Crestsign Ltd v National Westminster Bank Plc and another [2014] EWHC 2014

This decision of the Chancery Division confirmed that the Defendant banks owed no duty of care to its customer as they had successfully disclaimed responsibility for any advice.

The Facts

In or around 2007 the Claimant was interested in refinancing its loan portfolio with the Defendants. The Claimant informed the Defendants that it was looking for a loan of c.£3.3 million, which Natwest agreed to support on the basis that the Claimant took out an Interest Rate Management Product (a form of hedging product). Subsequently, a meeting was arranged between the Defendants and the Claimant to discuss various hedging products and the Defendant’s provided the Claimant with a Risk Management Paper explaining the options available in detail. The documentation provided to the Claimant provided various disclaimers of liability, advising the Claimant that the Defendants were not providing advice on the merits of a particular course of action and that it was for the Claimant to make its own assessment as to the risks involved. The loan proceeded, but following substantial cuts to the base rate between October 2008 and March 2009, as a result of the hedging product, the loan became substantially more expensive for the Claimant.

The Arguments

The Claimant issued proceedings against the Defendants for breach of duty of care for failure to use reasonable skill and care when giving advice (the “First Duty”) and for failure to provide information that was accurate and fit for purpose (the “Second Duty”).  The Defendant denied the existence of the First Duty and in relation to the Second Duty accepted only a duty to give information which was not misleading.

The Decision

Despite various emails and telephone conversations between the parties suggesting otherwise, the Court concluded that, on the basis of the documentation provided to the Claimant, the Defendants had successfully disclaimed liability in relation to the First Duty. The Risk Management Paper unequivocally defined the relationship between the parties as one in which advice was not being given.

Considering how wide the duty was to provide information that was accurate and fit for purpose, the Court held that it was dependant on the facts of each case. Here, the Defendant only owed a duty to advise on the products it wished to sell to the Claimant. The Court held that giving an explanation of products that the Claimant might want, but the Defendant did not want to sell, would be the territory of an advice-giving duty, which was already excluded on the documents. Although there was a duty to explain without misleading, the Court concluded it did not extend as far as a duty to educate, save that obvious misunderstandings should be corrected.

Analysis

This decision is a welcome reminder that banks do not generally have advisory relationships with their customers, nor do they normally owe a duty of care to advise on the merits of the investments their customers may be proposing to make. In particular, it confirms that careful drafting of contract and offer documentation may successfully disclaim a bank from owing a duty of care to a customer in respect of advice given.