SIPP provider ongoing legal cases – a summary
12 September 2019
Stephen McPhillips, technical sales director, Dentons Pensions, provides brief synopses to date of the two ongoing legal cases in the SIPP market
It has been widely reported during the course of 2019 that the self invested personal pension (SIPP) industry has been beset by further provider failures and legal challenges. As I write this (late August), there continues to be uncertainty around the outcomes of some of the legal challenges. This article aims to provide a brief synopsis of the two main ongoing legal cases, the outcomes of which are still unknown.
Adams v Carey Pensions UK LLP
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. In April 2019, the High Court ordered Store First Limited (and three associated companies) to be wound up 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.
Berkeley Burke v Financial Ombudsman Service (FOS)
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.
Mr Charlton signed various disclaimers required of him by Berkeley Burke, to the effect that he was not receiving financial or investment advice from them and acknowledging that the investment was high-risk.
Following his investment, it quite quickly transpired that there were issues with the scheme and, in fact, that Sustainable AgroEnergy did not have legal title to any of the land that it was “selling” to investors. The Serious Fraud Office (SFO) investigated Sustainable AgroEnergy and, as a result, three UK-based individuals were sent to prison for fraud for their parts in the scheme.
Mr Charlton had made the investment in 2011. When the FOS decision to uphold his complaint against Berkeley Burke was made, it was, by then, 2014.
Mr Charlton had claimed that Berkeley Burke should have conducted more stringent due diligence on the investment than it had done and FOS agreed.
Berkeley Burke challenged the decision of FOS on a number of grounds, one of which being broadly that FOS in 2014 had introduced new rules around levels of necessary due diligence which Berkeley Burke did not believe existed in 2011 when the investment was first made.
The challenge resulted in a Judicial Review, the outcome of which was handed down on 30 October 2018. The outcome was that, in effect, the High Court said that FOS had not introduced new rules around the level of due diligence which was required of Berkeley Burke at the time of the investment.
Berkeley Burke sought leave to appeal and the Court of Appeal hearing has been scheduled for 15 October 2019.
In August 2019, it was reported that Berkeley Burke had been ordered to pay nearly £1m in legal costs as a result of failing to comply with a court order relating to legal actions by a group of claimants. Berkeley Burke stated that it was considering its options and that it was focussing on the Court of Appeal hearing.
The outcomes of both of these cases are of major interest and significance to SIPP providers, as well as to paraplanners, advisers and clients. There is likely to be close attention paid by claims management companies too.
Some providers may have had to alter their due diligence processes in light of events to date, and that may mean that some previously acceptable investments are no longer accepted by those providers.
Some providers might now charge for due diligence where they had not done so previously.
For some providers, whose due diligence processes have been robust for many years, there may be little or no noticeable change of practice – including conducting due diligence free of charge and without obligation in advance of a SIPP being established.
This week sees the launch of The Paraplanner Club, a new initiative devised by Siân Davies Cole and Chloe Phillips, a mentoring...
Professional Paraplanner has teamed up with Brand Financial Training to answer your questions around the exams scheduled for 2021....
Are you signed up to the Professional Paraplanner daily website alert? For more technical, tax, pensions, investment, retirement, protection...