After more than a two year delay, judgment was handed down recently in a litigated claim against Carey Pensions, a SIPP provider, in Adams v Carey Pensions [HC-2017-000084]. In that case, after being introduced to Carey Pensions by an unregulated introduced, based in Spain, a Self-Invested Personal Pension (SIPP) was set up for Mr Adams and the majority of his pension savings were invested in a non-standard and objectively high risk investment in Storepods. That investment subsequently failed and Mr Adams lost his pension savings. The litigated claim relied principally on s27 Financial Services and Markets Act – an argument relating to whether the unregulated introducer was carrying out a regulated activity thus rendering the SIPP agreement / investment unenforceable. Mr Adams relied on an alleged breach of COBS 2.1.1 as a secondary claim. This rule provides that a firm “must act honestly, fairly and professionally in accordance with the best interests of its client”. The judge decided that both claims failed in Mr Adams’ circumstances.
This judgment is in contrast to the approach taken by the Financial Ombudsman Service (FOS) in a complaint brought against Berkeley Burke, another SIPP Provider, where the complaint about breach of COBS 2.1.1 was upheld. This FOS decision was challenged by way of judicial review and the Administrative Court confirmed in 2018 that the FOS was entitled to make the decision it did. Following the Administrative Court’s decision, there have been a number of FOS and FSCS decisions which follow the Berkeley Burke approach: in summary, that the SIPP Provider did not treat its client fairly or act in his best interest by accepting instructions from an unregulated introducer and / or failing to carry out proper due diligence before accepting particular investments into its books.
There are thousands of retail clients in the UK who have fallen victim in recent years to pension scams and /or extremely poor investment advice and as a result have transferred from safe, mainstream pensions into high risk, highly unsuitable pension structures and investments where they have either entirely lost their pension savings or have made investments in assets which are entirely illiquid and incapable of sale to produce an income for retirement. For them, recovering some level of compensation from a SIPP Provider on the basis that the Provider failed to act in their best interests by effectively turning a blind eye to the clear consumer detriment caused by these circumstances, is their only hope of having any pension provision at retirement.
Our view is that the Adams v Carey Pension case does not shut the door on these cases but highlights the very important distinction between pursuing a claim through the Courts or a complaint to the FOS.
Under its jurisdiction, an FOS Ombudsman is obliged to determine a complaint “by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case”. Whilst the FOS can and should take into account Court precedents as part of this consideration, this jurisdiction entitles the FOS to take other information into account and to reach decisions which may well be different to Court decisions on similar cases. That this is correct is confirmed by the FOS’s approach to the Interest Rate Swaps mis-selling cases over recent years. In that context, the FOS made a provisional decision on a test case, upholding a complaint by a small business in October 2012, following which the High Court made a decision against a small business on similar issues in Green & Rowley v RBS (December 2012), yet the FOS confirmed its original decision in August 2013 noting that having reviewed the Green v Rowley judgment there was no need for the Ombudsman to alter his original approach. Thereafter, the Courts made a long series of negative decisions against Claimants in litigated Interest Rate Hedging claims which reached trial, yet the FOS operated an entirely different approach following the 2012 / 2013 test case and, regularly finding that small business owners had been mis-sold interest rate hedging products and were due significant compensation.
A facet of this overriding distinction is that the judgment in Adams focusses heavily on the contracts in place between Mr Adams and Carey and uses them to shape the extent of the duty owed, i.e. where the contract states that the client is to take all responsibility for investment decisions, the judge takes that as read and thus limits the duty accordingly. In contrast, the emphasis on reaching a fair and reasonable approach enables the FOS to acknowledge that contractual documents very often do not reflect the reality of a relationship, particularly where there is unequal bargaining power, involving unsophisticated retail clients in the financial services sector.
The FOS is also entitled to take a very different approach to generic risk warnings than the judge in the Adams case. The FOS said in the Berkeley Burke case: “For BBSAL to accept everything SIPPable that came its way and ask its customer to accept warnings absolving it of the consequences wouldn’t in my view, be fair and reasonable and sufficient”. The Administrative Court confirmed that the FOS was entitled to make the findings it did. In contrast, the judge in the Adams case took generic warnings at face value as evidence that Mr Adams understood what he was doing. In a case involving an experienced investor, the FOS may well decide that an investor was well aware of the extent of risk involved and that risk warnings were effective, but their jurisdiction allows flexibility to achieve a fair and reasonable outcome.
The judge in Adams noted “the key fact, perhaps composite fact, in the context is the agreement into which the parties entered”, i.e. he interpreted COBS 2.1.1 on the basis that there was a genuinely negotiated contract in place in which the parties had agreed that Mr Adams would be entirely responsible for his investment decisions and Carey had effectively absolved themselves from any responsibility. In contrast, in the Berkeley Burke case the FOS considered COBS 2.1.1 in the context, not of the individual contract negotiated, but in the wider guidance and regulatory oversight of the FCA – what the FCA said they were expecting of SIPP Providers at the relevant time. The judge made hardly any reference at all to the significant levels of FCA guidance which the FOS relied on in the Berkeley Burke case, and the Administrative Court confirmed they were entitled to rely on, nor to the submissions made by the FCA in the Adams case.
It is understood that the decision in Adams v Carey Pensions is likely to be appealed. Regardless of the outcome of any appeal, within its jurisdiction, the FOS remains entitled to make decisions against SIPP Providers in factual circumstances similar to Mr Adams’ where they consider that, in all the circumstances, it would be fair and reasonable to do so. In advising our clients on pension claims and complaints, CCL always considers the most appropriate forum for dispute resolution and regularly recommends pursuing regulatory complaints, rather than litigation.