31st Dec 2024

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Rowan Pennington-Benton and Katharine Bailey instructed by Anthony Philip James & Co.) for the Claimants


THE HONOURABLE MR JUSTICE PEPPERALL:

  • Margaret Chong, Mark Fraser and Victoria Leach claim that they lost money after being advised by an unregulated adviser to transfer funds from their occupational pension schemes into a SIPP (a self-invested personal pension) provided by Liberty SIPP Limited in order to invest in what proved to be a high-risk fund. In each case, Financial Services Compensation Scheme Limited (‘the FSCS’) upheld the investor’s claim and paid compensation in accordance with its then understanding of the law. A few weeks later, that understanding changed but the FSCS has declined to consider the investors’ appeals. By this claim for judicial review, the investors challenge the lawfulness of the FSCS’s decisions made on 20 June and 20 July 2023 not to decide their appeals and to treat their compensation claims as closed.

THE FACTS

  • Liberty was regulated by the Financial Conduct Authority but offered its SIPP on an execution-only basis. In each case, the claimant asserted that they were advised by the unregulated company, Avacade Limited. By applications made to the FSCS in May 2020, each of the claimants complained that they were wrongly advised to invest in the high-risk Ethical Forestry Melina Trees fund. By decisions issued in February 2021, the FSCS accepted the claims and paid compensation. It accepted that had Liberty completed adequate due diligence and warned the claimants about the risks, they would not have invested in the fund. Compensation was in each case assessed on the “monies in, monies out” basis so that the original investments were refunded together with any fees incurred. In each case, the FSCS noted that the value of the Ethical Forestry fund was too uncertain to be ascribed any value and that accordingly no deductions were to be made for any underlying value.
  • The compensation payments were as follows:
Claimant Decision date Compensation paid
Mrs Chong 18 February 2021 £24,476.55
Mr Fraser 23 February 2021 £9.673.25
Mrs Leach 10 February 2021 £31,819.31
  • On 1 April 2021, the Court of Appeal handed down judgment in Adams v. Options UK Personal Pensions LLP [2021] EWCA Civ 474 (‘Adams‘). It found that a regulated SIPP provider that acted on an execution-only basis was liable under s.27 of the Financial Services & Markets Act 2000 (‘the Act’) for the advice of an unregulated intermediary on an investment by a retail investor in breach of the general prohibition under s.19 of the Act. In such a case, the investment agreement is unenforceable and the SIPP provider is liable to repay the investment and pay compensation for any loss. Further, despite finding that the SIPP provider did not have actual knowledge of the intermediary’s contraventions of s.19, the Court of Appeal found that it was not just and equitable to grant relief to the SIPP provider pursuant to s.28(3). As Newey LJ observed, SIPP providers are not barred from accepting introductions from unregulated sources but s.27 throws the risks of doing so onto the providers.
  • A consequence of the decision in Adams was that the SIPP provider (and so ultimately the FSCS as the fund of last resort) might be liable not just on a monies in, monies out basis but also for any loss caused by transferring the pension out of the original fund. Accordingly, the assessment of compensation required comparison of any lost investment growth that would have been achieved had the unregulated advice not been given.
  • On 15 April 2021, Mrs Chong, Mr Fraser and Mrs Leach lodged appeals against their compensation awards. Although there was some movement on the point in the course of submissions, the claimants’ own pleaded case is that the purpose of their appeals is to claim the additional compensation that they believe they are entitled to in light of the Court of Appeal’s decision.
  • Following the decision in Adams, the FSCS accepted the need to reassess its approach to compensation in like cases. Although it took a little time to formulate, its approach was driven by the decision in Adams and the principle that compensation should be paid on the basis of the law as understood at the time of assessment. Accordingly, it decided that:

7.1 new claims together with any claims that were outstanding on 1 April 2021 should be assessed on the basis of the law as understood after Adams; but

7.2 claims that had already been finally assessed before such date were not to be reopened either proactively or upon an appeal.

  • Over time, the principle that claims that had already been finally assessed before 1 April would not be reopened came to be refined to clarify that the FSCS would consider appeals from earlier decisions which were extant as at 1 April 2021 but that it would not entertain appeals lodged after that date in respect of its earlier compensation decisions.
  • By solicitor’s letters dated 20 June and 20 July 2023, the FSCS made clear that it would not decide the claimants’ appeals and that their compensation claims were closed.

Continue reading this Judgment here.


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Rowan Pennington-Benton

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