In claims involving financial investment advice, limitation issues are a regular feature. It is particularly so in cases where the allegedly inappropriate investments were designed to be held for several years and claims are brought more than six years after the investment advice was first given. If the three year time extension under s14A of the Limitation Act (from date of knowledge) does not assist, then claimants may be forced to run more creative arguments about continuing duties.
The recent decision in Worthing and Worthing v Lloyds Bank Plc  EWHC 2836 (QB) provides a useful illustration of how difficult these arguments can be.
Mr & Mrs Worthing sought investment advice from Lloyds about a £700,000 investment.
They met with Lloyds several times between September 2006 and January 2007, during which Lloyds assessed their attitude to risk. Lloyds then recommended an investment in a balanced portfolio (the Portfolio). At the end of January 2007 (and after the advice had been given), the Worthings signed Lloyds' Terms and Conditions (the Terms). The Terms stated (amongst other things) that Lloyds would be responsible on a "…continuing basis for managing the securities in your portfolio" and that Lloyds would contact the Worthings "…from time to time to check whether there have been any changes in your circumstances and requirements that could affect the way in which we act on your behalf". Shortly afterwards, the Worthings proceeded with the investment.
In March 2008, Lloyds held a review meeting with the Worthings. By this stage, the value of the Portfolio had dropped to £675,712. Lloyds advised the Worthings to retain the investment. Then, in July 2008, the Worthings instructed Lloyds to sell the Portfolio to release cash which they required for other purposes. The Portfolio was sold for £657,388.
In March 2013, the Worthings issued a claim against Lloyds in relation to the Portfolio investment. The Worthings conceded that their claim in respect of the original investment advice was statute barred as it had taken place more than 6 years before the claim was issued. As a result, they argued that:
- At the outset, Lloyds had negligently assessed their risk profile and caused them to invest in an unsuitable investment;
- Lloyds was under a continuing duty to review its original advice and to advise the Claimants that the Portfolio was inappropriate for their risk profile; and
- Lloyds ought to have reassessed its original investment advice at the review meeting.
Continuing Duty of Care
The Judge began by rejecting the claim on the basis that Lloyds had properly assessed the Worthings' attitude to risk at the outset – there was therefore nothing to correct.
However, he went on to consider the issue of whether Lloyds owed a continuing duty of care to the Worthings, such that their claim in respect of the original advice could be pursued.
He found that there were three ways in which such a continuing duty might exist:
- The original investment advice was given under a contract, but the incorrect advice did not discharge Lloyds' duty under the contract, such that Lloyds remained contractually bound to perform that duty and correct its original advice;
- After the initial advice was given, a new contract came into existence under which Lloyds was required to correct any incorrect advice it had given;
- Lloyds was under a duty to conduct periodic reviews of its advice, whether under the original contract or under the new contract that came into existence, with reasonable skill and care and in accordance with the COBS rules.
In respect of (a), the Worthings had argued that the advice was given pursuant to the Terms. However, the Judge found that the Terms were agreed after the original advice was given, and therefore the advice could not have been given under any contract. Even had it been, that contract would not have generated any continuing obligations.
In respect of (b), that could not apply either. Any contract that came into existence after the original investment advice did not impose on Lloyds an obligation to correct any earlier advice given. The Judge said that an acceptance of (b) would have "…the same effect as saying that at each moment after the giving of the incorrect investment advice there is a new breach by way of failure to rectify the earlier breach". While Lloyds did have an obligation to conduct periodic reviews, that did not impose a duty to carry out a completely new risk assessment (i.e. to redo the original exercise), only to see if anything had changed since the last assessment and give advice on that basis. On the facts, that had been done.
As for (c), the Judge found that it could apply, as a new contract came into existence after the original investment advice.
However, the Terms did not contain an absolute duty on Lloyds to correct any earlier error in its original investment advice.
The Worthings also argued that Lloyds had a contractual obligation to them under Section 13 of the SGSA to exercise reasonable skill and care. The Judge accepted that if the original investment advice was given pursuant to a contract, Section 13 would apply. However, even then it would only support an argument that incorrect investment advice had been given in breach of contract. The fact that advice might have been given without reasonable skill and care was not sufficient in and of itself to establish a continuing duty.
The decision, while beneficial to those giving financial advice, also provides useful guidance to practitioners on the issue of when a continuing duty of care might arise such that claimants can pursue claims which otherwise might be considered to be out of time. The decision indicates that courts will be reluctant to impose a continuing duty of care upon a party unless there is a contractual obligation to do so or unless a party has failed to fulfil its obligations under the contract.