Also reliance on hearsay evidence and "goodwill gesture" payments
In O'Hare v Coutts & Co  EWHC 224 (QB) the High Court held that the test for whether financial advice is negligent should not be the long established Bolam test (whether the advisor acted in accordance with the accepted practice of a responsible body of skilled persons), but rather whether the adviser had provided the information that an informed investor would expect to be given about the risks of investment.
O'Hare is also a useful reminder of practical disputes points: making goodwill gesture offers and the need to call all relevant witnesses to give evidence at trial, rather than relying on hearsay evidence.
The Bolam test has for many years long been used to determine whether advice is negligent. However, in 2015, the Supreme Court held in Montgomery v Lanarkshire Health Board, that, in the medical context, the practitioner must:
"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"
In O'Hare financial advice was provided over a number of years by Coutts to the claimants, a wealthy couple, regarding the investment of their personal wealth. Importantly, it was found that over that period Coutts had provided significant levels of advice and that the claimants had significant wealth which they wished to invest in order to seek a return.
Application of Bolam and Montgomery to financial advice
Having considered the application of the Bolam test and the decision in Montgomery, Mr Justice Kerr found that the reasoning in Montgomery was not limited to the medical context, and ought to be applied to the financial advice provided in this case. In particular, the giving of financial investment advice required similar dialogue and communication between advisor and customer, to enable the customer to understand the range of investment options available and the risks of the investment decisions to be taken.
It is significant that the judge found that it was still open for the financial advisor to use his skills of persuasion to induce a customer to take risks that the customer would not otherwise have taken. Indeed it was noted that it may in fact be a requirement for advisors to do so in circumstances where a customer is so adverse to risk that they may miss out on a "bonanza of high returns" unless advised of the benefits of equities in a rising market.
In this case, because Coutts had fully explained the benefits and associated risks of the products available and those investments were not objectively unsuitable for these particular wealthy customers, it was open to the claimant's to make their own decisions. The customers then had to take responsibility for their decisions, even those which, with the benefit of hindsight, were mistaken.
Following this decision those providing advice must fully explain the risks associated with the range of courses of action available to customers, rather than the advisor relying on simply advising according to what one might call the "industry norm".
Reliance on hearsay evidence
At trial Coutts failed to call the financial advisor, who had provided much of the advice in the early years of the relationship, to give evidence. Their reasons included that the advisor no longer worked Coutts and that he was unable to commit time to the hearing.
Whilst Coutts had submitted as evidence a number of the financial advisor's contemporaneous notes of meetings with the customers, Mr Justice Kerr found that even where those notes did not contain any suggestion that persuasion had been used, he could not infer that the claimants' argument that persuasion had been used, was incorrect. In particular, where Coutts failed to call the advisor to defend the alleged negligence, but instead submitted hearsay notices, the claimants were not expected to call the advisor to prove that the notes omitted to record the alleged persuasive techniques used.
The result of not calling the advisor was that the documentary evidence was not supported by oral evidence. The claimants' version of events was therefore preferred. Although in this case that did not affect the outcome, it is a warning that the courts will not rely solely on documentary evidence. Parties should do all they can to adduce witness evidence, even when the relevant people have since left their employment.
Goodwill gesture settlements
The court also had to consider whether an offer by Coutts to provide $250,000 of benefits to the claimants' as a "goodwill gesture", which was accepted in relation to certain of the investment products sold, was binding. Mr Justice Kerr found that in the context of a pre-existing contractual relationship, which Coutts were willing to pay money to maintain, this offer was contractually binding once accepted.
Parties to long term contractual relationships should therefore be wary of making offers on a "goodwill gesture" basis to their counterparties unless they are willing to be bound to the terms of their offers.