Professional negligence: financial advice claims
The recent case of O’Hare and another v Coutts & Co  EWHC 2224 (QB) considered whether the defendant bank breached its duty of care towards the claimant to exercise reasonable care and skill when advising on making certain investments.
To be liable in professional negligence the defendant must fail to reach the standard of a reasonably competent professional in that field. The usual approach is to follow the Bolam test, deriving from a case of the same name, and which applies to all professional liability cases.
Bolam held that the defendant doctor would not be guilty of negligence if (1) he acted in accordance with a practice accepted at the time as proper by a responsible body of medical opinion skilled in the particular form of treatment and (2) he would not be negligent merely because there was a body of competent professional opinion which might adopt a different technique.
In O’Hare, the claimants opened accounts with the defendant bank in 2001. Their claim was for losses suffered as a result of investments made in 2007/2008 and 2010.
The defendant alleged that the advice given by its private bankers was sound and the investments were suitable (although they performed poorly).
Importantly, Kerr J did not apply the Bolam test. Instead they followed the approach of the Supreme Court in Montgomery v Lanarkshire Health Board which, in summary, considered the duty as one to take reasonable care to ensure that the patient was aware of material risks involved in recommended treatment.
Following Montgomery, O’Hare focused not on whether the defendant had advised in accordance with a practice accepted as proper by a reasonable body of persons skilled in the giving of financial advice but on what the claimant would expect to be told by the defendant.
The claim was dismissed in its entirety. It was held that the defendant had not breached its duty, in either contract or tort, to ascertain the claimants’ requirements and objectives and to advise, explain and inform the claimants about suitable investments.
The judge decided that the bank had provided sufficient advice and identification of risks to the O’Hares, who were adequately informed to decide whether or not to proceed. The bank had complied with its duty of care.
The decision was influenced by expert evidence which indicated little consensus in the industry about how to manage the risk appetite of clients.
Kerr’s judgment suggests that that the giving of investment advice is not simply an exercise of professional skill. It is the right of an informed investor to decide the risk that he is willing to take which, by extension, means that he will also have to take responsibility for his own mistakes.