Rubenstein v HSBC Bank Plc

An investment adviser gives regulated investment advice when information is accompanied by a value judgment or selected so as to influence the client's decision. A request for a recommendation answered by naming a product is ordinarily advice unless there is an express disclaimer.

For a packaged product, suitability requires consideration of the client's needs, risks and alternatives. Describing a unit-linked fund as equivalent to cash and recommending it without examining a less risky fund breached the applicable Conduct of Business Rules and was negligent. However, damages still require causation and foreseeability. The exceptional run on the fund in 2008 was not foreseeable in 2005 and was too remote, so only nominal damages were recoverable.

The claimant invested £1.25 million in the Enhanced Variable Rate Fund within the AIG Premier Access Bond after discussions with an HSBC financial adviser. The fund was presented as an alternative to deposit accounts and as carrying a risk similar to cash held with HSBC. Following the collapse of Lehman Brothers in September 2008, withdrawals were suspended and the claimant suffered a substantial capital loss.

He alleged negligent advice, breach of contract and breaches of the regulatory Conduct of Business Rules. The central issues were whether the bank had provided advice rather than an execution-only service, whether the advice and regulatory breaches caused the loss, and whether the loss was foreseeable and recoverable.

1. Disposition. The claim for substantial damages was dismissed. The claimant was entitled to no more than nominal damages because the claimed loss was not caused by the negligent advice and was too remote.
2. Advisory relationship. Whether a service is advisory or execution-only depends objectively on what was said and done in context. There is no default presumption of execution-only status where the parties have not used that expression. A client asking for a recommendation who is directed towards a particular product will ordinarily have received advice unless the adviser has clearly disclaimed responsibility. Advice may acquire contractual force when the client later enters the transaction in consequence of it, even if the fee was not agreed before the advice was given.
3. Meaning of advice. Information becomes advice when accompanied by an opinion or value judgment about its relevance, or when selected through a value-laden process so as to influence the recipient. The court considered Martin v Britannia Life Limited (21/12/99 unrep.) and Walker v Inter-Alliance Group plc [2007] EWHC 1858, together with the FSA guidance, in formulating this approach.
4. Breach. The bank gave advice, not merely information. The EVRF was not the most suitable packaged product for money requiring the minimum possible risk; the SVRF was more suitable. The adviser also wrongly described the EVRF as equivalent to a cash deposit and failed to examine the alternative funds. Those matters constituted negligence and breached COB 2.1.3R, COB 5.3.5(2) and COB 5.4.3R. The bank also breached the procedural requirements applicable to limited advice.
5. Reliance, causation and remoteness. The claimant relied on the recommendation and would have invested in whatever the adviser recommended. A signed declaration that the literature had been read did not remove that reliance. The advisory duty extended beyond merely providing accurate information, but the loss resulted from the extraordinary financial crisis, the run on the fund and the collapse of the secondary market. Those events were outside the contemplation of the bank and a competent adviser in September 2005.
6. Statutory claim and alternatives. Breaches of COB actionable under section 150 of the Financial Services and Markets Act 2000 remained subject to causation, foreseeability and remoteness. If damages had been recoverable, the comparator would have been the investment the bank ought to have recommended. The claimant would not have been contributorily negligent, and the later ALICO payment would have been credited against damages.