Last Wednesday the Court of Appeal handed down its Judgment in the case of Rubenstein v. HSBC Bank plc. At first instance the Court had found that although the Defendant Bank had given the investor negligent investment advice, upon which he had relied, the loss he suffered to his capital was not caused by that negligence. Rather the loss was caused by unprecedented market conditions and was not recoverable as damages as it was not foreseeable and too remote. The Court of Appeal have reversed the substantive findings of this Judgment, but in doing so have not sought to overturn or distinguish the Judgment of the House of Lords in SAAMCO v. York Montague.
The Court of Appeal found that Mr Rubenstein had sought advice as to where to invest his money and the very thing against which he wished to guard against, the risk of losing his capital, was the loss he suffered. Mr Rubenstein had invested in an AIG fund and, whilst he and the Defendant Bank had appreciated that there was a credit default risk (which did not come about), neither the Defendant Bank nor Mr Rubenstein had appreciated that his investment was at risk from market movements and, in particular, the market for the assets in the fund in which he had invested.
The Defendant Bank did not dispute, before the Court of Appeal, that it gave advice to Mr Rubenstein, rather than simply provided him with information. In coming to its conclusions, the Court relied on Lord Hoffman's dicta in SAAMCO that if an advisor assumes a duty to advise, rather than a duty to provide information, the advisor must take reasonable care to consider all the potential consequences of the advised course of action and further, that if he is negligent, he will be responsible for all foreseeable losses which are a consequence of that course of action having been taken. In this instance, Mr Rubenstein had claims for breach of statutory duty as well as for breach of contract and in tort. The statutory framework imposed onerous duties designed to ensure that the investment advisor understood his client's wishes and that the client understood the risks of the investments the subject of the advice.
In the circumstances, where Mr Rubenstein suffered loss and the statutory duties had been breached, the Court found that the loss came about because of the very factor which made the investment unsuitable – namely its susceptibility to risk from market conditions. In circumstances where the Claimant had sought protection against the very loss he had suffered, a risk negligently not understood or foreseen by the Bank, the Court of Appeal was not prepared to conclude that the loss was caused by market turmoil rather than the Bank's negligent advice.
On this basis, overturning the decision at first instance, the Court of Appeal found that the loss was not too remote as a matter of principle. Although Mr Rubenstein had originally intended only to invest for a period of 1 year, and the losses were suffered some 3 years after the initial investment, the Court found that the loss suffered was of the type in the reasonable contemplation of the parties and not too remote. The Court emphasized that provided that the type of loss suffered was of that envisaged, the fact that the loss was much greater in any given circumstance than has been foreseen was not a relevant factor.
The circumstances of this case, where it was not contested before the Court of Appeal that the Defendant Bank had provided advice, rather than information, in respect of statutory, contractual and tortious duties, was the starting point for the imposition of potentially onerous duties. The case underlines the importance of understanding the context in which professional advice is given and the important differences between the provision of information and the provision of advice. It is not the case that in all circumstances professional advisors are responsible for losses caused by market turmoil or decline. In many cases they are not. Cases need to be carefully considered in the context of the statutory, contractual or tortious duties to assess the extent of the duty assumed, the losses suffered, causation and remoteness.