(1) CGL Group Limited; (2) Jacqueline Bartels and Adrian Bartels; (3) WW Property Investments Limited v. (1) The Royal Bank of Scotland plc and National Westminster Bank plc; (2) Barclays Bank plc; (3) National Westminster Bank plc [2017] EWCA Civ 1073

The Court of Appeal decided that banks do not owe a duty of care to customers in relation to their conduct of the review agreed between the banks and the Financial Conduct Authority (FCA) in relation to past sales of interest rate hedging products (the IRHP Review).

Each bank participating in the IRHP Review agreed with the FCA that it would assess its past sales to each eligible customer (within the terms of the IRHP Review) against regulatory requirements, and would make an offer of redress to customers where appropriate. The entire exercise, together with all determinations of redress, would be overseen by an independent reviewer that the FCA required each bank to appoint as a skilled person. All customers were to be contacted by letter (the Letter) in order to explain the IRHP Review, the role of the FCA and the role of the independent reviewer.

In each case before the Court of Appeal, the claimants believed that they had a claim against the relevant bank arising out of alleged misselling of an IRHP. In two cases, the bank had a limitation defence to certain of the claims made. The claimants in each case had participated in the IRHP Review carried out by the relevant bank, but had been dissatisfied with the outcome.

The claimants said that they had relied on the banks to undertake the IRHP Review competently, that the banks had failed to do this, and that it was fair, just and reasonable for a duty of care to be found to exist in a relationship that was akin to contract. They argued that the banks had assumed responsibility voluntarily, chiefly by means of the Letter. 2

Part of the judgment of Lord Justice Beatson considers the different tests applied by previous cases in determining whether a duty of care exists in relation to economic loss: the voluntary assumption of responsibility; the tripartite test in Caparo v. Dickman (foreseeability, proximity and "fair, just and reasonable"); and the so-called incremental approach. Having considered these tests, Beatson LJ concluded that the assumption of responsibility test was not the most appropriate, but that, considering all factors relied on in earlier authorities, such factors pointed away from the existence of a duty of care. He found that this conclusion was confirmed by applying the other tests, in particular the one in Caparo. The reasons for this conclusion included:

  • the regulatory context clearly weighed against the imposition of a duty of care, the Court of Appeal noting that it would be unusual for a common law duty to be imposed on a statutory one, particularly where the common law duty was more extensive;
  • it was artificial to characterise the IRHP Review as a purely voluntary exercise, and in addition, the Letters (on which the claimants relied to a significant extent) were required to be sent in the form they were by the FCA;
  • the role of the independent reviewer militated against the imposition of a duty of care and, in circumstances where the independent reviewer could not owe a duty of care (please click here for a summary of a related judgment), it was hard to see how the banks could;
  • applying the Caparo test, it was not fair, just and reasonable to impose a duty of care;
  • allowing the appeals would have the effect of allowing the claimants to litigate their time-barred causes of action "by the back door"; and
  • the Court of Appeal did not accept that the claimants had relied on the Letters or the IRHP Review, in that it was unclear what they would have done differently – their participation in the IRHP Review did not preclude them from pursuing their original claims.

The Court of Appeal's decision is not surprising. It would be strange indeed if so carefully designed a process as the IRHP Review, containing as it did a substantial dose of regulatory intervention, should be held to create a duty of care. There seems no reason why the court's conclusions in this case should not also apply in any future review agreed by firms as an alternative to enforcement action.