Investors sue for £45m
2 March 1998
The Investors Compensation Scheme (ICS) and two investors' groups are to go to court to seek an estimated £45m in damages from the West Bromwich Building Society (WBBS).
The case revolves around the sale of Home Income Plans (HIPs), by Fisher Prew Smith, a firm of independent financial advisers which went into liquidation in 1991. Many of the plans were financed via WBBS.
Opening speeches will be heard at the High Court in the Strand on 9 February in front of Mr Justice Evans-Lombe.
The case is being heard in an appeal court, simply because of the sheer amount of evidence the parties will have to have available at the hearing. It will then adjourn for two weeks until 23 February, because the judge has a sabbatical. It is expected to last around four months.
'We are dealing with the mess left by the Financial Services Act 1986,' said one participant. There are three plaintiffs, the ICS and two sets of investors titled collectively Alford and Armitage. They represent together around 380 individual investors covering over 200 mortgages.
The ICS is claiming damages for the majority of the investors' claims. The investors passed over their rights to these claims when they accepted compensation from the ICS.
One of the reasons why the case has taken so long to reach court is that the ICS had to visit the House of Lords last June to get a ruling on who had rights to sue WBBS.
The problems started with Fisher Prew Smith, which was registered under Fimbra, the regulator under the Financial Services Act 1986.
Fisher Prew Smith sold around 700 HIPs at the end of the 1980s, the majority through WBBS. The HIPs involved the investors taking out a mortgage with WBBS. Of the money raised by the mortgage, part would provide a lump sum which the investors could spend as they wished. The rest of the money was invested.
The problem was that investments went down, rather than up in value. Meanwhile, as the property slump hit the UK, mortgage liabilities rose as interest rates increased, and simultaneously prices fell.
In September, Fisher Prew Smith was put into liquidation. Ernst & Young were appointed liquidators. The ICS picked up the claims for Fisher Prew Smith in liquidation and paid out to investors, who in turn paid these funds over to WBBS, together with the encashment value of the investments.
This still left substantial mortgage balances for the investors to pay off. Additional interest has accrued since then.
The issue to be decided by the court is whether WBBS had notice of what Fisher Prew Smith was selling to the general public, and whether it should have known that the HIPs would spiral out of control in the way they did.
WBBS says it did not have notice, and that it just provided the financing for the HIPs. The two investors groups are looking for rescission, in effect to abolish the mortgages. WBBS is being represented by Eversheds in Birmingham, whose team is led by Martin McKenna.
The firm's counsel are David Oliver QC of 13 Old Square, and Andrew Hochhauser and Vernon Flynn of Essex Court Chambers.
The ICS is being advised Clifford Chance. It has retained Geoffrey Vos QC of 3 Stone Buildings, and junior Guy Morpuss of 20 Essex Street. The two investors groups have engaged a team at Barnett Sampson, led by partner Marguerite Mungovan, and barristers Jeffrey Gruder QC and Neil Kitchener both of One Essex Court.