Lender not obliged to advise borrower about onerous term
In Finch and another v Lloyds TSB Bank Plc and others, the High Court considered whether a lender had a duty to advise a borrower about a clause in its loan agreement making it liable for the bank's hedging break costs if the borrower chose to repay a fixed rate loan early.
It was alleged that Lloyds owed a duty to advise the claimants as to the existence of any onerous terms in a loan agreement and that Lloyds failed to warn or advise it of the scope and effect of the break costs provision therein. The claimants contended that a duty to advise arose because of the close relationship between the borrower and the lender - that Lloyds was not simply a source of finance but was, as it described itself, a "trusted advisor" to the borrower and its investors.
The Claimants also alleged that Lloyds negligently misrepresented that the loan agreement had been "tailored" to its needs when it had not been; the costs of early exit made the loan unsuitable for the Claimants and Lloyds had been informed of the Claimants' intentions to repay early.
On the facts, the judge held that Lloyds had no contractual duty to advise the borrower about the terms of the loan agreement and neither did it have a duty of care in tort. His Honour Judge Pelling QC commented that such a duty to advise would arise incircumstances that "would have to be exceptional and markedly different from the conventional relationship of banker and customer" This case did not fall into that "exceptional" category, particularly as the claimants had been represented by a broker and solicitors.
In relation to the allegation regarding misrepresentation, it was found that Lloyds had not been informed of the Claimants' intention to repay early. Furthermore, the judge considered that the obligation to "tailor" could only be a promise to offer facilities that took account of the needs of the borrower to the extent that the bank in its commercial judgment was prepared to do so, but not to offer facilities on terms that effectively subordinated its commercial interests to those of the borrower. Under existing authorities, Lloyds was not under a general duty to give advice. The phrase "trusted advisor" was deemed to be simply a phrase used by the bank to set itself apart from it competitors and had "no other significance".
Towegate Underwriting Group Limited fined for client and insurer money failings
Towergate Underwriting Group Limited (Towergate), an insurance intermediary, has been fined £2,632,000 by the FCA for failings in relation to its protection of client and insurer money. Mr Timothy Philip, the company's former Client Money Officer has also been fined £60,000 and band from having direct responsibility for client and insurer money.
Between June 2005 and December 2013, Towergate accumulated a shortfall of £12.6 million in its client and insurer money bank accounts which went undetected for a number of years because of systems and controls weaknesses. The FCA found that Towergate failed to comply with CASS Rules and Principles 3 and 10 of the FCA’s Principles of Business.
The FCA found that Mr Philip failed to exercise due skill, care and diligence in managing the business for which he was responsible and that he is not a fit and proper person to have direct responsibility for either client or insurer money.
The failures did not result in any actual loss of client or insurer money and Towergate did rectify the shortfall in time.
Both Towergate and Mr Philip agreed to settle early and therefore qualified for a 30% (stage 1) discount under the FCA's executive settlement procedures.
FCA, 13 July 2016
Former equities trader at Schroders Investment Management sentenced for insider dealing
Damian Clarke, a former equities trader at Schroders Investment Management, has been sentenced to two years imprisonment after pleading guilty to nine counts of insider dealing.
Between October 2003 and November 2012, Mr Clarke received inside information about significant corporate events, mainly anticipated public announcements of mergers and acquisitions. He used this information to place trades using accounts in his own name and that of close family members, in respect of which he had been provided with the account numbers and passwords. The total profits made from Mr Clarke’s insider dealing amount to at least £155,161.98.
FCA, 13 June 2016