FML Timeline: Worthing v Lloyds Bank Plc

To print a complete version of this article, click the PDF on the top right. Facts

In January 2007, the Claimants sought advice from the Defendant about investing cash with the Defendant and subsequently invested £700,000 in an investment portfolio (the “Portfolio”) provided by the Defendant through its Mayfair Asset Management Service. The investment was surrendered at a loss in July 2008.

Prior to the Claimants investing in the Portfolio, the Defendant sought information about the Claimants’ personal financial situation, including by using standardised questions to determine their attitude to risk. The Defendant provided the Claimants with documentation setting out its assessment of the Claimants’ risk profile as medium-risk and its corresponding recommendation to invest in a medium-risk balanced portfolio. By the time of the first annual review meeting the Portfolio had reduced in value, nonetheless, the Defendant recommended that the Claimants continue with the investment. When the Claimants eventually surrendered their investment in the Portfolio they only received £657,388.21 instead of their original £700,000 investment.

Any claim in relation to the initial advice to invest in a medium-risk Portfolio was statute barred. The Claimants instead claimed for losses incurred from the continued provision of bad advice from the Defendant and from the advice to retain the investment given in a review meeting on 13 March 2008, when the Portfolio had already reduced in value. The Claimants claimed that they should have been advised at the outset that the Portfolio, as a medium-risk investment, was inappropriate for them as they only wanted to invest in low-risk investments, and that subsequently the Defendant ought to have either corrected its initial default (by amending the Claimants’ investment profile), or to have advised them to disinvest from the Portfolio. Furthermore, at the annual review meeting the Defendant should have re-assessed the Claimants’ risk profile and advised that the investment was no longer suitable. The Claimants sought to recover compensation for their losses on the basis that the Defendant had acted negligently, in breach of contract and in breach of its statutory duties under the Financial Services and Markets Act 2000 (“FSMA”) and the Conduct of Business Rules (replaced in November 2007 with the Conduct of Business Sourcebook, together referred to as the “COBS Rules”).

Decision

The claim was dismissed

It was held that the medium-risk Portfolio was a suitable investment for the Claimants when they initially invested in early 2007. The Defendant’s risk assessment had been a suitable method of assessing the Claimants’ attitude to risk, and had been properly applied. The Claimants “understood what they were getting and got what they wanted”. As a result, the Defendant had not made an error in advising them to invest in a medium-risk Portfolio and as such, there was no error for the Defendant to correct. Further, the Bank was entitled to use standardised documentation to explain its products and the corresponding risks to the Claimants. Even if the original advice had been incorrect, the Defendant was not under a continuing duty with regard to the original advice. The Defendant was under a duty to conduct the March 2008 review with reasonable care and skill and in accordance with the COBS rules and it fulfilled that duty. The contention that the Defendant failed to advise the Claimants that the Portfolio was no longer suitable for them due to their change in attitude to risk failed as their attitude to risk had not changed, and it was reasonable to advise the Claimants that no immediate decision should be taken to sell the Portfolio.

Noteworthy/ Novel points

The Claimants were not able to avoid the limitation bar to the claim regarding the original advice by casting the case as a continuing breach of the Defendant’s duty consisting of a failure to correct its earlier advice.

The Defendant had kept file notes of each meeting detailing the investment advice given and the Court put significant weight on these notes, highlighting the importance of keeping a thorough record when advising customers.