The recent swaps misselling case of Thornbridge v Barclays(2015) has provided reassurance for banks about the scope of the duties applicable to sales teams in the swaps context. Unless advice has actively been provided and responsibility for that advice clearly assumed, the only obligation is not to misstate any information provided to customers. The Court specifically declined to find any broader duty to provide full information. In addition, it is open to banks to protect themselves from liability by defining their relationship with customers as non-advisory.
The Claimant, a private limited company, had entered into a 15 year loan with the Defendant in April 2008. In order to comply with one of the loan conditions, the Claimant had also entered into a five year swap in May 2008. As the base rate fell in the course of that year, and the gap between the swap fixed rate and base rate increased, the Claimant found itself faced with proportionally higher costs under the swap. However, having been given an indicative quote of £565,500 in break costs to exit, the Claimant opted to continue making payments under the swap until maturity in May 2013.
Following termination, the Claimant brought a claim alleging that the Defendant had breached its duty of care when selling the swap product. Specifically, it was the Claimant's case that the Defendant was under a duty to advise customers on suitable products and a duty to provide full, accurate and proper information.
The Court found on the facts that the Defendant had not given any advice and had not assumed any advisory duty. The starting point was not contentious: a bank does not generally owe a duty of care to advise its customers, but if it undertakes to provide advice, it must do so with reasonable skill and care. On the facts, the views expressed by the Defendant's sales staff to the customer were those of a salesman with an opportunity to sell a product, not those of an adviser. The Defendant had not charged any advice fee and the sales staff would have been keenly aware of the regulatory distinction between sales and advice. The fact that the employees were based in the "Corporate Risk Advisory" department did not establish an advisory duty, nor did clauses in the written documentation to the effect that the Defendant "may" provide the customer with advice. Recommendations in the documentation that customers should seek independent advice were also relevant.
Even if an advisory duty had been assumed, the Defendant would have successfully disclaimed liability. Under the terms of the swap confirmation, the Claimant had represented that it was not relying on any communication as investment advice and understood that advice had not been provided. The Claimant was therefore contractually estopped from arguing that the Defendant was under a duty to advise. As the clauses were basis clauses, rather than exclusion clauses, the Unfair Contract Terms Act 1977 (the "Act") was not applicable. However, if the Act had applied, it would have been reasonable for the Defendant to define its relationship with the customer in this way.
The Court held that the only duty of the Defendant was not to misstate the information that it provided. It then went on to assess whether the failings identified by the Claimant amounted to breaches of the duty not to misstate. As there had been no indication that the Claimant might want to refinance the facility, the Defendant could not have been expected to provide further information about break costs or the implications of swaps on refinancing, as those scenarios seemed unlikely to arise. The duty not to misstate also did not impose any obligation to set out the comparative advantages and disadvantages of the full range of available hedging products. Finally, there had been no failure in terms of ensuring the swap's suitability: the swap was perfectly suitable for the Claimant's purpose of trying to protect itself against adverse rate rises.
The Court also dismissed the assertion that had the Claimant been properly advised, it would have chosen to enter into a cap rather than a swap. The Judge found that only an investor convinced that rates were about to rise would have opted for the cap, given the premiums payable. There was no evidence that such convictions formed part of the considerations of the Claimant's director when entering into the swap.
The Court's willingness to draw a clear distinction between sales and advice in this case is helpful for banks from a commercial perspective: imposing a general duty to advise or a duty to provide full information on sales teams would have had an onerous effect.
That said, the fact pattern of this case was particularly helpful for the Defendant here: one of the directors of the Claimant was an experienced businessman of significant means and there was limited evidence to support the case that the product was actually unsuitable.