Goldstone & Anor v Becque Wayman Investments Ltd & Ors

This case concerns negligent investment advice given in November and December 2003 about investment in viatical and life settlement policies marketed by Mutual Benefits Corporation (MBC). The court held that Endowment Surrender Plus (ESP) contracted with the trustees and, by its advice and communications, led the trustees to understand the product to be a cautious or "low risk" investment when, on the unchallenged expert evidence of Mr Conolly Finnur Tunnard, it was "high risk". The authorised principal, Becque Wayman Investments Limited, was held vicariously liable under section 39 of the Financial Services and Markets Act 2000 for acts and omissions of its appointed representative.

The decision turned on findings of fact about the content and effect of advice given by Mr Mark Wayman (ESP) and on construction of the documentation identifying ESP as an appointed representative of Becque Wayman. The court found breach of contractual and tortious duties by ESP in failing to quantify and to disclose material risk information then available and that, on the balance of probabilities, but for that advice the trustees would have rescinded or recovered their monies within the rescission period and not invested. Damages were therefore awarded to the trustees subject to agreed credits and deductions; interest and precise figures to be addressed further.

Background and parties

The claimants, trustees of the Michael Goldstone 2003 Life Interest Settlement, sued ESP, Becque Wayman Investments Limited and Mr Mark Wayman following an investment of one million US dollars (approximately £592,417) placed with Mutual Benefits Corporation to purchase viatical and life settlement policies. ESP was a partnership (the second defendant) whose principal was Mr Wayman (third defendant). ESP was an appointed representative of Becque Wayman (first defendant), an authorised financial adviser regulated under the Financial Services and Markets Act 2000.

Nature of the claim and relief sought

• The claimants alleged negligent advice and breach of contract leading to loss. They sought recovery of the invested sums, additional premiums paid, administration fees and interest, and relied on both contractual liability against ESP and vicarious/statutory liability of Becque Wayman under section 39 of the Financial Services and Markets Act 2000. They also pleaded alternatively that Becque Wayman was an undisclosed principal.

Procedural posture and evidence

This was a first instance trial in the Chancery Division. The court heard oral evidence from the trustees, Mr Wayman and Mr Becque and considered an expert accountant's report of Mr Tunnard (which the defendants did not challenge on the two central issues he addressed). Documentary material included engagement letters, an appointed representative agreement (16 May 2003), contemporaneous notes and correspondence between November 2003 and early 2004.

Issues framed

1. Which entity contracted with the trustees (ESP or Becque Wayman)?
2. Did ESP (and Mr Wayman) negligently or in breach of contract misrepresent the risk of the MBC investments?
3. If so, did those breaches cause the trustees' loss and what were damages?
4. Was Becque Wayman liable under section 39(3) FSMA 2000 or as undisclosed principal?

Court's reasoning

The judge found the relevant contractual documents, correspondence and the conduct of the parties demonstrated that ESP contracted with the trustees; disclosure that ESP was an appointed representative of Becque Wayman provided an additional layer of protection under FSMA but did not displace the contractual relationship. The appointed representative agreement and the correspondence did not demonstrate that ESP had excluded its own contractual liability.

On the facts (including the contemporaneous notes and later letters) the court found that Mr Wayman had, in effect, recommended the MBC product as a cautious or low risk investment and that the overall impression given to the trustees was of low risk despite Mr Wayman's later denials of using the specific words. The unchallenged expert evidence was that the investment was high risk. The judge found breaches in that ESP failed to disclose material information available to it (including documents indicating regulatory and fraud risk associated with MBC) and failed to quantify overall risk rather than merely listing potential risks. Those failures amounted to breach of contractual and tortious duties.

On causation the court accepted that, had the true risk been disclosed in early December 2003, the trustees would have rescinded or recovered their funds within the contractual rescission period (clause 4(d)) or at least before MBC actually invested most of the funds in January 2004; the court regarded recovery as a real and substantial, indeed highly probable, outcome. Damages were assessed on the schedule provided by the trustees subject to agreed credits (including sums received from matured policies, uninvested cash returned and a receiver's payment) and a deduction of £3,887.94 representing part commission paid to an accountancy firm. The judge entered judgment for the claimants against ESP and Mr Wayman in contract and against Becque Wayman under section 39(3) FSMA 2000. Interest and precise computation of sums were left to be addressed further.

Claim succeeded. The court found that ESP (and Mr Wayman) contracted with the trustees and breached contractual and tortious duties by presenting the MBC viatical and life settlement investment as a cautious/low risk investment when, on unchallenged expert evidence, it was high risk; material adverse information available to ESP was not adequately disclosed or investigated. Becque Wayman was vicariously liable under section 39(3) of the Financial Services and Markets Act 2000 for acts and omissions of its appointed representative. Causation was established on the balance of probabilities because the trustees would have rescinded or recovered their funds within the contractual rescission period and before MBC deployed most of the monies. Damages were awarded in accordance with the claimants' schedule subject to identified credits and deductions; interest and precise sums to be determined.