Russell Adams held a personal pension with Friends Life. An online advertisement about releasing cash from a pension led him to CLP, an unregulated introducer. CLP encouraged him to move his pension into a self-invested personal pension operated by Carey Pensions UK LLP (later Options SIPP UK LLP, then Options UK Personal Pensions LLP) and to invest the proceeds in long leases of storage pods. The operator acted on an execution-only basis and gave no advice. The investment performed poorly.
Mr Adams sued on three bases: that the agreement was unenforceable under section 27 of the Financial Services and Markets Act 2000, because it was made in consequence of CLP carrying on regulated activities in breach of the general prohibition; that the operator had itself breached COBS 2.1.1R, actionable under section 138D FSMA; and that it was liable for CLP's advice as a joint tortfeasor with CLP. His Honour Judge Dight CBE, sitting as a judge of the High Court, dismissed all three ([2020] EWHC 1229 (Ch)). Only the first two heads were pursued on appeal.
The Court of Appeal allowed the appeal on the section 27 claim ([2021] EWCA Civ 474, 1 April 2021), with the Financial Conduct Authority intervening. Switching cash already inside a SIPP into another asset does not amount to buying or selling rights under a pension scheme. Even so, CLP had advised on investments within article 53 of the Regulated Activities Order, because on these facts recommending the storage pods carried with it advice to sell his Friends Life policy and acquire a SIPP, each of which is a security. CLP had also made arrangements within article 25, and the article 26 exclusion did not apply: arrangements must play a role of significance in bringing the transaction about. A bare 'but for' link is not enough, but a direct connection is not always required either.
The court declined to exercise the discretion under section 28(3) FSMA to let the agreement stand, emphasising that consumer protection is a key aim of FSMA and that section 27 throws the risk of unregulated introductions onto the authorised firm, whether or not it knew of the third party's contravention. The appeal on the COBS claim failed. Mr Adams sought to advance a case on appeal that bore little relation to his pleadings and the court declined to allow it, Newey LJ adding that the judge’s finding that any breach was not causative of loss would in any event have been difficult to overcome. The court declined an invitation to comment more generally on the scope of COBS 2.1.1R, preferring to leave that to a case in which the issue was live. A supplemental judgment ([2021] EWCA Civ 1188, 30 July 2021) dealt with relief and costs, and the Supreme Court later refused permission to appeal.
Adams shows that liability can attach to a firm whose own conduct is not criticised. A section 27 claim does not turn on negligence, breach of duty or knowledge of the introducer's wrongdoing. It turns on what a third party in the distribution chain did and whether the transaction followed from it, which sits outside the familiar analysis of advice quality and suitability, and outside the contractual disclaimers a firm may have in place. The remedy is a different shape too: unenforceability, recovery of the money transferred and compensation, closer to unwinding the transaction than to compensating for poor advice.
Due diligence on introducers, records of what introducers say to clients and a response to unusual referral patterns become part of the risk picture rather than a back-office formality. Proposal forms for professional indemnity cover routinely ask about introducer arrangements and distribution chains, and the duty of fair presentation under the Insurance Act 2015 means those answers need to be complete rather than convenient. Because the relief sought is restitutionary, it is worth asking your broker how a policy responds to statutory unenforceability claims and the defence costs attached to them.
Apex Insurance Brokers sets out the wider position for advisers in its guide to professional indemnity insurance for IFAs, and the introducer and distribution-chain themes have close parallels in the guide for insurance brokers. The statutory route Mr Adams also pursued is covered in the entry on section 138D FSMA, and the question of when one party in a chain may rely on another is examined in Seymour v Ockwell.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.