FML Timeline: Basma Al Sulaiman (Claimant) v Credit Suisse Securities (Europe) Limited (First Defendant)

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The Claimant was a high net worth individual. The first defendant, Credit Suisse Securities (Europe) Ltd (Credit Suisse), was an investment bank and the second defendant, Plurimi Capital LLP (Plurimi), was a financial advisory business set up by a previous Credit Suisse employee.

The Claimant received a significant amount of money in a divorce from a member of one of the richest families in Saudi Arabia. She invested in a portfolio of structured notes on the advice of a Credit Suisse employee (the later founder of Plurimi). Following the employee leaving Credit Suisse and starting Plurimi, the Claimant purchased additional structured notes using leverage from a bank loan (together with the first notes, the “Notes”).

During the financial crisis, the Notes lost significant value and began to fall short of the loan taken out to leverage the second purchase. This resulted in multiple margin calls under the loan. The Claimant was advised on several occasions to sell some of the Notes or provide guarantees rather than a cash margin but she ignored this advice and posted cash margin. The Claimant then stopped posting cash margin in the stipulated time and the lending bank sold the Notes at market value. This resulted in a significant capital loss on the Notes and loss of all margin posted.

The Claimant claimed that the Defendants had breached a statutory duty of care and had been negligent: she was not sufficiently warned of the risks involved with structured products, leverage, loans and margin and that, had she been so advised, she would not have purchased the Notes.

Decision

Breach of Duty and Negligence

The issue of suitability was initially raised but by the end of trial, it was conceded on behalf of the Claimant that the Notes were suitable investments for her, given her target returns, risk appetite and the fact that she had assets available to meet any margin call.

In relation to the remaining duty, she alleged that the Defendants had failed to explain that:

1. the Notes were pledged as security for the loans
2. Credit Suisse could call for additional security if the value of the Notes fell, and
3. Credit Suisse could liquidate the Notes if she failed to provide that additional security.

The Claimant and the Credit Suisse employee’s evidence diverged significantly as to the extent to which the Claimant understood the investments and associated risks. The employee said that he had provided explanations on numerous occasions and that it had been obvious that the Claimant sufficiently understood how the Notes operated and the concepts of leverage, security and margin calls, all of which were also set out in numerous documents provided to the Claimant such as term sheets and leverage documents. The Claimant said that she understood very little and did not read the documents provided to her, including many she signed.

The judge preferred the Credit Suisse employee’s evidence and found that the Claimant had been dishonest, both at trial and through the conduct of the proceedings. In particular, there had been an attempt to conceal the extent of her other investments and dealings with advisers, which included entering into other structured notes, with leverage of up to 100%. She did understand the relevant concepts and had displayed a degree of financial sophistication which was not consistent with her witness evidence before the Court. Moreover, given that the Claimant was a literate and intelligent woman the Defendants were entitled to assume that she had read the written information offered, provided it was expressed in clear terms.

The judge concluded that the Claimant’s case was “based on a fiction” and that “her attempt to portray herself … as a woman who understood little about her investments, was told little, left decisions to her advisers and was wholly in their hands when it came to selection of investments did not do her any credit.”

Causation

The ultimate loss was caused by the liquidation of the Notes by the lending bank following the failure by the Claimant to meet a margin call in the stipulated time. As market conditions worsened, the Credit Suisse employee repeatedly advised the Claimant to pledge assets as collateral and to liquidate some of the Notes to reduce the leverage profile. The Claimant refused and the judge stated that in the circumstances, the decision not to meet the margin call was “so irrational as to be almost incomprehensible” and suggestive of “blind irrational pique at [Credit Suisse’s] movement of the goal posts on LTV” or a failure to believe that Credit Suisse would really take the step of liquidating the Notes to realise the proceeds.

On this basis, it was decided that chain of causation had been broken by the Claimant’s own, independent actions.

Noteworthy/ Novel points

Financial institutions will be pleased that the Commercial Court took a pragmatic approach to assessing the adequacy of risk disclosure and that ultimately, the court was swayed by evidence showing that the Claimant had received multiple copies of term sheets and leverage documents throughout the process. Moreover, the Claimant executed multiple security documents with multiple banks, sought funding from multiple sources and purchased several structured products. This activity, combined with her financial position, lead the court to determine that the Claimant had received sufficient disclosure of the risks and made an independent investment decision.