The High Court has recently considered whether a lender owed a
duty of care in contract or tort to advise a borrower of a
potentially onerous clause in a loan agreement - and found that it
In Finch v Lloyds TSB Bank PLC, the
defendant and a company (B) entered into a 10 year fixed term loan
for £11.6 million. The claimant (as assignee of B's cause
of action) alleged the defendant had failed to advise B of onerous
terms in the loan agreement and, in particular, that it would be
liable for the costs associated with repaying the loan early - some
£1.5 million. The claimant argued B could not refinance its
borrowings without borrowing or paying those additional break costs
and, as a result, was unable to refinance at a lower interest rate.
This ultimately meant B's business failed and B went into
administration. The claimant also alleged the defendant had
negligently misrepresented that the loan had been tailored to suit
The High Court dismissed the claim. The claimant alleged a
breach of the Supply of Goods and Services Act 1982 s13 which
implies a term that a supplier will carry out the service with
reasonable skill and care. However, the claimant had not pleaded
any contract which imposed a duty on the defendant to provide
advice. B's and the defendant's commercial interests were
diametrically opposed and B had been represented by professional
advisors throughout the negotiations. The defendant owed no
contractual duty of care to B.
Neither was the defendant under a duty to give disinterested
voluntary advice that was or might be contrary to its commercial
best interests. The defendant had not been negligent.
The claim for negligent misstatement also failed. B had not told
the defendant that it wanted to repay the loan early. The defendant
had tailor made the loan to B's requirements as they had been
made known to it, but subject to the qualification that it was not
required to subordinate its commercial interests to those of B and
Things to consider
A bank is not under a general legal obligation to provide advice
to borrowers, but if it does provide it, it must do so using
reasonable care and skill. There would need to be exceptional
circumstances for a duty to give voluntary advice to be owed by a
bank to a borrower, where the advice relates to terms commercially
favourable to the lender and, particularly so, where the borrower
has its own legal representation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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