Article first published in Insurance Day

High Court erodes traditional professional negligence test.

For decades the test for standard of care in English professional negligence claims has been the "Bolam test". This assessed “whether the defendants, in acting in the way they did, were acting in accordance with a practice of competent respected professional opinion”.

In O'Hare v Coutts & Co (2016), Mr and Mrs O'Hare, high-net-worth individuals, alleged Coutts breached its duty of care when advising them about investments. The High Court held that, provided the investments have been properly recommended, "the required extent of communication between financial adviser and client to ensure the client understands the advice and risks attendant on a recommended investment" is not governed by the Bolam test.

In determining the overall suitability of the investments, the court held the Bolam test applied, but it was inappropriate to determine the required level of communication about the risks of investments by reference to industry standards. The court preferred the Supreme Court's approach in the Scottish case of Montgomery v Lanarkshire Health Board, concerning the duty of a doctor towards a patient in advising on the risk of treatment. Here the relevant duty was to "take reasonable care to ensure the patient is aware of any material risks involved in any recommended treatment and of any reasonable alternative or variant treatments".

The test for materiality of risk was 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 the particular [client] would be likely to attach significance to it."

In O'Hare, the judge preferred this test as there is little consensus in the financial services industry about how risk appetites should be managed by an adviser; further, the Financial Conduct Authority's Conduct of Business Sourcebook rules make no reference to a responsible body of opinion, prescribing instead obligations similar to those in Montgomery.

Coutts had not failed to fully inform the O'Hares about their investments, nor breached any duties by engaging in salesmanship which may have resulted in the O'Hares accepting more risk than otherwise, the court pointing out: "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."

O'Hare is not a wholesale rejection of the Bolam test. O'Hare and Montgomery relate to situations where the client exercises some discretion or autonomy in decision-making. Further erosion of the Bolam test is likely to be limited to this area, at least in the short term.

There is potential scope for O'Hare and Montgomery to apply to solicitors' negligence claims. In the Northern Irish decision Baird v Hastings (2015), the court did not specifically address the Bolam test but referred to Montgomery, drawing analogies between the solicitor/client relationship and that of a doctor and patient, saying: “As in the medical context, the advisory role of the solicitor must involve proper communication and dialogue with the client."