On 1 May 2018, His Honour Judge Waksman QC handed down Judgment in Carney v NM Rothschild & Sons Ltd  EWHC 958 (Comm). In dismissing the claim against NM Rothschild & Sons Ltd (Bank), under Section 140A and s.140B of the Consumer Credit Act 1974 (Act), it was held that there was no unfairness in the relationship between the Bank and the Claimants. The Court dismissed all claims relating to alleged bad advice, misrepresentations, regulatory concerns, lack of information and risk warnings
Facts & Allegations
The Claimants were British expatriates living in Spain. They entered into loan agreements ("Loan Agreements") with the Bank for the specific purpose of funding their investment ("Investment") in a scheme that was designed to mitigate their inheritance tax liabilities. The Loans were secured against the Claimants' properties in Spain and the Investment.
The Loan Agreements were headed by an "important notice" advising the Claimants to seek independent legal and tax advice. The Loan Agreements also contained standard clauses in relation to obtaining independent legal advice, the Bank not acting as adviser, no reliance being placed on representations Basis Clauses made by the Bank and acknowledgments from the customer that the investment value could rise and fall.
When the Investment underperformed, the Claimants' sought relief under s.140B of the Act, requesting the removal of their existing indebtedness to the Bank under the Loan Agreements and the discharge of the security in place.
The Claimants' alleged that the relationship with the Bank was unfair under s.140A. In particular, they alleged that the Bank:
misadvised them on the suitability of the Investment, its risks and the tax efficacy of the scheme;
made a series of serious misrepresentations about the Investment and its tax position;
were in breach of a number of regulatory codes, principles and FCA publications;
failed to provide enough information about the Investment provider; and
failed to provide it with risk warnings over the performance of the Investment.
It was alleged that the circumstances outlined above gave rise to liability under s.140A(1)(c) of the Act (which deals with "any other thing done (or not done) by, or on behalf of the creditor…"). The Bank denied these allegations and also placed reliance on the Basis Clauses, alleging that these precluded the Bank from any liability.
In response, the Claimants alleged that the Basis Clauses also gave rise to an unfair relationship under s.140A(1)(a) of the Act (which deals with "the terms of the agreement or of any related agreement"). This was therefore the first case to consider basis clauses in the context of an unfair relationship claim under s.140A.
In assessing whether or not the relationship between the Claimants and the Bank was unfair to the Claimants for the purpose of S.140A of the Act, the Court considered whether:
the Bank had misadvised or misrepresented the suitability of the Investment, its risks and the tax efficacy of the scheme; and
the terms under the Loan Agreement were inherently unfair.
On the facts, His Honour Judge Waksman QC found that the Bank had given no material advice in respect of the Investment, nor had it assumed an advisory role. He also found that there had been no actionable representations, or to the extent that there were, they were not false. Accordingly, the Claimants' claim under s.140A(1)(c) was dismissed.
The Court also dismissed the Claimants' claim that the Basis Clauses also gave rise to an unfair relationship under s.140A(1)(a). In coming to his decision, His Honour Judge Waksman QC first considered whether the clauses could be regarded as exclusion clauses. It was decided that they were not for the following reasons:
the language used was not expressly that of a clause seeking to exclude liability, rather it denoted the absence of any advice that could rise to any liability.
there were other clear indications that the Bank's relationship with the Claimants was not advisory;
the terms did not "re-write history". They affirmed it; and
the terms were not found within a myriad of standard terms.
The fact that the terms were not exclusionary in nature did not mean that they avoided scrutiny under s.140A(1)(a). It was considered that their impact for the issue of an unfair relationship is much less than had they been found to be exclusion clauses. Even if they were exclusion clauses, the Court held that they were manifestly reasonable in the circumstances. There was nothing further to suggest that the terms were unfair and the Claimants' claim was dismissed.
Finally, the Court held that the Bank was not in breach of any of its regulatory obligations, nor had it provided insufficient information about the Investment provider.
Points to take away
Whilst, the Judgment provides a useful overview of the current law on s.140A and s.140B of the Act, it also sheds new light on how basis clauses will be treated for the purpose of an unfair relationship claim.
In this regard, the guidance offered by His Honour Judge Waksman QC serves as a useful tool for institutions within the Financial Services sector. In particular, banks and lenders should take care to ensure that any basis clauses are drafted as such and not in a manner that could be considered exclusionary or in a way that betrays the reality of the role played by the institution in its relationship with the customer. Due care should also be taken to ensure that these terms are not included within a myriad of standard terms.
A link to the full decision is here.