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SIPP provider legal cases – update and implications

20 April 2021

Stephen McPhillips, technical sales director, Dentons Pension Management Limited looks at two SIPP provider cases that have gone through the Courts and what the latest judgement means for the SIPP market

Regular readers of Professional Paraplanner might recall that, back in September 2019, I provided a brief summary of some legal cases affecting SIPP providers. Given that there has been a very recent judgment handed down by the Court of Appeal, it seems an appropriate time to re-visit the subject by way of an update.

Back then, I wrote about two cases; Berkeley Burke versus Financial Ombudsman Service (FOS) and Adams versus Carey Pensions UK LLP, and it’s these that we’ll re-visit now.

Firstly, then, let’s look at Berkeley Burke:

Berkeley Burke v FOS

Back in 2019, I briefly summarised some of the background to this case in this way:

“In this case, Wayne Charlton, a SIPP client of provider Berkeley Burke, took his case to FOS. He had invested into an unregulated collective investments scheme called Sustainable AgroEnergy plc through his Berkeley Burke SIPP. It centred on agricultural land in Cambodia. An unregulated introducer was involved in promotion of the scheme to Mr Charlton.”

and that:

“Mr Charlton had claimed that Berkeley Burke should have conducted more stringent due diligence on the investment than it had done and FOS agreed. Mr Charlton was only one of several hundred Berkeley Burke SIPP members who had invested into the same scheme.”

and I concluded at that time by stating:

“Berkeley Burke sought leave to appeal and the Court of Appeal hearing has been scheduled for 15 October 2019.”

Update

Unfortunately, that Court of Appeal hearing did not take place because Berkeley Burke SIPP

Administration Limited went into administration just prior to the scheduled hearing date.

On the second of these two cases, there is much more to report.

Adams v Carey Pensions

Back in 2019, I briefly summarised some of the background to this case in this way:

“Russell Adams, a SIPP client of provider Carey Pensions, had his case against Carey heard in the High Court in March 2018.

Through his Carey SIPP, he had made an investment into an unregulated collective investment scheme (UCIS) called Store First storage pods. An unregulated introducer based in Spain was involved in the promotion of the investment to Mr Adams and, whilst the investment vehicle was not seen at the time to be a scam, it did not perform in line with his expectations and he took action against Carey Pensions. In effect, he claimed that he had been mis-sold the SIPP and investment, despite signing a Declaration of Indemnity to the effect that he was not being advised by Carey Pensions on the establishment of the SIPP, nor on the choice of underlying investments within it. He also claimed that Carey Pensions should have carried-out due diligence on the investment.

Whilst the court hearing took place in March 2018, we do not yet know the outcome. Store First Limited (and three associated companies) were wound up in April 2019 and the Official Receiver appointed as liquidator.

Industry commentators believe that the outcome of the Carey case is being held back, pending another case that shares some similarities with it – the Berkeley Burke case.”

Update

It took until 18 May 2020 for the High Court judgment to be handed down. Whether it was indeed held-back pending Berkeley Burke is not known, but its delayed publication was to be later criticised formally. The outcome of the High Court judgment was that Mr Adams’ claims against Carey Pensions were dismissed in their entirety. His legal team sought leave to appeal through the Court of Appeal and this was granted.

Court of Appeal hearing:

The hearing took place in the first week of March 2021. The judgment was handed down on 1 April 2021, which was far quicker than in the High Court case. In fact, within the Court of Appeal judgment, there is a statement that the delay in handing-down the High Court judgment amounted to “judicial misconduct” and that “formal advice” had been given to the judge.

In brief, the Court of Appeal upheld one of the claims Mr Adams had made against Carey Pensions (the “Section 27 Claim”) and it rejected the other one (the “COBS Claim”). For reasons of brevity, we’ll ignore the COBS Claim here.

Mr Adams’ claim under Section 27 “was that his agreement with Carey was rendered unenforceable under section 27 of Financial Services and Markets Act 2000 because it had been “made in consequence of something said or done by another person (‘the third party’) in the course of … a regulated activity carried on by the third party in contravention of the general prohibition”, the relevant “third party” being identified as CLP.”

(“CLP” was the unregulated introducer based in Spain)

It was claimed that CLP breached the “general prohibition” by carrying on activities of “arranging deals in investments” and “advising on investments” and “making arrangements” and Carey Pensions denied that CLP had in fact contravened the general prohibition. Carey Pensions requested that the Court of Appeal use its discretion under Section 28 FSMA and permit the SIPP contract to be enforced. However, the judges felt that the Section 27 Claim was “well-founded” and the appeal succeeded.

The financial implications of the judgment are not known at this stage, as the Court has initially left this to the parties’ counsel to agree between them.

Comment

It was helpful to have the Court of Appeal judgment handed-down very quickly after the hearing, as this has avoided a certain amount of speculation that may have otherwise taken place. Clearly, the case was decided on the merits of the specific arguments put forward and it would be dangerous to draw many broad conclusions as a result. However, what does seem clear is that SIPP providers (and perhaps other regulated entities in the wider-industry) need to be very careful when accepting introduced business from unregulated entities, if indeed, they have ever chosen to do so.

Professional Paraplanner