QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| KEVIN HINCKS
|- and -
|SENSE NETWORK LTD
Richard Samuel (instructed by Reynolds Porter Chamberlain) for the Defendant
Hearing dates: 13th – 16th February 2018, 19th February 2018, 23rd February 2018
Crown Copyright ©
See also Costs judgment:  EWHC 1241 (QB)
Mrs Justice Lambert:
February 2013: 100% Pre-Approval
Re-Registration of Client Files: autumn 2013
The Bass Case: December 2013
I've discussed at length with Kevin who understands that he has jumped the process given no sign off received. In support of his position, the pressure he has received from the client due to the timescales I believe has forced his hand and this error of judgment. I am confident that there is no malicious disregard of process and pressure borne from the client due to timescales is the primary and sole reason for this position
Mr Mann then set out a series of proposals as to how the Claimant might be supported going forward.
The Suspension: December 2013
The Carter Case
a) the Claimant's suspension had not been lifted to the extent of entitling him to give clients advice on a suitable product in the absence of member of the Defendant's training and compliance team;
b) the Claimant remained subject to 100% pre- approval for all products;
c) the SCARP product which had been the subject of the transaction was subject to 100% pre-approval from the Defendant, whoever the advisor;
d) the application form for the product was in Mr Mosley's name, even though Mr Mosley had not met Mrs Carter nor given her advice;
e) the application form was not signed by Mr Mosley but by the Claimant.
a) the Claimant uploaded a "fact find" document which was relevant to both Mr and Mrs Carter which made clear that the transaction relevant to Mrs Carter was a SCARP and that Mr Mosley had endorsed the sale. The fact find did not make clear that the sale had already been transacted;
b) the version of the suitability letter bearing the date 10th November included the following statement relevant to Mrs Carter's sale: "we have agreed to reinvest the total amount back into another Investec Investment Plan…I feel that the proposed investment is affordable and appropriate";
c) on 11th November, he sent an email to the paraplanner enclosing documents saying "customers …will sign during our appointment which will be observed by Keith Thompson from Sense.. Please forward for pre-approval";
d) on 14th November he sent Mr Mosley SCARP comparable product information, seeking assistance in uploading it; Mr Mosley confirmed that it had been uploaded a short while later;
e) he attached to his email to Mr Mosley a copy of a file review sheet which had been completed by the paraplanners which had raised a number of queries of the Claimant concerning the transaction and his annotated responses. One of the questions raised by the paraplanner was "the investec brochure states that the closing date for this product is 7th November 2014. Please clarify whether this date has been extended". The Claimant's annotated response was "Charles Mosley has visited customers and has endorsed and completed this product due to the time frame and closing date of the product".
a) he did not know, and had never known, that SCARPS were subject to 100% pre-approval in anyone's hands;
b) he was fully aware of the difference between a low risk, deposit-based, product and a SCARP, but he had received inadequate training by CIFS and the Defendant on the need for pre-approval for these products;
c) so far as he was concerned, he had received authorisation from Mr Sigsworth to make the sale, subject to Mr Mosley's endorsement, and Mr Mosley had agreed to endorse it;
d) in any event, the sale was not his sale. It was Mr Mosley's sale. All that he was doing was undertaking the background work to enable Mr Mosley to make the transaction. Hence it was Mr Mosley's name on the application form. His signature was added in a rush and it would have been better if he had made it clear on the form that he was only signing the application "pp" for Mr Mosley;
e) there had never been an intention to mislead anyone about the transaction. He had forgotten to upload the application form. All would have become clear during the planned "live observation" which had been scheduled to take place on 17th November.
The Claimant's Written Account:
Mr Mosley's Written Account:
The Investigatory Meeting on 19th November 2014.
a) the Claimant explained to Mr Netting that the transaction was not his sale, but Mr Mosley's. He said that, from 17th October, Mr Mosley had taken over responsibility for giving advice to the Carters and that the only reason why he (ie the Claimant) was "building the file" was because the case came back to him to prepare for the live observation;
b) the Claimant recognised that there was more risk associated with a SCARP than a deposit-based product;
c) even though he was aware of the difference between a SCARP and a deposit-based product, he had not considered reverting to Mr Mosley when unexpectedly Mrs Carter did not accept his advice to buy a deposit-based product on 5th November;
d) he did not know that SCARPS required pre-approval;
e) he had been given authority by the Defendant to make the sale, subject to endorsement;
f) he submitted the application form in Mr Mosley's name because there was a chance that the application might not be accepted if it wasn't signed by an approved advisor;
g) he had throughout the process acted honestly.
Termination letter 5th December
a) he had treated the breach as a "repeat breach" given the Claimant's history of past breaches;
b) he had concluded that the Claimant's breach of approved processes was "malicious" (a term of art, meaning that the breach which had been committed for personal gain). Mr Netting's view was that the Claimant had made a personal gain from the Carter product transaction as he had generated fee income from it;
c) he had concluded that the Claimant had attempted to conceal the fact that the application had been submitted. He had reached this conclusion because the Claimant had continued with the mandatory pre-sale checking, which was inconsistent with the Claimant's explanation that approval had already been given for the transaction by Mr Sigsworth; the Claimant had continued to make arrangements for the mandatory live observed interview process; the Claimant had not uploaded the application form; Mr Netting did not accept that the Claimant had not understood that investment based schemes were always 100% pre approval in spite of training; the Claimant had signed the application form in Mr Mosley's name which was inconsistent with the account which he had given, namely, that the Claimant himself had been authorised to conduct the sale as a result of his conversation with Mr Sigsworth.
d) The letter also recorded the basis for Mr Netting's conclusion that the Claimant had knowingly breached pre-approval procedures. Mr Netting said that the Claimant should have been aware of the pre-approval process. Mr Netting wrote that the steps which the Claimant had, in fact, taken following the transaction on 5/6th November demonstrated that he did know what was required of the pre-approval process and that, as the Claimant had been recently suspended, he was on enhanced supervision which required pre approval in all cases.
a) He denied generating fee income from the product sale. He informed the Defendant that he had waived his fee in respect of the sale.
b) He strongly asserted that a telephone call had been made to the Defendant in which he had been authorised to go ahead with the sale provided that an approved advisor endorsed the sale.
c) He denied that he had gone to lengths to conceal the sale. He drew Mr Netting's attention to the Suitability Letter which had not been altered and which recorded that the sale had already been undertaken and that Mr Mosley was fully aware that the product had been sold.
d) The application form was not uploaded because he was too busy preparing for three live observations.
e) He insisted that he had had approval from the Defendant to transact the sale but that he did not make a distinction between a structured deposit and structured investment plan: he did not know that SCARPs were 100% pre approval. He had intended that Mr Mosley would sign the application form and so, him adding his own signature, had been a complete oversight. He said that Mr Mosley had visited the customer on 17th October and a full fact find, attitude to risk and updated customer objectives were either completed or validated. Mr Mosley was in full knowledge that the application had been submitted in his name and was fully informed about the nature of the application.
f) As to the allegation that he knowingly breached the procedures he said that the Defendant had been made fully aware that Mr Mosley had previously met the customers and the urgent time frames. He said that he was merely completing the application for Mr Mosley to endorse the transaction therefore there was no knowing breach.
g) Finally, he said that he had 26 years' service as a productive tied advisor and at no point had his honesty and integrity been called into question. He complained that he had not had an opportunity to obtain representation for the investigation meeting.
Mr Newman's Response to the Appeal: 6th January 2015.
On 11th December 2013 we established that Mr Hincks had undertaken a large number of re-registrations of client investments where he had not documented or followed procedures correctly. Whilst we had significant concerns over this, our investigations concluded that he had misunderstood the procedure and that we would undertake the following actions:
1. Suspend the advisor from new business while we undertook a full past business review of all the cases.2. Compensate the clients in accordance with our complaints procedure.3. Undertake full rehabilitation retraining prior to lifting the suspension.
As a result of the past business review, to date redress amounting to £12,905.87 has been offered to 63 affected customers.
Following completion of the past business review a rehabilitation programme was implemented. This included reinstatement of the advisor's authorisation on 16th October 2014 subject to the following enhanced monitoring:
- 100% pre-approval for all cases- All client appointments attended by either the network Supervisor or a CF30 authorised AR principal.
In November 2014, we became aware that the advisor had transacted a product outside of our normal pre-approval process and without anyone accompanying him during the client presentation meeting.
Our subsequent investigation concluded that, in spite of the explanations offered by Mr Hincks, it was reasonable to conclude that he had knowingly and deliberately circumvented the agreed process.
He was terminated on 13th January 2015."
a) in respect of the problem surrounding the Claimant's re-registration of files, he said that he thought that it was reasonable to refer to this episode as "a failure to follow procedures about which the Defendant had had significant concerns" but that in fairness to the Claimant he had made it crystal clear that the Defendant had concluded at the time that the Claimant had misunderstood the procedures.
b) He said that he made a decision not to highlight the Bass case (in which the Claimant had in the words of Mr Mann "jumped the process") as the Defendant had, at the time, decided to treat all of the issues with the re-registration cases as part of the same overall picture.
c) He said that he thought it was reasonable to refer to the Past Business Review. The FCA rules required the reference to include details of customer complaints and, whilst the Past Business Review was not technically a complaints process, his view was that, had a customer made a complaint, it would have been difficult to rebut it given the lack of information which the Claimant had uploaded. He said that "past business review" was not an defined industry term and its negative connotations would not have been apparent to the reader of the reference.
d) Mr Netting recognised that his description of the Claimant's actions as a "knowing and deliberate circumvention of the agreed process" was an expression of negative opinion. To describe the Claimant's actions in respect of the Carter transaction in such a way was, he considered, a significant watering down of his own personal view following the investigation. He did not record in the reference for example his own view, shared by Mr Newman, that the Claimant's conduct following the transaction had been intended to conceal the fact that the sale had already taken place.
e) He told me that his intention when stating that there had been "knowing and deliberate circumvention" was to suggest that the Claimant was someone who "sailed close to the wind" and who needed "careful monitoring". He thought that this was how a reader would interpret the comment. He thought that the effect of the reference would have been to have made the Claimant an unattractive candidate for a post in a large company where the supervision would inevitably be more remote. He did not think it ruled out the Claimant's employment by a smaller company. He said that he had deliberately avoided describing the Claimant as being dishonest. Although that was his opinion, he was striving to be fair in the reference and, in effect, give the Claimant the benefit of the doubt.
The Claimant's criticisms of the reference:
a) The statement that all client appointments had to be monitored by the attendance of either a network supervisor or a CF30 authorised principals was wrong. By the time of the Carter transaction, the Claimant had been authorised to conduct annual reviews and fact finding meetings. The incorporation of that inaccurate statement in the reference, to be read in conjunction with the subsequent statement that the Claimant had "circumvented the agreed process", would suggest to the reader that the Claimant's meetings with the Carters were all clandestine. This was wrong.
b) The negative opinion expressed by Mr Netting was wrong. It followed a sham and pre-judged investigation. The investigation was conducted in bad faith. Mr Netting did not genuinely believe the opinions he expressed in the reference.
c) The investigation was unfair in a great many respects. The investigatory meeting of 19th November was an ambush: the Claimant had not been told before the investigation meeting what the allegations against him were; allegations were made during the meeting and he was denied the opportunity of responding, or responding properly; the meeting itself was conducted in an harassing manner by Mr Netting and Mr Owen who had pre-judged the situation; Mr Owen told the Claimant during the meeting that "this is fraud"; the Defendant had not searched for relevant documentation before the meeting, relevant witnesses were not interviewed and the Claimant was not given access to the relevant documents.
d) Had a fair and reasonable investigation been conducted, then the reasonable investigator could not have reached the conclusions, nor formed the opinions, which were expressed in the reference.
The Claim: negligent misstatement
"When considering the nature of the duty, the reference writer should consider first whether any statement to be included may reasonably be considered to be detrimental to the subject. If so, then the author should satisfy himself that the same is accurate and fair in that:
i) In the case of a statement of fact, it is plainly true.ii) In the case of a statement of opinion it is premised upon a reasonably held belief; oriii) in the case of findings or conclusions following any process that is or relates to misconduct or capability matters they are themselves premised upon a reasonable investigation that would be expected of a reasonable employer.
In each case the said statement must also neither itself be misleading nor lead to a misleading impression of the reference as a whole.
If any of the thresholds above are not met, or if they cannot be met without the reference being misleading, then it is incumbent upon the drafter to do one of the following (i) carry out his/her own reasonable investigation into the said fact, opinion or finding or (ii) if a reasonable investigation is not possible, clearly and fairly to state as such within the reference together with a fair summary of all relevant events and evidence together with a fair summary of the subject's comments or inability to comment.
If not possible the proposed statement should not be included, save in exceptional circumstances.
a) To conduct a sufficient review of the file to ensure that the reference writer had an accurate grasp of the facts of the Claimant's time under the Defendant's authorisation;
b) To express all relevant facts accurately in the reference;
c) To ensure that any opinions that are expressed are supported by the facts and are fair.
a) to conduct an objective and rigorous appraisal of facts and opinion, particularly negative opinion, whether those facts and opinions emerge from earlier investigations or otherwise;
b) to take reasonable care to be satisfied that the facts set out in the reference are accurate and true and that, where an opinion is expressed, there is a proper and legitimate basis for the opinion;
c) where an opinion is derived from an earlier investigation, to take reasonable care in considering and reviewing the underlying material so that the reference writer is able to understand the basis for the opinion and be satisfied that there is a proper and legitimate basis for the opinion;
d) to take reasonable care to ensure that the reference is fair, in the Bartholomew sense, of not being misleading either by reason of what is not included or by implication, nuance or innuendo.
Conclusions: Bad Faith
Absence of Genuine and Reasonable Belief in Conclusions
Conclusions: the reference
(a) Redress Payments:
(b) "full rehabilitation"
(c) "knowingly and deliberately circumvented the agreed process"
The Claim in Contract