Camerata Property Inc v Credit Suisse Securities (Europe) Ltd (Rev 1)

A financial adviser’s informal discussions with a client may remain within the scope of an advisory agreement. The surrounding circumstances affect the standard of care, but do not by themselves displace the duty. Whether advice about an investment’s safety requires consideration of counterparty risk depends on the questions asked and their context. A general request for an impression about safety does not necessarily call for a detailed counterparty-risk assessment. Contractual exclusion of liability for ordinary negligence may be reasonable where it leaves liability for more serious fault. However, such a clause must be construed according to its wording, and contractual representations made for a specific purpose cannot automatically be used to defeat a different complaint about misleading advice.

Camerata purchased a structured note issued by a Lehman Brothers subsidiary through Credit Suisse Securities (Europe) Ltd under an advisory-service agreement. After the rescue of Bear Stearns, Camerata’s principal sought general views from the defendant’s relationship manager about the safety of the investment and whether it should be retained. Lehman subsequently entered bankruptcy, causing Camerata substantial loss.

Camerata claimed damages for breach of contractual and tortious duties, alleging that the advice should have addressed the issuer’s creditworthiness and counterparty-default risk. The issues included the scope of the advisory duty, contractual limitations and representations, breach, causation and loss.

1. Duty. The discussions took place within the context of the advisory-services agreement. Their informal setting and the personal relationship between the adviser and client did not displace the duty of care, although they were relevant to the standard of care and to the meaning of the questions asked.
2. Contractual terms. The exclusion clauses in section A, part 5, paragraphs 1.1 and 1.2 of the Terms and Conditions excluded liability for ordinary negligence and required conduct more serious than a failure to exercise proper skill and care. Gross negligence was a matter of degree and connoted serious disregard of, or indifference to, an obvious risk. The clauses satisfied the reasonableness requirement under the Unfair Contract Terms Act 1977.
3. The representations in section B, part 8 were directed principally to enabling Credit Suisse to make corresponding statements when subscribing for investments. They did not establish that the client had sufficient information so as to defeat a complaint that it had been misled into believing that it did. They did not assist the defendant in relation to advice about retaining an existing investment.
4. An adviser need not always remind himself of the identity of an investment’s counterparty before answering a general question about whether the investment is safe. The position depends on the precise question and context. A specific enquiry about counterparty default would ordinarily require the adviser to know the counterparty and address relevant information. No such specific enquiry was made here.
5. The adviser was negligent, and grossly negligent, in failing to familiarise himself with the client’s account-opening and contractual documents. That failure did not affect the advice actually given and therefore did not establish a breach causing loss. The general optimistic advice that the investments remained sound could properly have been given without predicting Lehman’s collapse or passing on the particular market material relied upon by Camerata. Expert evidence was required before the court could infer that the CDS movements, press reports or research showed that the advice fell below the required standard.
6. The claim failed. Camerata had not established negligence or gross negligence. In any event, they had not shown that proper advice would have caused a sale of the note before Lehman’s default. The claim was dismissed.