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A different approach to breach of duty when professionals give advice

The case of O'Hare and another v Coutts & Co has produced a different approach as to how the courts may assess whether a professional has breached their duty of care to advise. 

Historically, the courts have tended to use the Bolam test (from the case of Bolam v Friern Hospital Management Committee). This is a medical negligence case but applies to all professional liability cases. The test states that a professional will not be found liable if he provides advice in line with a practice accepted by some members of his profession as being proper; even if a different view was taken by others within that profession.

But the expert evidence in the O'Hare case suggested that there was little consensus within financial services as to how a professional should manage the risk appetite of clients. 

In the circumstances, the judge favoured the approach taken in the case of Montgomery v Lanarkshire Health Board, another medical negligence case. This case found that the onus is on the medical patient, as an adult with sound mind, to make their own decision about the risks involved. This is only when the medical professional has taken reasonable care to ensure that the patient was aware of the material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments.

In O'Hare, and therefore in a financial context, the judge considered that this approach was more appropriate. The O'Hares, as informed investors, were entitled to decide the risks that they were prepared to take and accept responsibility if those risks did not pay off. 

The judge also added weight to this approach by reference to the FCA's Conduct of Business Sourcebook (COBS rules). He found that the COBS rules do not rule out the use of persuasion. However they do stress the need for full information to be given, and conflicts of interest to be properly managed. As the judge states:

"As I read the authorities and the COBS regulatory scheme, 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. The authorities include mention of the adviser sometimes having to save the client from himself, but also of the principle that investors take responsibility for their investment decisions including mistaken ones. The duty of care must reflect a balance between those two propositions, which pull in opposite directions."

Hearsay – is direct evidence required?

Mr Shone, the O'Hares' main contact and relationship manager from 2001 to 2008 did not provide evidence in court. Instead, Coutts relied upon the contemporaneous notes written by Mr Shone. Given that Mr Shone was alleged to have persuaded the O'Hares to take a higher risk than they would otherwise have done, the judge had expected to hear direct evidence from the advisor.  

Although Coutts provided hearsay evidence from other witnesses, which was accepted, the judge concluded that Mr Shone's testimony was necessary for Coutts to prove its defence.  

In the case of Gestmin SGPS SA v Credit Suisse (UK) Ltd, the approach of the court – when faced with a disparity between contemporaneous documentary evidence and a witness' recollections of historic events - was to prefer the reliability of the documentary evidence. 

In this case Mr O'Hare's oral evidence at trial, that Mr Shone had used persuasion on the claimants to induce them to take higher risks than they otherwise would have done, was accepted by the judge over and above the documentary evidence. Mr Shone had not documented such persuasion within his notes, but the judge found that this did not mean that there had been none.

The judge was not prepared to accept that the notes were to be preferred or that Mr O'Hare's evidence contradicting them was to be rejected. In making his decision, the judge considered a number of factors including: 

  • Coutts had managed to obtain evidence from other former employees; 
  • that he was not convinced of Mr Shone's explanation for not being able to provide evidence; 
  • Coutts' consideration of or ability to obtain such evidence.

He asserted that the judge in Gestmin had not suggested that oral testimony served no purpose.  He remained of the view that the general rule (that any fact which needs to be proved by the evidence of witnesses is to be proved at trial, by their oral evidence) still applies.

Damages in a limitation context

Given that the claim was dismissed in its entirety, the issue of the measure of damage and the quantum of damage suffered did not arise. 

But the judge did state that even though the cause of action in contract was statute-barred, if the claim had succeeded, and the measure of damages for the cause of action in tort had been more favourable to the claimants than that in contract, he would not have allowed the O'Hares to benefit. This would have meant they were benefitting from their own failure to bring the contract claim less than 6 years before the cause of action in contract arose. 

He referred to the Court of Appeal decision in Wellesley Partners LLP v Withers LLP. This states that where concurrent causes of action in tort and contract arise, the test of remoteness should be the more restrictive contract test. Particularly since the contract reflects the consensus between the parties which ought to be reflected when dealing with issues of remoteness.

Commentary

This decision is useful to professionals where there appears to be no common opinion within their industry regarding their duty to their client. 

This case suggests that as long as they have provided suitable recommendations, the extent of the communication to their client should not solely be decided in accordance with a practice accepted as proper by a number of professionals within that industry. 

Instead, the responsibility lays with the reasonably informed client. Essentially, if there is a significant divergence of opinion amongst members of the industry on what a reasonable member of that profession should do in the relevant circumstances, then a judge may now decide that O'Hare should be followed rather than Bolam.  

The decision is also a helpful indicator that pivotal witness evidence is key. Although contemporaneous documents are a reliable form of evidence, there are occasions where oral testimony is required to bolster such documents.

Finally, the decision throws up an interesting approach to damages in cases where causes of action in contract are statute-barred but continue in tort. It will be interesting to see whether the judge's approach will be followed in cases where limitation in contract applies and damages require to be determined solely on a cause of action in tort.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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