Adrian Rubenstein wanted to park the proceeds from the sale of his house in a risk-free investment for a year, while he and his wife looked for another house. They could not afford to lose their capital, so they liked the sound of the product recommended by an adviser at HSBC, a premier access bond issued by the insurer AIG. The adviser told Rubenstein that the bond was risk-free, like cash in the bank. This was back in 2005, when no one would have thought that AIG would suffer a massive liquidity crisis; but the unthinkable did transpire in 2008, and Rubenstein ended up with a capital loss of £180,000. At trial, the judge found that while the adviser had been negligent, the fate of AIG (and the plaintiff’s investment in it) was simply not foreseeable in 2005, with the result that Rubenstein could recover only nominal damages in contract.

The English Court of Appeal has reversed that judgment: Rubenstein v HSBC Bank plc, [2012] EWCA Civ 1184. The adviser was negligent in recommending the bond at the time of the investment, when it was clear that Rubenstein wanted a risk-free, short-term instrument. Moore- Bick LJ cited the classic authorities on remoteness, finding that market fluctuations (even of the nature of those that occurred in 2008) were not ‘so extraneous to the validity of the investment advice as to absolve the adviser of liability for failing to carry out his duty or duties on the basis that the result was not within the scope of those duties.’ The investment itself was unsuitable in 2005 because it exposed Rubenstein to the very kind of risk he sought to avoid, which was loss of capital through market movement. The advice and the loss were therefore ‘not disconnected by an unforeseeable event beyond the scope of the bank’s duty’ to the customer. The court rejected the argument that its duty was limited to events occurring within the one-year period (Rubenstein was unable to find a house during that time and held on to the bond for three years); the need for the investment was always contingent on his finding a house and on the ostensibly risk-free character of the bond.

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