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The commercial court considers the date at which loss should be assessed where damages are sought as a result of alleged negligent financial advice

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Sarah Hitchins



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04 February 2014

In the case of Gestmin SGPS SA v Credit Suisse (UK) Ltd & anr [2013] EWHC 3560 (Comm), 15 November 2013, the Commercial Court has held obiter that losses resulting from alleged negligent financial advice should be assessed as at the date of the trial.

In reaching this decision, the Commercial Court held obiter that the general rule in contract and tort that damages should be assessed as at the date of the breach in question did not apply in this case.


In 2005, the claimant entered into an agreement with the defendants under which the defendants agreed to provide private banking services to the claimant, including general investment advisory and dealing services in securities (the Agreement).

After entering into the Agreement, the claimant made a series of investments in financial products based on advice provided by the defendants. One of the investments was in the shares of a company, QWIL. However, during the sub prime mortgage crisis the value of the QWIL shares decreased significantly.

In 2006, the claimant sold a small number of its QWIL shares but was unwilling to sell any further QWIL shares at the prices offered in the market which were substantially lower than the price it had originally paid for the QWIL shares.

In 2007, QWIL made two tender offers to purchase a certain number of its own shares at a price which was substantially lower than the price that the claimant had originally paid for the QWIL shares. The claimant chose not to participate in these tender offers.

The claim

The claimant alleged that the defendants’ investment advice in relation to the QWIL shares had been negligent on the basis that:

  • the QWIL shares were an unsuitable investment for the claimant because it was an investment with high risk and low liquidity; and
  • the defendants misrepresented or failed to properly explain the risks of investing in the QWIL shares.

In particular, the claimant argued that that the defendants owed it a duty of care to explain and ensure that it understood the nature and risks of proposed investments. In support of this argument, the claimant referred to Rule 5.4.3 of the FSA’s Conduct of Business Rules (the COBs) which provided that a firm must not make a personal recommendation of a transaction to a private customer “unless it has taken reasonable steps to ensure that the private customer understands the nature of the risks involved”.

The claimant brought proceedings against the defendants and sought damages for the losses it alleged that it had suffered as a result of having invested in the QWIL shares.


The Commercial Court found that the claimant had failed to establish that the defendants had breached their contractual and tortious duties towards it. As a result, it was held that the defendants had no liability to the claimant.

Leggatt J found that Rule 5.4.3 of the COBs did not apply as the claimant did not fall within the definition of a “private customer” for the purposes of the COBs as it was a body corporate with net assets of at least GBP 5 million and was not a market counterparty for the purposes of the COBs.

Although Leggatt J confirmed that the defendants’ duties towards the claimant may be informed by relevant regulatory rules, he rejected the claimant’s “unqualified assertion” that investment advisors had a duty to ensure that its client made informed investment decisions:

“It seems to me that the extent of an advisor’s responsibility to explain the nature and risks of a transaction must depend on the particular circumstances. I would accept, however, that where an advisor recommends an investment by pointing out potential benefits to the client, the advisor must take care to ensure that the presentation is a fair one and that it is not skewed or misleading by reason of omitting to mention material risks. What risks are sufficiently material that they ought to be specifically explained or highlighted is a matter of fact which depends on the context” (paragraph 124).

Leggatt J’s decision in this respect was consistent with established legal principles, including the Court of Appeal’s recent decision in Green and Rowley v The Royal Bank of Scotland plc [2013] EWCA Civ 1197 which was handed down during this trial (and covered in the November/December 2013 Litigation Review).

Obiter comments regarding quantum

Notwithstanding the overall decision in this case, Leggatt J still continued to consider on an obiter basis the date at which the claimant’s losses would have been assessed in the event that the claimant’s claim had been successful.

Leggatt J started by considering the general rule in contract and tort that damages are to be assessed as at the date of breach. However, Leggatt J also noted that damages may be assessed by reference to an alternative date “if the court considers that to do so would more fairly and appropriately give effect to the basic compensatory principle of seeking to put the claimant in the same financial position as if the wrong had not occurred”.

According to the principles set out in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, Leggatt J found that the appropriate date at which to assess the claimant’s loss will generally be the earliest date at which:

  • the claimant was aware of the facts giving rise to the claim;
  • the claimant could have readily sold the assets purchased as a result of the defendant’s wrongdoing at a price which fairly reflected the value of the assets; and
  • it would not have been unreasonable for the claimant to sell the assets.

Based on these principles, Leggatt J found that the claimant may have been able to sell more of its QWIL shares than it did, and could probably have sold its entire shareholding over time if it had been willing to accept lower prices for the shares. However, Leggatt J also found that the evidence as a whole indicated that the claimant could not have sold its QWIL shares “other than with difficulty and a significant loss of value”. As a result, Leggatt J held obiter that had the claimant’s claim been successful he would have assessed the claimant’s loss as at the time of the trial and not as at the time of the alleged breach (as the defendants had argued).

Witness testimony

Leggatt J made some interesting observations about witness recollection and testimony concluding that “the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any weight at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts….”.

Comment: Leggatt J’s obiter comments regarding the date at which the claimant’s losses would have been assessed are consistent with the Court of Appeal’s decision in Hooper & anr v Oates [2013] EWCA Civ 91 which surprisingly was not referred to in his judgment.

Nonetheless, this case provides a helpful insight as to how the issue of the time at which a claimant’s losses should be assessed will be considered in cases concerning alleged negligent financial or investment advice.

Further information

This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey, or tel +44 20 3088 3710.