The Court of Appeal has overturned the High Court's decision in Rubenstein v HSBC Bank Plc that the loss suffered by an investor was caused by unprecedented market turmoil, not the negligence of the financial adviser. The investor made it clear that he wanted a risk free investment and the adviser recommended an unsuitable bond. The investor's loss was held to be foreseeable.

Anticipating proceeds of £1.25 million from the sale of his matrimonial home, Mr R took advice on a suitable investment from a financial adviser employed by HSBC. Mr R planned to rent a property for a year, pending the purchase of another property. Mr R made it clear that he wanted a risk free investment.

The adviser identified and recommended an AIG Premier Access Bond. Mr R asked what the risk was and the adviser confirmed “the investment was the same as cash deposited in one of our accounts”. Mr R accepted the advice and invested the money in the recommended bond.

As a result of the market volatility at the time of the Lehman Brothers’ failure, there was a rush on withdrawals of the bond which resulted in a fire sale of the bond’s assets. As a consequence, the value of the investment was less than the initial capital sum paid into the bond and Mr R lost approximately £180,000.

At first instance, the court held that the bank’s advice had been negligent and that Mr R had relied upon that advice. However, the court found that the loss suffered was not caused by the bank’s negligence, but by unprecedented market turmoil. The loss was therefore unforeseeable and too remote.

The appeal

Mr R appealed against the High Court’s findings in relation to foreseeability and remoteness. The Court of Appeal’s view was that the loss suffered was not too remote. In his leading judgment, Rix LJ explained that a bank must reasonably contemplate that, if it misleads its client as to the nature of the recommended investment, and thereby puts its client into an investment which is unsuitable for him, then it may well be liable for that loss.

In this instance, there was an alternative fund at a lower return available within the same bond which suffered no loss during the same period of time. Mr R was therefore awarded the full loss flowing from the ill-advised investment. It was the bank’s duty to protect Mr R from exposure to market forces when he made clear that he wanted an investment which was without risk.


At first glance the decision appears to cause concern for financial advisers who are at risk of claims for failure to predict the market turmoil of recent years. However, on the facts the decision makes sense: the adviser failed to follow even the basic provisions of the then Conduct of Business rules such as ‘know your customer’. Had the bank complied with the rules, it would have recommended the appropriate investment.