Posted 13th December 2012

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Court of Appeal Case Turns the Tables on Financial Advisers

By Scott Simmons

The 2011 High Court case of Rubenstein v HSBC threw up an interesting point surrounding negligent advice and an investor’s subsequent loss.  In 2005, Mr Rubenstein had wanted to invest £1.25 million with his local branch of HSBC, but specifically said that he could not afford to accept any risk in the capital sum as the money would ultimately be used to buy a new home.  The HSBC adviser sent Mr Rubenstein a brochure for an AIG-related fund and confirmed that, in his opinion, the investment was as secure as cash deposited in one of the HSBC accounts.  Ironically, he ended with: “The risk of default is similar to the risk of default of Northern Rock”!

In 2008, the run on AIG occurred and, when Mr Rubenstein was finally able to withdraw his money, he received £180,000 less than his original investment.  Mr Rubenstein alleged that he had received negligent advice and, although the High Court agreed, it decided that his loss had been unforeseeable and too remote, and had been caused not by the negligent advice, but by the “extraordinary and unprecedented financial turmoil which surrounded the collapse of Lehman Brothers”.  As such, the loss was held to be outside the scope of the statutory duty of care and beyond the reasonable contemplation of the parties and Mr Rubenstein was awarded only nominal damages in contract.

The case recently went to appeal and Mr Rubenstein argued that his loss was caused by the very thing that he had wished to avoid: the risk of loss to his capital.  He claimed that he had no idea that he was exposed to market risk and that he wanted an investment without risk.  HSBC argued on two main fronts: that the loss was caused by an unforeseeable event; and that, at the time of the investment, the fund would have been regarded as without risk.

The Court found that it was the Bank’s duty to recommend an investment that protected Mr Rubenstein from market risk and since the cause of loss was market risk, the Bank could not argue that the loss was too remote.   According to the Court, an investment loss caused by adverse market movements, including a loss of confidence, affecting securities was not an unforeseeable event.

This case will be a real wake up call to investment advisers, particularly where they make recommendations to those customers who are not familiar with investment markets.  Advisers will have to consider their advice carefully when selecting products for clients because, even though events as unprecedented as the recent credit crisis are not in themselves foreseeable, the impact of market forces are.


For more information contact Scott Simmons on 01423 789 888 or

The information contained in this article is intended for guidance only and is not intended to provide specific legal advice to you or your business. Expert advice on any issue should always be obtained. Newtons Solicitors Limited does not accept liability for any loss that may arise from relying on or using the information contained in this article.