Moving on from Bolam
The High Court has extended the Montgomery test to a case involving financial professionals, explains Theo Barclay
For the first time outside a medical context, the High Court declined to apply the traditional Bolam v Friern Barnet Hospital Management Committee  1 WLR 582 test for the standard of care in favour of the new test in Montgomery v Lanarkshire Health Board  AC 1430.
In O’Hare & ors v Coutts & Co  EWHC 2224 (QB), Coutts, the private bank, was found to owe a duty to take reasonable care to ensure its clients were aware of the risks of suggested investments. This is an important development in professional negligence law and one that may have far-reaching consequences.
The claimants in O’Hare were wealthy individuals who had engaged Coutts as their bankers. Coutts advised them to invest in five products between 2007 and 2010. The claimants alleged that Coutts’s investment advisers had negligently advised them before they decided to purchase the products, which, they argued, were not suitable for their circumstances.
Standard of care
The key part of Mr Justice Kerr’s ruling in O’Hare concerned the standard of care. Traditionally the adequacy of a professional’s advice has been judged by asking whether that professional ‘was acting in accordance with a practice of competent respected professional opinion’ – the well-known Bolam test.
The relevant standard of care under Bolam is that of a reasonably competent practitioner in the field in which the defendant practises – in this case, an investment adviser. Under Bolam, if there is a respected body of professional opinion that would have taken the same approach as the defendant, the defendant will not be found to have been negligent.
The Supreme Court has held that Bolam does not govern the standard of care demanded of a medical professional when explaining the risks to a patient. In the landmark case of Montgomery a different duty was imposed – medical professionals must ‘take reasonable care to ensure that the patient is aware of any material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments’.
The Montgomery decision has been of great significance to doctors and their insurers, leading to substantial changes in the practice of medicine. Since the decision, commentators have speculated that it may be applied more widely. O’Hare represents the first major move in that direction.
In his judgment Kerr J extended the application of Montgomery to define the standard of care to be applied to the investment adviser explaining to a client the level of risk attached to an investment. In his view, ‘the required extent of communication between financial adviser and client to ensure the client understands the advice and risks attendant on a recommended investment’ is not governed by Bolam. There was, in Kerr J’s view, a direct analogy to the relationship between doctor and patient as ‘in the context of investment advice there must be proper dialogue and communication between adviser and client’.
Further, since there is little consensus within the financial services industry on how to treat risk appetite there was no generally accepted and responsible practice by which to apply the Bolam test. Instead, as the conduct of business regulatory regime mandates investment advisers properly to explain risk to their clients before they take a decision, and that is ‘strong evidence of what the common law requires’, Kerr J imposed the Montgomery standard. When advising its clients on the investments, Coutts fell under a duty to take reasonable care to ensure the clients were aware of the risks they were considering.
Ultimately, Kerr J decided Coutts had taken reasonable care to make sure the clients were aware of the risks and the claim failed. It remains to be seen, however, whether Montgomery will continue to be applied to cases involving financial professionals. Such an extension may for a time be restricted to cases with similar facts, but in the medium term it is probable that the Montgomery standard of care will become the appropriate one for cases involving advice on risk given by all professionals who must ensure ‘proper dialogue and communication between adviser and client’. If that is the approach taken by the courts then the decision will be of very broad significance, particularly to negligence claims against solicitors.
Theo Barclay is a barrister at Hailsham Chambers