Adams v Options UK Personal Pensions LLP

The Court of Appeal held that the appellant's agreement with the SIPP provider was unenforceable under section 27 of the Financial Services and Markets Act 2000 because the claimant established that an unauthorised introducer (CLP) had carried on regulated activities in contravention of the general prohibition. The court found that CLP both advised within the meaning of article 53 of the Regulated Activities Order and "made arrangements" within article 25 which had sufficient causal potency to bring about the transfers from the claimant's existing pension into the Carey SIPP.

The court rejected the respondent's contention that the relevant transaction was the acquisition of the unregulated underlying asset (storepods) rather than the SIPP rights: a transfer into, and the acquisition of, a particular SIPP are regulated transactions. Rights under the SIPP were not treated as being "sold" or "converted" simply because the operator switched underlying assets; but advice and arrangements that are part of a unified package (a "single braided stream") may fall within articles 25 and 53.

The Court exercised the section 28 discretion against the provider. Although the provider lacked actual knowledge of the introducer's contraventions and had processes in place, the extent and scale of the pipeline of introductions, the sums involved, and later adverse information meant it was not just and equitable to allow enforcement. The separate claim under COBS 2.1.1R was dismissed: the appellant did not pursue the pleaded case and could not advance a materially different product-due-diligence theory on appeal without appropriate pleading and evidence.

Background and parties. The appellant, Mr Russell Adams, transferred a modest personal pension into a self-invested personal pension (SIPP) administered by Carey (later Options UK Personal Pensions LLP) and invested the proceeds in long leases of "storepods" through a promoter Store First. Most of the introduction and sales activity was performed by an unregulated intermediary, CLP Brokers, which introduced about 580 clients to Carey. The investment performed very poorly.

Procedural posture and relief sought. The primary proceedings were before His Honour Judge Dight in the Chancery Division ([2020] EWHC 1229 (Ch)), who dismissed the claimant's claims. On appeal Mr Adams pursued (i) a section 27 FSMA claim that the agreement with Carey was unenforceable because it was made in consequence of CLP carrying on regulated activities in contravention of the general prohibition, and (ii) a claim that Carey breached COBS 2.1.1R (the client's best interests rule) enforceable under section 138D FSMA. He did not renew joint tortfeasorship arguments on appeal.

Issues framed by the court.

• Whether CLP contravened the FSMA general prohibition by "arranging deals in investments" (article 25 RAO) and/or "advising on investments" (article 53 RAO) in respect of transactions that included the sale of the claimant's rights under his Friends Life policy and the acquisition of rights under the Carey SIPP.
• Whether the claimant's agreement with Carey was made "in consequence of" the third party contravention so as to render the agreement unenforceable under section 27 FSMA.
• Whether the Court should exercise its discretion under section 28 FSMA to allow the agreement to be enforced or the money to be retained, having regard to whether Carey knew of the contraventions.
• Whether Carey breached COBS 2.1.1R and, if so, whether that caused the claimant's loss.

Court's reasoning and findings. The court analysed the statutory framework (FSMA sections and the RAO) and considered authorities on the scope of "arranging" and "advising". It rejected a purely "but for" causation test for article 26 (the exclusion) and held that article 26 requires arrangements to have "causal potency" or to play a role of significance in bringing about the transaction. The court concluded that CLP's conduct (pre‑completing application forms, procuring letters of authority, handling AML steps and steering the claimant towards a Carey SIPP so that storepods could be acquired) amounted to arrangements that brought about the transfers and to advice within article 53 because the sales pitch formed a single, braided stream of advice linking the unregulated asset to the regulated SIPP transaction.

The court further found that the claimant's rights under the SIPP were not "sold" or "converted" simply by changing the SIPP's underlying assets, so advice on unregulated assets is not always outside the RAO; but in the factual matrix here CLP's advice was sufficiently directed at the regulated transactions. Section 27 therefore applied and the agreement was unenforceable.

On section 28 the court held the subsection dealing with knowledge (s.28(6)) requires actual knowledge. Carey had no actual knowledge but the court nonetheless exercised its discretion against Carey: the consumer-protection purpose of FSMA, the scale of the introducer pipeline, the sums and client profile, plus adverse information in May 2012, made it unjust and inequitable to allow enforcement. Finally, the COBS claim failed because the appellant sought to advance a materially different unpleaded case on appeal without appropriate evidence and the judge's findings that any breach would not have caused the loss were not displaced.

Appeal allowed in part. The Court of Appeal allowed the appeal in relation to the FSMA section 27 claim, holding that the unauthorised introducer contravened the general prohibition by advising (article 53 RAO) and arranging (article 25 RAO) transactions which had sufficient causal potency to bring about the transfers into the Carey SIPP; accordingly the agreement was unenforceable and the claimant was entitled to recover. The court refused to exercise the section 28 discretion to allow enforcement. The separate claim under COBS 2.1.1R was dismissed because the appellant sought to rely on a materially different case than pleaded and did not rebut the judge's causation findings.

On appeal from the High Court of Justice, Chancery Division, His Honour Judge Dight CBE: [2020] EWHC 1229 (Ch). The present judgment: Court of Appeal, [2021] EWCA Civ 474 (01 April 2021).