Negligent Financial Advice – Bolam Abandoned
The ‘Bolam test’ is a well known test that is used when considering possible instances of professional negligence. It essentially sets out that if a professional’s actions conform to a practice that is accepted by reasonable and responsible members of their profession, then those actions shall not be considered negligent.
Montgomery v Lanarkshire Health Board
This test is not an absolute rule however. A Scottish case regarding healthcare services (Montgomery v Lanarkshire Health Board) has provided an alternative test. In that case, the court stated that:
- a patient was entitled to decide which available treatments to undergo;
- prior to any invasive treatment, consent must have been obtained; and
- a doctor had a duty of care to confirm that the patient was aware of any ‘material risks’ of the recommended or other reasonable treatment.
‘Material’ was considered to be any risk that a reasonable person would likely attach significance to or the doctor was aware that the patient would be likely to attach significance to.
O’Hare and another v Coutts & Co
In the case of O’Hare and another v Coutts & Co  EWHC 2224 (QB), the claimants stated that the investment advice they had received from the defendant bank breached the duty of care that they were owed. The Bank denied this, stating that the advice by its officers was sound, and the investments that were recommended and subsequently made were suitable.
The Judge dismissed the claim stating that there was no breach of the bank’s duty of care in investigating the claimants’ objectives and needs or in advising and informing them on suitable investments.
Suitability of investments is generally determined in accordance with the Bolam test, yet the court applied the approach in Montgomery when considering the duty owed in this case. The bank was under a duty of care to ensure that the client understood the advice and risks that were involved in any specified investment. To try and determine what standard practice in the industry was, the court sourced expert evidence. However, upon consideration of this evidence, it concluded that there was little consensus in the financial services industry on how an advisor should manage a client’s appetite for risk. In light of vast correspondence (which included numerous discussions, letters, emails and presentations) between the parties, the judge decided that there was adequate communication and explanation given by the bank.
The judge also considered that the investments made by the claimants were suitable. Even though the bank had persuaded the claimants to take risk on some of the investments, this was considered acceptable, as long as this client could financially afford the risk, showed a desire to take that risk and that the risk wasn’t so high as to be a reckless decision. It was also decided that the bank was under no duty to save the claimants from themselves when they wanted to make a risky investment.
The judge’s approach in this case is of particular note, because of the approach that was taken in applying Montgomery: deciding that the duty of care related to the extent of the advice that is given and not whether the advice was considered proper practice. This decision suggests that an investor’s risk is their own responsibility and thus would have little recourse (given the advisor has suitably advised them) should that investment perform poorly.
For more information, contact Jan Marzec.