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Court rules Zifa must share missale liability with adviser

A high court judge has ruled that marketing company Zurich IFA must share liability with an adviser because of inaccurate marketing material and false risk warnings on a collapsed investment product.

Legal experts say the case – which sees Zifa pay two-thirds of 500,000 compensation – could open the floodgates for IFAs looking to recoup part of the compensation payouts they have had to make to endowment, precipice bond and split-cap investors.

Financial Services Legal solicitor Gareth Fatchett says the case raises the prospects for cases brought by IFAs who have compensated clients where providers’ marketing material was misleading or where details such as Lautro projection rates were incorrect, leading to fund shortfalls.

Fatchett is offering to run a free test case on the issue.

The judge, Sir Mark Havelock-Allan, QC, ruled that Swindon-based IFA Caroline Ockwell & Co and Zifa must pay a husband and wife client the full 500,000 that they invested in the Bahamas-domiciled Imperial Consolidated alpha plus fund through an Allied Dunbar Inter- national-branded Zurich offshore investment bond.

The fund collapsed, owing investors over 200m. Dozens of other IFAs and around 14 life companies have been affected by the collapse of Imperial.

Other insurers which used their international bonds to wrap Imperial funds include the then offshore arms of Abbey, Scottish Life, General, Hansard and Irish Life.

Zurich is being forced to pay two-thirds of the compensation after the judge found the product provider falsely represented the fund as low-risk and wrongly said it had carried out due diligence on Imperial – what the judge termed “contributory negligence”. Much of Ockwell’s defence for recommending the 15 per cent supposedly capital-guaranteed fund was based on Zurich’s assurances that it was low-risk.

Fatchett says: “This case could open the floodgates for claims against providers where IFAs have taken a hammering on endowments and precipice bonds, particularly where key features documents are misleading.”

Reynolds Porter Chamberlain partner Harriet Quiney says: “This case makes the point that IFAs cannot be used as a letterbox by even the most respectable product providers and could have implications for split-cap and precipice bond cases.”

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