IN THE GUILDFORD COUNTY COURT
On Appeal from the County Court at Slough
Claim No: 3YQ75285
Mary Road, Guildford, GU1 4PS
HH JUDGE RAESIDE
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Peter Dodge (instructed by Wixted & Co) for the Claimant/Respondent
Gerard McMeel (instructed by DAC Beachcroft) for the Defendant/Appellant
Hearing date: 22nd May 2015
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1. This is an appeal from District Judge Parker sitting in Slough County Court. The case was one which had been allocated to the Fast Track, and which District Judge Parker heard on 14 January 2015. His reserved judgment was handed down on 20 February 2015. The judgment is in the bundle at tab 14 page 203. The Order being appealed against is dated 20/2/ 2015 (tab 13) and awards damages to the Claimant against the Defendant in the sum of £6144 being made up of £5459 damages and £685.59 interest (wrongly described as ‘debt’ in the order). The Appellant is represented by Mr McMeel and the Respondent by Mr Dodge. Both appeared below and both have filed helpful skeleton arguments.
2. HH Judge Harris QC granted permission to appeal by Order dated 22nd April 2015.
3. The Test to Apply
In considering whether to allow an appeal, the Court is governed by CPR 52.11 which provides:-
“(3) The Appeal Court will allow an appeal where the decision of the lower court was –
(a) wrong; or
(b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court.”
4. The Background
The background to this case is set out in the judgment of the District Judge. Put shortly, Mr Anderson sues a financial adviser Mr David Brameld in respect of Mr Anderson's purchase of a Newcastle Guaranteed FTSE Bond ("the Bond"). Mr Brameld is a partner in Rutherford & Co which is part of a network of financial advisers working under the title of Openwork Ltd. It is accepted therefore that Mr Brameld is an agent of the Defendant. Mr Anderson purchased the Bond in September 2005. It is Mr Anderson's case that Mr Brameld recommended the Bond to him, and advised him to purchase it, when it was not in fact suitable for his needs.
5. The District Judge found the following (inter-alia):-
(i) That Mr Anderson had not proved a negligent mis-statement in respect of the Bond;
(ii) That the Bond was a ‘structured deposit’ as defined in the FSA handbook and Conduct of Business (‘COB’) Rules and was therefore not a ‘designated investment’ under those rules. Therefore the COB rules do not directly apply.
(iii) As a matter of fact, that Mr Brameld had advised Mr Anderson in respect of the Bond.
(iv) That in considering the extent of the duty of care that was owed, consideration should be given to the standards imposed by the COB rules, in particular:-
i. the duty to ensure that relevant information was known about the client;
ii. to take reasonable steps to ensure that the product was suitable for the client; and
iii. to take reasonable steps to ensure that the customer understood the risks in the investment.
(v) Breach – the District Judge found that the Defendant had satisfied duty (i) above but had breached duty (ii). He did not directly deal with whether there had been breach of duty (iii).
(vi) That the judge found causation proved i.e. that Mr Anderson would not have invested in the Bond but for the recommendation given by the Defendant;
(vii) Loss: that the Claimant had suffered a loss quantified by the expert as being £5459;
(viii) That the limitation period for claiming damages for negligence arose at the date of knowledge of the cause of action which the District Judge found to be the date of maturity of the Bond i.e. 12/12/10.
(ix) That in those circumstances the claim was not statute barred under the Limitation Acts.
6. Grounds of Appeal
The grounds of appeal are to be found at page 229 of the bundle. Out of an abundance of caution the Respondent has filed a Respondents notice (Grounds for Upholding the Order).
7. Before turning to the grounds of appeal it is useful to consider in particular one authority which is relied upon by the Appellant: Green v The Royal Bank of Scotland  EWCA Civ 1197. A brief analysis of this case will mean that the matters raised in the Appellant’s Notice can be more shortly dealt with. In the Green case the Claimants were sold an interest rate swap to hedge against their liabilities to the bank. Under section 150 of the Financial Services & Markets Act 2000, contravention of the COB rules gave the Claimants an action for breach of the rules, but this claim was abandoned on the basis that it was statute barred under the Limitation Act. The Claimants sued in negligence, arguing that there was a common law duty of care co-extensive to that imposed by statute "where a bank undertaking a regulated activity had failed to comply with a statutorily imposed regulation" and where failure was likely to cause loss.
8. The Claimants were unsuccessful both at first instance before HH Judge Waksman QC and before the Court of Appeal: to quote from the head note, where the Act
“provided an express cause of action for breach of statutory duty where a bank was undertaking a regulated activity, there was no need or justification for the independent imposition of a duty of care at common law on the bank to advise as to the nature of the risks inherent in the regulated transaction; that… the COB rules (did not provide) any evidence as to the assumption of a duty of care to advise or as to the appropriateness of imposing such a duty since both rules imposed statutory duties which were owed by firms which were in a non-advisory or execution only relationship with their counterparty as well as by firms which had undertaken an advisory role; that the bank had not crossed the line which separated the activity of giving information about and selling a product and the activity of giving advice; and that, accordingly, the bank did not owe to the claimants a common law duty of care which involved taking reasonable steps to ensure that they understood the nature of the risks involved in entering into the swap transaction.”
9. It can be seen that the Green case was concerned with a situation where there was an express finding that the bank had not "crossed the line" and given advice; it had merely supplied information. There was no "advisory duty of care assumed". Further this was a case where an express statutory duty applied since the bank was undertaking a regulated activity.
10. Mr Dodge points out a more important distinction in regard to that case which is this; in the Green case there was no pre-existing common law duty of care between the bank and the Claimants: the bank simply provided information to the Claimants and provided that the information was not misleading (giving rise to a Hedley Byrne cause of action) then there was no duty of care.
11. It was in that context that Tomlinson LJ (giving the judgment of the court) considered whether the existence of the statutory cause of action, albeit time-barred , gave rise to a co-existing common law duty of care (beyond that of negligent mis-statement). Paragraphs 23 and 24 make it clear, in my view, that the Green case is considering the issue of whether a common law duty arises when a statutory duty is imposed. The Court clearly decided that it does not:- "There is no feature of the situation which justifies the independent imposition of a duty of care at common law to advise as to the nature of the risks inherent in the regulated transaction". (Paragraph 23).
12. This is in direct contrast to the case with which I am concerned where, the Judge having found that the Defendant advised the client, the duty of care arose at common law (and was not regulated by statute).
13. Further, the proposition that had the bank undertaken an advisory duty, the content of that duty would have been in part informed by the COB Rules was accepted and it was recognised that such an approach had been adopted in a series of cases where there was a co-existing statutory and common law duty. Tomlinson LJ quotes from Beatson J in Shore v Sedgwick Financial Services Ltd  PNLR 244 para 161 with approval:-
"It is common ground that [the financial advisers] owed [ the claimant] a common law duty to act with the skill and care to be expected of a reasonably competent financial adviser. In determining the extent of this duty, it is useful to start with the requirements of the relevant regulatory regime, in this case the SIB [ Securities and Investments Board] principles and the IMRO [Investment Management Regulatory Organisation] rules. This is because the skill and care to be expected of a reasonably competent financial adviser ordinarily includes compliance with the relevant regulatory rules."
14. The Grounds of Appeal.
I turn now to the grounds of appeal. Mr McMeel summarised them as follows:-
1. That there is no need for a common law duty of care in circumstances where Parliament has devised the remedy – relying in particular on Green.
In the alternative
2. If there is a duty of care, then the District Judge has applied the wrong standard; by introducing the COB rules he has imposed a much higher standard than at common law.
In the alternative
3. That there was no evidence from which the District Judge could find that there had been a breach of duty.
These are somewhat at variance from the grounds in the Appellant’s notice but Mr Dodge was able and willing to deal with them, and overall, the same points were covered in a somewhat different order.
15. Ground 1: No Duty of Care
Mr McMeel argues that in holding that the Appellants have become advisers rather than simply providers of information, the District Judge has not made a simple finding of fact, but that the question is in fact one of law or one of mixed fact and law. He relies on the case of South Australia Asset Management Corp v York Montague Ltd  AC 191 as authority for this proposition.
16. Mr McMeel argues that Green is authority for the proposition that a duty of care cannot subsist where there is a statutory duty that has been put in place to deal with more complicated investments; and that it is wrong to apply such a high standard of responsibility to advisors who are dealing with such basic investments as this Bond. He argues that the factual matrix on which the District Judge based his findings were not ones which can have given rise to such duty; he further argues (at paragraph 21 of his skeleton) that the District Judge misunderstood the decision in Green in that he applied the COB rules to this simple and straightforward investment.
17. Mr Dodge points out, in my view correctly, that:
(i) The finding that Mr Brameld gave advice is a finding of fact;
(ii) That there was ample evidence on which the judge could make such a finding given that the judge found that Mr Brameld had advised Mr Anderson in the past, had made qualitative expressions in relation to the product, and failed to make it clear that he was not giving advice (contrary to rule 12.6.6 of the FCA rules).
(iii) That the decision in the South Australia case (supra) can be distinguished – that was a case dealing with the scope of the duty of care in relation to valuation evidence. My analysis of that case is that it was not argued in that case that no duty of care arose; the issue was the extent of the duty of care and therefore the extent of the liability for losses. Lord Hoffmann (at page 214) specifically draws a distinction between someone under a duty to provide information and someone under a duty to provide advice. I do not understand him to be saying that that issue is ultimately not one of fact.
(iv) That the decision in Green is primarily concerned with the situation where there was no pre-existing common-law duty outside Hedley Byrne; (no advice given, information only given in relation to a regulated product) and that the Appellants in that case unsuccessfully sought to impose a duty solely arising from the statutory duty. The situation is different here - there was no statutory duty in these circumstances, but, given the finding that the Appellant gave advice, a duty arose at common law in relation to that advice. The District Judge did not misunderstand nor misapply Green – Green is not authority for excluding a duty arising in these circumstances.
18. I accept and adopt Mr Dodge’s arguments. I do not accept that the District Judge was wrong in finding that a duty of care at common law arose in the circumstances where the Defendant’s agent gave advice in relation to an unregulated product. This ground of appeal does not therefore succeed.
19. Ground 2: The Standard of duty.
20. The District Judge considered that the following COB rules should be taken into account in considering the standard of care to be applied:-
“Before a firm before a firm gives a personal recommendation concerning a designated investment to a private customer, or acts as an investment manager for a private customer, it must take reasonable steps to ensure that it is in possession of sufficient personal and financial information about that customer relevant to the services that the firm has agreed to provide."
"A firm must take reasonable steps to ensure that, if in the course of designated investment business (a) it makes any personal recommendation to a private customer to buy, sell, subscribe for or underwrite a designated investment the advice on investments or transaction is suitable for the client."
"A firm must not (1) make a personal recommendation of a transaction with, to or for a private customer unless it has taken reasonable steps to ensure that the private customer understands the nature of the risks involved."
21. Mr McMeel argues that in drawing on the standards imposed by the COB to define the standard imposed, the District Judge has:-
(i) Misapplied Green;
(ii) Imposed a wider obligation on financial advisers than Parliament intended;
(iii) Exposed financial advisers to obligations far wider than the regulatory scheme intended;
(iv) Applied regulations intended for complex investments to more basic financial products.
22. Mr Dodge correctly, in my view, points out that the District Judge has not used the COB rules to define the standard of care; he has simply and understandably made reference to them in considering the duty to be applied here. In so doing he applied Green and the cases referred to in paragraph 18 thereof as authority for the proposition that the starting point should be compliance with the requirements of the regulatory regime:-
“…the Judge was prepared to recognise that, had the bank undertaken an advisory duty, the content of that duty would have been in part informed by the content of COB 2.1.3R and COB 5.4.3R. That approach has been endorsed on at least four occasions by first instance judges, the first of them Judge Raymond Jack QC putting it pithily in Loosemore v Financial Concepts Lloyd’s Rep PN 235, 241 where he pointed out that the skill and care to be expected of a financial adviser would ordinarily include compliance with the rules of the relevant regulator….”
23. Furthermore, the duties which the District Judge applied (‘know your client’, ensure the suitability of the product, and ensure that the client understands the risks) are no more than basic duties which common sense dictates should be applied to any financial advisory situation: they are not unusual or esoteric; indeed it would be a strange toothless duty of care if advice was given, yet these obligations excluded.
24. Mr Dodge also draws the important distinction between this case and Green: that in this case there is no co-existent duty of care imposed by Parliament or by the Regulators. Indeed, this non-regulated advisory role is excluded from the statutory scheme. It is therefore most distinctly not the case that the District Judge, in looking to the regulations to inform him of the scope of the duty, was somehow undermining the statutory scheme.
25. I reject the argument put forward by Mr McMeel and I find that the District Judge was correct (and following authority) by having regard to the Code of Conduct and Regulations in coming to a view as to the scope of the duty of care. I consider that the District Judge was correct when he said the following at paragraph 65:-
“It appears to me that these are all aspects of the common law duty of care. It is difficult to see how reasonable skill and care could be taken in giving advice about a financial product without the essence of those rules being satisfied.”
The Appeal is therefore dismissed on this ground.
26. Ground 3: No Breach
Turning then to the third ground of appeal Mr McMeel argues that there was no evidence on which the District Judge could make a finding of breach of duty. Mr McMeel correctly points out that at paragraphs 66 to 75 of the judgment the District Judge considers the issue of breach: at paragraph 66 the District Judge appears to accept that there was no breach of the duty to ‘know your client’: he specifically finds that in 2005 Mr Brameld was aware of Mr Anderson's overall financial position, in particular he knew that Mr Anderson had a very limited understanding of investments and was conservative in his aims.
27. At paragraphs 67 to 75 the District Judge considers the question of whether reasonable steps were taken to enable Mr Anderson to understand the nature of the risks involved. The District Judge found that:-
“Had Mr Anderson been advised about the risks involved with the Bond, he would have put his money in a conventional deposit account instead."
28. The District Judge does not deal with whether there has been a breach of the obligation to ensure suitability of the product. The only finding of breach therefore is in relation to the obligation to take reasonable care to ensure that the customer “understands the nature of the risks involved".
29. Mr McMeel relies on the fact that Mr Anderson was provided with a document at pages 131-132 to evidence that reasonable steps were taken to ensure that he understood the risks involved. Mr McMeel further argues that this was “a zero risk" product, because there was no risk to Mr Anderson's capital. The only potential risk was that the investment might not perform as well as a high-street deposit account. Mr McMeel is critical of the District Judge for relying (at paragraph 69) on the expert’s report on the issue of the standard of care to be applied if the COB rule 5.4.3 did apply: the expert is of the view that a reasonably competent advisor should have shown Mr Anderson a comparison of the impact of the FTSE 100 performance as against the rates achievable on deposit. Mr McMeel argues that it was impermissible of the District Judge (at paragraph 71 to 72) to rely on this evidence because the evidence was only applicable if the judge made a finding that the COB rules did not apply.
30. Mr Dodge argues that the District Judge correctly considered the issue of risk in the context of the facts as he found them. The District Judge accepted that Mr Anderson was risk averse and would not contemplate any investment which placed his capital at risk. He quotes (at paragraph 74) Mr Anderson's witness statement, describing the Bond as being “a risky product". He finds (at paragraph 75) that Mr Anderson "would have preferred straightforwardly to avoid all forms of risk.” The Judge concludes by saying:
"I therefore conclude… that if Mr Anderson had been advised about the risks involved with the Bond, he would have put his money in a conventional deposit account instead."
31. Mr Dodge argues that the District Judge was perfectly entitled to draw on the evidence from the expert witness as to what would have been expected from an adviser who was complying with the provisions of COB 5.4.3R: and that it is simply common sense to draw on the available evidence as to the standard to be expected of a reasonably competent professional giving advice.
32. Mr Dodge also points out the fact, as found by the judge, that the documents provided to Mr Anderson (pages 131-132) were not intended for customers’ use, but were Information Sheets designed for those giving information to customers: the Judge accepted (paragraph 18) that this Introductory Document was “for advisers use only" and that Mr Anderson had never received the full details about the operation of the Bond that was intended for customers (paragraph 19 of the judgment).
33. An examination of the judgment shows that the District Judge, having found that the duty of care existed in terms that were the same as COB 5.4.3, then considered the question of what was meant by “risk" in this context, and the attitude of the Claimant to that “risk". He considered the opinion of the expert that had COB 5.4.3 applied directly, there would have been a breach by the adviser for failing to explore the likelihood of the FTSE over- or under-performing the high street bank deposits; and he came to his own view that if Mr Anderson had had the benefit of that analysis, he would not have invested in the Bond.
34. The Appellant has not demonstrated that the District Judge was wrong on any of these issues as a matter of fact or law. The District Judge was entitled to make the findings as to what constituted risk in this context, as to the Claimant’s attitude to that risk and as to the standard that could reasonably be expected of someone giving advice in those circumstances exercising reasonable skill and care. He was entitled to find as a fact that the breach caused the loss to occur. Mr McMeel has failed to make out this third ground of Appeal.
Overall, with the exception that it would have been helpful for the District Judge to consider whether there was a breach of the duty to ensure that the investment should be suitable, I consider that the judgment is a carefully and fully considered decision and that there are no grounds on which the District Judge should be overturned.
36. I reject the suggestion that this case involves a major point of principle. The facts are unusual in that the District Judge found (as he was fully entitled to do) that Mr Brameld had gone beyond simply giving information in relation to this product, and gave Mr Anderson advice. In doing so he was opening himself up to higher obligations than in most transactions of this type, and sadly he failed to meet those obligations. I do not see that this is a test case: it is simply a rather unusual set of facts.
37. Having been sent this judgment in draft, Counsel and the parties have agreed that the Order will simply provide that the Appeal is dismissed with the Appellants to pay the costs of and incidental to the Appeal.
Her Honour Judge Raeside
Guildford County Court
18th June 2015