The High Court has overruled the Financial Ombudsman Service, awarding a 96 year-old woman £223k for flawed inheritance tax advice.
The case also provides useful guidance about when a person has ‘knowledge’ of a claim for the time-limits in bringing a case.
Angela Lenderink-Woods brought the case against Zurich, claiming that she had been recommended products which were unsuitable for her needs and that the charges were excessive.
Mrs Lendrink-Woods was born in the UK, but was domiciled in the Netherlands and had lived in Costa Rica since 1980. In 2001 she had a share portfolio worth over £500,000 and because this was based in the UK, it was potentially liable to inheritance tax (IHT). She sought advice from an Allied Dunbar financial planning consultant, Huw Davies. Allied Dunbar was subsequently acquired by Zurich.
Mr Davies recommended that Mrs Lendrink-Woods transfer her assets into three of Allied Dunbar’s products; a gift and loan trust scheme, an offshore investment bond and a portfolio bond. When she invested, Mrs Lendrink-Woods was under the impression that she was paying annual charges of 2{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} for the products.
Concerns about the plans began to emerge in 2009. Mrs Lendrink-Wood’s daughter was worried that the level of charges was far higher than her mother believed. Questions were also raised about whether the plans were actually necessary to protect Mrs Lendrink-Wood from UK inheritance tax.
The allegations were put to the Financial Ombudsman in 2012 which concluded that Mr Davies’ advice to place the investment in offshore bonds was correct as it largely protected Mrs Lendrink-Woods from a future potential tax liability.
In 2016 the family took the case to court where Justice Norris overruled the FOS’s decision, awarding Mrs Lendrink-Woods £223k in damages. In the hearing it was revealed that Mr Davies was wrong to have sold her investments in offshore bonds and that a gift and loan trust was unnecessary to protect her against IHT, because she was not domiciled in the UK. “Every word Mr Davies wrote or uttered on the subject demonstrated that he did not know the rules and was completely out of his depth,” concluded Justice Norris.
It also transpired that charges of up to 4.5{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} had been levied on the products. In the 15 years that Mrs Lendrink-Woods held her investments they had not increased in value due to high charges and poor investment performance.
Zurich had initially applied for the case to be struck out, as Mrs Lendrink-Woods had brought her claim outside the six year limitation period. The application was refused. The decision depended on when Mrs Lendrink-Woods should reasonably have known that she had suffered a loss. Zurich argued that Mrs Lendrink-Wood should have known that “something was up” when she first raised concerns about Mr Davies in 2009. The Court concluded that as this was a strike-out application the burden of proof was on Zurich as the applicant to demonstrate that Mrs Lendrink-Wood had sufficient knowledge before the cut-off date, which it had failed to do. As a result the case could go to trial, where the burden of proof would then rest with the claimant.
“It is significantly unusual for the courts to overrule the Financial Ombudsman,” said James Burgoyne, Director – Claims & Technical, Brunel Professions said: “In this case, it is clear that the judge considered that the advice provided was fundamentally wrong.”
“The case also reinforces the point that the burden of proof is on the defendant if it attempts to strike out a claim on limitations grounds. If this threshold is not reached, then the claimant will get their day in court where all the arguments of both sides can be heard. The cost implications of a strike out application mean that there must be a great deal of confidence in the strength of the arguments going forward, and consequently it is likely there will be fewer strike out applications in this area in future as a result.”
Reports about the High Court award have been published by Money Marketing, the Telegraph and New Model Adviser. The question of limitation has been reported by law firm Bond Dickinson.
