The case heralds a new approach by the courts to the traditional
duty of care imposed on financial advisers when advising their
clients (the "Bolam test") and places more responsibility
on a properly informed investor to accept the consequences of the
investment risks voluntarily assumed by him or her.
Mr and Mrs O'Hare were high net worth customers of Coutts
and Mr Shore (who was their relationship manager at the relevant
times) recommended the O'Hares to invest in certain Coutts
products. The allegation was that Mr Shore persuaded the
O'Hares to take a greater risk than they might otherwise have
done and Coutts were negligent in advising them to make investments
on the basis that they were unsuitable.
The Bolam Test versus the Montgomery Test
Under the "Bolam test" case when considering whether a
professional has breached his or her duty of care, the court looks
at whether the professional acted in accordance with practices
accepted as proper by a responsible body of people in that
profession. The Bolam test was widely applied across all
professional negligence cases for many years. However, in 2015 in
Montgomery v Lanarkshire Health Board  UKSC
the Supreme Court departed from the Bolam test holding that the
relevant duty was to "take reasonable care to ensure that the
patient is aware of any material risks involved in any recommended
treatment, and of any reasonable alternative or variant
treatments" (the 'Montgomery test'). Whether a
practitioner was obliged to advise upon a particular risk depended
on whether in the circumstances of the particular case, a
reasonable person in the [client]'s position would be likely to
attach significance to the risk, or the [adviser] is or should
reasonably be aware that the particular [client] would be likely to
attach significance to it.
The O'Hare Decision
Mr Justice Kerr held that in determining the overall suitability
of the investments, the Bolam test applied, but when considering
the required level of communication about the risks of an
investment, that it was inappropriate to determine this by
reference to industry standards, preferring the Montgomery test.
Kerr J. concluded that the Montgomery test was to be preferred over
the Bolam test, because:
There is a lack of clear consensus in the financial services
industry about how the treatment of risk appetite should be managed
by an adviser;
The relevant COBS rules in the FCA Handbook make no reference
to the Bolam concept of a responsible body of professional opinion,
but instead make reference to obligations that more closely
resembled those in Montgomery.
Kerr J found that, on the facts, Coutts had communicated
adequately with Mr and Mrs O'Hare about their investments which
objectively suited them. This was therefore a case where the
responsibility for the investment decision lay with the
O'Hares. Interestingly he also found that financial advisers
could properly use persuasive techniques to influence an investor
and this would not result in them breaching their duties. He said
"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 O'Hare decision does not represent a complete rejection
of the Bolam test in professional negligence cases, but it does
suggest that as long as professionals have provided suitable
recommendations, the extent of the communication to their client
should not solely be decided in accordance with a practice accepted
as proper by a number of professionals within that industry.
Instead, the responsibility will lie with the reasonably informed
client. In a nutshell, if there is a significant divergence of
opinion amongst members of the industry on what a reasonable member
of that profession should do in the circumstances, a judge may now
decide that the Montgomery test should apply rather than the Bolam
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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