In Thomas v Triodos Bank (2017) the claimants owned a farming business and, in 2008, became concerned about the potential for interest rates to rise. They had various discussions with individuals at the defendant bank, with whom they had a number of loans, and then switched from a variable into a 10 year fixed rate in respect of two of their loans. Following the financial crisis the claimants found it difficult to service the loans and were told that if they repaid the loans the redemption penalty on the second loan would be GBP 96,000, subsequently revised to GBP 55,000. This was far in excess of the penalty that the claimants expected, and a claim was brought against the bank for various misrepresentations and breach of duty.
Judge Havelock-Allan QC noted that fixed rate lending is not a regulated activity under FSMA and even if it was, the claimants were unlikely to qualify as private persons under the COBS Rules. This was also held not to be an advice case. The Judge considered the authorities and noted that there is a clear distinction between the duty owed in relation to the sale of financial products by banks where advice is given whether to purchase, and the duty owed where all that is provided is information. Where advice is given, there is a duty to ensure the advice is full and accurate, covers the available options and the pros and cons of any product being recommended that enables the customer to make an informed decision. It was held in Green v Rowley (2012) (and the relevant analysis approved in the Court of Appeal) that where a bank gives information only about a product, the only duty owed to the customer is a Hedley Byrne duty to take reasonable steps not to mislead. The Judge in this case found that there could be an intermediate duty between the two, outside of the advisory relationship, the existence of which would depend on the facts of the case. In this case the Bank had advertised to the claimants that it subscribed to the Business Banking Code (“BBC”), which included a promise that if the bank was asked about a product, that it would give a balanced view of the product in plain English, with an explanation of its financial implications. The Judge found that when the claimants had asked about fixing the rate, the Bank had therefore owed a duty to explain what fixing the rate entailed and its consequences. The Judge held that the bank had made a misrepresentation and breached this duty by making comment that the claimants would be sensible to fix for 10 years rather than a lesser period as the rate was lower, without explaining the financial downside of a longer fix with regard to redemption penalties. There was also a misrepresentation and breach of duty when the Bank failed to correct the claimant when he asked whether the maximum penalty was likely to be in the range of GBP 10,000 - GBP 20,000.
This demonstrated that the claimants did not understand how the relevant clauses relating to redemption penalties worked, and there should have been an accurate description given in relation to them.
There are some conflicting first instance authorities regarding the duties of banks where they are providing information rather than advice to customers, and this is an issue that will no doubt, at some stage, be the subject of consideration by the appeal courts. This case suggests that where a bank advertises that it subscribes to a voluntary code of conduct, it may owe more than the Hedley Byrne duties in respect of giving information.
It is also notable in this case that the Court indicated that, in relation to the question of how far a bank should go in providing information in response to questions from a customer in a nonadvised transaction, the approach to be adopted in considering materiality is that in the case of Montgomery v Lanarkshire (2015). This meant that the relevant question is: would a reasonable person, in the position of the customer, be likely to attach significance to a piece of information. In O’Hare v Coutts (2016) the High Court recently held that the Montgomery test would apply rather than the traditional Bolam test (which is whether the defendants were acting in accordance with the practice of competent respected professional opinion) in an advisory case. This applied in relation to the question of the required level of communication about the risks of the investments. O’Hare v Coutts is under appeal.