Thornbridge Limited v Barclays Bank PLC  EWHC 3430 (QB)
The High Court has considered yet another 'mis-selling' claim brought against a bank concerning an interest rate swap and, consistent with previous approaches to such claims, held that the relevant bank had:
- not assumed an advisory role in its relationship with the customer; and
- had no obligation to provide 'full' information regarding the swap.
Nonetheless, following recent cases which have brought these issues into the spotlight once again (for example, Crestsign v National Westminster Bank ), this decision provides some useful restatements of the duties owed by banks to customers when selling financial products and the importance of contractual estoppel as a 'defence'.
The key facts
The claimant company (T), represented by its director H, entered into an interest rate swap as a condition to the provision of a £5.7 million loan (to be used by T to purchase commercial real estate) from the defendant bank in May 2008. Beforehand, H held 'no-fee' discussions with the bank's 'Corporate Risk Advisor', B, regarding interest rate hedging and the available options to shield T against rises in interest rates. However, shortly after the agreement was made, interest rates dropped significantly following the 2008 financial crisis, resulting in T paying considerably higher sums under the swap than previously anticipated.
T subsequently brought a claim against the bank on the grounds that the advice and information given to H in relation to the swap had been negligent, was in breach of contract and/or was in breach of statutory duty. In particular, T alleged that the bank had failed to provide sufficient information on the break costs of the swap and to properly explain the pros and cons of the swap and other alternative hedging products.
In rejecting T's claims, the court held (among other things) that:
- the bank had not assumed an advisory duty. While B had provided information about how the swap would operate and had given predictions on the future direction of interest rates, the Court considered that the bank had provided the customer with alternatives and sold a swap product which H had understood and decided upon, rather than recommending a hedging product in return for a fee. In this respect, applying the well-known principles expressed in JP Morgan v Springwell , the bank had not crossed the line from the usual interactions between a sales team and a purchaser into the territory of an advisory relationship.
- even if an advisory relationship did exist, the terms of the swap documentation (including a non-reliance clause) gave rise to a contractual estoppel, preventing T from alleging that the bank had given advice or was in breach of an advisory duty. The Court further stated that the contractual terms were not subject to the reasonableness test under the Unfair Contract Terms Act 1977 (and that, even if they were, they would have been reasonable).
- while the bank was required to ensure that any information it gave to T was not misleading and accurate (pursuant to Hedley Byrne v Heller ), it did not have an additional or wider duty to ensure that the information was full or complete. Moulder J explained that, where an advisory relationship is not present, a positive duty to advise fully, accurately and properly would exist only if it "rendered inaccurate or unreasonable the information provided". In any event, the information provided by the bank (including as to the indicative break costs under the swap) was generally considered to be sufficient.
This third point is interesting to compare with the recent Crestsign judgment, which indicated the possibility of a 'mezzanine' duty existing between the duty not to mis-state and the duty to advise: that where information or an explanation is provided to a customer, a bank should take reasonable care to ensure that such information/ explanation is accurate, proper and fit for purpose. Crestsign is currently on appeal, due to be heard in April 2016.
The takeaway lessons
The Thornbridge decision applies settled principles to the particular facts of the case. It represents a further failed mis-selling claim which the Judge concluded was based on hindsight. It also provides some comfort that the sales discussions and procedures employed by the bank in these circumstances did not expose the bank to liability as an 'adviser'.
However, banks would still be wise to proceed with caution as the Courts will always carefully scrutinise the relevant factual circumstances in order to ascertain the true nature of a relationship between a bank and its customer. For this reason and, particularly given that the scope of a bank's information/explanation duties may well be explored further in the forthcoming Crestsign appeal, banks' sales-forces should be wary of providing or volunteering explanations or value judgments regarding the suitability of financial products, especially to non-sophisticated customers.