When an investment made through a Self Invested Personal Pension (SIPP) goes wrong, the SIPP administrator may be liable for the loss. That possible liability has had recent confirmation as the Supreme Court rejects an appeal from the landmark decision in the Court of Appeal in Adams v Carey.
Mr Adams, a goods vehicle driver, had a personal pension plan with Friends Life valued at around £56,000. He was persuaded to invest that money into an unregulated investment; storage pod leases issued by Store First, by an unregulated Spanish based introducer, CLP Brokers Socieded Limitada (CLP). In addition CLP had introduced Mr Adams to Carey Pensions (now t/a Options), within which the investment was to be made and held in a SIPP administered by Carey.
The FCA had issued warnings about dealing with CLP for many years and more generally against dealing with unregulated advisors and introducers.
The investment failed and Mr Adams sued Carey (as the only regulated entity in the transaction). He claimed:
- The agreement between Carey and Adams was rendered unenforceable under section 27 of Financial Services and Markets Act 2000 (FSMA) because the SIPP with Carey had been arranged by the unregulated CLP thus tainting the whole transaction;
- Carey breached the Financial Conduct Authority’s (FCA) Conduct of Business Rules (‘COBS’) 2.1.1R that Carey had failed to act “honestly, fairly and professionally in accordance with the best interests of its client”;
- It was also alleged that Carey was a joint tortfeasor with CLP and thus shared responsibility for negligent advice given by CLP.
High Court decision
At first instance after a long delayed judgment HHJ Dight (sitting in the High Court) dismissed all three claims entirely and found in favour of Carey.
In relation to the s. 27 claim the judge found that Carey had not advised or arranged the investment to found liability.
For the breach of COBS the judge found that Carey was acting on an execution only basis, thus, the obligations under COBS were limited to that role and in any event no loss was suffered even if COBS had been breached.
Finally, on the allegations that Carey was a joint tortfeasor with a ‘common design’ with CLP, the Court found that the roles of Carey and CLP were separate with no evidence to suggest otherwise.
Court of Appeal
On appeal, Mr Adams did not pursue the ‘joint tortfeasor’ argument leaving the s. 27 issue and COBs.
On the COBs claim Mr Adams sought to widen the scope of his claim to say broadly that in dealing with an unregulated intermediary and admitting in to Mr Adams’ SIPP an asset of no or doubtful value, was a breach of COBS 2.1.1R. The Court of Appeal dismissed the COBS claim partly because the argued appeal case did not match the pleaded case but also doubting if any loss had occurred in any event even if the case were proved.
The key argument on s.27 FSMA was whether CLP had breached the ‘general prohibition’ to carry out regulated activities under section 19 FSMA by carrying on regulated activities making the whole transaction effectively voidable at the customer’s behest. Had CLP advised on or arranged Mr Adams SIPP with Carey which resulted in the transfer of Mr Adams’ investment to the Carey SIPP and investment into Store First. In allowing the appeal on this point the Court of Appeal stated that “steering an investor in the direction of a specific SIPP provider is certainly capable of being advice on the merits of a particular investment”, and found that Mr Adams had been advised to switch his pension to the Carey SIPP, which breached the general prohibition. That meant that Mr Adams could undo the whole transaction under section 27.
The Supreme Court has recently decided to refuse permission to appeal so the Court of Appeal judgment is the final word, at least in the Adams case.
The different approaches of the High Court and Court of Appeal to consumer protection highlight different views of consumer responsibility. The former proffering that consumers must take full responsibility for their actions and the Court of Appeal taking a more benign view of the role of the FSMA and regulation to protect investors from their own folly.
The facts lying behind the Adams case are not unusual; off-shore unregulated introducers persuading the less sophisticated investor to part with their pension pot, putting it into an alternative SIPP wrapper and an alternative, unregulated and highly speculative investment.
The judgment means that any regulated SIPP providers who offer execution-only business via unregulated introducers, may have far wider liabilities to investors if a court can conclude that the introducer’s actions are viewed as ‘arranging’.
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