On 12 September 2012 the Court of Appeal handed down its decision in this case. It was an appeal by Mr Rubenstein (and a cross appeal by HSBC) against a decision of 2 September 2011 by HH Judge Havelock-Allan in the Bristol Mercantile Court.
Mr and Mrs Rubenstein sold their matrimonial home and Mr Rubenstein took HSBC’s advice as to where the sale proceeds of £1.25m could be deposited whilst they looked for a new home. Mr Rubenstein had been a long standing customer of HSBC. Mr Marsden, a financial adviser employed by HSBC, recommended they put the money into an AIG Premier Access Bond and selected the Enhanced Variable Rate Fund available within the bond as the most suitable investment. Worried about how secure this might be Mr Rubenstein sent the following email to Mr Marsden
“We cannot afford to accept any risk in the investment of the principal sum. Can you confirm what – if any – risk is associated with this product?”
Mr Marsden replied
“We view this investment as the same as cash deposited in one of our (i.e.HSBC’s) accounts”.
In fact the Enhanced Variable Rate Fund was not a cash fund at all but was a unitised money market fund which contained a risk to capital and which was closed after a run on it in September 2008 causing a significant loss to Mr Rubenstein. It was to guard against the risk of such a loss that Mr Rubenstein had sought the reassurance from the bank that his money would be safe.
At the trial Judge Havelock-Allan found all material facts in favour of Mr Rubenstein but awarded him only nominal damages on the grounds that the loss was caused, not by the incorrect advice he received, but by the turmoil in the financial markets following the collapse of Lehman Brothers in September 2008.
The Court of Appeal decision
The Court of Appeal has reversed that finding. It agreed that the adviser had been negligent and in breach of the Financial Services Authority’s Conduct of Business Rules by recommending an unsuitable investment to Mr Rubenstein, an investment which exposed him to the risk of market losses, while at the same time as misleading him by telling him that his investment was the same as a cash deposit.
The Court of Appeal held that it was the bank’s duty to protect Mr Rubenstein from exposure to market forces when Mr Rubenstein made it clear that he wanted an investment which was without any risk. Once Mr Rubenstein had been exposed to market forces the possible loss was both foreseeable and foreseen. The risk of loss, which it was the adviser’s duty to explain, was referred to in the product literature produced by AIG which referred to the “costs” which might accompany “selling assets prior to their intended maturity date”.
Lord Justice Rix held “Those losses or costs may have been unforeseeably high, but that is the nature of markets at a time of stress, and in any event that merely represents an unforeseeable extent of loss of a kind or type which is foreseeable.”
Mr Rubenstein was awarded agreed damages of £112, 543 and costs.
Mr Rubenstein was advised throughout by our specialist financial services litigation department acting under a Conditional Fee Agreement (“CFA”) granted by the firm and with After the Event insurance provided by First Assist Legal Expenses.
Paul Chapman said:
“This case highlights the problem that all too often banks and financial advisers do not understand the types of products and the risks inherent in such products which they are selling to the ordinary man in the street. The AIG Premier Access Bond and the Enhanced Variable Rate Fund was not suitable for a customer who wanted a cash investment. It simply was not a risk free cash product and this should have been understood by the adviser from the product information produced by AIG. It should never have been sold to a customer such as Mr Rubenstein who could not afford to risk any loss.
The Premier Access Bond was widely sold to high net worth individuals who were told as in this case that it was the equivalent of a cash deposit account. It could not have been further from cash. The Financial Ombudsman Service has upheld a claim in respect of this product and the FSA issued a Final Notice in respect of Coutts’ sales of it too.”
The AIG Enhanced Variable Rate Fund closed in September 2008, causing investors a loss in most cases of about 13%. It was a fund recommended to high net worth customers as a cash fund by a number of private banks and the wealth management arms of high street banks. Clarke Willmott LLP have represented and continue to represent a number of such investors.
For further information please contact Paul Chapman