UK: Insurance And Reinsurance Weekly Update - 18 September 2012

Last Updated: 18 September 2012
Article by Nigel Brook

Rubenstein v HSBC Bank

Whether losses following the sub-prime crisis were foreseeable/issues of remoteness

The first instance decision in this case was reported in Weekly Update 34/11. In 2005, the claimant invested the proceeds of his house sale in an AIG bond. This bond had two variable rate interest funds and the claimant's money was put into the enhanced fund, rather than the standard one. Following the collapse of Lehman Brothers in 2008, withdrawals from the AIG bond were temporarily suspended and and when the claimant was eventually able to cash in his investment, he suffered a large loss of capital. At first instance, the judge found that the defendant bank's independent financial adviser ("IFA") had been negligent and, in breach of the FSA's Conduct of Business ("COB") rules, in recommending the AIG investment. However, the judge found that the loss was too remote to be recoverable because the events of 2008 (and, in particular, the idea that one of the world's largest insurance companies might go bankrupt) were unthinkable in 2005. Both sides appealed and the Court of Appeal has now held as follows:

1) The judge was correct to find that the IFA had been negligent and breached COB.

2) After conducting a detailed review of relevant caselaw, the Court of Appeal concluded that the loss was not too remote to be foreseeable. The starting point was that the statutory purpose of COB is to protect consumers. Here, the claimant consumer had been advised to invest in an unsuitable investment and his loss came about because of the very factor which made the investment unsuitable (ie its inherent susceptibility to risk from market movements). Although the collapse of Lehman Brothers may have been unforeseeable, the claimant had not invested in Lehman and the run on AIG did not ultimately cause the loss. Instead, it was a collapse in the value of the market securities in which the enhanced fund (but not the standard fund) invested which caused the loss and that was a foreseeable loss: "the underlying causes of that turmoil went infinitely beyond Lehman Brothers' difficulties. It stretched to a failure of confidence in marketable securities in which there had previously been greater confidence. And what is new about that?" (as per Rix LJ, delivering the leading judgment).

Nor did it matter that the enhanced fund was regarded as without risk in 2005: "So it might, but then nearly all the greatest losses come out of a cloudless sky". The standard fund should have been recommended to an investor who did not want any risk to his capital and, had the claimant's money been invested in that fund, he would not have suffered any loss.

The Court of Appeal also rejected the argument that, because the claimant had told the IFA that he would be unlikely to need the investment for more than a year, it should not be held liable for losses occurring three years later. The claimant had intended to use the money to buy another house but the achievement of that goal did not lie entirely within his hands and so the possibility had existed that the timescale would be exceeded. If the defendant wanted to be protected from an indefinite time limit for its advice "then perhaps the obligation of making that limitation clear rests on the recommending expert, not on the misled consumer".

3) The bank did, however, succeed in its argument that an ex gratia payment made by AIG to the claimant should be taken into account when deciding the amount of damages due to the claimant. In general, benefits conferred on claimants by third parties are left out of account. However, the Court of Appeal found that, here, the payment had not been made out of "pure benevolence" - it had been made as a continuation of the original transaction and was not collateral to it.

Brit Inns & Anor v BDW Trading

Judge decides various costs issues and effect of Part 36 offer

Coulson J described this case as one in which the "litigation has gone wrong for everybody". Although the claimants recovered a certain amount from the defendant, their claim had been exaggerated and so they recovered far less than they had sought. However, the defendant had failed to beat a Part 36 offer which it had made. Various costs issues arose from the case, including the following:

1) The effect of the Part 36 offer. Since the defendant failed to beat this offer, the ordinary rule is that the costs consequences of Part 36 do not apply (although the offer will be a relevant element of conduct under Part 44). The defendant sought to argue that this result should not apply here because it was the claimants' fault that it failed to beat its Part 36 offer (because, it was argued, the claimants had failed to provide the necessary information to allow the defendant to assess the merits of the claim at an earlier stage). This argument was rejected on the facts - there was no evidence to support the argument that a higher offer would have been made had better information been supplied.

In any event, the judge said that if the defendant had been unable to protect itself by making a Part 36 offer "then applications should have been made to the court at an early stage setting out precisely what was missing and why it mattered". Although the defendant had clearly believed the claim was exaggerated "nothing was deemed so insuperable that it warranted specific applications to the Court".

2) The effect of a Part 44 offer. Coulson J noted the recent Court of Appeal decision in F&C Alternative Investments v Barthelemy (see Weekly Update 23/12) in which it was held that an offer which is expressly made under Part 44 should not be treated as having the same effect as offers under Part 36. However, he said that the Part 44 offer in this case had "fundamentally changed the costs position" - not least because the defendant did beat this offer. The claimants became liable to pay the defendant's costs from the time that the date for acceptance of the offer expired because from this point on "only the claimants' unreasonable conduct and unrealistic expectations could explain their decision to go ahead to a trial".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Nigel Brook
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.