Summary

Where a mis-selling claim was time-barred under the statutory regime of liability for breach of Conduct of Business Rules, there was no co-extensive common law duty of care which could also found liability.

Facts

It was common ground that the bank owed various statutory duties under the Conduct of Business (‘COB’) Rules, including a duty to (a) take reasonable steps to communicate information in a way which was clear, fair and not misleading (r. 2.1.3) and (b) to take reasonable steps to ensure that a private customer understood the nature of the risks involved in their transactions (r. 5.4.3). The appellants’ statutory claim under the Financial Services and Markets Act 2000, s. 150 (now replaced by s.138D) was time-barred. However, the appellants contended that the bank had assumed an advisory duty in respect of the swap at common law. At first instance, HHJ Waksman QC rejected that argument on the basis that the bank did not cross the line which separated the activity of giving information about and selling a product and the activity of giving advice (the appellants had signed the bank’s Terms of Business, which stated that the bank would act on an execution-only basis and would not provide the customer with advice on the merits of a particular transaction).

That finding was not challenged on appeal. The issue on appeal was a narrow one: whether or not there existed at common law a duty of care co-extensive with those prescribed by the COB Rules.

Decision

The Court of Appeal held that the mere existence of the COB Rules did not give rise to a co-extensive common law duty of care for, in summary, the following reasons:

  • Absent the bank crossing the line between giving information and selling the product and providing advice, there was no justification or need for imposing a common law duty independent of, but coextensive with, the statutory remedy provided by s. 150.
  • Neither r. 2.3.1, nor 5.4.3 provided any pointer as to the assumption of a duty of care to advise or as to the appropriateness of imposing such a duty, as both imposed statutory duties where banks had an execution-only relationship with their counterparties, as well as where they had undertaken an advisory role. For example, r. 5.4.3 imposed a duty to take reasonable steps to ensure that the private customer understood the nature of the risks involved on both a firm which made a personal recommendation of a transaction and on a firm which arranged or executed a transaction.

However, the Court of Appeal did not cast doubt on the trial judge’s observation that, if the bank had undertaken an advisory duty, the content of that duty would have been in part informed by the content of COB Rules 2.1.3 and 5.4.3 (see paragraph 18 of the judgment).

Comment

As the Court of Appeal pointed out, if they had found a parallel common law duty of care, this would have completely undermined s.150 as the statutory duty in that section is expressly limited to ‘private persons’.

So it is not surprising that they rejected this idea in the most trenchant terms. However, this gives little guidance as to more plausible arguments trying to found a common law duty of care on breaches of statutory regulation. The one point that is clear is that a statutory duty will not of itself bring about the creation of a co-extensive common law duty.

Also notable is that this is another case based on omission to provide information (the amount of break costs) as opposed to provision of misleading information and that, given the findings of fact, practically the whole judgment seems to be obiter.

The observation that the COB rules will inform the content of an advisory duty may be relevant in future mis-selling cases based on an advisory role.