Shore v Sedgwick Financial Services Ltd & Ors

The claimant sued his financial adviser for negligence and for breach of statutory duty under section 62 of the Financial Services Act 1986 arising from advice to transfer deferred defined‑benefit pension rights into a pension fund withdrawal (PFW) arrangement. The court identified the advisers duties by reference to the applicable regulatory regime (SIB principles and IMRO rules), including the duty to explain the options (remain in the occupational scheme, transfer and buy an annuity), to make a fair and clear comparison and, where required, to carry out a transfer value analysis, and to warn specifically about the risks of taking high or maximum drawdown (including Sedgwicks internal 75% guidance and the effect of triennial GAD reviews).

The judge found multiple failings: no adequate transfer analysis, a personal financial report that did not fairly and clearly compare the occupational benefits with the PFW benefits, and no adequate warning that taking income at or close to the permitted maximum was likely to reduce future income or that the advisers own 75% guidance applied. The court also found that, after changes in the claimants circumstances in MayJune 1997, the adviser should have revisited the advice and squarely offered the option of purchasing an annuity.

Despite these breaches of duty and regulatory rules, the claim was dismissed because the claimants causes of action were statute-barred: the claimant had acquired the knowledge required for limitation purposes (in broad terms) by December 1999/May 2000 and proceedings were not brought within the applicable limitation period.

This was a first instance claim for damages brought by Mr Clifford Shore against Sedgwick Financial Services Ltd (SFS) for negligent advice and breach of statutory duty under s62 Financial Services Act 1986 in relation to the transfer of substantial final salary pension rights (principally the Avesta scheme) into a Scottish Equitable pension fund withdrawal (PFW) arrangement in 1997.

Nature of the claim/application:

• Primary claim: negligence and breach of statutory duty in advising transfer of Avesta occupational pension rights to a PFW, failing to advise adequately on options, to prepare an adequate personal financial report, and to warn about the risks of drawing maximum income (including failure to observe IMRO transfer procedures and the firms 75% guidance).
• Secondary claim: after transfer, the adviser should have advised purchase of an annuity in light of the claimants changed income needs.

Parties and procedural posture: Claimant: Mr Clifford Shore. Defendant: Sedgwick Financial Services Ltd (SFS). Second defendant (Barclays Financial Planning trading as SIFC) was joined and its liability for post-2000 events was settled. The action was heard in the Queens Bench Division over a multi-day trial.

Issues framed:

1. Duty: scope of the common law duty of care in advising on pension transfer and PFWs, taking account of SIB principles and IMRO rules (rules 3.1, 4.1 and 6.7 and Appendix 6.7).
2. Breach of duty: did the adviser fall below the required standard in advising, preparing the personal financial report, and warning about risks?
3. Causation: did any breach cause compensable loss?
4. Contributory negligence: did the claimants conduct contribute to loss?
5. Breach of statutory duty: liability under s62 FSA 1986 for regulatory contraventions.
6. Limitation: whether claims were time-barred under the Limitation Act 1980 and, if so, whether the section 14A knowledge rules extended time.

Courts reasoning and findings (concise):

• Findings of fact: the judge analysed detailed contemporaneous documents (FNAQ, consultant submission, personal financial report, illustrations and file notes) and oral evidence. He found conflicts in recollection but preferred many of the defendants contemporaneous documents in some respects and the claimants evidence in others: crucially, the claimant had expressed an early intention to retire in late 1997, but the documents showed inaccuracies in how assets and instructions were recorded (notably page 6 of the FNAQ and references to offshore unit trusts).
• Duty and regulatory requirements: the advisers common law duty incorporated compliance with the IMRO rules. Those rules required reasonable steps to ensure suitability, fair and clear presentation and a transfer value analysis or equivalent clear comparison where transfers from defined benefit schemes were involved.
• Breach: the court held the adviser breached IMRO rules and the common law duty by (i) failing to undertake or give a proper transfer analysis comparing the Avesta benefits with PFW outcomes (including the growth rates needed to match final salary benefits), (ii) producing a personal financial report that did not fairly and clearly compare options and omitted a standard warning about high drawdown, and (iii) failing, after the claimants circumstances changed in MayJune 1997, to revisit advice and to put the annuity alternative squarely before the claimant.
• Causation and secondary claim: the judge accepted that, but for the failures, the claimant would likely have been advised to purchase an annuity in June 1997 and would probably have done so, avoiding the risk which later materialised.
• Limitation: applying the Limitation Act 1980 and the section 14A knowledge principles (as clarified in Haward v Fawcetts and related authorities), the judge held the claimant acquired the requisite "broad knowledge" by December 1999/May 2000 (knowledge of the fall in annuity rates, the operation of GAD triennial reviews and that he had not been given the specific 75% guidance and a clear warning). The claim was therefore brought outside the applicable limitation period and was time-barred.

Courts wider comment: the judge acknowledged the injustice of a limitation outcome in a case where regulatory and advisory failings were established but held that the statutory limitation rules nevertheless barred relief; he expressed regret at the result.

The claim is dismissed. Although the adviser breached IMRO rules and the common law duty (no adequate transfer analysis, an insufficient personal financial report and failure to warn about the risks of maximum drawdown or to revisit advice and put an annuity option squarely before the client), the claimant had acquired the requisite knowledge for limitation purposes by December 1999/May 2000 and the causes of action were therefore statute-barred under the Limitation Act 1980.