRO and IMRO".
4.15 From Mr and Mrs Martin's point of view, the general purpose of the meeting on 9 May 1991 was to enable Mr Sherman to obtain an overview of their financial position so as to enable him to advise them as to the best and most tax-effective way for Mr Martin to make pension provision. I find that Mr Sherman also understood that to be the purpose of the meeting.
4.16 In the course of the meeting Mr Martin gave Mr Sherman the information as to his current financial position which I have set out above. I reject Mr Sherman's evidence that Mr Martin said that he had liabilities amounting to £61,000 in addition to his tax bill of £40,000 (that is to say that his outstanding liabilities amounted in total to £101,000 rather than £61,000), and I further reject Mr Sherman's evidence that that was his understanding of the position. I find that Mr Sherman fully understood that Mr Martin's outstanding liabilities amounted to £61,000 including the tax bill of £40,000.
4.17 At the conclusion of the meeting Mr Sherman said that he would need to go away and consider the position, and that he would be in touch again shortly. A few days later Mr Sherman telephoned Mr Martin and a further meeting was arranged for 4 June 1991.
4.18 On 4 June 1991 Mr Sherman arrived with a number of forms and documents, including:
- a form of mortgage application to the Bank of Scotland;
- a print of the Bank of Scotland's standard mortgage terms;
- a form of application for a mortgage-related endowment policy to be issued by LAS known as a "Homeplan Plus" policy;
- a form of application for a pension policy to be issued by LAS;
- an illustration of a proposed pension policy to provide benefits on Mr Martin attaining the age of 65 (in the year 2005), the illustration being based on Mr Martin's current earnings of £58,500, with annual contributions of £14,625 gross (£8775 net after tax relief at the rate of 40 per cent), and showing an estimated cash fund of between £353,000 and £490,000 on maturity;
- a form of authorisation to enable Mr Sherman to contact the insurance companies which had issued the existing life policies, with a view to the surrender of those policies; and
- a form entitled "Personal Financial Analysis" (known colloquially in the insurance industry as a "Fact Find") designed to record information about a client's personal and financial circumstances.
4.19 At the meeting on 4 June 1991 Mr Sherman advised Mr and Mrs Martin that the existing life policies should be surrendered; that they should be replaced by a new "Homeplan Plus" endowment policy to be taken out with LAS; that The Brambles should be remortgaged, with the Homeplan Plus policy being charged as collateral security; and that Mr Martin should contribute to a new pension policy issued by LAS in accordance with the illustration which he had brought with him.
4.20 So far as the proposed remortgage was concerned, Mr Sherman advised Mr and Mrs Martin to apply for an endowment mortgage with the Bank of Scotland (as I have already noted, he had the application form with him), the mortgage term being 14 years (ending when Mr Martin attained 65 in July 2005). Mr Sherman further advised Mr and Mrs Martin to apply for a mortgage which incorporated a facility for the borrower to "stabilise" the interest rate by electing to pay interest at a constant rate within a prescribed band, with any consequential adjustments in respect of under- or over-payments of interest being made at the end of the term.
4.21 In the event, Mr and Mrs Martin applied for a mortgage advance of £210,000, but there is a dispute as to how that figure came to be entered on the mortgage application form. Mr Martin's evidence (which I accept) is that although there was no recent valuation of The Brambles, he believed that it could be worth as much as £300,000 on the open market; that Mr Sherman advised that they should apply for as large a mortgage advance as possible, mentioning a figure of 90 percent; but that he and Mrs Martin were not comfortable with so large a mortgage, and told Mr Sherman that the mortgage should not exceed 75 per cent of the market value of the property. After further discussion, the figure of £210,000 was agreed. (Shortly thereafter, the Bank of Scotland obtained a valuation of £285,000 for the property. Thus, the figure of £210,000 was just below 75 per cent of its then market value, according to that valuation.) I reject Mr Sherman's evidence that it was he who advised that the mortgage advance should not exceed 75 per cent of the value of the property. I further reject Mr Sherman's evidence (which Mr Martin denied) that Mr Martin told Mr Sherman in the course of the meeting that he had approached his Lloyds Bank for an additional advance, but without success. I accept Mr Martin's evidence that he had made no such approach, as his primary concern was to put a pension scheme in place and he knew that the Bank would not be able to assist him in that respect.
4.22 Finally, so far as the mortgage application form is concerned, in the space provided for setting out the applicant's reasons for seeking the advance Mr Martin wrote: "To obtain stabilised interest rate, maximise pension contributions, replace existing loans and car".
4.23 Mr and Mrs Martin also completed and signed the form of application for a "Homeplan Plus" policy, as advised by Mr Sherman. In the section of the application form entitled "Mortgage Details", Mr Sherman advised Mr Martin to enter the figure of £62,000 in the box marked "Total amount of mortgage". In the section entitled "Homeplan Plus Details" Mr Martin (again, on the advice of Mr Sherman) applied for a policy to provide a sum assured of £231,000 at the expiry of a 14-year term, at a monthly premium of £617.08 (Mr Sherman subsequently altered this figure to £617.47, no doubt after further consultation with LAS).
4.24 The Bank of Scotland's General Terms and Conditions for Residential Mortgages provided that in the case of a mortgage containing a facility for "stabilising" the interest rate collateral security would be required in the form of an endowment policy which provided a minimum death benefit of not less than 110 per cent of the sum advanced (the additional 10 per cent security being presumably required to cover any additional interest which might be payable at the end of the term by reason of the "stabilising" facility). This explains the figure of £231,000 as the sum assured by the Homeplan Plus policy; £231,000 being equal to 110 per cent of £210,000 (the amount of the advance for which Mr and Mrs Martin were applying).
4.25 As to the figure of £62,000 in the box marked "Total amount of mortgage", in evidence Mr Sherman explained this figure as being what he intended to be the endowment element of the policy. He told me that he had calculated that on a conservative estimate the pension policy would be likely to produce a tax free cash sum at the end of the term of some £148,000, leaving a shortfall of £62,000 required to redeem the mortgage. He told me that it was his intention that the Homeplan Policy should contain two elements: a life cover element to provide a guaranteed benefit of £231,000 in the event of the death of either Mr or Mrs Martin during the term (to comply with the Bank of Scotland's requirements in relation to collateral security), and an endowment element of only £62,000 which would, when taken with the projected tax free cash sum of £148,000 available under the pension policy, be sufficient to redeem the mortgage at the end of the term. This was the first time it had been suggested that this was the intended effect of the Homeplan Plus policy. Prior to Mr Sherman providing a witness statement (shortly before the commencement of the hearing), all parties had proceeded on the basis that the Homeplan Plus policy was a straightforward endowment policy in the full sum of £231,000 (and, as will become apparent, that was how LAS interpreted the application form when issuing the policy). Thus, in paragraph 6(c) of the Statement of Claim it is alleged that Mr Sherman advised Mr and Mrs Martin "to take out a fresh endowment policy with LAS to secure the entire value of the remortgage"; and this allegation is admitted in paragraph 8 of the Defence.
4.26 In the light of Mr Sherman's evidence on this point Mr Burrell applied at the conclusion of the evidence for permission to amend the Defence to plead that the Bank of Scotland mortgage was secured, and was intended to be secured, as to £148,000 by the pension policy and as to the remaining £62,000 by the Homeplan Plus policy. Miss Campbell did not oppose this application, which I granted.
4.27 Although Mr Martin was not recalled to give evidence on this point, in his witness statement (the truth of which he confirmed in oral evidence in chief) he refers to the Homeplan Plus in the same terms as those which appear in the Statement of Claim: that is to say, as a new endowment policy to cover the entire value of the remortgage. I have no doubt that he understood that to be its effect, and I so find. I further find that Mr Sherman did not explain to Mr and Mrs Martin, either adequately or at all, how he had calculated the figure of £62,000. I will return to this aspect when considering the terms and effect of the Homeplan Policy as issued.
4.28 A further point arises in relation to the application for the Homeplan Plus policy. The application form for the policy provided a choice between "Level Premium" and "Low Start". On Mr Sherman's advice, Mr Martin ticked "Low Start". By so doing, he was applying for a policy on which the initial premiums would be lower than under a "Level Premium" policy, but would escalate by 20 per cent per annum over the first five years of the term. Mr Martin's evidence was that Mr Sherman did not draw his attention to the fact that the premium would escalate in this matter. Mr Sherman insists that he did. I prefer the evidence of Mr Martin. I find that Mr Sherman did not draw Mr and Mrs Martin's attention to the provision for escalation of the premium, or to the fact that the initial monthly premium of some £617 would double over the first five years of the term of the policy.
4.29 As to the pension policy, Mr Sherman advised Mr Martin to take out a policy in accordance with the illustration which he brought with him to the meeting. Such a policy would provide pension benefits on Mr Martin attaining the age of 65, in 14 years' time. The term of the pension policy was thus the same as the mortgage term and the term of the Homeplan Plus policy. Mr Sherman advised that on a reasonable projection the tax free cash sum available under the pension policy at the end of the term (which would be available to be applied towards redemption of the Bank of Scotland mortgage) would be not less than £148,000. The annual premium under the pension policy was £14,625 gross (some £1218 per month). The net monthly premiums payable under the pension policy after taking into account tax relief amounted to some £731. Mr Sherman advised Mr Martin to pay a single premium, in addition to the initial annual premium, in order to take up unused tax relief from previous years. The amount of the single premium was later calculated by Mr Sherman at a sum of £23,156 net of tax relief, and he entered this figure in the signed application form before submitting it to LAS.
4.30 As to Mr Sherman's advice that the existing life policies should be surrendered, there is a further conflict of evidence. Mr and Mrs Martin say that he did not explain to them the disadvantages which are inevitably attendant on the surrender of an existing life policy, including (in particular) the imposition of penalties and charges. Mr Sherman's evidence is that he explained the disadvantages. He also gave evidence that the existing policies would not in any event have been satisfactory to the Bank of Scotland as collateral security, with the consequence that there was no alternative to surrender if a remortgage with the Bank of Scotland was to go ahead. There is no evidence before me to contradict this latter assertion, which I am prepared to accept as correct. But even on that basis the disadvantages of surrender remained a material factor to be considered in deciding whether to proceed with the proposed remortgage to the Bank of Scotland. I find that Mr Sherman wholly failed to advise Mr and Mrs Martin of the disadvantages of surrendering the existing life policies.
4.31 In the course of the meeting, Mr Martin completed the "Fact Find" (as I shall hereafter call it) in his own handwriting. I now turn to that document.
4.32 The front sheet of the "Fact Find contains LAS's logo and name. Spaces are provided for the client's name to be inserted, together with that of the representative, and the branch of LAS to which the associate is attached. At the foot of the front sheet is a paragraph headed "Financial Services Act 1986" which reads as follows:
"An investment adviser is obliged to give advice based on knowledge of his client's financial and personal circumstances. The questions asked here are in the client's best interest and to assure the client that they best possible advice will be given. If for any reason, and entirely at the client's option, he chooses to decline to answer all or any of the questions, the advice subsequently given cannot be based on factual evidence of his or her needs."
4.33 I turn next to the body of the Fact Find. Mr Martin gave his annual gross income as £64,500 (representing the basic salary of £58,500 plus the expected additional sum of £6,000 in respect of bonuses and commissions). In answer to the question "What income do you require to cover your monthly expenses?" he entered the figure: "£3,000". He gave Mrs Martin's income as nil. He stated that he intended to retire at age 65 (that is to say, in July 2005). In answer to the question "What amount is needed to settle your outstanding accounts?" he entered the figure: "£61,000". This represented the tax bill of £40,000, the outstanding car loan of £16,000 and £5,000 worth of other liabilities. In answer to the question "Do you have any capital invested now?" he ticked the box marked: "No". Asked to list his priorities, he placed the investigation of alternative mortgage arrangements at the top of the list, followed by the provision of a secure retirement. In the section of the Fact Find entitled "Your Savings and Investments" he wrote: "Will not discuss this section".
4.34 The final page of the Fact Find contains a blank section headed "Comments", with three subheadings: "Additional comments", "Recommended action" and "Action taken". The Comments section was left entirely blank.
4.35 Immediately beneath the Comments section is a declaration, which Mr and Mrs Martin and Mr Sherman duly signed. The declaration reads as follows:
"We confirm that to the best of our knowledge the information contained in this financial assessment is correct. We also understand that in the event of us being unable or unwilling to provide certain details the undermentioned associate [in this case, Mr Sherman] may not be able to offer the best advice. We confirm that we wish to take up the recommendations made by the undermentioned associate and do wish to proceed."
4.36 Immediately below the declaration to which I have just referred, at the conclusion of the Fact Find, is a further declaration headed (correcting the obvious misprint) "Replacement Policy Declaration". It is apparent from its terms that this declaration is designed to be signed by the client (or clients) and by the representative in any case where the representative has recommended the substitution of a new policy for an existing policy. This declaration was applicable in the instant case, given the decision to surrender the existing life policies, and Mr and Mrs Martin and Mr Sherman duly signed it. It reads as follows:
"We understand that the recommendations made include the substitution of a new policy for an existing policy (which will be cancelled or allowed to lapse). I have had the relevant consequences of such a cancellation/lapse pointed out to me and they have been noted in the "Comments" space above." (Emphasis supplied)
4.37 As I have already related, the Comments section was blank when Mr and Mrs Martin signed it, and it remained in that state when Mr Sherman took the signed form away with him at the conclusion of the meeting (together with the other forms which had been completed and signed).
4.38 It was a recurrent theme throughout Mr Sherman's evidence that Mr and Mrs Martin's primary concern, and the primary reason why they had sought his advice, was to restructure their finances so as to provide them with enough capital to enable them to discharge their outstanding liabilities in the most tax-efficient way, and that the making of pension contributions was of secondary importance, being no more than a means to that end. Mr Sherman placed particular reliance in this connection on the fact that in completing the Fact Find, Mr Martin had placed a remortgage at the top of his list of priorities. However, I accept Mr Martin's evidence that his primary purpose was to make pension provision, and that any restructuring of his overall finances was ancillary to that primary purpose.
4.39 I find that in writing the words "Will not discuss this section" in the section of the Fact Find headed "Your Savings and Investments" Mr Martin was relying on Mr Sherman's advice that it was unnecessary to fill in that section, since in answer to an earlier question he had already stated that he had no capital invested. I further find that Mr Sherman was at all material times aware that Mr and Mrs Martin had no savings or investments, apart from a modest sum in Mrs Martin's bank account.
4.40 At the conclusion of the meeting, Mr Martin made photocopies on his home photocopier of those documents which he regarded as important, including the completed Fact Find. The following day (5 June 1991) he instructed his solicitors to proceed with the remortgage.
4.41 Under cover of a letter dated 10 June 1991 LAS (by Marina Doyle, the Branch Clerk at the Sawston Branch of LAS) sent Mr and Mrs Martin quotations in respect of the Homeplan Plus policy and the pension policy outlining the benefits available under the respective policies, subject to acceptance by underwriters at the ordinary rate of premium. According to the letter a copy of LAS's "Buyer's Guide" was also enclosed, but Mr Martin has no recollection of that document being enclosed. His evidence was that the first time he saw a copy of the Buyer's Guide was in 1992, when he took out an additional pension policy. I accept Mr Martin's evidence in relation to the Buyer's Guide, and find that a copy was not enclosed with the letter dated 10 June 1991.
4.42 The quotation in respect of the Homeplan Plus policy stated the amount of the mortgage as £62,000 and the sum assured as £231,000 (following the figures which had been entered in the application form). Under the heading "Low Start Homeplan Plus" the initial monthly premium was stated to be £617.47. The illustration showed the "estimated maturity value" of the policy at three assumed annual rates of return: 7 per cent, 8.4 per cent and 10.5 per cent. The respective values shown were £207,000, £231,000 and £268,000. The Notes to the illustration included the following:
"With Low Start Homeplan Plus, premiums increase by 20% p.a. simple, for five years from the first policy anniversary. The premium thereafter will be £1,234.94."
4.43 Mr Martin told me in evidence that he did not read the illustration with any care, and that despite the description of the policy as "Low Start", and despite the reference in the Notes to escalation of the premium, his understanding remained (Mr Sherman not having advised him otherwise) that the monthly premiums of some £617 would remain constant throughout the 14-year term. I accept that evidence. With hindsight, it reflects little credit on Mr Martin that he felt able to deal with the documentation in such a cursory way. But whatever criticisms may be levelled at Mr Martin in this respect, his attitude to the documentation was undoubtedly shaped and influenced by the fact that he had received what he believed at the time to be sound professional advice from Mr Sherman, who had recommended that he enter into the transactions in question; and he was relying on that advice. He was not, as I find, concerned to look for difficulties or disadvantages to which Mr Sherman had not drawn his attention.
4.44 On 8 July 1991 Mr Sherman sent Mr and Mrs Martin a fax in the following terms:
Mortgage £210,000 over 14 years.
Sum assured joint life first death basis £231,000.
Mortgage interest net of tax relief £1,856.26 per month. Homeplan Plus £617.08. Total £2,473.34 less tax relief on pension contribution £487.50. Total monthly cost £1,985.84."
4.45 It is noteworthy that although in this fax Mr Sherman brings into account the tax relief on the premiums under the pension policy, he does not bring into account the gross premium under that policy of some £1,218 per month. Nor does he refer to the prospective escalation of the premium under the Homeplan Plus policy. In both these respects this fax is seriously misleading - as Mr Sherman was disposed to accept in evidence. True it is that by this time the relevant application forms had already been submitted, but the fact that Mr Sherman felt able to write to his clients in such misleading terms inevitably reflects on the advice which he gave orally at the meeting on 4 June 1991.
4.46 On 10 July 1991 a member of the Direct Pensions Sales Department of LAS wrote to Mr Martin enclosing a copy of the pension policy issued by LAS on Mr Martin's application, together with associated documents. The policy is dated 3 July 1991, and it provides for pension benefits as from Mr Martin's 65th birthday, at an annual premium of £14,625. The Personal Pensions Contributions Certificate (which was among the documents enclosed with the letter) states - erroneously - that Mr Martin had paid the first premium on 3 July 1991. In fact, as I shall relate, the first premium was not paid until 5 August 1991. No reference is made in the policy documentation to the payment of a special (i.e. single) premium.
4.47 On or about 22 July 1991 LAS sent Mr and Mrs Martin "Product Particulars" relating to the Homeplan Plus policy, under cover of letter drawing attention to Mr Martin's right to cancel the policy within 14 days of receipt of the letter. A form of notice of cancellation was also enclosed with the letter. In the event, it did not cross Mr Martin's mind to exercise the right of cancellation.
4.48 On 25 July 1991 a member of the Life Department at LAS wrote to Mr and Mrs Martin enclosing a copy of the Homeplan Plus policy issued on Mr and Mrs Martin's application. The front page of the Homeplan Plus policy gives the commencing date of the policy as 15 July 1991. On the same page, the benefit provided by the policy is described as follows:
"An endowment assurance benefit payable on 15th July 2005 ("the Maturity Date") of a sum equal to the units attaching to the policy at that date, or, in the event of the earlier death of the life assured the greater of (A) £231,000 ("the Guaranteed Death Benefit") and (B) a sum equal to the value of the units attaching to the policy on the unit valuation date immediately following the date of notification of the death of the life assured".
The premium is stated to be:
£617.47 payable monthly during the lifetime of the life assured commencing 15th July 1991 until 15th June 2005 inclusive".
This is followed, still on the front page of the policy, by a section headed "Standard Provision". Six paragraphs appear under this heading. Paragraph 6 reads:
"On each policy anniversary date the amount of the premium specified above will increase by 20 per cent up to and including 15th July 1996".
4.49 In evidence, Mr Martin told me that he failed to read the section headed "Standard Provisions", and that he accordingly remained unaware of the provision for escalation of the premium over the first five years. He told me that he read the sentence which appears under the heading "Premium" (as quoted above), which accorded with his understanding of the position as Mr Sherman had explained it to him, and on that basis his understanding remained that the premium of £617.47 would remain constant throughout the term of the policy. Once again, I accept that evidence. The observations which I made earlier in relation to Mr Martin's failure properly to read the illustration for the Homeplan Plus policy apply also to his failure properly to read the Product Particulars and the policy itself. In each case, Mr Martin's failure to study the documentation with greater care is attributable to his reliance on Mr Sherman's advice, and in particular to the fact that Mr Sherman had not alerted him to the fact the policy would include an escalation provision.
4.50 I must return at this point to the suggestion made, for the first time, by Mr Sherman in the course of his evidence, that the "endowment element" of the Homeplan Plus policy was in fact £62,000, and not the full £231,000. In my judgment, that proposition is unsupportable, given that over the term of the policy (and taking into account the escalation provision) premiums totalling in excess of £200,000 would become payable. In my judgment it is plain on the face of the Homeplan Plus policy as issued that it was an endowment policy designed to produce a sum of £231,000 at the end of the term, with a guaranteed benefit in that sum in the event of Mr or Mrs Martin's earlier death. In other words, it accorded precisely with the illustration which LAS had provided, following the meeting on 4 June 1991. Indeed, so much was effectively admitted by Britannia in a letter to Mr Martin dated 6 September 1994, to which I refer below. It follows that the "endowment element" was some £169,000 greater than the £62,000 which Mr Sherman says he advised was necessary, and that the premium must also have been substantially greater than that which would have been payable for a policy which provided the guaranteed benefit of £231,000 on death during the term coupled with an "endowment element" of only £62,000.
4.51 I do not accept Mr Sherman's evidence that his intention was that the "endowment element" of the Homeplan Plus policy should be limited to £62,000, or that he so advised Mr and Mrs Martin. I find that he had calculated that, after allowing for the projected tax free cash sum of £148,000 on the maturity of the pension policy a further £62,000 was required to be provided for by way of collateral security, but that his advice to Mr and Mrs Martin was that, given the Bank of Scotland's requirement for life cover in a sum equivalent to 110 per cent of the advance, an endowment policy in the sum of £231,000 was nevertheless required. Mr Sherman suggested in evidence that LAS might have misinterpreted his instructions in this respect. I find, however, that Mr Sherman's evidence as to his intentions in relation to what he described as the £62,000 "endowment element" is the product of hindsight rather than of a genuine recollection of his intentions at the time or of the advice which he gave. I find that at the material time it was Mr Sherman's intention that the Homeplan Plus policy should be an endowment policy designed to produce £231,000 at the end of the term, that the illustration which LAS subsequently provided (and which I have no doubt Mr Sherman saw at the time) correctly interpreted the instructions contained in the application form (which had been completed in accordance with Mr Sherman's advice), and that terms of the policy when issued accorded with the application form and with Mr Sherman's intentions.
4.52 By payments made on 23 and 26 July 1991, in anticipation of receipt of the balance of the Bank of Scotland advance and as previously discussed with Mr Sherman, Mr Martin paid the Revenue the full amount owing (some £27,000 after taking into account the tax relief resulting from his contribution to the pension policy, referred to below). These payments served to take his bank account into overdraft.
4.53 The Bank of Scotland mortgage was completed on 31 July 1991. On completion, a sum of £94,080.31, representing the balance of the mortgage advance of £210,000 after redemption of the Lloyds Bank mortgage and after payment of all costs and charges, was paid into Mr Martin's bank account. The monthly payments under the Bank of Scotland mortgage amounted to some £1856.
4.54 The first payment of premium under the Homeplan Plus policy was also made by Mr Martin on 31 July 1991.
4.55 On 5 August 1991 Mr Martin paid off the loan in respect of the car (then standing at £15,700).
4.56 Also on 5 August 1991 Mr Martin paid LAS £28,269 by way of premiums on the pension policy. This sum represented the net premium for the current year plus the single premium of £23,156 to which I referred earlier. As already noted, the effect of this payment was to reduce Mr Martin's outstanding liability to the Revenue by about £13,000, from some £40,000 to some £27,000. It is Mr Martin's evidence that he understood that the ongoing annual premium under this policy would be some £5,000 (i.e. the difference between £23,156 and £28,269), rather than £14,625. I accept his evidence that that was indeed what he believed. The fact that he held this belief illustrates the extent to which he (and, a fortiori, Mrs Martin) were out of their depth, so far as these transactions were concerned.
4.57 Between September 1991 and January 1992 Mr Martin surrendered all the current life policies (that is to say the policies which had formerly stood as collateral security for the mortgage advance from Lloyds Bank). The surrender proceeds amounted in total to some £38,638.
4.58 Mr and Mrs Martin's financial position after entering into the package of transactions recommended by Mr Sherman, and after discharging the debt to the Inland Revenue and the loan in respect of the car, was thus as follows. In terms of assets and liabilities, their only capital assets were The Brambles (subject, now, to a mortgage of £210,000), the surrender proceeds of the original policies (as and when received), the Homeplan Plus policy, the pension policy, what remained of the remortgage moneys after discharging liabilities and paying premiums, and a modest sum in Mrs Martin's bank account; and their only outstanding liability was the Bank of Scotland mortgage advance. In terms of income and expenditure, their expected net monthly income for the current year was unchanged at £3,836, but they now had the following ongoing commitments in place of the ongoing commitments which had existed prior to June 1991:
- the monthly premium under the Homeplan Plus policy (£617.47 during the first year but escalating at an annual rate of 20 per cent over five years);
- the net monthly premium under the pension policy of £731.25; and
- the monthly mortgage payment of £1856.26.
These monthly commitments amounted in total to some £3,205, as compared with the previous figure of £2,135, leaving only some £631 per month (£7,572 per annum) as income available for living and other expenses.
4.59 In April 1992 Mr Martin took out a further pension policy with LAS, via Mr Sherman, with an annual gross premium of £5,625. As I noted earlier, Mr Martin's income was at this stage increasing, and at this stage he believed that he could afford to make a further pension contribution. On 5 April 1992 he paid a net premium of £4,218 in respect of this policy. It is Mr Martin's evidence (which I accept) that he believed this policy to be a single premium policy.
4.60 As from 15 July 1992 the monthly premium under the Homeplan Plus policy increased from £617.47 to some £740. On 25 July 1992 Mr Martin, who was by then in some financial difficulty and who was concerned that the package recommended by Mr Sherman might not be affordable, wrote to Mr Sherman asking that the 1991 pension policy be changed from annual to monthly payment with effect from April 1992, and for the balance of the premium to be refunded. This was duly done.
4.61 By October 1992 Mr Martin's financial difficulties had worsened, and he ceased to contribute to the pension policy.
4.62 With effect from 15 July 1993 the monthly premium payable under the Homeplan Plus policy increased to some £864.
4.63 On early April 1994 Mr Martin was contacted by Mr Steve Motley of Britannia. On 18 April 1994 Mr Motley visited Mr and Mrs Martin at The Brambles. Mr Motley took with him the file relating to Mr and Mrs Martin, which contained (among other things) the Fact Find which Mr and Mrs Martin and Mr Sherman had signed at the June meeting. In the course of the meeting it became apparent that following the June meeting Mr Sherman had, as he frankly admitted in evidence, completed the "Comments" section of the Fact Find. Mr Sherman's evidence was that he sent a copy of what I may call the final version of the Fact Find to Mr and Mrs Martin as soon as he had completed it, but their evidence is that they never received such a copy, and that the first they knew that Mr Sherman had added to the Fact Find after they had signed it was when that fact was discovered in the course of the meeting with Mr Motley. I accept Mr and Mrs Martin's evidence on this point and reject that of Mr Sherman.
4.64 The comments inserted in the Fact Find include statements which Mr and Mrs Martin say are untrue: in particular, statements that Mr Sherman had advised them that they would incur penalties on the surrender of the existing life policies, and that Mr Martin had discussed the proposed course of action with his accountants. I have already found that Mr Sherman wholly failed to advise Mr and Mrs Martin as to the disadvantages attendant on surrendering the existing life policies. As to whether Mr Martin told Mr Sherman that he had discussed the proposed course of action with his accountants, it is apparent from Mr Sherman's contemporary notes that Mr Martin had told Mr Sherman the identity of his accountants, but I accept Mr Martin's evidence that he had not discussed Mr Sherman's proposals with his accountants and that he did not tell Mr Sherman that he had done so.
4.65 Following his meeting with Mr and Mrs Martin, Mr Motley expressed concerns to his superior in Britannia, Mr Mullarky, as to the advice which Mr and Mrs Martin had received from Mr Sherman. I have already referred to Mr Motley's evidence as to Mr Mullarky's response. For reasons which I expressed earlier, I attach no weight to Mr Motley's evidence on this aspect.
4.66 At about this time Mr Martin retained an independent financial adviser, a Mr Terence Clark, to advise him and to act on his behalf in respect of his complaints about Mr Sherman's advice. Mr Clark had initially been contacted by Mr Motley, who gave Mr Clark's name to Mr Martin.
4.67 On 4 May 1994 Mr Martin wrote to the Compliance Officer at LAS expressing concern that the Homeplan Plus policy was not in his best interests and requesting reimbursement of all premiums paid, with interest. He followed this with a letter dated 31 May 1994 complaining in addition about the advice received in relation to the two pension policies (that is to say, the 1991 policy and the 1992 policy) and seeking a meeting with a senior manager of LAS to review the entire situation. LAS replied saying that it would provide a full response shortly. In the event, however, it did not do so, and on 5 July 1994 Mr Martin wrote again to LAS reiterating his complaints and threatening to send the correspondence to the Insurance Ombudsman.
4.68 On 31 May 1994 Mr Martin wrote another letter to the Compliance Officer at Britannia saying that he had "been through a financial review" with his accountant, who was "appalled" at the advice which Mr Martin had been given, not only in relation to the Homeplan Plus policy but also in relation to the two pension policies (that is to say the pension policy taken out in 1991 and that taken out in 1992). The letter continued:
"I therefore also wish to formally complain about the advice given on acquiring these policies. In particular, it is clear that re-mortgaging my property was an entirely inappropriate way to finance a Pension Policy."
4.69 As from 15 July 1994 the monthly premium under the Homeplan Plus policy increased to £987.
4.70 29 July 1994 marks the beginning of the period of six years before the commencement of this action.
4.71 By letter dated 6 September 1994 from Mr Andrew Foley on behalf of Britannia to Mr Martin, Mr Foley said this in relation to the surrender of the life policies:
". . . . I am concerned that insufficient emphasis has been given to the negative aspects of this action, despite the fact that you signed confirming that you were aware of the consequences [a reference to the Fact Find]. I am also concerned that [Mr Sherman] has recommended that you effect an endowment policy [a reference to the Homeplan Plus policy] for a sum assured in excess of the total value and would question why such a contract was now required, given that it was already documented that you intended to use the tax free cash from the pension policies for this purpose. Additionally, our own procedures in place at that time have been breached given that our Client Replacement Questionnaire has not been completed.
As a result of these concerns, and the lack of documentary evidence to fully show that you were aware of the negative aspects, I can confirm that I will arrange for this policy to be cancelled from commencement and all the premiums paid will be refunded. However, before we proceed further I would strongly recommend that you check with your lender in order to ensure that this will not result in any problems with your mortgage."
4.72 Mr Martin accepted that offer, and the Homeplan Plus policy was duly cancelled and the premiums refunded with interest. Mr Martin appears to have accepted this offer without putting in place any new repayment vehicle in respect of the Bank of Scotland mortgage.
4.73 By its Defence, Britannia admits that Mr Sherman's advice in relation to the Homeplan Plus policy was negligent. That is the first of the two admissions to which I referred in the introduction to this judgment.
4.74 The second such admission is to be found in a letter dated 2 February 1996 from Ms Elspeth Mclean, the Group Compliance Officer at Britannia, to Mr Martin, following the agreement of Britannia to rewrite the pension policies so as to convert them into single premium policies. In that letter Ms McLean said this:
"In view of correspondence and conversation we have had with [Mr Clark] I now accept that the issue of affordability of the regular premiums had not been properly addressed and it is for that reason that the policies were converted into a single premium basis."
4.75 It is not, I think, necessary for me to trace the subsequent history of Mr Martin's attempts to obtain further redress from Britannia, or to detail the various offers made by Britannia.
4.76 The writ in this action was issued on 29 July 1997.
PART 5: THE AGENCY ISSUE
5.1 The first question which arises on the Agency Issue is the extent of Mr Sherman's actual authority to give advice to Mr and Mrs Martin on behalf of LAS. To the extent that Mr Sherman's advice fell within the scope of his actual authority, LAS/Britannia is responsible for it; and to the extent that such advice was negligent, LAS/Britannia is liable for it. To the extent that Mr Sherman's advice fell outside his actual authority, LAS/Britannia will only be liable for such advice if and to the extent that he acted within the scope of his ostensible authority.
5.2 Actual authority
5.2 .1 I accordingly address first the question of actual authority. The starting point in addressing this question is the 1986 Act, the preamble to which describes it as, among other things, "An Act to regulate the carrying on of investment business".
5.2 .2 Section 1 of the 1986 Act defines the expressions "investment" and "investment business". "Investment" means any asset, right or interest falling within Part 1 of Schedule 1 (see section 1(1)). Part 1 of Schedule 1 includes shares, debentures and other specified types of securities. The Schedule includes Notes, which form part of the Schedule itself. The Note to paragraph 2 of the Schedule (the paragraph which deals with debentures) provides that the paragraph does not include "a lease or other disposition of property". Hence paragraph 2 does not apply to a mortgage. Nor is there any other paragraph of Part 1 which is susceptible of including a mortgage. It follows that a mortgage of real property is not an "investment" for the purposes of the 1986 Act. "Investment business" means the business of engaging in one or more of the activities falling within Part 2 of the Schedule, and not excluded by Part 3. Paragraph 12 of the Schedule (the first paragraph in Part 2 of the Schedule), which is headed "Dealing in investments", covers buying or selling "investments", either as principal or agent.
5.2 .3 Paragraph 13 of the Schedule covers the making of arrangements with a view to a person buying an "investment", but paragraph (5) of the Notes provides that "arrangements" for this purpose does not include the provision of finance for such purchase.
5.2 .4 Paragraph 15 of the Schedule, under the heading "Investment advice", covers:
"Giving, or offering or agreeing to give, to persons in their capacity as investors or potential investors advice on the merits of their purchasing, [or] selling, …. an investment, or exercising any right conferred by an investment to …. dispose of …. an investment".
The latter part of the paragraph will plainly include the surrender of an existing "investment".
5.2 .5 In my judgment, advice as to the "merits" of buying or surrendering an "investment" cannot be sensibly be treated as confined to a consideration of the advantages or disadvantages of a particular "investment" as a product, without reference to the wider financial context in which the advice is tendered. As the wide terms of the Fact Find form illustrate, and as one would expect, any advice as to the merits of purchasing or surrendering an "investment" is designed to be based on as full an examination of the client's personal circumstances as the client is prepared to allow. For example, in advising as to the merits of taking out a mortgage-related policy such as the Homeplan Plus policy it would in my judgment be (at best) wholly unrealistic, and (at worst) positively misleading, to leave out of account the merits or otherwise of entering into the underlying mortgage transaction which the policy is designed to support. Similarly, in the case of pension provision, proper advice as to the merits of a particular pension policy (including advice as to the amount of contributions to make, and whether and to what extent such contributions should take the form of regular premiums or a single premium) must inevitably be based on a full examination of the client's financial position, including his available cash resources and the existence of any unused tax relief from previous years. In particular, as the expert witnesses agreed, in every case where advice is to be tendered as to the merits of purchasing an "investment", affordability must be a relevant, indeed a crucial, factor to be taken into account. In my judgment it is neither appropriate in the context of the 1986 Act, nor for that matter would it be realistic, to seek to limit the concept of "investment advice" by reference to the extent to which the advice relates to the "merits" (i.e. to the advantages or disadvantages) of a particular "investment" as defined; and if that be accepted, it seems to me that it must follow that the concept of "investment advice" will comprehend all financial advice given to a prospective client with a view to or in connection with the purchase, sale or surrender of an "investment", including advice as to any associated or ancillary transaction notwithstanding that such transaction may not fall within the definition of "investment business" for the purposes of the 1986 Act.
5.2 .6 Returning to the body of the 1986 Act, section 3 provides that only an "authorised person" or an "exempted person" may carry on an investment business in the United Kingdom. Section 7(1) provides that, subject to exceptions which are not material in the instant case, a member of a self-regulating organisation is an "authorised person". LAUTRO is such an organisation, and LAS was at the material time a member of LAUTRO. Hence LAS was at the material time an "authorised person".
5.2 .7 Section 44 of the 1986 Act, headed "Appointed representatives", defines an appointed representative as a person who is employed by an "authorised person" to carry on "investment business to which this section applies", for which his principal has accepted responsibility (see subsection (2)). Such a person is an "exempted person" (see subsection (1)). Subsection (3) provides that the section applies to investment business carried on by an appointed representative which consists of:
"(a) procuring or endeavouring to procure the persons with whom he deals to enter into investment agreements with his principal ….;
(b) giving advice to the persons with whom he deals about entering into investment agreements with his principal ….; or
(c) giving advice as to the sale of investments issued by his principal or as to the exercise of rights conferred by an investment whether or not issued as aforesaid".
The latter part of paragraph (c) will include advice as to the surrender of policies issued by companies other than the principal.
5.2 .8 Section 44(6) is in the following terms:
"The principal of an appointed representative shall be responsible, to the same extent as if he had expressly authorised it, for anything said or done or omitted by the representative in carrying on the investment business for which he has accepted responsibility".
Thus, Mr Sherman was an "exempted person" if and to the extent that he was at the material time employed by LAS to carry on investment business within section 44(3) for which LAS had accepted responsibility.
5.2 .9 I return at this point to the terms of the Self-Employed Financial Adviser's Agreement dated 14 September 1990 to which I referred earlier ("the 1990 Agreement"). The printed form of the 1990 Agreement recites that Mr Sherman (defined as "the Financial Adviser") wished to introduce new business to LAS. Clause 1 of the 1990 Agreement contains his appointment as "Financial Adviser" and authorises him to perform the services specified in clause 2 of the Agreement. Clause 2.1 contains a provision which effectively mirrors the provisions of section 44(3) referred to above. Hence, the 1990 Agreement was effective to constitute Mr Sherman an "exempted person" for the purposes of the 1986 Act in offering the services provided for by clause 2, and to authorise him to offer such services on behalf of LAS.
5.2 .10 Clause 3 of the 1990 Agreement contains a number of express limitations on Mr Sherman's authority to bind LAS, but it is accepted by Mr Burrell (on behalf of LAS/Britannia) that such limitations take effect subject to the statutory agency imposed by section 44(6) of the 1986 Act. In the circumstances, I need not consider the detail of these express limitations.
5.2 .11 Mr Sherman's actual authority to give advice on behalf of LAS is derived from the 1990 Agreement. The issue which arises is as to the extent to which such authority extended beyond the giving of advice in relation to LAS products, and in particular whether it extended to the giving of advice in relation to the Bank of Scotland mortgage (a proposition which is denied in paragraph 18(i) of the Defence).
5.2 .12 In my judgment, just as "investment advice" extends beyond advice as to the merits or otherwise of a particular "investment" as a product (see paragraph 5.2.5 above), Mr Sherman's authorised activities under the 1990 Agreement (which, as I pointed out earlier, mirror the provisions section 44(3) of the 1986 Act) similarly so extended. If anything, the provisions of section 44(3) serve to reinforce my conclusion as to the width of the concept of "investment advice". An activity consisting of "giving advice …. about entering into investment agreements" seems to me to involve much more than advising as to the terms of a particular investment agreement, without regard to the question whether it is appropriate for the client to enter into such an agreement, given his particular financial situation. Similarly, the activity of "procuring or endeavouring to procure [clients] to enter into investment agreements …" seems to me to extend beyond stressing the advantages of a particular product and to include advising or recommending that it is appropriate for the client to purchase a particular product.
5.2 .13 It is also material in this connection to note that Rule 3.4(4) of the LAUTRO Rules 1988 imposes an absolute obligation on a member (such as LAS) to ensure that its company representatives comply with the Code of Conduct set out in Schedule 2 to the rules, and that paragraph 6(e) of the Code of Conduct (under the heading "Best advice to be given") requires that a company representative shall not advise the investor to surrender or cancel an investment without first making "a comprehensive study of the investor's need to make any investment and of his financial resources" and without first disclosing to the investor "all relevant consequences and disadvantages likely to follow from the action advised" (my emphasis). Further, paragraph 8 of the Code of Conduct obliges a company representative to use his best endeavours to ensure "that he recommends only that contract or those contracts which are suited to that investor". An investigation into the question whether a particular contract is "suited" to the investor will inevitably involve a broad-ranging inquiry into his overall financial situation. The fact that, under Rule 3.4(4), LAS was obliged to ensure that Mr Sherman acted in accordance with the Code of Conduct seems to me to be a further indication that his authority to act on behalf of LAS was not limited in the manner contended for by Mr Burrell.
5.2 .14 I accordingly conclude that Mr Sherman had actual authority, pursuant to the 1990 Agreement, to advise as to the remortgage of The Brambles.
5.3 Ostensible authority
5.3 .1 Given my conclusion as to the existence of actual authority, it is strictly unnecessary for me to address the question of ostensible authority. However, for the sake of completeness I do so shortly. In addressing this question I assume (contrary to the conclusion which I have already expressed) that Mr Sherman lacked the necessary actual authority.
5.3 .2 "Ostensible or apparent authority is the authorityof the agent as it appears to others": see Hely-Hutchinson v. Brayhead  1 QB 549 at 583 per Lord Denning. The relevant principle is stated as Article 74 in Bowstead and Reynolds on Agency 16th edition, at page 366, in the following terms:
"Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority".
See also the well-known passage from the judgment of Diplock LJ in Freeman & Lockyer v. Buckhurst Park Properties  2 QB 480 at 503.
5.3 .3 Mr and Mrs Martin accordingly have to establish a representation made by LAS, which was intended to be acted on and which was in fact acted on by them, that Mr Sherman was authorised by LAS to give them financial advice concerning a remortgage of The Brambles.
5.3 .4 In my judgment the business card which Mr Sherman proffered at the outset of the meeting on 9 May 1991 was the clearest representation that he was authorised by LAS to give such financial advice. It may well be the case that, as Mr Burrell submitted, the unqualified use of the expression "Financial Adviser" on the business card would not have led a reasonable person to believe that Mr Sherman was authorised to give financial advice on matters wholly unconnected with the sale of insurance, but that is nothing to the point. It plainly did represent, in my judgment, that Mr Sherman was authorised to give advice in relation to the sale of insurance, including advice concerning associated or ancillary transactions: in other words, to give "investment advice" in the sense in which that term is used in the 1986 Act (see paragraph 5.2.5 above). In particular, it represented that Mr Sherman was authorised by LAS to advise on the package of transactions which, in the event, he recommended.
5.3 .5 Mr Burrell submitted that any such representation was not made by LAS, in that it was not made by anyone with the necessary authority within LAS to make it. In support of this submission Mr Burrell relied on Diplock LJ's dictum in Freeman & Lockyer (at p. 505) that a contractor "can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates" (a dictum which was approved by the House of Lords in Armagas v. Mundogas  1 AC 717 at 778B per Lord Goff). In the instant case, however, it is common ground that LAS supplied Mr Sherman with the business card, and the fact (to be assumed for present purposes) that Mr Sherman did not have actual authority to advise about the remortgage does not lead to the conclusion that the representation that he had such authority could not have been made by LAS: it merely sets the scene for consideration of the question whether ostensible authority existed. In any event, it follows from my conclusion as to the width of the concept of "investment advice" in the 1986 Act that such a representation could properly have been made by LAS.
5.3 .6 As to the further requirements for establishing ostensible authority, the inference is overwhelming that the representation in the business card was intended by LAS to be acted on by clients to whom it was presented, in the sense that the clients would be reassured that the salesman who presented the card was backed by a responsible insurance company: that, presumably, was the primary, if not the whole, purpose of the card. Further, I find that the representation was in fact acted on by Mr and Mrs Martin in that each of them proceeded throughout on the footing that in giving advice Mr Sherman was acting in every respect as the agent of LAS, with authority from LAS so to act.
5.3 .7 Accordingly, had Mr Sherman lacked actual authority to advise Mr and Mrs Martin concerning the remortgage, I would have held that he had ostensible authority to do so.
PART 6: THE BREACH OF DUTY ISSUE
6.1 The allegations of negligence are pleaded in paragraph 14 of the Statement of Claim. I shall consider each of those allegations in turn.
6.2 Allegations: That Mr Sherman failed properly to assess Mr and Mrs Martin's personal circumstances and financial position (para 14(i)); and that he failed to advise them properly or at all of the disadvantages likely to follow from his advice, and in particular of the penalties which they would be likely to incur on surrender of the original life policies (para 14(ii)).
6.2 .1 These allegations raise the question of affordability. On the figures set out in Part 4 of this judgment, the conclusion is inescapable that the package of transactions into which Mr Sherman advised Mr and Mrs Martin to enter was not reasonably affordable by persons in their financial position. I have no doubt that in giving his advice Mr Sherman was under no illusions that in entering into the package Mr and Mrs Martin would be extending their commitments well beyond the limits of what they could reasonably afford; but that did not deter him from his endeavours to procure them to take out policies with LAS.
6.2 .2 I have already found that Mr Sherman failed to draw Mr and Mrs Martin's attention to the provision for escalation in the Homeplan Plus policy, or to the disadvantages attendant on the surrender of the existing policies. Plainly, it was his duty to do so. More generally, given what I regard as the manifest unaffordability of the package, it was plainly Mr Sherman's duty to advise Mr and Mrs Martin in the strongest terms that if they entered into the package they would be undertaking very substantial ongoing commitments which they might well find hard to meet. As both the expert witnesses repeatedly emphasised, an adviser can only advise; the decision is for the client. But the adviser's duty is to make sure, as far as he can, that the client's decision is an informed one. In my judgment, Mr Sherman clearly failed in that duty in this case.
6.2 .4 I accordingly find that both these allegations are made out.
6.3 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin about the accrued investment potential of the premiums which had been paid on the original life policies which potential would be lost or reduced on surrender of the policies (para 14(iii)).
This allegation is subsumed in the more general allegation, which I have found to be made out (see paragraph 6.2.4 above), that Mr Sherman failed in his duty to advise Mr and Mrs Martin of the disadvantages attendant on surrender of the original policies.
6.4 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that the cost of a new endowment policy would be inflated in comparison with the original policies by virtue of the increase in the ages of Mr and Mrs Martin since the original policies were issued (para 14(iv)).
This allegation also is subsumed in the more general allegation concerning Mr Sherman's failure to advise Mr and Mrs Martin of the disadvantages of surrendering the existing policies. For completeness, however, I find that Mr Sherman did not advise Mr and Mrs Martin that the cost of an endowment policy is liable to increase according to the age the insured (although I accept Mr Cohen's evidence that improving mortality rates and increased market competition may counteract this).
6.5 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that those of the original policies which were entered into on or before 13 March 1984 attracted life assurance premiums relief, the benefit of which would be lost on surrender (para 14(v)).
Mr Sherman asserts that it was not his recommendation that the original policies be surrendered. I find that it was. The existence of life assurance premiums benefit in relation to premiums paid under certain of the existing policies was plainly a relevant matter to be taken into account in considering the cost implications of surrendering those policies and substituting a new policy. It was plainly Mr Sherman's duty to advise as to such cost implications. He wholly failed to do so.
6.6 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that in so far as the remortgage was to be secured entirely by endowment policies, they only needed to obtain a top-up policy in relation to the excess of the remortgage over the original mortgage (para 14(vi)).
As noted earlier in this judgment, Mr Sherman's evidence (which was not challenged on this point) was that the original policies would not have been acceptable to the Bank of Scotland in any event. It follows that this allegation is not made out in the terms in which it is pleaded.
6.7 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that there was no benefit to them in surrendering the original policies (para 14(vii)).
This allegation is subsumed in the more general allegation that Mr Sherman failed in his duty to advise Mr and Mrs Martin as to the disadvantages attendant on surrender of the existing policies: an allegation which is made out (see above).
6.8 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that in so far as the original policies were to be surrendered and the entire remortgage secured by the Homeplan Plus policy, there was no need to effect such a policy for a sum of £231,000 rather than £210,000 (para 14(viii)).
Given the requirement of the Bank of Scotland for life cover in a sum representing 110 per cent of the mortgage advance, this allegation is not made out in the terms in which it is pleaded.
6.9 Allegation: That Mr Sherman advised Mr and Mrs Martin to surrender the original policies without making a comprehensive study of their need to do so, and in particular of the consequences of doing so (para 14(ix)).
I have already found that Mr Sherman failed to advise Mr and Mrs Martin of the consequences of surrendering the existing policies. As to making a "comprehensive study" of their need to do so, Mr Sherman was aware of all the relevant facts but failed to give appropriate advice.
6.10 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that the premiums for the Homeplan Plus policy would escalate (para 14(x)).
I have already found this allegation to be true. In failing to draw Mr and Mrs Martin's attention to the provision for escalation of the premium, Mr Sherman plainly breached the duty of care owed to Mr and Mrs Martin.
6.11 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that the figures quoted in his fax of 8 July 1991 did not include the gross annual premium of £14,625 payable under the pension policy (para 14(xi)).
I have already found that Mr Sherman's fax of 8 July 1991 was seriously misleading (see para 4.45 above). However, by that date Mr Sherman's advice had been given and accepted. Further, it cannot sensibly be alleged that Mr Sherman was under a duty to advise that the fax was misleading. The relevant duty was not to make misleading statements or give misleading advice.
6.12 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that the tax free lump sums payable under the two pension policies could be used as security for part of the mortgage, so that a fresh endowment policy for the full amount of the remortgage was unnecessary (para 14(xii)).
I have already found that Mr Sherman failed to explain to Mr and Mrs Martin, either adequately or at all, how he had calculated the figure of £62,000 which was (on his advice) stated in the application for the Homeplan Plus policy to be the total amount of the mortgage (see paragraph 4.27 above). Moreover, assuming it to be the case that the Bank of Scotland required, in addition to the pension policy, an endowment policy in a sum equal to 110 per cent of the mortgage advance, Mr Sherman ought to have drawn attention to this requirement as a disadvantage of the proposed remortgage. I find that he failed to do so.
6.3 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that, given the level of bank base-lending rates, a loan secured on The Brambles was a completely inappropriate, uneconomical and inefficient way of meeting the cost of a pension policy (para 14(xiii)).
In the first place, I accept Mr Martin's evidence in cross-examination that Mr Sherman advised him that the best way of financing a pension was by means of a remortgage. As to the merits or otherwise of that advice, both the expert witnesses were agreed that there is no hard and fast rule against raising funds to make an initial contribution to a pension policy by means of borrowing, and I accept that as being so. It follows that it is not necessarily negligent to give advice to that effect. But in the context of the financial situation of Mr and Mrs Martin (of which Mr Sherman was at all material times well aware) it seems to me to have been plainly negligent of Mr Sherman to advise Mr and Mrs Martin to apply part of the remortgage moneys in making contributions to a pension policy.
6.14 Allegation: That Mr Sherman failed to advise Mr and Mrs Martin that a single premium policy was more appropriate than a policy which provided for regular premiums, having regard to the fact that they were proposing to fund the premiums out of the remortgage moneys (para 14(xiv)).
Both the experts were agreed that in appropriate circumstances a mixture of single and regular premiums could be appropriate. I accept that position. Accordingly, if it be accepted that it was appropriate in the instant case to fund pension premiums out of the remortgage moneys, then it cannot be said that advising in favour of regular premiums was necessarily negligent. The relevant point is, however, that it was not appropriate in the instant case to fund pension contributions (whether by way of single or regular premiums) out of the remortgage moneys, and that it was negligent on the part of Mr Sherman to advise in favour of such a course.
6.15 Allegation: That Mr Sherman failed to ascertain whether the additions which he made to the Fact Find after it had been signed by Mr and Mrs Martin were correct or to obtain their approval thereof (para 14(xv)).
Both the experts were agreed that it is not uncommon for a representative to complete the Fact Find after the conclusion of the meeting with the client, simply because the completion of the form tends to be a somewhat tedious process. Mr Cohen's view was that there was nothing inherently objectionable in such a practice, provided the client was sent a copy of the completed form for his perusal and comments. I accept that view. I have already found that Mr Sherman did not send a copy of the completed Fact Find to Mr Martin and that Mr Martin did not learn of the comments which Mr Sherman had inserted in it until Mr Motley's visit in April 1994 (see paragraph 4.63 above). Further, the comments which Mr Sherman had added included statements which were untrue (see para 4.64 above). I find that in framing the comments as he did Mr Sherman's primary concern was to satisfy the compliance officer in LAS as to the propriety of the advice which he had given - particularly in relation to the surrender of the existing policies - and that that concern led him to gild the lily by including statements which he must have known were untrue. It was for that reason, as I find, that Mr Sherman did not send a copy of the completed version of the Fact Find to Mr Martin.
6.16 The "catch-all" allegations: (i) that Mr Sherman failed to exercise due care and skill; (ii) that he failed to use his best endeavours to enable Mr and Mrs Martin to understand the nature of the risks involved in following his advice; and (iii) that he advised Mr and Mrs Martin to accept his advice in circumstances where it was not suited to them (para 14(xvi) to (xviii)).
For reasons which must by now be apparent, I find each of these allegations to be made out. In my judgment the advice which Mr Sherman gave fell far short of the standard of care reasonably to be expected of him. He must have realised that for Mr and Mrs Martin to follow his advice would cause them to be severely overstretched financially, yet he felt able to tender such advice without any adequate explanation of the risks involved. The fact that Mr Martin was plainly receptive to such advice only served to highlight the importance of bringing home to him, and to Mrs Martin, the extent of the financial commitments which they would be undertaking were they to proceed in accordance with his advice. This he signally failed to do.
PART 7: THE CAUSATION ISSUE
7.1 There is no dispute that Mr and Mrs Martin acted in accordance with Mr Sherman's advice, in the sense that they entered into the package of transactions which he recommended, but it is denied by LAS/Britannia that they did so in reliance on his advice Mr Burrell submitted that Mr Martin had throughout demonstrated a cavalier attitude to his financial affairs (e.g. in his admitted failure to read important documents), and that he paid no real heed to what he was told and is accordingly unlikely to have relied on any advice given to him.
7.2 I reject that submission. As I concluded earlier (see paragraphs 4.43 and 4.49) Mr Martin's failure to pay due attention to the terms of the documentation was the product of his reliance on Mr Sherman's advice. With hindsight, it is hard to see how a professional man of Mr Martin's age and experience could have allowed himself to be saddled with a package of transactions involving ongoing commitments which were effectively beyond his means; but if anything that merely highlights the extent to which, in doing so, he was relying on the advice which he had received. As he put it in the course of his cross-examination:
"I am not sophisticated in finance, as this sad affair has demonstrated. Here I had a financial adviser from a company, and he gave me a business card, and I had no reason to doubt that his advice was good and correct."
7.3 I accordingly find that Mr and Mrs Martin proceeded throughout in reliance on Mr Sherman's advice.
7.4 I further find that in acting in reliance on Mr Sherman's advice, Mr and Mrs Martin suffered loss (presently unquantified) in that they undertook ongoing commitments on a scale which left them seriously over-stretched financially, and that such losses included all costs charges and expenses incurred by them in entering into the package of transactions advised by Mr Sherman (including the remortgage).
PART 8: THE SECTION 62 ISSUE
8.1 Section 62(1) in Chapter V of the 1986 Act is in the following terms (so far as material):
"...a contravention of (a) any rules or regulations made under this Chapter ...shall be actionable at the suit of a person who suffers loss as a result of the contravention ....".
The LAUTRO Rules 1988 were made under Chapter V of the 1986 Act.
8.2 As noted earlier (see paragraph 5.2.13 above), LAS was obliged by Rule 3.4(4) of the LAUTRO Rules 1988 to ensure that Mr Sherman complied with the Code of Conduct set out in Schedule 2 to the Rules. Paragraph 2 of the Code of Conduct provides that a company representative shall exercise due skill, care and diligence in his business dealings and shall deal fairly with investors. Paragraph 6(b) provides that where a company representative completes an application form for the purchase of an investment contract by an investor he shall ask the investor to check that what he has written is correct and ensure that the investor reads through the form before signing it. Paragraph 6(e) provides that a company representative shall not advise an investor to surrender or cancel an investment without first making "a comprehensive study of the investor's need to make any investment and of his financial resources" and without first disclosing to the investor "all relevant consequences and disadvantages likely to follow from the action advised". Paragraph 8(1) requires a representative to use his best endeavours to ensure "that he recommends only that contract or those contracts which are suited to that investor". Paragraph 12 requires a representative to ascertain, so far as practicable, all details relating to an investor and his particular circumstances "as may be required for the purpose of complying with any duty in this Code or to enable the Member to comply with any requirement of these Rules".
8.3 It is alleged that Mr Sherman breached each of those paragraphs of the Code of Conduct, and that in consequence LAS breached its duty under rule 3.4(4), thereby causing loss to Mr and Mrs Martin.
8.4 In my judgment, for reasons given in part 6 of this judgment, Mr Sherman breached paragraphs 2, 6(e) and 8(1) of the Code of Conduct. As to paragraph 2, I conclude that Mr Sherman failed to exercise due skill, care and diligence when advising Mr and Mrs Martin. As to paragraph 6(e), Mr Sherman failed to disclose to Mr and Mrs Martin the consequences and disadvantages of surrendering the original policies. As to paragraph 8(1), Mr Sherman recommended contracts which were wholly unsuited to the needs of Mr and Mrs Martin.
8.5 I find that such breaches caused loss to Mr and Mrs Martin (see paragraph 7.4 above). It follows that, subject to the Limitation Issue, Mr and Mrs Martin are entitled to damages pursuant to section 62 of the 1986 Act.
8.6 The allegation of breach of paragraph 6(b) of the Code of Conduct is not made out, since the Fact Find (on which this allegation is based) was not "an application form ...for the purchase of an investment contract". In any event, it is hard to see what damage would have flowed from such a breach. Nor, in my judgment, is the allegation of breach of paragraph 12 of the Code of Conduct made out on the facts. Mr Sherman ascertained from Mr and Mrs Martin all the necessary details as to their financial situation: where he failed was in the advice which he gave, based on those details.
PART 9: THE LIMITATION ISSUE
9.1 Section 2 of the Limitation Act 1980 provides that an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued. The action was commenced on 29 July 1997. Thus, subject to section 14A of the Act (to which I refer below), Mr and Mrs Martin's claim in tort will be statute-barred if the cause of action accrued prior to 29 July 1991. A cause of action in negligence accrues when damage is suffered: it is in this sense that damage is "the gist of the action". So the first question is whether, by 29 July 1991, Mr and/or Mrs Martin had suffered damage by reason of Mr Sherman's negligent advice. If the answer to that question is Yes, the claim will be statute-barred unless the running of time is postponed by section 14A.
9.2 Section 9 of the Act provides that an action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued. Section 62 of the 1986 Act provides that a breach of (in this case) the LAUTRO Rules is actionable at the suit of a person who suffers loss as a result of the breach. Thus, as in the case of the cause of action in tort, Mr and Mrs Martin's cause of action under section 62 accrued when they suffered loss as a result of the breaches of the LAUTRO Rules identified in Part 8 of this judgment. Section 14A of the Act has no application to the cause of action under section 62. It follows that if Mr and/or Mrs Martin had suffered such loss by 29 July 1991, their claim under section 62 will be statute-barred.
9.3 .1 Section 14A of the Act disapplies section 2. Subsection (4) provides that in claims in tort for damages for negligence the relevant limitation period is either six years from the date on which the cause of action accrued or:
"three years from the starting date as defined in subsection (5) below"
if that period expires after the expiry of the six-year period. Subsection (5) defines the "starting date" as:
"...the earliest date on which the plaintiff ...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".
Subsection (6) defines the relevant knowledge as being knowledge of the material facts about the damage. Subsection (7) defines the material facts as being:
"...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".
Subsection (9) provides that 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). Subsection (1) provides that for the purposes of the section a person's knowledge includes knowledge which he might reasonably have been expected to acquire from facts observable or ascertainable by him, or from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek.
9.3 .2 It is contended on behalf of Mr and Mrs Martin that the "starting date" for the purposes of their claim in negligence is a date within three years before the commencement of the action, that is to say a date falling after 29 July 1994.
9.4 I can deal shortly with the contention that section 14A applies in this case. In cross-examination Mr Martin frankly admitted that by 31 May 1994 he knew that he had suffered loss as a result of entering into the package of transactions advised by Mr Sherman, and that that loss had been caused by Mr Sherman, who (he believed) had given negligent advice for which LAS/Britannia was responsible. In the light of those admissions, the contention that section 14A applies is unsustainable.
9.5 On that basis, the only question which arises in relation to limitation is whether, by 29 July 1991, Mr and/or Mrs Martin had suffered damage as a result of Mr Sherman's negligent advice and his breaches of the Code of Conduct. Mr Burrell submits that damage was suffered (i) when the pension policy was issued on 3 July 1991, (ii) when the Homeplan Plus policy was issued on 15 July 1991, and (iii) when Mr Martin paid his outstanding tax bill by payments made on 23 and 25 July 1991, the effect of such payments being that overdraft interest was incurred. He submits that each of these steps constituted damage or loss sufficient to found an action in tort or under section 62 of the 1986 Act.
9.6 Miss Campbell submits that in relation to the Homeplan Plus policy and the pension policy no contract came into existence until the first premium was paid (the relevant dates being 31 July 1991 and 5 August 1991); further or alternatively, that no actual damage was suffered until those payments were made. In addition, in relation to the Homeplan Plus policy she relies on the existence of Mr Martin's statutory right to cancel it within 14 days after receipt of the letter dated 22 July 1991, pursuant to section 51 of the 1986 Act. Until that 14-day period expired, she submits no damage can have been suffered by Mr Martin by reason of the fact that, as a matter of form, the policy had been issued. As to the payments to the Revenue (and the overdraft interest charges incurred as a result), Miss Campbell submits that Mr Martin made such payments on his own initiative and not in reliance on Mr Sherman's advice, and accordingly that in so far as he thereby suffered damage such damage was not caused by Mr Sherman's negligent advice.
9.7 In support of her submission that no contract came into existence in relation to the two policies until the first premiums were paid, Miss Campbell relies on a passage in Chitty on Contracts 28th edition dealing with the effect of a discretionary promise (see ibid. Para.3-024). She submits that there was no real consideration for the issuing of the policies since in so far as Mr Martin was obliged to pay the first premiums, that was an obligation which, in reality, he could choose not to perform: hence it was she submits, equivalent to a promise to do something "if I feel like it".
9.8 In my judgment, however, Miss Campbell's submissions in this respect are wrong in law. The general rule is that an insurance policy will take effect when it is issued (see, generally, MacGillivry on Insurance Law 9th edition Chapter 6). Nor is there anything to displace the operation of the general rule in the instant case. So far as the pension policy is concerned, paragraph 2 in Section D of the General Provisions (the section which deals with premiums) provides that premiums shall be of such amounts and shall be payable with such frequency and by such methods as are agreed by LAS. Plainly this provision is intended to take effect on the issue of the policy, whether or not the first premium has been paid. Similarly, in the case of the Homeplan Plus policy paragraph B2 of the Policy Provisions provides that if a premium is not paid within thirty days after the stipulated date for payment, the policy is to lapse. Nor, in my judgment, can the obligation to pay the premium be equated with a discretionary promise. The fact that non-performance of a contractual promise may result in nothing more than the contract lapsing does not serve to make the contractual promise discretionary. So far as the policies are concerned, therefore, the question which arises is whether the existence of the policies are concerned, therefore, the question which arises is whether the existence of the policies (and the mutual contractual obligations which they contained) constituted "damage" suffered by Mr Martin sufficient to support a claim in tort or under section 62 of the 1986 Act, prior to payment of the first premiums.
9.9 At this point I must turn to the authorities. In Forster v. Outred  1 WLR 86 CA the plaintiff executed a mortgage as security for a loan to her son. The mortgage transaction took place in 1973. In 1975 the mortgagee made demand on the plaintiff who repaid the loan. In 1977 the plaintiff sued the solicitors who acted for her on the mortgage transaction for damages for negligence in failing properly to advise her on the occasion when the mortgage was executed. In 1980, after considerable delays had occurred the defendant solicitors applied to dismiss the action for want of prosecution. Faced with that application, the plaintiff issued a new writ against the solicitors claiming damages for negligence and alleging that she suffered damage when she received the demand for payment of the loan (in 1975), and not earlier. The Court of Appeal held that the second action was statute-barred, and on that basis, applying Birkett v. James  AC 297, dismissed the first action for want of prosecution. In argument, counsel for the defendant solicitors submitted that in order to support an action in tort any detriment, liability or loss capable of assessment in money terms would suffice, including liabilities which might arise on a contingency. In his judgment, Stephenson LJ accepted that submission, saying this (at page 98D-F):
"...I would accept Mr Stuart-Smith's statement of the law and would conclude that, on the facts of this case, the plaintiff has suffered actual damage through the negligence of her solicitors by entering into the mortgage deed, the effect of which has been to encumber her interest in her freehold estate with this legal charge and subject her to a liability which may, according to matters completely outside her control, mature into financial loss - as indeed it did. It seems to me that the plaintiff did suffer actual damage in those ways; and subject to that liability and with that encumbrance on the mortgage property was then entitled to claim damages ...for the alleged negligence of the solicitor which she alleges caused her that damage. In those circumstances her cause of action was complete [in 1973], and the writ which she issued [in 1980] was issued too late to come within the six years' period of limitation."
Dunn LJ, agreeing, said (at page 99F-G):
"..I would hold that in cases of financial or economic loss the damage crystallises and the cause of action is complete at the date when the plaintiff, in reliance on the negligent advice, acts to his detriment."
9.10 To the same effect was the decision of the Court of Appeal in Moore v. Ferrier  1 WLR 267. In that case the plaintiffs admitted a third party into their business, on terms which included a covenant in restraint of trade which purported to bind the third party not to carry on a connected business within a specified area in the event of his leaving the business. The plaintiffs alleged that they were advised at the time by their solicitors that the covenant was effective according to its terms. Later a further agreement was made increasing the shareholding of the third party, and containing a covenant in identical terms. In due course, the third party left the business and the covenant was found to be ineffective. The plaintiffs sued the solicitors for negligence. The action was commenced more than six years after the agreements were made but less than six years after the third party left the business. In the course of his judgment, Neill LJ said this (at page 278F-H):
"In the present case the judge rightly rejected the notion that where a solicitor gives negligent advice damage is presumed to occur at the time when the advice is acted upon. I am satisfied that there is no such presumption. It is a question of fact in each case whether actual damage has been established. In the present case, .....[t]he plaintiffs' rights under the two agreements were demonstrably less valuable than they would have been had adequate restrictive covenants been included."
Agreeing with Neill LJ, Bingham LJ said this (at page 279H):
"If the quantification of the plaintiffs' damage had fallen to be considered shortly after the execution of either agreement, problems of assessment would undoubtedly have arisen. ... In making his assessment the judge would have had to attach a money value to a possible future contingency; but judges do this every day in awarding claimants damages from the risk of epilepsy, the risk of osteoarthritis, the risk of possible future operations, the risk of losing a job, and so on. The valuation exercise is, of course, different, but the difference is one of subject-matter, not of kind.
The matter may be tested. It is common ground, on the assumption that the plaintiffs' pleaded case is correct, that the defendants were in breach of contract when they negligently advised and settled documents in 1971 and 1975 [a reference to the two agreements]. A cause of action then arose. Suppose, per impossible, that the plaintiffs had sued at once and before the later difficulties with [the third party] arose. They would have been bound to succeed. If of opinion that the plaintiffs had suffered no damage the judge would have awarded them nominal damages. But it seems to me plain that the judge would not have done so on these facts. He would have assessed as best he could on the available evidence the loss fairly and reasonably flowing in the usual course of things from the defendants' breach of contract, reaching a figure that might have been large or small but would not have been nominal. I think that the plaintiffs were in argument inclined to accept that. If, in a contractual claim for negligence, the court would have awarded other than nominal damages, I do not see how it can be said that an action in tort based on the same negligence would have been bound to fail for want of any damage as an essential ingredient of the cause of action.
I do not think that there is, on the straightforward application of familiar principles, any escape from these conclusions."
9.11 In Bell v. Peter Browne & Co [1990 2 QB 495 CA a question arose as to the significance properly to be attached to the fact that, had the plaintiff been aware of the defendant's negligent mistake, he could have remedied it. In that case the plaintiff executed a transfer of the matrimonial home into his wife's sole name, but his solicitors negligently failed to take any steps to protect his one-sixth beneficial interest in the proceeds of sale. Subsequently, the wife sold the property and spent the proceeds of sale, thereby depriving the plaintiff of the fruits of his beneficial interest. The plaintiff commenced proceedings against his solicitors claiming damages for negligence. The action was commenced more than six years after the transfer but less than six years after the sale. The defendant solicitors contended that the claim was statute-barred, on the footing that the plaintiff suffered damage when the transfer was effected. The plaintiff contended that the defendant solicitors were under a continuing duty to protect his interest, and that in any event no damage was suffered until the property was sold. The Court of Appeal, distinguishing Midland Bank v. Hett Stubbs & Kemp  Ch 384, held that there was no continuing duty on the part of the defendant solicitors, and that (following Forster v. Outred and Moore v. Ferrier) the damage was suffered when the transfer was effected, notwithstanding that the plaintiff (had he been aware of the negligence) could have remedied the solicitors' failure and protected his beneficial interest by himself entering a caution on the title to the property. Nicholls LJ, who gave the leading judgment, said this on the question of remediability (at page 503D-D):
"I am unable to accept that remediability puts [the solicitors' failure to enter a caution] on the other side of the line from [their failure to draw up a formal document protecting the plaintiff's beneficial interest]. The [former] breach of duty ...was remediable by the plaintiff, but that was only possible after he became aware that there had been a breach of duty. Apart from any other consideration, to treat the plaintiff's ability to remedy the breach himself without the concurrence of his former wife as a ground of distinction between this case and [an earlier Court of Appeal decision in Baker v. Ollard] would be to disregard the unlikelihood in practice of the plaintiff ever being in a position to remedy the breach. Once the solicitors closed their file, it was unlikely that [the failure to enter a caution] would come to the notice of the plaintiff or the defendants, until the house was sold and it was too late. That, on the pleaded facts, is exactly what happened. The first the plaintiff knew that his one-sixth share was not properly protected was after it had gone beyond recall. So his ability to remedy the breach before the house was sold was a matter or more theoretical interest than practical importance."
9.12 Lastly, so far as authority is concerned, I refer to the Court of Appeal decision in Knapp v. Ecclesiastical Insurance Group plc  PNLR 172. In that case the plaintiffs arranged fire insurance cover on their home through the defendant insurance broker (who was the second defendant in the action). The cover was renewed in May 1989 for the year from 12 April 1989 to 11 April 1990. On 15 October 1990 the plaintiffs' home was damaged by fire. The insurers denied liability, claiming non-disclosure of material facts. On 16 October 1996, the plaintiffs sued the broker for damages for negligence. The broker contended that the claim was statute-barred, on the footing that the plaintiffs suffered damage on 12 April 1989 when the (admittedly voidable) policy was renewed. The Court of Appeal accepted that submission and concluded, following the authorities which I have already cited, that the claim was statute-barred.
9.13 The relevance of the decision in Knapp for present purposes lies in the observations which Hobhouse LJ, who gave the leading judgment, made on the question of remediability and on the test which Bingham LJ applied in Moore v. Ferrier (which Hobhouse LJ referred to as "the Bingham test"). In considering remediability, Hobhouse LJ assumed that had the plaintiffs become aware of the defendant's alleged negligence they would have been able within a very short space of time (a matter of hours not days) to have arranged substitute cover, albeit possibly at an increased premium: in other words, that once the error had been discovered it would have been possible for the plaintiffs to have remedied the situation forthwith and without relevant loss (see ibid. P.179C). After reviewing the authorities, including those already cited, Hobhouse LJ continued (at page 184E):
"From these authorities it can be seen that the cause of action can accrue and the plaintiff have suffered damage once he had acted upon the relevant advice "to his detriment" and failed to get that to which he was entitled. He is less well off than he would have been if the defendant had not been negligent. Applying this to the present case, the plaintiffs paid their renewal premium without getting in return a binding contract of indemnity from the insurance company. They acted to their detriment: they did not get that to which they were entitled ...The risk of loss existed from the outset and in the absence of better evidence would have to be evaluated and assessed as a risk and damages awarded accordingly."
Hobhouse LJ went on to consider the passage in Nicholls LJ's judgment in Bell quoted earlier, saying this:
"It is possible to detect three elements in the reasoning of Nicholls LJ and his rejection of the plaintiff's argument in relation to "failure (b)" [i.e. the failure to enter a caution].
First, he points out that the failure creates a risk and indeed it is this risk which forms the subject-matter of the action. Secondly he points out that it is unreal to fail to take into account the fact that the plaintiff is unaware of the failure to lodge the caution. It only becomes possible for the plaintiff to remedy the breach "after he became aware that there had been a breach of duty". It is not right to make the assumption that the plaintiff knows of the breach. His ignorance of it is indeed one aspect of the failure of the defendant to perform his professional duty.
In the present case the second defendant was under a duty, inter alia, to advise the plaintiffs. The second defendant failed to advise the plaintiffs that the renewal was not binding upon the insurance company, and implicitly he advised that he had effected a binding renewal of the cover. It is a consequence of the second defendant's breach of duty that the plaintiffs were unaware of the true position and that they were therefore deprived of the opportunity to remedy the nondisclosure. The formulation of [the Bingham test] needs to be read with this qualification. The hypothetical action and trial visualised by Bingham LJ cannot include a hypothetical outcome based upon knowledge which the plaintiff did not have at that time and which he did not have because of the breach of duty of the defendant." (My emphasis.)
Later in his judgment, after concluding that the negligence became actionable when the cover was renewed, Hobhouse LJ said this (at page 187A-B):
"The loss which the plaintiffs then suffered was the receipt of a purported cover which was not binding, a deficiency of which they were not aware, in return for the payment of the renewal premium. Had it been necessary to do so, the court could and should have put a monetary value upon that loss at that time. It would exclude the possibility at that time of remedying the deficiency because the plaintiffs were in fact unaware of it and their state of knowledge arose from the breach of duty of the second defendant." (My emphasis.)
9.14 I now apply the principles to be drawn from the above authorities to the facts of the instant case.
9.15 In the first place, it seems tome that the right to cancel the Homeplan Plus policy can have no significance so far as limitation is concerned, since although it afforded Mr Martin an opportunity to remedy the negligence of Mr Sherman (just as the plaintiff in Bell could have entered a caution and just as the plaintiffs in Knapp could have arranged substitute cover), Mr Martin was at that time unaware of the need to exercise it, and his unawareness arose from Mr Sherman's negligence. The same applies, in my judgment, to the provision for lapse of the Homeplan Plus policy on non-payment of the premium within 30 days.
9.16 Secondly, as I read the judgment of Hobhouse LJ in Knapp and of Nicholls LJ in Bell, account must be taken in the instant case of the fact that at all material times Mr Martin was unaware that in entering into the package of transactions which Mr Sherman had recommended he might be (to put it at its lowest) putting himself at risk of suffering financial damage. Thus, there was no more than a theoretical possibility of Mr Martin commencing an action against LAS prior to 29 July 1991. On that footing, it seems to me to follow that, on the authority of Knapp and Bell, it cannot be the right approach to the limitation issue to inquire whether, had an action been commenced prior to 29 July 1991, damage would have been proved. Rather, the right approach in the present case, as I red those authorities, must be to look at the reality of the situation and simply inquire whether, prior to 29 July 1991, Mr Martin had "acted to his detriment" in reliance on Mr Sherman's advice.
9.17 On the basis of all the authorities cited earlier, there can in my judgment be only one answer to that question. In my judgment, in applying for the Homeplan Plus policy and the pension policy Mr Martin acted to his detriment, the detriment occurring when the policies were issued pursuant to his applications (that it is to say on 15 July 1991 and 3 July 1991 respectively), notwithstanding that the first premiums were not paid until later. Had Mr Martin become aware of the true position prior to paying the premiums he would doubtless have declined to pay them. But, as I read Knapp and Bell, that is a hypothetical situation to which the court may not have regard. It never crossed Mr Martin's mind not to pay the first premiums, and, on the authority of Knapp and Bell, the court cannot proceed on the hypothesis that it might have done.
9.18 As to the payments to the Inland Revenue, and the associated charges to overdraft interest it seems to me clear that in making these payments and incurring these charges Mr Martin "acted to his detriment", as that expression has been interpreted in the authorities. In this connection, I reject Miss Campbell's submission that the payments were made by Mr Martin on his own initiative and not in reliance on Mr Sherman's advice. In the first place, the Statement of Claim expressly pleads that the payments were made in reliance on Mr Sherman's advice (see ibid. para 12(b)); and in the second place Mr Martin made it plain in evidence that the discharge of his liability to the Revenue out of the remortgage moneys was always in contemplation, as part and parcel of the arrangements discussed with and recommended by Mr Sherman.
9.19 I therefore conclude that Britannia's limitation defence succeeds and that Mr and Mrs Martin's claims in tort and pursuant to section 62 of the 1986 Act are statute-barred. It gives me no satisfaction to reach this conclusion, bearing in mind that the causes of action accrued only a matter of days outside the six-year limitation period; but that is not a material consideration where limitation is concerned.
PART 10: CONCLUSION
In the light of my conclusion on the Limitation Issue (see Part 9 above), it follows that Britannia is not liable to Mr and/or Mrs Martin for damages as claimed, and that the action must be dismissed.