The High Court has dismissed a claim against Coutts for alleged breach of the duty to exercise reasonable care and skill when providing investment advice to private investors. The Court found that private investors are required to take responsibility for their own, informed, investment decisions.
Mr and Mrs O'Hare ("the Investors") opened accounts with Coutts & Co ("Coutts") in August 2001. Their relationship manager between 2001 and 2008 was Mr Shone, who advised the Investors to purchase certain products (the 2001 Investments and the 2007/2008 Investments). Mr. Eugeni took over as relationship manager when Shone left the bank in 2008. Mr Eugeni also sold investment products to the Investors (the 2010 Investments).
The Investors’ contract was called an “Agreement to Provide Investment Advice”. It required Coutts to provide, free of charge, “advice about the investment services we offer and the kinds of investment that would in our view be most appropriate for you”. The Investors were not required to accept advice given. As such, Coutts could only profit from the contract if the Investors contracted separately for recommended products.
The Investors issued a claim against Coutts for losses suffered as a result of the 2007/2008 and 2010 Investments, claiming Coutts' advice understated the risks associated with the Investments, which the Investors alleged were unsuitable for their risk appetite. Further, it was alleged that Coutts' advice had exposed them to the loss of an unjustifiably high proportion of their wealth. The primary allegation was that Mr. Shone and Mr Eugeni had breached their duty of care in tort and contract when advising on the Investments. In addition, the Investors claimed £250,000 pursuant to an alleged settlement agreement between them and Coutts to settle an earlier complaint relating to the 2001 Investments, which the Investors contended had never been applied to their account. The total claim was circa £3.3 million, plus interest.
Coutts denied the claims and contended that the investment advice given by its private bankers was sound and the investments were suitable: Coutts contended that the claim concerned complaints of poor performance, informed by hindsight, which is different from suitability.
As regards the alleged settlement agreement, Coutts argued that it was a non-binding statement of intent to provide $250,000 (Coutts disputed the currency), through future discounts or credits to the Investors, as a gesture of goodwill. It was also contended that, even if a binding agreement had been concluded, it had already been performed.
Breach of duty
Prior to this case, in the financial context, a duty (in both contract and in tort) to use reasonable skill and care when recommending investments meant that the recommended investments should be suitable. Suitability was to be determined in accordance with the long established Bolam test. In Bolam, a medical negligence claim, it was held that an action/decision/advice is not necessarily negligent where the individual had acted in accordance with an accepted body of opinion, even where opinion on the appropriate decision/advice differed. The Bolam test has been applied to claims involving a wide range of professionals.
In the 2015 case of Montgomery v Lanarkshire Health Board, it was held that a doctor was under a duty to take reasonable care to ensure that their patient is aware of any material risks involved in any recommended treatment, as well as any reasonable alternatives or variant treatments. However, an informed individual must take responsibility for their own decisions and bear the result of those decisions ("the Montgomery Approach"). The court provided clarity on the concept of materiality: "in the circumstances of the particular case, a reasonable person in the patient's position would be likely to attach significance to the risk, or the doctor is or should be aware that the particular patient would be likely to attach significance to it".
Whilst the Court expressed sympathy for the Investors, the claim was dismissed in its entirety. The Court found that Coutts had not breached its duty (in contract or tort).
The Court found that Coutts' contractual requirement was to work with the Investors to understand their circumstances, objectives, and requirements (including wealth and willingness to take risk) to enable them to develop an investment strategy. When read in its proper context, the obligation meant no more than that Coutts would liaise with the Investors and recommend products as and when agreed, or when Coutts considered it appropriate to recommend a product. This is what Coutts had done. Both Mr. Shone and Mr Eugeni had held frequent discussions with the Investors about what strategy to follow and what investments should be made. Those discussions were supplemented by letters, emails and presentations over the years. Accordingly, Coutts had not failed in its duty to provide an investment strategy to the Investors or to fully inform the Investors about the Investments.
The question was, therefore, whether Coutts had been negligent in recommending the 2007/2008 and 2010 Investments. The Court ruled that the correct approach in determining the issue of whether Coutts had breached its duty of care when advising the Investors about the Investments was the Montgomery Approach. A key point considered by the Court was the fact that the expert evidence adduced by the parties indicated that there was no professional consensus in the financial services industry about how the treatment of risk appetite should be managed by an adviser. The Court found that Coutts had explained the products to the Investors, who were experienced investors. As such, the Investors must take responsibility for their own decisions. In the circumstances, the 2007/2008 and the 2010 Investments were held to be suitable:
In relation to the 2007/8 Investments, the Court found that the Investors fully understood the products, the fact that they were classified as higher risk wealth generation products and the Investors were willing to accept the risks.
As regards the 2010 Investments, the Investors were fully aware that a substantial sum of their money had been placed with a single institution and that the capital would be at risk if the institution became insolvent. The Investors were happy to run this risk because they reasoned that the institution was state-owned.
The Court found that the fact that Coutts did not "save" the Investors from themselves did not render Coutts negligent.
In relation to the 2007/2008 Investments, the finding of suitability was made notwithstanding the finding that Mr. Shone had used persuasive techniques to influence the Investors in taking considerably higher risks than they otherwise would have done. It was held that 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".
In relation to the settlement agreement, the Court held that it was a question of fact as to whether a gesture of goodwill could be binding. Where an offer is made in the course of pre-existing legal relations, the onus on the party claiming not to be bound is a heavy one. Coutts had failed to discharge this burden. However, on the facts, this obligation had already been performed by Coutts so no further sums were due to the Investors.
The approach of the Court to breach of duty is important as it demonstrates a continued erosion of the long established Bolam principle in favour of the Montgomery Approach specifically in relation to situations in which the client is required to exercise discretion in making a decision based on advice provided. The Court adopted a common sense approach and focused on what the Investors, as experienced investors, would expect to be told (and were told) about the proposed investments and not on whether Coutts had advised in accordance with a practice accepted as proper by a responsible body of persons skilled in the giving of financial advice. Informed investors are entitled to exercise discretion about the risks they are prepared to take and must take responsibility for their own poor investment decisions in the same way that investors take the benefit associated with such risks.
There does appear to be scope for further erosion of the Bolam principle in other fields involving the provision of professional advice.