The English High Court has held that a bond investor could not recover against his financial adviser for losses caused by a “run” on a bond, even though negligent advice was given.

The Judgment

In Rubenstein v HSBC Bank plc [1], the investor sought to invest £1.25 million, stressing to the bank that he sought a “no risk” investment.  The bank recommended the AIG Premier Access Bond, describing it as “the same as cash deposited in one of our accounts”, and the investor placed his funds in that bond.  When in September 2008 the investor sought to withdraw his funds, AIG had suspended withdrawals; on the closing of the bond in December 2008, he suffered a capital loss of nearly £180,000.

The judge held that the bank had given advice to the investor. That advice was negligent because of the suggestion that the bond was the same as a cash deposit, and because of a failure to consider other funds as possible alternatives.  However, the judge held that the loss was not recoverable, because it was caused by events which were not foreseeable at the time the investment was made.  The suspension of withdrawals was caused by the September 2008 “run” on AIG, itself inspired by a fear that AIG might go bankrupt.  This fear was unthinkable in September 2005, and thus so legally remote that a financial adviser was not required to point it out as posing a risk to capital.


Investors bringing financial mis-selling claims in the wake of the financial crisis face significant hurdles.  Many claims fail because the defendant financial institution’s terms and conditions define the parties’ relationship as excluding the giving of advice or reliance.  As shown in Peekay [2] and Springwell [3], such terms may exclude liability even where in fact advice was given and relied on.  An investor who can prove an advisory relationship must then prove negligence.  Rubenstein highlights the final challenge: proving that at the time the investment was made, the loss suffered was reasonably foreseeable.  In the context of a claim arising out of an investment prior to 2008, when many financial markets were resoundingly optimistic, that is a high hurdle indeed.   The case will be persuasive although not binding authority in Ireland.