Seymour Vs. Ockwell & Co.

LGST706 Financial Advisers Law

Case Study: Seymour vs Caroline Ockwell & Co.

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Group 5:

Toh Weijie, Luke

Lu Ronghao, Alex

Woralak Singhadej, Nat

Shin Jang Su

Question 1: Give a short and concise summary of the material facts of the case.

Summary of the case

Mr. and Mrs. Seymour wished to invest in a low risk product after selling their farm.
They approached Ms. Ockwell, their tax adviser and an Independent Financial Adviser, for advice. Ms. Ockwell approached her regular contact at Zurich IFA Limited (ZIFA), Mrs. Clarke, for information on potentially suitable products.

Based on the information provided by Ms. Ockwell, Mrs. Clarke provided several recommendations. Amongst the recommendations was the Allied Dunbar Managed Portfolio Bond, a unit-linked life assurance plan, that provided investors with the choice of investments within the plan. The plan, which was located off-shore, also provided tax benefits that the Seymours were also looking for.

In the process of selecting the investments to go into the plan, the Alpha Fund was brought to the attention of Ms. Ockwell by Mrs. Clarke, and consequently, the Seymours. After some discussions and under recommendation from Ms. Ockwell, the Seymours eventually invested £500,000 into the fund.

After the investment was made but before the cancellation period, ZIFA circulated internally a memorandum raising serious issues. The note was never made known to Mrs. Clarke or Ms. Ockwell and the fund subsequently collapsed and the Seymours lost all of their money that was invested into the Alpha Fund.

Parties involved in the case: (1) Mr. and Mrs. Seymour (Claimant); (2) Ms. Ockwell (Defendant); and (3) Zurich IFA Limited (Defedant)

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Key features of the Alpha Fund

Key features

• The Alpha Fund guarantees fixed return of 15% per annum, net of all charges.
• The fund is a capital guaranteed product under Isle of Man Insurance Protection Scheme.

Source of returns[pic 3]

1. The fund generates returns through the provision of small loans to personal injury claimants with the following features.

• Loan sizes range between £1,500 and £4,000
• Interest charged on loans – 19%
• Loans are covered by insurance providers
• Loans made through IC Financiers Limited and not directly through the fund

1. Criterion for redemptions within the
   first year:

• Redemption fee of 3 months’ interest
• Notice period of 3 months

High risk features

1. The Fund is administrated from the Bahamas, where there is no regulatory system in place and no legislation providing compensation to investors in the event of insolvency.
2. The investment involves the purchase of shares, which the value could fluctuate and could only be realized by a process of redemption.
3. There are supposed to be safety features meant to protect investors. However, these features have specific conditions attached to them which in actuality contradicted the advertise intention of these safety features.

Question 2: In relation to the negligence claim against Ms Ockwell, in what ways did judge Havelock-Allan QC find that Ms Ockwell had been negligence?

According to the judge, all four elements of the tort of negligence were fulfilled:

1. Existence of a Duty of care

• Foreseeability – Ms. Ockwell, being in direct contact with the Seymours, should have known that her actions or inactions would have a direct effect on them.
• Proximity – Ms. Ockwell and the Seymours had entered into a formal client-adviser (contractual) relationship.
• Policy – Nothing within the case suggests a reason to abolish the duty of care owed by Ms. Ockwell.

1. Breach of the relevant standard of care

• Independent judgment in determining the suitability of an investment product was not exercised by Mr. Ockwell.
• Failure to understand the Alpha fund and relying primarily on information from ZIFA breached the standard of care – The Alpha fund was obviously high risk.

1. Causation

• The loss was directly a result of the Seymours’ reliance on Ms. Ockwell’s advice

1. The damage suffered is not too remote.

• According to the high risk features of the Alpha Fund, the loss from this investment is foreseeable.

Question 3: Ms Ockwell’s lawyers put forward two major arguments. Is there any merit in any of these arguments? How did the judge respond to them?

1. There was no merit for the argument that she should be judged by the standard of competence of a high street independent financial adviser:

• She was not being asked to do something beyond the range of her expertise:

• Ms. Ockwell had sufficient experience to recognize the warning signs.
• She was able to question or do further research on the structure of product.
• If she realized that she was not able to understand the product, she should have advised the Seymours to seek more specialist advice.

1. There was also no merit for the argument that she was entitled to rely on what Mrs Clarke told her about the Alpha Fund:

• Ms. Ockwell should have formed her own opinion from the available data and should have exercised independent judgement before providing advice to the Seymours.
• No amount of comfort or assurance from ZIFA would have absolved her from exercising her skepticism that she would otherwise have had for a product such as the Alpha Fund.
• According to the Adopted FIMBRA Rule 28.3(2), Ms. Ockwell could only rely on a projection relating to a packaged product prepared by ZIFA, but not all information she received from ZIFA.

Question 4: Briefly explain the various tests which the judge thought were applicable in determining whether ZIFA owed the Seymours a duty of care.

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