Bampton v Rust & Anor

A professional practitioner gives financial advice when recommending a client or prospective borrower as suitable for lending, even if the practitioner does not identify the borrower or describe the communication as advice. Such a recommendation implicitly represents that the investment has been carefully considered, that the investor’s needs have been considered, and that the investment objectively meets those needs. Where the practitioner knows that the proposed borrower’s financial position has materially deteriorated, permitting further lending without warning the client of the scale of the indebtedness constitutes a breach of duty.

The claimant advanced £534,213.79 to companies within the Five Anchors Group after dealings with the first defendant, his accountant, and the second defendant firm. The group later became insolvent. The claimant alleged that the defendants had negligently advised him to lend and had made dishonest or negligent representations about the transactions.

The defendants denied giving investment advice and contended that any advice came from another company. The court therefore had to determine whether advice or representations had been given, whether the defendants breached contractual or common-law duties, and whether deceit was established.

1. Advice and recommendation. The court found that the first defendant had given investment advice. Telling the claimant that a client was suitable to receive his money amounted to a recommendation, regardless of whether the borrower was named or the communication was described as advice. The evidence concerning other clients also supported that conclusion.
2. Applicable standard. Where a financial practitioner recommends an investment as suitable, the recommendation carries implicit representations that the nature of the investment and the investor’s needs have been carefully considered, and that the investment objectively meets those needs.
3. Breach. By 2002 the financial position of the relevant companies had deteriorated so substantially that continued lending was highly imprudent. The first defendant knew of those problems through his close involvement with the group and could not properly treat them as temporary cash-flow difficulties. In permitting further loans and failing to warn the claimant of the scale of the indebtedness, he breached the duty owed to the claimant as client. His close connection with the borrower and personal lending to it aggravated the breach.
4. Other matters. The claimant’s criminal convictions were relevant to credibility but were not determinative of the civil claim. The statutory provisions relied upon did not materially add to the common-law claims. The court accepted that the loans were made to the UK company rather than the international company.
5. Disposition. The claims in negligence and deceit succeeded against both defendants. Judgment was entered for the claimant for £534,213.79.