Court Finds Distinction Between Negligence and Gross Negligence

Originally published March 17, 2011

Keywords: negligence, gross negligence, clauses, limitations,

As markets became more volatile, investors became increasingly anxious about the "safety" of their investments and exposure to counterparty defaults. This first instance decision of Mr Justice Andrew Smith in Camarata Property Inc v Credit Suisse Securities (Europe) Ltd [2011] EWHC 479 examines the duty of care owed by advisers to investors in the context of complex and sophisticated products and is an interesting application of some of the principles discussed in the well known Springwell decision.

The Judge, notably, took the opportunity to consider the importance of clauses concerning limitations on liability and, although the Judge acknowledged that it is not easy to define or even describe with precision the distinction between "gross" negligence and "mere" negligence, he acknowledged that such a distinction exists as "one of degree and not kind".

The background facts

The Claimant, a company incorporated in Belize whose sole beneficiary is a member of the Ventouris family (a Greek shipping family), bought for US$12million a "5 year Autoredemption Note in USD Bearish on Eur/USD" (the "Note") which was issued by a Lehman entity (the "Issuer"). The Claimant lost all or a significant part of its investment upon a declaration by the Amsterdam District Court in 2008 that the Issuer was bankrupt.

The dispute concerned advice received by the Claimant from Credit Suisse (the "Adviser") in respect of the Note and whether such advice was negligent and in breach of the contractual obligations of the Adviser. The Claimant contended that it had not been told that the Issuer was a Lehman entity, that it was led to believe that the Note was a "safe" investment and that but for the advice would have sold the Note before Lehman failed.

What were the duties owed by the Adviser to the Claimant?

The Claimant contended that the Adviser owed it a duty in contract and in tort that any advice would be given with the skill and care with which a reasonable financial adviser would advise a client. It contended that such terms should be implied into the contract for advisory services, inter alia, in order to give it business efficacy. The Adviser alleged that its duty was "constrained and defined" by (i) the true level of sophistication of the Claimant; and (ii) the contractual terms that governed its relationship with the Claimant. These points are considered in more...