Adams v Carey – the judgment – over 2 years in the making, where does it leave the SIPP market
More than two years since the trial in March 2018, the High Court has dismissed the claim against Carey Pensions on all counts. The landmark case is sure to have far reaching ramifications for the SIPP industry and beyond.
Mr Adams transferred an existing personal pension into a SIPP administered by Carey following the involvement of CL&P, an unregulated introducer. Mr Adams instructed Carey to purchase rental units from Store First (a storage pod lease in Blackburn) with the monies held in his SIPP. Carey carried out the transaction on an execution-only basis as instructed and as is the norm in the SIPP market.Mr Adams’ investment in Store First did not perform well, with the investment ultimately left worthless. As the only regulated entity in the chain, Mr Adams issued proceedings against Carey.
Three key allegations were made against Carey:
- Breach of s.27 of the Financial Services and Markets Act 2000 (FSMA) rendering the SIPP unenforceable;
- Breach of COBS 2.1.1R which requires any FCA regulated entity to act 'honestly, fairly and professionally in accordance with the best interests of [the Claimant]'; and
- Carey should stand responsible for the negligent investment advice provided by CL&P for which it was said Carey was liable as a result of a joint venture, common design or agreed common business model.
Mr Adams alleged that his SIPP with Carey was necessarily entered in to as a consequence of something said or done by CL&P in the course of two regulated activities (arranging and advising on investments), carried on by CL&P in circumstances where CL&P did not have relevant permissions.
In deciding whether to uphold the allegation, the Court had to look at whether CL&P had carried out a regulated activity, whether the SIPP had been entered into "as a consequence of something said or done" by CL&P, what was meant by the words "as a consequence of" and what facts were relevant to that issue – was it the entire transaction or, as Mr Adams contended, the completion of the SIPP application form (which the Judge found had been completed by CL&P).
The Judge found the acts of CL&P did not bring about the transaction and therefore the SIPP was not entered into as a consequence of CL&P making arrangements. Further, the Judge found that steering an investor in the direction of a specific provider did not amount to "advising" on the SIPP.
As a result, CL&P did not either advise or arrange the SIPP and nor was the SIPP entered into as a consequence of something said or done by CL&P. Further, even if the Judge had found against Carey on Section 27, it went on to find that it would not have been just and equitable in all the circumstances to deem the SIPP unenforceable. What mattered was what Carey knew about what CL&P was doing; Carey did not know that CL&P was carrying out acts it was not authorised to do. As Carey did not know what CL&P was doing and given Mr Adams was found to have been well aware of the high risk/speculative nature of the investment, the SIPP should be upheld and "… there is no reason in the circumstances why he [the Claimant] should not take responsibility for his own decision..".
Breach of COBS 2.1.1R
Mr Adams alleged that COBS 2.1.1R required Carey to put in place a system to ensure that unsuitable investments were not posted within a SIPP wrapper and that they are not introduced by unsuitable introducers like CL&P. This should have led Carey to refuse the underlying investment. The FCA (who intervened in the case) argued that COBS 2.1.1R imposes an obligation to undertake an assessment in respect of both the proposed introducer and the proposed investment and a SIPP provider could refuse to proceed with the investment in an appropriate case without having to give advice to the customer.
The Judge started by accepting Carey's position that to ascertain the scope of Carey's obligations it was necessary to start with the contract. As the contract was execution only, the obligations under COBS had to be considered in that light. The Judge went on to say "… In my judgment a proper analysis of the contract in this case and the effect which that has on the interpretation of the rules does not lead to the conclusion that the defendant was obliged to refuse to accept the underlying investments in this case… A duty to act honestly, fairly and professionally in the best interests of the client, who is to take responsibility for his own decisions, cannot be construed as meaning that the terms of the contract should be overlooked, that the client is not to be treated as able to reach and take responsibility for his own decisions and that his instructions are not to be followed…". The High Court's judicial review in Berkeley Burke did not apply.
So far as Mr Adams sought to allege that Carey should have refused to set up the SIPP itself, that allegation was found to be "unsustainable". In relation to the investment itself, it was not the role of Carey under the contract to ascertain the suitability of an investment for a customer and COBS 2.1.1R could not be interpreted as requiring Carey to take those steps. Further, the various thematic reviews produced by the FCA could not be used to interpret COBS.
The Judge then went on to say "… There is no basis on which, even if there had been a breach of duty by Carey, that I could have come to the conclusion that it was causative of loss, the Claimant did not suffer loss as a result of the alleged contravention of the rule but because of his motivation in entering into the transaction…"
Joint Enterprise Allegation
Finally, Mr Adams alleged that the advice received from CL&P had been part of a "common design" between CL&P and Carey, as a result of which, Carey became liable for the actions of CL&P in tort.
The Court found that the roles of CL&P and Carey were entirely separate and there was no evidence available to suggest that Carey acted as anything other than a SIPP provider receiving introductions. This part of the claim was also dismissed.
Where does the decision leave the SIPP market?
The SIPP industry has faced unprecedented numbers of complaints and claims in the past several years with fact patterns similar to Mr Adams' case. The judgment finally gives some guidance and will be welcomed by the SIPP Industry. The decision upholds the terms of SIPP providers contracts which define the SIPP providers role; in particular the fact SIPP providers are not there to assess investment suitability.
Further, the decision raises question marks around FOS' approach to complaints so far as there is reliance on FCA guidance and thematic reviews, in respect of which the decision says "… There is no express provision in FSMA which provides a right to an investor to make a claim based on an alleged breach of the guidance issued by the FCA from time to time…". We wait to see how FOS reconciles the decision, as it must do under DISP 3.6.4R.
Beyond the SIPP market
However, there are comments in the judgment that will be felt by the FCA beyond the SIPP market. In particular, the judgment puts lots of emphasis on upholding contractual terms and emphasising the importance of customers taking responsibility for their own decision making. The Judge's statement that "… [The consumer protection objective] requires the FCA, in securing an appropriate degree of protection for consumers to have regard to, among other things, "the general principle that consumers should take responsibility for their decisions". In this case, those decisions, as between the claimant and defendant, are set out in the documents which comprise the contract between them…"
An appeal is expected from Mr Adams. But until then, at long last, some good news for the SIPP industry and the wider financial services industry.
RPC will be hosting a Webinar on Wednesday 20 May 2020 at 10am to discuss the outcome of Adams v Carey. If you would be interested in attending this session, please do contact Emily Gorys