The court of appeal has delivered a blow to Carey Pensions after a judge ordered the firm to compensate one of its former clients.
The Adams v Carey Case has been ongoing since 2018. The client sued the pension company after experiencing losses in investments made through his Sipp.
Adams was introduced to Carey by an unregulated introducer and agreed to transfer funds from an existing pension into a Sipp administered by the firm.
He then instructed Carey to purchase a number of storage units from Store First through his self-invested personal pension.
Since Carey is a pension administrator and as such does not or cannot provide financial advice, it carried out the transaction “on an execution only basis”.
But when the investments in the storage units did not perform as expected, Adams brought a claim against Carey seeking damages.
Partial loss
He argued that Carey breached the Financial Conduct Authority’s Code of Conduct Sourcebook rules by failing to act “fairly, honestly and in accordance with the best interest of its client”.
Additionally, Adams claimed his agreement with Carey should be unwound and the pension firm should compensate him given that he received ‘advice’ from the unregulated introducer to make the investment, transfer his pension and set up a Sipp with Carey; and that the introducer is the one who arranged the purchase the storage units without the necessary permissions under the Financial Services and Markets Act 2000 (FSMA).
At first, the high court ruled in favour of Carey, but Adams appealed the judgement.
On 1 April 2021, the court of appeal ruled that Carey did not breach the FCA’s Code of Business Sourcebook (Cobs), but it did side with Adams’ argument regarding the breach of the FSMA.
The judge ordered the transactions be unwound and for Carey to compensate its former client.
The sum will be determined by the court in a separate hearing.
Road to the Supreme Court
Carey has requested permission to appeal the latest ruling, which was denied.
This is why the firm, its lawyers, professional indemnity (PI) insurers and their advisers are now considering the merits of seeking permission to appeal from the supreme court.
Alan Kentish, chief executive of STM Group which acquired Carey pension in 2019, said: “Clearly the overall judgment is disappointing from our point of view, but it has helped to provide clarity in relation to our undertakings and obligations to Cobs and, in particular, that the scope of Cobs must be considered through the lens of the individual contractual arrangements with customers.
“This remains welcome guidance for both STM as well as the Sipp and more general financial services industry as a whole.
“The context of interpretation of section 27, and arguably the limitations given to section 28 of FSMA by the court of appeal will have far-reaching implications as to how financial services providers will interact with introducers and consumers in the future.
“It appears that this marks a shift of emphasis on consumer protection, such that individuals are not accountable for their own actions, and this may well limit market choice and competitiveness, and could be seen as a significant point of public interest.
“We believe that our Options [formerly Carey Pensions] Sipp business is well insulated with extensive insurance protection. Carey will now need to sit with its advisers to consider what next steps to take whilst clearly abiding by the terms of the order.”
‘Novel claim’
Tim Hampson, partner at Wixted & Co Solicitors, who represented Adams, said: “We are delighted with the court of appeal’s well-reasoned and common-sense decision. It has been a very long road for Adams, but we hope that he will now finally be able to move on with his life and enjoy his retirement.
“In addition, the judgment will assist many other investors who have lost funds because of investment advice given to them by unregulated parties. We agree with the court of appeal’s fair warning to regulated firms that, if they choose to deal with an unregulated entity, who they cannot necessarily control, then the risk is squarely on them if that entity crosses the perimeter and contravenes the general prohibition.”
Christine Hallett, managing director of Carey (now Options), added: “We are disappointed to have received this judgment in relation to section 27, and even more so that the various factors in Carey’s favour – the rigorous framework that Carey had put in place, and which was specifically highlighted by the judge at first instance, that Carey was not aware that the unregulated introducer was acting in breach of the general prohibition and terminated its relationship when it did become aware, and Adams’ contribution to his own loss – were not sufficient for the court of appeal to exercise its discretion under section 28.
“Whilst the findings of section 27 will always relate to fact specific scenarios, in the context of the Sipp provider environment generally, as well as the wider UK financial services industry, any clarity and additional guidance is welcome and needed.
“Adams brought a novel claim under s.27 FSMA, in respect of which there was no existing case law, and which failed at first instance.
“Invariably all UK regulated businesses will need to consider their procedures and policies, and the potential implications of dealing with any unregulated third-party that could be deemed to be caught in what is under the judgment, the very broad and encompassing acts of ‘making arrangements’ and ‘advising’.
“Importantly, and as expected, the court of appeal upheld the judgment of first instance that Carey had met its obligations under the Conduct of Business principles. This means that judge Dight’s approach to determining the scope of Cobs rules remains good law.”
