England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION
Mr Justice Beatson
HQ 05 X 02873

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/07/2008

Lord Justice Dyson:

Outline of the case

1. In these proceedings which were started on 29 September 2005, Mr Shore claims damages for negligence and breach of section 62 of the Financial Services Act 1986 in relation to advice given by Sedgwick Financial Services Limited ("SFS") to him in 1997 in respect of his pension. He advances two distinct claims. In outline, the first ("the primary claim") is that SFS were in breach of duty in (i) failing to advise him in early 1997 to remain in his occupational pension scheme ("the Avesta scheme") and defer drawing his pension until the age of 60 rather than transfer his accrued benefits into a personal pension income withdrawal scheme with Scottish Equitable ("the PFW scheme") and (ii) failing to provide him with information to enable him to make a proper comparison between the Avesta scheme and the PFW scheme. I shall refer to the first of these duties as "the advice duty" and the second as "the information duty". The transfer was effected on 29 April 1997. The second claim ("the secondary claim") in summary is that SFS were in breach of duty in failing to advise Mr Shore by 31 July 1997 to purchase an annuity in place of the PFW scheme.
2. In relation to the primary claim, Beatson J held that (i) there was no breach of the advice duty or the information duty by SFS; (ii) if there was a breach of the advice duty, Mr Shore suffered no loss because, even if he had been advised to defer taking his benefits under the Avesta scheme until the age of 60, he would not have accepted the advice (the judge made no separate finding as to causation in relation to the information duty); (iii) the claim was statute-barred because Mr Shore first suffered loss no later than about the beginning of 1999 when annuity rates (which had fallen since he entered into the PFW scheme) reached a new low; and (iv) Mr Shore could not take advantage of the knowledge provisions of section 14A of the Limitation Act 1980 to extend the limitation period because he had the requisite knowledge before 29 September 2002.
3. In relation to the secondary claim, the judge held that (i) there was a breach of the advice duty by SFS; (ii) if Mr Shore had been advised to purchase an annuity in place of the PFW scheme, he would have acted on that advice; (iii) the claim was statute-barred for the same reasons as the primary claim; and (iv) section 14A did not avail Mr Shore for the same reasons as in relation to the primary claim.
4. Mr Shore sought permission to appeal all of the judge's decisions in relation to the primary claim and his decisions on the limitation issues in relation to the secondary claim (although not the judge's decision on s.14A of the Limitation Act 1980). He was given permission to appeal by Gage LJ, but only on the secondary claim, on the grounds that it was arguable that the judge's decision as to when Mr Shore first suffered loss in relation to that claim was wrong. In relation to the primary claim, Gage LJ said that it was arguable that the judge's decisions on liability and limitation were wrong. But he refused permission to appeal, since there were no real prospects of a successful challenge to the finding that, even if Mr Shore had been advised to defer taking his benefits under the Avesta scheme until the age of 60, he would not have accepted the advice.
5. By a respondent's notice, SFS seeks to uphold the judge's decision on various grounds including that (i) in relation to the primary claim there were additional grounds on which the judge's decision on causation should be upheld; (ii) in relation to the secondary claim, the judge was wrong to find (a) a breach of duty by SFS and (b) that Mr Shore would have chosen to purchase an annuity in July 1997 if advised to do so; and (iii) the judge was right to hold that both claims were statute-barred, but should have held that Mr Shore first suffered loss (a) in relation to the primary claim when he transferred to the PFW scheme and (b) in relation to the secondary claim when he could not have remedied the failure to purchase an annuity in July 1997 without incurring additional cost.
6. Before this court, Mr Shore has renewed his application for permission to appeal on the issues of liability and limitation in relation to the primary claim. For reasons that I shall explain, I am of the view that the judge reached the right conclusion on the limitation issues (although my reasons differ from his). In these circumstances, I do not propose to address the other issues that have been raised. In dealing with the limitation issues, I shall proceed on the basis (most favourable to Mr Shore) that all his allegations of breach of duty and causation are established in relation to both the primary and secondary claims.
7. For the purpose of resolving the facts and the issues that arise in this case, it is important to understand the nature of income drawdown policies (of which the PFW scheme is an example). These policies permit the investor to delay the purchase of an annuity until his 75^th birthday and allow him to withdraw some of his pension fund each year as income. There are restrictions on the amount of income that he may withdraw each year. The maximum and minimum amounts are determined at triennial intervals and are determined by applying rates published by the Government Actuaries Department ("the GAD rate"). The GAD rate sets the maximum amount that an investor may withdraw as income from his fund each year. The minimum amount of income that can be taken each year is 35% of the maximum. The income withdrawal facility is not available to members of occupational pension schemes. Accordingly, in order to take out an income withdrawal policy, a member of an occupational pension scheme must transfer his benefits to a personal pension plan.

The facts

8. Mr Shore was born on 7 October 1940. Since 1981, he had been employed by companies in the Avesta Group. In 1984, he was employed as managing director of Avesta Sheffield Distribution Limited ("Avesta"). He was a member of the Avesta occupational pension scheme. This was a two-thirds final salary scheme which, if taken at age 60 (7 October 2000), would have entitled Mr Shore to a tax-free lump sum of £155,000 and a pension of £54,900 pa gross. Most of the annual pension would not have been index-linked. Mr Shore was entitled to take early retirement and to elect to start drawing benefits under the Avesta scheme before the age of 60, but the benefits that he received before the age of 60 would have been reduced at a compound rate of 12% pa. Thus, if he retired in January 1997, he was entitled to a tax-free lump sum of £140,400 and a pension of £34,300 pa gross; if he retired in November 1997, he was entitled to the same tax-free lump sum and a pension of £39,900 pa gross.
9. In June 1996, British Steel acquired effective control of Avesta and decided that the Avesta scheme would be wound up from 1 December 1996. Members of the Avesta scheme were given three options the first of which had to be exercised by 31 January 1997: (i) transfer their benefits to the British Steel scheme; (ii) transfer the value of these benefits into a personal pension plan; and (iii) leave their benefits in the Avesta scheme for eventual transfer to the British Steel scheme. Under (iii), all members of the Avesta scheme would receive a pension exactly equal to that which they would have received had the Avesta scheme not been wound up, the only difference being that the benefits would be paid by British Steel.
10. Mr Shore had sought advice about his pension from SFS from time to time from October 1995. The SFS advisers with whom Mr Shore dealt were (or at least included) Mr Ormond and Mr Fry. At a meeting on 14 January 1997, Mr Shore told Mr Ormond that he had decided that he would prefer to leave his benefits in the Avesta scheme rather than transfer into the British Steel pension scheme. Mr Ormond suggested that Mr Shore might wish to consider an income drawdown policy.
11. There was a further meeting on 20 January. Mr Ormond had obtained illustrations from Scottish Equitable of an income drawdown scheme on the basis of assumed growth rates of 6%, 9% and 12%. At or shortly after the meeting, a financial needs analysis questionnaire was completed by Mr Ormond for Mr Shore. Approval by the SFS Pension Transfer Unit was required before a SFS adviser could recommend any investor to purchase an income drawdown policy. On 22 January, Mr Ormond obtained approval of his recommendation that Mr Shore should purchase such a policy.
12. Mr Ormond then prepared a personal financial report for Mr Shore. It is dated 23 January. The report recorded that Mr Shore intended to take early retirement and that his objective was to take the maximum tax-free cash sum. It is unnecessary to consider the detail of the report. In view of the assumptions that I am making in favour of Mr Shore, it is sufficient to say that it recommended an income withdrawal plan.
13. On 28 January, Mr Shore signed an "authority to proceed". By 14 February, Mr Shore had agreed that he would leave his employment at Avesta on 7 October 1997. By the beginning of April, the transfer value of Mr Shore's accrued benefits in the Avesta scheme was £528,000. On 3 April, he told Mr Ormond that he had decided to transfer this sum into the PFW scheme. On 21 April, his accrued benefits were revalued at £637,507. On 29 April, that sum was transferred to the PFW scheme and Mr Shore's rights under the Avesta scheme terminated.
14. On 9 May, there was a further meeting between Mr Shore and Mr Ormond. Following the meeting, Mr Ormond asked Scottish Equitable "to requote with income £36,000 net per annum". At a further meeting on 12 May and as confirmed in a letter of that date, Mr Shore informed Mr Ormond that he had resigned from Avesta with immediate effect and that he had decided to withdraw the maximum cash free sum as soon as possible and "to commence the maximum pension from 1 January 1998". Scottish Equitable produced illustrations showing that Mr Shore could obtain a maximum tax-free lump sum of £146,647 and maximum income of £46,643 pa gross (£35,915 pa net). Only the illustration which showed this income being maintained until Mr Shore's 75^th birthday (when he would he obliged to purchase an annuity) assumed a growth rate of 12% pa. In fact, if Mr Shore wished to withdraw the maximum allowable income until his 75^th birthday (and he did), a minimum growth rate of 10.7% was required each year to enable this to be achieved. The illustration also stated that it was possible to purchase an annuity of about £34,700 net pa if the maximum tax-free lump sum was taken and an annuity of about £44,700 net pa if no tax-free lump sum was taken.
15. On 29 May, the tax-free lump sum of £146,647 was transferred to Mr Shore. When Mr Shore and Mr Ormond met again on 3 June, Mr Shore said that he wanted to take the maximum income of £46,643.46 pa gross with effect from 1 July and confirmed this in a letter of the same date.
16. The subsequent history can be stated shortly. Mr Shore received the maximum income of £46,643.46 pa gross until the triennial review in May 2000 when the maximum income was reduced to £32,570 pa gross. This reduction in the maximum income that could be withdrawn was dictated by the revised GAD rates which in turn reflected the fact that the level of annuity rates had fallen. The judge found at [213] that by early 1999, annuity rates which had fallen since Mr Shore entered into the PFW scheme "reached a new low".
17. On 11 October 2002, Mr Shore told SFS that he was unhappy with the performance of the fund and wanted to discuss his options as to how matters could be improved. By now, the value of the fund had fallen to £204,000. On 13 October, he wrote a formal letter of complaint. On the triennial review in May 2003, the maximum income that could be withdrawn had fallen to £15,671 pa gross. On 7 September 2004, he had a meeting with Mr Erskine (a financial adviser who specialises in pensions) and a solicitor. At para 187 of his witness statement, Mr Shore says that at this meeting he first came to appreciate the facts and matters which gave rise to his complaint against SFS, in particular that SFS had failed to advise him to leave his benefits in the Avesta scheme. On 29 September 2005, these proceedings were issued.

The allegations which I shall assume to be proved

18. In relation to the primary claim, Mr Shore's allegations are that (i) in breach of the advice duty SFS failed to advise him to remain in the Avesta scheme and defer drawing his pension until the age of 60 and (ii) in breach of the information duty SFS failed to provide him with information as to the relative advantages and disadvantages of the Avesta scheme as compared with an income drawdown policy (in particular the PFW scheme) so as to enable him to make an informed choice between them. SFS failed to advise him that "if he took out an income withdrawal plan, then his pension fund (and so his income during his retirement) would be exposed to risks that he would not face if he retained his benefits under the Avesta scheme" (para 41(c) of the amended particulars of claim). Mr Shore also alleges that, but for these breaches of duty, he would have stayed in the Avesta scheme and deferred taking his pension until the age of 60.
19. In relation to the secondary claim, Mr Shore alleges that, when he informed SFS in June 1997 that he wished to begin drawing an income from the PFW scheme, SFS were in breach of duty in failing by 31 July 1997 (i) to advise him that, because the income he wished to take was in excess of 75% of the maximum income allowable under the PFW scheme, he should purchase an annuity; and (ii) to explain that, if he purchased an annuity, his future income would be guaranteed, but that if he continued to draw down income under the PFW scheme, his future income was uncertain and at risk: see para 41(k) of the amended particulars of claim. Mr Shore's case is that, if he had received this advice, he would have accepted it.

The limitation issues

When was loss first suffered in relation to the primary claim?

20. It is SFS's case that, in relation to the primary claim, Mr Shore first suffered loss on 28 April 1997 upon payment of the benefits that had accrued to him under the Avesta scheme into the PFW scheme. In the alternative, they adopt the conclusion of the judge and say that Mr Shore first suffered loss no later than early 1999 when, as a result of falling annuity rates, his pensions rights under the PFW scheme were demonstrably less valuable than they would have been under the Avesta scheme.
21. Mr Shore's case is that he first suffered loss (i) in early 2005 when he first suffered a cumulative loss of income or (ii) on 7 October 2000, the date of his 60^th birthday or (iii) 25 May 2000, the date of the first triennial review of the PFW fund when it became certain that his income from the fund at the age of 60 would be less than it would have been if he had not transferred his Avesta scheme benefits into the PFW scheme.

The judge's reasoning

22. The judge rejected the SFS argument that Mr Shore suffered loss on 28 April 1997. At [204], he said:

"I accept Mr. Soole's submissions that no loss was sustained by Mr. Shore either on 28 April 1997 when he transferred out of the Avesta scheme or on 31 July 1997, the last day Mr. Ormond should have advised him to purchase an annuity. In relation to the primary claim, this is because, on leaving the Avesta scheme and entering the PFW scheme, he did not there and then fail to obtain what he expected, and did not in any other way suffer immediate detriment which constituted actual (if yet unquantifiable) loss or damage. Although he was thereby exposed to the risks of the PFW scheme, those risks may not have materialised. In the event of satisfactory investment performance and annuity rates, he would have obtained benefits in excess of the Avesta benefits he surrendered. The position is similar in relation to the secondary claim. As in the case of the primary claim, although Mr. Shore was exposed to the risks of the PFW scheme, those risks may not have materialised and, in the event of satisfactory investment performance and annuity rates, he would have obtained benefits in excess of the annuity he could have purchased in July 1997. Just as incurring a possible future liability does not count as immediate damage (see e.g. Law Society v Sephton and Co [2006] 2 AC 543 at [17] and [18]), so also exposing oneself to the risk of a possible future loss does not."

23. He distinguished authorities such as Forster v Outred [1982] 1 WLR 86, Bell v Peter Browne [1990] 2 QB 495 and Knapp v Ecclesiastical Insurance Group plc [1998] PNLR 172 on the basis that they were all cases in which "the immediate effect of entering the relevant transaction caused the plaintiff to suffer loss". In support of this interpretation of these cases, he referred to the speeches in Law Society v Sephton and Co [2006] UKHL 22, [2006] 2 AC 543 of Lord Hoffmann at [22], Lord Walker at [48] and Lord Mance at [67].
24. At [208], he said that transactions giving rise to purely contingent liabilities and losses have been distinguished in the case-law from transactions with both benefits and burdens. After citing further passages from Sephton, the judge said at [212] that Mr Shore did not suffer loss merely by entering into the PFW scheme on 28 April 1997 "whether Mr Shore is regarded as a person whose entry to the PFW exposed him to a contingent risk, or as a person who entered transactions with both benefits and burdens".
25. As to when Mr Shore first did suffer loss, the judge said:

"213. In relation to both the primary and the secondary claims I do not, however, accept Mr. Soole's submission that Mr. Shore sustained no relevant loss until the first triennial review on 25 May 2000 reduced his pension income. In Law Society v Sephton Lord Hoffmann stated that it is necessary to consider the evidence about when a claimant was actually in a worse position. In the present case the evidence is that, by the beginning of 1999, annuity rates, which had fallen since Mr. Shore entered into the PFW scheme in 1997, reached a new low. The market would have valued Mr. Shore's pension scheme differently after the fall in annuity rates during 1998 and the beginning of 1999.

214. While Mr Shore's rights in the PFW scheme were not demonstrably less valuable at the time he entered into it, they were after the fall in annuity rates. At that stage the risk was not purely contingent. The materialisation of a risk which has the effect of depressing the value of an asset creates loss."

Discussion

26. As Lord Nicholls of Birkenhead said in Nykredit plc v Edward Erdman [1997] 1 WLR 1627 at p 1630C, in relation to the issue of when a claimant first suffers damage, the question that has to be addressed is what is meant by "damage" in the context of claims for loss which is purely financial or economic loss. This question has troubled the courts on a number of occasions in recent years, usually in the context of claims for damages for professional negligence.
27. A clear distinction has been drawn in the authorities between transactions which give rise to pure contingent liabilities ("the contingent liability cases") and transactions ("the transaction cases") in respect of which, to use the words of Lord Hoffmann in Sephton at [22]:

"…. The plaintiff had paid money, transferred property, incurred liabilities or suffered diminution in the value of an asset and in return obtained less than he should have got. But these authorities have no relevance to a case in which a purely contingent obligation has been incurred."

28. Lord Walker of Gestingthorpe referred to the "transaction cases" at [46] and at [48] he said:

"In all these cases the claimant has as a result of professional negligence suffered a diminution (sometimes immediately quantifiable, often not yet quantifiable) in the value of an existing asset of his, or has been disappointed (as against what he was entitled to expect) in an asset which he acquires, whether it is a house, a business arrangement, an insurance policy, or a claim for damages".

29. Sephton is an example of a pure contingent liability case. The defendant accountants certified a solicitor's annual reports negligently. In fact the solicitor had misappropriated a large sum from his client account. When the Law Society discovered the solicitor's fraud, they intervened and struck him off the roll. Claims were made for compensation from the Solicitor's Compensation Fund and the Law Society made payments to the victims of the solicitor's fraud. The Law Society issued proceedings against the accountants, claiming that they had relied on their reports when deciding not to exercise any of their powers in relation to the solicitor's practice. The House of Lords held that the solicitor's misappropriations gave rise to a possible liability in the Law Society to pay out of the fund, contingent on the misappropriation not being otherwise made good and a claim in proper form being made. A contingent liability, such as the possibility of a liability to pay money in the future was not in itself damage until the contingency occurred. Accordingly, the Law Society's claim was not statute-barred.
30. There are many examples of transaction cases. It is sufficient to refer to two of them. In DW Moore & Co Ltd v Ferrier [1988] 1 WLR 267, the defendant solicitors drafted an employee's restrictive covenant which was included in the contracts of employment between the plaintiffs and a director. They advised the plaintiffs that the covenant was valid and sufficient to prevent the director from engaging in other business to the extent specified. The director left his employment with the plaintiffs and started business in breach of the covenant. The plaintiffs discovered that the covenant was ineffectual to prevent the employee from establishing his own business. It was held by the Court of Appeal that the claim in negligence was statute-barred because the plaintiffs' damage was suffered when they executed the agreements, when they received a worthless covenant rather than a valuable chose in action: see p 279H. Bingham LJ went on to say that, if the quantification of the plaintiffs' damage had fallen to be considered shortly after the execution of either of the agreements, problems of assessment would have arisen. It might have appeared that the director was unlikely to leave taking much of the plaintiffs' business with him. If so, the damage would have been assessed at a modest figure. But the risk of his doing so could not have been eliminated altogether. In making his assessment, the judge would have had to attach a money value to a possible future contingency. If the plaintiffs' pleaded case was correct, a claim for breach of contract would have succeeded and more than nominal damages would have been awarded. If in a contractual claim for negligence, the court would have awarded more than nominal damages, an action in tort based on the same negligence could not have failed for want of any damage as an essential ingredient of the cause of action.
31. In Bell v Peter Brown, following the breakdown of his marriage, the plaintiff instructed his solicitors that he had agreed with his wife that the matrimonial home would be transferred into the sole name of his wife, but that he should receive a one-sixth interest in the gross proceeds of sale whenever that occurred. His continuing interest in the house was to be protected by a trust deed or mortgage. The solicitor drafted the documents and the transaction was completed, but no declaration of trust or mortgage was prepared or executed. The house was sold and the wife spent the proceeds of sale. The plaintiff sued the solicitors in negligence. It was held that loss was first suffered when the transfer was executed without the protection of the plaintiff's interest in the house or the proceeds of sale. The defect in the transaction was as a result of what Nicholls LJ called "failure (a)" and "failure (b)":

"(a) the solicitors' failure to see that the parties' agreement was recorded formally in a suitable declaration of trust or other instrument and (b) their failure to protect the plaintiff's interest in the house or the proceeds of sale by lodging a caution. As to failure (a), clearly the damage, such as it may have been, was sustained when the transfer was executed and handed over. At that point in time, the plaintiff parted with title to the house, and became subject to the practical inconveniences which might flow from his not having his wife's signature on a formal document. If the wife thereafter chose to deny his entitlement to one-sixth of the proceeds of the sale, the plaintiff would have to rely on the correspondence between the solicitors coupled with part performance. To the extent that this was less satisfactory than a formal document recording the deal, the plaintiff suffered prejudice….

The extent of the prejudice depended on the attitude adopted thereafter by his former wife….But the uncertainty surrounding her future intentions goes only to the quantum of the loss the plaintiff sustained when the transfer was executed without him having the same degree of protection as would be provided by the formal document."

32. In my judgment, the present case is not a pure contingent liability case. There is no sense in which Mr Shore was exposed by the PFW scheme to a contingent liability or indeed any liability. The scheme gave him certain rights including the right to withdraw income. But it imposed no liability on him. The judge spoke of a "contingent risk" at [204]. I do not think that he meant that Mr Shore was exposed to a contingent liability on investing in the PFW scheme. If he meant no more than that the PFW scheme exposed him to the risk of lower income than he would have received under the Avesta scheme, then it seems to me that the word "contingent" adds nothing to "risk". There was unquestionably such a risk and whether it eventuated would depend on certain contingencies (as all risks necessarily do).
33. The question that arises, therefore, is whether this is a transaction case: did Mr Shore suffer damage as soon as he gave up his rights under the Avesta scheme in favour of the PFW scheme?
34. Mr Soole QC submits that he did not suffer loss immediately on the investment in the PFW scheme for the following reasons. First, it is common ground that the benefits surrendered in the Avesta scheme were properly valued at £637,507. Secondly, that sum was used to invest in the PFW scheme. The price paid for this investment was its then current market price. That price reflected the market perception of the risks inherent in the PFW scheme. The performance of the scheme was subject to the vagaries of the market and the investment skills of the managers of the fund as well as the amount drawn down as income by Mr Shore. The amount available for drawdown as income would depend on the figure at which the GAD rates were fixed triennially as well as the performance of the fund. Mr Soole submits that all these risks were reflected in the price that Mr Shore paid. It is, therefore, irrelevant that the PFW scheme was riskier than the Avesta scheme. To adopt the example suggested by Keene LJ in the course of argument, if a person invests £100 in shares rather than in Government bonds, he does not suffer any loss when he buys the shares, because when he pays £100 for the shares, that is what they are worth in the market.
35. Thirdly, the transaction cases are all ones concerning transactions in which there is the risk that the claimant will be financially worse off than he would have been if he had not entered into the transaction. None of them concerns a transaction in which it is possible that the claimant will be financially better off than he would have been if he had not entered into it.
36. Fourthly, to hold that the loss was suffered when Mr Shore invested in the PFW scheme is inconsistent with what was said by the House of Lords in the Nykredit case. As regards this last point, it is sufficient to refer to what Lord Walker said in Sephton at [43]:

"In Nykredit (No 2) case [1997] 1 WLR 1627 the expression "worse off" was used by Lord Nicholls (in discussing the authorities mentioned at p1634E and H) and by my noble and learned friend Lord Hoffmann (at pp1638D and 1639D: in the last reference the phrase is "financially worse off"). This latter formulation seems to me to be preferable, if I may respectfully say so, since the colloquial phrase "worse off" (like "detriment") is imprecise. A bank or building society which (in reliance on a negligent valuation) lends £1m on a property said to be worth £1.5m but actually worth £1.25m is in a sense worse off (or has suffered a detriment) in that it has a margin of security of only one-fifth of the sum secured, rather than one-third. But so long as the borrower's covenant is good, it has suffered no loss. That (together with the identification of the relevant loss: see Lord Nicholls at p 1630F and Lord Hoffmann at p 1638C-H) is the whole point of Nykredit: see Lord Nicholls at pp1631B-F and 1632C-E and Lord Hoffmann at p1639B-D. The Court of Appeal had reached a similar result in First National Commercial Bank Plc v Humberts (a firm) [1995] 2 All ER 673, a decision referred to with approval by the House in Nykredit (No 2) case [1997] 1 WLR 1627."

37. I cannot accept these submissions largely for the reasons given by Mr Wardell QC. It is Mr Shore's case (assumed for present purposes to be established) that the PFW scheme was inferior to the Avesta scheme because it was riskier. It was inferior because Mr Shore wanted a secure scheme: he did not want to take risks. In other words, from Mr Shore's point of view, it was less advantageous and caused him detriment. If he had wanted a more insecure income than that provided by the Avesta scheme, then he would have got what he wanted and would have suffered no detriment. In the event, however, he made a risky investment with an uncertain income stream instead of a safe investment with a fixed and certain income stream which is what he wanted.
38. The analogy with the investor who is negligently advised to buy shares rather than Government bonds does not assist Mr Soole. In my judgment, an investor who wishes to place £100 in a secure risk-free investment and, in reliance on negligent advice, purchases shares does suffer financial detriment on the acquisition of the shares despite the fact that he pays the market price for the shares. It is no answer to this investor's complaint that he has been induced to buy a risky investment when he wanted a safe one to say that the risky investment was worth what he paid for it in the market. His complaint is that he did not want a risky investment. A claim for damages immediately upon the acquisition of the shares would succeed. The investor would at least be entitled to the difference between the cost of buying the Government bonds and the cost of buying and selling the shares.
39. In any event, the analogy with the share purchase transaction breaks down on the facts of the present case. Mr Egerton produced an expert's report dated 29 March 2007 on behalf of Mr Shore. At para 4.1.25, he said that the benefits of deferring taking the Avesta benefits until the age of 60 were so large "that they exceeded any reasonable estimate of benefits that could have been provided by a pension fund withdrawal arrangement…"

"….The reason for this is that the financial benefits of deferring taking the Avesta benefits were so large (see paragraphs 4.1.26 and 4.1.27 below) that they exceeded any reasonable estimate of benefits that could have been provided by a pension fund withdrawal arrangement. Although there were substantial early retirement penalties with the Avesta scheme, the rate at which these penalties reduced was such that the effective investment return until age 60 could not realistically be matched by any other appropriate investment. Even if the Claimant's other income ceased or diminished prior to age 60 or November 1999 (so that he would have been compelled to start drawing pension benefits), any deferral would have resulted in an improvement in the Avesta pension payable such that no other appropriate investment could have realistically have expected to have matched it. Had the Defendant undertaken a transfer value analysis as required by IMRO rules, this would have been clearly shown."

40. The same sentiment was expressed by Mr Waddingham (SFS's expert). He said in relation to the figures produced by SFS in January 1997 that the PFW figures would only match the benefits under the Avesta scheme (on the footing that Mr Shore deferred taking his benefits until the age of 60) if there was a growth in the fund of 14.5% pa. He described this as a "racy objective" and "something for the adventurous".
41. In these circumstances, in my view it is not possible to say that Mr Shore did not suffer financial loss on 28 April 1997 when he invested in the PFW scheme.
42. As regards Mr Soole's third reason, I do not accept that the transaction cases can be distinguished as he contends. It is true that none of them concerned a transaction in which it was possible that the claimant would be better off financially as a result of the negligence than he would have been but for the negligence. But the essence of the reasoning in those cases is that the fact that the risk to which the claimant was exposed by the defendant's negligence might not eventuate did not mean that the claimant did not suffer loss as a result of being exposed to that risk. In Moore, it was possible that the director would not leave the plaintiffs' employment or that, if he did, he would not act in breach of the covenant. In Bell, it was possible that the former wife would not deny the plaintiff his one-sixth share in the proceeds of the matrimonial home. So too in the present case, the fact that the financial benefits accruing to Mr Shore from the PFW scheme might not be less than those accruing to him from the Avesta scheme did not mean that he did not suffer loss when he invested in the scheme and was then and there exposed to the risk that they might be less. It is the possibility of actual financial harm that constitutes the loss. That possibility is present even if there also the possibility that the claimant will be financially better off as a result of being exposed to the risk. In my view, therefore, it is irrelevant that, as things turned out, Mr Shore might have been financially better off under the PFW scheme than he would have been if he had deferred taking his pension under the Avesta scheme until the age of 60.
43. As for Mr Soole's fourth reason, in my judgment the reasoning in Nykredit is not applicable in the present case. In Sephton, Lord Hoffmann said at [20]

"Nykredit therefore decides that in a transaction in which there are benefits (covenant for repayment and security) as well as burdens (payment of the loan) and the measure of damages is the extent to which the lender is worse off than he would have been if he had not entered into the transaction, the lender suffers loss and damage only when it is possible to say that he is on balance worse off. It does not discuss the question of a purely contingent liability."

44. A similar argument to that advanced by Mr Soole was considered by this court in Watkins v Jones Maidment Wilson [2008] EWCA Civ 134. The claimants alleged that the defendant had given him negligent advice on which he relied in entering into a building contract. In reliance on Nykredit, one of the arguments advanced by the claimants was that they did not suffer loss on entry into the agreement because "the net position was beneficial to the Watkins and thus the limitation period could not start to run until the net position was disadvantageous to them": see [2].
45. Arden LJ (with whom Longmore and Thomas LJJ agreed) said at [24] that there was a tangible loss in that, if the advice had not been negligent, the claimant would have had the chance to negotiate a better agreement. That chance was an asset with a measurable value. Its absence meant that there was an immediate loss. The situation was not comparable to that in Nykredit.
46. In my judgment, Nykredit does not assist Mr Shore. At p 1631, Lord Nicholls said: a professional negligence claim calls for a comparison between the plaintiff's position had he not entered into the transaction in question and his position under the transaction. At p 1632B, he said that this basic comparison gives rise to issues of fact: "the moment at which the comparison first reveals a loss will depend on the facts of each case. Such difficulties as there may be are evidential and practical difficulties, not difficulties in principle".
47. I do not consider that Nykredit is authority for some special approach to the question of when loss is suffered in negligent advice cases or even in cases of negligent valuations of property which are relied on by lenders to make loans on the security of property. Where (as in Nykredit) the complaint is that money was lent on mortgage in reliance on a negligent valuation of property, there may be cases, as Lord Hoffmann said at p 1639B, in which it is possible to demonstrate that the claimant suffers loss immediately upon the loan being made. The lender may be able to show that the rights that he has acquired as lender are worth less in the open market than they would have been if the security had not been overvalued. But that would be difficult to prove in a case in which the lender's personal covenant still appears to be good and interest payments are being duly made. It all depends on the facts.
48. The PFW scheme was a different kind of transaction from the advance of a loan on the security of a mortgage on property. It was a transaction under which Mr Shore obtained a bundle of rights which, from the outset, were less advantageous to him than the benefits that he enjoyed under the Avesta scheme. On the facts of this case, it was not necessary to wait to see what happened to determine whether Mr Shore was financially worse off in the PFW scheme than he would have been in the Avesta scheme. For these reasons, I would hold in relation to the primary claim that Mr Shore first suffered loss on 28 April 1997.
49. I am fortified in this conclusion by the way in which Mr Shore has quantified his claim for damages, supported by the expert report of Mr Critchlow. The damages are claimed on the basis of a comparison of income with a starting date of 28 April 1997. This is inconsistent with Mr Soole's contention that damage was not suffered as at that date.
50. That is sufficient to explain why in my view Mr Shore first suffered loss in relation to the primary claim on 28 April 1997. I should, however, go on to say why in my judgment Mr Shore did not first suffer loss on any date after 28 April 1997 and in particular why he did not suffer loss on a date in early 1999 (as the judge held) when the annuity rates fell to a new low, or in May 2000 at the time of the first triennial review (which was Mr Soole's principal candidate for the date of loss).
51. An important feature of this case is that a comparison between Mr Shore's financial position as it was under the PFW scheme and as it would have been if he had deferred taking his pension under the Avesta scheme until the age of 60 would be bound to yield differing results according to (i) how the PFW scheme performed, the figure at which the GAD rates were set triennially and how much income Mr Shore decided to withdraw from time to time and (ii) when the comparison was made. He might have withdrawn a higher income under the PFW scheme than his Avesta pension income in year 1, a lower income in year 2, a higher income again in year 3 and so on. He might have decided to withdraw the maximum income at some times, but not at others. Since Mr Shore would be entitled to continue withdrawing income under the scheme until his 75^th birthday (assuming that money remained in the fund), there was ample scope for the comparison to produce different results at different times.
52. In my judgment, there is no a priori or evidential reason to select one date rather than another for the purposes of conducting the comparison. The judge chose the date by which annuity rates had fallen to a new low. He may have reached this decision on the basis that this made it inevitable that the income entitlement under the PFW scheme would fall at the first triennial review, although there was no evidence that this was so. In my view, it is difficult to see why the date by which annuity rates had fallen to a new low should fix the loss unless it was because the judge thought that there was no possibility that rates would bounce back to enable Mr Shore eventually to be better off than he would have been if he had remained in the Avesta scheme. But, so far as I am aware, there was no evidence to that effect and the judge certainly made no such finding. Having regard to the vagaries of the market, it is difficult to see that such a finding could ever be made.
53. It seems to me that, if one moves away from the secure rock of the date when Mr Shore was committed to the PFW, there is no proper basis for choosing one date rather than another. Mr Soole suggests that loss was not suffered until the May 2000 triennial review when it was certain that the income that Mr Shore could receive under the PFW as from his 60^th birthday would be less than he would have received under the Avesta scheme if he had deferred taking his pension under that scheme until that birthday. The difficulty with this argument is that it leaves out of account the possibility that at the May 2003 triennial review the maximum income that he could have withdrawn under the PFW scheme could have risen markedly to a point where it was higher than the amount that he would have received under the Avesta scheme. It is irrelevant that, in the event, the maximum entitlement was fixed in May 2003 at an even lower level than that fixed at the May 2000 review.

Date of knowledge: section 14A of the Limitation Act 1980

54. So far as material, section 14A provides:

"(5) For the purposes of this section, the starting date for reckoning the period of limitation … [under section 14A(4)(b)] … is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(6) In subsection (5) above "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both—

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current action mentioned in subsection (8) below.

(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8) The other facts referred to in subsection (6)(b) above are-

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire—

(a) from facts observable or ascertainable by him; or

(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek; but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."

55. The section 14A issue only arises in relation to the primary claim. Before the judge, Mr Shore's case was that he did not acquire knowledge of the "fact" that he should have been advised to remain in the Avesta scheme until September 2004 when he received advice to that effect from Mr Erskine. The judge rejected this argument at [219] on the grounds that he had held that SFS was not under a duty to advise Mr Shore to remain in Avesta scheme "so the "knowledge" acquired from Mr Erskine's advice is not material". Since I am proceeding in this judgment on the basis that SFS was in breach of a duty to advise Mr Shore to remain in the Avesta scheme, the section 14A issue in relation to the primary claim cannot be disposed of in this way.
56. Mr Shore advances the further case that he did not acquire knowledge of the fact that he had the option of remaining in the Avesta scheme and taking a deferred pension at the age of 60 until he received advice to that effect from Mr Erskine in September 2004. On the question whether Mr Shore was aware of the option in early 1997, the judge said:

"41. It is suggested that the information Mr. Shore had from these letters and documents show that, notwithstanding his evidence, he knew that it was open to him either to retire before 60 and take a deferred pension under the Avesta scheme subject to the 12% pa actuarial deduction or to retire at 60 and take a deferred pension under the Avesta scheme with full benefits and without the actuarial deduction.

42. I do not, however, consider this was clear to Mr. Shore. Wragge's letter dated 30 October says "it is likely" that British Steel would agree to this but that was before the hostile meeting on 8 November. The sections in the draft documents and letters from Wragge & Co. concerning or addressed to pensioners and those with deferred entitlement make it clear that option 3, leaving benefits in the Avesta scheme for eventual transfer on a fixed basis to the British Steel scheme, did not affect the benefit and that only the source of the pension would be different. But the sections of the drafts concerning or addressed to employees do not and only refer to a transfer on a fixed basis to the British Steel scheme. It was only in Mr. Jamieson's letter dated 7 January that this is stated in relation to serving employees. In the light of these factors I accept that, notwithstanding the fact that Mr. Shore was a trustee of the scheme, he was unclear about the effect of the winding-up on his Avesta benefits."

57. Mr Soole relies on these findings in support of the submission that Mr Shore was not aware in early 1997 that he had the option of remaining in the Avesta scheme and taking a deferred pension at the age of 60.
58. The judge summarised the relevant principles set out by the House of Lords in Haward v Fawcetts [2006] UKHL 9, [2006] 1 WLR 682 in the following terms:

"225. It is clear from Haward v Fawcetts [2006] 1 WLR 682 that the key to "knowledge" for the purposes of section 14A is knowing facts with sufficient confidence to justify embarking on the preliminaries to the issue of a writ: see also Halford v Brooks [1991] 1 WLR 428, 443. Knowledge that the damage was "attributable" in whole or in part to the acts or omissions of the defendant alleged to constitute negligence within section 14A(8)(a) means knowledge in broad terms of the facts on which the claimant's complaint is based and of the defendant's acts or omissions. It must also be known that there is a real possibility that those acts or omissions were a cause of the damage. The first of these tests concerns the degree of certainty required before knowledge can be said to exist. The second concerns the degree of detail required before a person can be said to have knowledge of a particular matter in the context of the requirements of section 14A(8)(a), the question of attributability.

226. A variety of phrases have been used to describe the degree of detail required. These include "broad knowledge" of matters pointing to the defendant's act or omissions, an appreciation "in general terms", and knowledge of the "essence" of the act or omission to which the injury was attributable: see the decisions cited by Lord Nicholls at paragraph [10] in Haward v Fawcetts. One of these was Broadley v Guy Clapham and Co [1994] 4 All ER 439 where Hoffmann LJ, at 448 stated that section 14(1)(b) requires that "one should look at the way the plaintiff puts his case, distil what he is complaining about and ask whether he had, in broad terms, knowledge of the facts on which that complaint is based."

59. Having referred in some detail to the speeches in Haward, he continued:

"233. (d) The present case: By 15 December 1999 Mr. Shore knew that there had been a substantial fall in annuity rates since 1997. He knew that this and the level of his drawings would mean that his income would be substantially reduced at the triennial review when the maximum pension he would be entitled to withdraw would fall. I have found that Mr. Shore was aware of Sedgwick's recommendation that no more than 75% of the maximum permitted income should be withdrawn under a PFW scheme by the end of May 1999. Additionally, Mr. Fry specifically drew it to his attention in December when explaining to him why, as he also knew, the value of his fund had fallen.

234. By the time of the triennial review in May 2000 Mr. Shore knew of his actual loss of income from £45,869 pa to £32,578 pa, a reduction of over 30%. He also knew, as a result of what Mr. Fry had told him in December that the taking of maximum income had exposed him to this risk. He also knew, or should have known, that at the age of 60, which he would attain on 7 October 2000, he would be in receipt of an income substantially lower than that which he could have expected to receive had he remained a member of the Avesta scheme or had purchased an annuity in July 1997."

235. Mr. Shore was in a similar position to the claimant in Haward v Fawcetts. He knew what advice had been given by Mr. Ormond and what advice had not been given by him. By 15 December 1999 he knew that he had not been told of the recommendation that no more than 75% of the maximum permitted income should be drawn and had not been warned of the risks of drawing maximum income. Mr. Ormond failed to advise him as to the risks of PFW policies and the particular risks of drawing the maximum permitted income. He also failed to advise him about the benefits obtainable by purchasing an annuity in the light of those risks when his income needs changed in late May and early June 1997. Mr. Shore knew he relied on Mr. Ormond's advice. The causal connection between the advice, in particular the failure to advise about the risks of drawing the maximum income, and the damage was obvious.

236. Mr. Shore thus had knowledge of his actual loss of entitlement to income and of income, its causes and the relevant conduct of SFS and Mr. Ormond. I remind myself of the terms used in Haward v Fawcetts: "broad knowledge", the "essence", and "the essential thrust". In the light of these, in this case what Mr Shore was told in December 1999 about the risks of taking maximum income and the 75% recommendation meant that he appreciated in general terms that the loss he would sustain once the GAD rates were adjusted was capable of being attributed to Mr. Ormond's advice: see paragraph 10 of Hayward v Fawcetts.

237. I do not consider that any reassurance given to Mr. Shore about the underlying state of the fund or what might be done about the GAD rates means that he did not have sufficient knowledge. The absence of advice as to the risk of a reduced pension if maximum income is drawn lies at the heart of his complaint. Certainly by May 2000, and probably by 15 December 1999, Mr. Shore knew there was a real possibility his damage was caused by the failure to give him this advice."

60. In Haward the House of Lords made it clear that the knowledge requirements must not be interpreted too strictly. The judge gave an accurate summary of the principles at [225] and [226] of his judgment which I have already quoted. I would also refer to the speech of Lord Brown of Eaton-under-Heywood at [90] where he said that all that is required is sufficient knowledge "to realise that there is a real possibility of his damage having been caused by some flaw or inadequacy in his advisers' investment advice, and enough therefore to start an investigation into that possibility which section 14A then gives them three years to complete". See also per Lord Mance at [126]: "actual knowledge within (a) involves knowing enough to make it reasonable to investigate whether or not there is a claim against a particular potential defendant".
61. As regards the date of knowledge of the "fact" that Mr Shore should have been advised to remain in the Avesta scheme, as I have said, the judge did not deal with this issue because he found that there was no duty to give the advice in the first place. But the judge was obviously right to say that Mr Shore knew what advice he had been given and what advice he had not been given. By May 2000, Mr Shore knew or should have known that at the age of 60 he would receive an income that was substantially lower than that which he could have expected to receive if he remained a member of the Avesta scheme. The judge was also right to find that by May 2000, Mr Shore knew that there was a real possibility (to put it no higher) that the loss he had suffered as a result of not remaining in the Avesta scheme was caused by the failure of SFS to advise him to do so. In my judgment, that was sufficient to fix Mr Shore with knowledge of the facts relevant to the alleged breach of the advice duty for the purposes of section 14A. He had sufficient knowledge to make it reasonable to investigate whether there was a claim against SFS for their responsibility for his leaving the Avesta scheme for the PFW scheme.
62. I turn to the date of knowledge of the fact that Mr Shore had the option of remaining in the Avesta scheme. There is something unreal in the suggestion that, on the facts of this case, the allegation that SFS failed to inform Mr Shore that he had the option of remaining in the Avesta scheme is distinct from the allegation that SFS failed to advise him to remain in that scheme. It is implicit in the allegation that SFS should have advised him to remain in the scheme that he had the option to do so. In my view, the allegation that SFS should have informed Mr Shore that he had the option to remain in the Avesta scheme is subsumed in the allegation that they should have advised him to remain in the scheme. This is borne out by the terms in which Mr Shore's solicitors wrote to the Ombudsman on 2 November 2004 (following receipt of advice from Mr Erskine), when they expressed the new complaint in these terms:

"Advice could and should have been given in clear and unambiguous terms to Mr Shore that his stated objectives were met by his existing pension provision, without the need for any transfer to take place, or any investment risk to be incurred. Further the cash free sum available under the Avesta scheme was far in excess of that available via the drawdown route. Of course such advice, if accepted, would not have resulted in any commission for the adviser."

63. The significance of this letter is that it was written after Mr Erskine told Mr Shore that he had the option of remaining in the Avesta scheme. The letter contains no discrete complaint about the failure of SFS to inform Mr Shore of the existence of the option.
64. When the judge came to deal with the section 14A issue, he did not remind himself of his earlier findings at [41] and [42]. He did not deal explicitly with the question whether Mr Shore had knowledge before September 2004 of the "fact" that he had the option of remaining in the Avesta scheme. But it is implicit in [234] that the judge was saying that in May 2000 Mr Shore knew that he did have the option of remaining the Avesta scheme. Mr Soole submits that [234] is inconsistent with [41] and [42]
65. In [41] and [42], the judge was saying that it was not clear to Mr Shore in early 1997 what the effect of the winding-up of the scheme would be on his benefits. But the fact that in early 1997 he was unclear as to whether he could remain in the Avesta scheme is not inconsistent with a finding that there later came a time when he acquired knowledge that he should have been advised to remain in the scheme. Once it became clear to him that (for the time being at least) he was substantially worse off as a result of leaving the scheme, he should have realised that there was a real possibility that his financial disadvantage was attributable to the advice that he had received from SFS such that it became reasonable for him to investigate that possibility.
66. In my judgment, the judge's reasoning at [233] to [237] cannot be faulted. It is fatal to Mr Shore's case on section 14A both in relation to the alleged breach of the advice duty and information duty. By May 2000 Mr Shore had acquired knowledge of the relevant facts in relation to both.

When was loss first suffered in relation to the secondary claim?

67. The case in relation to the secondary claim included the allegation that, after Mr Shore had indicated in June 1997 that he wished to begin drawing down an income from the plan, "he failed to explain to the claimant that if he purchased an annuity, then his future income would be guaranteed, but that if he retained his Scottish Equitable income withdrawal plan his future income was uncertain and was at risk": para 41(k)(ii) of the amended particulars of claim.
68. The judge said at [215]:

"In the case of the secondary claim Mr. Soole submitted that Mr. Shore was better off until the triennial review on 25 May 2000 because until then he was receiving slightly more income each month than he would have done had he purchased an annuity. He was drawing the maximum permitted income and this was more than the income he could have obtained by purchasing an annuity. Although Mr. Shore did not suffer loss merely by not purchasing an annuity and entering into the PFW scheme, he was only able to take the maximum permitted income by depleting the fund. I have concluded that Mr. Shore was actually in a worse, albeit not yet quantified, position by the beginning of 1999. Accordingly, allowing some margin, in relation to both the primary and the secondary claims, save to the extent that the running of time is postponed by section 14A, the claim became statute-barred by no later than the end of February 2005, some seven months before proceedings were launched."

69. Mr Soole has repeated the submissions that he made to the judge before this court. He says that, as a result of SFS's failure to recommend the security of a fixed annuity, Mr Shore was no more than exposed to the risk that his annual income from the PFW would fall below that which would be guaranteed by the annuity. That risk did not eventuate until (at the earliest) the May 2000 triennial review when, for the first time, his income fell below the annuity income he would have received if he had purchased an annuity by July 1997.
70. I would reject this argument for the same reasons as those for which I have rejected the corresponding argument in relation to the primary claim. The essence of the complaint is that SFS failed to take steps to protect him from the risks inherent in the PFW scheme by purchasing an annuity as from July 1997. For the reasons already given, Mr Shore suffered loss in July 1997 when he did not acquire an annuity which would yield a secure income instead of the uncertain income that could be withdrawn under the PFW scheme.
71. Alternatively, if Mr Shore did not suffer loss in July 1997 when an annuity should have been purchased, then I would hold that the judge was right, for the reasons that he gave in [215], to say that Mr Shore must have suffered loss no later than in early 1999 when annuity rates had fallen to a new low. Once this happened, it was clear that he was financially worse off than he would have been if an annuity had been purchased when it should have been purchased in July 1997.

Conclusion

72. For these reasons, I would hold that both primary and secondary claims are statute-barred. I would refuse Mr Shore's application for permission to appeal in respect of the issues of liability and causation and dismiss the appeal.

Lord Justice Keene:

73. I agree.

Lord Justice Buxton:

74. I also agree.