On 18 May 2020, the High Court delivered its judgement in Russell Adams v Options SIPP UK LLP regarding the potential liability of an execution-only Self-Invested Personal Pension (SIPP) provider to an investor whose underlying investment in the SIPP incurred significant losses.
Background
The main question for the Court to consider was whether the defendant (Options SIPP UK LLP “D”), a SIPP provider and administrator, which operated on an execution only basis was liable to the Claimant investor, Adams (C) for the losses which C claimed he suffered as a result of entering into what he alleged was an unsuitable investment which C instructed D to hold within a SIPP wrapper.
Facts
Adams’ decided to invest his pension into a high risk non-standard investment via an execution-only SIPP held with D. Adams claimed that he transferred his pension to the SIPP and made the investment because of advice he received from an unregulated introducer firm, CLP Brokers (CLP). Ultimately the investment performed poorly, and Adams sued D to try to recover the value of his pension.
The following three grounds were raised by Adams:
- Breach of section 27 of the Financial Services and Markets Act 2000 (FSMA): This section gives the Court discretion to unwind an agreement.
- Breach by D of FCA Conduct of Business Rules (COBS) when accepting his execution-only business to open the SIPP and invest into the high-risk investment; and/or
- D was vicariously liable for CLP’s negligent advice to Adams about the investment, because it was in a joint enterprise with CLP.
Decision
All three of Adam’s claims failed:
1) Section 27 FMSA
The claim under section 27 of FSMA was dismissed because the agreement in question was the establishment of the SIPP itself, and CLP was not performing a regulated activity in relation to the creation of his SIPP. CLP was not arranging or advising about (as the relevant regulation requires) opening the SIPP. Further, the fact that CLP was introducing Adams to D, and “steering” an investor to a specific SIPP provider was not enough to meet this test. It was relevant that Adam’s instruction to D to invest occurred after the SIPP had been established and therefore after CLP’s involvement had ceased.
2) COBS
The only applicable Rule was COBS 2.1.1 - that D was to act honestly, fairly and professionally and in accordance with the best interest of its client. Adams said that D did not act in his best interests, as it should have had a system in place to protect him (and thus have rejected his application to open a SIPP) when he sought to make an unsuitable investment, via an unsuitable introducer.
The Court found that COBS 2.1.1 did not impose any such duty on D as an execution-only provider: there was a plain inconsistency between what Adams now said D should have done, and the terms of his contract with D. The Judge decided that Adams knew the investment was high-risk and went ahead anyway, and that he should take responsibility for his decision and its consequences.
3) Joint Enterprise
The Court found that even if CLP had made a negligent mis-statement, D did not know CLP was giving advice, and the parties did not have a common design, so there was no joint enterprise and no vicarious liability.
and then 