Shore v Sedgwick Financial Services Ltd.

For limitation purposes, negligent financial advice causes immediate damage where it induces a claimant to exchange a secure investment for a materially less advantageous and riskier bundle of rights. The possibility that the risky investment may later outperform the secure investment affects the assessment of loss, rather than the existence of damage.

This differs from a purely contingent liability, which causes no damage until the contingency occurs. Under section 14A of the Limitation Act 1980, knowledge requires enough factual understanding to recognise a real possibility that damage resulted from flawed advice and to make investigation reasonable. Detailed knowledge of negligence or of every formulation of the complaint is unnecessary.

The claimant sought damages for negligent pension advice and breach of section 62 of the Financial Services Act 1986. His primary claim concerned advice to transfer accrued benefits from a secure occupational pension scheme into a personal pension income-withdrawal scheme. His secondary claim concerned the subsequent failure to recommend the purchase of an annuity.

Beatson J rejected the primary claim on liability and causation, upheld the secondary claim on those matters, but held both claims statute-barred. Permission to appeal the primary claim was initially refused because of the causation finding. Permission was granted concerning when damage was first suffered under the secondary claim.

The claimant renewed his application concerning the primary claim. The Court of Appeal assumed in his favour that breach and causation were established. The central questions were when each claim first accrued and whether section 14A of the Limitation Act 1980 extended the limitation period.

1. Appeal dismissed and renewed application refused. The court unanimously held that both claims were statute-barred. It therefore refused permission to appeal the primary claim’s liability and causation issues.

2. The primary claim was a transaction case, rather than a purely contingent-liability case. Upon transferring from the occupational scheme, the claimant acquired rights which were less advantageous for his stated objective. He wanted a safe and certain income but instead obtained a risky investment with an uncertain income. He therefore suffered damage when committed to the income-withdrawal scheme on 28 April 1997.

3. Payment of the market price for the new investment did not prevent immediate loss. A person negligently induced to buy a risky investment when seeking a secure one suffers financial detriment upon acquisition. At least the cost of buying and selling the unsuitable investment may be recoverable. The possibility that the investment might ultimately produce greater benefits concerns quantum and does not postpone accrual.

4. The transaction authorities establish that exposure to a possibility of financial harm may constitute present damage even though the risk might never materialise. This principle differs from Law Society v Sephton and Co [2006] UKHL 22, where a purely contingent obligation to pay money was not damage until the contingency occurred. Nykredit plc v Edward Erdman [1997] 1 WLR 1627 prescribed a factual comparison between the actual transaction and the claimant’s counterfactual position; it did not establish a special rule postponing damage in negligent-advice cases.

5. The secondary claim also accrued in July 1997. The alleged omission deprived the claimant of an annuity yielding the secure income he wanted and left him exposed to the uncertainty of income withdrawal. Alternatively, damage existed by early 1999 when annuity rates had fallen to a new low.

6. Section 14A of the Limitation Act 1980 did not extend the primary claim’s limitation period. By May 2000 the claimant knew what advice had and had not been given, knew that his expected income was substantially lower, and knew there was a real possibility that this disadvantage resulted from the failure to advise him to remain in the occupational scheme. That knowledge made investigation reasonable. The suggested failure to explain that remaining was an available option was subsumed within the complaint that he should have been advised to remain.

• Court of Appeal (Civil Division): Dismissed the appeal concerning limitation and refused the renewed application for permission to appeal the primary claim’s liability and causation issues.
• High Court, Queen’s Bench Division: Beatson J rejected the primary claim on liability and causation, upheld breach and causation on the secondary claim, and held both claims statute-barred. No neutral citation is stated.
• Permission stage: Gage LJ granted permission concerning when loss was first suffered under the secondary claim, but refused permission on the primary claim because the challenge to the causation finding lacked a real prospect of success.