30th October 2011

They do not like it up 'em Sir.

I was somewhat amused to read that a British business woman will stand trial in Portugal this week for defaming a lawyer by making a formal complaint about him to his regulator.

The woman in question faces a nine-month prison sentence if found guilty. Clearly in Portugal those who have claims made against them that may be false can fight back, but how TCF is that?

Regulatory accountability is an interesting subject, especially as those who regulate seem to have a great reluctance to be subject to the levels of accountability they impose upon those they regulate.

So it was with some interest that I read Peter Turner’s observations made in our forum in response to the commentary on “No blame but pay the claim”

Peter wrote, “I have just been looking (for the umpteenth time) at South Australia Asset Management Corporation v York Montague Ltd case. 

This was dealt with in the House of Lords in the 1990s and dealt with the issue of causation. 

In paragraph 18 he says, "Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences, which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate." 

He uses an example in paragraph 19: "A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee." 

In paragraph 20, he says, "20. On the Court of Appeal’s principle, the doctor is responsible for the injury suffered by the mountaineer because it is damage, which would not have occurred if he had been given correct information about his knee. He would not have gone on the expedition and would have suffered no injury. On what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctor’s bad advice because it would have occurred even if the advice had been correct." 

This point is important because what Lord Hoffman is saying is that redress should be based only on those losses attributable to the negligence. If it is caused by something that could not reasonably have been anticipated (for example the failure of Lehman Brothers or that a crook would run off with Keydata customers' money) that is NOT something which a professional should be liable to redress”. 

In paragraph 22, Lord Hoffmon goes to say 

"I would suggest, think that there was something wrong with a principle which, in the example which I have given, produced the result that the doctor was liable. What is the reason for this feeling? I think that the Court of Appeal’s principle offends common sense because it makes the doctor responsible for consequences which, though in general terms foreseeable, do not appear to have a sufficient causal connection with the subject matter of the duty. The doctor was asked for information on only one of the considerations which might affect the safety of the mountaineer on the expedition. There seems no reason of policy which requires that the negligence of the doctor should require the transfer to him of all the foreseeable risks of the expedition. " 

I like the expression "offends common sense". It seems to sum up the FSA's position”!

And that is so much of the problem in regulation today, common sense on the part of the regulator, sometimes the consumer and even the occassional IFA is frequently lacking when frozen in the headlights of complex processes.

Common sense should be an acceptance that sometimes I am the architect of my own misfortune.

It is a fact that intelligence and common sense are not easy bedfellows and sometimes the brightest of minds do things that lesser mortals would find plain stupid.

In the case of the FSA it is an organisation that has some brilliant minds and does some good work that may not often be appreciated. But perhaps the complications and complexities of regulation and the burden it places on firms large and small is caused by the fact that too much time is spent on the complex formation of rules, processes and reporting to emphasize or justify their own importance, existence and intelligence and not enough on listening and using plain common sense.

Discuss.

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