Published: 26 October 2017
The tooth, the whole tooth and nothing but the tooth
Most of us seek professional advice because we do not have the expertise to deal with an issue ourselves.
When pursuing any course of action there are often hidden risks and pitfalls that we hope the advisor will identify and thereby help us avoid.
However, the circumstances in which a professional comes under a duty to advise as to the existence of such ‘hidden risks and pitfalls’ can often give rise to difficult issues. The extent of the duty to advise is of fundamental importance. If no duty is owed there can never be a claim in negligence even if the unidentified ‘hidden risk’ subsequently materialises and results in things going very badly wrong.
When considering the extent of ‘the duty owed’ the starting point is always to look at what the advisor was actually asked to do. However, this can never be the complete answer because the client is often unaware how he/she should best proceed, and this inevitably impacts on the scope of the instructions given.
In this context reference is often made to the dentist analogy used in a well known professional negligence case from 2002 (Credit Lyonnais SA v Russell Jones Walker 2002 [EWHC 1310]). If a dentist is asked to replace a lost filling in a tooth and during the treatment notices that the adjacent tooth also needs to be refilled then the patient must be advised accordingly. It does not matter that the dentist was only asked to treat the tooth with the known defect.
This principle fell to be applied in a recent case (Denning v Greenhalgh Financial Services Limited 2017 [EWHC 143]) where we acted for Mr D who pursued a claim in negligence against his former Independent Financial Advisors (‘IFA’).
The case highlights
Mr D had sought advice because his pension investments were not performing well. He told his new IFA that his previous IFA had not monitored the investment returns being achieved properly and as a consequence his pension was not on track to produce the expected retirement income.
Unbeknown to Mr D, the real issue was not the lack of monitoring but the fact that the original IFA has advised him to transfer his pension out of a final salary scheme into a private pension plan. The former offered a guaranteed income in retirement whereas the income received under the latter depended on stock market performance.
Mr D’s case was that his new IFA should have advised him to investigate whether or not he had been properly advised in connection with the transfer of his pension out of the final salary scheme. Reliance was placed on the dentist analogy, set out above, because it was argued that all IFAs are, or should be, aware that it is usually not in a client’s best interests to leave a final salary pension scheme.
The Judge rejected his argument basing his decision on what the new IFA had been asked to do, namely to give advice in connection with how best to maximise the income generated by the funds invested in the private pension plan. As the new IFA had not been instructed to review or consider the merits of the historic advice to transfer Mr D’s pension out of the financial salary scheme he was under no duty to consider and/or advise as to whether or not such advice might have been negligent.
By analogy with the dentist case the Court in effect held that the other defective tooth was neither adjacent or had an obvious defect. On the facts the decision was harsh bearing in mind Mr D had only been exposed to the vagaries of the stock market because he was no longer a member of the final salary scheme, and the cause and effect in this regard was something that we argued should have been obvious to the second IFA.
Each case, of course, turns its own facts. However, the decision emphasises that where a client transfers instructions from one professional to another because he/she is dissatisfied with historic advice then the new advisor should be expressly asked to review all aspects of that advice.