The Court of Appeal overturned the High Court to rule yesterday that an HSBC adviser’s negligence in recommending an unsuitable investment to a customer was the cause of his major financial loss.
The case, Rubenstein v HSBC  EWCA Civ 1184, was run by regional firm Clarke Willmott under a conditional fee agreement (CFA), with after-the-event insurance provided by FirstAssist.
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Clarke Willmott has represented 73 people advised by other institutions to invest in the Enhanced Variable Rate Fund of the AIG Premier Access Bond. It has acted on a CFA basis with most of them because “we have faith in the strength of the actions and this is in our view the appropriate way to secure access to justice for our clients”, a spokesman said. A small number of claims are also ongoing.
Yesterday’s case involved solicitor Adrian Rubenstein and his wife Elisa, who in 2005 wanted to invest the proceeds of the sale of their house in Highgate, London, which amounted to £1.25m, in a risk-free account whilst they looked for a new home. Mr Rubenstein was advised to put their money into the AIG fund.
Mr Rubenstein e-mailed the adviser to check that there was no risk attached to the investment and he was informed that the fund was the same as cash deposited in one of HSBC’s accounts. This turned out to be incorrect advice as the fund was a unitised money market fund, which contained a risk to capital and which was closed after a run on it in September 2008, causing a loss of £180,000 to Mr Rubenstein.
At first instance the judge had found all material facts in favour of Mr Rubenstein, and that as well as being negligent the adviser was in breach of the Financial Services Authority’s Conduct of Business Rules. However, he awarded only nominal damages on the grounds that the loss was caused not by the negligent advice, but by the turmoil in the financial markets following the collapse of Lehman Brothers in 2008.
The Court of Appeal yesterday overturned that decision, saying the loss was not too remote and that HSBC could have reasonably contemplated that it would be liable for a loss in these circumstances. It awarded Mr Rubenstein agreed damages of £112,543 plus costs.
Clarke Willmott partner Robert Morfee said: “This case highlights the problem that all too often banks and financial advisers do not understand the types of products and the risks inherent in such products which they are selling to the ordinary man in the street.
“The AIG Premier Access Bond and the Enhanced Variable Rate Fund were not suitable for a customer who wanted a cash investment. The bond was not a risk-free cash product and this should have been understood by the adviser from the product information produced by AIG. It should never have been sold to a customer such as Mr Rubenstein who could not afford to risk any loss… The Financial Ombudsman Service has also upheld a claim in respect of this product.”