Lost Investments and Your Bank

By John Evans, Partner, Litigation Department

Doom and gloom abound. Either we are in the midst of the ‘worst recession for 80 years’ or we are heading for ‘another depression’, depending on which newspaper you read.

The headlines are dire but they are a reality for many people who have been told that their investments have been wiped out or drastically affected. Lehmans Bros is a case in point spawning class actions and litigation across the globe. So how does one understand if an investment has been mis-sold resulting in a claim for compensation?

Mis-selling financial instruments is nothing new. Consumers have been claiming for mis-sold endowment products for years. This was possible even though the policies contained no contractual guarantee of performance in their terms and conditions.

The claims in that context arise where the consumer was told something inaccurate about the investment policy that was ‘misleading’ but falls short of a contractual promise. For the consumer, if he or she had known the true position they would not have entered the contract.

In these circumstances the statements fall to be misrepresentations or a material inducement to take out the investment, for which the consumer is entitled to damages sufficient to return them to the position they would have been in had the misrepresentation not been made. Naturally if the consumer would have entered into the investment regardless there can be no damage attributable to the misrepresentation as there is no reliance.

The position is little different with other investment instruments whether seemingly of low risk and claiming a guaranteed minimum capital return of 90% of the sum invested or otherwise. Unless a bank assumes a duty of care to advise you as to appropriate investments, there is no basis for a claim that they have been negligent if the recommended investment falls over. Most banks will cover this risk adequately in their terms and conditions, ensuring such a duty does not arise in these circumstances.

In the absence of a contractual or tortious cause of action it is worth looking at the basis on which the investment was sold and the representations made, by whom, and if they were relied on as a reason to sign up to the investment. Another material factor in assessing the chances of success in such claims is one’s level of experience of similar investments, the amount of money invested and the risk profile for his or her investments to date. An appetite for risk can make argument of reliance much more difficult. Likewise any pre-conditions of the proposed investment instrument that require the investor to be classified as a ‘non-private investor’.

All such claims turn on their own facts, however, now is the time to update your risk profile if you are considering any new investments at this time, even with an institution with whom you have enjoyed a long and profitable relationship. If things do go wrong you can bet your bank will be relying on your past investment profile in its attempts to avoid your claims.

John Evans is a partner in the Litigation department at Kerman & Co LLP. If you have any enquiries in relation to litigation matters, please contact John on 020 7539 7272 or by email at [email protected]