Camerata Property Inc v Credit Suisse Securities (Europe) Ltd (first action)

The claimant purchased a five-year structured "Autoredemption Note in USD Bearish on Eur/USD" issued by a Lehman group entity and lost most or all of its investment after Lehman failed. The claim alleged negligent and contractual breaches by Credit Suisse Securities (Europe) Ltd (CSSE) through its relationship manager, Mr Siakotos-Konstantinidis, in failing to advise Camerata to sell the Note before Lehman's collapse.

The court held that CSSE and the relationship manager owed advisory duties governed by the parties' contractual terms and by the ordinary law of negligence, but that the contractual terms limited liability for fault below the level of "gross negligence". The judge construed those terms (including the client risk documentation, the Acceptance Booklet, the detailed Representations and Warranties for Notes and the Notices and Warnings) and held that representations in the contract could not be used as a shield to defeat a complaint about advice given in different circumstances.

On the facts the judge found that the claimant had not proved that the adviser was guilty of gross negligence (or even ordinary negligence that caused loss). The adviser had been careless in failing to read client account-opening documents, but that failure did not make his market advice negligent in a way that caused loss. The claimant did not in fact ask specific questions about counterparty default risk and the adviser’s optimistic views about market prospects were within the range of reasonable responses in the circumstances. The claim was dismissed.

Background and parties:

• The claimant, Camerata Property Inc, invested US$12 million in a five-year structured "Autoredemption Note" (the Note) in July 2007. The Note was issued by a Lehman group company. After Lehman’s insolvency in September 2008 Camerata suffered heavy losses.
• Camerata received advisory services from Credit Suisse Securities (Europe) Ltd (CSSE); their relationship manager was Mr Petros Siakotos-Konstantinidis.

Nature of the claim: Camerata alleged negligent and contractual breaches by CSSE in oral advice given between March and September 2008, contending that, if properly advised about issuer/counterparty risk, they would have sold the Note before Lehman’s failure.

Issues before the court:

• What advice (if any) did the client ask for between March–September 2008 and how did the adviser respond?
• What duties did CSSE owe (contractual and tortious) in relation to that advice?
• Whether CSSE breached any such duties and, if so, whether breach caused loss and, finally, whether contributory negligence arose.

Court’s findings and reasoning:

• Contractual framework: the Advisory Service was governed by the Acceptance Booklet and lengthy Terms & Conditions which contained extensive risk warnings, a clause implying the Supply of Goods and Services Act 1982 standard (reasonable skill and care) and provisions (Part A paras 1.1–1.2) limiting CSSE’s liability except for gross negligence, fraud or wilful default. The judge construed "gross negligence" as connoting something more serious than mere lack of reasonable care.
• Implied and tortious duties: the court accepted that, subject to the governing terms, a duty of care would arise when CSSE actually gave advice. The context and informality of many conversations between adviser and client did not exclude the contractual advisory relationship.
• Representations and warranties: detailed client representations in Section B Part 8 (e.g. that the client was a "sophisticated investor" and had undertaken an independent review) were intended primarily to enable CSSE to make subscriptions on the client’s behalf and could not be relied on by CSSE to defeat complaints about subsequent oral advice.
• Evidence and credibility: the judge made detailed credibility findings. He accepted that the claimant was risk-averse in paperwork though becoming interested in higher-yield products; he criticised the adviser for not reading client documents and for giving some untruthful evidence, but did not find that the adviser had given advice that amounted to gross negligence.
• On the core factual question the judge found that the client did not ask specific questions about counterparty default risk and that the adviser’s general optimistic views about market prospects and the Note were within the range of reasonable opinion. The court also noted the absence of expert evidence on the significance of credit-default-swap spreads and historical market data which limited what could be inferred about market perception of Lehman’s credit risk.
• Because the claimant failed to show negligent (or grossly negligent) advice which caused it to retain the Note, causation and quantum were not established.

The claim is dismissed. The judge found no actionable breach by CSSE: although the relationship manager was negligent in failing to read client account documentation, that failure did not make his market advice negligent in a way that caused loss; the claimant did not ask specific questions about counterparty default risk and the adviser’s responses lay within the range of reasonable opinion. The contractual terms limited liability for fault below the level of gross negligence and the claimant did not prove gross negligence or causation.