No continuing contractual duty to correct investment advice
Published 3 December 2015
Mr & Mrs Worthing ("the Claimants") were customers of Lloyds Bank Plc ("Lloyds"), and invested £700,000 in an investment portfolio with Lloyds with a "balanced" profile.
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 was less than the original investment and although a number of options for the portfolio were discussed, Lloyds' recommendation was to retain the portfolio. Notwithstanding this advice, the Claimants realised their investment in July 2008 in the sum of £657,388.21.
Subsequently, proceedings were commenced by the Claimants in March 2013 seeking compensation for their losses on the basis that Lloyds had given bad advice and had 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").
At trial, Lloyds was able to establish through the production of contemporaneous documents (which were relied upon heavily by the Judge in his judgment) that it had complied with its contractual duties and the relevant COBS Rules and was successful in having the claim dismissed.
The Court 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. There was therefore no error for the bank to correct in between in the period between the initial investment and the review in March 2008. Lloyds was simply under a duty to conduct the review in March 2008 with reasonable care which it did. However, the Judge observed that even if the original advice had been incorrect, Lloyds were not under a continuing contractual duty to correct it.
This decision should provide comfort to both IFAs and other professionals, including accountants, regarding the existence of continuing duties of care when dealing with their clients. Whilst each case will turn on its own facts and specifically the terms of the retainer agreed between the parties, professionals will not be under a continuing duty of care unless there is an express obligation imposing the same on them. Accountants may wish to revisit their retainers if they have any concerns that their contractual terms may impose continuing obligations on them.
The decision is also a useful reminder to all professionals about the importance of making contemporaneous and accurate notes and maintaining effective records when giving advice, in particular risk-sensitive advice. Here, the bank's dealing with its customers and the advice given was carefully documented and helped the judge reach the conclusion that the bank had not been negligent.