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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Gestmin SGPS SA v Credit Suisse (UK) Ltd & Anor [2013] EWHC 3560 (Comm) (15 November 2013) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2013/3560.html Cite as: [2013] EWHC 3560 (Comm), [2020] 1 CLC 428 |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
Gestmin SGPS S.A. |
Claimant |
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| - and - |
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| (1) Credit Suisse (UK) Limited (2) Credit Suisse Securities (Europe) Limited |
Defendants |
____________________
Adrian Beltrami QC and David Simpson (instructed by Gibson & Co. Solicitors Limited) for the Defendants
Hearing dates: 3 21 October 2013
____________________
Crown Copyright ©
| Section | Para. Number |
| A. Introduction | 1 |
| The parties and the claim | 2 |
| The claim in brief | 5 |
| Witnesses | 12 |
| Evidence based on recollection | 15 |
| B. Factual History | 24 |
| Manuel Champalimaud | 25 |
| Meeting in Zurich in March 2005 | 29 |
| Mr Champalimaud's understanding of English | 31 |
| Interest in buying the family cement business | 34 |
| Mr Champalimaud's financial sophistication | 38 |
Opening Gestmin's accounts |
39 |
| The Customer Profile Form | 41 |
| Portfolio Mandate | 47 |
| Visit to London in April 2005 | 49 |
| Meeting with Mr Wichmann | 54 |
| Mr Lopes | 56 |
| The July 2005 investments | 57 |
| Industrial investments | 60 |
| Two more alternative investments | 64 |
| Investment in QWIL | 65 |
| More investments | 73 |
| The Celbi Bid | 77 |
| Meeting in April 2006 | 79 |
| Loan request | 82 |
| Meetings in June & July 2006 | 90 |
Gestmin's change of strategy |
92 |
| Instructions to sell QWIL | 100 |
| Liquidation of the Portfolio | 104 |
| Subsequent history of the QWIL investment | 107 |
Notification of Gestmin's claim |
114 |
| C. Duties Owed by Credit Suisse | 116 |
| Was there a duty to explain risks? | 121 |
| D. Alleged Breaches of Duty | 125 |
(1) Consistency with Gestmin's investment objectives |
132 |
(2) Gestmin's alternative case on suitability |
146 |
| (3) The misrepresentation claim | 154 |
| (4) Alleged failure to explain the risks | 158 |
| (5) The Portuguese Law issue | 165 |
| Conclusion on liability | 176 |
| E. Quantum of loss | 177 |
| Date of loss | 178 |
| Calculation of loss | 191 |
| Alternative use | 192 |
| F. Decision | 197 |
MR JUSTICE LEGGATT:
A. Introduction
Gestmin")
invested 11,150,000 in an Initial Public Offering of shares in a company called Queen's Walk Investment Limited ("QWIL"). It did so on the advice of the second defendant, Credit Suisse Securities (Europe) Limited. In this action
Gestmin
claims that the advice was negligent and asks the court to award damages for loss suffered as a result of making the investment.
The parties and the contract
Gestmin
is a Portuguese company established in 2004 as an investment vehicle for Mr Manuel Champalimaud.
Gestmin
and Credit Suisse entered into a Client Agreement under which Credit Suisse agreed to provide private banking services to
Gestmin
consisting of "general investment advisory and dealing services in securities". The relationship manager for
Gestmin
and Mr Champalimaud's point of contact with Credit Suisse was Mr Humberto de Sousa who, like Mr Champalimaud, is Portuguese. At the relevant time Mr Sousa was a director of Credit Suisse, based in London but dealing mainly with Portuguese and Spanish clients.
The claim in brief
Gestmin
made a series of investments in financial products on the advice of Credit Suisse.
Gestmin's
claim in this action relates to only one of the investments made: the purchase in December 2005 of 1,115,000 shares in QWIL at a price of 10 per share. QWIL was an investment company whose strategy was to invest in the 'equity' or 'first loss' tranche of mortgage-backed securities. For reasons that are now well known, that strategy has not proved to be a rewarding one for those who held investments in such securities at the time of the 'sub prime mortgage crisis' which began in 2007 and reached its height in 2008. In the last quarter of 2008 the quoted price of shares in QWIL fell as low as 0.51 per share. The value of the shares subsequently recovered somewhat but is still far below the price for which they were purchased by
Gestmin.
Gestmin
gave instructions to Credit Suisse in September 2006 to try to sell several of its investments, including its shareholding in QWIL. In November 2006 Credit Suisse was instructed to liquidate
Gestmin's
entire portfolio. For reasons which are in dispute, the shares in QWIL have still not been sold. It is agreed between the parties' financial experts that as at 30 September 2013 the value of the shares was around 3.9 million.
Gestmin
was a letter sent on its behalf by English solicitors to Credit Suisse on 14 September 2010. The present action was begun in October 2011, almost six years after the investment in QWIL was made.
Gestmin's
central complaint is that QWIL was an unsuitable investment for Credit Suisse to recommend because it was an investment with high risk and low liquidity, whereas
Gestmin's
objectives were allegedly to make investments with low risk and high liquidity which would provide collateral for loans up to a high percentage of their value.
Gestmin
faces in advancing this case is that, when
Gestmin
opened its account with Credit Suisse, Mr Champalimaud signed forms which identified
Gestmin's
investment objective as long term capital growth and indicated that
Gestmin
was prepared to accept a high level of risk and that its liquidity needs were low.
Gestmin's
response to this has been to allege that Mr Champalimaud signed the forms under a mistake as to their contents and that Credit Suisse was aware of and indeed responsible for this mistake.
Gestmin
further alleges that Credit Suisse misrepresented and/or failed to explain to
Gestmin
the risks of investing in QWIL. A point is also taken that offering shares in QWIL to
Gestmin
allegedly involved a breach of Portuguese law.
Witnesses
Gestmin
called six further witnesses of fact. They were:
i) Mr Jorge de Abreu, a Portuguese lawyer who is an old friend of Mr Champalimaud;
ii) Mr Fernando Lopes, the former Financial Director of
Gestmin;
iii) Ms Isabel Santos, who is Mr Champalimaud's secretary;
iv) Mr Antonio Oliveira, the Investments Director of
Gestmin;
v) Mr Luis Medeiros, who is employed by
Gestmin
as a Financial Analyst; and
vi) Mr Manuel Berberan, who works for Banco Portugues de Investimento ("BPI").
Gestmin
(but not Credit Suisse) called an expert on Portuguese securities law.
Evidence based on recollection
B. Factual History
Gestmin's
claim, I will first recount the history of the relationship between the parties and record my findings on various matters of disputed fact.
Manuel Champalimaud
Incorporation of
Gestmin
Gestmin
was incorporated at the end of 2004 to administer his inheritance. The assets transferred to
Gestmin
comprised shares in Banco Santander valued at 90 million, deposits of 31 million with BPI and shares in the holding company for the family businesses in Brazil.
Meeting in Zurich in March 2005
Mr Champalimaud's understanding of English
Interest in buying the family cement business
Gestmin's
assets would be needed for that purpose and there would be few funds remaining to invest through Credit Suisse. I also think it likely, however, that Mr Champalimaud would have regarded and described this possibility as unlikely to materialise, which was why he was actively considering investing his inheritance in financial assets on the advice of Credit Suisse. I think it unlikely that Mr Champalimaud mentioned to Mr Sousa the possibility of his investing in other industrial businesses because I do not think that he had developed any such plan at that stage.
Mr Champalimaud's financial sophistication
Gestmin
should or should not make. I find that, when he was introduced to Credit Suisse, Mr Champalimaud had very little experience of financial investment and was not familiar with sophisticated financial products such as hedge funds. However, I consider that Mr Champalimaud had a good understanding of basic principles of finance and well understood concepts such as liquidity, leverage, diversification, income and capital growth, market fluctuations and the balance between investment risk and return.
Opening
Gestmin's
account
Gestmin's
contention that Mr Champalimaud signed these documents under a mistake as to their contents, considerable attention has been devoted to attempts to reconstruct how and by whom these forms were completed.
The Customer Profile Form
Gestmin
has retained a copy of the form marked "minuta" (i.e. "draft") on which all the handwriting is that of Ms Santos. In some places she has written "ver c/Mr Champalimaud" meaning "check with Mr Champalimaud". It is clear, therefore, that Ms Santos had not yet spoken to Mr Champalimaud when she prepared this draft. It is also clear that Ms Santos would not without being told have known what to write on the form when specifying, for example,
Gestmin's
reason for opening the account and its investment objectives. I find that, as Ms Santos claimed in evidence, she entered this and other information on the form following guidance given to her over the telephone by Mr Clausell.
Gestmin's
income or funds that Credit Suisse should be aware of or take into account when planning the investments of the account.
"Having traded for more than 10 years in all the kind of asset classes in my own name with several banks."
I find that all these answers were dictated or suggested by Mr Clausell.
"Having traded for more than 10 years inallthekind ofasset classes above in my own name with several banks."
"Client has invested in similar alternative investments through other banks not only in Hedge Funds but also in Private Equity."
This went well beyond even the lies which Mr Champalimaud had furnished in the Customer Profile Form. Mr Champalimaud had not invested in any such alternative investments previously through other banks and Mr Clausell had no reason to believe and I am sure did not believe that he had.
Portfolio Mandate
"An emphasis on growth in capital over time. The pursuit of high returns results in greater risk to capital. The investment horizon is typically long term and liquidity needs are low."
Visit to London in April 2005
Gestmin
has contended that Mr Sousa devised this objective without having discussed with Mr Champalimaud his willingness to invest in hedge funds. I regard that as improbable. I have no doubt that Mr Sousa was keen to encourage Mr Champalimaud to invest in hedge funds and specifically in those managed by Cheyne and another major UK hedge fund manager, Permal Investment Management Services Limited ("Permal"), with whom Credit Suisse also had a close relationship. It was clear from Mr Sousa's evidence that he regarded such investments as good for his clients and also good for himself and Credit Suisse because they were long term investments on which Credit Suisse received substantial fees and commissions on a recurring basis year after year. Mr Sousa explained that he was not paid a salary by Credit Suisse and that his entire remuneration depended on the amount of fees and commissions that he generated. I am also sure, however, that Mr Sousa would have been keen to advertise the advantages of investing in hedge funds to Mr Champalimaud at the earliest opportunity and would not have arranged meetings for him in London without having first discussed with him the object of the trip and the kinds of investment which were to be presented. I do not suppose that Mr Sousa had by that stage discussed with Mr Champalimaud a specific objective of building a portfolio with Cheyne's five hedge funds. I think it probable, however, that Mr Sousa had discussed and agreed with Mr Champalimaud in Zurich the plan that Mr Champalimaud would make a trip to London during which Mr Sousa would introduce him to the two hedge fund managers most favoured by Credit Suisse and receive presentations on their products. I have no doubt that there were also explanations given to Mr Champalimaud in Zurich of the general nature of hedge fund investment.
Meeting with Mr Wichmann
Gestmin
account (15 million in the first instance) which he would actively manage in consultation with Mr Champalimaud. The intention was to invest in whatever were considered to be the best investment opportunities at any particular time. It was proposed that, once this "advisory" portfolio had been built up over a period of about three months, it would be leveraged with another 15 million so as to increase the amount invested to 30 million.
Gestmin's
offices in Cascais outside Lisbon. On this occasion Mr Sousa was also introduced to
Gestmin's
new Financial Manager, Mr Fernando Lopes, who had begun to work for
Gestmin
in May 2005.
Mr Lopes
Gestmin
was strictly limited to matters of accounting and that he was never involved with any financial investment made by
Gestmin.
I reject that evidence as demonstrably untrue. I do accept, however, that Mr Lopes had little experience or expertise in investment analysis.
The July 2005 investments
Gestmin
made its first investments on the advice of Credit Suisse. These comprised a portfolio of hedge funds managed by Permal, Cheyne and another manager, GSO, and the advisory portfolio to be managed by Mr Wichmann. The total amount invested in hedge funds was 40 million, of which 15 million was invested in four Permal funds, 15 million in two Cheyne funds and 10 million in a GSO fund.
Gestmin's
very large holding of shares in Santander.
Industrial investment
Gestmin
as Investments Director. His job was to identify potential investment opportunities in industrial companies. In giving oral evidence Mr d'Oliveira said that, when he started, he was given a budget of up to 50 million as the maximum amount for such investments. This corresponds to a statement made by Mr Sousa in an internal Credit Suisse memorandum in December 2006 that, when Mr Champalimaud started working with Credit Suisse, "he said that his direct investment would be capped at 50 million".
Gestmin
to live off and potential for leverage to fund investments in industry. I do not consider, however, that Mr Champalimaud identified at that time any need for
Gestmin's
financial portfolio to have a high loan to value ratio ("LTV") or high liquidity.
Gestmin
with the following breakdown:
i) 30 million in the advisory portfolio managed by Mr Wichmann;
ii) 40 million in a hedge fund portfolio;
iii) 37 million still invested in Santander shares (though these were gradually being sold); and
iv) The remaining amount (of 27 million) invested in money market funds and term deposits.
Gestmin
nor did Credit Suisse ever provide
Gestmin
with any document disclosing the basis of commissions or other remuneration receivable by Credit Suisse in connection with any transaction, as required by the terms of the Client Agreement.
Two more alternative investments
Gestmin
subsequently invested in each of these funds.
Investment in QWIL
Gestmin's
claim in this action was made on 8 December 2005. There is no documentary record of any meeting between Mr Sousa and Mr Champalimaud to discuss this investment. The only documents recording relevant communications are:
i) An email from Mr Sousa to Mr Clausell sent on 20 November 2005, evidently in anticipation of a trip to Portugal, instructing Mr Clausell to bring various information for
Gestmin
including (a) "consolidated figures to present to Fernando Lopes" and (b) a presentation from Credit Suisse on "Cheyne IPO" which must be a reference to the Initial Public Offering of shares in QWIL. It appears that no copy of the presentation to which this email refers has survived.
ii) A Credit Suisse log entry for a meeting with Fernando Lopes at the Ritz Hotel on 22 November 2005 between 4 and 5 pm.
iii) A letter from Mr Clausell to Mr Lopes dated 29 November 2005 enclosing the preliminary prospectus for the QWIL share offer.
iv) An email from Mr Sousa to Mr Champalimaud (also copied to Mr Lopes) dated 8 December 2005, which refers to a telephone conversation the previous day and confirms two investments, one of which was the purchase of 1,115,000 shares in QWIL.
v) Emails from Mr Sousa to his CEO, Mr Marshall, dated 9 and 12 December 2005 arguing that Mr Sousa's group should receive a larger than usual share of the commission received by Credit Suisse from the sale of QWIL shares. One of the reasons advanced by Mr Sousa was his team's "efforts made in pitching our clients". He explained that "in order to be able to place Queen's Walk, we travelled together with Queen's Walk's managers to meet our clients and also had several conference calls with them."
Gestmin
in Cascais. Mr Champalimaud did not remember Mr Lopes being at the meeting. Mr Champalimaud said that he could not remember what Mr Sousa said about the product but he recalls being worried about being over-exposed to investments managed by Cheyne. According to Mr Champalimaud, Mr Sousa reassured him by telling him that the QWIL investment was a low risk product and equivalent to an AAA bond but with a return of over 13%. In his witness statement Mr Champalimaud referred to this as "an expected return of over 13%". In his oral evidence he described it as a "guaranteed" return. Mr Champalimaud also gave evidence that Mr Sousa told him that Credit Suisse was itself making a substantial investment in QWIL of 250,000.
Gestmin
to discuss investing in QWIL. However, he said that he arranged for all his clients in Spain and Portugal to receive presentations on QWIL from the Cheyne managers. In some cases he travelled to see the client, in some cases the client came to London to meet the managers, and in other cases the presentation to the client was made in a conference call. Mr Sousa was unable to state whether the presentation to
Gestmin
was made in a meeting or conference call and, if in a meeting, where the meeting was held. Mr Sousa denied that he would have made any of the representations alleged by Mr Champalimaud apart from mentioning a 13% return (which is indicated in the prospectus).
Gestmin.
I think it likely, however, that Mr Sousa made a presentation of QWIL at a meeting on 22 November 2005 at the Ritz Hotel in Lisbon attended by Mr Lopes. I think it unlikely that Mr Champalimaud was also present for the following reasons:
i) Mr Sousa's email of 20 November 2005 and the log entry for the meeting refer only to Mr Lopes;
ii) The preliminary prospectus was subsequently sent to Mr Lopes;
iii) Mr Lopes's recollection of the meeting (for what it was worth) was that he collected documents to take back to Mr Champalimaud; and
iv) It is apparent that Mr Lopes was being given a fair degree of delegated responsibility at around this time to discuss investments as evidenced by the fact that in January 2006 Mr Lopes made a two day visit to London without Mr Champalimaud during which he met (amongst others) Mr Wichmann and managers at Cheyne and Permal.
Gestmin
had been allocated being about 89% of its order of 1,250,000 shares in circumstances where the offer had been over-subscribed. I am sure that Mr Champalimaud would not have decided to invest in QWIL without some prior discussion directly with Mr Sousa, and that Mr Sousa would have been keen to speak to Mr Champalimaud in order to "pitch" the investment to him. I therefore think it likely that there was at least one earlier telephone conversation between Mr Sousa and Mr Champalimaud in which the investment was discussed. This may well have included a conference call with one of the Cheyne managers responsible for QWIL.
Gestmin's
claim.
Gestmin
is a research report on QWIL prepared by Citigroup dated 8 November 2005. When asked about this document, Mr Champalimaud said he has been told by Mr Medeiros, who joined
Gestmin
in August 2006, that it was Mr Medeiros who obtained this document. I think that unlikely. I note that on 9 March 2006 one of Mr Sousa's assistants sent a similar Citigroup research bulletin on QWIL dated 8 February 2006 by email to Mr Lopes. I think it most likely that the November 2005 Citigroup research document was given to Mr Lopes at the meeting on 22 November 2005.
More investments
i) 9.5 million to be invested in two Permal funds;
ii) 10 million to be invested in the Cheyne Special Situation B Fund;
iii) The purchase of 2 million of shares in Caterpillar;
iv) Various investments recommended by Mr Wichmann for the advisory portfolio; and
v) Authority to leverage the advisory portfolio up to 15 million.
Gestmin's
portfolio of financial assets who had specific expertise in that area, which Mr Lopes did not have.
Gestmin's
account, Mr Champalimaud had decided to open a personal account with Credit Suisse.
Gestmin
made another hedge fund investment of US$7.5 million in the Jolly Roger Off-Shore Fund and a further 10 million was invested through Mr Champalimaud's personal account which included an investment of 5 million in the Cheyne Global Catalyst Fund.
The Celbi bid
Gestmin
submitted an indication of interest in acquiring a Portuguese company called Cellulose Beira Industrial SA ("Celbi"). Celbi was a company which had been started by Mr Champalimaud's mother's family in partnership with Swedish investors. Its business was producing paper pulp. Mr Champalimaud's mother's family had sold their share but now the owners of the company wanted to sell it. Mr Champalimaud decided that he wanted to make a bid for Celbi. In its indication of interest,
Gestmin
proposed to pay a cash purchase price of 425 million.
Gestmin
on the security of the financial portfolio in order to help finance a bid for Celbi. I find, however, that nothing about this prospective investment was said by Mr Champalimaud to Mr Sousa before then.
Meeting in April 2006
Gestmin's
financial portfolio which reduced the potential to leverage the portfolio for purposes other than further financial investment. In particular, Mr Champalimaud decided that he wanted to increase the target return of the portfolio to double figures by making investments in leveraged products. To that end, he gave instructions to switch
Gestmin's
remaining investment of 5 million in the Cheyne Multi Strategy Fund to the Cheyne Multi Strategy Leverage Fund and to invest 5 million in a Credit Suisse structured product which was three times leveraged and represented a "dynamic basket of Permal hedge funds". Mr Champalimaud also gave instructions for two further hedge fund investments of US$2 million and 1 million. Further potential hedge fund investments were also discussed which might be added to the portfolio after the sale of the remaining Santander shares.
Loan request
Gestmin's
remaining holding in Santander shares or selling the Santander shares and using the proceeds in three alternative ways. On the most favourable option, the LTV indicated was 48%.
Gestmin
was under pressure at that time to finalise its bid for Celbi, for which the deadline was 9 June 2006. The final offer which
Gestmin
submitted for the acquisition of Celbi on 5 June 2006 offered a purchase price of 333 million, which comprised debt of 200 million to be financed from the cash flow of the business and cash equity of 133 million. According to Mr d'Oliveira, Mr Champalimaud had expected to be able to raise the full amount of the proposed equity investment by leveraging the financial portfolio. As the value of the portfolio at that time was around 160 million, this would have required a LTV of the order of 80% - much higher than the maximum of 48% which Credit Suisse in fact offered. In his note of that telephone call Mr Sousa recorded that he went through with Mr Champalimaud "the liquidity issues related with his portfolio, mainly the lack of liquidity on private equity and hedge fund investments".
Gestmin
to make a lower offer for Celbi than it would otherwise have done. In the event
Gestmin
was not successful in acquiring Celbi because another bidder made an offer which was almost 30% higher than
Gestmin's.
Gestmin
to go forward and proceed with this attempt to purchase Celbi". This assertion was withdrawn and his witness statement corrected at the start of his evidence at the trial. By this time Mr Champalimaud had obviously been reminded of the documents which showed that
Gestmin
had in fact gone forward and submitted a final offer for Celbi and that the failure of its bid was unconnected with the LTV of the portfolio. In his evidence Mr Champalimaud attributed the error in his witness statement to a mistake made by
Gestmin's
former solicitors which was passed on to
Gestmin's
current solicitors. The mistake must have originated, however, from Mr Champalimaud's instructions and I have no doubt that he was still under the mistake when he made his witness statement. The significance of this error is simply that it is one of many illustrations of the extent to which Mr Champalimaud's recollection of relevant events so many years after they occurred has diverged materially from what actually happened.
Meetings in June and July 2006
Gestmin's
offices. At this meeting Mr Sousa also discussed with Mr Champalimaud the asset allocation in the portfolio and went through the liquidity and redemption periods for each asset class.
Gestmin
as a financial analyst). Mr Wichmann recorded afterwards:
"I got a very positive feeling from our meeting withGestmin
in Cascais "
Arrangements were made at the meeting for Mr Champalimaud's daughter to attend a Young Investors Program in Zurich organised by Credit Suisse a further sign that Mr Champalimaud's relationship with Mr Sousa was still friendly. In so far as Mr Champalimaud sought to suggest that he was purely putting on a front at that time in maintaining good relations with Credit Suisse, I reject his evidence.
Gestmin's
change of strategy
Gestmin
would be looking for more direct investment opportunities in the short to medium term. He asked to have a new facility put in place secured on the portfolio for 45 million.
Gestmin
on 28 August 2006. In an email sent that day he informed Mr Sousa that one of his first objectives, along with the optimisation of the portfolio, would be to prepare a list of the assets in the portfolio in terms of their liquidity and the possibility of using them as collateral in the event of a financing operation. Mr Medeiros also indicated that he was open to ideas from Credit Suisse "to assess whether they fit into the strategy that Mr Champalimaud wants to implement".
Gestmin's
offices in Cascais with Mr Champalimaud and Mr Medeiros. At this meeting Credit Suisse was informed that
Gestmin
had now established new objectives for its portfolio. These objectives were confirmed in an email which Mr Medeiros sent the next day to Mr Sousa. As stated in that email, the new objectives were:
"( High liquidity (specifically in terms of collateralisation)
... Volatility of around 5% - 8% or one-off opportunities, substantiated, with higher volatility
... 2-digit profitability objective"
"Change inGestmin's
Investment Objectives
Gestmin
announces that, following the Celbi acquisition process, it intends to change the investment objectives of its portfolio in Credit Suisse.
The new objectives look for the maximisation of the liquidity in the portfolio, maintaining the current return/volatility bias.
Following that change, we request Credit Suisse to re-analyse the current asset allocation and take the best efforts to search a solution for some of the illiquid positions."
Gestmin
was changing the investment objectives for its portfolio so as to bring them into line with the objective which Mr Champalimaud had always had of a liquid portfolio which could be used as collateral for direct investment in industry. I regard that evidence as an attempt to argue that black means white or white means black. The fax which Mr Medeiros drafted simply does not say that
Gestmin
wished to bring the portfolio into line with what had always been its objective of looking to maximise the liquidity of the portfolio. On the contrary, it stated that the maximisation of liquidity in the portfolio was a "new objective" and represented a "change in
Gestmin's
investment objectives".
Gestmin
needed the assistance of Credit Suisse in selling some of the investments in the portfolio. I think it likely that the fax was requested by Mr Sousa. That provides no reason to believe, however, that what it said was not true. The fax was in any case not the only communication from
Gestmin
which made it clear that its investment objectives had changed. In particular, as I have indicated, the fact that
Gestmin
had set new objectives for the portfolio which included high liquidity of assets to provide collateral for borrowing had already been explained in the email sent by Mr Medeiros to Mr Sousa on 22 September 2006.
Gestmin's
investment objectives first announced at the meeting on 21 September 2006 and recorded in the fax dated 10 October 2006 followed a broader change of strategy on Mr Champalimaud's part in the aftermath of the Celbi bid to look for other similar investment opportunities which might require greater borrowing than had previously been contemplated. Moreover, I infer from the reference in Mr Clausell's note of the meeting on 21 September 2006 to "the possibility of a new private equity deal
similar to the Celbi deal" that such an opportunity was by then under consideration. This was probably the investment made by
Gestmin
in the acquisition of a telecommunications company called ONI which was announced on 10 November 2006.
Instructions to sell QWIL
Gestmin's
full holding in QWIL at a price up to 5 cents below the average price of the shares during the previous 15 days. The other investments which
Gestmin
also decided to sell were its holdings in China Harvest, the Credit Suisse Global Private Real Estate Fund and the Cheyne Multi-Strategy Leveraged Fund.
"...Gestmin
is working on a new private equity transaction that will lead to important cash/leverage needs;
...Gestmin
decided to review their CS portfolio's Asset Allocation by increasing its level of liquidity, in order to maximise its collateralised leverage;
... Our Credit Department is willing to lend 84MM againstGestmin's
current portfolio worth 157MM (around 54% LTV), which is not enough for
Gestmin's
cash needs (100MM+);
... The Client asked CS "best effort" to sell 4 of their illiquid holdings that have zero or very low assigned LTVs;
... The amounts invested/committed in those 4 holdings are in excess of 37MM;
... Client's decision to "sell" these holdings is related with their asset re-allocation (Gestmin
feels comfortable with these investments and when they have invested in those assets they knew well the terms of the investments, namely their liquidity conditions);
... Given the importance of this Client (AUM 157MM / Annual Revenues in excess of 1.5MM) it is key to involve management and other CS groups in this process."
Gestmin
was willing to accept a price below the quoted ask price but above the bid price which the potential buyer was looking for. However, no deal materialised. Attempts were also made to sell QWIL shares in small tranches of 5000, though with a limit of 10.70 placed on the price which
Gestmin
would accept. However, only 3,915 shares were sold in this way.
Liquidation of the portfolio
Gestmin
gave further instructions to Credit Suisse to sell most of the portfolio. An email from Mr Champalimaud dated 17 November 2006 informing Mr Sousa of this decision explained that it was due to other investments that
Gestmin
was making and disappointment with the quality, liquidity and performance of its investments with Credit Suisse. The CEO of Credit Suisse, Mr Marshall, travelled with Mr Sousa to Portugal for a meeting with Mr Champalimaud on 11 December 2006, in an attempt to rescue the relationship. However, Mr Champalimaud was now set on a strategy of investing
Gestmin's
funds directly in industry, with further such investments in the pipeline. He was intent on liquidating
Gestmin's
financial assets to raise cash for this purpose, even though this involved incurring penalties for early redemption in the case of some of the investments.
Gestmin
sold almost all its financial portfolio. As Mr Medeiros explained in his witness statement, the selling of the investments which had low liquidity was undertaken "even if the performance of those products was good and in many cases despite the fact that there were relatively heavy redemption fees to be paid". The reason for the sales was that Mr Champalimaud wanted
Gestmin
to have the money available to invest in industry.
Gestmin
has still not been able to redeem. The other is the shareholding in QWIL which is the subject of this claim.
Subsequent history of the QWIL investment
Gestmin
did not sell any more of its shares in QWIL do not emerge with any clarity from the disclosed documents. Although there is conflicting evidence about trading volumes, it is apparent that there was little liquidity in the stock. There is also evidence that, although
Gestmin
wanted to sell its shares, it was not willing to do so at the prices offered in the market, which were lower than the price paid by
Gestmin
and what it believed the fair value of the shares to be. A further factor which informed
Gestmin's
view of what the shares were worth was that in 2006 and 2007 QWIL was paying and expecting to continue to pay substantial dividends, with a target yield of at least 10%.
Gestmin
"should keep an eye on the position with a view to a possible sale at a price that we consider fair (around 10.75)".
Gestmin
decided not to participate in these tender offers. As explained by Mr Medeiros in his witness statement, the difficulty with them was that they were at levels significantly lower than the price of 10 per share paid by
Gestmin,
and as a result they were considered unattractive.
Gestmin
still retains its entire shareholding of 1,115,000 shares purchased in December 2005, apart from the 13,915 shares sold in 2006.
Notification of
Gestmin's
claim
Gestmin's
claim for damages for loss flowing from its investment in QWIL was first given to Credit Suisse in a solicitors' letter dated 14 September 2010. I accept the evidence of Mr Champalimaud and of Mr de Abreu that Mr Champalimaud had started to consider the possibility of making a claim some time earlier, probably in late 2008, and that there was some delay in finding and instructing English solicitors to act for
Gestmin.
The fact remains, however, that by the time the claim was first asserted almost five years had elapsed since the shares in QWIL were purchased.
Gestmin's
case is that, in advising
Gestmin
to purchase the QWIL shares, Credit Suisse was negligent and in breach of duties of care owed to
Gestmin
in contract and in tort.
C. Duties Owed by Credit Suisse
Gestmin,
Credit Suisse agreed to provide "general investment advisory and dealing services". It is common ground that it was an implied term of the contract that Credit Suisse would perform those services with reasonable skill and care. It is also common ground that Credit Suisse owed a concurrent duty of care to
Gestmin
in tort.
"You may on occasion ask us to effect certain transactions on your behalf without seeking our advice as to the merits of the transaction. On these occasions we will not be responsible for advising you as to their investment merits."
Gestmin
as to the merits of buying shares in QWIL. That was never a promising position to adopt, particularly when (according to a letter dated 25 September 2013 from the solicitors acting for Credit Suisse) Mr Sousa's team received 140,490 in commission for selling the QWIL shares to
Gestmin,
and when Mr Sousa had argued at the time for an even larger slice of the total remuneration received by Credit Suisse in the light of his efforts made in pitching the deal to his clients. The position was rightly abandoned by Credit Suisse in its closing submissions, by which time Mr Sousa had admitted in evidence (albeit amidst considerable evasion) that he had indeed recommended the investment to
Gestmin.
Gestmin
in recommending the purchase of shares in QWIL included:
i) a duty to ensure that the investment was suitable for
Gestmin,
taking into account its investment objectives; and
ii) a duty to ensure that any statements made about the investment were factually accurate.
Gestmin
understood the nature and risks of the proposed investment.
Was there a duty to explain risks?
Gestmin
understood the risks of the investment, Mr Phillip Moser QC placed reliance on the provisions of the FSA Handbook at the relevant time relating to "private" customers. In particular, COB Rule 5.4.3 stated that a firm must not (amongst other things) make a personal recommendation of a transaction to a private customer "unless it has taken reasonable steps to ensure that the private customer understands the nature of the risks involved." Mr Moser submitted that, whilst the ambit of the duty of care owed by a financial advisor at common law is not necessarily co-extensive with the duties owed by that advisor under the applicable regulatory regime, its regulatory obligations afford strong evidence of what is expected of a competent advisor in most situations.
Gestmin
did not fall within the definition of a "private" customer so that COB Rule 5.4.3 did not apply. That submission was plainly correct. In the FSA Handbook at the relevant time the definition of a "private" customer excluded a client who is an "intermediate" customer. The definition of an "intermediate" customer included a client who is not a "market counterparty" and who is a body corporate with net assets of at least £5 million.
Gestmin
fell within that description. For the purpose of the regulations,
Gestmin
was therefore an "intermediate" customer and not a "private" customer. Accordingly, COB Rule 5.4.3 did not apply.
D. Alleged Breaches of Duty
Gestmin's
case that Credit Suisse was negligent and in breach of duty in advising
Gestmin
as to the merits of buying shares in QWIL has been put on five grounds.
Gestmin's
primary contention is that the QWIL shares were an unsuitable investment having regard to
Gestmin's
investment objectives because the shares were a high risk investment with low liquidity whereas
Gestmin
required low risk investments and high liquidity which could be used as collateral for a high percentage of their value. This case presupposes that
Gestmin's
investment objectives were incorrectly stated in the Customer Profile Form and Portfolio Mandate. As mentioned earlier,
Gestmin
alleges that Mr Champalimaud signed those forms under a mistake as to their contents and seeks, if necessary, an order for rectification of the forms based on the doctrine of unilateral mistake.
Gestmin
argues that, even if the QWIL investment was consistent with its stated objectives, the investment was still unsuitable because of the risks involved.
Gestmin
claims that it was induced to buy the QWIL shares by misrepresentations about the nature of the investment allegedly made by Mr Sousa in a conversation with Mr Champalimaud.
Gestmin
makes a case that it was mis-sold the shares because under Portuguese law it was only permissible to sell shares in the initial offer to "institutional investors", and
Gestmin
was not such an investor.
(1) Consistency with
Gestmin's
investment objectives
Gestmin's
primary case is based on the contention that its investment objectives at the time of the investment in QWIL were not as stated in the Customer Profile Form and Portfolio Mandate.
Gestmin
contends that, contrary to what was stated in those forms, it required low risk investments, with high liquidity and a high LTV. The experts have agreed that the QWIL shares represented a high risk investment which would not have been a suitable investment for a client with those objectives.
Gestmin's
investment objectives. I am satisfied that they did for the following seven reasons.
Gestmin's
investment objectives which they did not believe or had no reason to believe were true. Given my finding of false statements made in other documents, I do not start with any presumption of integrity in their favour. But simple prudence and the incentive to build a successful relationship with a potentially very important customer provided powerful reasons not to pursue investment objectives which Mr Champalimaud had not actually endorsed and not to miss-state his objectives in the forms he was asked to sign. It would have been foolhardy to invite Ms Santos to indicate false investment objectives in the forms in the hope that Mr Champalimaud would not notice. Credit Suisse had to expect that Mr Champalimaud would read through the forms before he signed and returned them, whether or not he in fact did. The allegation made on behalf of
Gestmin
that there was some (not clearly specified) form of sharp practice by Credit Suisse is therefore in my view improbable and entirely unsubstantiated.
Gestmin's
investment objectives between Mr Champalimaud and Mr Sousa or between Mr Sousa and Mr Clausell or between Mr Clausell and Ms Santos. However, that possibility seems to me to be fairly remote.
Gestmin's
case. It shows that Mr Champalimaud was indeed prepared to accept a high level of risk, as stated in the Customer Profile Form.
Gestmin's
account and (b) the selection in the Portfolio Mandate of "Growth" as
Gestmin's
investment objectives, including the description of this objective as suitable where the investment horizon is long term and "liquidity needs are low".
"I'm studying some applications with Credit Suisse that involve higher risk but which also have promising returns. I intend to substantially reduce my liquidity in BPI, not because of any lack of service, but because I am interested in products that are not available in BPI."
Gestmin's
account with Credit Suisse and that his intention at the time when he was deciding on the investments for
Gestmin's
financial portfolio was to limit any direct investment in industry to a maximum of 50 million which would not require the portfolio to be liquid. It was only when Mr Champalimaud decided to bid for Celbi and then re-evaluated
Gestmin's
investment objectives in the aftermath of that bid that the need for high liquidity and a high LTV arose.
Gestmin's
investment objectives communicated to Credit Suisse in September and October 2006 was exactly that, and involved adopting a new objective of maximising the liquidity of the portfolio in order to support greater borrowing for direct investments as recorded in the contemporaneous documents. It is notable that even in September 2006, although now seeking high liquidity,
Gestmin
was still pursuing an objective of two digit profitability which indicates that Mr Champalimaud (now assisted by Mr Medeiros) was even then still prepared to accept a high level of risk in pursuit of high returns.
Gestmin's
shares in QWIL was therefore taken only after
Gestmin's
investment objectives changed and the company now required high liquidity.
Gestmin's
portfolio that the investment in QWIL and all the other illiquid investments in the portfolio had been inconsistent with
Gestmin's
objectives when they were made, I do not consider that he is a man who would have kept silent about that. I reject the suggestion that a decision was taken not to say anything critical of Credit Suisse because their co-operation was needed in trying to dispose of the unwanted investments. If Mr Champalimaud had thought that Credit Suisse had failed to respect
Gestmin's
investment objectives when they had recommended the QWIL investment (or any other investment) to him, I am sure he would have said so and given that complaint as a reason why he expected Credit Suisse to help him dispose of the investment on the best possible terms. He would certainly not have waited several years, as in fact occurred, before making any complaint about the recommendation to invest in QWIL.
Gestmin's
investment objectives were correctly stated in the Customer Profile Form and Portfolio Mandate and remained accurate when Mr Champalimaud accepted the recommendation to buy shares in QWIL. The QWIL investment was therefore consistent with
Gestmin's
investment objectives.
(2)
Gestmin's
alternative case on suitability
Gestmin's
case at the trial, Mr Moser QC made a submission that, even if the Customer Profile Form accurately identified
Gestmin's
investment objectives, Credit Suisse acted in breach of its duty only to recommend suitable investments in light of "the litany of risk factors associated with the QWIL investment". No details of this alternative case were given in the particulars of claim, where the allegation of unsuitability is based solely on the premise that
Gestmin's
objectives required investments to be (a) low risk, (b) fully liquid and (c) suitable for use as collateral for a high percentage of their value. However, Mr Moser sought to base his submission on the evidence of
Gestmin's
financial expert, Dr Wallace Wormley.
Gestmin
on the alternative hypotheses (a) that the Customer Profile Form correctly reflected
Gestmin's
investment objectives and (b) that
Gestmin's
objectives were as pleaded in the particulars of claim and stated in Mr Champalimaud's witness statement. Unfortunately, in giving his opinion in his report, Dr Wormley did not answer these two separate questions, in that he addressed the issue of suitability without at any point indicating whether he was doing so on the assumption that the Customer Profile Form did, or that it did not, accurately reflect
Gestmin's
investment objectives.
Gestmin
in 2005 was stated as being "the extraordinary litany of risk factors" articulated in the pathfinder prospectus and final prospectus for the QWIL shares. Having made this statement, Dr Wormley set out over the following five pages of his report a list of some 40 risk factors taken from the QWIL prospectus. He then asserted that this long list of risk factors made investing in QWIL "a step too far into the risk quagmire".
Gestmin
too far into the "risk quagmire", or why, or indeed how the question of what in Dr Wormley's opinion was too far into the quagmire is to be decided. To the extent that it was possible to guess what, if any, thinking underlay Dr Wormley's statement, the impression given was that he thought that the sheer number of risk factors mentioned in the prospectus was what made the investment unsuitable for
Gestmin.
This impression gained some encouragement from the conclusion stated at the end of Dr Wormley's report:
"I conclude that given the overwhelming number of risk factors and the lack of mapping of the client's articulated objectives of liquidity to purchase operating business [sic] an investment in a risky fund, without liquidity was not a suitable product forGestmin."
This suggested that, in so far as Dr Wormley's opinion did not depend on the assumption that
Gestmin's
articulated investment objectives included a requirement of high liquidity, it was simply the number of factors listed in the prospectus which in Dr Wormley's view made QWIL an unsuitable product for
Gestmin.
Gestmin,
never became clear from his evidence. The selection of some of them for example the risk that there might be changes in the tax treatment of investments and special purpose vehicles appeared more or less arbitrary. It was difficult to avoid the impression that, in giving his opinions, Dr Wormley was making them up as he went along.
Gestmin.
Dr Wormley never properly answered that question. Although QWIL's strategy of investing in the first loss tranche of mortgage-backed securities has proved to be a bad one, Dr Wormley did not suggest that this should have been apparent to any reasonably competent financial advisor in 2005. He accepted that Cheyne, the investment manager for QWIL, was a well-reputed manager, that the share offering was underwritten by three major investment banks and that the research departments of at least two major investment banks took a positive view of QWIL as an investment. It is notable too that the share offer was over-subscribed. In these circumstances it would seem hard to maintain and I did not understand Dr Wormley to try to maintain that QWIL was an inherently unsuitable investment for any reasonably competent financial advisor to recommend to any client. On the other hand, Dr Wormley did not identify any particular characteristics of
Gestmin
which made the investment unsuitable for
Gestmin
on the assumption (which I have found to be correct) that
Gestmin
was prepared to accept a relatively high level of risk and low liquidity in pursuit of higher returns.
Gestmin
to advance. No notice of such a case had been given before Dr Wormley gave oral evidence. No such case was put in cross-examination to Mr Sousa, and Credit Suisse did not have a fair opportunity to meet it. But in any case Dr Wormley's evidence was incoherent and did not provide any reasonable basis for any alternative case as to the alleged unsuitability of the QWIL shares.
(1) The misrepresentation claim
Gestmin
was induced to buy the QWIL shares by misrepresentations made by Mr Sousa to Mr Champalimaud depends entirely on the recollection of Mr Champalimaud eight years after the relevant events. The representations are said to have been made orally at a meeting in
Gestmin's
offices in Cascais some time in November 2005. As mentioned earlier, the representations alleged are that QWIL: (a) was a "low risk product" and was equivalent to an "AAA bond"; (b) had an expected return of over 13%; and (c) had been the subject of a substantial investment from Credit Suisse.
i) As mentioned earlier, it was Mr Champalimaud's evidence that the representations were made to reassure him when he expressed concern that there was too much investment with Cheyne. I think it unlikely, however, that Mr Champalimaud expressed or had such a concern at the time, not least because he chose on 24 December 2005 (immediately after the QWIL investment) to invest a further 10 million with Cheyne, followed by another 5 million investment in the Cheyne Global Catalyst Fund at the end of March 2006.
ii) I think it inherently unlikely that Mr Sousa would have described QWIL as a "low risk product" or the equivalent of an "AAA Bond" when it was apparent from the preliminary prospectus and from the Citigroup research bulletin which was also probably provided to
Gestmin
that QWIL was not a low risk investment and plainly nothing like an AAA bond. Although Mr Sousa would not necessarily have expected Mr Champalimaud to study the prospectus or the Citigroup research, I do not think he could or would have assumed that Mr Champalimaud would ignore those documents.
iii) It is quite conceivable that Mr Sousa said that QWIL had an expected return of at least 13%, as this was indicated in the prospectus and the Citigroup research. If such a representation was made, it would therefore have been true. I think it equally, if not more likely, however, that Mr Champalimaud's recollection of this information derives from reading one or both of those documents (either at the time of receiving them or, more probably, some time later when he became concerned about the investment). Moreover, the fact that in his oral testimony Mr Champalimaud embellished what he had said in his witness statement by claiming that Mr Sousa had represented that the return was "guaranteed" further illustrates the unreliability of his evidence.
iv) Mr Champalimaud's evidence that he was told by Mr Sousa that Credit Suisse had itself made a substantial investment in QWIL is not credible. Credit Suisse did not itself invest in QWIL and it is improbable that Mr Sousa would have invented such a claim. Moreover,
Gestmin's
case and Mr Champalimaud's evidence as to the amount of the alleged investment has vacillated. In the particulars of claim dated 20 February 2012 it was said to be 250 million. However, in Mr Champalimaud's witness statement dated 21 March 2013 the amount was said to be 250,000. At the start of the trial, presumably on instructions, Mr Moser applied for and was granted permission to amend the particulars of claim to change the figure of 250 million to 250,000 in line with Mr Champalimaud's witness statement. However, when called to give evidence, Mr Champalimaud said that the figure of 250,000 given in his witness statement should be changed to 250 million. The difficulty for Mr Champalimaud, which probably explains his vacillation on the point, is that neither figure makes sense. An investment of 250,000 would not have been a significant sum for Credit Suisse or much of an inducement to Mr Champalimaud to invest over 11 million of
Gestmin's
money. On the other hand, 250 million would have been more than the entire value of the offer shares (which was 225 million). The origin of Mr Champalimaud's recollection may be a statement in the prospectus that the Underwriters of the share offer (Citigroup and Goldman Sachs) would subscribe for 250,000 shares (at the offer price of 10 per share). Mr Champalimaud may well have transposed this information into a belief that he was told that Credit Suisse (which was not an underwriter but was a co-manager) would be investing in shares worth 250,000 (or 250 million).
v) The reliability of Mr Champalimaud's evidence is undermined yet further by the fact that the representations alleged were not mentioned in the letter before claim dated 14 September 2010. That letter did contain a general allegation that "the characteristics of the QWIL investment were misrepresented/not disclosed by [Credit Suisse]". However, when Credit Suisse asked for particulars of this allegation, the answer given by
Gestmin's
solicitors (in a letter dated 28 October 2010) indicated that no specific representation was being alleged; the contention was that by presenting QWIL as an investment suitable for
Gestmin
Mr Sousa impliedly represented that it conformed with
Gestmin's
objectives and was therefore a low risk, liquid investment with a high LTV. The first occasion on which specific oral misrepresentations by Mr Sousa were alleged was in the particulars of claim dated 20 February 2012. Mr Champalimaud sought to attribute the omission of this allegation from the letter before claim and subsequent correspondence to the incompetence of his former solicitors. I think it much more likely that Mr Champalimaud did not at that stage recall the representations allegedly made by Mr Sousa and that his subsequent recollection is not founded on fact.
Gestmin's
misrepresentation claim.
(4) Alleged failure to explain the risks
Gestmin's
case, as stated in the particulars of claim, is that Credit Suisse failed to provide any or any proper advice or explanation as to the nature and risks of the QWIL investment. I have already considered the extent to which it can be said that Credit Suisse owed a duty to give any such advice or explanation as a matter of law. As a matter of fact, however, no details of any specific risks which Credit Suisse ought allegedly to have explained were identified in
Gestmin's
statements of case; nor did Dr Wormley address this question in his expert report.
Gestmin
set out nine alleged risks of the QWIL investment and argued that Credit Suisse had a duty to advise and to warn
Gestmin
of all of these risks. In making this argument
Gestmin
sought to rely on answers given during cross-examination by Dr Fitzgerald, the expert witness called by Credit Suisse.
Gestmin's
attempt to develop its case in this way at the end of the trial is not legitimate. It is a basic principle of procedural fairness that a party is entitled to know what case it has to meet before it presents its own case and its witnesses give evidence.
Gestmin's
approach, if permitted, would stand that principle on its head. For this reason even if for no other,
Gestmin's
claim must be rejected.
Gestmin
seeks to rely went no further than to agree that various factors put to him were risks of the QWIL investment. He did not express any opinion and it was not suggested to him that the risks in question were of sufficient importance that they should have been specifically highlighted or drawn to
Gestmin's
attention. In the case of most of the factors, it is scarcely surprising that no such suggestion was made. For example, I find it difficult to see why the fact that
Gestmin
had already invested substantial sums in other funds managed by Cheyne should be regarded as a significant risk factor, especially when different individuals were managing the different funds and the company which chose and employed them (Cheyne) evidently had a good track record and reputation. The risk was described as an "operational" risk that Cheyne might become insolvent thereby causing difficulties for all the funds under its management. However, that concern strikes me in the absence of any evidence to the contrary, of which there was none to fall a long way down the risk scale.
Gestmin's
case is that it has failed to prove that Mr Sousa did not in fact explain or ensure that Mr Champalimaud understood the risk of "extra volatility" or any of the other risks canvassed with Dr Fitzgerald. Mr Champalimaud was not asked whether or not Mr Sousa had warned him of those risks for the very good reason that at the time when he was giving evidence the duty to warn of those particular risks did not yet form part of
Gestmin's
case. It was in any case clear and inevitable that neither Mr Champalimaud nor Mr Sousa had any real recollection of what Mr Sousa said about the nature and risks of the QWIL investment. Furthermore, as mentioned earlier, the written presentation which Credit Suisse apparently prepared does not appear to have survived. In these circumstances there is no evidence on which I could properly conclude that Credit Suisse failed sufficiently to explain to
Gestmin
any material feature or risk of the QWIL investment.
Gestmin
submitted that the court is in no position to make a finding that
Gestmin
was properly advised of the risks inherent in the investment. I accept that submission. However, the court is also in no position to find that
Gestmin
was not properly advised of such risks. It is
Gestmin
which bears the burden of proving its claim and it was unable to do so. Even if the case which
Gestmin
has sought to pursue on this issue were open to it, therefore, that case must be rejected for lack of proof.
(5) The Portuguese law issue
Gestmin's
claim is a discrete point arising out of the fact that the preliminary prospectus for the QWIL IPO sent by Credit Suisse to
Gestmin
on 29 November 2005 contains the following statement:
" The Offer Shares may only be sold, offered or distributed in Portugal, in compliance with Article 110 of the Portuguese Securities Code to Institutional Investors Accordingly, this Prospectus may only be distributed in Portugal to Portuguese Institutional Investors and may not, in any circumstances, in whole or in part, be reproduced, redistributed, published or delivered, nor their contents disclosed by any means, directly or indirectly, to any other person. Any action taken contravening the aforementioned restrictions may cause the application of Portuguese legal provisions governing public offers of securities in Portugal "
Gestmin
adduced evidence from an expert on Portuguese law, Professor Camara, establishing that
Gestmin
was not an "institutional investor" as defined in the Portuguese Securities Code (Article 30). Professor Camara also confirmed that to make a public offer of shares in Portugal aimed at people who were not institutional investors would have involved a breach of the Securities Code by the offeror, although it would not have been a breach to accept such an offer.
Gestmin
contended that in these circumstances the QWIL shares were not a suitable investment for Credit Suisse to recommend to
Gestmin
and that it was negligent of Credit Suisse to do so. Alternatively,
Gestmin
contended that the restriction stated in the prospectus ought to have been specifically drawn to Mr Champalimaud's attention and that, had that been done,
Gestmin
would not have purchased shares in QWIL.
Gestmin
took place in the UK, where
Gestmin's
holding was purchased by a Credit Suisse company on its behalf. However, although I have not been able to determine with any certainty exactly what communications took place prior to the sale, I have found that a meeting took place in Lisbon on 22 November 2005 which was attended by Mr Lopes on behalf of
Gestmin
at which Credit Suisse gave a presentation recommending the QWIL shares as an investment. According to the uncontradicted opinion of Professor Camara, such a recommendation to invest in the QWIL shares constituted an offer relating to securities addressed specifically to a person in Portugal for the purposes of Articles 108 and 109 of the Securities Code. Furthermore, the fact that such an offer was addressed to
Gestmin
and that
Gestmin
was not an institutional investor meant that the offer was not aimed solely at institutional investors and therefore was not an offer automatically considered private by reason of Article 110.
Gestmin.
Professor Camara confirmed that the fact that QWIL shares were offered to
Gestmin
and that
Gestmin
was not an institutional investor would not itself involve any illegality; a breach of the Securities Code would occur only if there was a "public offer". As indicated, proof that there was a "public offer" would require evidence that an offer of shares in QWIL was addressed to more than 200 people or to unidentified recipients. There is no such evidence. The only evidence about the scope of the offer was that, in addition to
Gestmin,
Credit Suisse recommended investment in QWIL to three or four other clients in Spain and Portugal who had also previously invested in other funds managed by Cheyne. Assuming that these other clients were likewise not institutional investors, this evidence falls far short of showing that there was a "public offer" within the meaning of Article 109 of the Securities Code. It follows that no breach of the Securities Code has been established.
Gestmin
or meant that it was negligent for Credit Suisse to recommend them. Nor do I consider that it was necessary for Credit Suisse specifically to point out the restriction or to explain its meaning. Had Credit Suisse done so I am confident that it would in any case have made no difference to Mr Champalimaud's decision to invest. Professor Camara confirmed that, even if there had been a breach of the Securities Code, the breach would have been by the offeror of the shares and not by
Gestmin.
Mr Champalimaud's evidence that, if advised of the restriction, he would not have agreed to buy the shares would be entirely credible if by buying the shares
Gestmin
was breaking the law (as I think Mr Champalimaud probably had the impression when he gave that evidence). Had it been explained to Mr Champalimaud that buying shares in QWIL would not place
Gestmin
in breach of any Portuguese legal provision, however, it is improbable that he would have been deterred from buying the shares by the possibility that if the shares were marketed widely enough to constitute a public offer this would involve a breach of the Portuguese Securities Code by someone else.
Gestmin
has also failed to make good its case based on an alleged breach of Portuguese law.
Conclusion on liability
Gestmin
has failed to show that Credit Suisse was in breach of duty in any of the respects alleged. It follows that Credit Suisse has no liability to pay damages to
Gestmin.
E. Quantum of Loss
Gestmin
has suffered as a result of investing in QWIL does not arise. For completeness, however, I will briefly indicate my findings on this question.
Date of loss
Gestmin's
loss should be assessed.
Gestmin
contends that the appropriate date is the date of the trial. Credit Suisse argues for an earlier date.
"In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. The plaintiff has acquired the asset and what he does with it thereafter is entirely up to him, freed from any continuing adverse impact of the defendant's wrongful act. ... But in cases where property has been acquired in reliance on a fraudulent misrepresentation there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired." (emphasis added)
"as a general rule, the benefits received by [the claimant] include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered."
"If that method is inapposite, the court is entitled simply to assess the loss flowing directly from the transaction without any reference to the date of transaction or indeed any particular date. Such a course will be appropriate whenever the overriding compensatory rule requires it."
i) the claimant was aware of the facts giving rise to the claim;
ii) the claimant could readily have sold the property acquired as a result of the defendant's wrong at a price which fairly reflected the value of the property; and
iii) it would not have been unreasonable for the claimant to sell the property (referred to by Lord Browne-Wilkinson as being "locked into" the investment).
Gestmin
was by then aware of the facts giving rise to the claim and, in the opinion of Dr Fitzgerald, could have sold a substantial proportion of its shares in the market over that three month period at a price at or above the purchase price of 10 per share. Alternatively, Credit Suisse proposes October 2007, being the date of the first tender offer.
Gestmin
would have stood a "good chance" of selling a substantial proportion of its shares (he declined to say all) by selling them in small parcels over a period of three months from October to December 2006 was based on reports published by Bloomberg of the monthly trading volumes of shares in QWIL. Those reports indicate that the total volumes traded were: 524,925 shares in October, 3.05 million shares in November, and 329,876 shares in December 2006. However, there is other evidence about trading volumes which is at odds with the information reported by Bloomberg. This includes the Credit Suisse presentation dated 25 September 2006, referred to at paragraphs 101-102 above, which refers to an average daily volume of 3,000 shares. Assuming 20 odd trading days per month, over three months this would equate to a total market volume of around 180,000 shares, which is only about 15% of
Gestmin's
shareholding. There is also evidence that in October 2006
Gestmin
tried to sell its QWIL shares in small tranches of 5,000, albeit seemingly with a limit of 10.70 on the price, and had no success apart from one sale of 3,915 shares. A liquidity table sent by Credit Suisse to
Gestmin
on 18 December 2006 describes QWIL shares as traded "daily but with very low volume".
Gestmin
could not in any event have divested itself of its full shareholding through the tender offers. In those circumstances the dates of the tender offers are not appropriate dates at which to value
Gestmin's
holding, nor do the tender offers demonstrate that
Gestmin's
shareholding in QWIL was a readily marketable asset; rather the opposite.
Gestmin
could have sold many more of its shares in QWIL than it did, and indeed could probably have sold all them over time if it had been willing to accept lower prices. However, as indicated above, the relevant question in my view is whether there was a time at which
Gestmin
could have sold the shares at a price which fairly reflected their value. Looking at the evidence as a whole, I think it clear that
Gestmin
could not at any time have sold its (very large) shareholding in QWIL other than with difficulty and a significant loss of value. I conclude that it would not be appropriate to assess
Gestmin's
loss suffered from purchasing the shares at either of the dates contended for by Credit Suisse or at any other historic date. The loss should therefore be assessed at the time of trial.
Calculation of loss
Gestmin's
loss on its investment in QWIL as at 30 September 2013 after giving credit for dividends received and a small profit made on the 13,915 shares sold in 2006. The amount calculated by Dr Fitzgerald, which is slightly more favourable to
Gestmin
than that calculated by its own expert, is 2,872,277 and I assess
Gestmin's
loss in this sum.
Alternative use
Gestmin
also claims damages for profits which it would allegedly have made if the money used to purchase the QWIL shares had instead been invested in a "low-risk, liquid investment in accordance with
Gestmin's
investment objectives" (see paragraph 49 of the particulars of claim).
Gestmin's
portfolio. It appears that the money would then have been used along with
Gestmin's
other assets to fund direct investments in industry. There is no evidence dealing with this, however, or indicating the likely level of return from any such investment.
Gestmin
invited the court to award damages based on a calculation performed by Dr Wormley of the profit that would have been made from investing in a portfolio of financial investments which performed in line with a "portfolio mix of the major benchmark indices used by investors around the world". The benchmark indices used by Dr Wormley reflected a portfolio invested in a mix of shares in different world stock markets, bonds, hedge funds, commodities and US property. On Dr Wormley's calculation, as of 31 March 2013 the value of
Gestmin's
investment would have grown to 15,935,848.
Gestmin
has not adduced any evidence of how the money invested in QWIL shares would otherwise have been used and the probable return from such use, it has failed to prove a claim for damages for loss of profits from any alternative use. Had
Gestmin
succeeded on liability, it would therefore have been confined in compensation for loss of use of its money to a claim for interest under section 35A of the Senior Courts Act 1985.
F. decision
Gestmin's claim fails and must be dismissed.