Financial services cases, including those concerning mis-selling, remain in focus – Crestsign Limited v Natwest & RBS [2014] EWHC 3043 (Ch) ("Crestsign") being the most recent example.
Pared back to its simplest form, Crestsign was a negligence claim in which the claimant alleged loss suffered by reason of advice given and statements made by Natwest/RBS (Banks) in relation to an interest rate hedging product (IRHP). At its core, the allegation was that the Banks had mis-sold the IRHP.
Despite the finding in favour of the Banks, the case reinforces the challenges faced by financial institutions when selling financial products.
Yet, the decision also serves as a useful roadmap to claimants when it comes to the hurdles they may have to overcome when making out a mis-selling claim.
Disclaiming Responsibility
The claimant argued that the Banks had a common law duty to use reasonable skill and care when providing advice and/or making recommendations about whether the IRHP was suitable.
However, certain basis clauses in the Banks' documents expressed that the relationship was not advisory and it was for Crestsign to make its own assessment of the suitability of the IRHP.
The Court's application of the basis clauses successfully narrowed the scope of the Banks' common law duties, in that the Banks disclaimed responsibility and did not owe a duty to use reasonable skill and care in giving advice to Crestsign about the IRHP.
However, and importantly, had those basis clauses not been incorporated into the Banks documents the Court would have held there was disparity in terms of knowledge/expertise between the Banks and Crestsign. It was therefore reasonable to expect that Crestsign would rely on the Banks' skill/judgment before committing to the product – giving rise to a duty of care where there is an 'assumption of responsibility'.
Breach of Duty
Despite this initial finding the Court helpfully went on to consider whether the Banks had breached their duty of care by giving negligent advice. In particular, it found that the product offered to Crestsign was unsuitable. The Court would have otherwise found the Banks to be in breach.
'Wider' Duty
The Court also considered whether the Banks owed a 'wider' duty to ensure the information provided was 'accurate and fit for purpose' – a duty over and above the common law duty not to misstate.
Again, the Court reinforced that the scope of the duty is dependent on the particular circumstances of the case.
Having said that, the Court was of the view that the Banks owed no duty to explain the nature and effect of the proposed transaction but chose to do so. In that regard, the Banks then had a duty to take reasonable care to fully, accurately and properly explain the nature and extent of the transaction.
While the Banks came close 'to breaching the duty [they] owed in respect of the provision of the information' that duty however did not extend to a 'duty to educate' on the products they sell. Nor did the duty extend to explaining the range of alternative products they had on offer.
Measuring Damages
The Court further considered, albeit briefly, damages. Whilst it did not entertain the exercise of assessing quantum, the decision identified that the task would not have been easy given that the IRHP was still in place.
In order to assess damages in those circumstances it would have been necessary to ascertain the parties' intention concerning break costs in the event the product was terminated early. The Court's limited comments provide at least some steer on this complex aspect of mis-selling cases.
Overall Observation
There is still much to play out in this area of the law. However, this first instance decision of Crestsign serves as another reminder that mis-selling cases remain fact specific. Evidence as to the way in which the transaction was entered into, the sophistication of the customer and why the customer entered into the transaction and the detail contained in the documents supporting the transaction are critical. In that regard, the application of basis clauses absolving responsibility and reliance on risk warnings are key considerations.
"[T]he banks did not provide misleading information. They
did provide negligent advice but they successfully excluded any
duty not to do so."
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.
