Searle v A R Hales & Company Ltd [QBD]
| Jurisdiction | England & Wales |
| Judge | Adrian Whitfield |
| Judgment Date | 11 April 1995 |
| Court | Queen's Bench Division |
| Date | 11 April 1995 |
Queen's Bench Division.
Adrian Whitfield QC (sitting as a deputy High Court judge).
Marion Simmons QC (instructed by Ingledew Brown Bennison & Garrett) for Scottish Mutual Assurance plc.
Tina Kyriakides (instructed by Barnett Sampson) for the plaintiffs.
The following cases were referred to in the judgment:
Anglo-African Merchants Ltd v BayleyELR [1970] 1 QB 311.
Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd & OrsELR [1990] 1 QB 665.
Caparo Industries plc v DickmanELR [1990] 2 AC 605; [1990] BCC 164.
Fuji Finance Inc v Aetna Insurance Co Ltd [1994] CLC 723; [1995] Ch 122.
Hedley Byrne & Co Ltd v Heller & Partners LtdELR [1964] AC 465.
McNealy v Pennine Insurance Co LtdUNK [1978] 2 Ll Rep 18.
Stockton v MasonUNK [1978] 2 Ll Rep 430.
White v JonesELR [1995] 2 AC 207.
Financial services — Negligence — Duty of care to investors — Home income plans — Retired investors advised by brokers acting as independent financial advisers to invest in home income plans — Investment in personal investment bonds in broker managed funds — Broker managed funds linked to insurance company's funds — Value of bonds fell sharply — Investors sustained financial loss — Whether insurance company owed duty of care to investors — Whether brokers acting as agents of insurance company — Whether claims should be struck out as disclosing no cause of action.
These were applications by an insurance company to strike out as disclosing no cause of action two claims by investors in respect of losses on home income plans.
A R Hales & Co Ltd (“the brokers”) carried on the business of insurance and financial consultants and advisers, fund managers and brokers. Scottish Mutual Assurance plc (“SMA”) was an insurance company. Investors could acquire personal investment bonds, paying sums into a broker managed fund (“the fund”) which itself held separate, discrete funds managed by SMA. The fund was operated by the brokers, who could switch it between the discrete funds. In addition to the normal broker's commission on initial investment the broker received a management fee paid out of the fund.
In the first action, on the advice of the brokers the plaintiff invested sums in 1986 and 1987 by buying SMA personal investment bonds linked to the fund, including a home income plan by which the plaintiff, who had by that time retired, invested in the fund £30,000 raised on mortgage. Within a year the value of the bonds dropped and continued to fall. Further sums were invested, certain withdrawals made and the bonds surrendered realised far less than the investment. The plaintiffs loss was estimated at £58,000.
The plaintiff brought an action for breach of contract and negligence against the brokers and in negligence against SMA for the loss of £58,000 resulting from imprudent investment and excessive withdrawals. It was alleged that the brokers had negligently given inadequate advice concerning the investments, the risk of withdrawals from the bonds, and misleading advice about the home income plan. Against SMA it was alleged that SMA assumed a duty of care to the plaintiff to ensure that the brokers managed the plaintiffs investment properly and gave her proper advice in relation to the investments and in particular the nature of and risks involved in a home income plan. It was further alleged that the brokers acted as agents for SMA in procuring potential investors in the funds, including the elderly via home income plans, and in managing both the plaintiffs investment in the bonds and the fund on behalf of SMA. SMA applied to strike out the claim as being frivolous and vexatious and disclosing no cause of action.
In the second action the plaintiff husband and wife, who were impecunious and inexperienced, entered into a home income plan on the advice of the brokers, investing £31,000 in the fund in September 1987. In October 1988 the value of the bond having fallen to £19,800, on the brokers' advice a further £16,800 raised on mortgage was invested in the bond. By June 1992 when the bond was surrendered it was worth £13,240. The plaintiffs, who sustained a loss of approximately £43,000, brought an action alleging negligence by SMA and liability for the acts of the brokers as their agents. The two actions were conjoined for the determination of the striking-out application.
Held, striking out the plaintiffs' claims as disclosing no reasonable cause of action against SMA:
1. Although it was arguable that SMA could reasonably foresee that the plaintiffs might suffer financial loss as a result of inadequate advice concerning the risks and characteristics of home income plans, the necessary degree of proximity between the plaintiffs as investors and SMA was lacking in order to establish a duty of care at common law. No statutory duty was imposed by the Financial Services Act 1986, and no duty of care was owed in law by an insurer to an insured, whether the policy was acquired as insurance or an investment. Since SMA had not assumed responsibility at law for advising investors who took out life policies, there was no real prospect of the plaintiffs showing the necessary proximity required between them and SMA to impose a duty of care on SMA. It followed that the allegation of negligence by SMA could not succeed. (Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd & OrsELR[1990] 1 QB 665applied.)
2. At common law prima facie the brokers as independent financial advisers were agents of the insured and not of the insurer. There was no evidence to support the allegation that the brokers were agents for SMA at the material time, and accordingly the allegation of agency was doomed to fail.
Adrian Whitfield QC: In each of these actions the defendant, Scottish Mutual Assurance Ltd (“SMA”), seeks to strike out so much of the claim, treated by agreement between the parties as contained in the respective draft amended statements of claim, as affect them under RSC, 0.18, r. 19 and under the inherent jurisdiction of the court, on the grounds that the pleadings disclose no reasonable cause of action against SMA and are frivolous, vexatious and an abuse of the process of the court.
It is clear law, and throughout I bear in mind, that this Draconian step cannot be taken unless the claim or part of the claim attacked is plainly and obviously doomed to fail.
A R Hales & Co Ltd were at all material times a company carrying on the business of insurance and financial consultants and advisers and as fund managers and brokers. I shall refer to it as “the brokers”. Following the Financial Services Act 1986, they became a member of FIMBRA. Mr Hales was a director of the brokers. SMA carried on business as an insurance company and, following the Act, became a member of LAUTRO.
The case concerns substantially (though not entirely) a “broker managed fund” called the A R Hales Management Fund, which I shall hereafter call “the fund”. In brief, investors could acquire personal investment bonds, paying the sums they-wanted to invest into the fund which itself held investments in certain separate discrete funds which were managed by SMA, the fund itself was operated by the brokers, who could switch it between the discrete funds. In addition to the normal broker's commission on initial investment, the...
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