A 2016 case has marked a departure by the Courts from the usual standard of care imposed upon a financial advisor when advising clients.
Bolam v Friern Barnet Hospital Management [1957] 2 All ER 118 set the traditional test in professional negligence cases. The 'Bolam test' states that when establishing whether or not a professional has breached their duty of care, the Court should look as to whether they acted "in accordance with a practice accepted as proper by a responsible body of...men skilled in that particular art" (at paragraph 587 of the judgment). It would not matter if other members of the profession did not agree, as long as some did.
However, the recent English High Court decision in O'Hare and another v Coutts & Co [2016] EWHC 2224 (QB) marks a shift from this long-established standard of care imposed on a professional in the context of financial advice.
In O'Hare, the claimants had suffered considerable losses following investments made with Coutts over a number of years, and claimed that Coutts were negligent in advising them to make the investments on the basis that they were unsuitable and that as a result, a large proportion of their wealth was exposed to a potential risk of loss. Interestingly, the Court in this case moved away from the test for professional negligence as set out in Bolam, and more closely followed the Supreme Court's approach in the 2015 case Montgomery v Lanarkshire Health Board [2015] UKSC 11.
In Montgomery, the Supreme Court held that a doctor was under a duty to take reasonable care to ensure that the patient is made aware of any material risks involved with their recommended treatment, as well as any alternative or variant treatments. However, the informed individual must then take responsibility for the decisions made and the results of those decisions. This move away from the Bolam test therefore appears to place a greater obligation on the individual in question to take responsibility for their own decisions when they have been made aware of the risks involved.
Accordingly, in O'Hare, the Court dismissed the claim in its entirety and held that Coutts had not breached its duty of care when advising the claimants as to their investments. Kerr J at paragraph 204 found that "in the context of investment advice too, there must be proper dialogue and communication between adviser and client", and at paragraph 206, that "the reasoning in Montgomery is not, in my judgment, irrelevant outside the medical context. The expert evidence in the present case tends to indicate that there is little consensus in the financial services industry about how the treatment of risk appetite should be managed by an adviser...As in the medical context, the extent of required communication with the client should not depend on the attitude of the individual adviser". Accordingly, the Court focused on what an informed investor would expect to be told and not on how a responsible body of skilled men would have acted. This therefore highlights the departure from the Bolam test to the one established in Montgomery in the context of giving investment advice.
The Isle of Man has appeared to follow the English Courts in this area. In the 2003 case Brunt v Southern Group Practice, His Honour Deemster Kerruish stated that he respectfully agreed with the test as established in Bolam and said (at paragraph 14 of his judgment) that "a general practitioner must bring to his or her task a fair, reasonable, and competent degree of skill and knowledge, and must exercise a reasonable degree of care. A reasonable skill means what it says, namely that the skill need not be of the highest, but must also not be to a low degree of care and competence". Therefore it is likely that the Island will follow the rational of the English Courts in Montgomery and O'Hare, but we will have to keep an eye out for any further developments in this area.
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