Editor's notes: The following article is by Andrew Wass, a partner at law firm Withers, on a claim by a prominent UK businessman against Credit Suisse. As always, this publication does not necessarily agree with all the comments expressed here, but is pleased to share these insights.
Richard Desmond, the media mogul whose empire includes Express Newspapers, OK! and Channel 5, has issued a claim against Credit Suisse International (authorised by the Financial Services Authority) for allegedly mis-selling him a £50 million ($78.5 million) derivative instrument, which he argues he did not understand. Credit Suisse has until 14 September in which to file and serve its defence.
Mr Desmond’s claim comes shortly after eleven banks reached deals with the FSA to compensate SMEs [small and medium-sized enterprises] who were sold (or in some cases even compelled to buy, in order to receive finance) interest rate hedging products which were of questionable value (and in some cases posed a disastrous risk) to their business. The payment protection insurance (PPI) scandal has also exposed the fact that mis-selling was happening on a large scale before the financial crisis.
Are we therefore likely to see Credit Suisse roll over and accept liability? This seems highly unlikely. In the first instance, Richard Desmond has several large hurdles to overcome in order to establish a good claim against Credit Suisse.
Unlike the SMEs (including a patisserie and a fish and chip shop) which were mis-sold complex and expensive hedging products that they did not understand or need, or individuals taking out a credit card with PPI that they did not know about, Mr Desmond is the chairman of Northern & Shell (and has been since he found the company in 1974). His company now has an annual turnover of over £700 million (around $1.1 billion) and is advised by leading law and accountancy firms. Mr Desmond’s personal wealth was estimated by the Sunday Times in 2011 to stand at around £950 million (although apparently the papers filed at court estimated his wealth at a mere £200 million).
As such, the level of knowledge and experience which might be expected of him could be sufficient to justify him having signed an “elective professional client” declaration. Certainly he would qualify as a "high net worth" investor. We do not know if Mr Desmond did in fact elect to be treated as a professional client. However, if he did, he should have received a warning from Credit Suisse that being treated as a professional client would mean that he could receive promotions of riskier types of investments (which are not available to ordinary retail clients) and that he would not be entitled to the same level of protection as a retail client.
In particular, professional clients are considered to be more experienced, knowledgeable and sophisticated and able to assess their own investment risk. A line of recent case law since the Court of Appeal decision in Springwell v JP Morgan Chase Bank has confirmed that commercial parties must look to their own interests when entering into financial transactions.