Walker v Inter-Alliance Group Plc & Anor [2007] EWHC 1858 (Ch)

[2007] EWHC 1858 (Ch)Case No HC05C01190
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 31/07/2007
Before
THE HONOURABLE MR JUSTICE HENDERSON
Between
MICHAEL DAVID WALKERClaimant(1) INTER-ALLIANCE GROUP PLC (IN ADMINISTRATION)Defendants(2) SCOTTISH EQUITABLE PLCDefendant
Mr Javan Herberg (instructed by Mishcon de Reya) for ClaimantMr Peter Cherry (instructed by the Legal Department of Scottish Equitable plc) for Second DefendantHearing Hearing dates: 25, 28, 29 June and 2, 3, 4, and 6 July 2007
Judgment

Introduction

[1]On 31 December 2000 the claimant, Mr Michael David Walker, retired from his employment as a director and senior manager with Taylor Woodrow, the well-known construction group. He was sixty two and had worked continuously for Taylor Woodrow since 1963, apart from two relatively brief periods in the late 1960s. He was a member of the Taylor Woodrow occupational pension scheme, a defined benefit final-salary scheme which he regarded with justification as one of the best available in the construction industry. Mr Walker had worked for nearly the maximum number of years of service which would have entitled him to a pension of two thirds of his final salary upon retirement. As it was, he was entitled to a pension of nearly two thirds of his final salary. Furthermore, the pension was inflation-linked, guaranteed for five years in the event of his early death, and also provided a 50% widow’s pension.[2]Little more than a month later, on 6 February 2001 Mr Walker attended a meeting at the Institute of Directors in London with his Independent Financial Adviser (“IFA”) Mr Brett Ellway of Inter-Alliance Group Plc (“Inter-Alliance”). At the meeting Mr Walker signed the necessary documents to transfer his entitlement under the Taylor Woodrow scheme, in the form of a transfer payment of approximately £1.2 million, into a self-administered personal pension scheme provided by Scottish Equitable Plc (“Scottish Equitable”). The scheme was a deferred phased retirement and drawdown scheme which Scottish Equitable marketed under the generic name “Retirement Control”. The benefits available under the scheme were more flexible than under the Taylor Woodrow scheme, but were not guaranteed and depended on the performance of the underlying investments held in the scheme by Mr Walker. In the jargon of the pension industry, it was a money-purchase scheme.[3]Mr Walker had first met Mr Ellway in the late summer of 1999, at a time when he was contemplating taking early retirement from Taylor Woodrow. An initial meeting between them took place on 2 September 1999. This was followed by a further meeting on 25 October 1999, at which Mr Ellway was accompanied by a Mr Patrick Boakes. Mr Boakes was a broker consultant employed by Scottish Equitable, who had recently become assistant branch manager of the company’s Southampton branch. He was introduced to Mr Walker as a retirement options specialist. It is common ground that in his capacity as a representative of a product provider (Scottish Equitable) Mr Boakes was prohibited, both by the statutory regulatory code to which he and Scottish Equitable were subject and by Scottish Equitable’s own compliance manual, from giving investment advice to Mr Walker at the meeting. The giving of such advice was exclusively a matter for Mr Walker’s IFA, Mr Ellway. This principle, known as “polarisation”, was one of the key features underpinning the regulation of this sector of the financial services industry at the relevant time, and was well-known to all professionals who were engaged in it. However, it would not necessarily be well-known, or indeed known at all, to a lay client like Mr Walker.[4]Exactly what transpired at the meeting on 25 October 1999 is one of the key factual issues that I will need to decide. In short, Mr Walker alleges that he was advised by both Mr Ellway and Mr Boakes to transfer out of the Taylor Woodrow scheme into an income drawdown and phased retirement plan, although no specific products were discussed or recommended at this stage. In the event, shortly after the meeting Mr Walker’s retirement plans were put on hold when he was invited to stay on with Taylor Woodrow and to assume responsibility for implementing IT systems throughout the business. He accepted the invitation, and took no further steps in relation to his retirement until November 2000 when he decided to cease work on 31 December of that year. This date was some three months before his normal retirement date on 22 March 2001 when he would have attained the age of 62 and a half. One advantage of leaving before his normal retirement date was that it entitled him (with Taylor Woodrow’s agreement) to take the redundancy package which had been negotiated before his previous intended retirement in 1999.[5]Mr Walker informed Mr Ellway of his impending retirement, and a further meeting was arranged which took place on 22 January 2001. Mr Ellway was again accompanied by Mr Boakes, and it is again alleged by Mr Walker that both of them gave him investment advice, in substantially the same terms as at the earlier meeting in October 1999. Mr Walker was provided with a written report at the meeting by Mr Ellway, which recommended Scottish Equitable as the provider of the appropriate product. Thereafter some further email exchanges took place between Mr Walker and Mr Ellway, and as I have already said Mr Walker signed the necessary transfer forms on 6 February 2001.[6]Mr Walker encountered a number of problems with his new pension plan and its administration, and became very dissatisfied. Around the end of 2003 he consulted new financial advisers, Punter Southall, and in May 2004 his main pension arrangement was transferred from Scottish Equitable to a new self-administered plan arranged by Punter Southall. Since then Mr Walker has been seeking financial redress for his complaints. A number of those complaints relate to specific instances of alleged maladministration by Scottish Equitable and its management company, and to the performance of one of the two investment managers selected by Mr Walker for his plan. He has pursued those complaints through the appropriate channels. However, his fundamental complaint, as now formulated, is that he should not have been advised to switch out of the Taylor Woodrow scheme in the first place. He says that the self-administered plan into which he transferred was fundamentally unsuitable for a person with his financial and personal circumstances and with his cautious attitude to risk, and that but for the advice of Mr Ellway and Mr Boakes, upon which he relied in deciding to transfer, he would have remained a member of the Taylor Woodrow scheme. With the benefit of hindsight, it can be seen that the Taylor Woodrow scheme represents a gold standard of pension provision that is unlikely to be matched, let alone surpassed, in the foreseeable future. Mr Walker claims as damages the sum necessary to place him in the same position as if he had remained a member of the Taylor Woodrow scheme. In broad terms, this sum comprises two elements. The first element is the difference between the benefits which he has received from his pension plan to date and the benefits which he would have received under the Taylor Woodrow scheme. The second element is the difference between the cost of purchasing an annuity which will replicate for the future the relevant benefits under the Taylor Woodrow scheme and the current value of Mr Walker’s pension plan. The total sum claimed is of the order of £700,000.[7]The present action was commenced by a claim form issued on 10 May 2005. The two defendants are Inter-Alliance and Scottish Equitable who are sued as the employers of Mr Ellway and Mr Boakes respectively. The particulars of claim base the claim against Inter-Alliance principally on breach of its contract of retainer with Mr Walker, and the claim against Scottish Equitable (with whom Mr Walker had no contractual relationship prior to the transfer) principally on breach of statutory duty, including in particular the giving of investment advice in breach of the rules of the Personal Investment Authority (“PIA”). There is also an alternative claim against both defendants in tort, based on an alleged assumption of responsibility giving rise to a duty of care, breach of which is said to have occasioned Mr Walker financial loss recoverable in accordance with the principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.[8]The action proceeded against both defendants in the normal way until 3 July 2006 when Inter-Alliance (by now re-named Addiscombe Group Ltd) went into administration pursuant to an administration order made on that day. The effect of this was to stay the action against Inter-Alliance except with the consent of the administrator or the leave of the court: see section 11(3)(d) of the Insolvency Act 1986. No such consent or leave has been given, so the trial before me has been concerned only with the claim against the second defendant, Scottish Equitable.[9]The trial proper began on Thursday 28 June 2007 and ended on the afternoon of Friday 6 July. However, before the trial began the evidence of Mr Boakes was taken on deposition before me at a hotel in Bournemouth on Monday 25 June. The reason for this was that Mr Boakes is unfortunately suffering from advanced cancer and was not well enough to travel to London. He gave his evidence clearly and firmly, and I am satisfied that he was able to do justice to himself despite his illness. I would like to pay tribute to his courage in undergoing what must have been a considerable ordeal for him.[10]I also record my gratitude to counsel on both sides, Mr Javan Herberg for Mr Walker and Mr Peter Cherry for Scottish Equitable, for their able conduct of the case and their clear, well-focused submissions.

The Regulatory Framework

[11]Regulation of the financial services sector and the conduct of investment business was introduced with effect from April 1988 by the Financial Services Act 1986 (“FSA 1986”). Responsibility for implementing the provisions of the Act was vested in the Securities Investments Board (“SIB”), which drafted Core Rules for the Act’s implementation. The SIB then empowered a number of different supervisory bodies (Self Regulatory Organisations and Recognised Professional Bodies – SROs and RPBs) to administer the conduct of investment business by their members in accordance with those Core Rules. Before it could be recognised by the SIB, each SRO or RPB had to draft rules to govern the conduct of its members, and these rules had to embody the SIB’s Core Rules.[12]One such SRO was the Life Assurance Unit Trust Regulatory Organisation (“LAUTRO”), by which Scottish Equitable was regulated between 1988 and 1994. Another SRO, which was largely responsible for regulating independent intermediaries, was the Financial Intermediaries, Managers and Brokers Regulatory Association (“FIMBRA”).[13]In 1994 the PIA was created, which amalgamated the responsibilities of LAUTRO and FIMBRA. Thus the PIA became responsible for the regulation of UK Life Offices and Intermediaries, and retained those functions until 1 December 2001 when they were taken over by the Financial Services Authority (“FSA”), a single statutory regulator which replaced the previously fragmented regime and which still regulates the sector today. Scottish Equitable was a member of the PIA throughout the period relevant to this case, and was required to observe the PIA’s Rules.[14]When the PIA was established in 1994, it adopted the existing rules of LAUTRO and FIMBRA. These so-called “adopted rules” of each organisation largely remained in force, and applied to Scottish Equitable and Inter-Alliance respectively, during the period with which this action is concerned.[15]The basic concept of polarisation was set out in Volume 1, Chapter 1, Part 4 of the SIB’s Core Rules as follows: “4. Polarisation 1. A firm which advises a private customer on packaged products must either:a. be a product company or its marketing group associate; orb. do so as an independent intermediary. 2. A firm which is a product company or its marketing group associate must not advise private customers to buy packaged products which are not those of the marketing group. 3. A firm which acts as an independent intermediary in advising a private customer on packaged products must act as an independent intermediary whenever it advises private customers on packaged products in the course of regulated business. 4. But where a firm acts as an investment manager for a customer, the Core Rule on polarisation does not prevent the firm from advising the customer on any packaged product. ” a. be a product company or its marketing group associate; or b. do so as an independent intermediary.[16]The main objective of this rule was to provide clarity for buyers of packaged products (which included personal pensions) about the status of any person providing advice in connection with those products. The adviser had either to be an independent intermediary, in which case he was obliged to survey the entire market and select only such products and providers as he considered suitable for his client, or a representative of a product provider, in which case he could only select and advise on the products of the company that he represented. This principle played a fundamental role in the regulation of retail financial services from 1988 until 2003, when the FSA announced its effective abolition.[17]The requirement of polarisation was reflected in PIA Rule 1.2.1, which provided that on admission to membership a member would be classified as “(1) a product provider or marketing associate; or (2) an independent practitioner.” The definition of “product provider” in the PIA Glossary included a member which was a life office, and it is common ground that it applied to Scottish Equitable.[18]By virtue of PIA Rule 1.2.2(5)(a), after admission to membership a member was forbidden to engage in any investment business activity which its category did not allow, or to carry on any kind of relevant business for which the PIA had not granted its permission. I do not need to quote the precise terms of this rule, or the definition of “relevant business”, because there is no dispute that Scottish Equitable were in breach of this rule if Mr Boakes provided investment advice to Mr Walker at either of the two key meetings in October 1999 and January 2001.[19]PIA Rule 4.2.1 required a member carrying on business relating to packaged products to make clear to its customers whether any advice given in the course of that business would be independent advice, or advice only on the packaged products of one product provider or marketing group, and obliged the member to secure compliance with this requirement. It can be seen that this rule too reflected the principle of polarisation, as did rule 4.2.4 which required oral disclosure by the introducer or representative of a product provider, upon first meeting or telephoning an investor or potential investor, and required him to “state the name of the member and identify himself as an introducer or representative of that Member … as the case may be, and make clear that the Member provides advice only on the packaged products of the Member …”[20]The breaches alleged against Scottish Equitable in the particulars of claim are breaches of rule 1.2.2(5)(a) (in paragraph 56) and breaches of rules 4.2.1 and 4.2.4 (in paragraph 75). They boil down to the single allegation that, in breach of the principle of polarisation, Scottish Equitable through Mr Boakes gave investment advice to Mr Walker. I will come on in the next section of this judgment to the meaning of “investment advice”.[21]By virtue of FSA 1986 section 62(1), a contravention of any rules or regulations made under Chapter V of Part I of the Act:
“shall be actionable at the suit of a person who suffers loss as a result of the contravention subject to the defences and other incidents applying to actions for breach of statutory duty.”
Subsection (2) extends the application of subsection (1) to a contravention by a member of a SRO of “any rules of the organisation … relating to a matter in respect of which rules or regulations have been or could be made under this Chapter in relation to an authorised person who is not such a member …” It is common ground that the PIA rules relied upon by Mr Walker are rules which fall within section 62(2), and accordingly that any breach of those rules is actionable by Mr Walker if he can show that he has suffered loss as a result of the contravention.[22]One further rule which it is relevant to mention, although it is not specifically relied upon in the particulars of claim, is PIA Rule L4.5(3)(a) in the Adopted LAUTRO Rules. This rule provided as follows:
“A Member [i.e. in the present case Scottish Equitable] may arrange for an individual who is an employee of the Member ...: (i) to visit an independent intermediary for business purposes; (ii) to visit an investor with a member of the staff of the independent intermediary where the particular circumstances of the case require such a visit to be made.”
It follows from this rule that it would have been permissible for Scottish Equitable to arrange for Mr Boakes to accompany Mr Ellway on his visits to Mr Walker, but only if the particular circumstances of the case required such a vist to be made by Mr Boakes.[23]This rule was reflected in Scottish Equitable’s own internal Compliance Manual of December 1995, which was the version in force at the time of the first visit in October 1999. Section 6 of the Manual, under the sub-heading “Visits”, provided as follows:
“You may visit an IFA for business purposes and visit an IFA’s client with the IFA where the particular circumstances require that visit. Except for group schemes, such visits should not be regular or routine as that would probably create an indirect benefit to the IFA.”
Beneath that, in bold type, was the warning:[24]At the time of the second visit in January 2001, a later version of the Manual dated November 1999 was in force, which repeated the same guidance but with the omission of the words “as that would probably create an indirect benefit to the IFA”.[25]To avoid confusion, I should mention that the principle of polarisation would not have prevented Scottish Equitable from providing investment advice in relation to its own products. However, Scottish Equitable does not have a direct sales force and sells its products through IFAs. Accordingly, none of its staff are authorised to provide investment advice, and they are confined to providing factual information. It further follows from this that Scottish Equitable’s sales consultants needed to have good working relationships with the IFAs with whom they dealt. The purpose of the indirect benefit rules, to which reference was made in the 1999 version of the guidance on visits, was to prohibit the giving of inducements to IFAs to provide them with business. For example, there were restrictions on the types of gifts and entertainment that sales consultants were allowed to provide, and on the help they could offer IFAs with regard to training and marketing support.

The meaning of “investment advice”

[26]As we have seen, PIA Rule 1.2.2(5)(a) prevented Scottish Equitable from engaging in any investment business activity which its category did not allow. The permitted activities which applied to Scottish Equitable as a life office did not include offering investment advice, save in respect of its own products. The definition of “investment business” in the Glossary to the PIA Rules refers to the definitions of certain specified activities in Part II of Schedule 1 to FSA 1986. Those activities include:
“Advising”, which is defined in paragraph 15 of Part II of Schedule 1 in the following terms: “Giving, or offering or agreeing to give, to persons in their capacity as investors or potential investors advice on the merits of their purchasing, selling, subscribing for or underwriting an investment, or exercising any right conferred by an investment to acquire, dispose of, underwrite or convert an investment.”
Section 1(1) of FSA 1986 defines an “investment” by reference to Part I of Schedule 1, and by virtue of paragraph 10 of the Schedule includes “Rights under a contract the effecting and carrying out of which constitutes long term business within the meaning of the Insurance Companies Act 1982. ” It is common ground that a personal pension arrangement falls within this definition, but it should be noted that an interest under the trusts of an occupational pension scheme is excluded from the definition of “investment” by virtue of a specific exclusion in Note (1) to paragraph 11 of the schedule. Accordingly, Mr Walker’s rights under the Taylor Woodrow pension scheme were not in themselves an investment for the purposes of FSA 1986.[27]Helpful guidance on the meaning of “investment advice” in paragraph 15 of schedule 1 to FSA 1986 was given by Jonathan Parker J in Martin v Britannia Life Ltd [2000] Lloyds Rep 412. The claim in that case was for damages for allegedly negligent financial advice given to the claimants by a representative of an insurance group. The advice had been to enter into a package of transactions consisting of a re-mortgage of their home, the surrender of a number of life policies which had been charged as collateral security for the existing mortgage, the taking out of a new endowment policy and a new pension policy, and the charging of the endowment policy as security for the re-mortgage. The point was taken by the defendant that advice as to the re-mortgage was not “investment advice” for the purposes of FSA 1986, since a re-mortgage did not constitute “investment business” for the purposes of the Act. In rejecting this submission, the judge held that “investment advice” comprehended all financial advice given to a prospective client, not only in relation to the purchase, sale or surrender of an “investment” as defined, but also as to any ancillary or associated transaction, notwithstanding that that transaction was itself outside the definition of “investment business” for the purposes of the Act. Accordingly, the representative’s advice in relation to the re-mortgage was investment advice within the meaning of the statutory definition.[28]In paragraph 5.2.5 of his judgment, Jonathan Parker J said this:
“In my judgment, advice as to the “merits” of buying or surrendering an “investment” cannot be sensibly treated as confined to a consideration of the advantages or disadvantages of a particular “investment” as a product, without reference to the wider financial context in which the advice is tendered. … Similarly, in the case of pension provision, proper advice as to the merits of a particular pension policy … must inevitably be based on a full examination of the client’s financial position, including his available cash resources and the existence of any unused tax relief from previous years. In particular, as the expert witnesses agreed, in every case where advice is to be tendered as to the merits of purchasing an “investment”, affordability must be a relevant, indeed a crucial, factor to be taken into account. In my judgment it is neither appropriate in the context of the 1986 Act, nor for that matter would it be realistic, to seek to limit the concept of “investment advice” by reference to the extent to which the advice relates to the “merits” (i.e. to the advantages or disadvantages) of a particular “investment” as defined; and if that be accepted, it seems to me that it must follow that the concept of “investment advice” will comprehend all financial advice given to a prospective client with a view to or in connection with the purchase, sale or surrender of an “investment”, including advice as to any associated or ancillary transaction notwithstanding that such transaction may not fall within the definition of “investment business” for the purposes of the 1986 Act.”
[29]In reliance on this authority, Mr Herberg submitted that in considering whether “investment advice” within paragraph 15 of Schedule 1 was given, the court should consider not only advice in relation to the personal pension scheme into which Mr Walker transferred, but also advice in relation to the surrender of his existing rights under the Taylor Woodrow scheme, on the footing that this was clearly an associated or ancillary transaction even though the rights under the Taylor Woodrow scheme did not in themselves constitute an “investment” for the purposes of the 1986 Act. In my judgment this submission was well-founded, and I agree with it.[30]The prohibition of the giving of investment advice does not extend to the giving of purely factual information. However, it can often be difficult to say where the dividing line falls. This difficulty is recognised in Scottish Equitable’s Compliance Manual, where some examples are given in both the 1995 and the 1999 versions by way of guidance. Thus the provision of purely factual information about a transfer value, the differences between with-profits and unit-linked policies, the shareholdings of a fund, or the investment strategy of a fund would all be acceptable; but on the other hand advice whether to effect a transfer, whether with-profits or unit-linked would be better for an investor, whether to switch to a particular fund, or whether a fund is low or high risk would all constitute investment advice. The claimant’s expert witness on liability, Mr Patrick Storey, agreed that these were good examples. I also agree, and would add that any element of comparison or evaluation or persuasion is likely to cross the dividing line. However, the provision of purely factual information does not become objectionable merely because it feeds into the client’s own decision-making process and is taken into account by him. It is obvious that any informed decision making requires the provision of accurate information and will be based upon it.[31]The 1995 version of the Compliance Manual went on to give further guidance, under the heading “Who can give factual information?”, which is highly material to the present case. The guidance stated that factual information could be given by any member of staff, and continued:
“Sometimes a string of questions asking for factual information is capped by “…and what do you think I should do?”
However tempting it might be, you cannot answer that question. Initially you should explain why you cannot answer the question, and then offer the IFA Promotions Freephone telephone number or IFA referral list. If this is declined you should politely refuse to deal with the request …”[32]The particular relevance of this guidance lies in the fact that Mr Walker alleges that he repeatedly asked this question at each of the key meetings in October 1999 and January 2001, and says that he was told by both Mr Ellway and Mr Boakes that they would leave the Taylor Woodrow scheme in favour of a personal pension arrangement. Thus in paragraph 50 of his witness statement Mr Walker says that at the October 1999 meeting:
“I was initially extremely sceptical about drawdown and repeatedly asked each of Mr Boakes and Mr Ellway during the meeting what they would personally do in my position. Both repeatedly stated that they would leave the Taylor Woodrow scheme in favour of drawdown.”
Again, in relation to the January 2001 meeting he says in paragraph 94:
“However, I do remember clearly asking both of them on several occasions “what would you do in my position?”
Both Mr Ellway and Mr Boakes separately gave unequivocal assurances that moving out of the Taylor Woodrow scheme was the correct thing for me to do, and that they would do the same in my position.”[33]If that evidence is accepted, there can in my view be no doubt that Mr Boakes gave investment advice to Mr Walker. The statements attributed to Mr Boakes could only have been intended to persuade Mr Walker to leave the Taylor Woodrow scheme in favour of a personal pension arrangement. By no stretch of the imagination could such statements be characterised as the provision of purely factual information; and it is no doubt for this reason that Scottish Equitable’s own Compliance Manual was adamant that such questions should not be answered.[34]This conclusion is supported by the views of the expert witnesses on each side. Paragraph 2.10 of the Joint Memorandum on Liability prepared by Mr Storey and Scottish Equitable’s expert on liability, Mr Geoffrey Clarkson, records their agreement “that on the basis of Mr Walker’s statement and his recollection of what Mr Boakes said during the two meetings with Mr Walker then Mr Boakes’ contribution would have been investment advice.”[35]Mr Boakes has no specific recollection of what he said at either of the two crucial meetings. This is not surprising, as from his point of view they were routine meetings and there is no particular reason why he should have remembered them in detail. However, it is striking to notice how in his witness statement he deals with Mr Walker’s recollection of what he is alleged to have said. In view of the clear guidance in the Compliance Manual, one might expect him to say that he would never have answered a question asking what he would do if he were in the client’s shoes. However, what he said in paragraph 23 of his witness statement is very different:
“At no time at the meeting or otherwise do I have any recollection of saying to Mr Walker that, in his position, I would leave the Taylor Woodrow scheme in favour of a deferred phased retirement and drawdown option. I have no recollection of what, if anything, Brett Ellway said in this connection. The question of what I would do if I were in the client’s position was one that was often asked at meetings of this nature, although I cannot recall Mr Walker asking it at this meeting. My normal response was along the lines that I was not aware of the client’s own circumstances and attitude to risk. My response would have been specifically related to my own personal circumstances and not to the client’s. At the time in question, October 1999, I would have been prepared to take investment risks and would therefore have been likely to say that, based on my own particular circumstances, I would have been tempted to move to phased retirement/drawdown, but I do not recall saying to Mr Walker that he should make the move.”
Mr Boakes goes on to say essentially the same thing in relation to the second meeting in January 2001 in paragraph 29 of his statement.[36]It can be seen from this evidence that, despite the guidance in the manual, Mr Boakes was on his own admission in the habit of answering questions of this nature, but he did so by reference to his own personal circumstances. The problem with this is that an answer based on Mr Boakes’ personal circumstances would at best have been totally irrelevant, and at worst actively misleading. It would have been irrelevant, because it was obviously the client’s own circumstances and attitude to risk, not Mr Boakes’, which should inform the client’s decision whether to transfer; and in any event Mr Boakes would have needed to give a lengthy explanation of what his own circumstances were before a hypothetical answer on this basis could have had any conceivable value even by way of analogy. It would have been potentially misleading, precisely because the client would be likely to understand the answer as one that was intended to be relevant, and was intended to persuade him to make the transfer.[37]Again, I have no hesitation in concluding that if Mr Boakes did in fact answer Mr Walker’s questions along the above lines, what he said would have constituted investment advice. Moreover, this conclusion is again supported by the experts on both sides: see paragraph 2.5 of their Joint Memorandum, where they say that “If Mr Boakes had in fact said what he considers “hypothetically” that he might have said in such circumstances, then that would have constituted investment advice.”

The Issues

[38]In the light of the witness statements of Mr Walker and Mr Boakes, and the views of the experts in their Joint Memorandum on Liability, I confess to feeling some surprise that Scottish Equitable should have chosen to contest liability. In order for the defence to succeed, it would be necessary for me either to reject Mr Walker’s account of the two meetings, and Mr Boakes’ evidence of what his normal response would have been, or to differ from both experts on what constitutes investment advice. The likelihood of my rejecting Mr Walker’s account is diminished by the fact that the evidence of Mr Walker’s wife, Rhona, who was present at both the crucial meetings, supports her husband’s recollection, albeit in fairly general terms; and by the fact that Scottish Equitable decided at a very late stage not to call Mr Ellway as a witness, although they had obtained a statement from him and exchanged it in the normal way. Mr Walker’s solicitors were notified of this decision in a letter dated 18 June 2007 from the Group Legal Department of Scottish Equitable which asked for Mr Ellway’s witness statement to be removed from the trial bundle and merely said by way of explanation that “As Mr Ellway has no recollection of the second meeting his evidence does not add anything to that of Mr Boakes”. Since Mr Ellway has not been called, and since I have not seen his witness statement, I think it would in general be dangerous for me to speculate about what his evidence might have been; but I can at least safely infer that it would not have cast any substantial doubt on Mr Walker’s recollection of what he was told at the two meetings.[39]In any event, since liability has not been conceded the first question that I have to decide is what was said by Mr Boakes at the meetings on 25 October 1999 and 22 January 2001, and whether it constituted investment advice. If so, Scottish Equitable were admittedly in breach of statutory duty and the next question is the issue of causation: did Mr Walker suffer any loss as a result of the breach of statutory duty? The final issue, if Mr Walker succeeds on causation, is that of quantum: how is his loss to be quantified?[40]In formulating the issues in this way, I have ignored the alternative claim of breach of a common law duty of care. My reason for doing so is that in the circumstances of the present case it can add nothing to the simpler claim of breach of statutory duty. I understood Mr Herberg to concede as much in his opening submissions, and although he sought to resile a little from this position in closing, he did so only on the theoretical basis that if there were some technical reason why something that was said could not constitute investment advice, it might nevertheless help to establish a breach of a common law duty of care. I accept Mr Herberg’s general point that the common law claim is not dependent on any particular statutory formulation, but I am not satisfied that it has any practical as opposed to theoretical significance in the present case. It is therefore unnecessary for me to consider whether there was an assumption of responsibility by Scottish Equitable such as to give rise to a duty of care owed to Mr Walker, or whether any advice given by Mr Boakes to Mr Walker was negligent. For the same reason, although a good deal of both the factual and the expert written evidence is devoted to the question of the suitability of the personal pension plan to a person of Mr Walker’s personal circumstances and risk profile, I do not need (and was not asked) to reach a conclusion on that question. Mr Herberg made it clear in opening that he was content to pin his colours to the investment advice claim, and if he failed on that he did not seek to pursue an alternative claim of negligent mis-selling against Scottish Equitable.

The Witnesses

[41]The witnesses of fact from whom I heard oral evidence were (for Mr Walker) himself, his wife and Mr Peter John Field, and (for Scottish Equitable) Mr Boakes and Mr Stuart Bridges.[42]Mr Field is a former colleague of Mr Walker’s, who also retired from Taylor Woodrow on 31 December 2000. At the time of his retirement he was the group tax director. In November 2000 he met Mr Walker and they discussed their respective retirements. Mr Walker told him that he was giving serious consideration to the suggestion that he should transfer out of the Taylor Woodrow scheme and into something called “income drawdown”. Mr Field had not previously considered the possibility of moving his pension out of the Taylor Woodrow scheme, but he was sufficiently interested to consider it worth investigating the possibility further, and Mr Walker agreed to provide him with an introduction to Mr Ellway. Mr Walker duly contacted Mr Ellway, and arrangements were made for a meeting to take place on 6 January 2001 at the Institute of Directors in London. This was very much a preliminary meeting, as Mr Ellway had not been provided in advance with any details of Mr Field’s personal circumstances. The meeting began at 12.30 pm and lasted for about half an hour. Mr Ellway was accompanied by Mr Boakes, and Mr Field was informed that Mr Boakes was a representative of Scottish Equitable. Mr Field’s recollection is that they discussed self-invested personal pensions in very general terms, and that while Mr Ellway did most of the talking, Mr Boakes was generally supportive. It was clear to Mr Field that Mr Ellway and Mr Boakes knew each other well, and were acting very much as a team in presenting the opportunities open to him. He says that Mr Boakes did not contradict anything said at the meeting by Mr Ellway, and he clearly supported the suggestion that he should consider moving his funds from the Taylor Woodrow scheme into a drawdown/SIPP arrangement.[43]Mr Field recalls being informed by Mr Ellway that one of the benefits of drawdown was that, in the event of his death, he would be able to pass on his accumulated pension “pot” to his family, which he would be unable to do if he remained in the Taylor Woodrow scheme. This was attractive from his personal point of view, because he was a long-term diabetic and had undergone bypass surgery in 1999. He was therefore keen to investigate drawdown further, and following further meetings he did in fact transfer out of the Taylor Woodrow scheme into a Scottish Equitable pension plan in March 2001. With regard to the initial meeting on 6 January, he says that he was certainly aware that Mr Boakes represented Scottish Equitable, but there was no discussion about polarisation, nor was it explained to him that the roles of Mr Boakes and Mr Ellway differed, and that Mr Boakes was unable to advise him.[44]In the course of a brief cross-examination, Mr Field admitted that he could not remember anything that Mr Boakes had specifically said at the meeting, but the general account of it given in his witness statement was not challenged in any way.[45]Mr Bridges is a compliance manager with Aegon UK Plc, of which Scottish Equitable is a wholly-owned subsidiary. He has responsibility for giving advice on regulatory matters for the Aegon group, and specifically for sales and marketing. In his witness statement he explains the compliance regime as it applied to Scottish Equitable at the relevant times, and refers to the 1995 and 1999 versions of the manual. He adds that the manual has also been held in electronic form on the company intranet since 1998, and all staff are actively encouraged to read it. He says that from his dealings with Mr Boakes he is “personally satisfied that he would have read it and been familiar with its contents”. Unfortunately, however, Mr Boakes did not confirm this sanguine view in cross-examination. Mr Boakes’ evidence was that if a compliance issue arose he would go to the specialists and ask for guidance, but “I can’t say I ever read the compliance manual” and “I can’t categorically say that I would have read through it all, no” (transcript of 25 June 2007 at page 11).[46]Mr Bridges also says that it was not uncommon industry practice for broker consultants to attend client meetings with IFAs, particularly for group personal pension business, and that from a compliance perspective there is no difficulty with such visits provided the IFA is present with the client and it is made clear to the client that the Scottish Equitable consultant is there to provide technical information only. He says that he would have expected Mr Ellway to explain why Mr Boakes was present at any client meetings, and that such an introduction would have been “absolutely necessary” because otherwise the client would want to know why a stranger was present. He expresses the confident view that Mr Boakes “was providing technical support and not advice”, and that Mr Ellway would have made it clear to Mr Walker that Mr Boakes “was not there to provide investment advice”. Mr Bridges was of course not present himself at either of the crucial meetings, and again he was constrained to accept in cross-examination that his confidence appeared to have been misplaced. He agreed that Mr Boakes’ evidence about his normal practice in answering the question what he would do if he were the client was unacceptable, and that Mr Boakes also did not appear to have followed the compliance procedures in relation to attendance at meetings, there being no suggestion in the evidence of either Mr Walker or Mr Boakes that Mr Ellway explained why Mr Boakes was present in terms which made it clear that he was not authorised to provide investment advice.[47]I am satisfied that all of the witnesses of fact gave their evidence honestly, sincerely and to the best of their recollection.[48]As I have already indicated, I also had the benefit of expert evidence on both liability and quantum. The expert witness for Mr Walker on both liability and quantum was Mr Storey, who is a lead partner of the Financial Markets Group at Grant Thornton and has an impressive range of experience in the financial services industry. For nearly 20 years he has undertaken assignments both for financial services regulators and for regulated businesses. He has often appeared as an expert witness, and his evidence has involved a wide range of matters involving practice, custom and regulation in the retail financial services industry, as well as the provision of expert reports for the regulators both in the UK and overseas. For Scottish Equitable, expert evidence on liability was given by Mr Clarkson who was admitted as a solicitor in 1973 and had extensive experience as a legal adviser to a major life office, and then as a partner in a law firm specialising in financial services law, before he joined the Tenet Group in 2000 which provides a large range of services to IFAs. Since 2003 he has been Compliance Director with overall responsibility for the group’s regulatory affairs. Finally, evidence on quantum was given for Scottish Equitable by Mr M Arnold FIA, who has been a fellow of the Institute of Actuaries since 1973 and is a principal of Milliman, an international firm of consultants and actuaries, and head of its life insurance practice in London. He too has an impressive array of professional qualifications and a wealth of relevant experience. I found all three experts to be of a high calibre, and well aware of their responsibilities to the court. I have been much assisted by their evidence, and it is a tribute to the responsible manner in which they have performed their task that they have been able to reach agreement on so many disputed issues, and where they differ to explain clearly why they do so.

The Facts in Detail

[49]I will now set out my findings of fact, concentrating in particular on the two key meetings in October 1999 and January 2001, and on the course of events between the latter meeting and the subsequent signing meeting on 6 February 2001. I have already referred to some of the relevant background material in the introductory section of this judgment, and for the most part I will not repeat it.[50]Mr Walker entered the construction industry in 1955 as an indentured apprentice building surveyor with a local firm in Huddersfield. In early 1963 he took a job with multi-national company in Nigeria. This marked the beginning of his career in international construction, and of the links with Africa which he retained until his retirement.[51]In August 1963 he joined Taylor Woodrow as an estimator, based in London but travelling extensively overseas. At that time, Taylor Woodrow was a world leader in the construction industry and dominated by its founder, Frank, later Lord, Taylor. The ethos of the company was one of paternalism, which was reflected partly in a culture of relatively low pay, but also in a pension scheme which was generally regarded as one of the best available. Mr Walker left Taylor Woodrow on two occasions in the late 1960s for more lucrative jobs, but neither lasted for long and on each occasion he was invited to re-join Taylor Woodrow. After he rejoined them for the second time in June 1970, he continued working for the group without interruption until his retirement on 31 December 2000.[52]In the 1970s Mr Walker worked principally in Africa, and for eight years was based in Ghana. From 1980 onwards he was based in London, but travelled frequently to Africa and spent between a quarter and a third of his time overseas. He was a director of Taylor Woodrow Construction Ltd, which was the main construction company in the Taylor Woodrow group, and he established and ran the Africa Division which by the time of his retirement had a turnover of around £50 million. The post that he held was a senior and responsible one, which involved making substantial decisions with multi-million pound consequences. In coming to those decisions Mr Walker was accustomed to considering reports and consulting with colleagues in order to form a view.[53]In July 1999 Mr Walker was offered early retirement from Taylor Woodrow. He was 60 years old at the time. His initial reaction was that it was a good idea, because a recent merger of the United Kingdom and International construction arms of Taylor Woodrow had in Mr Walker’s opinion not gone particularly well, and he also did not get on well with the new managing director of the merged company. He therefore decided to investigate the options. He received a quotation from the administrators of the Taylor Woodrow group pension scheme setting out a schedule of the retirement benefits to which he was entitled at that stage. The schedule showed that he had two options, namely a pension of £59,100 per annum plus widow’s pension and five year guarantee, or an immediate tax-free lump sum payment of about £110,800 and a reduced pension of about £48,000 per annum plus widow’s pension and five year guarantee. Mr Walker sought advice from his then accountants on the amount of lump sum that he should take and on a number of other financial matters which would arise if he retired. Mr Walker was dissatisfied with the response he received, and in August 1999 he contacted a larger firm of accountants who had previously done some work for him, Cannon Moorcroft. He had a meeting with James Moorcroft of that firm, and again asked for advice about the tax-free lump sum and certain other matters arising from his projected early retirement. There was no question at this stage of Mr Walker seeking advice on any pension options open to him outside the Taylor Woodrow scheme.[54]In the course of their meeting on 25 August 1999, Mr Moorcroft suggested that Mr Walker should discuss his pension options with an investment adviser and recommended Mr Ellway of Inter-Alliance. Mr Walker took up the introduction, and arranged a meeting with Mr Ellway at his home on 2 September. The meeting took place in the late afternoon. It was a fine late summer day, and the Walkers sat with Mr Ellway around a table on the patio. Mr Walker began by asking the question which he had already asked Mr Moorcroft and his former accountants, and to which he had still not received an answer, namely whether (and if so to what extent) he should opt to take a tax-free lump sum upon his retirement. To the question which option he should take, i.e. pension or lump sum, Mr Ellway replied “Neither, there is a much better way”. Both Mr and Mrs Walker distinctly remember those words being used, and I see no reason to doubt their recollection. Mr Walker found this reply surprising, because he had always believed the Taylor Woodrow pension scheme to be the best available. However, Mr Ellway then went on to expatiate on the advantages of a scheme called “drawdown”, and the disadvantages of the Taylor Woodrow scheme. Mr Walker had never heard of drawdown before, and had also never considered moving to any other pension arrangement. He was sceptical about what Mr Ellway was telling him, and as he puts it “distinctly irritated by his attempts to denigrate the scheme”. He did not tell Mr Ellway that he was irritated, but Mr Ellway quickly sensed it and changed the subject by talking about their family (the Walkers had two sons in their 20s) and various other financial matters. The meeting lasted for about two hours, but the discussion of drawdown had occupied only a relatively small part of it. One of the things that Mr Ellway told Mr Walker during the discussion was that he had accumulated a pension pot of over £1 million. Mr Walker was surprised by the size of this figure. He had never previously thought in terms of the accrued transfer value of his pension rights.[55]The general impression which Mr Walker carried away from this first meeting was that Mr Ellway was very personable and knowledgeable, but he was not at this stage remotely convinced about the supposed benefits of transferring from the Taylor Woodrow scheme into any other scheme.[56]On 7 September 1999 Mr Ellway wrote to Mr Walker saying he was “happy to propose a course of action to organise [your] affairs appropriately”. He identified three main areas of concern: how to take retirement benefits, Mr Walker’s investment portfolio, and taxation/estate planning. With regard to the first of these areas, Mr Ellway said this:
“I was surprised that Taylor Woodrow do not cover all the options at their retirement planning meetings since, as I outlined at our meeting, I would have grave concerns over committing such a large fund into a taxable annuity without fully researching the options. The attraction of the straight company route is that it is simple and guaranteed, but it has huge consequences for the rest of your family … It should be remembered that the phased/drawdown route does not give up these benefits since you can elect to move to an annuity if you change at any stage. It seemed to me that your future plans need to be flexible, so that we can access monies for Andrew and Nick [the Walker’s sons] if required, and be able to increase/decrease [y]our income according to consultancy work, travel plans, etc. It is my intention to prepare the reports, but also bring some computer software to our next meeting to demonstrate the variables. Certainly, the less income taken from the pension initially, the greater the benefits overall.”
After dealing with the other two areas, namely investment and estate planning, Mr Ellway expressed the view that Mr Walker would be best served by an analysis of all three of the areas, and to that end enclosed a “fact-finding” form which he asked Mr Walker to complete. He also said that the Walkers would need to sign a letter of authority to enable him to conduct the necessary research. On the matter of fees, Mr Ellway gave an estimate of £2,400 plus VAT for carrying out the work and also suggested that Mr Walker would benefit from becoming a retained client at a fee of £100 per month plus VAT.[57]It was put to Mr Walker in cross-examination that Mr Ellway would not have written to him in these terms if Mr Walker had really shown irritation at the meeting on 2 September about the concept of drawdown and the possibility of leaving the Taylor Woodrow scheme. Mr Walker’s response to this, which I accept, was to the effect that Mr Ellway was a persuasive salesman who was not prepared to take no for an answer. In Mr Walker’s words, “He was clearly trying to interest me in the concept of drawdown and he has another go here”.[58]The form which Mr Ellway sent to Mr Walker was the standard Inter-Alliance client review form. It was 15 pages long, with sections to be filled in dealing with such matters as personal details, assets, retirement planning, liabilities and outgoings, estate planning, financial objectives and attitude to risk and knowledge of investments. According to Mr Storey, this form was fairly typical of those used in the industry and would usually be filled in by the IFA at a meeting with the client. In the present case, however, Mr Ellway did not offer to complete the form together with Mr Walker, and for his part Mr Walker chose not to complete it. Instead, he wrote to Mr Ellway on 12 September saying that he and his wife had signed the letter of authority and they would like him to proceed with an analysis to propose a course of action to organise their affairs appropriately in respect of the three areas identified in Mr Ellway’s letter.[59]With regard to the client review form, Mr Walker said that he had “some difficulty” completing it “at this transitional stage in our lives”, and that “Answers to many of the questions will be arrived at through an iterative process”. Despite this disclaimer, however, Mr Walker then proceeded to give a good deal of the information requested on the form. In relation to his two sons, he said that strictly speaking neither of them were dependents “but we wish to help where we can”. Under the heading “Assets” he referred to their home in Buckinghamshire, valued in the region of £400,000, and said that following his retirement he and his wife intended to construct a conservatory, reconstruct the bathroom and landscape the garden at a likely cost of between £30,000 and £40,000. He also gave details of their joint investments of approximately £31,000 and a modest portfolio of shares. On the final page of the letter he said this:
“Financial objectives The prime requirement is to provide security in old age so as to be able to enjoy a reasonably comfortable existence. Our income in the past has not been particularly generous and we have tended to spend what money we had on our home and sons. While we remain healthy we would like to have the funds available to travel and do things which we have not previously done. While we wish to take all reasonable steps to reduce inheritance tax liability we are not seeking to maximise the value of our final estate. Attitude to riskand knowledge of investments I believe that I have a moderate knowledge of investment and wish to minimise risk by diversification. I believe in the supremacy of the Anglo-Saxon economic model. I am strongly Euro-sceptical. I do not believe in Asian Miracles. I trust that this is sufficient information to make a start on the task. If there is anything further that you require please contact me, preferably by email for speed.”
These two headings reflected headings in the client review form, and when Mr Walker said that he had a “moderate” knowledge of investment he was in effect saying that he fell into the middle of the three categories listed on the form, the other two being “no knowledge” and “considerable [knowledge]”. Mr Walker amplified this in his witness statement by saying that his knowledge of investments was limited to the general information he had picked up through his business career and from the limited investments that he had made personally. He did not regard the broad categorisation on the form as adequate to cover such an important matter, and his own view was that “moderate” means “less than medium”. However, he did not explain this to Mr Ellway in the letter.

Attitude to riskand knowledge of investments

[60]Similarly, when Mr Walker said that he wished to minimise risk by diversification, he was again reflecting a specific question in the client review form with boxes to tick either “yes” or “no” as appropriate. Mr Walker had not specifically discussed his attitude to risk at the meeting on 2 September, and his evidence (which I accept) is that he never discussed it specifically with Mr Ellway on any subsequent occasion. Mr Walker says that he is, and always has been, cautious in nature, and that he made this clear to Mr Ellway on numerous occasions. When pressed to identify these occasions in cross-examination, Mr Walker was unable to do more than refer to telephone conversations which took place between them when Mr Ellway was arranging various financial matters for him after the meeting in October 1999. He was not sure that he ever used the word “cautious”, but thought Mr Ellway should have deduced he was cautious from the general tenor of the conversations. I think that there may be an element of wishful thinking in Mr Walker’s recollection of these conversations, which were to do with different matters and took place at a time after Mr Walker’s retirement plans had been put on hold. However, it is in my view fair to say that nothing in Mr Walker’s letter of 12 September 1999 could reasonably have led Mr Ellway to suppose that his attitude to risk was more than cautious or medium/low, that being the second lowest of five categories identified in the client review form and scored at 5 to 8 on a scale of 1 to 20. Mr Walker’s references to his prime requirement being “to provide security in old age” and to his wish to minimise risk by diversification, together with the details of his share portfolio (largely derived from privatisations and company share options), should have made it reasonably clear to Mr Ellway that his attitude to risk lay towards the lower end of the spectrum. Furthermore, if he was in any doubt on the matter, he could and should have taken up the offer at the end of Mr Walker’s letter and asked him for clarification.[61]Far from seeking clarification, however, on 23 September 1999 Mr Ellway sent an email to Mr Walker thanking him for his “comprehensive response” and saying “would that all my clients were so diligent”. Mr Ellway said that he was pressing on with the retirement option report, and hoped to receive further details from Taylor Woodrow’s actuaries within the next couple of days. By this stage Mr Ellway had made contact with Mr Boakes, although this was not known to Mr Walker, and in late September and early October they were in touch with regard to the transfer values supplied by the trustee of the Taylor Woodrow scheme. On 9 October Mr Walker wrote to Mr Ellway to say that he would be doing a great deal of travelling between then and his retirement at the end of the year and requesting him to arrange a meeting as a matter of urgency. A meeting was then arranged for the afternoon of Monday 25 October. In advance of the meeting Mr Boakes prepared and sent to Mr Ellway a draft report on the viability of transfer of pension benefits for Mr Walker. This report was intended to be a template for Mr Ellway to adapt and expand as he thought appropriate, on the understanding that the final version provided to the client would be the sole responsibility of Mr Ellway. It was not uncommon, and did not breach regulatory requirements, for a pensions consultant like Mr Boakes to provide a draft report for use by an IFA, provided always that the IFA took personal responsibility for the final version. The introduction to the draft report stated that:
“The objective of the report is to examine the viability of transferring your pension benefits to a PHASED/DRAWDOWN contract – RETIREMENT CONTROL. It looks at the conventional options, Income Drawdown and the concept of deferring benefits until they are actually required.”
Section 2, headed “Client Details”, stated the objective as being “to provide flexible form of income to match circumstances in the future”. The report went on to summarise the benefits available under the Taylor Woodrow scheme and said that while it provided a predetermined level of income throughout life it did have some drawbacks:
“The question needs to be asked, will you need the full tax-free cash sum, or would it be more beneficial to you in stages, perhaps smaller amounts in the short term and then any balance available on an as and when basis. If scheme benefits are taken it is all or nothing. You cannot decide on the level of income that you require, it is dictated. The pension payable from your defined benefit scheme is fixed, since you are promised benefits as a result of your service with the company and salary upon leaving, in line with the scheme conditions. Any alternatives, which are considered, will mean the giving up of these guaranteed benefits, together with attaching widow’s death in retirement benefits, and guaranteed increases to the pension each year.”
[62]The next section of the draft report described how “Retirement Control” would operate. As I have already said, this was the generic name of a proprietary product marketed by Scottish Equitable, although this was not stated anywhere in the report. Mr Storey was surprised at what he termed this blatant use of the product name, and also at the very thin client details shown in the draft report, but agreed that it was a matter for the IFA to customise as he thought appropriate. Section five of the draft report, headed “Health warnings” emphasised the vital importance of understanding what was being given up from the Taylor Woodrow scheme, together with the risks involved in giving up guaranteed benefits. It gave an estimate of the growth rate that would be needed to match the level of income available from the Taylor Woodrow scheme, and pointed out that the benefits available from a drawdown scheme would depend upon investment performance, and that unit prices could go down as well as up. Section six, headed “Investment profiling”, gave details of the Scottish Equitable funds available for investment within Retirement Control, and section eight contained some promotional material relating to Scottish Equitable, including the statement that it currently had around 40% of the IFA phased/drawdown market. Section seven, headed “Conclusion”, was in the following terms:
“Considering all of the circumstances it is suggested that taking benefits by the conventional route is not the ideal solution for your circumstances. The main reasons being: 1. No flexibility. 2. Potentially a higher level of income at outset from other methods. 3. Enforcement of decisions on purchasing benefits when requirements are not fully known. 4. Potentially higher death benefits through other methods. Suggestion The suggestion is that consideration is given to moving the existing funds into Deferred Phased Retirement. The benefits are: 1. Greater flexibility and control. 2. Possibility of passing some funds through to other generations. 3. Potentially greater Death Benefits than available from current scheme. 4. Investment control. 5. Ability to keep tax liability to a minimum.”
Suggestion

The benefits are:

[63]After Mr Ellway had received the draft report, he customised it by omitting sections six and eight and adding some material of his own, including a discussion of the five benefits identified in the conclusion section. The effect of removing sections six and eight was that the report contained no express reference to Scottish Equitable, and as before there was nothing to indicate that “Retirement Control” was the name of a Scottish Equitable product.[64]On 19 October Mr Ellway emailed to Mr Walker an agenda for the meeting on 25 October and a simplified version of the report. Mr Walker was in Ghana, and Mr Ellway suggested that perhaps he might like to read it on the plane. The first item on the agenda, under the heading “Introduction”, named Mr Boakes and described him as “Retirement Options Specialist” with Scottish Equitable. This was the first occasion on which Mr Walker heard of Mr Boakes. He was comforted when he saw the words “Retirement Options Specialist”, because he thought it would be good to hear from a specialist in the field. By contrast, he regarded Mr Ellway as “a very personable, plausible, persuasive salesman”.[65]On 20 October Mr Walker replied to Mr Ellway, saying that he had skim-read the attachments to his email and hoped to read them more carefully soon. Later on the same day, he sent Mr Ellway a further email saying that he had now read the report “and your proposals certainly sound very interesting”. He went on to make a number of queries, to which Mr Ellway replied on the following day:
“All very pertinent and valid points, we’ll discuss further on Monday.”
Meanwhile, Mr Ellway forwarded Mr Walker’s queries to Mr Boakes, and Mr Boakes then faxed a hand-written commentary on them to Mr Ellway, for him to use to put together a response. However, there is no record of a response having been sent by Mr Ellway to Mr Walker before the meeting on 25 October. No doubt Mr Ellway considered that he could deal with the points orally at the meeting.[66]When he reviewed the report, Mr Walker realised that the recommendations being made by Mr Ellway did mean that he would lose the guarantees provided by the Taylor Woodrow scheme. He also noted what was said in the report about the perceived need for flexibility and the possible provision of financial assistance to his sons, but did not at the time attach particular significance to these features of the report although they were not in his own mind major objectives. The actual intentions of the Walkers towards their children were no more than to assist them where they could, and they did not expect to make any substantial contribution towards property purchases or other major capital expenditure by them. Moreover, Mr Walker did not regard flexibility as a major advantage for its own sake, because (as he had said in his letter of 12 September) his overriding objective was to ensure security in old age for himself and his wife.[67]On the morning of the meeting, Mr Walker listened to an interview on the “Today” programme on the radio with a man from the Prudential on the subject of annuities. The Prudential had published a review of the subject, and the man being interviewed made a comment that “drawdown didn’t work”. Mr Walker was struck by this comment, which served to reinforce his own scepticism, and as a result he sent an email to Mr Ellway telling him what he had heard.[68]The meeting itself took place in the dining room of the Walkers’ house. The persons present were Mr and Mrs Walker, Mr Ellway and Mr Boakes. Mr Ellway started the meeting by introducing Mr Boakes, but neither he nor Mr Boakes informed Mr Walker that Mr Boakes would be unable to give him advice during the meeting, nor did Mr Boakes provide Mr Walker with a business card. Mr Boakes was older than Mr Ellway, and impressed Mr Walker as having “more gravitas” and as having more knowledge than Mr Ellway on the subject of drawdown. Mr Ellway would defer to Mr Boakes when it came to discussing the specific features of income drawdown and its advantages in comparison with the Taylor Woodrow scheme. In his witness statement Mr Walker says that his lasting recollection from the meeting was discussions of the advantages of drawdown as compared to the Taylor Woodrow scheme, and “Mr Boakes informed me that drawdown was better in every respect than staying in the Taylor Woodrow scheme; that it provided added advantages which the Taylor Woodrow scheme could not, including flexibility. I do recall that they informed me that a final salary scheme, for a person in my circumstances, was wrong in principle.”[69]It was put to Mr Walker in cross-examination that it was only Mr Ellway who advised him on the merits of drawdown as compared with the Taylor Woodrow scheme, and that Mr Boakes’ contribution was confined to explaining how the concept of drawdown operated and providing generic information about it. Mr Walker was unshaken in his evidence that he was given advice by both Mr Ellway and Mr Boakes, and that it was Mr Boakes who was leading the discussions. He regarded Mr Boakes’ answers as the more important, because he knew he was a specialist whereas Mr Ellway was basically a salesman. Mr Walker knew that Mr Boakes worked for Scottish Equitable, but did not read anything into that at the time. The discussion was about the merits of drawdown in principle, and no specific products were mentioned. What Mr Walker wanted above all was reassurance that moving from the Taylor Woodrow scheme would be the right thing for him to do, and the conversation kept coming round to this topic. Both Mr Boakes and Mr Ellway repeatedly told Mr Walker that he would be well-advised to move from the Taylor Woodrow scheme, and that if they were in his position that is what they would do.[70]I have already quoted (in paragraph 32 above) the paragraph in Mr Walker’s witness statement in which he says that, in response to his questions, both Mr Boakes and Mr Ellway repeatedly said that if they were in his position they would leave the Taylor Woodrow scheme in favour of drawdown. It will by now be apparent that I accept this evidence. Mr Walker was unshaken on the point in cross-examination, and I do not believe that his clear evidence on the question can be dismissed as a subsequent reconstruction intended (perhaps sub-consciously) to bolster his case. He gave his oral evidence in a clear, calm and measured manner, and I see no good reason to doubt it. It is also supported by the evidence of Mrs Walker, who impressed me as a transparently honest witness who did her very best to assist the court, and did not at any stage pretend to remember more than she actually did. Her recollection is that there was no discussion at the meeting about the separate roles of Mr Boakes and Mr Ellway, that there was no sense during the meeting that they were in different positions, and that they were both adamant that they would move to drawdown. She said of her husband:
“They were clearly telling Michael that drawdown was the way to go and Michael needed constant reassurance. It is not normal for me to see Michael in this position in meetings pressing for answers.”
She goes on to say in paragraph 25 of her witness statement:
“I am sure that Michael directed his question as to whether it was right for him to move to drawdown to Pat Boakes first. Perhaps this was because Pat Boakes had taken the lead by that stage. Michael was told that he would be foolish in his position not to move to drawdown.”
[71]Any surprise that I might otherwise feel about Mr Boakes giving advice of this nature, in clear breach of the principle of polarisation and Scottish Equitable’s own compliance manual, is tempered by his own evidence of the kind of reply he was in the habit of giving to questions of this nature: see paragraph 35 above. Mr Boakes has no positive recollection of what he said on this particular occasion. In so far as his hypothetical statement of what he might have said differs from the actual recollection of Mr and Mrs Walker of what he actually did say, I have no hesitation in preferring the evidence of the Walkers. I am satisfied that Mr Boakes answered Mr Walker’s repeated requests for reassurance by saying what he would do if he were in Mr Walker’s position, not by saying what he, Mr Boakes, would do if he were faced with a similar choice. As I have already pointed out, that would have been a most improbable and unhelpful thing for Mr Boakes to have said. I do not need to decide whether he was nevertheless in the habit of saying it on other occasions, but I am clear in my mind that on this occasion at any rate he did not.[72]My willingness to find in favour of the Walkers on this crucial issue of fact is also supported by some further indications that Mr Boakes’ attitude to compliance matters was at times rather cavalier. His previous experience included a period of work as an IFA, and although he said that he gave it up because he was not very good at it, it may in my view help to explain why he allowed his role as a representative of a product provider to become tainted with the giving of advice. It is striking that he took no steps at the start of the October meeting to explain the limitations on his role, and that he was equally unforthcoming when he met Mr Field together with Mr Ellway on 6 January 2001. Both Mr Walker and Mr Field formed the view that Mr Ellway and Mr Boakes were acting very much as a team, or to use Mr Walker’s expression as a “double act”. Furthermore, in a revealing passage of his cross-examination Mr Boakes said at one stage that if a representative of a product provider was at a meeting with the client together with the client’s IFA, one way in which he could get round the principle of polarisation would be to direct his answer to the client’s question to the IFA. He described this stratagem as “one of the quirks” of the rules, and although he disclaimed having ever done any such thing himself, he said that he had heard that the rules could be circumvented in this way. The expert witnesses unsurprisingly poured scorn on the idea that the rules could be circumvented in such a manner, and the fact that such a strange idea could even have occurred to Mr Boakes does in my view lend some support to my conclusion that he was ready to bend the rules when it suited him.[73]I should add that, during the meeting on 25 October, Mr Walker was handed an extended version of the report that Mr Ellway had previously emailed to him, but he did not review the extended version at the meeting in any detail. The main difference from the previous version was that the report now included a section referring to a number of different product providers of income drawdown, including Scottish Equitable. However, despite the addition of this section there was no discussion at all at the meeting about the different product providers, or whether Mr Ellway recommended any particular provider. As Mr Walker says, he was at that stage far more concerned with trying to understand the principles of drawdown, rather than who could provide it. He was not handed any Scottish Equitable literature during the meeting.[74]At the end of the meeting, Mr Walker was still not persuaded of the merits of drawdown as compared with remaining in the Taylor Woodrow scheme, but he felt that Mr Ellway and Mr Boakes had done a good job of convincing him of the benefits of income drawdown and phased retirement, and after two hours of face to face discussions on the topic he was distinctly more inclined towards that option than he had been before the meeting began.[75]A few days after the meeting Mr Walker and his wife departed on a visit to Zimbabwe and South Africa, and it was during the course of that visit that he was invited to stay on at Taylor Woodrow for another one to two years. He was encouraged to accept the invitation because the managing director of the merged Taylor Woodrow company with whom he did not get on well had been sacked. While Mr Walker was in Johannesburg, he received a detailed report from Mr Ellway outlining the first steps of his transition into retirement and an update of the issues they had already discussed. However, this had now been overtaken by events and on 13 November 1999 Mr Walker replied by email saying he had read it through quickly but not absorbed the detail, and informing him of the change of management at Taylor Woodrow and the invitation to him to stay on as a director and assume a group wide responsibility for IT. He said he would be discussing what was on offer when he returned to the UK, and asked for advice on the approach he should be taking in the negotiations. He concluded:
“Having started with retirement planning I intend to continue, especially with regard to inheritance matters. I imagine that the main difference in the plan is that I will not immediately have a lump sum of cash to play with.”
[76]On 26 November Mr Walker sent Mr Ellway a copy of a press release announcing his new role with Taylor Woodrow. He said that the period would be at his discretion, but would probably be between one and two years. He added that an essential part of the agreement was that the severance package which had been previously agreed would be payable when he did finally leave the company. He also asked whether he should continue paying additional voluntary contributions (“AVCs”) and said he would continue with the inheritance planning side of the arrangements that Mr Ellway was proposing, “but obviously other things are on hold for a year or so.”[77]During this interim period Mr Ellway continued to act for the Walkers in relation to a number of financial matters. For example, he assisted them with estate planning issues, he arranged life insurance cover for them, he advised on their mortgage arrangements, he advised Mr Walker on his share portfolio, and he also advised him on his share options with Taylor Woodrow together with Mr Walker’s accountant, Mr Moorcroft. Mr Walker described his relationship with Mr Ellway at this stage as being “in good heart” and agreed that he was “a pretty trusted and regular adviser”. Mr Walker also considered the drawdown proposals which Mr Ellway had made from time to time, and in December 1999 he recommended a colleague of his who was taking early retirement in early 2000, Mr Claud Brandt, to Mr Ellway. He asked Mr Ellway to contact Mr Brandt with information about drawdown. Mr Walker also mentioned drawdown to the company secretary of Taylor Woodrow Plc, and as he was interested in learning more put him too in contact with Mr Ellway. It was Mr Ellway, rather than Mr Boakes, whom Mr Walker contacted, because it was Mr Ellway with whom Mr Walker had a relationship, and in addition he did not have an address for Mr Boakes, not having been provided by Mr Boakes with a business card.[78]In January 2000 the Walkers signed a formal retainer agreement with Inter-Alliance and completed a standing order mandate in the sum of £100 plus VAT per month. In December Mr Ellway had sent Mr Walker an invoice for £2,400 plus VAT for the provision of pension advice, but in February 2000 Mr Ellway agreed that this was a mistake as they had earlier agreed that the fee would be offset against any resulting commissions.[79]In a letter dated 16 January 2000, enclosing the completed retainer agreement, Mr Walker gave Mr Ellway details of his share portfolio, the total value of which (including some shares held by his wife) was a little over £49,500. He also gave details of their other joint investments, including a fund held with Nelson Money Management valued at £30,300. He then referred to the capital gains tax position, and a paper on inheritance tax planning which Mr Ellway had sent him in December. He said he was confused about what they should be doing, and continued:
“We need some liquidity now to spend on home improvements. The lump sums for the severance package and pensions will not be forthcoming until I retire in say a couple of years. My thoughts at the moment are that when I do finally retire I will not be seeking part-time or consultancy work so will not have a regular earned income. If retirement means retirement then we will want funds to enjoy ourselves while we remain fit and active. We obviously also need funds to protect ourselves against requiring care in old age.”
[80]In February 2000 Mr Walker sought, and received, confirmation from the Taylor Woodrow Pensions Department that the rules of the Taylor Woodrow scheme would permit the transfer of his benefits to a personal pensions scheme that allowed drawdown.[81]On 21 August 2000, in reply to an email from Mr Ellway requesting an update on his retirement plans, Mr Walker informed Mr Ellway that he had “mentally pencilled in a retirement date of March 2001”. In giving this information Mr Walker did not indicate any disagreement with Mr Ellway’s statement in his email that “we considered drawdown to be the most suited for you in retirement”. He did, however, say that his plans were flexible, and might be influenced by impending legislation.[82]On 16 November 2000 Mr Ellway sent Mr Walker a long email updating him on the position regarding his retirement. The general theme of this email was that there had been no significant changes since 1999, and if Mr Walker wished him to put forward specific recommendations “we will need to go through a similar exercise as last time”. Mr Walker replied that he had written formally to Taylor Woodrow telling them of his wish to retire soon, and although an actual date had not yet been agreed it was likely to be somewhere between the end of the year and March 2001. He said he would let Mr Ellway know when a date had been fixed. He also confirmed that he was not intending to seek employment when he retired, other than odd days of consultancy should it be available.[83]On 17 November Mr Walker received from the trustee of the Taylor Woodrow scheme an updated quotation of the benefits to which he would be entitled on retiring at 31 December 2000. Ignoring AVCs, the options were a pension of £69,125 per annum plus a widow’s pension and five year guarantee, or a lump sum payment of £129,609.36 together with a reduced pension of £56,164.07 per annum. Mr Walker forwarded this schedule to Mr Ellway, and on 22 November gave both Mr Ellway and Mr Moorcroft formal notice that he had agreed to cease work on 31 December 2000, but on the footing that his departure would be treated as redundancy so that he could take the redundancy package which had been agreed when he was previously about to retire. The amount of the redundancy package was approximately £120,000 gross. After some further email exchanges, including the provision by Mr Walker of details of projected capital expenditure by himself and his wife totalling well under £100,000 over the next five years, arrangements were made for a meeting to take place at the offices of Inter-Alliance on Monday 22 January 2001. The purpose of the meeting was for Mr Ellway to present his updated findings and proposals in relation to the retirement options available to Mr Walker.[84]The Walkers arrived at Inter-Alliance’s offices at about 2 pm on 22 January. They were given coffee, and then went into Mr Ellway’s office. They had not known in advance that Mr Boakes was going to be present at the meeting, but they found he was already there in the office. The meeting lasted for approximately one and a half hours, and for much of that time Mr Boakes was standing at the side of the room by the window. Mr Walker was handed a copy of a report entitled “Report on the Viability of Transfer of Pension Benefits for Mr M D Walker”. The report was quite detailed, running to some 28 pages. On glancing through it Mr Walker noticed some obvious mistakes in the personal details, including a reference to the wife of his colleague, Mr Brandt, instead of to his wife, Rhona. He was understandably irritated by this, and the meeting got off to a rather frosty start. Mr Ellway apologised, and said that he would rectify the mistakes. There was no detailed discussion of the body of the report at the meeting. Mr Walker’s recollection, which I accept, is that the meeting was similar in format and content to the previous meeting in October 1999, with both Mr Ellway and Mr Boakes discussing the principles of drawdown and again recommending that Mr Walker should transfer to drawdown instead of remaining in the Taylor Woodrow scheme. Mr Walker was less sceptical about drawdown than he had been on the previous occasion, but was still concerned because it was a big decision for him to make. He appreciated that once he had left the Taylor Woodrow scheme there could be no going back. As before, he asked both Mr Ellway and Mr Boakes on several occasions what they would do in his position, and again he was separately assured by both of them that moving out of the Taylor Woodrow scheme would be the right thing for him to do, and what they would do if they were in his position. As before, Mr Walker was unshaken in cross-examination and I accept his evidence that he was specifically advised by both Mr Ellway and Mr Boakes that the right thing for him to do was to move into drawdown. As before, his recollection is supported by that of his wife. When asked whether she remembered Mr Boakes’ answer to the question what he would do in Mr Walker’s position, she answered “I cannot remember precise words, but the indication was that, yes, he would go down that route”. Furthermore, as at the earlier meeting in October 1999, there was no explanation of the separate roles of Mr Ellway and Mr Boakes. There was some brief discussion of who the product provider should be, and Mr Walker understood that Inter-Alliance were recommending Scottish Equitable. However, this aspect of the matter did not seem important to him. As he said, he did not care who the provider would be, as he assumed that Inter-Alliance would choose the appropriate one for him. The focus of his questions was still on the general principles of drawdown and its advantages as compared to the Taylor Woodrow scheme. He became quite heated at some stages during the meeting, partly because of the importance of the decision he had to make, and partly because he was still unsure that he fully understood the matter. His wife had to nudge him on occasions in order to calm him down. The general message that he carried away at the conclusion of the meeting – or, as he put it more than once in cross-examination, what was “ringing in his ears” – was what he had been told by both Mr Boakes and Mr Ellway about the advantages of drawdown as compared with remaining in the Taylor Woodrow scheme.[85]After the meeting had concluded the Walkers went to the multi-storey car park where they had left their car. They sat in the car park for half an hour and discussed what they had heard. They then drove home and had supper. After supper, Mr Walker checked his emails and found that Mr Ellway had already sent him a corrected version of the report. He printed off two copies, and gave one to his wife. Mr Walker read it carefully, but it had relatively little effect on him in comparison with the oral advice he had received at the meeting. He regarded the warnings in the report as no more than “standard health warnings”.[86]I will not set out the contents of the report in detail. It did indeed contain clear warnings of the benefits that Mr Walker would be giving up. The primary objective was said to be “to examine all available options” open to Mr Walker with regard to his retirement package, “in order to provide maximum [flexibility] of benefits to dovetail with your changing needs throughout retirement”. After a review of drawdown, and the investment yield that would be needed in order to match the benefits under the Taylor Woodrow scheme, the main conclusion was stated as follows on page 17:
“Although Income Drawdown is not suitable for everyone, I believe that, if you take a moderately adventurous view of investment risk and reward, it is a suitable option for you to consider, although a combination of phased retirement and Income Drawdown maybe the more appropriate route for your circumstances, especially if there is no immediate requirement for the full use of all the tax-free cash sum.”
The report went on to recommend Scottish Equitable as the provider to handle the administration and initial fund management, if the decision was taken to proceed down that route.[87]In his email attaching the corrected report, Mr Ellway drew attention to what he called a “time issue”, namely that if Mr Walker died before taking benefits, but after having left service with Taylor Woodrow, his wife would only receive the return of his contributions plus the widow’s pension without any five year guarantee. He said:
“Whilst I know that you had not envisaged any unfortunate demise in the next couple of months, I thought I should advise you anyway!”
Mr Walker replied on 23 January saying “Given this vulnerability we need to proceed with all speed”. He asked whether it was necessary to decide then between an income withdrawal plan and a phased retirement plan, or whether that could be dealt with later. He also asked for further details about levels of income after three years, and asked Mr Ellway to call him to discuss the matter. In his witness statement Mr Walker said that when he sent this email, with its reference to the need to proceed with all speed, he had in principle made his decision to transfer into drawdown, although still with certain reservations, given the magnitude of the decision he was taking, and still subject to the need for some clarification. He maintained this stance in cross-examination, but on this point I found his evidence unconvincing. My assessment is that, although he was now leaning strongly towards drawdown, he had not yet made a decision in principle. It was the process of clarification, rather than implementation of the transfer, which needed to be taken forward with all speed. I would accept, however, that subject to satisfactory answers to his further enquiries Mr Walker was already strongly inclined to take the plunge and transfer out of the Taylor Woodrow scheme. It is perhaps only a question of emphasis whether one terms this a decision in principle.[88]On 25 January Mr Walker sent a further email to Mr Ellway informing him that he was due to receive part of his redundancy package shortly, and asking for advice in relation to part of that sum. He also said:
“I was expecting to have heard from you in response to my email of Tuesday about the next steps for setting up a pension. Did you receive that?”
[89]Mr Ellway does not appear to have replied to this email, but he sent to Mr Walker by post three Scottish Equitable forms for completion together with some further Scottish Equitable documentation. There was no covering letter, but on a number of the forms there were ticks in pencil indicating where Mr Walker should fill in information or where he should sign. Mr Walker was frustrated by the absence of any explanatory covering letter, and sent Mr Ellway a further email on 31 January. After acknowledging receipt of the Scottish Equitable forms and documentation, he said:
“I have not received the spreadsheets we spoke about on Monday which were to give illustrations as to just what pension I am likely to receive via your proposals as compared to the guaranteed sums I will receive under the Taylor Woodrow scheme.”
I think the reference to Monday is probably a reference to the meeting on Monday 22 January, in the absence of any evidence of a conversation between Mr Ellway and Mr Walker on 29 January. However, it is also possible that Mr Ellway telephoned Mr Walker on the latter date, in response to his email of 25 January, and promised to provide the spreadsheets on that occasion.[90]Mr Walker then went on to make various comments on the forms, and continued:
“You have pointed out that Rhona is vulnerable to only receiving a widow’s pension from Taylor Woodrow until the fund is transferred to Scottish Equitable, if anything were to happen to me. It seems to me that much work needs doing before that danger is averted and I don’t seem to be in possession of all the information I need to give an informed go-ahead. … What I really want to have is a realistic estimation of what my net income after tax, commissions and management charges is likely to be during the forthcoming years from the scheme that you are proposing, compared to what I would receive from the Taylor Woodrow fund? This should include income from all sources, including AVCs, Investments and State Pension etc.”
After making some detailed points about the figures, he concluded:
“The illustrations are assuming that I am a 22% rate tax payer. Is that realistic? If not what effect will it have? Under your scheme is there ever any possibility of lump sums being paid as capital or is it restricted to an annual income only?”
[91]In my judgment this email makes it clear that there was still a good deal of detailed information that Mr Walker required before committing himself finally to the decision to transfer. On 2 February Mr Ellway sent to Mr Walker by email some benefit comparison tables and explanatory material dealing with the points raised by Mr Walker in his email of 31 January. He concluded “I hope this clarifies matters, but I will wait for your call to confirm”. The comparison tables attached to Mr Ellway’s email were in fact drafted by Mr Boakes at Mr Ellway’s request, but Mr Walker was not told this and had no idea they had been prepared by Mr Boakes. Following receipt of Mr Ellway’s email on 2 February, Mr Walker telephoned him at 4.36 pm. The conversation lasted for 17 minutes, and although Mr Walker had no specific recollection of its content I am satisfied that the purpose of the call must have been to discuss the email he had received. The conversation clearly put Mr Walker’s mind at rest about any outstanding queries he had, and he then posted the Scottish Equitable application form to Mr Ellway. Shortly after 6 pm he sent Mr Ellway an email, saying:
“As discussed, I have posted first class, the Retirement Control application form duly completed as far as I can, this afternoon. Hopefully you will receive this on Monday morning and be able to start the process moving.”
He then referred to a meeting which had been arranged at the Institute of Directors for 2.30 pm on the following Tuesday, “when we can complete the other forms”. In my judgment it was at this point, after the telephone conversation with Mr Ellway, that Mr Walker finally committed himself to go ahead with the transfer.[92]The meeting at the Institute of Directors took place on 6 February, and lasted for between 20 minutes and half an hour. The purpose of the meeting was to sign the necessary forms, and although Mr Walker continued to ask questions about the scheme no new issues of any significance arose. Mrs Walker had accompanied her husband to London for the meeting, but did not think her presence would be necessary and went to the National Gallery while Mr Walker was with Mr Ellway. There were in fact one or two documents which required her signature, including in particular a declaration of trust form. Mr Walker took this form with him from the meeting, and on 7 February wrote to Mr Ellway enclosing a copy of it duly signed by his wife and also asking to be sent photocopies of all the forms he had signed.[93]On 14 February 2001 Mr Walker received a letter from Mr Ellway confirming the application made and the reasons for it. This “reasons why” letter was dated 7 February, but was not in fact sent until the 13th. It recorded the main reasons why Mr Ellway considered the solution adopted to be the right one for Mr Walker, and repeated the by-now familiar warnings. Mr Ellway enclosed copies of all the applications and illustrations for Mr Walker’s records, and concluded:
“If you believe that the contents of this letter accurately reflect your circumstances, you need do nothing more. If any part is not clear to you or you disagree with anything I have written, please come back to me, but as part of our compliance procedure, I would be grateful if you would sign a copy of this letter and the attached questionnaire for our records.”
[94]The attached questionnaire was headed “Understanding your options and choices” and beneath that “Transferring from an occupational pension scheme”. There then followed ten questions, the purpose of which was to confirm that Mr Walker had a sufficient understanding both of what he was giving up and of the new plan into which he was transferring. He answered yes to each of these questions, and signed his name on 14 February beneath a statement in the following terms:
“I am satisfied that I have a sufficient understanding of my rights and options, regarding transferring from the Taylor Woodrow fund and why Inter-Alliance has made this recommendation.”
The form was also signed on the same day by Mrs Walker.[95]In his witness statement Mr Walker said that he did not treat the reasons why letter very seriously, because he was convinced that “the deed was done” and he could not unscramble the arrangements. He thought it was a standard compliance requirement document, and that Inter-Alliance needed some ticks in some boxes to indicate that the letter had been sent out. Mr Walker had something of a bee in his bonnet about “ticking the box” mentalities, and saw this as just another piece of bureaucracy. I found this attitude a little surprising, coming from a businessman of Mr Walker’s experience and seniority, but he confirmed this evidence in cross-examination and on balance I am prepared to accept it. Conclusions (1). Breach of statutory duty[96]I have already explained that the critical question is whether Scottish Equitable, through its employee Mr Boakes, provided investment advice within the meaning of paragraph 15 of schedule 1 to FSA 1986 to Mr Walker at the meetings on 25 October 1999 and 22 January 2001. On the basis of my findings of fact, and in particular my acceptance of Mr Walker’s recollection of what was said to him by Mr Boakes at the two meetings, it will by now be apparent that in my judgment this question must be answered in the affirmative. In agreement with the experts, I have no doubt that Mr Boakes’ repeated statements of what he would do if he were in Mr Walker’s position constituted the giving of investment advice. The same is true, in my opinion, of his statements comparing and evaluating the benefits available to Mr Walker under the Taylor Woodrow scheme on the one hand and under a phased retirement drawdown arrangement on the other hand, and of his promotion of the concept of drawdown as embodied in Scottish Equitable’s Retirement Control product which I am satisfied went far beyond the mere provision of factual information in a neutral way. In short, Mr Boakes breached the principle of polarisation, and Scottish Equitable’s own compliance manuals, by giving investment advice when he should not have done. Nor was this an isolated lapse. On the basis of the evidence I have heard, I am satisfied that Mr Boakes took the lead at both meetings in discussing the relevant merits of the Taylor Woodrow scheme and drawdown, and in seeking to persuade Mr Walker to make the change.[97]Counsel for Scottish Equitable submitted that, even if I preferred Mr Walker’s evidence about what was said at the meetings, the words attributed to Mr Boakes are nevertheless too vague to have amounted to investment advice. I am unable to accept this submission. Although Mr Walker is, unsurprisingly, unable to remember the precise words used by Mr Boakes, there was in my judgment nothing vague or ambiguous about the message which he conveyed to Mr Walker, namely that it would be advantageous for him to move out of the Taylor Woodrow scheme into a drawdown arrangement. Similarly, his repeated references to what he would do if he were in Mr Walker’s position were clearly intended by Mr Boakes to have persuasive effect, and could only reasonably have been understood by Mr Walker as constituting advice which would help him make up his mind. It seems to me that the concept of investment advice is broad enough to include any communication with the client which, in the particular context in which it is given, goes beyond the mere provision of information and is objectively likely to influence the client’s decision whether or not to undertake the transaction in question. If that, or something like it, is the correct test, I have no doubt that Mr Boakes’ statements to Mr Walker constituted investment advice, even if the precise words that he used cannot now be reconstructed. (2). Causation[98]The next question is whether Mr Walker suffered any loss “as a result of” the breaches of statutory duty which I have found to be established. The words “as a result of” are those used in section 62(1) of FSA 1986, but it was common ground before me that the concept of causation which they embody is no different from the test of causation in a common law claim for negligence. It was also common ground that this test will be satisfied if Mr Boakes’ advice was an efficient cause (and not necessarily the sole, or even the main, cause) of Mr Walker’s decision to make the transfer out of the Taylor Woodrow scheme. The question whether it was an efficient cause should be answered by asking whether, but for Mr Boakes’ advice, Mr Walker would have made the transfer. If Mr Walker can show, on the balance of probabilities, that in the absence of Mr Boakes’ advice he would not have made the transfer and would have stayed in the Taylor Woodrow scheme, the test of causation will be satisfied. If, on the other hand, he would anyway have decided to transfer, the test will not be satisfied. See generally Clerk & Lindsell on Torts, 19th edition, para 2-07.[99]If the “but for” test is satisfied in relation to Mr Boakes, it does not matter if it would also be satisfied in respect of one or more other causes, such as the advice of Mr Ellway. Nor would it matter, were it to be established, that Mr Ellway’s advice carried more weight with Mr Walker than the advice of Mr Boakes, provided always that Mr Boakes’ advice was an efficient cause of Mr Walker’s decision to transfer.[100]None of these propositions was in dispute. The question is how to apply them to the facts. In support of his submission that the test of causation was not satisfied, counsel for Scottish Equitable made the following main points:(1) Mr Walker was until December 2000 a senior executive of an international construction company, with wide ranging and complex responsibilities. He was in receipt of detailed advice from Mr Ellway between September 1999 and February 2001. In particular, he received from Mr Ellway a series of lengthy and detailed reports. Mr Walker was well able to form rational decisions based up such reports, and was inherently unlikely, given his employment background, to make important decisions on the back of responses to wholly unspecific questions like “what would you do in my position?”(2) The two meetings of 25 October 1999 and 22 January 2001 must be considered separately. They were separated by nearly 15 months, and there was no contact between Mr Walker and Mr Boakes at all between these meetings. In marked contrast to the dealings between Mr Walker and Mr Ellway over this period, there was no continuum of communication and discussion between Mr Walker and Mr Boakes.(3) Even on Mr Walker’s own evidence, he did not decide to transfer his pension at the meeting on 22 January 2001. His case is that the decision was taken on the following day, after he had read Mr Ellway’s final report “very carefully” and discussed matters with his wife. In fact, the contemporary documents show the final decision was not taken until 2 February 2001, after substantial further advice had been received from Mr Ellway. Mr Walker cannot rely on any input by Mr Boakes into that advice (in the shape of key figure illustrations), because he was unaware of Mr Boakes’ involvement in the provision of that information. A person cannot rely upon matters of which he was unaware.(4) Mr Walker cannot explain away his reliance on the final report by saying that the unspecified and undifferentiated words of Mr Ellway and Mr Boakes were “ringing in his ears”. Furthermore his response to the reasons why letter shows that he fully understood what he was doing, and took responsibility for it.(5) The things that Mr Walker relied upon in making his decision to transfer were (a) the final report prepared by Mr Ellway and emailed to him after the meeting of 22 January 2001, (b) the advice received by him from Mr Ellway between that meeting and 6 February 2001, and (c) the advice of Mr Ellway summarised in the reasons why letter.(6) Mr Walker had no relationship of trust and confidence with Mr Boakes, and there was no formal relationship at all between him and Scottish Equitable until his application forms were submitted after the signing on 6 February 2001. At no time did Mr Walker seek to contact Mr Boakes or ask Mr Ellway to do so, on any subject. Moreover, Mr Walker had not expected Mr Boakes to be present at the meeting on 22 January 2001. His adviser was at all times Mr Ellway.[101]Counsel for Mr Walker submitted that the causation test was satisfied, and again I shall list the main points which he made.(1) Mr Walker gave clear and consistent evidence that the advice of Mr Boakes at the two key meetings was crucial in persuading him to agree to the transfer. This evidence was supported by the evidence of his wife, and remained unshaken in cross-examination.(2) The Walkers’ contention that Mr Boakes’ oral advice was an efficient cause of the decision to transfer is supported by the fact that Mr Boakes was better qualified than Mr Ellway, and was put forward at the first meeting as the retirement options specialist. He came across to the Walkers as more knowledgeable and authoritative than Mr Ellway.(3) The oral advice stage was crucial in persuading Mr Walker to transfer, and the two advice meetings were the central focus of the advisory process. They were the main opportunity for interchange of explanations and recommendations, and Mr Walker seized the opportunity to question both Mr Boakes and Mr Ellway repeatedly at them.(4) As Mr Clarkson accepted in cross-examination, the written material in this case (such as the reports and the reasons why letter) tended to be confirmatory of and to support the oral material, not the other way round.(5) There was nothing of substance in the written reports or the reasons why letter which is inconsistent with the Walkers’ contention that the oral advice had primacy.(6) There is no substantial material apart from the two advisory meetings by reference to which Mr Walker could have been persuaded to make the transfer. The exchanges which took place between Mr Walker and Mr Ellway after the meeting on 22 January 2001 were confirmatory of a decision which had been taken in principle almost immediately after that meeting.[102]Having given these submissions my careful consideration, the conclusion which I have reached is that the test of causation is indeed satisfied. Mr Boakes was older, more experienced and (in relation to pensions) much better qualified than Mr Ellway. In the absence of any explanation, either from himself or from Mr Ellway, that he was not allowed to give investment advice, it was in my view inevitable that what he said about the merits of transfer would carry great weight with Mr Walker, and that he would tend to see the written reports supplied to him by Mr Ellway (which were not discussed in any detail at either meeting) as confirmatory of what he had been told orally, rather than vice versa. The two meetings provided an opportunity for discussion and questioning of which Mr Walker took full advantage. It is therefore unsurprising that what he was told, and the replies to his questions, made a much more vivid impression on his mind than the pedestrian prose of the reports. In any event, the reports did not contradict the basic message that the oral advice conveyed, although a careful reading of them should perhaps have revealed to Mr Walker that in some important respects they were based on questionable assumptions about his personal circumstances (e.g. the supposed need for flexibility, or the likelihood that he would have significant earnings as a consultant) and his attitude to risk (which had never been properly elicited by Mr Ellway, and which in the report of 22 January 2001 he seems to have assumed to be “moderately adventurous”).[103]The process by which Mr Walker reached his decision was a slow and gradual one. He is a cautious man by nature, and quite rightly wanted to be sure that he fully understood what was being proposed. Despite his business background and experience, he was a novice in the field of pensions and wanted constant reassurance that he was doing the right thing. This reassurance was provided to him by both Mr Boakes and Mr Ellway, but for the reasons I have given it was in my judgment Mr Boakes’ reassurance that carried the greater weight with him. His attitude to the proposal to transfer moved from a lively but sceptical interest after the October 1999 meeting, to a strong inclination verging on a decision in principle after the January 2001 meeting, to a final decision (after further information and clarification had been provided to him) on 2 February 2001. Mr Boakes had no direct contact with Mr Walker after 22 January, but I am satisfied that the causative effect of his advice was neither diluted nor superseded by events after that date. On the contrary, the further information, figures and clarification which Mr Ellway provided to Mr Walker between 23 January and 2 February 2001 served to reinforce and confirm the advice which Mr Boakes had already given.[104]In short, I find on the balance of probabilities that, if Mr Boakes had not advised Mr Walker as he did at the two key advisory meetings, Mr Walker would not have come to the decision which he finally reached on 2 February 2001 and would instead have remained a member of the Taylor Woodrow scheme. I find further helpful support for this conclusion in a telling point made by Mr Herberg. In the first half of 2003, Mr Walker was pursuing various complaints of maladministration against Scottish Equitable and his fund managers. At this stage, he had not yet been advised that he might also have an actionable mis-selling claim against Scottish Equitable and Inter-Alliance, so he had no motive to allege that Scottish Equitable had been involved in persuading him to leave the Taylor Woodrow scheme. Nevertheless, when he wrote to Scottish Equitable and Personal Pension Management Ltd on 20 April 2003, to complain about delay in the payment of funds from his personal pension scheme, he began his letter by saying:
“Scottish Equitable were actively involved in persuading me to switch from my final salary pension with Taylor Woodrow Plc to the above scheme.”
In cross-examination Mr Walker confirmed that in saying this he was not complaining about the involvement of Scottish Equitable, but rather “making a statement of fact as an introductory paragraph to the letter”. Similar statements are also to be found in a draft complaint to the Financial Ombudsman Service that he emailed to Mr Ellway on 6 June 2003, and in the final version of the complaint which he sent to the FOS (with Mr Ellway’s full support) on 12 June. (3). Quantum[105]I have already indicated the basic nature of Mr Walker’s claim for damages in paragraph 6 above. There is a large measure of agreement between the experts on each side, and in the event I have only been asked to resolve four relatively minor issues at this stage. Once those issues have been resolved, it is hoped that the experts will be able to reach agreement on either of two alternative bases. The first basis would be to provide Mr Walker with the necessary sum to purchase in the open market an annuity providing equivalent benefits to those under the Taylor Woodrow scheme, together with an appropriate sum to compensate him for his past loss. The second basis would be for him to accept an equivalent annuity from Scottish Equitable, again together with an appropriate sum in respect of his past loss. It is not now disputed that the first basis is the correct one to adopt in the absence of an acceptable offer from Scottish Equitable to provide an equivalent annuity. However, if an acceptable offer were to be made by Scottish Equitable to match the future benefits available under the Taylor Woodrow scheme, and if there were a reasonable assurance that the necessary annuity for this purpose could be administered and operated by Scottish Equitable without difficulty, Mr Walker has said that he would in principle be prepared to accept it. The cost to Scottish Equitable of providing such an annuity would in all likelihood be significantly lower than a corresponding award of damages on the first basis, as Mr Arnold’s expert report makes clear. However, I was told that there were technical issues of some complexity which needed to be investigated before Scottish Equitable could commit itself to making such an offer. The choice between the two bases was therefore unresolved at the conclusion of the hearing. Nevertheless, the parties were hopeful that they would be able to reach agreement in due course, subject to resolution of the four issues which I have mentioned and to which I will now turn. (a). What is the appropriate start date for the assessment of damages?[106]There is disagreement between the experts about the date on which Mr Walker’s loss started to accrue. Mr Arnold contends for Mr Walker’s normal retirement date, that is to say 22 March 2001, on the basis that this was the date on which benefits would have become payable under the Taylor Woodrow scheme, and the company’s consent would have been needed for early retirement before that date. On the other hand, Mr Storey assumes that Mr Walker’s loss started to accrue immediately after his actual retirement date, which was 31 December 2000.[107]In my judgment Mr Storey’s view on this point is to be preferred. The contemporary documents show that Mr Walker was due to retire, with the full agreement of Taylor Woodrow, on 31 December 2000, and there is nothing to indicate that he would not have been entitled to a full pension based on his accrued years of service with effect from that date. In particular, the quotation of retirement benefits provided to him by the trustee of the Taylor Woodrow scheme on 17 November 2000 was expressly given on the basis of his retirement at 31 December 2000. It is true that the covering letter pointed out that early retirements were subject to company consent, but in the present case there can be no doubt that the company had consented because Mr Walker agreed his retirement date with Taylor Woodrow. Furthermore, Mr Arnold accepted in cross-examination that there was no reason why Mr Walker could not have taken his pension with immediate effect following his retirement on that date, and agreed that if he had chosen not to do so he would have been foregoing money to which he was entitled for no reason.

(b) Tax-free cash

[108]The next issue is whether Mr Walker would have exercised his right to take a lump sum of tax-free cash upon his retirement, and if so to what extent. According to the quotation sent to him on 17 November 2000, the maximum lump sum that he could have taken was £129,609.36.[109]The experts are in agreement that it would have been commercially beneficial for Mr Walker to draw no tax-free cash from the Taylor Woodrow scheme, because the scheme offered a highly prejudicial commutation rate to convert pension into tax-free cash. They also agree that Mr Walker stated that he had no apparent immediate need for a capital sum at that time: see paragraph 3.8 of the Joint Memorandum on Quantum Matters of Mr Storey and Mr Arnold dated 7 June 2007.[110]Mr Walker’s own evidence was that he would have sought advice on the question, and would have acted in accordance with that advice. In his evidence in chief he said “I hoped that I would have found some expert who could give me some correct advice, as in fact Mr Storey did in his report”. This evidence is supported by the fact that Mr Walker did indeed seek advice on this very question from his accountants and Mr Ellway in 1999, but never received an answer from them. Mr Walker is a prudent and careful man who was in the habit of seeking advice on financial questions of all sorts, as the evidence of his relationship with Mr Ellway clearly demonstrates. I have no doubt that he would have renewed his request for advice on this topic, if he had remained in the Taylor Woodrow scheme, and that he would have followed the advice he was given. The modest amounts of capital expenditure that he had in mind for the next five years after his retirement could easily have been met from his redundancy payment of £120,000 and his existing investments which in September 1999 amounted to well over £100,000 (see paragraph 34 of his witness statement). In these circumstances, Mr Walker would have had no need for a further lump sum in the immediate or short term, and his existing resources already provided him with a comfortable cushion for contingencies over and above his projected items of expenditure. He would therefore have had no incentive to take further cash from the scheme, and I am sure he would have followed the financially more advantageous course of taking higher pension benefits instead. I am not deflected from reaching this conclusion by the fact that, according to Mr Arnold, the majority of people opt to take the maximum amount of tax-free cash. Everything will depend on the particular circumstances of the individuals concerned, and many people will have liabilities, such as mortgages, which it is sensible to use the lump sum to discharge. Furthermore, I suspect that most people do not trouble to seek advice on the commutation rate, and may also be over-influenced by the fact that the sum is tax-free. However, it is clear that Mr Walker would have taken advice, and there is no disagreement as to what that advice would have been.

(c) AVCs

[111]The third issue is what it should be assumed Mr Walker would have done with his fund of AVCs. He could have used this fund to purchase further pension rights under the Taylor Woodrow scheme, and in the letter of 17 November 2000 he was told that if he did so it would probably yield a pension of about £2,700 per annum. On the other hand, he could have used the fund to purchase an annuity from a different provider, or deferred doing so until (at latest) he reached the age of 75.[112]The experts are again in agreement that it would have been commercially beneficial for Mr Walker to use his AVC fund to buy more pension with the Taylor Woodrow scheme, because it offered a preferential annuity rate that was better than anything he could buy in the open market: see paragraph 3.4 of their Joint Memorandum. However, the experts have treated Mr Walker’s AVC fund in fundamentally different ways in their calculations. Mr Arnold has ignored the fund in calculating Mr Walker’s loss, and has therefore effectively assumed that Mr Walker did not incur any loss by transferring his AVC fund to the Scottish Equitable personal pension drawdown contract. Mr Storey, however, has assumed that Mr Walker would have accepted the invitation to use his AVC fund to increase his pension under the Taylor Woodrow scheme. In his view, this is the course of action that a competent adviser would have recommended because of the preferential pension conversion rate offered by the Taylor Woodrow scheme.[113]Mr Walker does not deal with this point in his witness statement, and he was not questioned about it in his oral evidence. However, in my view the likelihood is that he would have sought advice on this question, as he did on so many others, and that he would have followed the advice by using his AVC fund to purchase further pension with the Taylor Woodrow scheme. There is no reason why he should not have followed the commercially sensible course. Mr Walker would no doubt have considered the argument for diversification, and not putting all his eggs in one basket, but I do not think it would have persuaded him to buy a relatively insignificant amount of further pension with a different provider on terms that were commercially less attractive. The Taylor Woodrow scheme was a strong one, and although its future solvency could not be guaranteed there was no immediate cause for concern.

(d) Punter Southall fees

[114]The final issue concerns certain fees of Punter Southall, incurred both in investigating Mr Walker’s complaint against Scottish Equitable and in administering his SIPP, and paid for out of Mr Walker’s new pension plan. The question is whether these amounts are in principle recoverable by Mr Walker from Scottish Equitable as damages, or whether they are recoverable (if at all) only as costs in the action. In so far as the relevant invoices are for management fees in respect of Mr Walker’s SIPP, they are in my judgment clearly recoverable as damages. They represent expenditure which would not have been incurred but for Scottish Equitable’s breach of duty, and they are part of the loss flowing from that breach. In so far as the invoices relate to investigations and advice in 2003-4, the position is again that the expenditure would not have been incurred but for Scottish Equitable’s breach of duty and Mr Walker’s decision to transfer out of the Taylor Woodrow scheme. The expenditure was incurred well before the present action was started on 10 May 2005, and there is no evidence that any of the invoices were excessive or represented work on other unrelated matters. In the circumstances I can see no good reason to exclude any of these invoices from the loss calculation, although it goes without saying that the sums cannot be claimed again as costs.[115]It only remains for me to mention two further points. First, the parties are content to adopt the assumed personal tax rates for Mr Walker provided by Mr Storey in his report. Secondly, the parties have reached an agreement between themselves to cover the contingency that the Revenue might seek to charge income tax on any sum awarded to Mr Walker. The agreement is to the general effect that the sum determined to be due should be awarded as an interim payment, with the award being finalised once the tax position has been confirmed.

Cited in 7 later judgments