SIPP Provider Not Responsible For Losses Sustained By Investor When Acting On Execution-only Basis

• Published date: 04 June 2020
• Author: Ms Laura Cooke, Toby Rouse and Ian Peacock
• Subject Matter: Finance and Banking, Employment and HR, Insurance, Litigation, Mediation & Arbitration, Financial Services, Retirement, Superannuation & Pensions, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Clyde & Co

Adams v Carey Pensions [2020] EWHC 1229 (Ch)

In the long-awaited judgment in Adams v Carey Pensions [2020] EWHC 1229 (Ch), handed down on 18 May 2020, Mr Justice Dight held that the claim failed on each of the three heads and therefore dismissed the claim against Carey Pensions (the Defendant). The judgment brings much needed guidance as to (1) what a Self-Invested Personal Pension (SIPP) provider is responsible for when acting on an execution-only basis (2) the boundary of Rule 2.1.1 of the Conduct of Business Sourcebook Rules (COBS) and (3) the application of section 27 Financial Services and Markets Act 2000 (FSMA). Given the number of complaints and claims outstanding against SIPP providers, which are similar to the Carey claim, this judgment will give cause for optimism to SIPP providers although the precise facts in each case will still need to be carefully considered and it has been reported that Mr Adams is seeking permission to appeal.

Facts

Mr Adams (the Claimant), is a self-employed haulage contractor who held a pension of approximately '52,000 and wished to release some funds from this pot when he found himself in difficult financial circumstances. The Claimant approached CLP Brokers Sociedad Limitada (CLP), having seen an advertisement on the internet. CLP contacted the Claimant about reinvesting his pot in store pods operated by Store First Blackburn Limited, with the investment help in a SIPP provided by the Defendant. The Claimant was introduced to the Defendant by CLP and the Claimant proceeded to apply for a SIPP, transfer his pension pot into the SIPP and, ultimately, instruct the Defendant to make the investment in the store pods.

The Defendant is authorised by the Financial Conduct Authority (FCA) as an administrator of SIPPs. It is not, however, authorised to carry on the regulated activity of advising in respect of them. CLP is an unauthorised and unregulated broker/introducer.

The investment did not perform well and the Claimant brought a claim against the Defendant alleging that the Defendant operated a business model pursuant to which it used an unauthorised and unregulated introducer and broker to procure individual investors to enter into SIPPs, established by the Defendant, as vehicles for potentially unsuitable underlying investments. He alleged that, as a consequence, he suffered a loss for which the Defendant was liable. Specifically, the Claimant alleged:

1. Breach of the regulatory regime in establishing the SIPP as a result of the acts of CLP thereby rendering the SIPP unenforceable under s.27 FSMA (the s.27 Claim);
2. Breach of the obligation in Rule 2.1.1 of COBS to act honestly fairly, and professionally in accordance with the best interests of the Claimant (the COBS Claim);
3. Negligent investment advice provided by CLP for which the Defendant is liable as a result of a joint venture, common design or agreed common business model (the Tort Claim).

The s.27 Claim

S.27 provides that an agreement is unenforceable where it is made by an authorised person in the course of carrying out a regulated activity where such agreement was entered into in consequence of something said or done by a third party who was acting in breach of the general prohibition in s.19 FSMA, which provides that no person may carry on a regulated activity unless that person is authorised or exempt.

In this case, the Claimant asserted that he had entered into the SIPP with the Defendant as a consequence of CLP doing two regulated activities: arranging the investment (Article 25(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO)) and advising on the...