Gorham v British Telecommunications Plc

An adviser’s assumption of responsibility to a customer seeking pension and life assurance advice may extend to intended dependants. This arises where provision for them is fundamental to the transaction, the adviser knows their interests are involved, and negligence may deprive them of the intended benefit without another effective claimant.

The extension enlarges the class entitled to sue. It does not enlarge the scope of the adviser’s duty. A statutory regulatory scheme does not exclude a concurrent common law duty unless Parliament has so provided. For causation, the court must identify the damage against which the particular duty required protection. Belated correction of unsuitable advice may end its causative effect where the customer can still avoid the relevant loss by taking reasonable steps.

Mr Gorham obtained a Standard Life personal pension after receiving advice from its representative. An occupational pension offered by his employer, British Telecommunications plc, provided substantially better retirement and death benefits. Provision for Mr Gorham’s wife and children was a stated priority, and Mrs Gorham participated in the information and advice process.

His Honour Judge Raymond Jack QC held that Standard Life owed the dependants a duty of care and awarded £114,282.61 for lost pension benefits. He refused a further sum representing the lump-sum death benefit because Standard Life had told Mr Gorham in November 1992 that the occupational scheme was better, while action could still have secured that benefit.

The dependants appealed on causation. Standard Life cross-appealed against the existence of a duty to the dependants and alternatively raised contributory negligence.

1. Disposition. The appeal was dismissed by a majority, Pill and Schiemann LJJ forming the majority on causation. Sir Murray Stuart-Smith dissented on that issue. Standard Life’s cross-appeal was dismissed unanimously.
2. Duty to intended beneficiaries. Standard Life’s assumption of responsibility to its customer extended to his intended dependants. The principle in White v Jones [1995] 2 AC 207 was not confined to solicitors preparing wills. Provision for the family was fundamental to this insurance transaction, and the representative knew that the wife’s and children’s interests were involved. The duty was not to ensure adequate provision for them. It was a duty not to give negligent advice to the customer which adversely affected their interests as he intended them to be.
3. Scope of the extended duty. Schiemann LJ explained that extending responsibility to the beneficiaries enlarged the class entitled to sue, not the content of the duty. Potential conflict between a customer’s interests and those of dependants did not prevent a duty arising on these facts.
4. Regulation and common law. The detailed regime under the Financial Services Act 1986 did not displace the courts’ power to recognise a common law duty. The codes were important when assessing its content, but their silence about beneficiaries did not exclude a duty. The tied representative’s limited function did not relieve him of the obligation to refrain from recommending an unsuitable product.
5. Causation. The scope of the duty determined the kind of loss for which Standard Life was responsible. Its relevant obligation was, in substance, not to sell the unsuitable personal pension. By November 1992 Mr Gorham knew that the occupational scheme was better. Standard Life had therefore corrected its advice while he could still take steps to obtain the lump-sum death benefit. He ought reasonably to have checked his membership with his employer. The earlier breach consequently ceased to have causative effect for that additional loss.
6. Dissent and contributory negligence. Sir Murray Stuart-Smith considered the original negligence remained a cause of the lump-sum loss and would have reduced recovery by 50 per cent for Mr Gorham’s fault. The majority left the possible effect of a deceased customer’s contributory negligence for another case.

1. Court of Appeal: Dismissed the dependants’ appeal by a majority and dismissed Standard Life’s cross-appeal unanimously. The existing award remained undisturbed.
2. High Court, Bristol Mercantile Court: His Honour Judge Raymond Jack QC held that Standard Life owed the dependants a duty of care and awarded £114,282.61 for lost pension benefits. He refused recovery of the additional lump-sum death benefit on causation grounds.