Berkeley Burke SIPP Administration –v- Financial Ombudsman Service Limited
Interested Parties: Mr Wayne Charlton and the Financial Conduct Authority
The High Court has dismissed Berkeley Burke’s application for judicial review of a final decision made by Mr Colin Brown of the Financial Ombudsman Service (“FOS”). The background to this case concerns a longstanding battle between Berkeley Burke SIPP Administration (“Berkeley Burke”) and the FOS.
Berkeley Burke had attempted to overturn the decision made by the Financial Ombudsman Service in 2014, in which it was determined that it must compensate Mr Charlton for a failure to undertake due diligence in respect to an unregulated investment following the transfer of his pension funds into a self-invested personal pension scheme.
Background
Mr Charlton invested into a self-invested personal pension (“the SIPP”) which was administered by Berkeley Burke in or around November 2011. The unregulated investments in the SIPP included an investment with a company named Sustainable Agro Energy, a company based in Cambodia. Mr Charlton suffered substantial losses following Sustainable Agro Energy entering into receivership after an intervention by the serious fraud office.
Mr Charlton subsequently brought a complaint to the Financial Ombudsman Service against Berkeley Burke in respect to the loss of his personal pension funds. These losses totalled approximately £26,000.00 in value. The essence of Mr Charlton’s complaint was that he was unhappy that Berkeley Burke allowed his pension money to be invested into a company (Sustainable Agro Energy) which subsequently went into administration. In 2014, the FOS ruled against Berkeley Burke for failing to carry out adequate due diligence on the unregulated collective investment which involved Sustainable Agro Energy. In February 2017, the FOS issued a second determination upholding the original ruling but Berkeley Burke challenged the decision again.
The Judicial Review application
The principal points for which Berkeley Burke sought judicial review were as follows:
- Where a client, on an execution-only basis, instructs a SIPP provider to include an unregulated investment into his SIPP, is that SIPP provider under any duty to investigate whether the investment is viable and should be included in the SIPP;
- Should a SIPP provider refuse to take on an investment if it thinks the investment is questionable, even if this goes against the client’s instructions;
- A “consistency argument” in that it is said that the FOS’s second ruling “made a material error” of law in failing to follow previous decisions made by the Pension Ombudsman Service.
Judgment and implications of the case
What is significant about the judgment is that Justice Jacobs found that Berkeley Burke failed to treat Mr Charlton fairly or act with skill, care and diligence when accepting an unsuitable investment into his self-invested personal pension scheme. Further, Justice Jacobs did not accept Berkeley Burke’s arguments that it had no choice but to process the investment or that they were only permitted to give risk warnings since had it completed adequate due diligence it would not have accepted the investment in Agro Energy in the first instance.
In relation to the consistency argument, Justice Jacobs was satisfied that the FOS had made its decision about the complaint on the basis of what was fair and reasonable in all the circumstances of the case. Mr Brown considered that he “needed to make up his own mind on the basis of the facts of the case ….and the statutory framework in which he was operating”
The decision by the High Court, together with the reasoning applied by Justice Jacobs, are likely to have a significant impact in respect to the Berkeley Burke SIPP Litigation, in which due diligence is a live issue, but also in respect to future decisions made by the Financial Ombudsman Service, where complaints are made in respect to inadequate due diligence being performed by a SIPP provider in relation to underlying investments.
Hugh James, with Wixted and Co, act as lead solicitors in the Berkeley Burke SIPP Litigation. The case is being brought by 164 claimants before the High Court in Bristol. It is also understood that there are at least 270 complaints, which the FOS has placed on hold pending the outcome of this decision.
On the basis of the above decision, it is considered likely that many FOS complaints will now be upheld where the complaints are based on similar facts to Mr Charlton’s case.