Berkeley Burke SIPP Administration Limited v Financial Ombudsman Service Limited (2018) EWHC 2878 (Admin)
We reported recently on the Tenet and Sense cases which considered financial networks’ liability for dishonest IFAs.
In another judicial review towards the end of last year, again related to fraudulent financial adviser activity, the court has considered the liability of pension administrators.
Berkeley Burke (BB) is a Self-Invested Personal Pension (SIPP), provider and administrator. One of their clients complained about their work when carrying out his wish to invest in what turned out to be a scam.
The basic concept of a SIPP is that an individual can choose the investments which form the assets in his or her pension. There are certain assets, such as listed shares in quoted companies, which can be put into a SIPP and which benefit from the tax advantages which apply to SIPPs, and are therefore "SIPPable". Other assets, such as residential property, do not qualify for those advantages, and there is, therefore, no benefit to holding such assets in a SIPP.
Mr Charlton was a gardener. In 2011, he was introduced to Berkeley Burke by a third party and wanted to make an investment in a "green oil" scheme in Cambodia. He wanted to hold that investment in a SIPP. The investment was offered by Sustainable AgroEnergy plc ("SA"). Mr Charlton applied to transfer his existing £24,000 personal pension to Berkeley Burke and to use the money for investment in Sustainable AgroEnergy's scheme. A large number of other individuals invested in the scheme: some 616 investors invested around £12,250,000 in SIPPs operated by Berkeley Burke.
However, the scheme was fraudulent. Sustainable AgroEnergy did not own the land in Cambodia where the jatropha trees that formed the basis for the investment supposedly grew.
Sustainable AgroEnergy was subsequently placed into receivership following a Serious Fraud Office investigation, and three of its directors were sent to prison for fraud.
The Financial Ombudsman
Following his complaint to Berkeley Burke, Mr Charlton escalated his complaint to the Financial Ombudsman. They were asked to determine the complaint, by reference to what was, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case. The Ombudsman required Berkeley Burke to pay compensation but Berkeley Burke challenged the lawfulness of the decision.
The Financial Conduct Authority Principles relied on by the Financial Ombudsman were numbers 2 and 6:
- Principle 2. Skill, care and diligence - A firm must conduct its business with due skill, care and diligence.
- Principle 6. Customers' interests – A firm must pay due regard to the interests of its customers and treat them fairly.
The Financial Ombudsman decided that Berkeley Burke had not complied with these when accepting an application to transfer a personal pension into an investment scheme, because they had not carried out due diligence to establish that the scheme was appropriate and secure. All they did was to consider whether the investment was SIPPable which was not, in the judgement of the Ombudsman, enough to satisfy the Principles.
In Court, Berkeley Burke argued that they were obliged by other FCA rules to action the client’s request on an execution only basis. The Court agreed with the Financial Ombudsman that the Ombudsman was nonetheless entitled to consider the Principles set out above alongside that rule and to ensure proper consumer protection applied.
Another similar case is underway in Court, in which Russell Adams seeks to recover damages from his SIPP administrator Carey Pensions. He also claims they simply acted on his instructions to invest in an unregulated scheme when they should have carried out due diligence to protect him. As with the Berkeley Burke case he signed a clause by which seemed to waive any request for advice from his pensions administrator.
We await that decision with interest and will need to compare how the court views legal duties with the Financial Ombudsman's approach. There was a suggestion in the Berkeley Burke case that the Ombudsman was applying 2018 standards to a 2011 transaction. It will be interesting to see whether a court declines to hold the SIPP administrator liable where the Financial Ombudsman did.
We are also aware that Berkeley Burke has now applied for permission to appeal this decision. The current situation is likely to evolve, and will undoubtedly be closely followed by pension investors and administrators alike.