A recent case shows the delicacy required by a bank in dealing with claims by customers who blame the bank for their having borrowed more than their income justifies.

The customer had a complex and unsatisfactory borrowing history at the Bank for a number of years. A settlement of various claims made against the bank was agreed. Subsequently the customer attempted to claim damages in respect of the original claims by bringing this case, alleging that she had been induced by the Bank to settle by misrepresentation, undue influence, economic duress, breach of fiduciary relationship and illegality. The court rejected all her claims.

Points of interest arising in the judgment of the court are:

  • the Bank's management of the relationship with this indebted customer was described as "sensitive" by the judge. She was in a vulnerable position after the death of her husband. She had borrowed more money on overdraft on the basis that her business income justified it. It turned out that it did not. The Bank was entitled to call in its loan when the customer was no longer able to repay the borrowings, but instead of standing on its rights, it looked for a way forward and did not put the customer under pressure.
  • the customer (a former, founder member of the Bank Action Group) was not represented in court by a solicitor. As a point of procedure, the judge commented that if she had been represented, the Bank would probably have been compelled to answer the specific particulars of claim (there were 81 paragraphs) instead of stating in a single sentence that every claim was denied. The judge was also surprised this was not picked up in the case management conference.
  • the Bank had suggested that she take formal legal advice in connection with the settlement agreement in dispute, but she had not done so.

The judgment shows the fine line a bank has to tread in managing a difficult lending situation. From the commercial perspective, the bank needs to ensure that the money it lends is repaid, but from an ethical perspective, it needs to act sensitively where a complex relationship with a defaulting borrower in difficulty builds up over a number of years. The difficulty for the bank is in gauging how to conduct that relationship profitably. In this case, it is difficult to see how the Bank could have avoided ending up as the defendant to this litigation, except perhaps in relation to the pension issue.

Law: Wright v HSBC [2006] EWHC 930 (QB) 5 May 2006

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The original publication date for this article was 22/05/2006.