Camerata Property Inc. v Credit Suisse Securities (Europe) Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Andrew Smith J. |
| Judgment Date | 09 March 2011 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 March 2011 |
Queen's Bench Division (Commercial Court).
Andrew Smith J.
Francis Tregear QC and Andrew Thomas (instructed by Thomas Cooper) for the claimant.
Adrian Beltrami QC and Catherine Gibaud (instructed by Allen & Overy LLP) for the defendant.
The following cases were referred to in the judgment:
Adams v Rhymney Valley DC [2001] PNLR 4
Aneco Reinsurance Underwriting Ltd v Johnson & Higgins LtdUNK [2001] UKHL 51; [2002] CLC 181.
Armitage v NurseELR [1998] Ch 241.
Bankers Trust International plc v PT Dharmala Sakti Sejahtera (No. 2) [1996]CLC 518.
Beary v Pall Mall InvestmentsUNK [2005] EWCA Civ 415.
Bolitho v City and Hackney Health AuthorityELR [1998] AC 232.
Caparo Industries Ltd v DickmanELR [1990] 2 AC 605.
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] 1 CLC 921; [2004] 1 AC 715.
Marex Financial Ltd v Fluxo-Cane Overseas LtdUNK [2010] EWHC 2690 (Comm).
Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plcUNK [2011] 1 Ll Rep 123.
Red Sea Tankers Ltd v Papachristidis (The Hellespont Ardent)UNK [1997] 2 Ll Rep 547.
Sansom v Metcalfe Hambleton & Co [1998] PNLR 542.
Springwell Navigation Corp v JP Morgan Chase Bank [2008] EWCA 1186 (Comm); [2010] EWCA Civ 1221; [2010] 2 CLC 705.
Sucden Financial v Fluxo-Cane Overseas LtdUNK [2010] EWHC 2133 (Comm); [2010] 2 CLC 216.
Sykes v Midland Bank Executor & Trustee Co LtdELR [1971] 1 QB 113.
Tradigrain SA v Intertek Testing Services (ITS) Canada LtdUNK [2007] EWCA Civ 154; [2007] 1 CLC 188.
Banking — Investment advice — Negligence — Structured note — 5-year Autoredemption Note in USD Bearish on Eur/USD issued by Lehman Brothers entity — Claimant investment company entered into agreement to receive investment advisory service from defendant bank — Lehman Brothers became bankrupt — Loss of investment and complaint of negligent advice — Defendant's terms and conditions excluded liability except in case of gross negligence — Exclusion clause satisfied statutory test of reasonableness — No advice sought about risk of counterparty default — Negligent failure properly to consider account opening documents but that negligence not leading to breach of duty in relation to advice given — Advice given could properly have been given by relationship manager exercising reasonable skill and care — claimant would not have sold note even if given different advice so any negligence or gross negligence if proved not causative — Unfair Contract Terms Act 1977, s. 2, 3, 11.
This was a claim by an investment company (Camerata) that the defendant bank (Credit Suisse) had given advice that was negligent and in breach of its contractual obligations in relation to a loan note issued by Lehman Brothers.
Camerata was an investment vehicle for a wealthy Greek businessman (V). Camerata entered into an agreement with Credit Suisse in June 2007 to receive an investment advisory service. V dealt with an advisor or relationship manager (S-K) who had a particular involvement with investments by way of structured notes. Credit Suisse structured the terms upon which a product should be offered to investors and, if it attracted interest, invited tenders from suitable institutions and arranged for it to be issued by one that offered competitive terms. As a result, it would sometimes not be known who would issue a product until after the client had agreed to invest.
Camerata bought the note in July 2007 for US$12 million. It was a “5-year Autoredemption Note in USD Bearish on Eur/USD”. It paid no regular coupon. It would automatically be redeemed if on six-monthly observation dates the exchange rate between the Euro and the US dollar was at the “strike rate”or lower. If the note was so automatically redeemed, the investor received a premium upon his investment, the amount of the premium depending upon the period since the note was issued. If the exchange rate was not at the strike rate or lower upon any of the observation dates, then after five years the investor would recover all or some of his capital depending upon whether, during the life of the note, the Euro appreciated against the US dollar so as to go above the “knock-in rate”.
Lehman Brothers became insolvent in September 2008 and Camerata had lost all or a significant part of the investment. Camerata did not complain in its proceedings about the dealings with Credit Suisse whereby it came to buy the note. Nor did it allege that after it had bought the note Credit Suisse was under a continuing duty to volunteer advice about the note otherwise than by way of responding to inquiries or requests for advice. Camerata's complaint was that, after JP Morgan Chase and bought and rescued Bear Stearns & Co Inc in March 2008, V sought advice from S-K about Camerata's investments, including the note, and received from him advice that was negligent and in breach of the contractual obligations of Credit Suisse and but for which it would have sold the note before Lehman failed.
Held, dismissing Camerata's claim:
1. When V started to deal with S-K, he had no experience of risky investments, but, in the hope of higher returns, was willing to make investments which he knew might result in some limited loss to capital. To that extent he never limited himself to investments that were absolutely secure. In the course of his dealings with S-K increasingly he became interested in, and attracted and excited by, more adventurous investments. That understandably and reasonably led S-K to believe that he would contemplate running rather greater risks with his capital, and Camerata's funds, than the documentation completed by Camerata indicated. In fact, he never put any money into the most adventurous ideas that they discussed, and he would never seriously have contemplated any investment if he thought that there was any realistic chance that he would lose the whole or the greater part of his investment. He understood and accepted risks by way of market movements, but would not willingly have run the risk that any of the banks or institutions that he was dealing with might default if he had thought that seriously possible.
2. After the sale of Bear Stearns and throughout the summer of 2008, V frequently asked S-K about his views about the markets and about the prospects for his investments. V asked S-K whether he thought that another institution would face difficulties such as led to the sale of Bear Stearns and they discussed how the exchange rate between the Euro and the US dollar might move as a result of the market turbulence and so how it would affect the note. However, V did not ask specifically whether the note was safe from risk of counterparty default, nor whether the banks with which he had his investments were safe. In general terms S-K expressed optimistic views during the summer of 2008 that other banks would not fail as Bear Stearns had done and that V's investments remained sound. He gave his own view or impression that V's and Camerata's investments would be safe, but did not give V any more specific or firmer advice or assurances.
3. As a matter of interpretation, the terms and conditions on which the investment was made excluded Credit Suisse's liability except in the case of gross negligence, fraud or wilful default. In context, gross negligence was clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence. The concept of gross negligence was capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk. (Red Sea Tankers Ltd v Papachristidis (The Ardent) [1997] 2 Ll Rep 547 applied.)
4. Those provisions of the terms and conditions satisfied the statutory requirement of reasonableness under the Unfair Contract Terms Act 1977. V was a wealthy businessman who approached S-K for Credit Suisse's advisory services. Camerata entered into the agreement with Credit Suisse through a commercial lawyer who was aware of the sort of terms that might be included in a contract with a bank for advisory services. He also understood that, if Camerata did not wish to enter into a contract upon such onerous terms, it could use another bank. Those terms did not exclude all liability for fault falling short of dishonesty or wilful fault. Credit Suisse was providing services for clients to invest in relatively adventurous investments, which inherently involved a risk that the clients might suffer loss and seek to blame Credit Suisse as their adviser whether or not it was at fault. It was reasonable that Credit Suisse should protect itself from such disputes by excluding liability for mere negligence when dealing with clients such as Camerata.
5. Credit Suisse relied on the warranties and representations made in part 8 of section B of the terms and conditions. However, para. 5.3 of part 6 of Section A stated the purpose for which the representations and warranties were made and given and for which it was contemplated that they might be used or relied upon by Credit Suisse: that was to enable Credit Suisse to make statements to such effect when subscribing for investments on Camerata's behalf. That was the only role of the statements in section B part 8. Parties to a contract could agree upon an assumed basis for their contractual relationship even if it was known not to represent the true position. Equally, they could agree that one contracting party made representations and gave warranties which were to provide an assumed basis upon which the other could act for some specific purpose, but limit the application of that assumption and stipulate that the representations should be relied upon only for the specified purpose. That was the effect of section A part 6 para. 5.3, and it prevented Credit Suisse from relying upon the statements in section B part 8 for...
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