21 May 2020

Adams v Options Sipp UK LLP (formerly Carey Pensions UK LLP)

Judgment dated 18 May 2020

This case sets a clear precedent which has been welcomed by SIPPs providers given the increased litigation in this space and use of the FOS in determining complaints (which can now be validly rebutted).

Facts

Mr Adams brought a claim against Carey, a self-invested pensions plan (SIPP) provider, for:

  1. The diminution in value of an investment held within his SIPP (£55,000 reduced to £15,000 as the storage pod rental scheme failed to perform as expected).
  2. To have the contract with Carey declared unenforceable and rescind it.

Mr Adams was introduced to Carey by an unregulated introducing broker. Carey facilitated the investment on an execution-only basis.

Mr Adams claimed Carey:

  1. Breached the COBS rule 2.1.1 in failing to act fairly and in accordance with his best interests (COBS claim).
  2. Was liable to have the contract declared unenforceable under section 27 Financial Services and Markets Act 2000 (FSMA) because the unregulated introducing broker had advised on, and arranged the opening of, the SIPP and subsequent investment where it was not regulated to do so (breached section 19 of FSMA in arranging and/or advising on investments within the meaning of articles 25 and 53 of the Regulated Activities Order) (s.27 claim).
  3. Was in a joint venture with the unregulated introducing broker, which was expressly prohibited from advising prospective members within Carey's Terms of Business, and was therefore liable as joint tortfeasor for its alleged negligent advice (JV claim).

Mr Adams wanted his original pension fund returned to him with compensation for the returns he would have enjoyed.

Shortly before trial the FCA intervened in the case and was granted permission to make submissions at trial concerning the issues of principle relating to the statutory regulation of SIPPs operators, the proper construction of the relevant statutory provisions and related guidance.

Outcome

All claims were dismissed. However, we understand Mr Adams will be asking the Court for permission to appeal to the Court of Appeal.

  1. COBS claim- the judge found it had to consider the underlying contract between the parties which defined their roles and functions. Here, the contract made clear that Carey did not owe any duty to advise on the underlying investment. This was "because it is common ground that not every COBS obligation" applies to all firms. All contractual documentation between the parties was clear that Carey was acting on an execution only basis and therefore Mr Adams was responsible for his own investment decisions.
  2. S.27 claim- the unregulated introducing broker fell far short of arranging/ advising on the investment.
  3.  JV claim- the facts were entirely inconsistent with any conclusion that Carey assisted in the commission of a tort by the unregulated introducing broker.

Take home points

  • A number of similar cases had previously been upheld by the Financial Ombudsman Service (FOS). For example, judicial review of a FOS decision by Berkeley Burke SIPP Administration Ltd failed. In this case the FOS upheld a complaint that the SIPP provider Berkley Burke, when acting on an execution-only basis, had conducted insufficient due-diligence on a fraudulent investment scheme. This Carey case should be factored into responses to SIPPs complaints and challenging FOS’ decisions
  • The amount of due-diligence required by a SIPP provider on the proposed investment and advice on the suitability of a SIPP for a particular client depends to a large extent on the contract/terms of business they have with clients
  • Commentary from SIPPs providers focusses on the need to implement strong contractual agreements and documentation, together with robust systems, controls and processes within the business.