The claimants had been customers of the defendant bank since 2000. Following the sale of their business in September 2006 for £5m, their bank manager arranged an introduction to the defendant’s Mayfair banking service, which was the division providing banking services to ultra-high-net-worth individuals for the purpose of receiving advice regarding the investment of the proceeds. The defendant sought information about the claimants’ financial circumstances and asked a series of questions designed to identify their appetite and capacity for risk. The defendant then produced a report recommending that the claimants invest £700,000 into the Investment Portfolio Service (‘IPS’) described in the report. The aims and objectives of IPS were ‘to provide a positive total return with a medium risk of capital loss in the short to medium term’, and this would be achieved through ‘a broadly balanced proportions of low risk investments’. In January 2007, the claimants entered into an asset management contract with the defendant, and invested £700,000 in an investment portfolio (‘the portfolio’) with a balanced profile. The Lloyds’ terms and conditions stated that the defendant would be responsible on a continuing basis for managing the securities in the portfolio and that it would contact the defendants from time to time to check whether there had been changes in circumstances and requirements.
In January 2008, the defendant wrote to the claimants as part of its annual review, and advised them to notify it in the event that their circumstances and requirements had changed since the investments had been made. The claimants did not return the notification of changes form enclosed with the letter, but a review meeting was arranged for 13 March. At the meeting, it was recorded that the value of the portfolio had dropped to £675,712. The defendant advised the claimants to continue with the portfolio.
In Summer 2008, the portfolio was sold at the request of the claimants in order to discharge a large level of debt in the form of an overdraft held with the defendant bank which stood at £364,000. Upon the surrender of the portfolio, they received back a sum of £657,388.21.
The claimants brought proceedings against the defendant in 2013 on the basis of breach of statutory duty, breach of contract and negligence. They claimed that the defendant had failed to ensure that they knew the nature and risks of the investments. That had led to the incorrect identification of the investment profile as balanced when it should have been identified as low risk. The defendant had also failed to comply with its continuing contractual duty to correct its initial default by advising that it be transferred into a cautious profile, or advising that it be sold. When the defendant had carried out the yearly review in March 2008, it had failed to correct the incorrect risk assessment, and to ascertain that it was no longer appropriate. Had the defendant complied with its duty, it would have advised the claimants to disinvest, or convert the investment into one with a cautious profile.
The claimants were therefore entitled to recover damages equal to the difference between the value of the portfolio at the date of 16 March 2007 (which was the earliest date upon which any cause of action that was not statute barred could have accrued due to the continuing breach) and the value upon eventual sale. Alternatively, the defendant should have advised them at the annual review in March 2008 that they should disinvest and they would have done so, thereby entitling the claimants to damages equal to the difference between the value of the portfolio on that date and its value upon eventual sale.
- 1) The claimants had expressed a desire to invest in a portfolio with a balanced profile rather than a cautious or progressive profile. The evidence did not support the contention that the defendant had failed to take adequate steps to explain to the claimants the meaning and implications of such a profile, or to ascertain that their appetite for risk was properly to be understood as cautious.
- 2) The defendant was entitled to use standardised documentation for the purpose of explaining to its customers the nature of its products and the risks attendant on them. The documentation used by the defendant was clear and straightforward in its explanations of the risks involved in a balanced, as distinct from cautious, profile.
- 3) The evidence showed clearly that the claimants understood what they were getting and got what they wanted. Their desire for a medium risk investment with a balanced profile was shown by their stated investment objectives, their responses on the risk-assessment, their decision in the light of the reduced investment to eliminate the component of low-risk national savings, their instructions to proceed as recorded by Mr Doyle and on the risk and planning document, and their contentedness to ‘forget about’ the investment after it had been made because fluctuations were to be expected.
- 4) There was no continuing contractual obligation in respect of the initial investment advice. First, the original investment advice was not given under any contract, and if there were such a contract it would not generate any relevant continuing obligations. Second, the contract came into existence after the original investment advice was given. Third, a new contract came into existence after the original investment advice. The obligations under it did not impose an absolute duty to correct any earlier error in the original investment advice.
5) As to the claimants’ contention that the information available to March 2008 should have caused Mr Doyle to realise that the original assessment was inappropriate and that he should therefore have advised them to disinvest, there had been no change in the claimants’ attitude to risk at that meeting. In the circumstances it would have been inappropriate for Mr Doyle to make a personal recommendation for the sale or all or part of the portfolio in March 2008.