David Anderson v Openwork Limited14
Summary: This case found that the common law duty of care in tort is in addition to existing statutory duties under FSMA and the COB Rules.
Mr Anderson (the Claimant) invested in a Newcastle Guaranteed FTSE Bond (the Bond) on the basis of advice of provided by his financial advisor, a Partner with the network Openwork Limited (the Defendant). Subsequently, the investment in the Bond resulted in substantial losses for the Claimant.
As a result, the Claimant brought a claim against his financial advisor for the losses that arose out of his investment in the Bond, on the basis that:
- his financial advisor had made negligent misstatements in relation to the Bond
- the advice given breached the COB rules
- the advisor breached his common law duty of care by failing to take reasonable steps to ensure that the Bond was suitable for the Claimants’ needs.
At first instance, the judge held that:
- there had been no negligent misstatement
- when considering the duty of care owed by the financial advisor, regard should be given to the standards set out in the COB rules. Although the sale was not regulated under FSMA, the court applied the FSA’s (now FCA’s) Conduct of Business rules (COB) by analogy
- the financial advisor had satisfied its duty to ensure that the relevant information about the Bond was known to the Claimant
- the financial advisor had not satisfied its duty to take reasonable steps to ensure the Claimant understood the risks associated with the Bond.
The Claimant was awarded damages of £5,459 plus interest. Consequently, the Defendant appealed and the key issues for the court’s consideration were:
- whether a common law duty of care can exist where there is a statutory duty of care which covers more complicated investments (in this case, the COB rules)
- whether the standards in the COB Rules should be considered when assessing the common law duty of care the applied
- whether there was a breach of the common law duty of care on the facts of this case.
The judge found that:
- previous case law did not preclude a common law duty of care whether there is a pre-existing statutory duty of care in circumstances like these
- the first instance judge had “simply and understandably made reference to them (the COB Rules) in considering the duty applied” which he found was the correct approach
- the first instance judge was entitled to find that the financial advisor had breached its common law duty of care by not taking reasonable care to ensure that the Claimant understood the nature of risks relating to the Bond.
This case reinforces the courts’ view that, whilst the question of whether a duty of care exists is largely fact-dependent, there is a general consensus that once found, the scope of that duty should be informed by the regulatory framework.
We can therefore expect the interrelationship between common law and financial regulation to continue to play a significant role in future mis-selling claims. In circumstances whether there is no directly applicable regulatory regime, the court may look to an analogous regime for guidance as to the scope of the common law duty.
This cases also emphasis that a common law duty of care can be imposed in addition to a statutory duty of care.