Towergate Financial has won a legal claim against two advisers who it said should pay for claims relating to millions of pounds worth of defined benefit (DB) transfers.
The two former advisers had appealed against Towergate Financial's attempts to claim indemnity payments. The disputed payments were for advice that saw clients invested in unregulated collective investment schemes (Ucis) and undertake pension transfers. However a court has now thrown out that appeal.
In hearings dated 21 and 22 November, Mitchel Hopkinson and Mark Howard, former directors of M2 Financial Limited appealed against a lawsuit from Towergate, which sought to claim on an indemnity agreement signed by the two firms in August 2008 after Towergate bought M2.
The deal saw Towergate buy the entire share capital of M2 Holdings Limited for £9.9 million comprising an initial payment of £5.9 million and deferred consideration of £3.6 million, which has not yet been paid.
Towergate’s claim arose from two Financial Conduct Authority (FCA) section 166 reviews relating to advice given by M2 Financial on pension transfers and Ucis products marketed to clients between December 2001 and January 2014, including six and a half years after the Towergate acquisition.
It was revealed in 2015 that Towergate faced an £85 million compensation bill for Ucis mis-selling, with the FCA having begun its investigation in May 2014. The first payment was made in January 2016 and the amounts paid exceed the limit on M2’s liability under the indemnity.
Towergate issued a notice of possible indemnity claims to Howard and Hopkinson in July 2015, stating: ‘Those reviews are currently underway and have already resulted in the discovery of a number of cases where advice given to customers was not suitable which is likely to arise [sic] in a payment of redress being made to those customers.
‘Towergate Financial's position is that it is likely that further claims will be identified against Towergate Financial and that a number of those claims are likely to arise from business which was transacted by M2.’
It went on to highlight that redress payments resulting from the section 166 review would fall within the scope of the indemnity provision clause in the agreement.
1,300 DB transfers
The letter revealed that at the time, 86 Ucis transactions and about 1,300 transfers out of defined DB schemes made before the sale of the company had been identified, and that further cases might be identified.
The clause containing the indemnity stated that Howard, Hopkinson and their spouses would indemnify Towergate against ‘losses, liabilities, costs and expenses’ resulting from claims for professional negligence, including mis-selling of pension transfers. It also specifically references a s166 review conducted by the FCA’s predecessor, the Financial Services Authority (FSA), into a contract between the firm and Peugeot, known as ‘Project Picasso’.
Howard and Hopkinson’s appeal centred around a clause mandating notification of claims to the indemnifier within seven years from the date of the agreement.
Towergate's letter fell one week within this period, but Joanna Smith QC, representing Howard and Hopkinson, appealed on the grounds that the notice did not provide details of any actual claims under the indemnity, including an estimate of their value.
The second grounds claimed the notice was premature, because no claims had yet been made which would trigger the indemnity.
However, following analysis of the wording in the relevant clause of the indemnity agreement, Lord Justice David Richards rejected both grounds of the appeal, sustaining Towergate's claim on the indemnity.
Joanna Smith QC has been contacted for comment on behalf of Howard and Hopkinson.
Read the full decision below.