Eagle v Chambers: The cost of investment advice - is it recoverable?
Eagle v Chambers: The cost of investment advice - is it recoverable?
Comment
In Eagle v Chambers the Court of Appeal has given helpful clarification as to the recoverability of the fees of financial advisers, a matter that was previously the subject of conflicting first instance decisions. In addition they have confirmed that section 17 of the Social Security (Recovery of Benefits) Act 1997 is to be given a generally wide construction.
Investment advice
In Eagle the claimant suffered serious brain damage as a result of a road traffic accident. She was awarded just under £1.5 million. In common with many large personal injury claims, compensation was sought in respect of investment advice on receipt of the damages.
The impetus for this head of claim came from the judgment of Mr Rodger Bell QC in Anderson v Davis [1993] PIQR Q87 who held that without financial advice the court’s award would not properly compensate the claimant. This encouraged claimants to claim for such advice as part of their damages.
The brake was put on the making of such awards by Davis J in Page v Plymouth Hospital NHS Trust [2004] EWHC 1154. He noted that in Wells v Wells [1999] 1 AC 345, the House of Lords fixed the appropriate discount rate by reference to ILGS (subsequently of course the Lord Chancellor fixed a rate under his delegated powers conferred by the Damages Act 1996). He went on to state that the proper analysis of investment advice is that “it relates to the setting of the appropriate discount rate”. It was part of the multiplier rather than multiplicand.
This analysis was strongly approved by the Court of Appeal. In the words of Waller LJ, delivering the leading judgment:
“A defendant must pay by way of compensation damages assessed on the basis that the return on the money will be by way of investment in gilts even though the practice is to gain a higher return by investing more broadly. To order the defendant to pay the costs of taking the advice so as to enable the investment to be made more broadly…is to make the defendant lose both on the swings and roundabouts and to provide the claimant with a head of damage which flows from a decision as to how to invest and not from the accident”.
Putting it crudely, the Court of Appeal are saying that the House of Lords has already made the decision about financial advice when setting the rate of return in Wells – it is based on investment in gilts. Any further decision on the part of the claimant is, in the words of Buxton LJ:
“a matter of choice…he cannot impose on the defendant expenses or losses arising from his use of the money: whether he indulges in investment on the stock exchange or investment on the race-track”.
It is interesting to note that the general issue of financial advice was not fully argued before the Court in Eagle and it is therefore arguable that the above analysis is strictly obiter. It would however be a brave first instance judge who would ignore this at the very least strongly persuasive decision on the recoverability of financial advisers’ fees.
The reason that full argument was not heard on the general issue was because Claimant’s counsel directed his attention towards the submission that a patient should be treated differently from the ordinary claimant: the accident has made the claimant a patient, who therefore has no choice as to how the money is invested; the Court of Protection would invest widely on taking the advice of a panel of brokers whose fees are charged by virtue of the Court of Protection rules.
On this issue the Court was split. Waller LJ, with whom Scott Baker LJ agreed, held that no distinction should be drawn between patients and non-patients for 3 reasons:
1. There is in fact no compulsion on the Court of Protection to invest more widely, although it is currently their normal practice
2. The Court of Protection should not be looked at as a body independent of the claimant
3. The panel brokers’ fees are no different from the fees charged to a non-patient if he decides to use brokers to make more of the funds he has been awarded.
In a powerful dissenting judgment Buxton LJ noted that a patient has no control over his affairs. While Waller LJ’s analysis of the Court of Protection as the Claimant’s agent is correct, the claimant can usually choose his agent. For the patient the identity of the agent is imposed by the tortfeasor.
From an claimant’s perspective, it does seem harsh that the patient, who cannot say to the Court of Protection: please simply invest my funds in ILGS in accordance with Wells, should be treated in the same way as the non-patient who does have that choice. However unless and until the decision of the majority of the Court of Appeal in Eagle is overruled, that will remain the case.
The Social Security (Recovery of Benefits) Act 1997, s. 17
Also of note in the decision is the confirmation that s. 17 of the 1997 Act is to be construed widely. The section states that all listed benefits are to be disregarded when assessing damages. In Wisely v John Fulton (Plumbers) Ltd [2000] 1 WLR 820, the House of Lords had ruled that when calculating interest, the figure to be used when assessing damages was that which ignored the fact of the benefits, even though that provided an effective windfall to the claimant.
In Eagle the Court of Appeal were faced with a situation where the claimant would receive mobility allowance (a listed benefit) in the future. Was she under a duty to mitigate her loss by investing that allowance in a particular scheme, which would result in an adapted car being available on a cheaper basis than without such investment?
The Court of Appeal, following Wisely, said that she was not: “a rule as to mitigation can be said to be a rule relating to the assessment of damages”. Therefore s.17 indicates that there is no requirement that the mobility allowance be used to mitigate loss.