UK: The Not So Remote Risks Of Recommendations

Last Updated: 9 October 2012
Article by Richard Caird, Sam Coulthard and Kattalin Truman

Those with an interest in the extent to which banks can be held liable for failed investments which they have sold will already be familiar with the case of Rubenstein v. HSBC Bank plc [2011] EWHC 2304 (QB), decided at first instance last year. The Court of Appeal1 has now approved the principal findings in that case on how banks must address a client's investment needs when considering the suitability of recommendations. At the same time, it has overturned the controversial finding that losses suffered as a result of negligent advice were unforeseeable because of the unprecedented market conditions of 2008 and were therefore too remote to be recoverable.


In August 2005, Mr Rubenstein, a private customer for the purposes of the FSA rules then in force, decided to invest the proceeds of the sale of his home whilst he searched for a new property. Mr Rubenstein told Mr Marsden, a financial adviser employed by HSBC (the Bank), that he wanted an investment that, if possible, provided higher interest than a standard account, but stressed that he could not accept any risk to his capital. Mr Rubenstein said he was unlikely to need the investment for more than a year. Following email exchanges with Mr Marsden, Mr Rubenstein invested £1.2 million in a Premier Access Bond (PAB) which bought units in AIG's Enhanced Variable Rate Fund (EVRF).

Three years later, Mr Rubenstein had not found another home and his investment remained in place. The market turmoil of late 2008 ensued. AIG collapsed. Mr Rubenstein tried to withdraw his money but a moratorium prevented his withdrawal. He suffered a loss of close to £180,000 on his capital investment.

First instance decision

Mr Rubenstein sought to establish that: (i) the Bank had advised him to invest in the EVRF; (ii) the Bank's advice had been negligent; (iii) the Bank had not met its duties under the Conduct of Business (COB) rules, particularly COB 5 as to suitability2; and (iv) he had suffered loss as a result.

The Bank's position was that Mr Marsden was merely providing an "execution-only" service. The court rejected the Bank's arguments and held that the services provided by the Bank had, in fact, been advisory. The court applied an objective test in arriving at this conclusion and noted that it is "irrelevant whether Mr Marsden thought he was only providing information or whether Mr Rubenstein thought he was being given advice. The question is whether an impartial observer, having due regard to the regulatory regime and guidance, and to what passed between the parties, would conclude that advice had been given." The court considered, amongst other things, the following factors in determining that the Bank had given advice:

  • Mr Rubenstein had asked for a recommendation. In the absence of an express disclaimer, any response to such an inquiry naming a particular product would constitute advice because it would imply that Mr Marsden was of a view that the product met the criteria (thereby implying a value judgment).
  • The Bank did not follow its Non-Advised Sales Process. The Bank's "Key Facts about our services" document had a non-advised and an advised box. Neither box was ticked. The Bank's "FEEPAY Form" was incorrectly filled in to indicate that the Bank was providing an advisory service.
  • Mr Marsden's emails to Mr Rubenstein referred to "further advice" and promised a "letter of recommendation".

The court therefore held that a bystander, reading Mr Marsden's emails to Mr Rubenstein and the Bank's records of how the transaction was processed, would conclude that it was being treated as advised.

The court made the following helpful points distinguishing the mere provision of information and the giving of advice:

"The key to the giving of advice is that the information is either accompanied by a comment or value judgment on the relevance of that information to the client's investment decision, or is itself the product of 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 judge also found that the Bank's advice was negligent, that it was in breach (both procedural and substantive) of the COB rules and that Mr Rubenstein had relied on the Bank's advice. However, the court concluded that Mr Rubenstein's loss was caused by the "extraordinary and unprecedented financial turmoil which surrounded the collapse of Lehman brothers" rather than by the Bank. The court held that these conditions could not reasonably have been foreseen at the time Mr Marsden had advised Mr Rubenstein in 2005 and therefore only awarded Mr Rubenstein nominal damages in contract.

Issues on appeal

Both parties appealed. The main issues considered on appeal and the Court of Appeal's findings on these are summarised below.

Was the Bank's advice negligent and in breach of COB 5.3.5?

The Bank did not seek to dispute on appeal that the services provided by Mr Marsden had been advisory. However, the Bank did cross-appeal in relation to the issue of negligence and breach of COB 5.3.5(2), which provided that, if the recommendation made by a firm to a private customer for a transaction relates to a packaged product, such as the PAB, it must be the most suitable from the range of packaged products on which investment advice is given.

The Court of Appeal agreed with the first instance judgment and held that the PAB was unsuitable for Mr Rubenstein for two main reasons:

  1. It was wrong of Mr Marsden to suggest that the EVRF was the same as a cash deposit. A bondholder in the EVRF took the risk not only that AIG might fail but also that the value of his units could fall as well as rise, depending on market conditions. It might have been right to say in 2005 that an investment in an EVRF was safe and only marginally more risky than a cash deposit. But it was not the same as a cash deposit.
  2. Mr Marsden did not attempt to consider other funds within the PAB as possible alternatives; in particular AIG's more conservative standard variable rate fund (SVRF) would have been more suitable.

The court regarded no risk to his capital sum was the "sine qua non" of the investment sought by Mr Rubenstein. Mr Marsden knew that the money was required for the purchase of Mr Rubenstein's family home. The risk of investing in the EVRF was not commensurate with the risk of placing moneys in a cash deposit. Therefore the Court of Appeal held that Mr Marsden's advice that an investment in the EVRF was "the same as cash deposited in one of our accounts" was wrong and misleading.

In addition, the Court of Appeal held that, whether or not the SVRF was the most suitable investment, it was clearly a more suitable investment that the EVRF. Lord Justice Rix commented that, if Mr Marsden "had been listening to his customer and recognised that he was advising him, it is difficult to understand how he would not, acting properly, have recommended that fund to him in preference to the EVRF, even if the rate was less than the EVRF. To recommend the EVRF in preference to the SVRF was deliberately to make the decision for Mr Rubenstein that he was prepared to accept more risk than in the SVRF."

The Court of Appeal rejected the Bank's argument that, as Mr Rubenstein suffered no loss during the first year of his investment (being the likely term of his investment) no liability could arise for loss occurring thereafter. Rix LJ held that Mr Marsden "ought to have realised ... that once Mr Rubenstein made his investment he intended to stick with it until he found a new home, and that could be for an uncertain period". The Court of Appeal concluded that, if Mr Marsden wanted to put a time limit on his responsibility, he ought to have made that clear, particularly in the context of telling Mr Rubenstein that his investment was the same as a deposit and he would need no further advice.


The Court of Appeal overturned the decision that Mr Rubenstein's loss was not recoverable as it was caused by the market turmoil surrounding the collapse of Lehman Brothers.

Rix LJ commented that an investment adviser recommending a product could not be seen in the same light as a negligent doctor who tells a mountaineer his knee is fit to climb a mountain and the mountaineer then climbs a mountain and suffers an accident unrelated to his knee3:

"The doctor did not advise, let alone recommend, his patient to go mountaineering: he merely told him that his knee was in good shape. Mr Marsden, however not only advised Mr Rubenstein on the investment of his capital, he recommended a particular investment. He, so to speak, put him in it. If such an investment goes wrong, there will nearly always be other causes (bad management, bad markets, fraud, political change etc): but it will be an exercise in legal judgment to decide whether some change in markets is so extraneous to the validity of the investment advice so as to absolve the adviser for failing to carry out his duty or duties on the basis that the result was not within the scope of those duties."

The Court of Appeal concluded it was not the run on AIG, but the collapse in the value of the market securities in which the EVRF was invested, that caused Mr Rubenstein's loss. Rix LJ commented that such a loss was both foreseeable and foreseen, because AIG's brochure referred to "costs" which might result from "selling assets prior to their intended maturity date". The amount of the loss was unforeseeably high but this did not change the fact that it was a foreseeable type of loss.

Rix LJ suggested that the judge at first instance may have regarded Mr Rubenstein's loss as unforeseeable as he attributed such loss to the run on AIG, which he considered to be "unthinkable". The Court of Appeal held that, in fact, what connected the erroneous advice and the loss was the combination of putting Mr Rubenstein into a fund that was potentially subject to market losses while misleading him into thinking his investment was the same as a cash deposit. Unlike the case of the doctor and the mountaineer's knee, Mr Rubenstein's loss and the cause were not disconnected by an event outside the scope of the Bank's duty.

Although in September 2005 the investment in the EVRF may well have been considered without risk, it was clearly unsuitable for Mr Rubenstein because investment in an alternative fund or a deposit account would have resulted in no loss. Mr Marsden did not properly consider Mr Rubenstein's needs as investment in the EVRF was inappropriate for someone who could not afford loss of capital.


This case is a rare example of a bank being found to have crossed the line between merely explaining a product and giving a recommendation.4 The Bank did not try to appeal against that finding, although it did try to overturn the ruling that its advice had been negligent.

Mr Rubenstein asked the Bank to suggest an investment that did not put his capital at risk. The Bank recommended an investment that did put his capital at risk. This case therefore provides a stark example of a bank failing to consider a client's investment needs in making a recommendation. Other cases, in which an investor's requirements or the bank's failure to meet such requirements are more nuanced may not be as clear cut. The lessons to be learnt from this case include that it is essential for banks to have a proper understanding of a client's needs (including, amongst other things, appetite for risk and length of investment) and, if they are going to give advice, to make a recommendation that addresses such needs.

This case also provides a warning to banks that a loss in value of market securities arising from market events will not be regarded by the court as unforeseeable and therefore not recoverable, even if the extent of the loss is unforeseeable. Market conditions were in this case insufficient to amount to an overriding cause of loss above the Bank's recommendation. Banks should exercise caution even when recommending investments which in current market conditions appear to represent only a marginal risk to retail clients. If you cross the line into giving advice, and have not recommended a suitable product, you will have to pay for the consequences.


1. Rubenstein v. HSBC Bank plc [2012] EWCA Civ 1184.

2. COBS 9 now deals with the requirement of suitability.

3. Lord Hoffman used this example in his speech in SAAMCO [1997] AC 191.

4. In Zaki and others v. Credit Suisse (UK) Ltd [2011] All ER (D) 41 (Oct) the Commercial Court provides a useful analysis of the circumstances in which a financial institution will be found to have given a "personal recommendation" within the meaning of COBS. In addition, the case outlines how the requirement to consider suitability of recommendations will be tested in practice.

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.

Events from this Firm
28 Sep 2017, Seminar, London, UK

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

3 Oct 2017, Conference, Zurich, Switzerland

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

4 Oct 2017, Workshop, London, UK

We are hosting an interactive workshop where we will run a mock High Court trial of an employee competition case – where the members of the audience are the judges. The session, aimed at in-house counsel and HR professionals, will offer an insight as to how disputes involving employees moving to a competitor play out in practice.

In association with
Related Video
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.