Titan Steel Wheels (“Titan”), a manufacturer of steel wheels for the ‘off-highway’ vehicle industry and a subsidiary of a large engineering group, brought a mis-selling claim against RBS in respect of two currency swap derivative products sold to it in June and September 2007. Titan alleged, firstly, that RBS had negligently advised Titan to buy the swaps because the products were unsuitable to Titan’s needs, and secondly, that RBS was liable for Titan’s losses as it had failed in its duty under the FSA rules to deal “fairly” with Titan and to ensure that communications or descriptions of the products were accurate and not misleading.

The following preliminary issues were considered by the Commercial Court:

  1. Was Titan a “private person” as defined by the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (the “FSMA Regulations”)?
  2. Did RBS act in the capacity of an adviser to Titan and did RBS owe a common law duty of care in respect of advice given in relation to the currency swaps?
  3. Were any of the exclusion clauses included in the contracts subject to the Unfair Contract Terms Act 1977 (“UCTA”)? If so, was RBS nevertheless entitled to rely on the exclusion clauses?

Client classification – a point of construction

Titan pleaded that it benefitted from a statutory cause of action against RBS by virtue of section 150 of the Financial Services and Markets Act 2000 (“FSMA”) which provides that a “private person” who suffers loss as a result of a contravention of a rule by an authorised person has an actionable claim (subject to certain defences). Titan argued that it should be classified as a “private person” under Reg. 3(1)(b) of the FSMA Regulations, which provides that a private person means “any person who is not an individual, unless he suffers the loss in question in the course of carrying on business of any kind”.

Titan argued that the true construction of the FSMA Regulations meant the Court should consider whether the currency trading undertaken by Titan and RBS was “an integral part of Titan’s business plan as opposed to an incidental part of its business”. Titan claimed that Reg. 3(1)(b) should be interpreted to mean that the currency trading was “incidental” to its main business of manufacturing. Titan emphasised it was not in the financial services industry and that it had no training/access to specialist software necessary for it to understand and analyse the highly complex currency trades. Titan contended that the currency trading was therefore outside its usual course of business and therefore it should be classified as a “private person”. RBS emphasised that the FSMA Regulations refer to “carrying on a business of any kind” and therefore the expression should be given a wide interpretation.

After considering Titan’s arguments based on the legislative history and meaning of the phrase “in the course of business” as held in case law in respect to other legislation, Mr Justice Steel supported RBS’s view that the phrase should be given a wide meaning. He noted that if Titan’s interpretation were to be adopted, it would “render the additional words ‘of any kind’ redundant”. Mr Justice Steel also noted that Titan’s interpretation sat uncomfortably alongside the exception in Reg. 3(1)(a) in regard to individuals who carry out a regulated activity which is broadly defined in section 22 of FSMA as an activity of a specified kind carried on by way of business. This suggested to Mr Justice Steel that the scope of the exception in Reg. 3(1)(b) in terms of “carrying on business of any kind” was broader than carrying out a regulated activity or something akin to it.

Ultimately, however, the issue of interpretation was not critical to Mr Justice Steel’s judgment, which turned on the facts of the case. Mr Justice Steel considered that Titan could not be classified as a “private person” even under its own narrow interpretation: the currency swaps in question formed part of a regular chain of transactions of substantial value and scale, which were a necessary concomitant of Titan’s trading, meaning they could be considered integral to its business.

Although ultimately the decision turned on the facts, it nonetheless highlights that it will be difficult for companies and other business entities to establish a claim for mis-selling of derivative products under section 150 FSMA as a “private person”, as regardless of whether such derivative products are bought for hedging purposes or with a view to profit, under the wide interpretation adopted it seems likely the losses will be viewed as incurred in the course of carrying on a business.

Was there an advisory relationship between RBS and Titan?

Titan claimed that RBS’s corporate treasury manager, Ms Plested, with whom Titan had been dealing regularly for 10 years, had given “advice” in the capacity as a “trusted advisor” to Titan in several telephone calls prior to the sale of the products to Titan. RBS claimed instead that Ms Plested had acted in the capacity of “saleswoman”. According to Titan, the key issue was whether the “advice” allegedly given by Ms Plested had given rise to a duty of care. Titan asserted this question should be approached by first considering whether there would be a common law duty of care in the absence of any applicable contractual terms, and then by considering the impact of those terms (subject to the impact of the exclusion clauses), whilst RBS argued the reverse.

Mr Justice Steel again preferred RBS’s approach, considering that “the question as to whether ‘advice’ was in fact tendered is very much a secondary issue to the question in what capacity Ms Plested was acting”. Whilst not expressly confirming that the contractual frame of reference should be considered first in order to determine whether there could be an advisory relationship and thus a duty of care, his approach to the issue began with a consideration of the contractual terms.

The terms of business agreed between Titan and RBS expressly stated: “…we do not act as your adviser or in a fiduciary capacity. For the avoidance of doubt, we are providing you with an execution-only service, with no advisory services”. They also provided that Titan was to seek independent advice if required and that Titan was to place no reliance on RBS for advice or recommendations “of any sort”. Such disclaimers of responsibility on the part of RBS were further supported by disclaimers in similar terms included in the post-transaction acknowledgement and confirmation provided following each transaction.

Mr Justice Steel found that, taken as a whole, the contractual terms were only consistent with the conclusion that Titan and RBS had agreed that RBS was not acting as an adviser or undertaking any duty of care, regardless of what recommendations, suggestions or advice were in fact tendered by Ms. Plested. Following previous cases, in particular Peekay v Australia and New Zealand Banking Group1, JP Morgan Chase Bank v Springwell Navigation2 and IFE Fund v Goldman Sachs International3, Mr Justice Steel concluded that the contractual terms precluded the existence of an advisory relationship or that any duty of care was otherwise assumed by RBS, as it had clearly disclaimed any duty to offer advice or any possibility of Titan relying on any “advice” or opinions actually given by RBS:

“I conclude that where, as here, the parties have purported to allocate by contract their respective roles and the risks involved in their relationship this will in the normal run preclude any wider obligation arising from a common law duty of care: Henderson v Merrett4.”

In summary, Titan Steel confirms the Courts’ approach in previous cases, that the Courts are reluctant to permit claimants to invoke a common law duty of care in order to get round express contractual terms intended to preclude a duty of care from arising.

Contractual estoppel

Mr Justice Steel also determined that contractual estoppel would operate in this case to prevent Titan from bringing a claim against RBS for breach of an alleged duty of care. This doctrine, as applied in Peekay, provides that where a customer knows the true nature of the contract he was entering into and had determined that it was suitable, if the contract provides an express statement that the customer has not relied on any representations made by the bank when entering into the contract, the customer will be prevented from claiming reliance on any representations made by the bank or its employee in order to bring a claim for negligent misrepresentation or negligent misstatement. Similarly, in Titan Steel Mr Justice Steel was of the opinion that where a customer enters into a contract on the express basis that the bank will not be assuming responsibility to provide advice and the contractual terms preclude the customer from relying on the bank, the customer will be prevented from pleading actual reliance on the bank or its employee for investment advice.

Sophistication of Titan

Considering the question of whether, in any event, RBS would owe a common law duty of care to Titan, Mr Justice Steel found that Titan’s longstanding experience in buying complex currency swap products meant that Titan should not be regarded as less sophisticated than RBS in their dealings. This was a crucial factor in determining that RBS was not acting in an advisory capacity giving rise to a common law duty of care. The evidence suggested that Titan’s financial controller was fully able to understand the opinions put forward by Ms Plested, RBS’s representative, and to determine for himself whether the products were worth purchasing. Mr Justice Steel commented that the ‘trust’ placed in the commercial expertise of Ms Plested by Titan is “no more than a commonplace feature of commercial activity”, insufficient to give rise to a higher legal duty. This highlights the difficulties faced by claimants – even those not directly involved in the financial services industry – in establishing that reliance on information or opinions (whether or not it could be said to constitute ‘advice’) offered by the bank is reasonable due to a lack of expertise and disparity of knowledge of the claimant in comparison with the structuring bank.

Disclaimers/Exclusion Clauses and UCTA

With the exception of one clause in the terms of business, it was held that all the other disclaimers of responsibility by RBS (the main features of which are discussed above) were not exclusion clauses subject to the reasonableness test under UCTA, but instead were clauses defining the scope of RBS’s obligations to Titan.

The clause which did constitute an exclusion clause falling under the scope of UCTA provided that RBS was not liable for any loss of opportunity, decline in the value of investments, errors of fact or judgment or other loss from any act or omission made under or in relation to or in connection with the terms of business or the services provided under these, except to the extent that they resulted from its gross negligence, wilful default or fraud. Mr Justice Steel concluded that this clause satisfied the reasonableness test under UCTA for the following reasons:

  • there was complete equality of bargaining power as Titan could choose any other bank for its custom if it wished;
  • the terms of the clause were standard terms included in the terms and conditions of many banks;
  • Titan was easily able to seek its own independent advice if desired (as was anticipated elsewhere in the terms of business); and
  • the terms were clear and regularly brought to the notice of Titan.

The reasoning suggests the Courts are reluctant to allow an aggrieved commercial party, generally considered to be of equal bargaining power with the structuring bank, to rely on UCTA to try to release themselves from an unfavourable contractual term, when the terms in question have been clearly brought to the claimant’s notice.


This case is the latest in a line of recent decisions (including Peekay, IFE and Springwell) in which clearly drafted disclaimers of advisory responsibility on the part of banks have been upheld in the face of allegations of mis-selling and negligence in breach of an alleged advisory duty of care. This case highlights the importance of clearly drafted clauses setting out the scope of (or absence of) a bank’s responsibility for offering investment advice. It also shows the difficulties faced by a claimant in establishing a successful claim for mis-selling or negligence by a structuring bank in relation to complex derivative products which are at the heart of the fallout from the credit crunch – in the absence of a contractual agreement to provide investment advice, the approach of the Courts seems very much along the lines of “buyer beware”.

For litigation bulletins covering related judgments please see:

IFE Fund SA v Goldman Sachs International: When are limits on liability effective?

IFE Fund S.A. v Goldman Sachs International: Court of Appeal Judgment

Sophisticated clients and complex investments: buyer and seller, or client and investment adviser?

Selling complex financial products to sophisticated clients