Controlling and Coercive Behaviour: Widening the Net
O’Hare v Coutts & Co  EWHC 2224 (QB)
This case is of importance for specialists in the professional negligence field as it provides some clarity on the distinction between offering competent financial advice and the law on using sales techniques to persuade clients to take risks.
The case concerned a professional negligence claim by a high net worth individual, Mr O’Hare (the “Claimant”), and his wife, who were dissatisfied with the standard of care provided by Coutts private bank (the “Defendant”) when they were advised on certain investments.
The Claimant had established and later sold a successful chemical engineering business. Their dealings with the Defendant arose when they entered into an agreement with it to provide the Claimant with investment advice, particularly after the Claimant sold his business as he had cash to invest. This advice was provided by an employee of the Defendant (the “Employee”).
Of particular importance was the Claimant’s contention that the Employee failed to communicate, or at least played down, the substantial risks involved in the investment. The Employee’s contemporaneous notes of the parties’ meetings and conversations were included as evidence but were challenged by the Claimant, who felt that they played down the extent of the Employee’s salesmanship. This particular point was dismissed by the judge who pointed towards the notes’ correctness. The Claimant further alleged that the products that the Employee and the Defendant recommended were unsuitable and had no capital protection, that an unjustifiably high proportion of the Claimant’s wealth was exposed to losses, that he and his wife were not sophisticated investors and that, although the Employee’s advice was accepted, this did not necessarily mean that it was correct.
Typically, the standard of care professionals must meet is governed by the Bolam test. This test, which stems from the 1957 case Bolam v Friern Hospital Management Committee  1 WLR 582, poses the questions of “whether the defendants, in acting in the way they did, were acting in accordance with a practice of competent respected professional opinion”. The Bolam test applied in this case to the recommendation of suitable investments.
On the question of the standard of care financial advisers must meet when determining the overall suitability of investments, the Court found in the Defendant’s favour – that the Bolam test still applied and that the advice given must match that of a reasonably competent practitioner. However, a key difference arising from this particular case concerned the next stage of the financial advisory process and the level of communication about the investments’ risks: Mr Justice Kerr, following the case of Montgomery v Lanarkshire Health Board  AC 1430 (a Scottish case), held that the Bolam test does not apply when considering the requirement for communication between two parties in order to ensure that the client understands the advice and risks of an investment.
Mr Justice Kerr instead found that the required level of communication about the risks of an investment was governed by the content of the relevant regulatory rules. The regulatory rules applicable to this case (the Financial Conduct Authority’s Conduct of Business Sourcebook, the “COBS Rules”) make no reference to the responsible body of opinion test that is applied in Bolam and are instead more concerned with professionals advising, explaining and informing clients about suitable investments. The judge therefore preferred the Supreme Court’s approach in Montgomery.
In Montgomery, a medical case, it was found that the relevant duty was to ensure that the patient was aware of any material risks from treatment and that materiality of risk was determined by whether the patient would attach significance to the risk or the doctor ought to know the patient would attach significance to it.
Therefore to apply the approach in Montgomery to the world of financial advisors, it appears that communication of investment risks should ensure the advisor takes reasonable care to ensure the client knows of any risks which the client would be likely to attach significance to. In this case, that the history between the parties covered a period of over a decade and there had been numerous discussions about the Claimant’s investments showed that there had not been a lack of communication and explanation.
This led Kerr J in this case to the conclusion that the Defendant and Employee, in using their salesmanship skills to increase the Claimant’s risk, were not in breach of their duty of care, since the investments were objectively suitable and the decision to invest was taken by the Claimant. The Claimant was found by Kerr J to be astute in business and would always balance risk against caution; he also noted the “fullness of information” given to the Claimant which rendered it impossible for the Claimant to raise the argument of the investment products being mis-sold to him. Kerr J further found that the products were not high risk and that capital was protected against loss.
Accordingly, Kerr J dismissed the claim and handed down judgment in favour of the Defendant.
Whilst the judgment in this case is of course pertinent to the specific facts mentioned above, Kerr J’s findings may point towards a widening of the Bolam standard within the field of financial advice, particularly in situations where the required level of communication about the risks of an investment are governed by the content of the relevant regulatory rules.
This legal update was written by Lilly Whale, Paralegal in the Dispute Resolution team.
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