Lloyd's Maritime and Commercial Law Quarterly
VICTIMS OF PENSION MIS-SELLING SHORT-CHANGED?
Gorham
v. British Telecommunications
Loosemore
v. Financial Concepts
The poignant facts of Gorham
1
constituted a “classic example of pensions mis-selling”.2
A man sought advice in 1991 about his financial affairs and cited “provision for family” as his first priority. He was sold an unsuitable Standard Life personal pension plan (“PPP”) by one of that company’s advisers, when he would have been better advised to be a member of his employer’s (B.T.’s) occupational pension scheme (“OPS”). The case therefore provided the opportunity for the Court of Appeal to rule on the important question of the standard of conduct required of an adviser when advising a private customer about the purchase of retail investment products. However, its somewhat unusual facts raised a whole raft of issues which may have distracted the court from the critical assessment of the appropriate standard of liability.
Mr Gorham died in September 1994, at the early age of 35, leaving behind a widow and two young children. The claim was brought by his dependants, not by his estate. This raised two questions. First, did the dependants have a statutory cause of action under the Financial Services Act 1986? Secondly, were they owed a duty of care at common law, by analogy with the claim of the disappointed beneficiary against a negligent solicitor in the leading case of White
v. Jones
?3
Furthermore, Mr Gorham was warned by Standard Life, during a call to its helpline in November 1992, that he would be better off in the OPS. Mr Gorham ceased contributing to the PPP, but then wrongly concluded that he was still a member of the OPS, because he had never completed an “opt out” form. His death followed in less than two years. It would in the event have been too late for him at that stage to qualify for dependants’ pension rights. If Standard Life was legally responsible to the dependants it had incontrovertibly caused that loss (valued at £115,000). In contrast, if Mr Gorham had then taken steps to join the OPS his dependants would have received
1. Gorham
v, British Telecommunications Plc
[2000] 1 W.L.R. 2129 (C.A.: Pill and Schiemann, LL.J., and Sir Murray Stuart-Smith). The case against B.T., Mr Mr Gorham’s employer and the first defendant, was dismissed at first instance, and B.T. took no part in the appeal. It was the liability of Standard Life, the personal pension provider and third defendant, that was in issue in the Court of Appeal.
2. [2000] 1 W.L.R. 2129, 2133: Pill, L.J., quoting counsel for the plaintiffs. For academic discussion of the pensions mis-selling saga see: G. McMeel, “The Consumer Dimension of Financial Services Law: Lessons from the Pension Mis-selling Scandal” [1999] Company, Financial and Insolvency Law Review
29; J. Black and R. Nobles, “Personal Pensions Misselling: The Causes and Lessons of Regulatory Failure” (1998) 61 M.L.R. 789.
3. [1995] 2 A.C. 207.
321