A recent decision in the High Court illustrates the challenges facing Claimants in financial products misselling cases in the English Court.

The Claimant complained that he had received negligent advice from HSBC regarding an investment in an AIG Premier Access Bond (the “Bond”). The Claimant sought an investment which would protect his capital. Following the collapse of Lehman Brothers in September 2008 and the subsequent turmoil in the markets AIG suspended withdrawals from the Bond in which the Claimant had invested. When the Claimant was able to cash in his investment, he had suffered loss of capital.

The Court was asked to consider, among other issues, whether the transaction was an “execution only” transaction or an advisory one. The Court distinguished this case on the facts from recent judgments including, JP Morgan Chase Bank v. Springwell Navigation Corporation [2008] EWHC 1186 and Wilson v. MF Global UK Limited [2011] EWHC 13. The Court held that if a client asks for a recommendation, any response is likely to be regarded as advice unless there is an express disclaimer to the effect that advice is not being given. The question is whether an impartial observer, having due regard to the regulatory regime and guidance, and to what passed between the parties, would conclude that advice had been given. On this basis, the Court found that, on this occasion, advice had been given.

The Court went on to conclude that the advice given by HSBC was negligent. The Court found, however, that the negligent advice did not cause the loss suffered by the Claimant. It was not sufficient for the Claimant to establish that but for the negligent advice, he would not have invested in the Bond (Andrews v. Barnett Waddington LLP [2006] EWCA Civ 93). The Claimant had to demonstrate that the events of September 2008 were foreseeable when the investment was made in 2005. The Court concluded that what happened in September 2008 was wholly outside the contemplation of the bank at the time of the transaction. Consequently, the loss was not caused by the negligence of the bank; was not reasonably foreseeable and was too remote in law to be recoverable as damages for breach of contract or in tort.

Frequently, Claimants in mis-selling cases lose because the Court finds as a matter of fact, or because of the contracts between the parties, that no advice was given. Here, despite the Claimant overcoming that hurdle, the claim still failed. Whilst the English Court has been a barren hunting ground for Claimants in mis-selling cases during the economic downturn, the cases that have been decided assist future Claimants in understanding what is needed to articulate a successful case.