The High Court has confirmed in the case of Thomas v Triodos Bank NV that a bank owes a customer a duty to provide information relating to products, even where there is no advisory relationship between the parties. The Court confirmed the view expressed in Crestsign Limited v National Westminster Bank that, in addition to the duties not to mis-state or to provide negligent advice, a bank could be under an intermediate duty to provide full, accurate and proper information in answer to a customer’s enquiries concerning a product the bank was offering to sell.
The Information Duty
A bank’s duty to its customer, when providing it with a product, was set out in the case of Bankers’ Trust International v Sejahtera. In that case, Mance J said that “if the bank does give an explanation or tender advice, then it owes a duty to give that explanation or tender that advice fully, accurately and properly. How far that duty goes must once again depend on the precise nature of the circumstances and of the explanation or advice which is tendered”.
In Crestsign, the Judge accepted that a bank owed an intermediate duty between a duty not to mis-state and the duty not to give negligent advice. This was a duty to explain fully and accurately the nature and effects of the products in respect of which the bank chose to volunteer an explanation, even if it was not acting as an adviser to the customer (the “Information Duty”).
However, further first instance decisions in the cases of Thornbridge v RBS and Property Alliance Group Limited v RBS have suggested that the Bankers’ Trust duty may only apply in cases where an advisory relationship exists.
In 2008, the claimants, Mr and Mrs Thomas, asked Triodos Bank NV to switch their business’ bank borrowings from a variable rate to a fixed rate for a term of 10 years. They agreed this change in two tranches, on 29 May and 17 June 2008, at rates of 6.71% and 7.52% respectively. As a result of this change, they found themselves tied to far higher rates of interest than the current market rate which had fallen to 0.5% by March 2009. When, in 2009, the claimants asked what would be the cost of breaking the fixed rate loans, they were told that the early repayment charge would be £96,205.47.
The claimants argued that the bank was to blame for not explaining the true financial consequences of the fixed rate loans. They claimed that they were persuaded to enter into the loans as a result of misrepresentations by the bank and/or breaches of the Information Duty in respect of the level of the redemption charge.
Prior to the first loan fix, Mr and Mrs Thomas had asked Mr Price, their relationship manager, during a conversation on 28 May 2008 whether the redemption penalty would be between £10,000 and £20,000. Mr Price said nothing to refute this figure.
Then, prior to the second loan being fixed, there was a further conversation on 17 June 2008 between the claimants and Mr Roylance, the bank’s loans administrator. Mr Roylance told the claimants that the figure of £10,000 to £20,000 could not be right because the amount of the redemption charge would vary over time and it was therefore impossible to provide a figure at that stage. However, Mr Roylance did not then provide an adequate explanation of the redemption charge clause in the loan agreement, although it was clear that the claimants had not correctly understood the consequences of fixing the rate.
Mr Justice Havelock-Allan held that the failure of Mr Price to refute the figure of £10,000 to £20,000 suggested as the redemption charge was not only a misrepresentation in respect of the first loan fix which induced the claimants to enter into the contract but also a breach of the Information Duty. With regard to the second fix, there was no misrepresentation but it was still a breach of the Information Duty since there was no evidence that Mr Roylance had given the claimants a balanced picture of the consequences of fixing the rate.
The Judge considered that it was reasonable for a customer dealing with a bank which was a subscriber to the Business Banking Code (the “Code”) to expect the bank to adhere to the principles set out in that code. He added that where the bank had voluntarily undertaken to adhere to the provisions of the Code, the court should be ready to infer that the bank had assumed responsibility to the customer for adhering to those principles, where the bank’s terms and conditions contained no relevant disclaimers to the contrary.
The Code included a promise that if the bank was asked about a product, it would give the customer a balanced view of the product in plain English, with an explanation of its financial implications. There were no disclaimers, basis clauses or exclusions in the terms and conditions which would lead to the conclusion that the bank was not willing to assume responsibility for honouring that promise. So when the claimants enquired about fixing their loan rates, the bank owed them more than a duty not to mislead or mis-state. The duty of care which the bank owed was to explain the financial implications of fixing the rate. What was required was an explanation in plain English of what fixing the rate entailed and its consequences. This included the financial consequences of terminating the fixed rate before the end of the swap period.
This decision may revitalise the prospects for claimants who seek to rely on the Information Duty, where the bank is under no advisory duty. It is likely to need to be taken into account in future cases since all the major high street banks are signatories to the Business Banking Code and its successors, the Lending Code and the Standards of Lending Practice. Moreover, although banks’ terms and conditions usually include basis clauses which seek to disclaim liability for negligent advice, it is unlikely those clauses were designed to exclude duties under the various banking codes and it therefore remains to be seen how effective such clauses are in protecting banks against customer claims.