Financial Services Compensation Scheme Ltd v Abbey National TreasuryServices Plc (Financial Services Authority intervening) [2008] EWHC1897 (Ch); [2008] WLR (D) 277 [Ch]
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID RICHARDS,Mr Justice David Richards |
| Judgment Date | 31 July 2008 |
| Neutral Citation | [2008] EWHC 1897 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC06C01927 |
| Date | 31 July 2008 |
[2008] EWHC 1897 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice David Richards
Case No: HC06C01927
David Railton QC and Richard Handyside (instructed by Denton Wilde Sapte) for the Claimant
Jonathan Crow QC, David Foxton QC, and Andreas Gledhill (instructed by Travers Smith) for the Defendant
Andrew Hochhauser QC and Siddharth Dhar (instructed by The Financial Services Authority) for The Financial Services Authority (as intervenor)
Approved Judgment
Hearing dates: 16, 17 and 18 June 2008
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Hon.
Introduction
This is the trial of two preliminary issues in an action brought by Financial Services Compensation Scheme Limited (FSCS) against Abbey National Treasury Services Plc (ANTS). FSCS sues as legal assignee of the claims of some 1,800 retail investors whom it has compensated under the terms of the Financial Services Compensation Scheme (the scheme). The scheme was established by the Financial Services Authority (FSA) pursuant to Part XV of the Financial Services and Markets Act 2000 ( FSMA). The compensation was paid in respect of misselling claims relating to financial products known as structured capital-at-risk products, in circumstances where the independent financial advisers (IFAs) through whom they were sold are, or are likely to be, unable to meet the claims.
ANTS is not an IFA, but it is alleged by FSCS to have collaborated in the development and promotion of the structured products with NDF Administration Limited (NDF) which marketed them through IFAs. The claims made by FSCS against ANTS are for negligence and misrepresentation and, jointly with NDF, for breach of statutory duty. FSCS has issued separate proceedings against NDF which are proceeding concurrently with the action against ANTS.
The legal assignment of claims against ANTS was effected pursuant to the express terms on which FSCS offered compensation to investors, in accordance with an express power in the scheme. ANTS submits that the inclusion of the express power in the scheme was ultra vires, being beyond the express or implied powers of the FSA under Part XV of FSMA, and that the assignments themselves are therefore void. If well-founded, these submissions determine the action in favour of ANTS. If not well-founded, ANTS submits that as assignee of investors' claims, FSCS must give credit for the sums received by the investors by way of compensation under the scheme, on grounds that such compensation reduced the investors' losses. If well-founded, this submission would have a very substantial effect on the amount claimed. The claim is for over £21.5 million and ANTS suggests that the effect would be to reduce it to less than £1 million. While not able to confirm the size of the reduction, FSCS accepts that the effect would be very substantial.
On the application of both parties, I ordered the following issues to be tried as preliminary issues:
“1. Whether the assignments of investors' claims against ANTS referred to in paragraphs 2 and 3 of the Particulars of Claim are void and ineffective on the ground that FSCS had no power to agree such assignments.
2. Whether the compensation paid by FSCS to investors is to be taken into account in the calculation of the loss recoverable by FSCS as assignee of the investors' claims against ANTS.”
NDF has not participated in the trial of these issues and has not amended its defence to raise the points covered by them. However, FSCS and NDF have agreed in correspondence that if ANTS succeeds on either issue, the ruling on the issue will apply also as between FSCS and NDF.
As the first preliminary issue raises directly as an issue the extent of the FSA's powers to establish the terms of the scheme, it was given permission, by consent of the parties, to intervene. It has appeared by Mr Hochhauser QC and Mr Dhar, and confined its submissions to the ultra vires question.
Background
For the purposes of the preliminary issues, it is necessary to give only a brief summary of the claims and the facts giving rise to them.
The products in issue involved a lump sum investment which linked the return on maturity, by a pre-set formula, to the performance of a specified equity index. The return would be greater or less than the initial investment depending on the performance of the index, but it was geared in the case of most of the products, so that there might be a reduction of 2 per cent or more for every 1 per cent fall in the index. There are 14 types or series of such products in issue in the action.
FSCS has compensated approximately 1,800 retail investors in respect of losses suffered by them as a result of investing in one or more of the products between 1999 and 2002. All of the investors invested in the products after receiving a mailshot and/or tailored advice from an IFA, and they all suffered capital losses under the products when the products matured. The investors subsequently claimed compensation from FSCS for their losses on the grounds that the degree of risk under the products was not explained (or was misrepresented) to them by their IFA. FSCS determined that because of their financial circumstances, the IFAs were unable or were likely to be unable to meet the investors' claims, and accordingly FSCS declared the IFAs to be “in default”. FSCS subsequently paid compensation to the investors, in return for which the investors assigned to FSCS their claims against their IFA and their claims against third parties such as ANTS and NDF.
The products were promoted by NDF, with which the investor contracted. The proceeds of the products were invested in shares in an investment company established for the purpose and listed on the Dublin Stock Exchange. ANTS did not deal directly with investors but it created the products. It was responsible for establishing the investment company, acted as its investment adviser and was the counterparty which entered into an index swap transaction or equity linked deposit transaction with the investment company.
NDF was subject, as regards its promotion of the products, to the relevant rules made first under the Financial Services Act 1986 (the 1986 Act) and, in relation to promotion after 1 December 2001, by the FSA under FSMA. FSCS contends that the marketing material for the products failed to make clear the risks associated with them and that investors were induced to invest in the products in reliance on misleading statements and material omissions. Its case is that if the marketing material had, as it puts it, fairly disclosed the degree of risk in the products, the investors would not have invested in them. It claims that NDF was in breach of the applicable rules regulating the contents of marketing material and its claims against NDF are for breach of statutory duty (section 62 of the FSA 1986 and section 150 of FSMA), negligence and misrepresentation.
The case against ANTS is that it collaborated with NDF in the development and promotion of the products and in marketing them to investors through IFAs. The claims are in negligence and misrepresentation and, by reason of a joint enterprise with NDF, breach of statutory duty. ANTS denies any liability. It pleads that the plans and promotional material were issued by NDF, and that it is a wholesale institution which has not given investment advice to retail investors or issued promotional material, whether as regards the products or otherwise.
Assignments
The facts pleaded in the particulars of claim against ANTS and NDF are alleged to give rise to claims which the investors could advance against those companies and which the investors have assigned to FSCS. The terms on which compensation was offered to investors required them to assign to FSCS their claims against their IFAs and against third parties, which, although not stated, would include claims (if any) against ANTS and NDF. Investors signed declarations which included the following:
“We/I confirm that we/I have received no offer or payment of compensation of any kind in respect of the losses for which compensation is sought herein whether from the firm or any other person. We/I also confirm that we/I do not expect to receive any such compensation in the future. Any such payment of compensation received by us/me, we/I will pay to the Financial Services Compensation Scheme Limited in accordance with Section 4 of this form.” [Section 3.4]
“We/I understand that:
•The Financial Services Compensation Scheme Limited in its capacity as the Scheme Manager (under Part XV of the Financial Services and Markets Act 2000) will, upon payment of compensation pursuant hereto, take over all our/my rights and claims whatsoever against the firm and against any other party ('Third Party Claim') in accordance with the terms of the investor's agreement and acknowledgment contained in Section 4 hereof.
•Thereafter we/I will not be entitled to the benefit of any such rights and claims, save as provided in the said Section 4.” [Section 3.8]
Section 4 of the form referred to in the passage quoted above included the following:
“4.2 That all our/my rights against the firm in respect of the Protected Claim shall pass to and be assigned to the Financial Services Compensation Scheme Limited absolutely on payment of compensation (or any part thereof) pursuant to the Rules and/or the Order.
4.3 That all our/my rights against any other person which constitute a 'Third Party Claim' as defined in paragraph 13 hereunder...
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