Gestmin SGPS SA v Credit Suisse (UK) Ltd & Anor

An investment adviser must exercise reasonable skill and care when recommending an investment. The advice must be suitable for the client’s objectives, factually accurate and fairly presented. Where potential benefits are identified, material risks must not be omitted. Materiality depends on the circumstances.

A regulatory obligation does not automatically create an identical common law duty. The parties’ relationship determines whether a duty arises, although applicable regulatory rules may inform its content.

In commercial cases involving distant events, courts should generally give greater weight to contemporaneous documents and inherent probabilities than to confident oral recollection. Investment suitability requires qualitative assessment of relevant risks; counting the risk factors listed in a prospectus is inadequate.

Gestmin invested €11.15 million in shares in a company whose strategy involved mortgage-backed securities. The investment was recommended by Credit Suisse under an advisory relationship. Following a substantial fall in value, Gestmin claimed damages for negligent investment advice.

Gestmin alleged that the investment was inconsistent with its objectives, inherently unsuitable, induced by misrepresentation, inadequately explained and offered contrary to Portuguese securities law. Credit Suisse maintained that Gestmin had accepted high risk and low liquidity in pursuit of long-term capital growth.

The principal issues were the scope of Credit Suisse’s advisory duty, Gestmin’s investment objectives, the suitability and presentation of the investment, the alleged Portuguese law restriction and, contingently, the assessment of loss.

1. The claim was dismissed. Gestmin’s account-opening documents accurately recorded objectives of long-term capital growth, high risk tolerance and low liquidity needs. Contemporaneous evidence showed that those objectives remained in force when the investment was made. The investment was therefore consistent with Gestmin’s objectives, which changed only later when greater liquidity was required for industrial acquisitions.

2. Credit Suisse owed concurrent contractual and tortious duties to exercise reasonable skill and care when giving investment advice. Those duties included recommending suitable investments and ensuring that factual statements were accurate. Applying Green and Rowley v The Royal Bank of Scotland PLC [2013] EWCA Civ 1197, a regulatory obligation did not by itself create a co-extensive common law duty. The advisory relationship nevertheless meant that relevant regulatory standards could inform the required skill and care. COB Rule 5.4.3 of the FSA Handbook did not apply because Gestmin was an intermediate rather than a private customer.

3. An adviser who presents an investment’s potential benefits must ensure that the presentation is fair and not misleading through omission of material risks. Which risks require specific explanation depends on the context. Gestmin did not prove that any material risk requiring explanation had been omitted. Its proposed risk-warning case was also raised too late to be procedurally fair.

4. The alleged oral misrepresentations were not proved. They depended on recollections formed many years after the events and were unsupported by contemporaneous documents. In resolving such commercial disputes, the court should generally rely on documentary evidence and known or probable facts rather than the apparent confidence or honesty of recollection. The alternative suitability case also failed because merely counting prospectus risk factors did not provide a rational assessment of their significance for this client.

5. Under the Portuguese Securities Code, as proved, recommending shares in Portugal to a non-institutional investor did not itself establish an unlawful public offer. There was no evidence that the offer was addressed to unidentified recipients or more than 200 people.

6. Quantum did not arise. Applying Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, the appropriate valuation date would ordinarily be the earliest reasonable date when the claimant knew the material facts and could readily sell at fair value. The shares were never readily marketable, so loss would have been assessed at trial at €2,872,277. The alternative-profit claim was unproved; recovery for loss of use would have been limited to interest under section 35A of the Senior Courts Act 1985.

not stated in the judgment.