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Scope of duty to advise: Welcome clarification for financial advisers

Business meeting Print publication

09/03/2017

In a financial services context, the High Court has provided clarification of the scope of a professional’s duty to advise. Walker Morris’ Banking Litigation and Professional Negligence specialist Sandip Singh explains the key lessons that professional advisors and their clients can learn from the recent case of Denning v Greenhalgh Financial Services [1].

Defining the duty of care

In an increasingly litigious society and in times of financial uncertainty, professional advisers often find themselves in the firing line when clients suffer losses and consider claims to recoup. Understanding exactly the extent of the adviser’s duty is crucial to the prospects of success of any professional negligence claim or defence.

Walker Morris reported recently on the case of O’Hare v Coutts [2] (another case focusing on financial advice), in which the High Court considered the standard of care which a professional must meet.  In that case the court applied a new test to determine the standard of care and, in so doing, acknowledged that a client is entitled to decide the risks that he or she is willing to take and will be responsible for their own mistakes. O’Hare v Coutts was welcomed by financial advisers and their insurers as it represented a clear limit on the extent of the duty to advise.

In a similar vein, Denning v Greenhalgh confirms that the scope of a financial adviser’s duty is curtailed and will not extend beyond the express terms of the retainer except in very narrow and obvious circumstances.

Facts and the four corners of the retainer

Mr Denning had received financial advice from another firm (“the first advisers”) in 2000. By 2008 Mr Denning was unhappy with the first advisers and so he retained the defendant instead.  Importantly, although Mr Denning explained that he was concerned with the advice he had received from the first advisers, his instructions to the defendant to carry out a general review of his pensions arrangements were prospective.  Separately, Mr Denning made a complaint about the first advisers, which the ombudsman partially acknowledged, but ultimately rejected on the basis that it was out of time.  Mr Denning then brought this claim against the defendant, alleging that it had been negligent in failing to advise him of the possibility of, and time limit for, suing the first advisers.  Greenhalgh defended the claim on the basis that it was not under any duty to advise Mr Denning in relation to historical advice.

Finding for the defendant, the High Court concluded that only in very narrow and obvious circumstances will a professional adviser’s duty to advise go beyond that defined within “the four corners of the retainer”. For such an extended duty to arise, there must be a “close and strong nexus between the retainer and the matter upon which it is said that the professional should have advised” [3].

There were a number of reasons why this particular case did not constitute one of the very narrow and obvious cases in which any duty beyond the retainer might arise:

  • there is no such thing as a ‘general retainer’ – the terms and limits of a professional’s duty of care are determined by what he or she is instructed to do [4]
  • the retainer was prospective
  • Mr Denning did not ask the defendant to advise upon advice given by the first advisers
  • Mr Denning did not provide the defendant with relevant information and documentation pertaining to advice given by the first advisers
  • Mr Denning did not pay the defendant to advise upon advice given by the first advisers
  • there was no legal or factual connection between the instruction to review and advise upon present and future pensions arrangements, and an assessment of/advice upon historical advice
  • the advice which Mr Denning complained was not given by the defendant was not purely financial – it involved a knowledge of the law and limitation. It was therefore different in nature to the subject matter of the retainer, and might have been outside the competency of the defendant in any event.

WM Comment

This case adds clear weight to the fundamental principal that, when it comes to defining the scope of a professional adviser’s duty of care, the retainer reigns. The court will be loath to depart from the terms of a retainer and to imply an extended duty except in the most obvious of cases where the advice which is the subject of a claim is inherently linked, factually and legally, to the client’s express instructions.  Any claimant should therefore proceed with caution unless the advice (or lack thereof) complained of is very clearly caught by his or her contract with the professional [5].

Whilst Denning v Greenhalgh is likely to be welcomed by professionals and their insurers for its confirmation of the confines of professional’s liability, the key takeaway for advisers and their clients is that it is absolutely essential, for both parties’ protection, to ensure that the terms of the retainer are carefully drafted, clear and correct.

For any clients concerned about the suitability of advice that they have received, the case also highlights the dangers of delay when it comes to the investigation and issue of potential claims.

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[1] [2017] EWHC 143 (QB)
[2] [2016] EWHC 2224 (QB)
[3] Ibid paras 52 and 53
[4] Mehjoo v Harben Barker (a firm) [2014] EWCA Civ 358
[5] albeit noting, of course, that the terms of the retainer contract might be expressed in one clear document and/or they might form part of a chain of verbal or written correspondence between the parties

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