The long awaited Berkeley Burke Judicial Review judgment was published on Tuesday 30th October, bringing positive news to those who unknowingly invested their Self-Invested Personal Pensions (or SIPPs) into unsuitable schemes after transferring them to a SIPP provider.
Berkeley Burke v Financial Ombudsman Service (FOS)
Case Background
SIPPs schemes allow individual investors to decide what to invest their pension funds into. Berkeley Burke is a SIPP provider and administrator.
The original case was brought by Mr Wayne Charlton. He transferred his personal pension to Berkeley Burke to invest in a Cambodian “green oil” scheme offered by a company known as Sustainable AgroEnergy plc (SA) after he had been informed of the scheme through a non-regulated introducer called Big Pebble Ltd.
He was not alone in doing so, as 616 others also invested into the green oil scheme. The total amount invested into the scheme through SIPPs operated by Berkeley Burke was roughly £12,250,000. It subsequently transpired that the scheme was fraudulent.
In 2017, the FOS decided that Berkeley Burke had a responsibility to perform due diligence checks over the unregulated investments and that it had failed in not doing so. Berkeley Burke were ordered to pay compensation to Mr Charlton.
Berkeley Burke then sought to challenge this decision in a Judicial Review, with the final judgment being published earlier this week.
Judgment
Berkeley Burke argued that they were not required by law to conduct due diligence checks relating to the investment, as they had merely been acting as administrators. They said that this was evidenced by their contract with Mr Charlton, which stated that Berkeley Burke would act on an “Execution Only Basis” and that they could not “be held responsible for any losses or liabilities that may arise from [sic] [his] investment decisions”.
Secondly, they said that the level of due diligence that the FOS determined was required in this instance was not reflected in the law or regulations by which they are bound. However, the Ombudsman in his decision referred to the Principles for Businesses, particularly rules two and six, which state:
- Principle 2 – A firm must conduct its business with due skill, care and diligence.
- Principle 6 – A firm must pay due regard to the interests of its customers and treat them fairly.
Justice Jacobs, the Judge who heard the Judicial Review case, held that these Principles were applicable and rejected Berkeley Burke’s arguments. He agreed with the Ombudsman that had Berkeley conducted adequate due diligence checks, “it wouldn’t have accepted SA as a permitted investment.”
He highlighted a number of examples that he had heard during the course of the case as to the “circumstances in which, having received an instruction, the SIPP provider would or might think it inappropriate to proceed, or at the very least query the transaction with his client. These included situations where:
- The proposed investment was not then “SIPPable”; i.e. was not eligible for the tax benefits of putting an investment into a SIPP;
- The SIPP provider knew that although it was then SIPPable, there had been a legislative change which meant that it would no longer be SIPPable in a few months’ time;
- The SIPP provider had received information which cast doubt on the integrity of those who were promoting the proposed investment, or as to whether underlying assets actually existed;
- The SIPP provider had learnt of problems, such as a possible insolvency, which affected the proposed investment.”
Significance Of This Case On SIPPs Schemes
This is the first case that has conferred onto SIPP providers a duty to perform due diligence checks for the benefit of the individual investor, going further than merely ensuring that they are “SIPPable”.
Notably, despite investors agreeing upon the transfer of their pensions that Berkeley Burke were not responsible for the outcome of any of their investment decisions, the Court has held that they are.
Furthermore, many SIPP providers were operating in the same way, believing themselves only to have an administerial role. However, as the Court have pointed out; a practice that is common, isn’t necessarily good. This could open the floodgates, so to speak, for many other claims against SIPP operators in similar situations.
Limitations
Though this decision has been made, Berkeley may continue litigating and appeal the ruling once more. Consequently, this may not be the final decision.
Furthermore, while the judgment has had a positive outcome for the investor in this case, it has not created new precedent. As a result, new cases will need to be individually assessed based on their particular facts to determine whether the SIPP providers conducted adequate due diligence in each case.
Additionally, the FOS decision and judgment make clear that the due diligence requirements for SIPP providers are somewhat limited. With both finding that Berkeley Burke “had no obligation to give advice to Mr C, or to ensure otherwise the suitability of an investment for him.” So claims of this nature are likely to fail if pursued.
How Nelsons Can Help
Cathryn Selby is a Partner in our Professional Negligence team.
If you would like further advice in relation to this subject, please contact one of our team on 0800 024 1976 or contact us via our online form.