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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 49
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OPINION OF LORD CARLOWAY
in the cause
NEIL STEWART LESLIE
McCULLOCH
Pursuer;
against
DUNEDIN INDEPENDENT
PLC
Defender:
________________
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Pursuer:
J J Mitchell QC, Cunningham;
Thompsons
Defenders: Logan;
Somerville & Russell
6 March 2007
1. Preface
[1] The
pursuer seeks implement of an agreement, which failing damages, that he avers
he entered into with the defenders during the course of complaint proceedings,
which he had initiated against the defenders before the Personal Investment
Authority. Although the action proceeded
to proof, there were no substantial issues of factual dispute, with one
exception which will be dealt with expressly.
Indeed, there was no plea from the defenders that the pursuer's
averments were not founded in fact. The
evidence of the various witnesses was not challenged in any significant manner,
other than in relation to the exception.
Most of it was supported by the documents produced. Ultimately, only one objection to the
evidence on the basis of lack of record was insisted upon. The facts can therefore be set out in
relatively short compass.
2. The pursuer's complaint
and its initial apparent resolution
[2] The
pursuer is sixty six. He was employed by
Scottish Television Ltd until 30 September
1997. He was a member of the
STV occupational pension scheme. He had
also paid additional voluntary contributions to the scheme. Prior to ceasing his employment, the pursuer
sought advice from the defenders regarding his pension arrangements. He was advised by Mr Irvine, the
managing director of the defenders, to transfer from the STV scheme into a
personal pension scheme, notably the Scottish Life Talisman Plan. The pursuer accepted the advice. The transfer value of his STV benefits,
amounting to £165,285.79 together with the AVC value of £37,775.04, was paid to
Scottish Life on or about 28 October
1997.
[3] Within
a relatively short period of time, the pursuer became aware that the future
benefits to be derived from the Talisman plan would be significantly less than
those he would have received, had he remained with the STV scheme. He formed the view that the advice given to
him had been incorrect. He made a
detailed complaint to the defenders by letter dated 15 August 1999 [no. 6/6 of process]. On 24 November
1999 he complained [6/7] about that advice to the Personal
Investment Authority Ombudsman Bureau Limited. The PIA had been set up in 1994. Its Ombudsman essentially dealt with
complaints made against members of self-regulating organisations under the
Financial Services Act 1986 (c 60), such as LAUTRO and FIMBRA. Its jurisdiction seems to have been mainly
voluntary. An Adjudicator was appointed
to investigate the complaint. By letter
dated 12 December 2000
[6/1], the Adjudicator wrote to the defenders outlining his preliminary
views. The letter detailed certain
faults, which he had identified in the defenders' advice to the pursuer. It continued in the following, amongst other,
terms:
"When investigating a complaint I
cannot ignore the regulatory burden which existed at the time of advice. In view of my findings, I consider that [the
pursuer] has on the balance of probabilities, provided the stronger case. Where the Ombudsman is satisfied that there
has been a fault on the part of a regulated firm which has caused loss to an
investor, he would award an amount of compensation that would put the investor
back in the position they (sic) would
have been in had the fault not occurred.
In my view you should proceed to
the stages of loss assessment and redress calculations in line with the pension
review guidance produced by the PIA. Although this is not technically a 'pension
review' case I believe the actual loss methodologies, as set out in the
guidance, would be an appropriate way of assessing compensation in this
instance. If a loss is identified I
consider that [the defenders] should pay the appropriate redress in order to
compensate [the pursuer].
I consider that the level of
service [the pursuer] has received from [the defenders] has been far from
satisfactory. Whatever the outcome of
the loss assessment, I consider the matter is likely to have caused [the
pursuer] considerable distress and inconvenience. In view of this I believe an additional sum of
£300 compensation would be appropriate.
Please write back to me and let
me know whether you accept or reject my proposals..."
[4] Mr Irvine
accepted that he had been aware of the nature of the guidance, if not its
technical detail. By letter dated 5 April 2001, Mr Irvine
wrote [6/2] on behalf of the defenders as follows:
"Further to previous
correspondence in relation to matters I would confirm that after due
consideration we are prepared to concede matters in respect of [the pursuer's]
case.
...
In terms of the redress we are
happy to proceed with matters based on the methodologies outlined in your
letter dated 12 December 2000
however would (sic) obviously require up to date information...
Please be assured that we will do
everything that we can to deal with [the pursuer's] redress without causing
further inconvenience and I will deal with payment of the additional
compensation sum of £300..."
[5] The
Adjudicator copied [6/10] this letter to the pursuer, advising him that
liability had now been conceded. By
letter dated 17 April 2001
[6/3] the Adjudicator wrote to the pursuer as follows:
"As you
know, [the defenders] have now conceded liability in your case and agreed to
assess compensation on the basis I set out in my letter dated 12 December 2000. For the sake of clarity I am of the view that
compensation should be carried out on the following basis:
[The
defenders] should carry out an actual loss assessment calculation in accordance
with...PIA pension review guidance...
Assuming
that a loss is identified I consider that [the defenders] should pay you
compensation in accordance with the PIA pension review guidance. Essentially [the defenders] should pay
sufficient compensation in order that you are put back in the position you
would have been in had the fault not occurred.
Regarding
the distress and inconvenience [the defenders] should pay you the sum of £300
directly.
Please write
to me...to let me know if you accept or reject my assessment. [The defenders
have] the same option. If both you and
[the defenders] accept my assessment, you will both be legally bound by it. If
either you or [the defenders] do not, I will pass you papers to an Ombudsman
for a formal decision. I think it is unlikely that an Ombudsman's formal
decision will be different from my assessment. However, the level of
compensation may change. It may be the same, or less, or more."
[6] The
pursuer's solicitor, Ivan Walker (who gave evidence), confirmed the
pursuer's acceptance of the Adjudicator's assessment in a letter dated 26 April 2001 [6/4]. Meantime, the letter from the Adjudicator to
the pursuer was copied to the defenders [6/82 p 10] and they were also asked to
state whether they accepted or rejected the assessment. The defenders responded by letter dated 7 May 2001 [6/13]. After explaining the reason for their
concession on the merits, the defenders wrote:
"That aside we are happy to
accept your assessment with the allowance that the additional benefits provided
to [the pursuer] by way of tax free cash and additional income are reflected in
the review".
The allowance was, in relative
terms, a small sum. In a letter to the pursuer dated 8 May 2001 [6/14], the Adjudicator wrote as
follows:
"Both you and [the defenders]
have accepted the proposals I set out in my letters dated 12 December 2000 and 17 April 2001.
[The defenders] will be writing
to you shortly to arrange settlement.
I am pleased that we have been
able to help you and [the defenders] come to an agreement, which is now legally
binding."
The Adjudicator wrote to the
defenders in similar terms [6/81 p 23) thus:
"Both you and [the pursuer] have
accepted the proposals I set out in my letters dated 12 December 2000 and 17 April 2001.
Please contact [the pursuer] to
arrange settlement. Let me know when
this has been done, telling me the total amount you have paid and how the
figure was calculated. I will then close
my file.
Thank you for your help in
enabling us to reach an agreed settlement in this case".
Mr Irvine accepted in evidence
that the defenders had entered into an agreement about how the pursuer was "to
receive redress"; that is to say the
method of compensation was agreed by the parties.
3. The failure of the
apparent agreement
[7] The
pursuer's solicitor and the defenders proceeded to negotiate a settlement of
the pursuer's loss in terms of the agreed methodology. The starting point was the calculation of what
the pursuer would have obtained from the STV scheme. This had already been provided to the
defenders [6/8] in the form of a letter from William Mercer Ltd., the scheme's
administrators, that, assuming the tax free cash (£17,824.76) was taken, the
pursuer would have received about £7,411.68 per annum from the main scheme and
about £3,160.20 per annum from the AVCs (£10,571.88 in total), payable from
October 1997. These figures were
spoken to by Graeme Anderson of that firm [6/12]. He also confirmed that the main scheme
benefits were inflation linked by a number of different means, but essentially
by 4% annual increases. There was
latterly a relationship with the Retail Prices Index but the increases were
limited within a band of 4 to 5%. The
main scheme carried a widow's entitlement of two thirds. As at January 2002, the defenders
calculated what the pursuer would have obtained from the STV scheme (including
making an allowance of the type they had earlier described in their acceptance
letter). They had also calculated what
the pursuer had drawn down from the Talisman plan. From the figures, they were able to put
forward [6/28, 6/29] a "financially neutral situation...after an allowance for
any additional income or tax free cash paid to date" by the creation for the
pursuer of:
"A pension of £8,054.64 per annum
payable for life with escalation in line with inflation including a widow's
pension of 2/3rds of that payable per annum plus a single life pension of
£3,162.20 per annum payable for life but ceasing on death..."
This mode of settlement was in
accordance with the PIA guidance mentioned in the Adjudicator's letter. Basically, the method of providing redress
was for the defenders to buy the pursuer an annuity or annuities which would
produce the pension he would have obtained if he had remained with the STV
scheme. The Talisman plan funds would be
provided to the defenders to finance part of the purchase price or to buy one
of two annuities. The allowance referred
to by the defenders related to the tax-free element on a sum of £5,497.87 which
the pursuer had received [6/9] and which the pursuer considered would have been
cancelled out by other considerations [6/30].
Little, if anything, was made of this allowance thereafter.
[8] In
connection with the settlement, Mr Irvine maintained that he was in
contact with the defenders' professional indemnity insurers [e.g. 6/81 p 47],
who had been maintaining that the claim to them had been made late and that
they were therefore not liable to pay.
The dispute between the defenders and their insurers may have been the
backdrop to the defenders' apparent reluctance to purchase the annuities. Just how that dispute proceeded is not clear
but it was used as a method of postponing progress [6/81 p 47; 6/82 p 7]. The defenders did offer to pay the accruing
losses from the excess of £25,000 on their PI policy [6/40], but they did not
do so [6/51]. By the end of October 2001
the PIA Ombudsman Bureau (Mr Jeff Hill, caseworker, who gave evidence)
recorded [6/24] the defenders as being unco‑operative. The Bureau were going to refer the case to
the Financial Services Authority, which had been set up under the Financial
Services and Markets Act 2000 (c 8), so that regulatory (disciplinary)
action might be threatened or taken in order to force the defenders to
act. The pursuer's solicitor also stated
[6/49] to the defenders in May 2003 that the FSA were being asked "to take
action to enforce the...determination in [the pursuer's] favour". Such action was not taken, or was at least
deflected. By mid 2003, the defenders were stating [6/50] to the pursuer's
solicitors that they were "arranging for matters to be completed" (for an
earlier offer in January 2003, see 6/45).
[9] By
19 November 2003
[6/59, see also 6/54] negotiations had proceeded to a stage whereby it was
agreed that the STV main scheme would have produced £9,808.05 per annum and the
AVC element an additional £3,162.12 (£12,970.17 in total). It was agreed that the Talisman plan funds
would be used to purchase an annuity from the Prudential:
"The balance of the income
provided by this and £12,970.17 will then be made up from an additional annuity
which will be established reflecting the correct indexation and widows
benefits."
The level of arrears was also in
the process of agreement as were payments of an interim sum and the £300
(increased in error to £350) inconvenience sum originally suggested by the
Adjudicator.
[10] In January 2004, the defenders paid the £350 and made an
interim payment of £6,000 [6/64] to cover arrears [6/65]. A further £2,600 was paid later. But matters dragged on without any settlement
being completed. On 18 May 2004, the defenders wrote [6/65]:
"I am very conscious that [the
pursuer's] interim payment covered arrears through until May and I am intending
having the annuities payable at the full rate from this month.
Annuity rates altered since we
last completed the forms for the Prudential and I have fresh forms from Legal
and General who will provide the entire pension payments due...
They will provide £3,180 as a
single life non escalating payment.
Plus
Balance £9,808.05 as a joint life
reducing by one third on first death escalating at RPI.
...
I know this is becoming extremely
frustrating but if you will allow me to revert to you by close of play on
Friday of this week I am sure we will have all areas resolved."
By June 2004, the defenders
had the necessary completed forms with which to deal with the Talisman plan
proceeds [6/74]. The transfer value had
been ascertained [6/67]. Mr Irvine
accepted that what was happening was that the PIA guidance was being followed.
But no annuity was purchased.
[11] On 10 November
2004 the defenders wrote [6/76] acknowledging receipt of new signed
annuity application forms (for the pursuer and his wife) [6/75] and stating
that Mr Irvine "will proceed with the purchase of the annuities". He did not do so nor were any further cash or
cash plus annuity offers made, as they had been [6/69, 6/71, 6/72]. Instead, at some point in late 2004 or early
2005, Mr Irvine telephoned Mr Walker to advise him that the whole
process with the Adjudicator should not have been directed against the
defenders at all but against a company called CA Independent Financial
Services. This came as a complete surprise
to Mr Walker, who considered that an agreement had been reached between
the parties, which the defenders required to abide by. After all, he reasoned in evidence, if the
pursuer had decided not to fulfil the agreement and had proceeded to
litigation, the defenders could have successfully maintained that the claim had
been settled. He left the matter to the
litigation department of his firm in Edinburgh.
4. The claim against CA
Independent Financial Services
[12] According to Mr Irvine, the defenders had suddenly
realised some time in late December 2004 or January 2005 that, at the
time of the advice to the pursuer, the defenders had not been authorised by the
PIA at all. Rather, they were the
"appointed representatives" of CAIFS. It
was CAIFS who had been regulated by the PIA and it was against that company,
rather than the defenders, that the pursuer ought to have directed his
complaint. The defenders had only become
authorised at the end of 1997. The
precise date when the defenders had been authorised was somewhat elusive. In his evidence, Mark Anderson of the
FSCS was referred to a letter dated 16 December
2005 [6/91] which suggested that the defenders had ceased to be the
"appointed representatives" of CAIFS in April 1997 but that the defenders'
Terms of Business stating that they were representatives of CAIFS had been
submitted in September 1997. He
said that the April date had been wrong and that the defenders had remained as
representatives until January 1998, but had been authorised in their own
right in December 1997.
[13] It was Mr Irvine's contention in evidence that, if the
defenders had given poor advice, that was CAIFS's responsibility. The pursuer, according to Mr Irvine, had
been a client of CAIFS and not of the defenders. Part of this contention was based on the
defenders' Terms of Business [7/8], which Mr Irvine and the pursuer had
signed on 22 September 1997. The Terms stipulated that the defenders were
the "appointed representative" of CAIFS.
This was so even although there was no dispute that the advice had been
proffered by Mr Irvine in his capacity of director of the defenders. Mr Irvine had signed the Terms as a "RI",
meaning a "Registered Individual"; someone
authorised to give investment advice. The
pursuer stated that he considered himself to be a client of the defenders. The Terms are on the defenders' note-paper
and state, amongst other things, "We act as your agent..." and end "We welcome
you as a client...". According to the
pursuer, CAIFS had not even been mentioned to him until the defenders' change
of position in early 2005. Had he been
advised earlier about their status relative to the defenders, he might have
made a claim against CAIFS. By the time
mention had been made of them, they were insolvent.
[14] Mr Irvine contended that, because the defenders had only
shortly after the advice become authorised and were thenceforth regulated
directly by the PIA, the fact that the advice had been given before that
authorisation had not been noticed until another claim, relating to an
endowment mortgage, had been looked at. The
concession on the merits of the pursuer's complaint had been made under a
misapprehension, on Mr Irvine's part, that the defenders fell under the
jurisdiction of the office of the PIA Ombudsman and his adjudicators. In this connection, during the negotiations,
Mr Irvine had been dealing with the defenders' PI insurers (see
above). According to him, prior to the
defenders' authorisation, the defenders had paid CAIFS for PI cover; i.e. it was CAIFS who organised insurance in
respect of faulty advice by the defenders. He seemed to be unaware of who the CAIFS
insurers had been.
[15] In a letter dated 11 April
2005 [7/1], Mr Hill, who was then an employee of the PIA
Ombudsman's statutory successors (the Financial Ombudsman Service Limited),
responded to an inquiry by the defenders as follows:
"Essentially, our file on this
case is closed. However, had we been
made aware that your firm was acting as an appointed representative of CA
Independent Financial Services Limited, we would have conducted our
investigation against the latter firm, rather than [the defenders]. In any event, as CA Independent has now been
declared to be in default by the [Financial Service Compensation Scheme], there
would appear to be no further action the FOS can take in this matter."
Mr Hill did explain, however, that he would have
expected a company complained against to have raised the issue of jurisdiction
as a defence rather than an Adjudicator to have taken the point himself. In an e-mail responding to the FOS, but dated 20 July 2005 [7/2], the
defenders requested Mr Hill to "confirm that we will not be held liable to
complete the award made by the FOS in relation to this client". Mr Hill replied:
"In view of the fact that the
FOS' investigation and decision was conducted/issued against the wrong firm and
the FSCS are now considering the matter, the Ombudsman's findings clearly
cannot apply."
That, in the eyes of the defenders,
was that and no further steps were taken in relation to the apparent agreement
which had been reached earlier under the auspices of the Adjudicator. Mr Irvine's contention in evidence was
that the defenders' position was as set out in the e-mail from Mr Hill; i.e. that the "Ombudsman's findings" no
longer applied. He maintained that he
had secured the agreement of the FOS that the defenders were no longer bound by
any agreement previously made under the auspices of the PIA Ombudsman Bureau. Ultimately, Mr Irvine's claimed that,
despite the fact that the advice to the pursuer emanated from him, the
pursuer's failure to recover his full losses had not been caused by the
defenders not implementing any agreement but because of the statutory cap of
£48,000 placed on compensation in respect of insolvent regulated advisors.
[16] The pursuer considered that a problem had arisen since he
proceeded, on 7 September 2005,
to apply to the Financial Services Compensation Scheme for compensation in
respect of advice tendered by CAIFS. In
his application form [6/92], the pursuer set out the history of his claim
against the defenders in strident terms, complaining, not surprisingly, about
the drawn out nature of the proceedings and his having, inter alia, to move house because of the economic position into
which he had been thrust. The FSCS
calculated the pursuer's loss at £185,754.78 [6/85, 6/80 p 7]. The FSCS offered him the statutory maximum
compensation available of £48,000. This
was accepted in July 2006 [7/10] and that sum was paid to him by the FSCS. It was agreed between the pursuer and the
FSCS that the pursuer retained his right to pursue the defenders and that he
would repay the FSCS the £48,000 should he succeed in recovering that sum from
the defenders. In that respect, an
e-mail of comfort which the defenders had secured from the FSCS in August 2006
[7/11] concerning the assignation of the pursuer's claim turned out to be
incorrect.
5. Compensation
[17] As set out above, the agreement brokered by the Adjudicator was
for the defenders to compensate the pursuer in terms of the PIA guidance. Although the written form of the guidance was
not produced in evidence, the actuary instructed by the pursuer, John Pollock,
spoke to its requirements as did Mr Walker. The requirements were, as already noted, to
provide the pursuer with a pension, in the form of an annuity or annuities,
which would replicate the pension which the pursuer would have obtained but for
his following the erroneous advice. All
the calculations were on the basis of gross figures with no allowance for tax. The personal pension plan purchased would be
used, one way or another, to finance part of the purchase price. It was not disputed that this was the nature
of the guidance. Indeed it was this
method which had produced the figures in the defenders' own letters of 19 November 2003 [6/59] and 18 May 2004 [6/65] and indeed
the FSCS gross figure [6/80]. Mr Pollock
reproduced his own calculations of the loss as at October 2005 and based upon
the agreed methodology on the last page of his report [6/83]. In tabular form this reads:
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Past (£)
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Future (£)
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Future (annuity pa)
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OPS Benefits
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110,068.18
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238,978.50
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10,143.40
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plus
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AVS Benefits
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30,882.87
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45,405.17
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3,160.20
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minus
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PPP Benefits
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132,513.91
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100,079.85
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4,248.00
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equals
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Difference
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8,437.14
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184,303.82
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The past benefits are self
explanatory; being the amounts which would have been taken from the STV scheme
and those drawn down from the Talisman plan. The £10,143.40 and £3,160.20 were the annual
amounts, which the pursuer would have obtained from the two elements of the STV
scheme. Mr Pollock had taken these
figures and, using the best available annuity rates from a FSA web-site,
ascertained the sum required to buy the annuity which would produce the annual
total. From that he deducted the then
value of the Talisman Plan (£100,079.85) to produce a net figure of
£184,303.82. It was put to Mr Pollock,
as is in fact the case, that the pursuer is drawing down £6,375.36 per annum from the Talisman plan
[6/86]. Mr Pollock stated that the
fund could not sustain such a draw down on an annual basis and that the value
of the Talisman plan could not purchase an annuity of that level. Annuity costs had increased relative to
increased longevity and poor investment rates of return. Mr Pollock's evidence was not materially
challenged in so far as it related to his production of the appropriate
calculation based on the PIA guidance. I
accept his evidence as reliable in so far as it did produce a valid calculation
of the pursuer's loss both in terms of the cost of the appropriate annuity and
the overall financial disadvantage which the pursuer had suffered.
[18] Colin McDonald, an Independent Financial Adviser
instructed by the pursuer in about December 2001, also calculated the sum
required in terms of the guidance. As at
30 September 2006, the
pursuer had lost £10,431 [6/86], being £127,289.58, that he would have already
received from the STV scheme, less £116,858.41, which he had drawn down from
the Talisman plan, and the £8,200, which he had received in interim payments
from the defenders. He would then have
been obtaining £14,913 per annum from the STV scheme. He was able to draw down only £6,375.36 from
the Talisman plan owing to regulatory restrictions. In order to purchase an annuity, which would
produce what he would have been obtaining from the STV scheme, Mr McDonald
had obtained a quotation from the Prudential.
That quotation was £352,506 [6/87] (£308,877 for the main scheme
benefits and £43,629 for the AVC element).
This had been based on a widow's benefit of only one half. A fresh quotation on the day of the proof
resulted in an increase of £15,467, if a widow's benefit of two thirds were
taken into account. The total was then
£367,973. This, according to Mr McDonald,
was in line with the PIA guidance. The
benefits under the Prudential quotation were not, according to Mr Anderson,
identical to those under the STV scheme, but slightly less generous. The Talisman plan value had been £101,737.32
on 13 September 2006
[6/78] and was, as at 31 January
2007, £99,513 (£99,704.88 according to Jennifer Hope, an
employee of Scottish Life who gave evidence).
The funds had been left in that plan pending the resolution of the
litigation. Most of the damage to that
fund had been done, according to Mr McDonald, in the years 1997 to 2002,
when the stock market had not performed well, and because the initial draw down
level permitted to the pursuer had been too high at £12,778.20. I accept, in its essentials, Mr McDonald's
evidence as reliable, so far as it went.
Indeed, Mr Irvine's only substantial complaints about it were first
that Prudential rates were not the most competitive in the market, although no
alternative quotations were made available. Secondly, a cash sum of £367,973, even if left
uninvested, was far more than what was required to produce the pursuer's annual
lost income.
6. Submissions
(a) PURSUER
[19] The pursuer invited the Court to sustain his first and second
pleas-in-law, respectively for implement of the agreement and for damages in
the event of the defenders' failure to implement. The mode of implement, in the amended form
moved for by the pursuer, was by the defenders:
"purchasing from a reputable
insurance company an annuity or annuities which provide the following benefits:
(i) an income of £11,750.71 per year,
with annual increases on 1 October 2007 and subsequent anniversaries of
that date of 4% per year payable until the death of the pursuer; (ii) an income
of two thirds of the foregoing (as increased and increasing in terms of the
foregoing) from the death of the pursuer until the death of his spouse; (iii)
an income of £3,162.20 per year payable until the death of the pursuer"
and paying in addition the losses
accrued to date. The pursuer would have
to pay over the proceeds of the Talisman plan to allow the defenders to finance
the purchase of the annuity in part. In
the event of the defenders' failure to implement a decree requiring the
purchase of an annuity or annuities, there should be decree for payment of
£268,269 being the £367,973 cost of the annuity less the £99,704 value of the
Talisman plan. Although not specifically
requested, presumably the losses accrued to date would require to be added to
this sum.
[20] The losses to date could be calculated starting with the figure
of £8,437 to 25 October 2005,
which had been put forward by Mr Pollock in his report [6/83]. Monthly losses from then on could be
ascertained by subtracting the monthly draw down amounts obtained through the
Talisman plan from the monthly figures which the pursuer would have been
receiving from the STV scheme. The
resultant figure could be multiplied accordingly. In broad terms the pursuer would have been
receiving about £1,243 per month from the STV scheme (including AVC element)
and he was obtaining a monthly draw down figure of £561. The defenders' interim payments of £8,600
required to be deducted from the total. All
of this resulted in a past loss of about £11,000 to the period to the end of
February 2007. The first conclusion
required amendment in light of the proved figure. No decree in terms of the pursuer's
alternative third conclusion for damages was sought. The pursuer's third (alternative damages) and
fourth (relevancy) pleas-in-law were not insisted upon.
[21] A completed contract had been formed by the parties in terms of
the exchange of correspondence between the parties and the Adjudicator,
culminating in the defenders' letter of 7 May [6/13]. The contention that this letter contained a
qualification, which had not been accepted by the pursuer, was not one which
had been made prior to the commencement of the action. The qualification had been taken into account
in Mr Pollock's calculations based upon the agreed methodology. It had been agreed by the parties for many
years that the manner in which the agreement was to be carried through was by
the purchase of an annuity to put the pursuer back into his pre-advice
position. The annuity, which it was
proposed should now be bought, did not have higher index linking than that in
the STV main scheme. The parties had
acted upon the agreement with the pursuer refraining from pursuing an action
against the defenders and/or Mr Irvine and from renewing his complaint and
with the defenders making the interim payments and accepting their liability
and proceeding to select an appropriate annuity.
[22] The defenders had averred and pleaded that they had acted under
error, but there had been no error. The
defenders did have a liability for the pursuer's losses. Mr Irvine's suggestion that the pursuer
was not a client of the defenders was "pure nonsense". What the defenders had done was compromise
the claim. For a plea of error to
succeed, it had to be shown that there was uninduced unilateral error going to the
"substantials" of the contract (Stewart
v Kennedy (1890) 17 R (HL) 25, Lord Watson
at 28-29). In relation to a compromise
agreement, that could be one relating to, for example, the identity of the
parties or the price to be paid. That
was not the position here. It was
difficult to see what the defenders' analysis of their error actually was. Underlying it seemed to be the idea that what
had been involved was an award by a body with no jurisdiction. But there had been no award. There was, however, a concluded agreement
between two persons (see Manclark v Thomson's Trs 1958 SC 147, LP (Clyde)
at 161-2). Where such a compromise has
been entered into by parties, in good faith and with full disclosure, it could
not be avoided by one party on the grounds of error, even if in its
substantials, in the absence of inducement.
On the defenders' argument, the error about jurisdiction had been their
own fault. In any event, Mr Irvine's
evidence about the error should be rejected.
It was implausible that a professional company and an intelligent man
would be so munificent as to accept liability to pay without having a good
reason for doing so. He was not to be
relied upon in this regard, standing his position regarding the pursuer as his
client and his evidence about his dealings with the insurers.
[23] In relation to the remedies sought by the pursuer, it was again
difficult to know what the defenders' position actually was. The defenders had recognised that, in order
to implement the agreement, they had to place the pursuer back in the position
he would have been in but for the advice.
This could only be done by the purchase of an annuity or annuities equal
to the benefits lost. The fact that Mr Irvine
considered that the pursuer might do better by choosing a different investment
vehicle did not matter. The agreement
was for the purchase of an annuity. The
conclusion for implement gave the defenders a choice of companies from which to
purchase a suitable annuity rather than to pay damages, if they considered the
pursuer's choice of company too expensive.
(b) DEFENDERS
[24] The proposed amendments to the sums sued for were opposed and
the defenders' objection to the evidence, based on lack of record, concerning
the mode of calculating the proposed increased sum for damages, which emerged
during the course of Mr McDonald's evidence, was insisted upon. That objection was that it was "absolutely
preposterous" to allow such evidence when the defenders had received no notice
of the Prudential figures and had no opportunity to check them. However, so far as damages were concerned,
the appropriate calculation for past losses produced, on the defenders'
arithmetic, a slightly different figure from the pursuer but ultimately not one
at any substantial variation from it. In
relation to implement, the court should not grant decree for a variety of
reasons. The court could not grant a
decree for implement which was dependent on the pursuer doing something, such
as providing the defenders with the Talisman plan proceeds. It was not possible to determine what annuity
required to be bought by the defenders until the pursuer had already bought one
with these proceeds. The conclusion as
it stood was for the defenders to buy the annuity, although what was now sought
was for it to be bought for the pursuer.
What was being asked for was excessive in terms of the pursuer's loss.
In the event of the court declining to grant decree for implement, it should
not grant decree for damages either.
[25] The pursuer's first and second pleas-in-law should be
repelled. The defenders' first (no title
to sue by reason of assignation), fourth (all parties not called), sixth
(error) and seventh (prematurity) pleas-in-law were not insisted upon. Their second (relevancy) plea was insisted
upon as were their third and fifth pleas, which read as follows:
"3. In particular the pursuer having failed to
aver acceptance of the proposal of 17th
April 2001 by the defenders the action is irrelevant and should be
dismissed
...
5. The terms of the alleged agreement by
letters...not having been accepted by the defenders' letter of 7th May 2001, the defenders should be
assoilzied."
[26] On the merits, the defenders had not been subject to the
jurisdiction of the Adjudicator, although they had believed at the time that
they were. The correspondence, which the
defenders had with the Adjudicator, was not thought to have been voluntary and
both parties had been in error in that regard.
There had been a common error (on which see Professor Black: Stair
Memorial Encyclopaedia Vol 15 para. 688 "Essential Error"). The Adjudicator's role had not been as an
amicable third party but as someone who, it was thought, could wield the stick
of the Ombudsman and the FSA if there were a lack of co-operation. What had occurred was not an agreement
between two parties. There had been no
direct contact between the two parties.
Rather, what had happened had produced two agreements. The first was between the defenders and the
Adjudicator and had been subject to a caveat.
The second was between the Adjudicator and the pursuer, whereby the
pursuer had accepted a method of calculating his loss. It had never been suggested that the
Adjudicator had acted as either party's agent.
Each party had agreed (but not with each other) to accept the
Adjudicator's decision. The agreements
could only be enforced through the regulatory framework of the offices of the
PIA (now the FSA) or the Adjudicator. Since
neither could do anything now, because of the lack of jurisdiction, what
existed were two agreements which had no effect. Although the defenders had given undertakings
to the Adjudicator, the pursuer had no right to enforce them since he had no
agreement with the defenders and had not pleaded jus quaesitum tertio. The
situation was different from compromises of court actions (on which see
Professor Black: Stair Memorial Encyclopaedia Vol 15 para.
607 "Transfer and Extinction of Obligations"; Gow
v Henry (1899) 2F 48, Lord Traynor
at 55). Under section 229 of the
Financial Services and Markets Act 2000, a party could enforce an award of an Ombudsman
by petition under section 45 of the Court of Session Act 1988, but there had
been no equivalent under the earlier Financial Services Act 1986. Under section 44 of the 1986 Act an
"appointed representative" was someone not subject to the strictures of the Act,
whereas his principal was. That was the
defenders' position; that it had been
CAIFS who had been responsible. No
agreement had been reached in any event standing the qualification by the
defenders relative to the need to allow for the "tax free cash", even if this had
been worth only £1-2,000.
7. Decision
[27] The only objection to the evidence, which was ultimately
insisted upon, was that complaining of lack of record to cover the increased
costs of annuity purchase and hence the amount sought as damages in the event
of any decree for implement not being obtempered. The pursuer avers that, as at 9 June 2004, the cost of
purchasing an annuity to produce the benefits of the STV scheme is estimated at
£290,000. He states that up-dated
calculations "will be produced".
Although the latter averment is technically an irrelevant one, it did
give the defenders fair notice that the pursuer's 2004 figure would be updated
at or before the stage of enquiry. That
is what the pursuer has done. Mr Pollock's report, which was lodged in advance
of the proof, had the cost of buying an annuity to cover the STV scheme at
£238,978 plus £45,405, i.e. £284,383 as at October 2005. The FSCS quantification, which was also
lodged, revealed that the FSCS considered that a sum of £192,740 was the
appropriate net amount for compensation in April 2006, presumably after
deduction of the value of the Talisman plan.
Standing the nature of the first conclusion, which requires the purchase
of an annuity to pay for the equivalent of the STV scheme benefits, the
defenders could have been in little, if any, doubt that the pursuer would seek
to lead evidence of the current price or prices of an annuity to cover such
benefits. The pursuer's record gives
sufficient notice of that line of evidence and the defenders had ample
opportunity to consider the issue of present day values and to lead such
evidence as they desired in relation to these values. The objection is accordingly repelled. Since the amendments to the conclusions
proposed are simply up dates to the values together with certain technical
alterations, I will also allow the conclusions to be amended in the terms
proposed.
[28] Ultimately in evidence, Mr Irvine accepted that he had
entered into an agreement to compensate the pursuer upon a particular basis. In
relation to the formation of that agreement, both parties entered into
discussions with the Adjudicator concerning the pursuer's claim; at the
Adjudicator's prompting. The claim was
that the defenders were at fault when they advised the pursuer about the merits
of withdrawing from the STV scheme and purchasing a private pension plan. The pursuer could have proceeded to sue the
defenders and/or Mr Irvine for damages in respect of that advice, with all
the attendant features of a public court action. Initially, however, he did not do so. He approached the PIA Ombudsman. Once an Adjudicator was appointed, both
parties entered into discussions in relation to that claim through the
Adjudicator. The Adjudicator expressed
the view that he considered that the defenders had been at fault and this view
was, as both parties would have anticipated, communicated to each of them. The defenders accepted the Adjudicator's view
on the merits in their letter of 5 April
2001. Again, as the
defenders would have anticipated, their concession on liability was
communicated to the pursuer. The
Adjudicator then set out the basis upon which he thought compensation ought to
be assessed. The methodology was to be
that set out in the PIA pension review guidance. He asked both parties to advise him if they
accepted this form of assessment, stressing that, if both parties agreed, each
would be legally bound by the agreement thus reached. Both parties did agree to the assessment; the
defenders in their letter of 7 May
2001. Again, as the
defenders would have anticipated, their acceptance was communicated to the
pursuer. This was done in the
Adjudicator's letter of 8 May 2001. Equally, the pursuer's acceptance was
communicated to the defenders in a letter from the Adjudicator of the same
date.
[29] What all of this amounted to was a straightforward agreement by
the parties to compromise the pursuer's claim against the defenders on a
particular basis; that is by assessing compensation using a specific method. Each party accepted a proposal from a third
party or intermediary, namely the Adjudicator, intending to be legally bound by
that acceptance in order to compromise the claim. In so doing, each party was aware that their
acceptances of the offer formulated by the Adjudicator would be communicated to
the other. They were aware that, in terms
of the Adjudicator's letter, acceptance by both parties would amount to a
legally binding agreement between them as to the manner in which the claim would
be dealt with thereafter. Their
acceptances amounted to a contract between the parties to have the pursuer's
claim against the defenders dealt with in that extra-judicial manner. The fact that their agreement was facilitated
by the actions of an intermediary does not alter that position. It does not divide the agreement into two
separate contracts between each party and that intermediary. Indeed, there is no contract, in a private
law sense, between the parties and the Adjudicator at all, albeit that the
acceptances might also amount to undertakings to the Adjudicator to act in a
particular way in the complaint proceedings.
[30] The defenders found upon what they say was a qualification to
their acceptance, which they maintain was not accepted by the pursuer. Thus, it is argued, no concluded bargain was
reached. Several points arise in this
connection. First, in the context of the
negotiations, what the defenders said in the relevant letter did not amount to
a qualification of the fundamental agreement that the pursuer would be
compensated in terms of the PIA guidance. All that it amounted to was a comment by the
defenders that the selected methodology ought to include an allowance for the
small tax advantage gained by the pursuer as a result of the payment made under
the Talisman plan. Whether it would be
so included would, however, depend upon whether the PIA guidance did allow such
an allowance. The comment was subordinate
to the overall agreement to compensate in terms of the guidance. In the event, the evidence was that the
guidance proceeded on the basis of gross figures and would not take into
account the tax free advantage.
Secondly, this matter, although initially raised during the
negotiations, was ultimately not pursued by the defenders. By the time of the letters from the defenders
of 19 November 2003
and both 18 May and 10 November
2004, it was not being insisted upon and the defenders were
proceeding to obtain annuity quotations without reference to the small sum
involved in the tax advantage. If it had
ever been a qualification, it had been departed from by the defenders. Thirdly, again in the context of the sums
involved, the substance of the qualification was de minimis. Had it been a
qualification, it was of such a minor character that the answer to its
existence would not have been to vitiate what had otherwise been agreed but to
make an allowance for it in selecting the figure for past loss (infra).
[31] In all the circumstances, the pursuer has established that the
parties did conclude a binding agreement, complete in all it essentials, in
terms of the various communications to and from the Adjudicator, whereby the
pursuer's claim for compensation was to be met by the defenders in the manner
provided for in the PIA guidance. The
methodology was by means of purchasing the pursuer an annuity or annuities
which would produce, in the future, the same sums as the pursuer would have
obtained had he remained in the STV scheme. The Talisman plan funds, or their equivalent,
would be used to finance that purchase in part. Past losses would also be met. These would be calculated by subtracting the
Talisman plan payments to date from those that would already have been received
under the STV scheme.
[32] Ultimately, the plea that the defenders had acted under error
when entering into the agreement was not insisted upon. That concession was one which the defenders
were almost bound to make. Even if Mr Irvine's
evidence in this area had proved acceptable, all that it amounted to was that,
at the time of the agreement, the defenders had been under a misapprehension
that the Ombudsman had a statutory jurisdiction to decide upon the pursuer's
complaint. This was, at best, an
uninduced error on the part of the defenders alone and not one which could
result in the avoidance of a compromise agreement. The fact that, upon close hind-sighted
analysis, a tribunal, before which an issue is pending, had no jurisdiction
cannot affect an agreement made by the parties, with or without the tribunal's
assistance, to compromise that issue.
Such a situation is little different from any where, after a compromise
is reached, it becomes apparent that one party had a complete answer to the other
party's case.
[33] Several other points arise in connection with the arguments on
error, quite apart from the lack of any attempt by the defenders to reduce the
agreement on the basis of such error. First,
on the evidence led, it is not at all clear that the Adjudicator did not have
jurisdiction over the defenders. At the
time of the complaint, the defenders were regulated by the PIA. From that time, that body did have
jurisdiction to oversee the defenders' activities within the regulatory
framework. There was little reason
provided in evidence why the PIA should not thereafter have dealt with
complaints relating to the defenders, albeit that the facts giving rise to a
particular complaint may have had its origins in a time before the defenders
were regulated. Secondly, even if the
PIA had no compulsory jurisdiction over the defenders in respect of such a
complaint, there appears to be no reason why the defenders could not have
voluntarily submitted to PIA jurisdiction.
After all, the parties may have preferred that their disputes be dealt
with in the context of that institution rather than by the public courts. Thirdly, and of much more significance, at
the time of the agreement, the defenders, notably in the form of Mr Irvine,
were not under any misapprehension about the jurisdiction of the PIA. I do not accept, in short, that any error was
made. Even if it was, I do not accept
that it caused the defenders to enter into the agreement.
[34] Mr Irvine gave his evidence with considered care. He thought about his responses in relation to
the issues in the case before giving voice to them. On occasion, under cross examination, he had a
tendency to deflect the questions rather than to answer them directly. At times, however, he was forced into saying
things that were, as the pursuer's counsel put it, "nonsense". The most notable example of this was his
statement, after some mild prevarication, that the pursuer had not been a
client of the defenders, when he undoubtedly had been whatever the defenders'
relationship with CAIFS might have been on paper. Mr Irvine's careful approach relative to
the issues in the case may be laudable on one level but it meant that his
answers had an air of being tailored to meet the situation, which the defenders
found themselves in by the time of the litigation, rather than being an
entirely accurate account of fact. Mr Irvine
had entered into an agreement, on the defenders' behalf, to proceed in a
particular way by the purchase of an annuity for a retired private individual
who had lost considerable sums of money because of the defenders', indeed Mr Irvine's
own, advice. After several years, the
defenders, through Mr Irvine, suddenly repudiated that agreement for
reasons which must have been regarded then, as they are now, as, putting
matters mildly, somewhat flimsy. Mr Irvine's
attempt to blame the pursuer's losses on the regulatory cap on compensation was
an unfortunate one and did not reflect well upon him. All of this cast considerable doubt over Mr Irvine's
testimony which, in one area, could not be regarded as either reliable or
credible. In particular it was not
plausible that he, as a director of the defenders giving financial advice and
subsequently receiving a claim, would not have been aware of when his company
had become independently authorised relative to the timing of the advice to the
pursuer. It was even less plausible that
the defenders' PI insurers would have been so careless as to omit: (i) to investigate when the alleged faulty
advice had been made relative to the date when they took on the risk of the
defenders and (ii) to inform the defenders accordingly and at a relatively
early stage. In short, I do not accept
that in making the concession they did, and subsequently agreeing the method of
compensation, the defenders acted under any misapprehension about their
position in relation to the pursuer's claim and the jurisdiction of the PIA
Ombudsman. On the contrary, they entered
into the agreement with the pursuer in the full knowledge of all the relevant
facts and the regulatory framework. Mr Irvine
agreed that he had accepted the Adjudicator's ruling on the merits and on the method
of the calculation of loss. He did so knowing all the facts relevant to making
that decision and entering into the agreement.
[35] The pursuer is entitled to implement of the agreement. That first requires the defenders to purchase
on his behalf an annuity which will produce the sums which the STV scheme would
have produced. There is no dispute about
these figures being the £14,913 per annum spoken to by Mr McDonald and
referred to above, or, to be more precise, the detailed amounts in the proposed
decree (infra). Although there was some issue about whether
the proposed annuity quotation from the Prudential reflected precisely the
terms of the STV scheme with its various index linked aspects, the obtaining of
an annuity or annuities in terms of the decree (infra) will be sufficiently close to the STV scheme as to amount to
implement, even if these terms may be fractionally less beneficial than those
under the STV scheme. That implement
will require, in exchange, the payment by the pursuer to the defenders of the
current value of the Talisman plan.
There is no difficulty in making a decree for implement conditional on a
response, such as payment of a particular sum, from the other party. That is commonplace, for example, in the
implement of contracts of sale. The
pursuer is also entitled to payment of his accrued losses. There were minor discrepancies concerning the
precise figure for these but ultimately there was no material dispute that they
amounted to about £11,000. I will grant
decree for implement accordingly.
[36] Should the defenders fail to obtemper the decree, the pursuer
is entitled to damages in respect of that failure. Those damages are not intended as a measure
of compensation for the pursuer's loss sustained as a result of the defenders'
advice. The appropriate measure of
damages was settled by the agreement. The defenders were to purchase the relevant
annuity or annuities. The primary
measure of damages for failing to implement the decree is the cost of the
purchase of the annuity or annuities together with the accrued losses. The pursuer has produced up to date figures
from the Prudential, a reputable company in the field. In the absence of any figures to the
contrary, there is no reason not to accept them as representing the reasonable
cost of purchase. The total, as spoken
to by Mr McDonald, is £367,973 (supra)
from which the value of the Talisman plan (£99,705, according to Scottish Life)
falls to be deducted. The sum for past
losses (£11,000), included as part of the requirement of implement, would
require to be added to produce damages of £279,268. I will grant decree accordingly.
[37] I will therefore: (1)
repel the pursuer's third and fourth pleas-in law; (2) repel the defenders' pleas-in-law; (3) sustain the pursuer's first and second
pleas-in-law; (4) allow the first
conclusion to be amended to reflect the terms of clause (6) hereof; (5) allow the second conclusion to be
amended by increasing the sum therein to reflect that in clause (7) hereof; (6) grant decree ordaining the defenders to
implement the agreement entered into by them with the pursuer and that by: (a) in return for payment by the pursuer to
the defenders of a sum equivalent to the value of his Talisman plan (such sum
to be not less than £99,705), purchasing on behalf of the pursuer from a
reputable insurance company an annuity or annuities which provide the following
benefits: (i) an income of £11,750.71
per year, with annual increases on 1 October 2007 and subsequent
anniversaries of that date of 4% per annum payable until the death of the
pursuer; (ii) an income of two thirds of
the income in (i) (as so increased) from the death of the pursuer until the
death of his widow; (iii) an income of
£3,162.20 per year payable until the death of the pursuer; (b) making payment to the pursuer of the sum
of £11,000; and that within a period of fourteen days; and (7) grant decree for payment by the
defenders to the pursuer of the sum of £279,268 in the event of the defenders
failing to implement the decree of the court within a period of fourteen days.
