High Court reviews duties placed upon banks/advisers when advising customers to make investments and finds no continuing contractual duty to correct original investment advice.
In January 2007, Mr & Mrs Worthing ("the Claimants") who had been customers of Lloyds Bank Plc ("Lloyds") since 2000, invested £700,000 in an investment portfolio with a Balanced profile provided by Lloyds through its Mayfair Asset Management Service.
The investment was made after a number of meetings with representatives of Lloyds at which the Claimants discussed their objectives and completed standard form terms and conditions in addition to documentation which explained the nature of the risk being undertaken. The terms and conditions stated, inter alia, that Lloyds was "responsible, on a continuing basis for managing the securities in your portfolio .." and that Lloyds would "contact you from time to time to check whether there have been any changes in your circumstances or requirements that could affect the way we act on your behalf".
By March 2008, when Lloyds conducted its annual review meeting, the value of the portfolio had fallen by some £25,000. A number of options for the portfolio were discussed but the recommendation by Lloyds was to retain the portfolio. Some eighteen months later in July 2008, the value of the portfolio had fallen further and the Claimants surrendered their investment in the Portfolio realising only £657,388.21.
Proceedings were commenced by the Claimants in March 2013 seeking compensation for their losses on the basis that Lloyds acted negligently and in breach of contract/statutory duties under Financial Services and Markets Act 2000 ("FSMA") and the Conduct of Business Rules, the Conduct of Business Sourcebook Rules (" COBS Rules"). In summary, the Claimants alleged that:
- the losses suffered on the investment were due to bad advice given by Lloyds initially in January 2007 as they only wanted low risk investments and were not properly advised as to the medium term risks associated with the portfolio; and
- subsequently in a review meeting in March 2008 they should have received advice to correct the initial flawed advice and advised to disinvest from the portfolio but did not.
In August 2014 the Claimants conceded that their causes of action were statute barred in so far as they related to breaches that occurred prior to 16 March 2007 thus leaving the claim pursued predicated on Lloyds alleged failure to correct the initial advice and subsequent advice to retain the investment given in March 2008.
The action proceeded to trial. At trial, Lloyds was able to demonstrate through the production of contemporaneous documents that it had complied with its contractual duties and those relevant COBS Rules and these documents were relied on heavily by the judge.
The Judge dismissed the claim on the basis that Lloyds had fulfilled their obligations and had not been negligent.
Having reviewed all the evidence, he concluded that the Balanced Portfolio was a suitable investment for the Claimants at the time of the investment in 2007 and that at the time they understood it was a medium risk investment. Lloyds was not under a strict obligation to correct the error in its original advice because this advice was not given in error and there was no strict contractual obligation. The further contention that Lloyds also failed to advise the Claimants that the portfolio was not now suitable for them also failed because:
- their attitude to risk had not changed; and
- it was reasonable to give advice that no immediate decision should be made to sell the portfolio; and
- the Claimants future investment objectives for the portfolio could not be properly assessed at the time.
The Judge went on to say that even if the original advice had been incorrect, Lloyds were not under a continuing duty in relation to that original advice and the Claimants were therefore unable to avoid the limitation bar by relying on a failure to correct as a continuing breach of duty.
There was therefore no error to correct in the period prior to the initial review in March 2008. Lloyds were required to conduct periodic reviews in accordance with its terms and conditions but the Judge concluded that the review of the Claimants portfolio in March 2008 had been undertaken with reasonable care and skill. Moreover, there was no contractual requirement to undertake the onerous step of completing a new risk assessment at each subsequent review nor was there any statutory duty under the COBS Rules.
This case should provide some comfort to financial institutions that the Court will investigate carefully any suggestion that it should frequently review and update original investment advice and is also a useful reminder of the importance of making contemporaneous and accurate notes and maintaining effective records when giving investment advice.