Professional negligence

Timing is everything
9 August, 2018

With any professional negligence claim the first step is establishing that you have enough time left on the clock to bring the claim; you can have a strong claim, and tick every box for success, but irrespective of the legal merits, once your time has run out, that is that.


As with all claims for professional negligence, in a claim brought for loss suffered as a consequence of negligent financial advice there is a period of six years from the date of the “damage” suffered as a consequence of the advice to bring the claim.

In this context, damage is likely to be the date that the claimant entered into the unsuitable investment or transaction rather than the date that the investor actually suffered a financial loss.

Sometimes the 6 year time period can be extended where the negligence only becomes apparent at a later stage. In those cases the relevant limitation period is three years from the date of “knowledge” of the facts which might give rise to a claim.

There is a long stop date of 15 years within which all claims must be brought.

Determining when a claimant has acquired “knowledge” is not always an easy exercise, partly because the test has subjective elements and partly because the case law is not altogether clear.

In short, the basic principle as established in Haward v Fawcetts is that suspicion, particularly if it is vague and unsupported, will not be enough, but a reasonable belief will normally suffice; in other words, the claimant must know enough for it to be reasonable to begin to investigate further.

But when is it reasonable to begin to investigate further?

Since the finding in Haward v Fawcetts in 2006, The Supreme Court has not dealt again with this point, although The High Court and The Court of Appeal regularly wrangle on this point.

Indeed, The Court of Appeal recently considered the date of knowledge argument in the case of Su v Clarksons Platou Futures Ltd and another.

In this case, the Court confirmed the position that is not when the claimant first knew they might have a claim for damages against the defendant; rather, it is when they knew enough to make it reasonable to investigate further and, if necessary, obtain professional advice.

This essentially reaffirms the position in Haward v Fawcetts, but it does not bring any clarity to the position. For example, in a negligence claim against a roofer, you first know enough to investigate further when your roof starts to leak; you would naturally inform the roofer of the faulty work, and perhaps commission an expert to undertake a review of the work to establish liability.

What is the equivalent with an investment made following the receipt professional advice? When returns are less than expected? What if your adviser repeatedly reassures you that the loss is temporary and has been caused by unforeseen matters in the market?

Similarly, if a client had received advice to enter into a tax mitigation scheme, should a claimant be fixed with “knowledge” upon receipt of a notice from HMRC that they are investigating the scheme? What if the adviser maintains that HMRC’s potential challenge lacks validity and will fail? At this stage, the claimant does not even know whether there will be any loss.

There is no leaking roof to which you can point, and unless you were financially sophisticated and experienced, how would you know you had a potential claim? My experience is that most people generally trust their advisers and would rather give them the benefit of doubt rather than immediately seeking legal advice.  

Haward v Fawcetts and Su v Clarksons Platou Futures Ltd illustrates the importance of keeping a careful eye on the limitation clock where you are seeking to rely on a date of knowledge argument; if you think you have received bad advice, it is better to act sooner, rather than later.

A simple conveyancing transaction or something far more complex and dangerous?
28 June, 2018

The internet is awash with apparently fantastic and unusual property investments. Who wouldn’t jump at the chance to purchase a fraction of 999 year lease of an off plan plush hotel room?

While it is clearly not the role of a conveyancing solicitor acting on the purchase to advise a client of the suitability of the investment, do any duties exist to highlight the risks?

In June 2017, the SRA issued a warning notice against solicitors who undertake conveyancing transactions that are, against the yardstick of conveyancing normality, highly unusual and not run of the mill.

These are not your everyday conveyancing transactions, and solicitors should be savvy to their obligations and duties when handling such matters.

The SRA states that, where a solicitor is acting for the buyers in these types of transactions, they must advise clients fully about the transaction and how it significantly differs from the simple buying of an existing property, such as:-

  1. Buying a property not yet built or completed i.e. off plan or subject to significant refurbishment;
  2. Promises of substantial returns (and how these are often illusory) – it should be noted that standard warnings about the risk of capital loss are not enough to ensure that a law firm has properly advised a client upon the transaction; and
  3. High “deposits” and how such deposits are often used to finance such transactions (as well as forming part-payment of the price). Further, many of these transactions are unregulated collective investment schemes (particularly those which involve developments) and are not even permitted to be marketed to anyone other than certified high net worth or certified sophisticated investors. The risk of the fraud is also a huge consideration. The SRA has provided a series of practical tips to guide solicitors, which includes:
  4. In short, where a solicitor is instructed to undertake a conveyancing transaction that is outside of the ordinary, and unusual in its nature, a deeper consideration and understanding of the origin, nature and structure of the transaction is absolutely necessary.  The SRA will not find sympathy with a solicitor who attempts to mask the complexity and sophistication of such transactions by adopting the language of a relatively straightforward day-to-day conveyance.  The client must be made aware of the inherent risks of such transactions.
  5. A solicitor must not proceed with the transaction and attempt to mask what is really happening by adopting the language of conveyancing. For example, where a deposit is required that is above the usual 10% (and the SRA note that deposits in such transactions range from 30% to 80%) the client’s money is clearly being used as both pre-payment of the price, and as a means of providing finance to the developer. This carries a substantial risk, and the solicitor must advise on this.
  1. Familiarising yourself with SRA warnings;
  2. Analysing the scheme or supposed transaction carefully and critically, with the SRA warnings in mind;
  3. Refusing to act or, cease to act if you have concerns;
  4. Looking critically at documents to assess what they mean (if anything) and whether they are fair;
  5. Applying the SRA Principles;
  6. Avoiding rationalising suspicious factors – such as by thinking “the warnings do not mention the type of transaction I have been asked to deal with, so it must be safe”;
  7. Now allowing your client account – or any account you control – to be used to receive investment money that could simply be sent by an investor directly to an investment company; and
  8. Not attempting to evade rule 14.5 of the SRA Accounts Rules 2011 by trying to manufacture a process of legal work or advice.
  9. As such, all solicitors will do well to remember that we must advise our clients fully, frankly and in good faith, and that we must act with integrity, independence and in the best interests of our clients, to ensure that we behave in a way that maintains the trust the public places in us and the provision of legal services generally.

SIPPs are so 2014, what you need is a QROPS…
13 April, 2018

By some considered unexciting, the world of pensions has been commanding attention as scammers continue to plague the industry, misleading savers and leaving people with little or nothing for their retirement.

Until around 2014, the vehicle of choice for dubious unregulated pension investments such as offshore property developments (Harlequin springs to mind), truffle trees and green oil investments were self-invested personal pensions (‘SIPPs’).

From as long ago as 2011, the regulator repeatedly warned SIPP operators that they needed to be careful about high risk esoteric investments being held in their SIPPs, particularly if the investor was unsophisticated and ostensibly not in receipt of advice from a regulated adviser.   

In its ‘Dear CEO’ letter in 2014, the FCA made it clear that SIPP operators must undertake adequate due diligence processes on high-risk, speculative and nonstandard investments in these five key areas:

  • correctly establishing and understanding the nature of an investment;
  • ensuring that an investment is genuine and not a scam, or linked to fraudulent activity, money-laundering or pensions liberation;
  • ensuring that an investment is safe/secure (meaning that custody of assets is through a reputable arrangement, and any contractual agreements are correctly drawn-up and legally enforceable);
  • ensuring that an investment can be independently valued, both at point of purchase and subsequently; and
  • ensuring that an investment is not impaired (for example that previous investors have received income if expected, or that any investment providers are credit worthy etc.).

In light of the stricter regulatory environment surrounding SIPPs, anyone promoting a dodgy unregulated investment needed to look elsewhere for a vehicle.

‘QROPS’ is the acronym for ‘qualifying recognised overseas pension scheme’. As the name indicates, QROPS are ‘recognised’ by the UK Revenue and are eligible for transfers to and from UK registered pension schemes.  QROPS are useful for individuals living (or in the process of moving) abroad because there are tax benefits.  However the regulators in other jurisdictions such as Malta, Gibraltar and the Isle of Man have not been as proactive as the UK regulator in this area, meaning that some QROPS operators have been slow to introduce safeguards. 

QROPS can be utilised as a vehicle for unsuspecting investors to be sold high risk pension investments that would no longer be accepted by SIPP operators in the UK, as they would not pass the due diligence checks.  It is understood that QROPS are currently the main source of pension scams.

Unregulated advisers promote transfers from UK pension schemes into QROPS, claiming relaxed rules abroad will provide more flexibility for accessing pension savings. The 2017 budget restricted the tax relief on moving pensions into QROPS, imposing a 25% tax on most transfers.  Tax free transfers are now limited to those meeting strict criteria, all of which require conditions to be met alongside a genuine reason for the transfer; genuine reasons include living in the country the QROPS is in, or your employer’s pension scheme contributing to a QROPS etc. (full list of criteria here).

Only by taking advice from a high quality financial adviser will you know whether you can transfer your pension without incurring the 25% tax penalty. Any adviser making unsolicited approaches should be viewed with high caution, especially if they offer free advice. Further measures to safeguard against scams include checking an adviser is on the FCA’s register of regulated advisers (giving you recourse and compensation via the financial ombudsman and financial services compensation scheme if something goes wrong) and checking any suggested QROPS fund is on the HMRC list of recognised overseas pension schemes.

If you require advice on the above, please contact Pradeep Oliver on 01892 765 453 or at

Don’t blame me, I only sold the packaging…I’m not responsible for what’s inside.
11 April, 2018

Pension transfer advice must be provided by a financial adviser with the appropriate FCA permissions. In certain instances, financial advisers have been prepared to advise a client to transfer out of

their occupational or personal pension schemes and into a self-invested personal pension scheme (SIPP) even though advice on the investments to be held in the SIPP has been provided by other (often unregulated) parties. The adviser has sought to limit liability by attempting to restrict the scope of the advice to the suitability of the SIPP and excluding the investments that are to be held in the SIPP. 

The financial ombudsman has recently ordered Kingsway Wealth Management to compensate a client who, following advice from the firm, transferred his pension into a SIPP. This pension pot was then invested in Cyprus One Limited which was involved in Cyprus residential development.

The ombudsman decision was based on an alert published by the then Financial Services Authority (‘FSA’ (now Financial Conduct Authority)) which states:

“The FSA’s view is that the provision of suitable advice generally requires…consideration of the suitability of the overall proposition, that is, the wrapper and the expected underlying investments in unregulated schemes.  It should be particularly clear to financial advisers that, where a customer seeks advice on a pension transfer in implementing a wider investment strategy, the advice on the pension transfer must take account of the overall investment strategy the customer is contemplating… This is because if you give regulated advice and the recommendation will enable investment in unregulated items you cannot separate out the unregulated elements from the regulated elements.” (Full alert here)

Kingsway’s defence was that it had not known about the investments within the SIPP wrapper and, as a result, it were not responsible for the unsuitable investment the SIPP contained. The FSA alert in 2013 clearly states this is not the case; any advice to invest in a SIPP automatically extends a responsibility for the products in which the SIPP is subsequently invested.  While Kingsway’s advice in this case was provided in 2009, before this alert was publicised, in an email to Kingsway in 2008, the FSA stated “in our view, it is difficult to separate advice on the merits of joining a SIPP from the merits of particular investment assets to be held under that SIPP compared to the funds and benefits from the ceding scheme”.

This decision from the ombudsman makes absolute sense, a SIPP is nothing more than a tax efficient pension wrapper, an adviser cannot possibly assess whether the SIPP in itself is suitable for a client without considering the investments held within it.


Advice or guidance? It’s all the same isn’t it?
9 April, 2018

Deciding how, where and when to invest money (or an asset such as a pension) is complicated, especially for those not immersed in the financial services industry. There are myriad products and countless

‘experts’ keen to assist, making a veritable minefield of financial products and investments with no sure map to the other side.

For this reason we turn to industry professionals for help (advice and guidance), only to learn that there is yet another confusing differentiation: receiving advice and receiving guidance are different things! In February 2018 the Financial Conduct Authority published information about the difference between advice and guidance. The FCA notes:

“…term ‘advice’ to mean a recommendation of what you should do…personal to you. It will be based on your specific circumstances and your financial objectives. Only a firm that is authorised by us can provide this kind of advice”. You can see if someone is authorised on the FCA website here.

“Guidance is a much broader term and includes more general information about financial products…will not recommend a specific course of action to you or give a personal recommendation about how you should invest.”

Overall, the key difference is advice should only be given by those on the FCA’s approved list  and it will be detailed, specific to you and will take into account your attitude to risk and your base knowledge of the sector.  Guidance can be given by anyone; it is likely to be broad and applicable to the general public rather than tailored to an individual. It is also often free. Conversely, it is rare to find free advice so if you do, be on alert.

The benefit of an authorised adviser is that the advice is more likely to be in accordance with the regulatory rules and therefore suitable for your purposes. If the advice  turns out to unsuitable you may have recourse through the financial ombudsman (who can order the regulated adviser to pay compensation) or, if the adviser has disappeared or gone bust, through the financial services compensation scheme.

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