Walker v Inter-Alliance Group Plc & Anor

Factual and Procedural Background

The Plaintiff retired on 31 December 2000 from a long-standing career as a director and senior manager at Company A, where he was a member of a defined benefit final-salary occupational pension scheme regarded as highly beneficial in the industry. Shortly after retirement, the Plaintiff met with his Independent Financial Adviser ("IFA") and a representative from Company B to transfer his pension entitlement from the Company A scheme into a self-administered personal pension scheme marketed by Company B. This new scheme offered more flexibility but lacked the guarantees of the original scheme and was dependent on investment performance.

The Plaintiff alleged that he was advised by both his IFA and the Company B representative to transfer out of the Company A scheme into the new arrangement, which he contended was unsuitable given his financial circumstances and cautious risk profile. He claimed damages to compensate for the loss of benefits he would have received had he remained in the Company A scheme.

The action was commenced against the Plaintiff's IFA's employer, Company A, and the pension product provider, Company B. The claim against Company B was principally based on breach of statutory duty for giving investment advice in contravention of regulatory rules, and alternatively for breach of a common law duty of care. The claim against Company A was based on breach of contract. Following Company A's administration, the trial proceeded against Company B only.

The trial involved detailed factual findings regarding the meetings at which advice was given, the regulatory framework governing the conduct of financial advisers and product providers, and the nature of the advice provided. The Plaintiff contended that the Company B representative gave investment advice in breach of regulatory rules, which caused him to transfer out of the Company A scheme to his detriment.

Legal Issues Presented

1. Did the Company B representative provide investment advice to the Plaintiff in breach of the principle of polarisation and relevant regulatory rules?
2. If so, did such advice cause the Plaintiff to suffer loss by inducing him to transfer out of the Company A pension scheme?
3. What is the appropriate quantification of the Plaintiff’s loss resulting from the breach of statutory duty?

Arguments of the Parties

Plaintiff's Arguments

• The oral advice given by the Company B representative at two key meetings constituted investment advice, not mere factual information, in breach of the regulatory principle of polarisation.
• This advice was a crucial and efficient cause of the Plaintiff’s decision to transfer out of the Company A pension scheme.
• The Plaintiff was cautious by nature and required reassurance, which he received primarily from the Company B representative, who was presented as a specialist and was more authoritative than the IFA.
• The quantification of loss should reflect the difference between the benefits received and those that would have been received under the Company A scheme, including appropriate consideration of tax-free cash options, AVCs, and fees incurred due to the transfer.

Defendant's Arguments (Company B)

• Even if the Company B representative spoke to the Plaintiff, the advice was too vague to constitute investment advice under the regulatory definition.
• The Plaintiff was an experienced senior executive capable of making rational decisions based on detailed written reports provided by the IFA, who was the Plaintiff’s primary adviser.
• The two meetings with the Company B representative were separated by 15 months with no ongoing contact, diminishing any causal link.
• The Plaintiff’s final decision to transfer was made after receiving and reviewing detailed reports and correspondence from the IFA, not based on oral advice from the Company B representative.
• There was no relationship of trust or confidence between the Plaintiff and the Company B representative, and the Plaintiff’s adviser throughout was the IFA.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the factual matrix, including witness evidence and expert opinions, to determine whether the Company B representative gave investment advice in breach of the regulatory principle of polarisation. The court accepted the Plaintiff's detailed and consistent evidence, supported by his wife and expert witnesses, that the Company B representative provided oral advice recommending transfer out of the Company A scheme. The court rejected the Defendant’s contention that the advice was too vague or that the Plaintiff relied solely on the IFA’s reports.

The court analysed the regulatory framework, particularly the Financial Services Act 1986 and the rules of the Personal Investment Authority (PIA), which prohibited product providers from giving investment advice outside their own products. It was found that the Company B representative breached these rules by giving investment advice when only factual information was permitted.

Regarding causation, the court applied the "but for" test, concluding that but for the advice of the Company B representative, the Plaintiff would not have transferred out of the Company A scheme. The court found the oral advice was a significant and efficient cause of the decision, outweighing the subsequent written communications from the IFA, which were largely confirmatory.

The court also considered the quantum of loss, acknowledging expert agreement on most matters but identifying four issues requiring resolution. The court preferred the view that damages should be assessed from the Plaintiff's actual retirement date rather than his normal retirement date, and accepted that the Plaintiff would have taken no tax-free cash lump sum from the Company A scheme. The court found that fees paid to a third-party financial adviser post-transfer were recoverable as damages.

Holding and Implications

The court held that:

• The Company B representative gave investment advice to the Plaintiff in breach of statutory duty and regulatory rules.
• The Plaintiff suffered loss as a result of this breach, satisfying the causation requirement.
• The quantum of loss is to be assessed on the basis that the Plaintiff’s loss accrued from his actual retirement date, with specific considerations regarding tax-free cash and AVCs.

Implications: The direct effect of this decision is to establish the Defendant’s liability for breach of statutory duty in giving unauthorized investment advice and to entitle the Plaintiff to damages compensating for the loss arising from the unsuitable pension transfer. The court did not establish any new legal precedent beyond the application of existing principles but reinforced the regulatory principle of polarisation and the broad scope of "investment advice" under the Financial Services Act 1986.