Al Sulaiman v Credit Suisse Securities (Europe) Ltd & Anor

Advisers recommending leveraged structured investments must take reasonable steps to ensure that the client understands the nature of the risks, including collateral requirements, margin calls and the consequences of failing to meet them. Suitability is assessed substantively by reference to the client’s objectives, risk tolerance, knowledge, experience and financial position. Where the investment is in fact suitable, a process failure does not itself establish loss caused by breach. The adviser may take account of clear documents supplied to an educated client, together with oral explanations and the client’s demonstrated understanding. Loss caused by an unforeseeable market collapse and the client’s deliberate refusal to provide available collateral may break the chain of causation and constitute a failure to mitigate.

The claimant alleged that Credit Suisse Securities (Europe) Ltd and Plurimi Capital LLP breached statutory, contractual and tortious duties when recommending leveraged structured notes. She contended that the defendants failed to explain that the notes were collateral for loans, that further collateral could be required by margin call, and that failure to meet a call could result in liquidation and substantial loss.

The claim that the notes were intrinsically unsuitable was abandoned. The central issues were whether reasonable steps had been taken to ensure that the claimant understood the risks and whether any breach caused the losses following the 2008 market collapse.

1. Claim dismissed. The defendants were not in breach of statutory, contractual or tortious duty.
2. Section 150 of the Financial Services and Markets Act 2000 made breach of the applicable COB or COBS rules actionable where loss was caused by the breach. The relevant duties required reasonable steps to ensure that the claimant understood the risks and that recommendations were suitable.
3. Suitability concerned substance rather than form. The assessment had to take account of investment objectives, risk tolerance, knowledge, experience and financial standing. If an investment was in fact suitable, a failing in the advisory process did not ultimately matter unless it caused loss.
4. The judge accepted the adviser’s evidence that the claimant had been told how leverage operated, how the notes secured the borrowing, and how margin calls and liquidation operated. The documents, including term sheets and leverage analyses, reinforced that conclusion. The claimant was educated, had substantial investment experience, had signed similar pledge documents with several banks, and understood the basic relationship between borrowing and security.
5. The applicable rules did not require an adviser to calculate or predict the probability or likely size of a margin call, or to investigate whether the client could meet every possible call. The defendants had nevertheless taken reasonable steps to ensure understanding and suitability.
6. In any event, the losses were not caused by any alleged failure to explain. The market collapse and change in lending ratios were unforeseeable. The claimant declined advice to sell further notes and deliberately failed to provide additional collateral, although she had sufficient assets to do so. That decision broke the chain of causation and, alternatively, amounted to a failure to mitigate.
7. Costs followed the event.