The High Court has dismissed an attempt by Zurich to reject without trial a negligence claim over financial advice.
Angela Lenderink-Woods, who is now 95-years-old, had a portfolio of investments in the UK, consisting of gilt edged securities, shares, unit trusts and cash held in a deposit account at a UK bank.
The portfolio had a value of about £567,700, and a potential inheritance tax burden of about £130,300.
In 2001, Ms Lenderink-Woods sought advice from Huw David Lester Davies, who was at the time a member of the Zurich Advice Network, to help mitigate her exposure to inheritance tax on her UK-based assets.
According to court documents, Mr Davies advised Ms Lenderink-Woods to convert the portfolio into insurance bonds issued by Allied Dunbar within a loan trust scheme.
Through the scheme, the portfolio proceeds were ‘loaned’ to trustees, who then invested the capital in investment bonds, which were held upon discretionary trusts.
This meant each year the trustees would be able to receive up to 5 per cent of the value of the investment bonds until the loan was repaid, without creating an immediate tax bill.
If Ms Lenderink-Woods died, however, the outstanding balance of the loan would form part of her estate for inheritance tax purposes.
According to a preliminary ruling by Mr Justice Norris, the scheme did not shelter Ms Lenderink-Woods from inheritance tax on the value of the portfolio, but only on any increase in value over the initial premium.
On 10 December 2014, Ms Lenderink-Woods claimed the advice of Mr Davies was “negligent” and that he made “careless misstatements” about the costs which she would incur in implementing the loan trust scheme.
Given that she had not lived in the UK since 1948, she argued that inheritance tax could have been removed by investing the portfolio and the cash deposit in exempt gilts or offshore unit trusts.
She also said Mr Davies had failed to warn her about the inflexibility of the scheme, that the bonds carried high charges, and that the charges for the first year were more than 4.5 per cent, as opposed to the 2 per cent he had apparently stated.
Ms Lenderink-Woods also said she suffered a loss of income and a loss of capital growth on “unnecessary charges”.
Zurich has accepted it is now “liable for any actionable shortcomings in the advice which [Mr Davies] gave,” the court ruling stated.
The preliminary arguments revolved around the negligence limitation period and the date at which Ms Lenderink-Woods had the relevant knowledge to be able to pursue her claim.
Zurich’s lawyer said that in 2009 her complaints to the appointed adviser were about the investment performance of the bonds, not in relation to the decision to embark upon the loan trust scheme.
Several enquiries were made to Mr Davies in 2011, which Mr Justice Norris said demonstrated a “degree of concern” about the loan trust scheme, but were questions about “the operation of the scheme, not about the suitability of the scheme or the possibilities of more effective tax mitigation alternatives”.
Ms Lenderink-Woods consulted Integer Financial Management Limited on 8 February 2012, which said loan trust schemes were usually sold to UK tax payers to mitigate UK inheritance tax, but that she was not in need of that since she was not UK domiciled.
This led to a complaint by Integer on behalf of Ms Lenderink-Woods, and to Zurich’s initial acceptance of the validity of that complaint and the making of an offer (subsequently withdrawn) to pay £459,567 in compensation.
On 24 January 2014, the Financial Ombudsman Service accepted Mr Davies was mistaken in recommending the use of the loan trust scheme, but said he had not seen evidence this caused Ms Lenderink-Woods any financial loss or other detriment.
A High Court claim was issued in December 2014.
The High Court judge said: “In my judgment it would be wholly wrong to dismiss Mrs Lenderink-Woods claim at this stage on the basis that she has no real prospect of establishing breach of duty at a trial.
“I do not accept the submission that it is going to be impossible for expert evidence to be garnered which undermines the Ombudsman’s determinations.
“I dismiss the application for summary judgment.”
