The answer to that question used to be relatively straightforward, having been dealt with back in the 1950s by the House of Lords in the case of Bolam v. Friern Hospital. In that case, it was decided that as long as a doctor acted in accordance with a reasonable body of medical opinion, he could not be considered negligent, even if there existed a body of opinion taking the contrary view.
That became known as the Bolam test and was applied generally in cases of professional negligence.
In 2015, the law changed for doctors as a result of the case of Montgomery v. Lanarkshire Health Board. There, the Supreme Court decided that the patient was entitled to decide which form of treatment to undergo, and indeed whether to undergo any treatment. That required the doctor to take reasonable care to ensure the patient understood any material risks involved in the recommended treatment, and to inform them of any reasonable alternatives.
The case of O’Hare v. Coutts is relevant to financial advice because it followed the decision in the Montgomery and decided that the Bolam test did not apply to advice about investments.
The judge recognised that an adviser cannot recommend a strategy were the risks are so high as to be foolhardy, and also that an adviser might on occasion have to save an investor from himself, but he decided that such considerations were not relevant in this case.
The judge concluded that the focus should be on whether the investor was properly informed, rather than on whether the adviser had acted in accordance with a reasonable body of professional opinion. In reaching that conclusion, the judge was mindful of the fact that there was little consensus in the financial services industry about how appetite for risk should be managed.
In the O’Hare case, the judge found that the advisers did properly inform their clients and that they had properly discharged their duties. The judge arrived at that decision even though he also accepted that there had been an element of persuasion or salesmanship by one of the advisers.
In conclusion, this case has something for both sides. For the adviser, their role is not just one of exercising professional skill in terms of the products to recommend, but also of using reasonable care to ensure that the investor is properly informed. However, having done so, it will be difficult for the investor to succeed in showing that the investment was unsuitable and that their adviser was negligent.
PLEASE NOTE: this briefing note contains information about current legal issues and is only intended as a general statement of the law – it does not give legal advice. No action should be taken in reliance on this note without specific legal advice.
If you would like advice on the issues raised in this article or on other dispute-resolution issues, please contact:
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Ben Horack Partner, Litigation |