The High Court has recently provided useful clarification regarding the existence of continuing duties of care both for IFAs and other professionals in Worthing and Worthing v Lloyds Bank Plc  EWHC 2836 (QB).
In January 2007, the Claimants, a wealthy married couple, invested £700,000 in an investment portfolio provided by the Defendant, Lloyds Bank Plc (at the time of the advice it was Lloyds TSB Private Banking Limited) through its independent financial adviser service. By July 2008, the portfolio had fallen to £657,388.21 when the Claimants surrendered the investments.
The Claimants alleged that the fall in value was due to negligent investment advice provided by the Defendant. The Claimants alleged that they had had a “cautious/low-risk” attitude to risk but the investments recommended were “balanced/medium-risk”.
The Claimants issued proceedings on 16 March 2013 and, at a hearing on 13 August 2014, the Claimants conceded that their causes of action were statute-barred in relation to alleged breaches of duty which occurred before 16 March 2007. However, the Claimants alleged that the Defendant had a continuing duty of care to identify that the advice which led to the investment in January 2007 had been negligent and to correct that error at the earliest opportunity by advising the Claimants either to disinvest or to transfer their portfolio into investments with a “cautious/low-risk” profile. Alternatively, the Claimants alleged that the Defendant had been negligent in carrying out a review in March 2008.
The judge found on the facts that the Defendant had not been negligent in providing the advice which led to the initial investment in January 2007. The Claimants had, in fact, understood the level of risk involved in “balanced/medium-risk” investments and had instructed the Defendant to recommend investments on that basis.
This finding was sufficient to dispose of the claim that the Defendant had been in breach of a continuing duty of care because as the initial advice was not negligent there could be no breach in failing to identify that it had been negligent; even if a continuing duty existed. Nevertheless, the judge made findings in respect of the alleged continuing duty of care.
The judge found that the terms of the Defendant’s contract with the Claimants did not impose “strict liability for the continued subsistence of a state of affairs whereby the claimants’ money remained invested in a Portfolio with an unsuitable risk profile” (paragraph 79). In arriving at this conclusion, the judge followed Bell v Peter Browne & Co.  2 QB 495 and distinguished Midland Bank Trust Co. Ltd v Hett, Stubbs & Kemp  1 Ch. 384 where solicitors had been found to have a continuing duty to register an option under the Land Charges Act 1925 on the basis that it related to an unfulfilled contractual obligation rather than an obligation which had been fulfilled albeit negligently.
It was common ground that under the terms of the contract between the parties the Defendant had a duty to carry out periodic reviews. The first such review was conducted in March 2008. The Claimants alleged that the Defendant had been negligent in failing to carry out a fresh risk assessment during that review which would have identified that either the original advice had been wrong or that the Claimants’ circumstances had changed such that the investment was no longer suitable. However, the judge found that absent any evidence that the Claimants’ capacity for loss or attitude to risk had changed, there was no duty on the Defendant to carry out a fresh risk assessment either under the contract or the Conduct of Business Rules(specifically COBS 9.2.1 R).
Additionally, on the question of using standardised documents, the judge went beyond recognising that COBS 2.2.1 R entitles an adviser to use standardised documents and opined that there “…is a clear advantage in using such documentation, because it avoids the vagaries of inconsistent and perhaps unclear explanations and information and provides a clear reference for assessment and approval by the regulatory authorities.” (paragraph 63).
This decision provides helpful comment and clarification regarding the existence of continuing duties of care both for IFAs and other professionals. The thrust of the judge’s analysis is that continuing duties of care will only exist where expressly set out in the contract. However, each case will turn on its own facts and some caution is still required in respect of a failure timeously to fulfil an express contractual obligation rather than a negligent fulfilment of an obligation as Hett, Stubbs & Kemp has not been definitively overturned.
The Defendant had undertaken a comprehensive fact finding investigation which, along with its advice, was well documented. This was clearly helpful in supporting the judge’s finding that the Defendant had not been negligent in providing the initial advice and underscores the importance of IFAs, and professionals generally, documenting the advice provided and the enquiries made to arrive at such advice.
Further reading: Worthing and Worthing v Lloyds Bank Plc  EWHC 2836 (QB) [link]
Midland Bank Trust Co. Ltd v Hett, Stubbs & Kemp  1 Ch. 384
Bell v Peter Browne & Co.  2 QB 495
Maharaj and another v Johnson and others  UKPC 28