In Zaki and others v. Credit Suisse (UK) Ltd [2011] All ER (D) 41 (Oct) the Commercial Court provides an illuminating analysis of the circumstances in which a financial institution will be found to have given a “personal recommendation” within the meaning of the Conduct of Business Sourcebook (COBS). In addition, the case clarifies how the requirement to consider suitability of recommendations will be tested in practice. Advising on the merits of a transaction is likely to amount to a personal recommendation rather than merely the provision of information. However, in assessing the suitability of a transaction, there is a difficult line to draw between recommending a product that the customer wants and recommending a product that is suitable.


Mr Zeid was a successful businessman who had purchased various leveraged notes from Credit Suisse (UK) Limited (the Defendant). In 2008, the Defendant issued a margin call, which Mr Zeid did not meet. The Defendant therefore liquidated the notes causing Mr Zeid to suffer a loss of US$69.4 million. Mr Zeid launched a claim that this loss was the responsibility of the Defendant, because it had breached COBS rules in recommending the notes to him. Mr Zeid died before the case went to trial, but it was continued by members of his family.


The Claimants sought to establish that: (i) the Defendant had made personal recommendations in relation to 10 leveraged notes that Mr Zeid purchased from the Defendant from February 2007 to June 2008 (the Notes), and (ii) the Defendant had not met its duty under COBS 9 to ensure those recommendations were suitable.

Mr Zeid was a “retail client” under the COBS rules. However, the Judge held that he “plainly had a high level of interest in the market, formed views about the market and had confidence in his own views.”

In assessing what the Claimants would need to prove, the Judge said the Defendant’s lack of complete compliance with rules concerning the classification of Mr Zeid was not critical in deciding this case. Instead, he said:

The important point … is whether the recommendations made by [the Defendant] were suitable for Mr Zeid. If they were not suitable, then it adds nothing to enquire whether [the Defendant’s] approach to obtaining and recording information and classifying the Claimants lacked the required rigour and care. If they were suitable, then again it cannot matter whether the Defendant's/its approach to obtaining and recording information and classification was adequate or not.”

The terms of business agreed by the Claimants envisaged investment advice being given by the Defendant in addition to execution-only services.

Personal Recommendations

The court held that a recommendation is advice on investments and advice is “advice on the merits” of buying a particular investment. The court also determined that “advice on the merits” is to be distinguished from the giving of information1 and that advice requires “an element of opinion on the part of the adviser”.

The court held that the Defendant had made recommendations to Mr Zeid to purchase each of the Notes.


COBS 9.2 specifies that the following kinds of information should be gathered to make a determination of suitability: (i) the client’s knowledge and experience in the relevant investment field; (ii) the client’s financial situation; and (iii) the client’s investment objectives.

The Judge took these factors into account in reaching his conclusions. He found that it was probable Mr Zeid understood the structure of the Notes and the nature of their associated risks and that Mr Zeid's knowledge of the markets was sufficient for him to form a view as to whether to take such risks. The Judge also noted the loss was one which could be borne by a family of considerable wealth. As Mr Zeid had sought out high-income products that included risk to capital and had deliberately chosen such products over capital-protected products, the Judge concluded that Mr Zeid’s objectives were to receive an enhanced or high coupon payment.

The Judge held that leverage must be considered when assessing suitability given that leverage “greatly increases both the potential losses which may be suffered by the client and the risk of a margin call, requiring the payment of additional collateral in default of which pledged assets may be sold.” The leveraging made available to Mr Zeid was “on a grand scale”. Nevertheless, Notes 1-7 were suitable given that Mr Zeid understood the risks associated with leverage, had accepted substantial leveraging since 2003 and was able to bear the risks involved.

In contrast, the Judge concluded that “the line had been crossed in May/June 2008” and, as a result, Notes 8-10 were not suitable. The markets were volatile at this time and in these conditions the Defendant ought to have regard to the desirability of some diversity in the account and the risks of “excessive” leveraging. The Defendant’s salesman accepted that a prudent adviser would have recommended his clients to reduce their exposure to equities. Yet Notes 8–10 were linked to four indices, which feature itself increased the risk, and Note 9 was linked to three banking shares at a time when banks were under considerable pressure. All these matters strongly suggest that the purchase of Notes 8-10 was unsuitable.

Nevertheless, the claim failed in relation to these Notes as well as for Notes 1-7. The court was not persuaded that Mr Zeid relied upon the Defendant’s recommendations. In effect, the Judge took the view that, even if the Defendant had warned Mr Zeid against purchasing the Notes on the grounds they were unsuitable, he would have gone ahead anyway.


It is difficult to discern the “line” between suitability and unsuitability that the Judge held Notes 8-10 had crossed. The lack of diversity in the portfolio was not a new feature of these Notes. Mr Zeid was fully aware of the risks of leveraging and the possibility of a margin call. With the benefit of hindsight, it was imprudent for him to invest in the Notes, but that was just as true of the earlier Notes as the later ones. Nevertheless, the case is a vivid illustration of the difficulties banks may face when dealing with high-net-worth individuals who have advanced awareness of financial products, but who can claim the protection of COBS. A customer who tended to rely on the advice of the bank a little more than Mr Zeid would have succeeded in this claim.