Zeid and Others vs. Credit Suisse – AN ENGLISH COURT PERSPECTIVE – Mr Justice Teare’s written judgment in Zeid and Others vs. Credit Suisse UK was published three weeks ago, on 4th October. This judgment should in any event now be required reading for any compliance and legal professionals working in a retail, asset management or private banking environment.

CSUK’s failings as detailed in the Final Notice – extracts…

The late Mr Zeid’s family sued Credit Suisse UK over losses of $69.4mn which crystallised in October 2008, arising from 10 leveraged investments in Credit Suisse structured products, including SCARPs.

The claim was pursued under s.150 of the Financial Services & Markets Act, which allows claims for losses where these are caused as a result of contravention by the authorised person of the Rules of FSA.

The claim was largely based around Credit Suisse UK’s alleged noncompliance with FSA’s rules on suitability, in that the advice given was claimed not to be suitable for Mr Zeid, the investments were made on the basis of the advice, and the investments caused the eight-figure loss.

The final judgment does make reference to a number of documentary and procedural shortcomings on the part of Credit Suisse UK, which is at least entirely consistent with FSA’s Final Notice.

However, in summary, Mr Justice Teare found that whilst the advice for the last three (SCARPs-based) of the ten structured investments being contested was not suitable, and that there was no evidence in those cases that the relationship manager had properly considered suitability, the unsuitable advice was not the cause of the loss, and so the claim was to be dismissed.

In summary,

whilst a firm can make unsuitable recommendations to a client, and the client may make the recommended investment and incur significant losses, the unsuitable recommendation may not necessarily be regarded legally as the cause of the losses and consequently a trigger for compensation.

We may now see a reason for FSA’s apparent unwillingness to reach enforcement judgments on suitability and compensation unless there is an unbreakable causative link.

There is a particular resonance in Mr Justice Teare’s statement that,

• “…regulatory failures in the information gathering exercise may evidence a breach of the duty to take reasonable steps to ensure that the recommendations were suitable but they do not, it seems to me, assist in showing that the recommendations were not suitable…”.