| LIMITATION OF ACTION — Negligence — Accrual of cause of action — Financial advisers giving negligent advice on pension scheme investment — Claimant leaving occupational pension scheme and investing in personal pension income withdrawal scheme in reliance on defendants’ advice — Whether loss first suffered at time of transaction or when value of pension investments falling — Limitation Act 1980, s 14A — Financial Services Act 1986, s 62
Shore v Sedgwick Financial Services Ltd and another [2008] EWCA Civ 863; [2008] WLR (D) 255
CA: (Buxton, Keene and Dyson LJJ): 23 July 2008.
Where a client, on the advice of a financial adviser, shifted his pension investment from a relatively safe occupational final salary pension scheme to a new more risky personal pension income withdrawal scheme, which later suffered in value owing to falling annuity rates, the client’s right to sue the adviser in negligence accrued on the date when the transfer was made and was not contingent upon the subsequent occurrence of loss in value or his even later discovery of such loss.
The Court of Appeal so stated in dismissing the appeal of the claimant, Clifford Shore, from the decision of Beatson J dated 8 November 2007 dismissing the claimant's claim for negligence against the defendants, Sedgwick Financial Services Ltd and Barclays Financial Planning Ltd, for breach of s 62 of the Financial Services Act 1986 (now repealed and replaced by the Financial Services and Markets Act 2000) on the ground that the claim was statute-barred, having been brought in the latter part of 2005 in respect of loss which the judge found had been first suffered in early 1999 when annuity rates fell to a new low.
The claimant had been employed by a company, Avesta Group, which was acquired by British Steel in 1996. He had a pension under the Avesta occupational pension scheme, which was a two-thirds final salary scheme that would have provided him, on retirement, with a tax-free lump sum and an annual pension. British Steel proposed to close down the Avesta scheme and offered its members, including the claimant, the opportunity to transfer their benefits into the British Steel scheme, to transfer their value into a personal pension plan, or to leave their benefits in the Avesta scheme to obtain an equivalent pension paid by British Steel. On the defendants’ advice, the claimant decided to transfer into a personal pension scheme with Scottish Equitable (the PFW scheme) on 28 April 1997. The income which could be withdrawn under that scheme was reduced following a triennial review in 2000, partly as a result of annuity rates having fallen, and was reduced again after 2003. The judge held that although the claimant’s rights in the PFW scheme were not demonstrably less valuable at the time he entered into it, they were following the fall in annuity rates in 1999; and that by that stage the risk was no longer contingent but had materialised to cause him the loss upon which he was entitled to claim. By the time he brought that claim, on 29 September 2005, the limitation period had expired. Moreover, the claimant could not take advantage of the knowledge provisions of section 14A of the Limitation Act 1980 to extend the limitation period because he had the requisite knowledge before 29 September 2002.
DYSON LJ said it was the claimant’s case that the PFW scheme into which he had transferred his pension was inferior to his occupational scheme because it was riskier. It was inferior because he wanted a secure scheme, he did not want to take risks. By way of analogy, an investor who wished to place £100 in a secure risk-free investment and, in reliance on negligent advice, purchased shares (rather than government bonds) did suffer financial detriment on the acquisition of the shares despite the fact that he had paid the market price for them. It was no answer to that investor’s complaint that he had been induced to buy a risky investment when he wanted a safe one to say that the risky investment was worth what he had paid for it in the market. His complaint was that he did not want a risky investment. A claim for damages immediately upon the acquisition of the shares would succeed. The PFW scheme was a transaction under which the claimant obtained a bundle of rights which, from the outset, were less advantageous to him than the benefits that he had enjoyed under the Avesta scheme. On the facts of this case, it had not been necessary to wait to see what happened to determine whether he was financially worse off in the PFW scheme than he would have been in the Avesta scheme. Accordingly, he first suffered loss on 28 April 1997 when he transferred his investment to the new scheme. It was difficult to see why the date by which annuity rates had fallen to a new low should fix the loss, unless it was because the judge thought there was no possibility that rates would bounce back; but there was no evidence to that effect and having regard to the vagaries of the market it was difficult to see that such a finding could ever be made. For the purposes of s 14A of the Limitation Act 1980, the judge was right to find that the claimant had already been fixed with the knowledge of the relevant facts by May 2000. In the circumstances, the claim was statute-barred and the appeal must be dismissed.
KEENE and BUXTON LJJ agreed.
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