In the latest in a line of court rulings upholding disclaimers, the High Court, in the recent case of Crestsign v NatWest & RBS, held that, as a result of careful disclaimer wording, the banks did not owe a common law duty of care to their customer not to provide negligent advice.
Crestsign is a small family-owned company which took out a loan facility of approximately £3.5 million with NatWest in May 2008. One of the terms of the loan was that RBS would provide an Interest Rate Management (IRM) product, the terms of which would be negotiated between the banks and Mr Parker (managing director of Crestsign).
Mr Parker professed to be “particularly stupid” about “these hedging products” which, he said “I don’t really understand”. The RBS representative, a Mr Gillard, said he would “lay out all of the options” and proceeded to give an outline of a number of available IRM products, some of which he went on to propose in writing. At the time of the written proposals, Mr Gillard also provided a Risk Management Paper and two sets of standard terms and conditions, all of which contained detailed disclaimers containing words to the effect that “RBS provide a non-advisory dealing service.. You should consult with such advisers as you deem necessary to assist you… [RBS] will not act and has not acted as your legal, tax, accounting or investment adviser….”.
Mr Gillard had proposed four alternative IRM products including two types of 10 year swaps, one of which Mr Parker ultimately selected despite (as it was held) not properly understanding the nature of the product. The Court highlighted two fundamental points which characterised the swap Crestsign entered: (i) it was a separate and independent contract from the underlying variable rate loan; and (ii) its duration (10 years) was different from, and longer than, the five year loan – which would not necessarily be renewed.
The transactions completed on 6 June 2008, following which the Bank of England base rate fell from 5% to 0.5% by March 2009. As a result, Crestsign was bound to pay the difference between the 0.5% base rate and the 5.65% fixed swap rate, amounting to 5.15%, on top of interest at 2% on the underlying loan of £3.5 million. Mr Parker could not extricate Crestsign from the arrangement as a result of the high break costs of the swap which were then estimated at approximately £600,000. He then issued proceedings in May 2013, claiming that RBS/NatWest had mis-sold the swap.
The Court concluded that the banks had, as a matter of fact, provided advice on the IRM products to Crestsign. Specifically, Mr Gillard gave advice in the form of the recommendations that the IRM products were suitable for Crestsign’s business. Further, it was reasonably to be expected that Crestsign would rely on the banks' skill and judgement in providing this advice. Ordinarily in such circumstances a duty of care would arise. However, in the specific facts of this case the banks had successfully disclaimed responsibility for the advice that they had given and therefore could not be liable in negligence.
A secondary claim that the banks had provided misleading information about the IRM products also failed. The Court concluded that the banks did owe Crestsign a duty to explain accurately, without misleading, the effect of the IRM products. However, it also concluded that the banks had not breached their duty in relation to the provision of information.
It seems likely that this case will be appealed, since the Court held that if the banks had owed a duty to Crestsign, they would have breached this duty by recommending an unsuitable IRM product.
This judgment does not digress from the line of previous case law on the provision of advice. It highlights the difference between the court’s view of such disclaimers and that of the FOS, which tends to be more favourable to recipients of advice regardless of the strength of purported disclaimers.
Given limitations or restrictions of liability under the regulatory system are prohibited for retail clients by COBS 2.1.2, all that firms can hope to do to achieve the same effect with retail clients before FOS is to use terms of business to narrow the scope of their service to help demonstrate, as a matter of fact, that no advice was given.