The Court has recently handed down judgment in Abdullah and others v Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited, a case concerning the suitability of structured product sales .

The Claimant family (father and three sons) had a joint private banking account with Credit Suisse. Their net wealth during the relevant period (mid 2004 until late 2008) was at least USD $500 million (i.e. they were ultra-high net worth individuals).

During the relevant period, the Claimants had invested through their Credit Suisse accounts, following advice from Credit Suisse, in three Notes of a product type labelled “SCARP” by Credit Suisse (structured capital-at-risk product). The Notes which were the subject of the claim were called Note 18, Note 19 and Note 20 in the Court judgment (“Notes”).   The Claimants investment in the Notes was, net of borrowing, USD $26 million.   The aggregate redemption value (if the Notes were redeemed at par) was USD $58.4 million.   Note 18 and Note 20 were issued by Credit Suisse, Note 19 was issued by BNP Paribas.

In addition, at the time of investing in the Notes, the Claimants had: (i) borrowed the equivalent to USD $7.6 million from Credit Suisse and (ii) had cash at Credit Suisse of USD $10.3 million, therefore, there was a surplus above their loan of USD $2.7 million.

At the end of 2008, following the crash of Lehman Brothers, two of the Claimants took the decision not to meet a margin call issued by Credit Suisse, which resulted in the liquidation of their investment in the Notes (a consequence the Claimants were aware of). As a result of this, the Claimants suffered a loss of their net investment in the Notes plus their surplus cash referred to above, therefore leaving them overdrawn at Credit Suisse in the amount USD $336,275.60.

Relevant law

The Claimants sought damages for breach of statutory duty, pursuant to Section 138D (2) of the Financial Services and Markets Act 2000 (“FSMA”). Section 138D of FSMA provides that: “A contravention by an authorised person of a rule made by the FCA is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty”.

The following factors were common ground between the parties:

  • The Conduct of Business (“COBS”) Rules in the FCA Handbook were “rules” within s. 138D (2) of FSMA and were applicable when the Notes were sold to the Claimants;
  • The Claimants were “private persons” within the meaning of s. 138D (2); and
  • Therefore, the COBS Rules created actionable duties owed by Credit Suisse to the Claimants in relation to the sale of the Notes, which could not be excluded or modified by contract.

The Claimants relied on breaches by Credit Suisse of the following COBS Rules:

  • 9.2.1R – the duty to take reasonable steps to ensure that any personal recommendation is suitable for a client, with an associated duty to obtain such information as to the client’s knowledge and experience, financial situation and investment objectives as may be necessary to enable a recommendation as to suitability to be made;
  • 9.2.2R – the duty to have a reasonable basis for believing, based upon information obtained from the client, that the recommendation of a specific transaction meets the clients investment objectives and is a transaction that the client has the necessary experience/knowledge to understand the risks of; and
  • 4.2.1R – the duty to ensure that a communication or financial promotion is clear, fair and not misleading.

As with any claim for breach of statutory duty, the Claimants had to establish duty, breach, causation and loss.

The Court agreed with the view of HHJ Havelock-Allan QC expressed in the well known decision of  Rubenstein v HSBC Bank Plc [2011] EWHC 2304 QB – “the key to the giving of advice is that the information is either accompanied by comment or value judgment on the relevance of that information to the client’s investment decision, or is itself the product or a process of selection involving a value judgment so that the information will tend to influence the decision of the recipient. In both these scenarios the information acquires the character of a recommendation”.

The Claimants’ case was that they were low risk investors, who did not want to make any investments which would put them at risk of any more than a minimal risk of loss of capital. In addition, they argued that they had received “bad positive advice” from Credit Suisse about the Notes.

On the other hand, Credit Suisse said that the Claimants were aggressive investors, seeking high returns and that no “bad” advice was given by them. Further, Credit Suisse suggested that the Claimants had committed “financial suicide” by choosing to close out their investments at the peak of the financial crisis in October 2008 (i.e. Credit Suisse suggested that the Claimants failed to mitigate their loss by refusing the margin call offered by Credit Suisse in 2008).

The Court decision reached in respect of each of the Notes is set out under the headings below.

Note 18

Credit Suisse was found to have breached all 3 COBS Rules referred to above, albeit, the breach of 4.2.1R was incidental to the underlying suitability breaches.

The Court considered that Credit Suisse gave a personal recommendation to the Claimants to buy Note 18 and the question of suitability boiled down to whether the agent of Credit Suisse “had a reasonable basis for his advice that there would only be a small chance of the barriers under Note 18 being hit so as to result in a loss of capital”. However, it was held that a low risk of a loss of capital was not a reasonable view to hold and Note 18 was not suitable for the Claimants’ investment objectives.   Conveying to the Claimants that Note 18 was low risk was a misleading communication by Credit Suisse.

Note 19

Credit Suisse was not in breach of any of the COBS Rules reslied upon by the Claimants.   It was held that the nature of the recommendation in respect of Note 19 was very different. The Claimants invested in Note 19 in the knowledge that they were “making a bold, risky, investment, offering the potential for a very high return. They were willing to do so because of the very modest amount involved (relatively speaking, for them)”. In addition, Credit Suisse had not made any misleading communications as to Note 19 being a safe investment, as alleged.

Note 20

The Claimants’ claim for suitability breaches under COBS Rules 9.2.1R and 9.2.2R failed in respect of Note 20. It was clear that Note 20 was high risk and investing following the collapse of the Lehman Brothers was clearly risky. In all the circumstances, the Court decided that it was suitable for Credit Suisse to have believed that Note 20 met the Claimants’ objectives at that time.

However, Credit Suisse was found to be in breach of COBS 4.2.1R and was found to have induced the Claimants into a switch trade and acquiring Note 20. This was because Credit Suisse was found to have given inaccurate and misleading reassurances that the switch trade connected with Note 20 would not require any further funds from the Claimants.

In addition, the “financial suicide” defence being run by Credit Suisse was defeated and the Claimants were not found to have been contributorily negligent. It was held that the Claimants “could have met the margin call; but it felt like throwing good money after bad; they also felt let down and misled….about their portfolio…”

The damages awarded to the Claimants are to be assessed by the Court  at a later hearing if not agreed between the parties.


Clearly each case will turn on its own facts, but the Abdullah case provides some helpful guidance on the interpretation of suitability issues and misleading communications under the COBS Rules. Of paramount importance for financial advisers of defeating such a claim is to ensure that a client’s objectives and attitude to risk are carefully and correctly assessed and recorded before an investment recommendation is made.