Camerata Property Inc. v Credit Suisse Securities (Europe) Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Flaux J |
| Judgment Date | 20 January 2012 |
| Date | 20 January 2012 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Flaux J.
Francis Tregear QC and Andrew Thomas (instructed by Thomas Cooper) for the Claimant.
Adrian Beltrami QC (instructed by Allen & Overy LLP) for the Defendant.
The following cases were referred to in the judgment:
Aldi Stores Ltd v WSP Group plcUNK [2007] EWCA Civ 1260; [2008] 1 WLR 748.
Barrow v Bankside Members Agency Ltd [1996] CLC 413; [1996] 1 WLR 257.
Camerata Property Inc v Credit Suisse Securities (Europe) LtdUNK [2011] EWHC 479 (Comm); [2011] 1 CLC 627.
Dexter Ltd v Vlieland-BoddyUNK [2003] EWCA Civ 14.
Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch).
Henderson v HendersonENR (1843) 3 Hare 100.
Hughes v RichardsUNK [2004] EWCA Civ 266; [2004] PNLR 35.
Johnson v Gore Wood & CoELR [2002] 2 AC 1.
Portman Building Society v Bevan AshfordUNK [2000] 1 EGLR 81.
R v Secretary of State for the Environment, Transport and the Regions, ex parte
Spath Holme LtdELR [2001] 2 AC 349.
R&B Customs Brokers Co Ltd v United Dominions Trust LtdWLR [1988] 1 WLR 321.
South Australia Asset Management Corp v York Montague Ltd [1996] CLC 1179; [1997] AC 191.
Thoday v ThodayELR [1964] P 181.
Titan Steel Wheels Ltd v Royal Bank of Scotland plcUNK [2010] EWHC 211 (Comm); [2012] 1 CLC 191.
Banking — Negligence — Investment advice — Mis-selling — Investment in structured products — Five year note issued by Lehman Brothers entity — Loss of investment when Lehman Brothers collapsed — Trial of claim for allegedly negligent failure to advise of issuer's creditworthiness before collapse — Judge finding that investor not averse to some risk — Bank not negligent in relation to creditworthiness of issuer — Investor would not have sold note in any event — Further claim for alleged negligence before investment in respect of suitability of note — Claim could not succeed in light of findings in first trial — Investor not “private person”— Claim struck out — Second claim not in itself abuse of process — Financial Services and Markets Act 2000, s. 150 —Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001.
This was an application by the defendant bank (Credit Suisse) to strike out part of the particulars of claim, alternatively for summary judgment dismissing that part of the claim.
The claimant (Camerata) was an investment company, incorporated in Belize and owned by a Panamanian trust, of which the sole beneficiary was a wealthy shipowner (V).
V had been introduced to Credit Suisse and a relationship manager (S) who had experience of structured products. From about May 2006 onwards and on the advice of S, V made investments in various such structured products. From early 2007, investments were made through Camerata, because S had suggested the use of an off-shore company.
Camerata opened an account with Credit Suisse (Guernsey) Ltd (CSG). In completing the application form it indicated that it had a low risk tolerance. S nevertheless signed a client profile document in respect of the proposed account which referred to products that would involve medium to high risk.
S had suggested that Camerata should invest in a five year note issued by a Lehman Brothers entity and linked to the euro/dollar exchange rate. How the product worked was explained on the face of the issuing documentation. The investor would only suffer a total loss of his investment in the event of issuer default. S recommended investing in the note and in another product. V invested in the note on the basis that it would be “extremely safe”. He invested $12 million:
$4 million by way of equity and $8 million leverage. V was not then aware who the issuer was and thought it was likely to be Credit Suisse. Subsequently, Camerata invested in further structured products.
Lehman Brothers collapsed in September 2008, with consequent bankruptcy and default of the issuer of the note.
Camerata brought proceedings based on allegations that S should have warned V that the issuer was not creditworthy so that Camerata could have liquidated the note before the collapse of Lehman Brothers. Camerata sought to amend its claim to allege that the note was not suitable but Credit Suisse objected and Camerata did not seek permission to amend.
Camerata's claim was dismissed ([2011] EWHC 479 (Comm); [2011] 1 CLC 627). The judge found that V was not only interested in low risk investments. He found that Camerata had not shown that there were real grounds for doubting the creditworthiness of Lehman Brothers, still less that S should have appreciated that there were and so advised V. Credit Suisse was not in breach of duty and S's advice could properly have been given by a relationship manager in his position. As a matter of causation, even if S had given V the advice which V said he should have given, V would not have arranged for the note to be sold.
Camerata then brought further proceedings relating to the note and other investments. It alleged mis-selling on the basis that the note was not suitable for it. It alleged that Credit Suisse was subject, prior to 1 November 2007, to the FSA's conduct of business rules (COB), specifically the obligation under COB 5.3.5(1) to take reasonable steps to ensure that the advice on investments was suitable for the client, and subsequent to 1 November 2007 to the Conduct of Business Sourcebook (COBS) with similar obligations to those under COB. Credit Suisse was said to have been in breach of its contractual, common law and statutory duties, because the Lehman Brothers note carried at least a medium level of risk and was therefore not a safe investment. Further or alternatively, Credit Suisse was said to have been negligent in not taking account of the fact that Camerata had a low risk profile and, therefore, in not warning V that the note carried at least a medium risk and that there was a realistic chance of loss of the whole or greater part of the investment. In addition, Camerata claimed damages for breach of statutory duty pursuant to s. 150 of the Financial Services and Markets Act 2000, namely breaches of COB and COBS, in that the note was wholly unsuitable for Camerata given its attitude to risk expressed to and known by Credit Suisse.
The basis for Credit Suisse's strike-out application was that the findings in the first trial gave rise to an issue estoppel and, even if they did not, there was no reason to conclude that a second action or trial would lead to a different outcome. Alternatively the present proceedings were an abuse of process because, even if the claim were arguable, it should have been included in the first action and no good reason had been shown why it was not.
Held , dismissing the claim in respect of the Lehman Brothers note:
1. Camerata's claim in respect of the Lehman Brothers note faced the difficulty that critical aspects of its pleaded case and thus any evidence called to support it would be met by the answer that that case and evidence were inconsistent with the findings already made after a full investigation at the first trial. The findings about V's attitude to risk precluded any contention at a second trial that he would not have invested in the note, if he had known or had explained to him the risks it involved. Even if Camerata could bring a claim for damages for breach of statutory duty, the claim on the basis of statutory duties under COB and COBS was essentially parallel to the claims in negligence and contract and did not widen the scope of Credit Suisse's obligations to a significant extent. Furthermore, even if it did, the allegations faced the same difficulty as the claims in contract or tort as a consequence of the findings in the first trial. However Camerata's case on failure by Credit Suisse to advise it properly before the investment was formulated, it would involve V seeking to give evidence that was contrary to the findings made after a full trial about his knowledge, experience and attitude to risk. For those reasons Camerata's case that, if given the right advice about the Lehman Brothers note, it would not have entered the transaction, was unsustainable. It followed that the claim in respect of the Lehman Brothers note had no real prospect of success whether put forward in contract, tort or statutory duty.
2. In addition, the claim for damages for breach of statutory duty under s. 150 of FSMA was hopeless because Camerata was not a “private person” within the meaning of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001. The business of Camerata was investing and the transactions were “in the course of carrying on business of any kind”, whether those words were given a wide or narrow meaning. (Titan Steel Wheels Ltd v Royal Bank of Scotland plcUNK[2010] EWHC 211 (Comm); [2012] 1 CLC 191applied.)
3. Even if Camerata could run a case that it would not have entered the transaction if given the right advice, it could only recover its foreseeable loss. The loss here was in fact caused by the bankruptcy of Lehman Brothers and the consequent issuer default which, at the time the relevant advice was given in July 2007, was completely unforeseeable. That was another reason why Camerata's claim had no real prospect of success. Accordingly, Credit Suisse was entitled to summary judgment dismissing Camerata's claim in respect of the Lehman Brothers note. (South Australia Asset Management Corp v York Montague Ltd[1996] CLC 1179; [1997] AC 191considered.)
4. The decision not to apply for leave to amend, but to pursue the suitability claim in respect of the Lehman Brothers note in a second action, did not make the bringing of that claim in the second action an abuse of process. Credit Suisse was aware that Camerata intended to bring suitability claims in a separate action. If Credit Suisse had been concerned that a claim in respect of the Lehman Brothers note might cause it...
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