Our Financial Services Litigation team offers a wealth of experience. Between them our lawyers have around 60 years’ experience of resolving disputes relating to financial services. We also have recognised financial services qualifications, giving us the formal industry knowledge required to gain real insight into the issues and achieve the most positive outcomes for our clients.
The mainstay of our practice is assisting clients who have been mis-sold financial products. Mis-selling is a catch-all term but generally refers to situations in which financial products are recommended even though they are in fact unsuitable for the particular needs of the customer, or in which the risks are not properly explained. Our experience includes the following:
- Pensions – transfers and opt-outs, SIPPs, SSASs, income withdrawal, annuities, guaranteed annuity rates (GARs) and tax-free cash lump sums.
- Investments – cash funds (including for example the AIG Enhanced Variable Rate Fund (EVRF), which formed the backdrop to the important case of Rubenstein v HSBC in which we acted), with-profits, structured products including high income bonds and precipice bonds, collective investment schemes including hedge funds and OEICs such as those provided by Arch Cru, life settlement funds such as those provided by Keydata, foreign exchange (forex) and spread betting, and also investment strategies involving gearing (borrowing to invest).
- Insurance – all types of life insurance and failures to write the same in trust, critical illness insurance and permanent health insurance (PHI).
- Mortgages – equity release products such as lifetime mortgages and shared appreciation mortgages.
- Tax and estate planning – tax avoidance schemes such as film partnerships, and other tax planning strategies involving the use of overseas residence, lifetime gifts, discounted gift trusts, and the use of pensions to fund investments written in trust to minimise estate assets.
Pensions still produce a significant number of disputes, even though the situation has improved since A Day. We certainly see a steady stream. We act for both individuals and scheme trustees in these cases.
Some of the cases we see involve allegations of mis-selling. Examples include transfers out of defined benefit schemes or old-style retirement annuity contracts containing guaranteed annuity rates (GARs); transfers into SIPPs with small funds or to facilitate risky investments not permitted under standard pension schemes; income drawdown in circumstances where the income could be unsustainable without taking overly high investment risks.
Some cases are better characterised as ‘maladministration’. These tend to be claims for breach of contract or trust or of some other duty of care by the scheme’s trustees, managers or administrators. These include disputes relating to scheme funding, transfer values, unauthorised scheme loans, death benefits, benefits exceeding HMRC maxima and other unauthorised payments, age discrimination, and ill-health and other early retirement issues.
We also have experience of acting in cases involving a refusal to transfer benefits due to alleged fraud/negligence by scheme members which affects the sponsoring employer, and in cases involving the Pension Protection Fund and the Pensions Regulator
We take pride in helping our clients achieve positive outcomes, and we are well versed in using the Pensions Ombudsman and of course the courts for that purpose.
Ill-health Retirement Disputes
Occupational pension schemes generally permit members to retire early (without the substantial reduction in pension benefits normally associated with early retirement) if they can prove that they are permanently incapable of working due to ill-health, but it is much harder for some members to prove this than for others. Sufferers of Chronic Fatigue Syndrome (CFS/ME) are a good example of this. Although sufferers may be incapable of working, they are often treated with suspicion by occupational health departments, and doctors are often unable to say with confidence (initially at least) that they will not recover at some point in the future.
We acted in the landmark case of Spreadborough v Wandsworth London Borough Council, in which the High Court, on appeal from a decision of the Pensions Ombudsman, ruled that in certain circumstances decisions as to whether or not incapacity is permanent can be postponed until more is known about the causes, and then backdated. We now frequently advise on the application of this ruling and represent clients in what are often delicate and valuable complaints to scheme trustees/managers and the Pensions Ombudsman.
People take out insurance to protect themselves against financial risks or to make sudden difficult circumstances easier to cope with. The last thing they want is to discover that the insurer can escape liability on a technicality, or for their dependants to find life insurance benefits falling into their estate. However, as large sums of money are involved, disputes of this kind are sadly rather common.
Insurers might refuse to pay out under a policy on the ground of ‘material non-disclosure’ – a failure by the insured to disclose certain information which might have affected the insurer’s decision to provide cover on the terms that it did. They might also refuse on the basis that the policy has lapsed due to non-payment of premiums, or that the policy would not have been set up at all but for an administrative error.
Financial advisers are sometimes to blame. It is not uncommon, for example, for critical illness insurance to be recommended where permanent health insurance (PHI) might have been more suitable, or for term life insurance to be arranged where only whole of life cover would have achieved the customer’s objectives. They might have failed to recommend that a life policy be written in trust to avoid the proceeds being paid to the wrong person or seriously depleted by IHT.
We are very experienced in handling disputes of this kind for our clients in what can be very difficult circumstances.
Research shows that more people would be willing to defend their rights in the courts if they could do so as part of a group of similarly affected people. This is entirely understandable and indeed quite natural: litigation is a stressful business, so it is comforting to know there are other people in the same boat. However, group litigation also has significant practical benefits because it enables costs and risks to be shared.
We are experienced in setting up and managing large-scale group litigation. We represented over 400 clients in a single action against Equitable Life in relation to its with-profits annuities, and we now represent a similar number in connection with claims against HM Treasury and a US investment house arising from unauthorised investment business. We have also acted for Nationwide in its professional negligence litigation against large numbers of other solicitors and surveyors. We have represented several smaller groups of clients in so-called managed lists, in which their claims were mainly unique but involved common issues. And even though our group clients can number in their hundreds, we are still able to provide much of the excellent personal service our individual clients receive.
Structured Products Disputes
There is a bewildering array of structured products on the market today. They can broadly be categorised as either principal-protected investments, buffer zone investments or return-enhanced investments, but in reality they are almost limitless in their variety. They cater to most investment needs by offering varying levels of income/growth potential and capital protection, and can be attractive to investors in an economic environment notable for its long term low interest rates. However, the benefits and risks are often opaque, which the FSA (the FCA’s predecessor) considered could lead to mis-selling. need to be carefully matched to an investor’s needs and the risks must be carefully explained.
The collapse of Lehman Brothers and the near-collapse of AIG in late 2008 brought structured products sharply into focus and highlighted just how risky even the principal-protected variety can be, because any guarantees offered are no better than the financial institution backing the guarantee. The return-enhanced variety had of course hit the headlines several years before when the mis-selling of so-called high income bonds and precipice bonds attracted substantial FSA fines.
Investors who have suffered losses on structured products may well be able to recover compensation. The FSA highlighted in October 2009 that many financial advisers were still giving seriously deficient advice and descriptions regarding structured products, and the products featured in its 2011 list of the top 15 risks. It is not just financial advisers who may have slipped up here: product providers may in some cases have produced inadequate marketing and product literature, and there may also be scope for pursuing any custodians involved.
Interest Rate Swaps
Interest rate swaps are complex financial derivatives or specifically “contracts for differences”. They allow two parties to exchange obligations based on interest rates, and can be used both for hedging and speculation purposes.
They were commonly sold to business people and SMEs by the banks, often as a pre-condition of the bank agreeing to lend funds.
Customers were informed that taking out these products would provide protection from rising interest rates, only to find rates falling to record low levels soon afterwards, leaving them with much higher interest payments than they would otherwise have wished to pay, or breakage costs of up to 30% of their total borrowings.
The FSA (the FCA’s predecessor) concluded in its Interest Rate Hedging Products Pilot Findings report of January 2013 that over 90% of the cases it had looked at did not comply with one or more of its regulatory requirements. The banks’ explanations of the breakage costs came in for particular criticism.
Certainly in our experience the common feature of these claims is that the banks in question failed to provide a “clear, fair and not misleading” explanation of the risks.
We have acted in large numbers of these cases, including Messrs Green and Rowley’s appeal to the Court of Appeal in Green & Rowley v Royal Bank of Scotland, and we are experienced in pursuing claims for our clients in the courts, via the Financial Ombudsman Service (FOS) and the FCA (formerly FSA) review scheme.
Thousands of people relied upon professional advice from their financial advisors and accountants to use these complex vehicles as part of their personal tax planning. At the time of the advice, film partnerships were generally described as legitimate tax deferral schemes. Indeed, these schemes flourished in the wake of the government offering tax incentives to investors, which were legislated with a view to increasing support for the British Film Industry. The tax reliefs were widely exploited and eventually withdrawn, but new schemes emerged which sought to continue film-related tax mitigation benefits. Most investors accepted that HMRC may challenge the scheme they invested in. However, an explanation of the consequences of that challenge being successful is demonstrably absent from almost all the advice we have considered. It is well established that professional advisors are under a duty, when advising their client on the merits of a particular course of action, to also identify and explain the risks, and even more so when the consequences of the risk eventuating are life-changing – some investors now face bankruptcy. It is certainly possible that, in failing to point out the potentially devastating consequences of participating, the adviser was negligent. However, due to the passage of time since investing in these schemes, some participants will be unable to take any action to recoup their losses. If you are a member of such a scheme and you believe that it may have been mis sold, you must not delay in seeking legal advice in that regard, if only to preserve your ability to make a claim in due course.
For more information please contact Laura Hazell.