O'Hare & Ors v Coutts & Co

A financial adviser must exercise reasonable skill and care when recommending investments. The Bolam test applies to the standard of professional advice, but not necessarily to the extent of communication required to ensure that a client understands material risks. That obligation requires proper dialogue and communication and is informed by applicable conduct-of-business rules. Investment suitability is assessed objectively, having regard to the client’s objectives, wealth, risk tolerance, knowledge, experience and financial standing. Persuasion is not inherently negligent where the client can afford the risk, understands it and the investment is not foolhardy. A settlement described as a goodwill gesture may be contractually binding where it arises from an established commercial relationship and is supported by consideration.

The claimants alleged that Coutts negligently advised them to make five investments in 2007, 2008 and 2010. They relied on contract, negligence, breach of statutory duty and negligent misrepresentation, alleging that the investments were unsuitable and that risks and charges were insufficiently explained.

They also claimed £250,000 under an alleged settlement of a complaint concerning the earlier sale of the Orbita Capital Return product. Coutts denied liability, contending that the investments were suitable and that any settlement was non-binding or had been performed through later discounts and credits.

The central issues were whether the investments were suitable, whether Coutts entered into a binding settlement obligation, and whether that obligation had been performed.

1. The claim was dismissed in its entirety. The 2007–08 Novus investments and the 2010 RBS International Autopilot and Navigator investments were not objectively unsuitable.
2. The contractual duty to advise required Coutts to work with the claimants, understand their circumstances and objectives, and recommend investments from time to time. It did not require a holistic investment plan for all their wealth or recommendations of non-Coutts products.
3. The implied contractual and tortious duty to use reasonable skill and care in recommending investments was governed by the Bolam standard. The relevant standard was that of a reasonably competent practitioner in private banking. However, the extent of communication required to explain risks was not governed by a conventional Bolam test. Proper dialogue was required, and the COBS rules were strong evidence of the common-law duty.
4. Suitability depended on the client’s objectives, wealth, risk tolerance, knowledge, experience and financial standing. A private banker could properly persuade a client to take greater risks than the client would otherwise have taken, provided the client could afford the risk, was willing to take it and the investment was not foolhardy. The claimants understood the Novus products sufficiently and accepted responsibility for the decision.
5. The parties’ continuing commercial relationship and the claimants’ forbearance to sue supplied consideration for the settlement. Objectively, Coutts undertook a binding obligation to provide future credits or discounts amounting to at least $250,000 during the continuing contractual relationship. The obligation was not void for uncertainty.
6. The obligation had been performed. The agreement contained no mechanism requiring particular discounts to be identified or excluded from the agreed benefit. The evidence showed credits and discounts exceeding the sterling equivalent of $250,000.
7. The 2010 investments were suitable despite concentration with RBS International. They materially reduced exposure to wealth-generation products, were capital protected subject to early termination and counterparty insolvency, and served the claimants’ borrowing requirements. The claim concerning the substituted index involved an operational breach which caused no loss, rather than unsuitability.
8. Observations on the contract measure of damages, remoteness and use of a cautious portfolio as a proxy for loss were unnecessary to the decision.