Nature of claims

Common causes of action

What are the most common causes of action brought against banks and other financial services providers by their customers?

Claims targeting banks and financial services typically feature allegations of misselling and breaches of duty (investment, management and advisory). Other claims also may arise from allegations of bribery or corruption, dishonest assistance, unlawful means conspiracy and undue influence. Some claims also pursue vicarious liability for acts of employees, contractors and agents. Liability can also arise from untrue and misleading statements made in listing particulars or prospectuses (see question 3).

Complaints of misselling can be framed as a straight breach of contract, but also as negligent (or in some cases fraudulent) misrepresentation, negligent misstatement or negligent advice in breach of duty. Negligent misrepresentation can also be a statutory claim (Misrepresentation Act 1967) with no need there to establish a duty of care.

Financial firms are also subject to Financial Conduct Authority (FCA) oversight, and must abide by statute (eg, Financial Services and Markets Act 2000 (FSMA 2000)), and the FCA’s Conduct of Business Sourcebook (COBS), both of which also may present grounds for private claims (see question 23).

Non-contractual duties

In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular, is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?

Claimants often argue tortious duties of care in misselling cases where other limitation periods may have expired. However, they still need to satisfy one of the established tests:

  • the three-stage Caparo Industries plc v Dickman [1990] UKHL 2 test (relationship of sufficient proximity, foreseeability of harm, fair, just and reasonable to impose liability);
  • whether the financial firm voluntarily assumed responsibility to exercise reasonable care and skill (Hedley Byrne and Co Ltd v Heller and Partners Ltd [1963] UKHL 4 and Henderson v Merrett Syndicates Ltd [1995] 2 AC 145); or
  • can an analogy be drawn with a duty of care already found to be owed (incremental approach)?

It is more likely that a duty of care will be owed to retail customers than sophisticated investors (JP Morgan Chase Bank v Springwell Navigation Corporation & Others [2008] EWHC 1186). However, any relationship is still governed by contract, which can limit and exclude liability (Crestsign Ltd v National Westminster Bank plc and Royal Bank of Scotland plc [2014] EWHC 3043).

Claimants are also more likely to succeed where a relationship is advisory, and then concurrent regulatory duties are relevant when defining the extent of any duties owed (Green & Rowley v Royal Bank of Scotland plc [2013] EWCA Civ 1197).

However, while the courts have found that regulatory breaches may be actionable under section 138D of FSMA 2000 (see question 23), this does not give rise to concurrent common law duties. Similarly, where a financial firm owes a duty to a regulator, this does not give rise to an equivalent duty to customers.

In the absence of an advisory relationship or other duty, a firm may only be required not to misstate any facts upon which a customer might rely. However, the courts have found that a duty also might exist to explain the features and risks of a particular product (Philip Thomas & anr v Triodos Bank NV [2017] EWHC 314 (QB)).

Depending on the misselling, it also might be misrepresentation if relied upon when entering a contract (section 2(1) of the Misrepresentation Act). If a tortious duty of care can be established, then liability may arise in negligent misstatement or even fraudulent misstatement (tort of deceit), if a firm knew or was reckless as to the falsity of its information.

Statutory liability regime

In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?

Alongside the potential for misrepresentation actions, section 90 of FSMA 2000 creates a statutory duty to compensate an acquirer of securities who has suffered loss as a result of untrue or misleading statements or omissions in listing particulars and prospectuses. With no requirement for reliance under section 90, liability may also benefit secondary purchasers. Liability attaches to persons responsible for the document (eg, the issuing entity) but also directors and sponsors.

Issuer liability also arises under section 90A for: (i) untrue or misleading statements and dishonest omissions (where the acquirer reasonably relied); or (ii) dishonest delay in publishing certain information relating to its securities (including periodic financial disclosures), but in either case only where a person discharging managerial responsibility within the issuer knew (i) statements were untrue or misleading (or were reckless); or (ii) any omission was a dishonest concealment of a material fact. Dishonesty is defined by what persons who regularly trade the relevant market would term dishonest, and whether the relevant person was aware (or must be taken to have been) that their actions would be regarded as dishonest.

These provisions apply not just to UK issuers but all securities admitted to trade on UK markets.

Duty of good faith

Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?

There is no general duty of good faith, and the courts are reluctant to imply one. Where one has been implied, this has been specific and in limited circumstances (ie, obvious or necessary for a workable contract).

However, in 2019 the courts confirmed that a general duty of good faith can be implied into ‘relational’ contracts (Bates v Post Office (No. 3) [2019] EWHC 606 (QB)). Although a relational contract remains to be fully defined, it could extend to contracts with financial firms.

Additionally, certain express terms have implied duties of rationality, particularly where one party is to exercise discretion in a decision impacting others. Rationality is distinct from reasonableness and, unless the contrary is stated, requires discretion to be exercised in good faith, not arbitrarily or capriciously (British Telecommunications v Telefónica O2 UK [2014] UKSC 42). This is particularly pertinent to Global Master Repurchase Agreements and ISDA Master Agreements (ISDA) (eg, where one party has discretion to value securities). The court confirmed in LBI v Raiffeisen Bank [2018] EWCA Civ 719 that, provided it is acting rationally, a non-defaulting party has broad discretion to arrive at a ‘fair market value’.

Rationality is said to be more akin to Wednesbury unreasonableness than an objective standard, but without a requirement for judicial review type analysis of decisions (Lehman Brothers Finance v Klaus Tschira [2019] EWHC 379 (Ch)). Decisions must be taken within the confines of a contract; a party cannot unilaterally determine what matters are included (or disregarded) in making any decision.

Fiduciary duties

In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?

The relationship between financial firms and customers is not fiduciary in nature (Governor and Company of the Bank of Scotland v A Ltd [2001] EWCA Civ 52) unless a customer can be said specifically to have reposed trust and confidence in a firm (MTR Bailey Trading Limited v Barclays Bank PLC [2015] EWCA Civ 667). A relationship, therefore, can become fiduciary, for example, where an institution acts as a custodian of a customer’s securities (JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm)), but such duties still may be subject to expressly drafted agreement terms.

Master agreements

How are standard form master agreements for particular financial transactions treated?

Standard form master agreements (eg, ISDAs) will be treated just as any other contract, and English law has been a common choice among parties in the UK and in other jurisdictions. Even in circumstances where ISDAs are not subject to English law, the English courts have been nominated to resolve disputes.

Issues may arise, however, where parties have a series of related agreements or contracts including an ISDA, and each provides for different jurisdiction or governing law.

The English court’s approach is to apply the governing law or jurisdiction of the agreement at the ‘commercial centre’ of the transaction giving rise to the dispute (UBS AG v HSH Nordbank AG [2009] EWCA Civ 585), paying heed to the wishes of parties to achieve consistency and certainty in their dealings, such wishes being evidenced by their use of ISDA documentation (BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA 768 and Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740). Rather than being in conflict, the clauses are deemed to govern different legal relationships - a dispute within a relationship covered by an ISDA accordingly will apply its terms.

Limiting liability

Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?

English courts favour freedom of contract. Parties therefore may seek, for example, to exclude specific liabilities or loss, or both; they may limit the time to make claims, or they may fix their maximum exposure. However, public policy also dictates that a party who signs up to binding commitments should not be able easily to avoid them. Exclusion or limitation clauses, therefore, must be clearly incorporated; drafted clearly and unequivocally, and should not be too broad. However, a party may not exclude liability for its own fraud (HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6), and an ambiguous clause may be construed against the party who drafted it.

When considering exclusion or limitation clauses, the Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015 (CRA) are relevant. UCTA provides a ‘reasonableness’ test, but this does not apply to basis clauses, a clause that defines the relationship between parties (for example, by providing that a party is not giving advice) (Crestsign). The CRA, which provides consumer protection, introduced a ‘fairness’ test that does not distinguish between exclusion and basis clauses. This may prove crucial, as financial firms may be able to rely on basis clauses in Consumer Credit Act 1974 claims (Carney v NM Rothschild & Sons Ltd [2018] EWHC 958 (Comm)).

Freedom to contact

What other restrictions apply to the freedom of financial institutions to contract?

Since Springwell, the courts have backed financial firms including basis or ‘non-reliance’ clauses in agreements (eg, no advice is to be given; no representations can be relied upon). Even where such language might contradict reality, prospective claims have nevertheless been estopped. However, First Tower Trustees Ltd and other v CDS (Superstores International) Ltd [2018] EWCA Civ 1396 established that if the effect of a clause would be to remove any liability, it will be subject to the statutory reasonableness or fairness tests (see question 7).

Regulated firms are also prohibited (COBS 2.1.2) from seeking to exclude or restrict regulatory duty or liability to a client. In Parmar v Barclays Bank PLC [2018] EWHC 1027 (Ch), the court held where an advisory relationship may exist, COBS would prevent a bank from relying on a basis clause to exclude liability.

English courts have traditionally refused to enforce penalty clauses that punish a breaching party through inflated payments. Liquidated damages clauses that provide for a genuine pre-estimate of loss will though generally be upheld. Where a clause is penal, damages are assessed on actual loss. The present test is whether the clause is actually a secondary obligation that imposes a detriment disproportionate to any legitimate interest in enforcing the primary obligation.

Litigation remedies

What remedies are available in financial services litigation?

Damages are typically awarded in most instances, to compensate a claimant either for lost value of a bargain (contract) or for harm suffered (tort).

Contractual rescission may arise in misrepresentation, duress or undue influence, provided:

  • it is possible to roll parties back to pre-contract positions;
  • the contract was not affirmed;
  • there has been no undue delay; and
  • no third party has since acquired rights.

Specific performance and injunctions are other, equitable remedies and therefore discretionary. Specific performance tends to be awarded where money damages are not an adequate remedy. As injunctions require parties to do, or to refrain from doing, something, key factors include that it must be just and convenient to impose the injunction, and the applicant must agree a cross-undertaking in damages. There is also a duty of full and frank disclosure on an applicant.

Limitation defences

Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?

The Limitation Act 1980 (LA 1980) prescribes limitation periods for civil claims: contract claims are six years from breach (unless a deed, which is 12 years); claims in tort must be commenced within six years of the date of loss or damage. However, where a claimant does not have all the facts, the tort limitation period is the later of six years from damage, or three years from the date when the claimant knows or ought to have known the material facts (there is a long-stop of 15 years). For fraud claims limitation runs only once the claimant has discovered the fraud, or could have done so.

It is not unusual for contractually time-barred claimants to put forward negligence claims. This is a typical feature of misselling claims. In Qadir v Barclays Bank Plc [2016] EWHC 1092 the claimants argued they had been missold interest rate swaps in 2008. Unable to sue in contract, they argued latent damage (section 14A LA of 1980) on the basis that they had not had the relevant knowledge until June 2012, when the UK Financial Services Authority (now the Financial Conduct Authority (FCA)) instigated a review of the sale of interest rate hedging products. The court applied its standard that the relevant date is when the claimant first knew enough to investigate, and in Qadir the claimants were found already to know, prior to 2012, that the swaps were loss-making and that there were alternatives. A similar conclusion was reached in Munroe K Ltd v Bank of Scotland Plc [2018] EWHC 3583 (Comm). Here, November 2015 was argued as the claimant’s date of knowledge, but the court found they were already aware in 2009 when they had been required to pay substantial sums.