Berkeley Burke loses High Court appeal against FOS decision

Hannah Godfrey reports...

The High Court has rejected self-invested personal pension (SIPP) administrator Berkeley Burke’s claim against a Financial Ombudsman Service (FOS) decision.

Berkeley Burke was fighting a 2014 ombudsman decision in which the FOS ruled the SIPP administrator had to compensate a client after it failed to carry out appropriate due diligence on his investment.

In 2011, Wayne Charlton decided to invest his £29,000 pension pot into an unregulated investment. The investment scheme, Sustainable Agro Energy, said it would enable investors to purchase land in Cambodia on which to grow jatropha trees that would be used to create bio fuel. The scheme was later found to be fraudulent.

Berkeley Burke, which facilitated the investment, has persistently argued it carried out the due diligence expected of SIPP providers at the time, and that the FOS had placed undue responsibility on it. Today (30 October), however, Justice Jacobs found the FOS followed the guidelines set out by the Financial Conduct Authority (FCA) when making its decisions and therefore dismissed the claim.

The hearing

Retirement Planner attended a three-day judicial hearing in mid-October, which saw legal representatives from the SIPP administrator, the FOS, the FCA and Charlton present their cases.

On the first day of the hearing, Berkeley Burke’s lawyers suggested the SIPP administrator would have needed a “crystal ball” to understand the obligations the FOS supposedly placed on it retrospectively when administering the case some three years after the investment was made.

Barrister Jonathan Kirk, who represented the firm, argued the ombudsman had considered tighter rules around due diligence requirements of SIPP providers that came into play in 2014, therefore applying retrospective legislation to a 2011 investment decision.

He also argued Berkeley Burke was not responsible for the due diligence the FOS came to expect of it, saying the firm merely executed the wishes of a client – as he stated it was obliged to do under the Conduct of Business Sourcebook (COBS) rule 11.2.

The following day the FOS accused the SIPP administrator of simply “ticking boxes“. Barrister James Strachan, representing the FOS, argued Berkeley Burke failed to carry out adequate due diligence because it did not consider the COBS rule in light of wider legislation and the principles that sit alongside the COBS rules – namely that the rules were written to enhance consumer protections.

‘Armageddon’

Speaking two weeks ago at PA360 North, an all-day conference for financial advisers, Dentons Pensions director of technical services Martin Tilley warned delegates it would be ‘Armageddon‘ in the SIPP market if this and a second judgement went against the SIPP administrator.

Tilley was referring to both the Berkeley Burke case and the Adams v Carey Pensions case, both of which he said could have knock-on consequences for the wider SIPP market if a judge ruled against the providers.