Successful Claim For Damages For Breach Of FCA Rules In Relation To Advice And Whether A Decision Said To Amount To 'Financial Suicide' Should Affect Causation

Mahmoud Haji Haider Abdullah (and others) v. Credit Suisse (UK) Limited and Credit Suisse Securities (Europe) Limited [2017] EWHC 3016 (Comm)

This claim related to investment advice allegedly given in breach of FCA rules. The claimants were a wealthy Kuwaiti family comprising a father and his three sons, although the judgment indicates that only two of the brothers dealt with Credit Suisse for present purposes. Each was entitled, as a private person within the meaning of section 138D of FSMA, to seek damages for breach of FCA rules. The bare facts of the case are that the family invested in notes (Structured Capital-At-Risk Products or SCARPs) issued by Credit Suisse and, in one case, another bank (the Notes). Such investments were made pursuant to the advice of a Mr Zaki, employed at the time by Credit Suisse.1 The investments were also leveraged and when, following market turmoil in October 2008, Credit Suisse made a margin call in relation to the Notes, the family decided not to meet it, in the knowledge that its positions would be liquidated. This decision, referred to contemporaneously by Mr Zaki as "financial suicide", cost the claimants US$21 million as against retaining the Notes they held to maturity and meeting the margin call (and any future ones).

The issues arising were therefore: (a) whether Credit Suisse had breached the FCA rules as alleged; and (b) even if it had, whether the claimants' refusal to meet the margin call was so unreasonable as to amount to a failure to mitigate loss or a break in the chain of causation.

Breaches of FCA rules

The rules said to be relevant in this case were: (i) COBS 9.2.1R, requiring a firm to take reasonable steps to ensure that any personal recommendation is suitable for the client, including associated information gathering duties; (ii) COBS 9.2.2R, requiring a firm to have a reasonable basis for believing that any specific transaction recommended meets the client's investment objectives and is such that he/she has the necessary experience and knowledge to understand the risks involved; and (iii) COBS 4.2.1R, requiring a firm to ensure that a communication or financial promotion is clear, fair and not misleading.

There were three relevant Notes for the purposes of the claim, and the judge considered the claimants' investment objectives to be different in relation to each. The judge found that they had accepted the second of these Notes (the 19th they had traded with Credit Suisse) as higher...