Some of you may be aware of the case of O’Hare and another v Coutts 2016. Overall I haven’t seen much reported on the case, which is surprising.

    To give some background, Mr & Mrs O’Hare were advised by Coutts to buy various investment products. However, the couple lost money. In an attempt to recover the monies lost, the investors took Coutts to court claiming that there was a breach of duty to recommend suitable products. The investors alleged that the advice received understated the risks associated with the investments and the investments were unsuitable for their risk appetite. It was also alleged that the clients had been exposed to the loss of an ‘unjustifiably high proportion of their wealth’. The claim was for £3.3m plus interest.

    Coutts denied the claims stating that the advice was sound and the investments were suitable for the clients. Coutts claimed that the complaint was more of poor performance of the investments.

    Duty of care

    When looking at ‘duty of care’ and whether the conduct of a professional was negligent or not, the courts have traditionally referred to the case of Bolam v Friern Barnet Hospital Management Committee 1957 (often referred as the Bolam test). In this case the judges decided that if a professional can show that a body of peers would have acted in a similar way, then the conduct is unlikely to have been negligent. Because of this case, the Bolam test has often been applied in negligence claims with independent expert evidence called upon to confirm what is ‘good practice’ in the relevant field of expertise.

    However, in the case of O’Hare v Coutts, the judge decided that “The required extent of communication between financial adviser and client to ensure the client understands the advice and the risks attendant on a recommended investment, is [not] governed by the Bolam test.”

    Instead the judge referred to the approach taken by the Supreme Court in Montgomery v Lanarkshire Health Board 2015. In this case, it was held that a doctor was "under a duty to take reasonable care to ensure that their patient is aware of any material risks involved in any recommended treatment as well as any alternative or variant treatments. However, an informed individual must take responsibility for their own decisions and bear the result of those decisions".

    ‘Material’ was defined by the court as "whether, in the circumstance of the case, a reasonable person in the patient’s position would be likely to attach significance to the risk or the doctor is or should be aware that the particular patient would be likely to attach significance to it”.

    No professional consensus

    As a result, the court found that Coutts had not breached its duty in contract or tort. The court deducted that there is no ‘professional consensus’ about how advisers should identify and manage investment risk. The investors were experienced investors and therefore should take responsibility for their own decisions. As such, the investments were considered to be suitable.

    The court found that the investors were fully aware that they were investing a substantial amount of money with one institution meaning that if that institution became insolvent they would lose their investment. However, they were happy to take this risk as the institution was state owned.

    The court held that having read the COBS rules there is "nothing intrinsically wrong with a private banker using persuasive techniques to induce a client to take risks the client would not take but for the banker's powers of persuasion, provided the client can afford to take the risks and shows himself willing to take them, and provided the risks are not avoiding the temptation to use hindsight, so high as to be foolhardy. The authorities include mention of the adviser sometimes having to save the client from himself, but also of the principle that investors take responsibility for their investment decisions including mistaken ones. The duty of care must reflect a balance between those two propositions, which pull in opposite directions."

    What next?

    Does this mean that the Bolam test is now defunct? Not necessarily. Various opinions that I have seen suggest that it will depend on the “context and nature of the expertise under scrutiny” and the “relevance and quality of the evidence provided by experts”. However, where there is a significant divergence of opinion among members of the industry as to what a reasonable member would do in the circumstance, a judge may refer to O’Hare rather than the Bolam test.

    Key points for advisers to pull out from this case are:

    • Ensure that the client file can show that the suitability requirements as set out in COBS have been met
    • The legal view is that there is no consensus on how to establish and manage a client’s attitude to risk
    • Advisers leaving a firm cannot be compelled to return where court action on their advice is in question
    • Documentation of discussions / advice is critical to positioning it years down the line
    • Poor service and performance do not in isolation constitute unsuitable advic

    It is suggested that firms:

    • Review how a client’s attitude to risk is established and how this is reflected in recommendations
    • Review how advisers record the client’s knowledge and experience
    • Consider whether record-keeping would be sufficient to respond to a complaint / litigation without the original adviser being available
    • Check whether contracts of employment have obligations to leave records of advice in order on departure, and support the firm in managing any complaints post their departure

    I hope you find this useful.

    Read more: 4 stories to reach the FOS

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