David Anderson v Openwork Ltd

This was an Appeal Case involving an unregulated guaranteed deposit which was not a designated investment and so not covered by the FOS. There were several interesting points covered, including whether advice or information Back to contents was provided, the adviser’s duty of care, the standard of duty required and whether there was a breach. Having established that the adviser had gone beyond simply providing information and given advice, the judgement centred on the duty of care and the standard of that duty.

The Judge referred to the Conduct of Business Sourcebook (COBS – the original breach occurred before COBS applied) in order to set that standard and Openwork challenged this on the basis it was greater than any common law duty. The Appeal failed and the client was awarded over £6,000. Perhaps more interesting and largely unreported was the nature of the failure of duty. This was a fully capital protected product but the client claimed that they were not warned of the risks, and had he been so informed would not have invested. To quote the Judge, “The only potential risk was that the investment might not perform as well as a high-street deposit account.” Yet this was enough to find a breach. In practice then, the loss occurred because the client received no interest, the ‘loss’ being the difference between what was repaid (essentially a return of capital) and the interest that would have been earned on a deposit account. It is not known whether this is, or will be, subject to further appeal.

Comment – It seems clear that the courts will apply similar standards to COBS when deciding the standard of advice involving non-designated investments. Firms involved with these types of investment should review their procedures for the advice and sale of these products in light of the judgement.

This is an extract from Change – the regulatory magazine, a CISI members’ benefit. The magazine is written and edited by Christopher Bond, Chartered MCSI, senior adviser to the CISI. This quarterly magazine covers the universe of financial regulation for retail and wholesale/capital markets firms, and for banks.