Bank mis-selling claims are, like the substantial books of professional advisor claims brought by lenders, very much the children of the 2008/9 recession. However, unlike those professional negligence claims, which have faded away in recent years, mis-selling claims remain lively contributors to the litigation landscape. We predict 2017 will see renewed attacks by disgruntled banking customers on ‘no advice’ clauses, which will increase banks’ litigation risk in mis-selling claims.
No advice clauses state that a bank is not giving its customer advice on the suitability of the product being sold. Courts typically uphold these clauses even where the bank has in reality given advice: the customer is ‘contractually estopped’ from relying on the actual position and the bank therefore avoids the legal duties associated with being an advisor. This has proved a major defensive weapon for banks in recent mis-selling claims.
Customers have previously deployed a number of creative arguments to try to get around no advice clauses without much success. But a possible new line of attack arises from the judgments in two recent non-banking cases: Globe Motors and MWB Business Exchange. These cases considered the legal effect of clauses stipulating that a contract can only be varied in writing with appropriate signatories. Most standard-form banking contracts contain similar anti-oral variation clauses and their purpose is to prevent the customer later arguing that key contractual terms (such as no advice clauses) have been varied orally or by course of conduct. However, in both Globe Motors and MWB Business Exchange, the Court of Appeal held that anti-oral variation clauses do not necessarily achieve this result: parties are essentially free to vary their contractual relationship, including any previously agreed variation requirements, as they see fit.
This could be problematic for banks who contract not to advise a customer, but who then proceed to provide information/data/views/analysis which might ordinarily be said to constitute advice. If the relationship sours, the judgements in Globe and MWB Business Exchange could embolden the customer to argue that the no advice clause has been superseded by a subsequent non-written variation. From the bank’s perspective, this would make the outcome of any subsequent claim more uncertain and increase the risk of a (potentially substantial) damages award.
No advice and anti-oral variation clauses will remain important protections for banks – indeed, we think in most cases they will continue to provide full protection. But the doctrine of contractual estoppel is likely to prove less robust than has previously been the case, and banks should be conscious of the increased risk associated with straying into an advisory relationship.