Gestmin SGPS S.A. v Credit Suisse (UK) Ltd and Another

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMr Justice Leggatt
Judgment Date15 Nov 2013
Neutral Citation[2013] EWHC 3560 (Comm)
Docket NumberCase No: 2011 FOLIO 1267

[2013] EWHC 3560 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Leggatt

Case No: 2011 FOLIO 1267

Between:
Gestmin SGPS S.A.
Claimant
and
(1) Credit Suisse (UK) Limited
(2) Credit Suisse Securities (Europe) Limited
Defendants

Philip Moser QC and Fiona Banks (instructed by Ashfords LLP) for the Claimant

Adrian Beltrami QC and David Simpson (instructed by Gibson & Co. Solicitors Limited) for the Defendants

Hearing dates: 3 – 21 October 2013

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Leggatt

Section

Para. Number

A. INTRODUCTION

1

The parties and the claim

2

The claim in brief

5

Witnesses

12

Evidence based on recollection

15

B. FACTUAL HISTORY

24

Manuel Champalimaud

25

Meeting in Zurich in March 2005

29

Mr Champalimaud's understanding of English

31

Interest in buying the family cement business

34

Mr Champalimaud's financial sophistication

38

Opening Gestmin's accounts

39

The Customer Profile Form

41

Portfolio Mandate

47

Visit to London in April 2005

49

Meeting with Mr Wichmann

54

Mr Lopes

56

The July 2005 investments

57

Industrial investments

60

Two more alternative investments

64

Investment in QWIL

65

More investments

73

The Celbi Bid

77

Meeting in April 2006

79

Loan request

82

Meetings in June & July 2006

90

Gestmin's change of strategy

92

Instructions to sell QWIL

100

Liquidation of the Portfolio

104

Subsequent history of the QWIL investment

107

Notification of Gestmin's claim

114

C. DUTIES OWED BY CREDIT SUISSE

116

Was there a duty to explain risks?

121

D. ALLEGED BREACHES OF DUTY

125

(1) Consistency with Gestmin's investment objectives

132

(2) Gestmin's alternative case on suitability

146

(3) The misrepresentation claim

154

(4) Alleged failure to explain the risks

158

(5) The Portuguese Law issue

165

Conclusion on liability

176

E. QUANTUM OF LOSS

177

Date of loss

178

Calculation of loss

191

Alternative use

192

F. DECISION

197

Mr Justice Leggatt

A. INTRODUCTION

1

On 8 December 2005 the claimant in this case ("Gestmin") invested €11,150,000 in an Initial Public Offering of shares in a company called Queen's Walk Investment Limited ("QWIL"). It did so on the advice of the second defendant, Credit Suisse Securities (Europe) Limited. In this action Gestmin claims that the advice was negligent and asks the court to award damages for loss suffered as a result of making the investment.

The parties and the contract

2

Gestmin is a Portuguese company established in 2004 as an investment vehicle for Mr Manuel Champalimaud.

3

The defendants are companies in the Credit Suisse group of companies. It is common ground that the proper party to the claim is the second defendant and for convenience I shall refer to that company as "Credit Suisse".

4

It is not in dispute that in April 2005 Gestmin and Credit Suisse entered into a Client Agreement under which Credit Suisse agreed to provide private banking services to Gestmin consisting of "general investment advisory and dealing services in securities". The relationship manager for Gestmin and Mr Champalimaud's point of contact with Credit Suisse was Mr Humberto de Sousa who, like Mr Champalimaud, is Portuguese. At the relevant time Mr Sousa was a director of Credit Suisse, based in London but dealing mainly with Portuguese and Spanish clients.

The claim in brief

5

Between July 2005 and July 2006 Gestmin made a series of investments in financial products on the advice of Credit Suisse.

6

Gestmin's claim in this action relates to only one of the investments made: the purchase in December 2005 of 1,115,000 shares in QWIL at a price of €10 per share. QWIL was an investment company whose strategy was to invest in the 'equity' or 'first loss' tranche of mortgage-backed securities. For reasons that are now well known, that strategy has not proved to be a rewarding one for those who held investments in such securities at the time of the 'sub prime mortgage crisis' which began in 2007 and reached its height in 2008. In the last quarter of 2008 the quoted price of shares in QWIL fell as low as €0.51 per share. The value of the shares subsequently recovered somewhat but is still far below the price for which they were purchased by Gestmin.

7

Gestmin gave instructions to Credit Suisse in September 2006 to try to sell several of its investments, including its shareholding in QWIL. In November 2006 Credit Suisse was instructed to liquidate Gestmin's entire portfolio. For reasons which are in dispute, the shares in QWIL have still not been sold. It is agreed between the parties' financial experts that as at 30 September 2013 the value of the shares was around €3.9 million.

8

The first notification of a potential claim by Gestmin was a letter sent on its behalf by English solicitors to Credit Suisse on 14 September 2010. The present action was begun in October 2011, almost six years after the investment in QWIL was made.

9

Gestmin's central complaint is that QWIL was an unsuitable investment for Credit Suisse to recommend because it was an investment with high risk and low liquidity, whereas Gestmin's objectives were allegedly to make investments with low risk and high liquidity which would provide collateral for loans up to a high percentage of their value.

10

A striking difficulty which Gestmin faces in advancing this case is that, when Gestmin opened its account with Credit Suisse, Mr Champalimaud signed forms which identified Gestmin's investment objective as long term capital growth and indicated that Gestmin was prepared to accept a high level of risk and that its liquidity needs were low. Gestmin's response to this has been to allege that Mr Champalimaud signed the forms under a mistake as to their contents and that Credit Suisse was aware of and indeed responsible for this mistake.

11

Gestmin further alleges that Credit Suisse misrepresented and/or failed to explain to Gestmin the risks of investing in QWIL. A point is also taken that offering shares in QWIL to Gestmin allegedly involved a breach of Portuguese law.

Witnesses

12

In addition to Mr Champalimaud, Gestmin called six further witnesses of fact. They were:

i) Mr Jorge de Abreu, a Portuguese lawyer who is an old friend of Mr Champalimaud;

ii) Mr Fernando Lopes, the former Financial Director of Gestmin;

iii) Ms Isabel Santos, who is Mr Champalimaud's secretary;

iv) Mr Antonio Oliveira, the Investments Director of Gestmin;

v) Mr Luis Medeiros, who is employed by Gestmin as a Financial Analyst; and

vi) Mr Manuel Berberan, who works for Banco Portugues de Investimento ("BPI").

13

Credit Suisse called three witnesses of fact: Mr Sousa; his assistant Mr Clausell; and Mr Andreas Wichmann who also worked for Credit Suisse at the relevant time.

14

In addition, each party called an expert witness on financial investment and Gestmin (but not Credit Suisse) called an expert on Portuguese securities law.

Evidence based on recollection

15

An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory.

16

While everyone knows that memory is fallible, I do not believe that the legal system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people's memories are unreliable and believe our memories to be more faithful than they are. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.

17

Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called 'flashbulb' memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very description 'flashbulb' memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness's memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory).

18

Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.

19

The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature...

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