Beary v Pall Mall Investments (A Firm)

The Court of Appeal dismissed the appellant's challenge to the trial judge's findings in a professional negligence claim against independent financial advisers. The judge had found that the adviser breached his duty by failing to advise on the annuity option but, applying conventional causation principles, held that the claimant had not proved he would have purchased an immediate annuity if so advised. The court rejected the submission that the Bolitho test required inquiry into what the adviser would in fact have done, and refused to extend the exceptional causation principle in Chester v Afshar to negligent financial advice. The judge did find negligence in relation to recommending the Lombard bond and awarded damages measured by the excess loss on that bond compared with leaving the money in the PMI fund.

Background and parties: The appellant, Mr Beary, was an experienced businessman who retired at 52 and followed pension advice from Mr Jefferies of Pall Mall Investments (a firm). He and his wife had a small self-administered pension scheme (SSAS). On retirement he took a tax-free lump sum and invested the balance by means of a managed drawdown plan in the PMI Global Growth Fund; part of the tax-free cash was invested in a Lombard bond. Substantial falls in value led to proceedings.

Nature of the claim and procedural posture: Proceedings in the Chancery Division (Sir Donald Rattee) advanced three heads of claim: (i) the annuity claim that the adviser negligently failed to advise that the fund could have been used to buy an immediate annuity; (ii) the Lombard bond claim that the adviser negligently recommended purchase of the Luxembourg bond; and (iii) a mortgage claim (not pursued in detail in the judgment). The defendant admitted failure to advise on the annuity option. The claimant appealed the dismissal of the annuity claim and other trial decisions to the Court of Appeal.

Issues before the court:

• Whether the trial judge applied the correct test of causation or should have asked, in the manner of Bolitho, what the adviser would in fact have done if not negligent;
• Whether the exceptional causation approach in Chester v Afshar should be applied to negligent financial advice;
• Whether the judge was wrong to refuse a late alternative case based on an index-linked annuity;
• The correct measure of loss in respect of the Lombard bond claim.

Court's reasoning and disposition: The court held the judge had correctly applied conventional causation principles: the relevant question was whether the claimant would have chosen an annuity if properly advised, and the judge’s finding that he would not was open on the evidence. The court rejected the submission that Bolitho required inquiry into what the adviser would in fact have done, observing that that line of questioning is only apt where the defendant's hypothetical conduct is the relevant causal link. The court declined to extend Chester v Afshar beyond its exceptional medical informed-consent context and refused to apply it to routine negligent financial advice. The court also upheld the judge's discretionary refusal to permit late amendment to advance an index-linked annuity case. On the Lombard bond, the judge had accepted negligence in advising purchase of the bond and ordered damages limited to the difference between the bond loss and the loss had the £180,000 remained in the PMI fund; the court approved that approach. The appeal was dismissed.

Appeal dismissed. The Court of Appeal upheld the trial judge's application of conventional causation principles, rejecting a requirement to apply Bolitho-style inquiry into what the adviser would have done and refusing to extend the exceptional causation rule in Chester v Afshar to negligent financial advice; the judge's findings of fact (including that the claimant would likely have followed the adviser's proper advice and would not have purchased an annuity) and his finding of negligence in relation to the Lombard bond and consequent measure of damages were upheld.

On appeal from the High Court of Justice, Chancery Division (Sir Donald Rattee, HC03C00370). Judgment at Court of Appeal: [2005] EWCA Civ 415 (this judgment).