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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Goldstone & Anor v Becque Wayman Investments Ltd & Ors [2012] EWHC 3549 (Ch) (24 October 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/3549.html Cite as: [2012] EWHC 3549 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY

		Manchester Civil Justice Centre 1 Bridge Street West Manchester M60 9JD
		24th October 2012

JUDGE HODGE QC:

1. This is my extemporary judgment in a claim by Mr Michael Hart Goldstone and Mr Leslie Clarke David Winnard against (1) Becque Wayman Investments Limited (to which I shall refer as Becque Wayman) (2) Endowment Surrender Plus and (3) Mr Mark Wayman, claim number 9MA30832. The claimants are represented by Mr Peter Knox QC, instructed by Neil Myerson LLP. Until 9^th October 2012 Becque Wayman and the other two defendants were represented by Slater Heelis, solicitors. On that day, Becque Wayman gave notice that Slater Heelis were no longer instructed on its behalf. At the beginning of the trial of this claim, on Monday 22^nd October 2012, I gave Mr Martin Becque, the director of Becque Wayman, permission to represent that company pursuant to CPR 39.6. The other two defendants, Endowment Surrender Plus and Mr Mark Wayman, are both represented by Ms Julie-Anne Luck of counsel. This judgment relies heavily upon the written skeleton arguments of both Mr Knox and Ms Luck for which the court is grateful.
2. This extemporary judgment is divided into seven chapters as follows: (1) Background; (2) The evidence and the trial; (3) Findings of fact; (4) The contracting parties; (5) Breach; (6) Causation and damages; and (7) Disposal. I should, however, emphasise that although so structured for purposes of ease of exposition, the contents of each chapter of this judgment have informed the judgment as a whole.

Chapter 1: Background

3. This case concerns financial advice allegedly given to the claimants by Mr Wayman in November and December 2003. The claimants' case is that as a result of that advice, the claimants (who are the trustees of the Michael Goldstone 2003 Life Interest Settlement) invested one million US dollars, the sterling equivalent of which at that time was some £592,417, in a company incorporated in the State of Florida known as the Mutual Benefits Corporation of Fort Lauderdale, Florida (hereinafter referred to as MBC). They did so in order for that company to invest in viatical and life settlement policies. The adjective 'viatical' I suspect comes from the old Eucharist in the Roman Catholic Church which was given to people in danger of dying. Viatical and life settlement policies are policies on the lives of ill or elderly people, which are purchased at a discount to the policy proceeds which it is hoped will be payable on the policy holders' deaths. The investment went badly wrong because such investments are 'high risk', and MBC was not an honest company. With the exception of 150,000 US dollars, which was returned to the trustees, and a further sum of 65,379 US dollars, which was received from the receiver of MBC by way of payment, the trustees lost their original investment, together with further sums which they had paid over in an attempt to keep the various policies on foot by way of further premium payments thereunder.

4 Becque Wayman was in 2003, and at all material times thereafter, an independent financial advisor authorised and regulated by the Financial Services Authority in accordance with the provisions of the Financial Services and Markets Act 2000. The second defendant, Endowment Surrender Plus (ESP), was at the time a partnership between the third defendant, Mr Mark Wayman, and his wife. ESP was the appointed representative of Becque Wayman for the purposes, and within the meaning, of section 39 of the Financial Services and Markets Act 2000.

4. The trustees' case, in summary, is that they made the investment in the viatical and life settlement policies in reliance on negligent advice given by Mr Wayman, on behalf of ESP, to the effect that those policies were 'low risk' when, in fact, they were 'high risk' investments. Accordingly, the claimants say that ESP is liable to them, both in breach of contract, on the footing that ESP was the contracting party, and also in negligence at common law. Further, as ESP was Becque Wayman's appointed representative for the purposes of the 2000 Act, it is said that Becque Wayman is automatically liable for that advice as well, under section 39 of the 2000 Act. The claimants claim, in the alternative, that Becque Wayman is liable on the contract as undisclosed principal, and thus is directly liable in the tort of negligence. Originally, it was disputed by the defendants that the investment was not a 'low risk' investment. It was denied that no reasonably competent financial advisor could have described it as such. However, in a letter dated 9^th March 2012, written by the defendants' then solicitors, Slater Heelis, at a time when they were acting for all three defendants, to the claimants' solicitors, and after the claimants had obtained the expert advice of Mr Conolly Finnur Tunnard, a chartered accountant dated 6^th February 2012, and ordered pursuant to an order of District Judge Richmond dated 2^nd November 2011, Slater Heelis indicated that they would not take issue with Mr Tunnard's findings on the following two issues upon which he had been asked to express an expert opinion: First, the defendants accepted, for the purposes of these proceedings, that given the information, or lack of it, then available to the defendants, a reasonably competent financial advisor would not have described the risk to the claimants as 'low risk'. Secondly, the defendants also accepted, for the purposes of the litigation, that it had been reasonable for the claimants to have stopped paying premiums on the various viatical and life settlement policies in or about November of 2009. That concession was said to negative the need for any further input from Mr Tunnard; and, in the event, he did not give evidence before me, although his report of 6^th February 2012 was before the court and was referred to. The defendants say that the effect of Mr Wayman's advice was not that the investment was 'low risk'; and, in any event, the claimants have not relied upon it as it is said that they were sophisticated investors, who had formed their own independent judgment of the risks associated with the investment and had nevertheless gone ahead. Further, ESP denies that it was a party to the contract, or that it owed any duty at common law to the trustees, on the footing that as it was Becque Wayman's appointed representative, as noted on its relevant letters, it did not have any personal contractual liability. During the course of Ms Luck's opening, it was accepted by Mr Knox, for the claimants, that if it had been made plain that ESP had been acting only as agent of Becque Wayman, such as to negative any personal contractual liability on its part, then no independent common law duty of care would have arisen on the part of ESP or Mr Wayman.
5. In the re-amended particulars of claim, the claimants sought to recover (1) the sums originally invested, amounting to £592,417; (2) the profits which they would have made on the sums invested on a low risk investment on the footing that any income would have been reinvested over the years as the claimants had had no need for income; (3) the additional premiums paid, amounting to £100,098; (4) administration fees, amounting to £5,350; and (5) compound interest on the sums paid to meet the additional premiums and administrative fees because the claimants would have earned compound interest on the sums they had used to fund that expenditure. It was acknowledged that the claimants would give credit for any and all profits made on policies which had matured. In his written skeleton argument, Mr Knox acknowledged that the claims for the profits which would have been made from a low risk investment, and for compound interest on the sums paid to meet the additional premiums and administrative fees, had not been addressed in the witness statements; and the claimants have made no independent claim in relation to those matters.
6. During the course of the hearing, it also became apparent that a sum of £3,887.94, representing 10 per cent of the agreed commission which had been paid over by the claimants to ESP, had been paid over to RSM Tenon, which was the firm of accountants by which Mr Winnard was then employed as a tax director. That sum was applied in reduction of fees which would otherwise have been charged by Tenons to the claimants. Mr Knox acknowledges that that sum, too, is a sum which should fall to be deducted from the amount of the claim in these proceedings. In the course of his written skeleton argument, at foot-note 5 to paragraph 33, Mr Knox had referred to the fact that an email of 7^th February 2006 from Mr Wayman suggested that 150,000 US dollars of the original investment (of one million US dollars) had never been invested and had been returned to the claimants. On the evening of the trial, a series of schedules was produced by Mr Winnard which were inserted into the supplemental trial bundle. The schedule at page 45 records various amounts received by the trust. These comprised net proceeds from matured policies of £116,656, un-invested cash returned to the trust in the sum of £84,570, and compensation from the receiver of MBC in the sum of £65,379, making a total of £266,605. That reduces the net loss on the original investment from £592,417 to £325,812. To that figure must, however, be added administration fees paid by the trust of £5,350, and premiums paid of £100,098. On that footing, it is said that the net loss to the trust (exclusive of interest) is the sum of £431,260. That is said to represent the quantum of the claim against the three defendants. It is now accepted, as I have recorded from the Slater Heelis letter of 19^th March 2012, that, whilst it had been reasonable for the trustees to continue to pay premiums on the policies to keep them alive initially, it had been reasonable for them eventually to stop doing so in 2009.

Chapter 2: The Evidence and the trial

7. I have already referred to the unchallenged expert accountant's report of Mr Tunnard. There were two witnesses called at trial for the claimants: Mr Goldstone, who, in addition to being one of the trustees, was also the settler and a beneficiary of the relevant settlement. His witness statement is dated 13^th December 2011. The other witness statement relied upon by the claimant was that of the co-claimant, Mr Leslie Clarke David Winnard. He is a chartered accountant, specialising in tax planning, and a tax director with Tenons. His witness statement is dated 5^th December 2011. For the defendants, there were two witnesses tendered to the court. The first was the third defendant, Mr Mark Wayman. His statement was dated 12^th December 2011. The other witness for the defendants was Mr Martin Becque, a director of Becque Wayman, who also represented it at trial. His witness statement is dated 12^th December 2011.
8. The trial began just after 10.30 on the morning of Monday, 22^nd October 2012. Although I had pre-read the written skeleton arguments submitted both by Mr Knox for the claimants and Ms Luck for the second and third defendants, Mr Knox opened the case for about two hours and 20 minutes. Ms Luck then opened the case for the second and third defendants for about 25 minutes, extending over the lunch adjournment, and beginning at about five to one, and continuing from about five to two until 2:15. Mr Becque did not address me at that stage.
9. The claimants then called their two witnesses. I heard first from Mr Goldstone, who gave evidence for about two hours and 20 minutes, from about 20 past two until just before 4.30 on the Monday afternoon. At the request of Ms Luck, and without opposition from Mr Knox, Mr Goldstone gave his evidence in the absence from court of Mr Winnard. The court then broke for a little over ten minutes and resumed at about 20 to five and heard Mr Winnard's evidence until about 6.15. Mr Winnard therefore gave evidence for about an hour and 35 minutes. On the morning of the second day of the trial (23^rd October), I heard evidence from Mr Becque on behalf of the first defendant. He was cross-examined, first by Ms Luck, for about 20 minutes, and then by Mr Knox for a similar period of time. His evidence concluded at about 25 past eleven. I then heard evidence from Mr Wayman for about two and a half hours in total, beginning at about 25 past eleven and extending into the afternoon, until about five past three, a total of two and a half hours. As I had indicated I would do, I then rose to enable Ms Luck to give some thought to her closing submissions. Ms Luck addressed me in closing for about an hour on the afternoon of the second day of the trial (from about 3.45 until about ten to five), and she then addressed me for a further 20 minutes this morning. Mr Becque then addressed me for about ten minutes; and Mr Knox replied for about an hour and a quarter, concluding at about 12.25. I then rose early for lunch and began delivering this extemporary judgment just after two o'clock this afternoon.
10. Despite a sustained attack on the credibility of both claimants by Ms Luck, I find all four of the witnesses who gave evidence before me to have been both honest and seeking to assist the court to the best of their abilities. Mr Becque I found to be of limited value in resolving the issues which I have to decide. As Mr Becque had himself acknowledged (at paragraph 25 of his witness statement), he personally had not been involved in any of the meetings that had taken place between Mr Wayman and either of the claimants, and therefore he was unable to give any evidence in that regard. He did, however, give evidence as to the relationship between Becque Wayman and ESP. So far as the remaining three witnesses are concerned, all of them suffered the inevitable degradation of their respective powers of recollection resulting from the passage of nearly nine years since the events in question. Without in any way impinging upon the honesty of their evidence, and whilst acknowledging that both gentlemen were doing their honest best to assist the court, I must approach certain aspects of the evidence of both Mr Goldstone and Mr Wayman with some reserve.
11. In the case of Mr Goldstone, it seems to me that his recollection may have been impaired by the benefit of hindsight, including the fact that, subsequent to the crucial meeting of 17^th November 2003, a risk assessment of two to three in a range of one to ten (with one representing the least risk and ten the greatest risk) in a later FSA compliance exercise (on 5^th December 2003 or thereabouts) may have impaired Mr Goldstone's recollection of events. It also seems to me that his recollection was also affected by his hindsight knowledge of the fraud that was subsequently discovered on the part of MBC.
12. In the case of Mr Wayman, it seems to me that aspects of his evidence may have been influenced, even if only subconsciously, first by his understanding of the true nature of the relationship between Becque Wayman, as an authorised principal for FSA purposes, and ESP, as its appointed representative, together with the understandable need to justify his own previous conduct in the matter, and also his financial self interest as the principal partner in ESP, and the person who gave the information, or (the claimants would say) the investment advice, which led to this, in the event, disastrous investment in viatical and life settlement policies.
13. I find that of the three gentlemen, by far the most reliable witness is Mr Winnard. I found him to be a quietly spoken man, of a naturally cautious and conservative disposition, who gave his evidence in a careful and considered manner. At the end of his evidence, when pressed both in re-examination by Mr Knox, and also by the court, in an attempt to understand the full content and effect of his evidence, Mr Winnard frankly accepted that he could not actually recall the words 'low risk' actually being used by Mr Wayman at the crucial meeting on 17^th November. Mr Winnard had been asked by me whether there had been any description of the level of risk at the meeting, and his response had been, "Not as such, no". Mr Knox then further re-examined, asking whether Mr Wayman had said anything about the overall amount of risk. Mr Winnard said that they had not discussed risk on a scale of one to ten. They had not discussed levels of risk. The investments were not 'no risk', but were of 'low risk'. I then asked whether Mr Winnard could actually recall the words 'low risk' actually being used by Mr Wayman; and Mr Wayman said "No, he could not". That frankness in my judgment redounds considerably to Mr Winnard's credit. I reject the submission of Mr Knox, advanced in closing, that I should conclude that Mr Wayman had indeed said that the investment was, in terms, 'low risk', and that Mr Winnard simply could not recall that having been said. I am quite satisfied, having seen Mr Winnard giving evidence, that if the words 'low risk' had actually been used by Mr Wayman, Mr Winnard would have noted them, and would have recalled them. Where there is a difference in recollection between the three principal players, Mr Goldstone, Mr Winnard and Mr Wayman, then it is the evidence of Mr Winnard that I prefer.
14. Ms Luck mounted a sustained challenge to the credit of both Mr Goldstone and Mr Winnard, founded upon their failure to mention the repayments to the trust in all three of the iterations of their statement of case, and also in their witness statements. She emphasised the late production, only on the evening of the trial, of Mr Winnard's three schedules, which gave the necessary credits against the claimants' claim. Those schedules had, as I have mentioned, already been foreshadowed by foot-note 5 at paragraph 33 of Mr Knox's skeleton, although even he had made no reference to the further credit of £65,379 in respect of compensation from the receiver. Those omissions were, Ms Luck said, all the more significant because there had been a direct request for the necessary information made by Mr Becque in an email to Mr Winnard of 10^th March 2010, which Mr Winnard had then passed on to the claimants' solicitors, Neil Myerson. I accept the evidence of both Mr Goldstone and Mr Winnard that there had never been any intention on the part of either of them to mislead the court, or to conceal these credits from the court. I accept that these were genuine omissions. Ms Luck also challenged the credibility of Mr Goldstone's evidence on the footing that he indicated, in the course of his oral evidence to the court, that the level of risk had been mentioned by Mr Wayman even before the 17^th November meeting, when Mr Wayman had first raised the question of a possible investment by Mr Goldstone in viatical and life settlement policies. This, Ms Luck said, and put to Mr Goldstone in cross-examination, was something that he had never previously mentioned. Indeed, when Mr Winnard came to be cross-examined, he indicated that no discussion of risk had been relayed to him by Mr Goldstone when Mr Goldstone had first mentioned the possible investment by the trust in viatical and life settlement policies. I bear that challenge in mind. I am not satisfied that the issue of risk was in terms mentioned by Mr Wayman to Mr Goldstone, prior to Mr Wayman's first discussions with Mr Winnard, during the course of a telephone conversation, apparently on 12^th November 2003; but I do not consider that Mr Goldstone was deliberately making up that evidence, effectively on the hoof. In my judgment, he was genuinely seeking to convey to the court his present recollection; but I do bear it in mind as a reason why, where the evidence of Mr Goldstone differs from that of Mr Winnard, I prefer Mr Winnard's evidence.
15. That concludes my assessment of the witnesses.

Chapter 3: Findings of fact

16. Accompanying Mr Knox's written skeleton opening was a chronology which, in revised form, was relied upon extensively at trial. Although subject to a number of minor corrections during the course of the trial, its accuracy was not the subject of any real challenge on behalf of any of the defendants. The sale of viatical and other life settlement policies as a form of investment appears to have begun in the United States in the early 1990s. One of its objects had been to create a market in which the terminally ill, particularly those suffering from Aids, might be able to raise immediate cash to ease their passing; hence the adjective 'viatical'. MBC appears to have begun marketing such settlement policies as potential investments from about 1994. During the course of its life, and until May 2004, when the Securities and Exchange Commission filed a complaint, and sought emergency relief, against MBC and its controllers, resulting in the appointment of a receiver, MBC appears to have raised substantial sums of money, amounting to in excess of one billion US dollars, from a considerable number of investors, estimated by Mr Knox at over 30,000.
17. In his capacity as a partner in, and the principal active independent financial advisor acting on behalf of, ESP, Mr Wayman advised Mr Goldstone on his own personal investment portfolio in May of 2002. On 23^rd May 2002, Mr Goldstone and Mr Wayman signed written terms of business. The document was expressed to be the terms of business of Endowment Surrender Plus. Endowment Surrender Plus was stated to be an appointed representative of Becque Wayman Investments Limited, the address of which was given, and which was said to be authorised by the FSA to carry out regulated investment business. In respect of the terms of business, Mr Goldstone's objectives had been defined in a completed customer information form, which was said to form part of the terms of business, and could be summarised as 'capital growth'. The terms of business stated that Mr Goldstone had confirmed that his overall attitude to investment risk, as assessed on a scale of one to ten, would be four, where one represented little risk and ten very speculative. The terms of business recorded that Mr Goldstone and ESP had discussed the implications of risk, and, for this particular investment, Mr Goldstone had been comfortable in accepting a risk profile of four. Those terms of business can be found at pages 85 to 86 of bundle 1; and the relevant letter of engagement is to be found at pages 360 to 361 of bundle 2. The letter of engagement was also headed 'Endowment Surrender Plus'. It described that entity as' independent', and as acting on Mr Goldstone's behalf in advising him on traded endowment policies, life assurance pensions or unit trust products. It was said that because 'we' (and I construe that as meaning ESP) were independent, they could advise Mr Goldstone on the products of different companies. Under the heading of 'Our Firm', in bold type, Endowment Surrender Plus was said to be an appointed representative of Becque Wayman Investments Limited, which was said to be authorised and regulated by the FSA. The letter went on:

"We specialise in offering independent advice for clients wishing to invest in traded endowment policies (TEPs). We may also give advice on term assurance, health and medical insurance and various other forms of investment schemes."

Wherever the letter of engagement uses the pronoun 'we', I construe that as meaning ESP. The letter concluded with the statement in bold type:

"Endowment Surrender Plus is an appointed representative of Becque Wayman Investments Limited, which is authorised and regulated by the Financial Services Authority."

Mr Knox submits that the tenor of those documents indicates that it was ESP which was providing the investment advice, and which was the party contracting with Mr Goldstone.

18. On 16^th May 2003, Becque Wayman and ESP entered into an agreement for appointed representative; that agreement appears at pages 79 to 84 of trial bundle 1. The agreement was expressed to be between Becque Wayman Investments Limited (therein described as 'the firm') and Endowment Surrender Plus (therein described as 'the representative'). The representative's obligations were set out in clause 5. By clause 5.1:

"The representative was, on behalf of the firm, to undertake the following regulated activities in respect of traded endowment policies, life policies, pension contracts, stakeholder pension schemes, collective investment schemes, individual savings accounts, subject to any restrictions on the firm's scope of operations."

Mr Knox accepted, during the course of Ms Luck's closing, in terms that investment in viatical and life settlement policies was a 'regulated activity' and therefore was covered by the terms of the agreement for appointed representative of 16^th May 2003. By clause 5.2 of that agreement:

"The representative [that is to say ESP] was to devote such of his time, attention and abilities to the business as might be necessary for the proper exercise of his obligations as an appointed representative and in particular was not to undertake any of the services provided in clause 5.1 otherwise than on behalf of the firm."

By clause 5.6:

"All correspondence, business cards and other literature, issued under the name of the appointed representative on behalf of the firm must clearly state that the person was an appointed representative of the firm and might not be issued unless approved by the firm."

By clause 5.11:

"The representative [that is to say ESP] was to be responsible for all expenses and disbursements incurred in connection with the provision of his services stipulated in the agreement."

By clause 6.3:

"The firm [that is to say Becque Wayman] accepted responsibility for the investment business conducted by the representative [ie ESP] pursuant to the agreement."

By clause 6.4:

"The firm [ie Becque Wayman] was to be responsible for the representative's [ie ESP's] regulatory fees and professional indemnity insurance costs and normal compliance costs."

That was the agreement that regulated the relationship between Becque Wayman and ESP at the time of the entry by the claimants into the relevant viatical and life settlement investments.

19. At some time in or about July 2003, Mr Wayman went to a seminar in Manchester organised by an entity known as Bridfords and was given information about traded life policies and viatical and other life settlement policies. At the beginning of his evidence, Mr Wayman produced hard copies of various slides that had been displayed by Bridford Personal and Corporate Planning Limited welcoming independent financial advisors to traded life policies as an investment. Those documents were inserted in the supplemental bundle at pages 47 to 88. Mr Wayman also produced (at pages 89 to 112) various literature relating to the Mutual Benefits Corporation Investment Products.
20. At some stage, in or about October or early November 2003, Mr Wayman, in the course of discussing investments generally with Mr Goldstone, mentioned the possibility of investing in viatical and life settlement policies. Mr Goldstone referred the matter to Mr Winnard. At about this time, Mr Wayman was receiving further information from Shepherds, who were also involved in the marketing of these policies. On or about 12^th November, there was a telephone conversation between Mr Wayman and Mr Winnard concerning a possible investment by the trust in viatical and life settlement policies. Mr Wayman's recollection was that it was he who had telephoned Mr Winnard only to find his telephone engaged. Mr Wayman had left a message for Mr Winnard to return his call, which he had done. Mr Winnard made a note of his conversation with Mr Wayman, which is to be found at pages 305 to 306 of trial bundle 2. Following on from that telephone conversation, on 13^th November Mr Wayman sent, by special delivery, a letter to Mr Winnard, at Tenons in Rochdale, enclosing information about MBC and traded life policies; the letter is to be found at page 307 of trial bundle 2 and the enclosures appear at pages 308 through to page 348. Amongst the enclosures was a letter dated 13^th August 2003 from an American attorney in Fort Lauderdale in Florida addressed to MBC advising it of the following:

(1) that no insurance premiums had ever been missed or not paid;

(2) that no insurance policy had ever been lost because of lack of premium payment; and

(3) that no investor had ever had to make a premium payment because of lack of funds.

The letter also enclosed copies of recent statements showing the funds available to make insurance premium payments; that was amongst the information supplied to Mr Winnard.

21. On 17^th November 2003, there was a meeting between Mr Wayman, Mr Goldstone and Mr Winnard, which Mr Goldstone thought had taken place at his offices. Following on from that meeting, and again by special delivery, Mr Wayman wrote on behalf of Endowment Surrender Plus summarising the discussions and the documentation required to progress the investment in traded life policies; that letter is to be found at pages 349 through to 352 of trial bundle 2.
22. On 21^st November 2003 the FSA wrote to Bridfords informing it that the investments through MBC in viatical and life settlement policies should, contrary to previous information supplied by the FSA, properly be treated as regulated investments. That letter was apparently received by Bridfords on 25^th November. In the meantime, the trustees had signed an agreement, and an amended agreement, with MBC on 24^th November 2003. The original agreement can be found at pages 442 through to 456 of trial bundle 2, and the amendment to the participation agreement is at pages 457 through to 465 of the same bundle. One of the terms of the agreement (in clause 4(d)) was that the purchaser might rescind or cancel the agreement within seven calendar days after the date the purchaser remitted the required consideration to MBC or to the escrow agent. The rescission was to be made in writing to MBC and clearly state the purchaser's intent, but no specific form was required. To be effective, MBC must receive the purchaser's signed written rescission prior to the expiration of the seven day period. If the purchaser validly rescinded the agreement, all of the purchaser's cleared funds were to be refunded to the purchaser as soon as reasonably possible following MBC's receipt of the purchaser's valid notice of rescission. On the following day, 25^th November, the trustees gave instructions to transfer one million US dollars to the escrow agent, Union Planters Bank; that letter of instruction is at page 354 of trial bundle 2. It is accepted that by this stage, at the latest, the trustees must have decided to make the investment. It is common ground that on or about this date, Mr Wayman collected from the trustees the completed application form to invest £1,000,000 and the associated money laundering documentation. These were then sent on to Bridfords. The advice of debit is dated 27^th November 2003 and is at page 355 of trial bundle 2. The debit value date is given as 27^th November, and the credit value date as 28^th November 2003. On that basis, the date pursuant to clause 4(d) of the MBC investment agreement, which was the latest date for receipt by MBC of any notice of rescission, would have been either 4^th or 5^th December 2003.
23. On 28^th November 2003, Bridfords wrote to the trustees of the settlement, care of Mr Winnard, informing him that the FSA had recently contacted Bridfords on 21^st November 2003 informing it that the investment was, in fact, regulated. On the same day there was a telephone conversation between Mr Wayman and Mr Winnard. Mr Wayman's handwritten note of that conversation is at page 482 of trial bundle 2. It records that Mr Wayman spoke to Mr Winnard on 28^th November and told him that it now looked like the investment in TEPs and viaticals was regulated. Mr Wayman said that he would send a new 'reasons why' letter. He recorded that Mr Winnard was fine with that. In the course of sending out the new documentation required to comply with FSA requirements in respect of a regulated investment, Mr Wayman completed a number of documents. One was the letter of engagement, which is to be found at pages 87 and 88 of trial bundle 1. It was in a similar form to the previous letter of engagement sent to Mr Goldstone in respect of his own personal investment in traded endowment policies back in May 2002. It is to be found at pages 87 to 88 of trial bundle 1. That was sent to the trustees, care of Mr Winnard, under cover of a special delivery letter of 5^th December 2003, at pages 356 to 359 of trial bundle 2. Also with that letter was a document headed 'Terms of Business' into which a date of 8^th December 2003 was inserted, apparently by Mr Winnard. The stated objectives of the trustees as investors, which had been inserted by Mr Wayman, was expressed to be 'capital growth with capital protection', specifically in US traded life policies and viatical settlements. The letter confirmed that the trustees' overall attitude to investment risk, as assessed on the same scale of risk of one to ten, was between two and three. The letter recorded that the trustees, and Mr Wayman for ESP, had discussed the implications of risk, and for this particular investment the trustees were comfortable in accepting a risk profile of two to three. Those elements of the form had been filled in by Mr Wayman before he dispatched it to Mr Winnard on 5^th December. Also accompanying the 5^th December letter was a 'fact find for trusts' document which had been completed by Mr Wayman. It recorded that after the investment, the trust held cash deposits of approximately £150,000. The investment objectives were stated to be 'capital growth and capital protection'. That document was apparently forwarded to Mr Goldstone by Mr Winnard on 8^th December 2003, as evidenced by Mr Winnard's letter of 8^th December at page 368A of trial bundle 2. On 8^th December, Mr Winnard sent various tax documents over to Mr Wayman: see pages 369 to 370 of trial bundle 2.
24. In the meantime, on Friday 5^th December, an account co-ordinator at Bridfords had sent an email to ESP stating that she had been informed by MBC that they required the following information in order to process the Michael Goldstone Trust application, namely (1) proof of source of funds and income; and (2) proof of company or employment of Mr Goldstone. That email was apparently forwarded internally within ESP to Mark Wayman on the following Monday, 8^th December. That indicates that further documentation was required by MBC before they could finally, and completely, process the trustees' investment application.
25. On 19^th December 2003, Mutual Benefits wrote to the trustees welcoming them into the MBC viatical and life settlement programme and acknowledging receipt of the purchase agreement and funds in the amount of one million US dollars. They looked forward to a long and mutually satisfying relationship with the trustees: see page 475 of trial bundle 2.
26. On 6^th January, in a letter misdated 6^th January 2003 but clearly written in 2004, Bridfords wrote to Mr Wayman at ESP enclosing a copy of the original application and confirmation of funds letter for onward transmission to the trustees. There was also enclosed for onward transmission confirmation of the allocation of 50,000 US dollars into a 48 month policy. That is the first indication that any of the investment of one million US dollars had actually been applied by MBC in the purchase of viatical or life settlement policies. It is clear that two further investments were made on 8^th January: see the letters at pages 371 and 372 of trial bundle 2, according to which, as at January 8^th 2004, the balance of the trustees' funds then un-invested amount to 850,000 US dollars. Those investments are consistent with the contents of the first of the schedules produced by Mr Winnard (at page 44 of the supplemental bundle) which appears to record that the first three policies were all acquired on 8^th January 2004. As I have indicated, the Security and Exchange Commission's complaint seeking emergency relief against MBC and its controllers, and the appointment of a receiver, was filed on 3^rd May 2004. By that time, only 150,000 US dollars of the sum invested with MBC remained un-invested.
27. On 10^th May 2004, Mr Wayman forwarded an email from Jack Russo to Mr Goldstone and a copy to Mr Winnard. Mr Russo was said to be a partner in the MBC European sales team. That email reported upon developments with MBC and the Security and Exchange Commission.
28. On 7^th February 2006, Mr Wayman sent a further email to Mr Winnard and Mr Goldstone, updating them on the position with regard to MBC: see pages 382 to 383.
29. On 20^th August 2007 (at pages 394 to 396) Mr Wayman, on behalf of ESP, wrote to Mr Winnard. In the course of his letter he stated that the latest revelations meant that what was believed to be a relatively low risk and safe investment, where the only risks were the life expectancy being exceeded and the currency risks, had now resulted in a situation where it had been proved that fraud was involved, and some, if not all, of the life expectancy reports could not be relied upon. This, along with the additional risk factors, now meant that the investment with MBC was riskier than originally envisaged. Earlier in the letter, Mr Wayman had referred to the discovery of what he described as some 'very worrying' information. It was said that, unlike policies in the UK, some of the policies in the US ceased to provide life insurance after the life assured reach a certain age, which in some cases was as low as age 95. In those cases, if the life insured survived to age 95, then the policy ceased and did not pay out at all. According to emails at pages 397 and 398 of trial bundle 2, the position proved to be that 13 of the trust's remaining policies were universal life policies and the final one was a whole life policy. For the most part, the claimants' policies expired at or about the time of the individual's 100^th birthday, give or take six months; but two of the policies expired at age 95; for those two policies, the insured individual was currently 91 years and in the case of the other 89 years.
30. In April 2009, ESP ceased to be an appointed representative of Becque Wayman when that company ceased to be directly authorised by the FSA and had its permission to appoint authorised representatives removed. From that point on, it is said that ESP became a trading style of Becque Wayman. By the time the claim form was issued on 5^th November 2009, the trustees had made additional premium payments totalling just over £100,000, in addition to their original investment of just over £592,000. Only two policies had matured, although a third subsequently did so. Funds in the settlement were gradually being exhausted, and so the trustees decided to stop paying premium demands. It was accepted by Slater Heelis, in their19^th March 2012 letter, that it was reasonable for the trustees to make that decision.
31. That is the chronology of events. Based on the evidence in the case, I make the following additional findings of fact: Mr Goldstone was a successful businessman, but he was not a particularly sophisticated investor in financial products. Neither Mr Goldstone nor Mr Winnard understood either the distinction, or the relationship, between an authorised principal and an appointed representative for the purposes of the Financial Services and Market Act. I find that neither Mr Goldstone nor Mr Winnard subjectively understood or appreciated that ESP might be contracting as agent for Becque Wayman, or that it might be contracting otherwise than on its own account. As Mr Goldstone put it, and I accept, he did not know that ESP was an appointed representative of Becque Wayman, and he did not know what that concept meant. He had no reason to ask. It was never suggested to him that he should inquire. Mr Goldstone went on to say that Mr Wayman had not introduced himself to Mr Goldstone as an appointed representative of Becque Wayman. I am prepared to accept that Mr Wayman may, in passing, have described himself as an appointed representative of Becque Wayman. He may also, or alternatively, have handed over a business card showing him to be such on the first occasion that he met Mr Goldstone and Mr Winnard. But I find that neither Mr Goldstone nor Mr Winnard had any understanding that that might mean that ESP was not contracting in its own right, but on behalf of Becque Wayman as authorised representative. In so far as neither Mr Goldstone nor Mr Winnard can recall Mr Wayman describing himself as an appointed representative of Becque Wayman, I accept that there is a genuine lack of recollection on their part; they are not giving untruthful evidence in that regard. I have already indicated that it was probably Mr Wayman who initiated the first telephone call on 12^th November, and it was Mr Winnard who returned the call. I accept, consistently with the evidence of Mr Winnard, that there was no reference to risk during the course of that telephone conversation. What Mr Winnard said was that at that stage the conversation was about the nature of the investment, and he thought that he would have asked for more information.
32. I find that Mr Goldstone and Mr Winnard had not finally made up their minds to invest in the viatical and life settlement policies offered by MBC before their meeting with Mr Wayman on 17^th November. Mr Goldstone's evidence, which I accept, was that he had not made his mind; but if it stacked up properly, and if Mr Winnard was happy, then the trustees would probably have gone ahead, but they had not then made their minds up. Mr Goldstone later said that if what Mr Wayman was saying stacked up, then the probability was that they would invest. Mr Winnard and Mr Goldstone discussed the investment at the meeting, and it was only towards the end of the meeting that they concluded that they would invest £600,000 in this particular investment product. I find as a fact that Mr Winnard had undertaken no investigations of MBC prior to his meeting with Mr Wayman on 17^th November; and that he undertook no further investigations thereafter, having been satisfied with the information that Mr Wayman had provided to him, both before and at that meeting. Mr Winnard described the purpose of the meeting as being to explain to Mr Wayman what the trustees wanted to do, and the level of risk that they wished to have. They wanted a capital gain for tax purposes, they wanted to build up a capital fund, and they needed capital growth rather than income. I accept Mr Winnard's evidence to that effect, and his further evidence that the trustees had not then made up their minds to make the investment at all. They wanted to know about the product, the risks involved, and the suitability of the particular investment. I also accept his evidence that if the trustees had had any concerns as a result of what had come out during the course of the meeting, they would not have made the investment. Mr Winnard's evidence, which I accept, was that the level of return was very attractive, but it was not unreasonable and did not amount to 'fantasy figures'. It was not 'too good to be true'. Mr Winnard acknowledged that it was not a risk free investment, but his understanding was that all of the risks were manageable, in terms of the various factors which were identified in Mr Wayman's letters of 19^th November and 5^th December. I accept Mr Winnard's evidence that the trustees had said that they wanted an investment that produced capital growth, and that was not excessively risky. Mr Winnard's note of that meeting is at page 303 of trial bundle 2. It does not contain any reference to the investment being low risk; but it does indicate that the insurance policies were, as Mr Wayman acknowledged in his later letters of 19^th November and 5^th December, to be with insurance companies of grade A or above. In the light of Mr Winnard's inability to say for certain that the expression 'low risk' was never used, supported by the absence of any reference to the use of that phrase in either Mr Winnard's contemporaneous note at page 303, or in the later letters, I accept that the expression 'low risk' was not used in terms by Mr Wayman; but I also find that the trustees made it clear that they were looking for a cautious, low risk investment, with both capital growth and capital protection. It was implicit in all the information that Mr Wayman provided that this was a low risk investment; and in the course of his cross-examination, Mr Wayman twice acknowledged that the concept of low risk was implicit in all that he was saying. That is confirmed by the terms of his later letters, and by his later risk assessment accompanying the 5^th December letter.
33. In the case of Mr Goldstone's personal investment in traded endowment policies in May 2002, Mr Wayman had recorded that Mr Goldstone was looking for 'capital growth', and he had assessed the risk at four. In dealing with the trustees, Mr Wayman later recorded the trustees' objectives as being not only 'capital growth', but also 'capital protection'; and it was for that reason that he recorded that the trustees had been comfortable with a risk rating at a lower level of two to three, and had assessed the risk of the subject investments at that level. I am entirely satisfied that that was the message that he was conveying to the trustees during the course of the 17^th November meeting. In the course of his cross-examination it had been put to Mr Wayman that he told the trustees that the investment was low risk and safe. Mr Wayman said he did not think that he had specifically said it was a low risk investment, and I accept that evidence; but he went on to say that he had just described it 'in a different way'. The word 'low' had not been used; but the thrust of his indications to the trustees had been that it was a relatively stable, secure investment. Mr Wayman said he certainly thought it was not a particularly high risk investment; and I am satisfied that that was the understanding he conveyed to the trustees. He went on to say that the trustees had already told him that they had wanted an investment that gave them capital growth and security; and he accepted that that was the thrust of what he had said on 17^th November. It was put to him later that he must have led the trustees to believe that it was a cautious, low risk investment. Mr Wayman's answer was that he did not specifically advise them of that; but 'the implication was there'. It was put to him that Mr Wayman had thought on 17^th November that it was a low risk investment; and Mr Wayman acknowledged that that had been his view, although he did not think that he had specifically described it as such. He later said that he certainly did not recall mentioning it was a low risk investment, but that 'the implication was there'.
34. On the basis of that evidence, and consistently with the evidence of Mr Winnard, supported as it is by Mr Goldstone, I am quite satisfied that Mr Wayman did more than merely provide information; he was effectively recommending this investment as a low risk investment to the trustees. After all, as Mr Knox submitted, Mr Wayman wanted to secure the sale of the investment product he was recommending, which would enable him to earn a commission of 90 per cent of 59,000 US dollars or its sterling equivalent.
35. I am satisfied, and find as a fact, that the trustees would not have invested if they had been told that this was not a low risk investment, or if full and proper disclosure of all the information then available to Mr Wayman had been made to them. In the course of his cross examination of Mr Wayman, Mr Knox had referred Mr Wayman to various documents, the existence of which had been known to Mr Wayman at the time of the November 2003 meeting, but which he had not mentioned to the trustees. Mr Wayman told me, and I accept, that he had not then received, and did not receive until later in March or April of 2004, the Shepherds' document headed 'Background on Life Settlements and Viaticals – Internal Use Only' which begins at page 134 of bundle 1. But Mr Wayman did accept that he had been aware at the time of the Best Wire Services' report which appears at pages 109 to 110 of bundle 1. That recorded that Vermont's Insurance Commissioner had issued an emergency 'cease and desist' order on July 6^th 2001 to stop the sale of viatical settlements in the State by MBC, alleging violations of anti-fraud and unfair trade practice laws by the purchase of fraudulently obtained policies using a doctor who had allegedly lied about the life expectancy of some policy holders. Mutual Benefits had been accused of misrepresenting the independence of physicians who had provided investors with a life expectancy letter for each terminally ill person. The Commissioner was said to have found that Dr Mitchell was not only not independent, but had rubber stamped life expectancy letters written by MBC. The report went on to make it clear that that was denied by MBC, and concluded with the assertion that if someone had sold Mutual a bad policy, then Mutual would be a victim. In cross-examination, Mr Wayman acknowledged that he thought he had seen that report by November 2003. He was asked whether, in hindsight, that was something he should have drawn to the trustees' attention, and he indicated that "Yes it was, with the benefit of hindsight". It was put to him that those factors must have made the investment 'high risk'; and Mr Wayman acknowledged that, with the benefit of hindsight, and knowing what had subsequently happened in terms of the SEC intervention and the appointment of a receiver, then "Yes, it would have made the investment high risk". It was also put to Mr Wayman that there had been no independently verified information showing:

(1) that historically MBC's predictions of life expectancy had been accurate;

(2) that premiums had been paid only from current investors' funds; and

(3) that the premium reserve accounts contained sufficient funds to meet the liabilities of existing investors.

With the exception of the letter from the attorney at page 317, to which I have already made reference, Mr Wayman accepted that that was all correct.

36. I find that had the true risk of the investment been disclosed to the trustees, which on the unchallenged evidence of Mr Tunnard was 'high risk', the trustees would never have sanctioned the investment of trust monies in these MBC products. I am also satisfied that if, after the initial investment had been made, the true risk situation had been disclosed to the trustees, they would have sought, as they said, to recover back the monies from MBC. I also find as a fact that not only is there a real or substantial chance that, had they acted before the monies were paid out by way of investment in viatical and life settlement policies, the monies would have been returned to them, but that there is a very high probability that that would have been the case. Certainly until the documentation referred to in the email at 472, which was forwarded on to Mr Wayman on Monday 8^th December, had been provided, it seems to me that not only is there a real and substantial chance, but there is a virtual certainty, that the monies would have been retrievable from MBC because MBC would not have felt able to invest the monies without the information requested; and, in any event, MBC would not have wanted to face a potential legal challenge from a disgruntled investor in the United Kingdom when MBC had already faced regulatory challenges in the United States, and was seeking to establish a market for its products in the UK, through Bridfords and Shepherds.
37. I find, on the balance of probabilities, that it was not until the beginning of January 2004 that the first investment of 50,000 US dollars was made by MBC in a viatical or life settlement policy.
38. So those are my findings of fact.

Chapter 4: The contracting parties

39. Ms Luck submits that the parties to the contract between the trustees and ESP were in fact the trustees and Becque Wayman. She submits that, in approaching this issue, it is necessary to begin by considering the statutory regulatory framework under the Financial Services and Markets Act, and Parliament's intentions with regard to appointed representatives. She invites the court to take note of the highly regulated financial services framework within which any agreement with the trustees was concluded. She summarises her submissions at paragraph 43 of her written skeleton argument, having previously elaborated upon them at paragraphs 24 to 42. In summary, she submits that if Parliament had intended the appointed representative to owe any direct duties to the investors, then:

(1) It would have imposed a direct regulatory responsibility to the investor upon the appointed representative;

(2) The FSA would have made its code of business rules directly binding upon appointed representatives;

(3) The FSA would have required appointed representatives to carry professional indemnity insurance for investor claims;

(4) The FSA would have imposed an obligation upon the appointed representative to have its own capital adequacy, or regulatory capital, reserve to meet the excess payable on claims;

(5) The appointed representative would have been held accountable to the Financial Ombudsman Service, as opposed only to the authorised person.

Ms Luck submits that the reason why these obligations have not been imposed is that Parliament intended the principal to take full responsibility for any act or omission on the part of the appointed representative; and by that, it did not envisage or intend the appointed representative to owe any direct responsibility to the consumer, be it in tort or in contract. Should the appointed representative be held to owe a duty to the investor, in a situation where Parliament had not required the appointed representative to carry professional indemnity insurance cover for such liability, then she submits that that would amount to a surprising failure on the part of the FSA to protect investors, contrary to section 5 of the 2000 Act.

40. It is against that background that Ms Luck makes her submissions that it was, in fact, Becque Wayman, rather than ESP, which was a party to the contract with the trustees. She says it is trite law that the relationship of agency arises where a principal authorises an agent to act on his behalf in making a contract with a third party. She says that in this case, Becque Wayman authorised its agent, and appointed representative, ESP, to contract with the trustees on its behalf. The general rule is that an agent is not liable under a contract he makes on behalf of the principal, whereas there is a direct contractual relationship between the principal and the third party. She refers to, and relies upon, paragraph 158 of Halsbury's Laws, Volume 1, 5^th edition, entitled "Agency" (2008 issue):

"Where an agent in making a contract discloses both the existence and the name of a principal on whose behalf he purports to make it, the agent is not, as a general rule, liable on the contract to the other contracting party, whether he had in fact authority to make it or not; but a personal liability may be imposed upon him by the express terms of the contract..."

41. To similar effect is a passage in Bowstead on Agency upon which reliance is placed by Mr Knox. The general rule set out in Article 97 at page 541 of the 19^th edition of Bowstead reads:

"In the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it. Nor can he sue the third party on it."

But Mr Knox goes on to cite a passage at page 542:

"The mere fact that a person acts as agent and is known to do so does not necessarily negate his involvement in the transaction. It has been said that "it is not the case that, if a principal is liable, his agent cannot be. The true principle of law is that a person is liable for his engagements (as for his torts) even though he acts for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability."

Mr Knox also relies upon a quotation from a judgment of Lord Erskine, the Lord Chancellor, in Ex Parte Harptop (1806) 12 Vesey Junior 349 at 352, cited at footnote 6 to Bowstead: for the application of that rule, the agent must name his principal as the person to be responsible.

42. Ms Luck submits that disclosure of the principal firm, Becque Wayman, was made to the claimants prior to the parties entering into the agreement, both in fact and in compliance with the Financial Services regime. She relies upon the various matters summarised at paragraph 56 of her written skeleton argument. She submits that the correspondence generated by ESP clearly indicated the relationship between itself and Becque Wayman, and the fact that Becque Wayman was a firm that was regulated, and authorised, by the FSA for investment purposes. She submits that the terms of business, both in 2002 and those signed in relation to the later investment by the trustees dated 8^th December 2003, clearly indicated both the name, and the business address, of Becque Wayman. She submits that if there is any doubt that the above documentation and exchanges sufficiently disclosed the identity of the principal to the claimants, the second and third defendants will contend that both Mr Winnard and Mr Goldstone knew and understood what ESP's 'appointed representative status' meant in practice, through their own investment and professional experience. I have already rejected the latter submission on the facts. I must now address the former limb of Ms Luck's submission.
43. Mr Knox addresses the point at paragraphs 41 to 56 of his written opening. He elaborated upon those submissions in his closing. He emphasised the need, stated in Halsbury's Laws, for both the existence, and the name, of the principal upon whose behalf he purports to make the contract to be disclosed. He submitted that the question was whether ESP purported to make the contract on behalf of Becque Wayman. He submitted that the answer to that question was plainly no. The mere fact that one was an appointed representative did not mean that one could not contract on one's own behalf. He submitted that an appointed representative was nevertheless entitled to act and to contract on its own behalf. He submitted that section 39 of the Financial Services and Markets Act did not equate an authorised representative with agency. All that section 39 did was to render, by sub-section (3), the principal of an appointed representative responsible to the same extent as if he had expressly permitted it for anything done or omitted by the representative in carrying on the business for which he had accepted responsibility. On Mr Knox's interpretation, all that section 39 sub-section (3) did was to impose an additional liability upon the authorised representative. It did not substitute the liability of the authorised person for that of the appointed representative. He submitted that the objective of section 39 was to protect members of the public who might invest, and not to protect appointed representatives. The purpose of the disclosure provisions in the legislation and related statutory instruments was to enable investors to know the identity of the authorised person so as to facilitate them in bringing a claim against him. Section 39 (3) imposed an additional, and not a substituted, liability. The mere disclosure of the fact and identity of the authorised person was not sufficient to disclose the existence of a principal and agent relationship. He also refuted Ms Luck's submission that, in the event of doubt, there was any obligation on the part of the contracting counter-party to make inquiries as to whether it was the authorised person, or the appointed representative, who was entering into the contract with the investor. He took me through the terms of the relevant documentation. He submitted that it was clear from the letter of engagement, the terms of business, the restricted customer information sheets, and also the letters of 13^th and 19^th November and 5^th December 2003, that it was ESP that was entering into the contract with the trustees and not Becque Wayman. Section 39 (3) imposed an additional vicarious liability upon Becque Wayman for the acts of ESP as its appointed representative. But nothing, either in the documentation or the legislation, had the effect of rendering the contract one between the claimants and Becque Wayman, rather than one between the claimants and ESP. He submitted that if ESP had only been intending to contract as agents, then they, as appointed representatives should have made it clear that that was what they were doing. He submitted that there were no adverse professional indemnity insurance implications because under the agreement between Becque Wayman and ESP, the former insured for the latter, as Mr Becque had explained in answer to questions from the bench at the end of his evidence.
44. I have no hesitation in preferring the submissions of Mr Knox, despite the forceful arguments advanced in opposition to them by Ms Luck. As Ms Luck herself indicated in her brief opening, one of the key, if not the key, objectives of the Financial Services legislation contained within the Financial Services and Markets Act 2000 is the protection of consumers and investors. Becque Wayman elected to supervise and monitor ESP. Effectively, they were sponsoring ESP. That is sufficient, by virtue of section 39 (3) of the Act, to render Becque Wayman vicariously liable for acts and omissions of ESP. But the underlying intention, in my judgment, and for the reasons advanced by Mr Knox in both his written and oral submissions, is to provide an additional layer of protection for customers and investors. It is not to interfere with existing contractual arrangements.
45. I have no doubt whatsoever that, on any fair and reasonable objective reading of the relevant documents, the contracting parties were the trustees on the one part and ESP on the other. The fact that Becque Wayman was disclosed as the authorised person, whose appointed representative ESP was, merely provided an additional layer of protection; it did not operate to subvert what would otherwise have been the normal contractual consequences of the documentation.
46. I accept Mr Knox's submission that it was for ESP, if they wished to exclude any personal contractual liability on its part, to make that clear in the documentation. If an appointed representative does not do that, then it will find itself personally liable in contract, in addition to the vicarious liability that by statute falls on its authorised principal. It is noteworthy that nowhere is it said that Becque Wayman was the 'principal' of ESP. All that is said is that ESP is an 'appointed representative' of Becque Wayman, which is the body authorised by the FSA to carry out regulated investment business.
47. So, for those reasons, I find that the contract was one between ESP and the claimants. In those circumstances, it is unnecessary to find any separate liability in tort on the part of ESP; but in the light of the conclusion at which I have arrived, it seems to me inescapable that ESP also assumed a responsibility for the investment advice which it gave, which would also render it liable in the tort of negligence, if breach of duty were to be established.

Chapter 5: Breach

48. Ms Luck addressed the issue of breach of duty at paragraphs 81 to 85 of her written skeleton argument. She submits that Mr Wayman did not provide 'advice' to the trustees; rather he merely suggested the MBC product and passed on the information that he had been given about it. He also denies that there was any request for a 'low risk' investment. Whilst accepting that he himself believed it to be low risk, on the basis of the information with which he had already been provided, Mr Wayman denies advising the trustees that it was, in fact, a 'low risk' investment. Ms Luck submits that if, and only if, the court makes a finding that Mr Wayman did, in fact, advise the trustees that the MBC investment was 'low risk', and makes a further finding that the investment was made in reasonable reliance upon that advice, should it flow that ESP breached its contractual, or tortious, duty of care to the trustees. She denies that there was any breach of any alleged contractual or tortious duty of care. She relies upon the following:

(1) The trustees were seasoned investors, with relevant knowledge, understanding and resources to make their independent checks on the product;

(2) The trustees owed duties to the trust and it was therefore incumbent upon them to carry out such checks;

(3) Whilst the terms of business of 8^th December 2003 suggested that the trustees' risk profile was two to three, that had been completed after the investment had been made and was, according to Mr Wayman, an exercise to ensure the documents were compliant;

(4) The trustees reached their own decision, independently of any alleged advice given by ESP;

(5) ESP complied with the contractual duty to ensure that the procedure followed in relation to the regulated activity and its statutory disclosure was compliant;

(6) The key features explained in the documentation provided by Mr Wayman highlighted the material risks, regardless of the alleged numerical risk profile, namely:

(a) survival of the policy holder beyond a number of years after the expected date of death;

(b) the risk of the reserves being exhausted;

(c) the need to pay premiums in such event;

(d) the currency risk; and

(e) the liquidity risk

As for the latter, that was something that both Mr Goldstone and Mr Wayman indicated was not in reality a risk at all because it was something that they were quite prepared, and indeed eager, to live with, consistently with their stated investment objective of capital growth;

(7) A reasonably competent independent financial advisor would not have been able to quantify the levels of premiums that would be payable in the event of a policyholder's survival;

(8) ESP could not reasonably have been alerted to the fraud that later unfolded in the United States;

(9) The FSA neither banned the transactions nor issued any guidance that ESP failed to adhere to;

(10) ESP cannot be criticised for considering it relevant that MBC was one of the oldest and largest companies in the market, and understanding that it operated within a highly regulated US market;

(11) ESP cannot be criticised for relying upon information given to them by Bridfords (who were an authorised firm) and for considering it relevant that Shepherds were selling the MBC product;

(12) It was reasonable for Mr Wayman to assume that the trustees had independently assessed the MBC investment given their occupations and experience of making investments.

In relation to submission (11), Ms Luck placed particular reliance upon paragraph 2.3.5G of the FSA's Conduct of Business Handbook, which provides that a firm may generally rely on any information provided to the firm in writing by an unconnected authorised person. That was said to be relevant because both Bridfords and Shepherds were unconnected to Becque Wayman and were directly authorised by the FSA. As such, Mr Wayman was entitled to rely upon information provided by either of them.

49. In summary, Ms Luck submits that there was no breach of any contractual or tortious duty of care owed by ESP to the claimants, and therefore no vicarious liability could attach to Becque Wayman. In the course of her closing submissions, Ms Luck emphasised that whether or not Mr Wayman had described the investment as' low risk' is beside the point. That was because the material risks had all been correctly identified to the trustees. That proposition was exemplified by the contents of section 5 of Mr Tunnard's report.
50. Mr Knox addressed the issue of breach of duty at paragraphs 57 through to 67 of his written opening. I will not repeat all that he says there, although I have borne it in mind. In the course of his oral submissions, Mr Knox submitted that it was common ground that the claimants had said that they wanted both 'capital growth' and 'capital protection', which meant that the level of assessed risk had to be less than level four, which was the level that had been applied to Mr Goldstone's personal investment seeking capital growth but not also capital protection. Mr Knox submitted that it was clear on the evidence that Mr Wayman had, effectively, said (whether or not he did so expressly) that this was a cautious, low risk investment. For the reasons I have already given in Chapter 3, I accept that that submission is made out on the facts. On that basis, it seems to me that a breach of duty is clearly established in the light of Mr Tunnard's unchallenged assessment that the risk was not merely 'low risk' but was, in fact, a 'high risk', in the order of level eight on the one to ten scale. Mr Knox addressed a point which I had raised with Mr Goldstone at the end of his evidence. That was that, as indicated in the course of Mr Tunnard's expert report, all but one of the identified risks had been drawn to the trustees' attention by Mr Wayman. The one that had not was the risk identified at paragraph 4.4 of Mr Tunnard's report, that some of the policies - and, in fact, on the evidence it would appear all of them - had a feature absent from UK life policies whereby, if the insured survived beyond a certain age (either 95 or older in some cases), the policy would not pay out at all. That was a risk that only became apparent to ESP and to Mr Wayman and the claimants much later than 2003. In fact, it appears to have come to light only in 2007: see the letter of 20^th August 2007 which I have already referred to (at pages 394 to 396 of bundle 2), as acknowledged at paragraph 47 of Mr Goldstone's witness statement and paragraph 30 of Mr Winnard's witness statement. During the course of Ms Luck's closing submissions, Mr Knox fairly accepted that it was not any part of the claimants' case that the defendants ought to have known that cover ceased at a certain age at the time when the investment was recommended in November and December 2003. In relation to all of the other risks, however, Ms Luck says they were fully and properly drawn to the attention of the trustees, in both the various letters written to them on 19^th November and 5^th December 2003. Mr Knox has two answers to that. The first is the evidence given by both Mr Goldstone and, more clearly perhaps, by Mr Winnard that those risks had, in fact, been downplayed by Mr Wayman, who had led the trustees to understand that they were manageable. In my judgment, that is a valid point. But Mr Knox had a further answer to the objection, which was that one goes to an investment advisor in order for him to assess the overall level of risk. He drew an analogy with the advice of counsel: it would not be sufficient for counsel to identify individual risks without expressing a concluded overall assessment of what those risks entailed, in fractional or percentage terms.
51. In my judgment, that submission is well founded. Indeed, it informs, in my judgment, the whole basis of requiring a level of risk to be assigned to a particular point on a scale of one to ten. That, it seems to me, is why you have a risk profile. It is all very well to indicate possible risks to a potential investor; but unless the level of risk is in some way quantified, and drawn to his attention, either in terms of a fraction, or a percentage, or a place on a numerical scale, or in terms of an overall description of assessment of risk such as 'low', 'medium' or 'high', then it seems to me that the investment advisor is not giving the full, and clear, picture. In my judgment, it was not enough simply to give the impression that this was a 'low' level of risk when in fact the level of risk was 'high'. It was not enough to identify the risks without attempting to quantify them, particularly when, as I find, the overall thrust of the advice was manifestly that this was a 'low risk' investment.
52. Mr Knox has two further grounds of liability. First, he draws attention to the section of Mr Tunnard's report at paragraph 5.5, where he identifies various pieces of known information concerning MBC which should have led Mr Wayman to conclude that an investment in a viatical contract issued by MBC could not, on any view, be described as a 'low risk' investment, but would have led any reasonably competent advisor to have described it as 'high risk'. I acknowledge that perhaps not all of those items may have been known to Mr Wayman in November 2003; but; as Mr Knox submitted, there was one highly relevant piece of information, namely the document at page 109 of bundle 1, to which I have already made reference in Chapter 3 of this judgment. I have already referred to the passage in the cross-examination of Mr Wayman on that issue, and on the concessions that he made that, with the benefit of hindsight, that should have been drawn to the trustees' attention. That was with the benefit of hindsight; but the hindsight was the knowledge that the risk to which that document pointed, namely that of fraud on the part of MBC, had materialised. However, a cautious, low risk trustee investor would, and should in my judgment, have been alerted to the potential risk of fraud indicated by the document at page 109. Only then could a full, and informed, investment decision have been made. In my judgment, that is an additional head of breach of duty.
53. Mr Knox also relied upon the fact that there had been no independent verification of the information upon which the security of the investment depended, with the exception of the attorney's letter at page 317. Again, I have referred to this aspect of the matter, and to Mr Wayman's evidence upon it in cross-examination, in Chapter 3 of this judgment. Again, in my judgment, those are points that should have been drawn to the attention of the claimants. Moreover, they are points that should also have been borne in mind by Mr Wayman; and I am satisfied that they were not when he made his assessment of the overall level of risk. For all of those reasons, I find breach of the contractual, and also the tortious, duties of care established.

Chapter 6: Causation and damages

54. On the evidence, I am satisfied that had appropriate advice been given at the meeting on 17^th November 2003, the trustees would not have invested any monies in these viatical and life settlement policies. In my judgment, once Mr Wayman, and thus ESP, had been alerted to the fact that these were regulated investments, he should immediately, particularly in the light of clause 4(d) of the agreement with MBC, have undertaken the necessary exercise to ensure compliance with the FSA, including a quantified risk assessment. He did so, and reiterated his previous assessment of the investment as 'low risk', at a level of between two and three on the scale of one to ten. At paragraphs 41 and 42 of his witness statement, Mr Wayman had explained that when he did discover the FSA's change of stance with the MBC investment, he informed Mr Winnard of the FSA's findings without delay, and with some haste; and he partially completed a fact find and terms of business letter of engagement for the trustees to sign. He said that that was not because he was concerned that Becque Wayman could fall foul of any regulatory protocol if this were not done quickly, but simply because he then used the exercise to re-check the investment as if he had given advice to a private customer to ensure that, on review, it did not become apparent that it was in some way unsuitable for the trust. On review, he had no such concern. Particularly, given the terms of clause 4(d) of the MBC agreement, it seems to me that that further check should have been undertaken, at the latest, early in the week commencing Monday 1^st December. I have already recorded that Mr Wayman had advised Mr Winnard of the change in the regulatory position during the course of a telephone conversation on Friday, 28^th November. Had Mr Wayman discharged his duty as a reasonably competent independent financial advisor at the beginning of the week commencing 1^st December, he should have appreciated that this was a high risk investment at level 8 and communicated that fact immediately to the trustees. I am satisfied that, had he done so, they would immediately have sought to recall their investment within the seven day period expiring on either 4^th or 5^th December. Alternatively, I am satisfied that it would have been open, in practical terms, for the claimants to have recalled their investment before MBC was provided with the additional information which it had sought by the email of 5^th December, which was only passed on to Mr Wayman on 8^th December. That email is, as I have said, to be found at page 472. Absent the provision of that information, I am satisfied that not only is there a real and substantial chance that the funds would have been recovered by the claimants, but that there is a virtual certainty, for the reasons that I have already given, that they would have been so recovered. That remained the position until the first of the investments was made on or about 6^th January 2004.
55. In the light of those findings, it seems to me that the claimants have clearly proved their entitlement to damages in accordance with the schedule belatedly provided by Mr Winnard (which is to be found at page 45 of the supplemental bundle), subject to the deduction of the further sum represented by the ten per cent share of the commission that was paid to Mr Winnard, and which is recorded at page 476 of bundle 2 in the letter of 7^th January, namely £3,887.94.

Chapter 7: Disposal

56. I therefore find for the claimants. I find that ESP, and thus its partner, Mr Wayman, the third defendant, are liable in damages for breach of contract to the claimants. I find also that the first defendant is similarly liable under, and by virtue of, section 39 (3) of the Financial Services and Markets Act 2000. If it were necessary to do so, I would find that the first defendant was, by virtue of the appointed representative agreement, an undisclosed principal; but I suspect that it is most unlikely that the claimants will elect to adopt the contract with the first defendants. They are better served by entering judgment in contract against the second and third defendants, and judgment against the first defendant under section 39 (3). If there is any problem about the figures, that can be addressed. I have not heard submissions on interest. The claim for interest is now effectively limited to simple interest under statute. It seems to me, from all I have heard, but without having received any submissions, that the rate of interest should be referable to the rate of interest on an investment, rather than the rate of interest applicable to monies borrowed, because this was an investment situation. It follows that the rate of interest will therefore be lower than the rate that would have been paid by someone borrowing monies; but I will invite submissions as to the appropriate rate. Of course, the dates will alter from time to time to reflect the dates of receipt of the various credits.
(For the sake of clarity, Mr Knox raises one short point on the judgment)
57. Well I thought that I had done so, and it may have been a short sentence in the course of Chapter 3; but I certainly intended to make a clear finding that had the appropriate advice been given the claimants would simply not have gone ahead with the investment on any basis. I think I may have addressed it in Chapter 3. I think I should have perhaps repeated it in Chapter 6 as well; but I hope I covered it in Chapter 3.
End of judgment (Submissions on interest payable are made by counsel and costs are also discussed) __________________________