Over the past two years, the courts have grappled with the novel claimant argument that financial institutions owe duties of care in tort directly to their customers in connection with their conduct of the past business review of interest rate hedging product sales announced by the FCA (then FSA) in 2012 (the "Review"). There have been a number of contradictory High Court decisions - see our previous e-bulletins here and here.
However, in good news for financial institutions, the Court of Appeal has now clarified - in three conjoined appeals - that such claimants have little prospect of bringing such claims against the banks conducting that Review: CGL Group Limited & Ors v Royal Bank of Scotland plc & Ors  EWCA Civ 1073.
The Court of Appeal found it was not even arguable that the defendant banks in the three linked cases owed tortious duties to the claimants to conduct the Review with reasonable skill and care. This was primarily because such a duty would undermine the statutory and regulatory regime, which grants customers rights to bring claims against financial institutions only in certain defined circumstances. Such claims should now be amenable to summary judgment.
In addition, the separate High Court decision in Cameron Developments (UK) Limited v National Westminster Bank plc & Ors  EWHC 1884 (QB) suggests that customers who accept "basic redress" under the Review will be treated as having settled all claims relating to the way in which the bank conducted the Review, where the settlement wording is sufficiently broad. This provides another reason why such customers should be prevented from bringing claims in connection with the Review.
The combined effect of these two cases should spell an end for any similar claims regarding the Review.
CGL Group: background
In Suremime Limited v Barclays Bank plc  EWHC 2277 (QB), the High Court found that it was arguable (for the purposes of a summary judgment application) that the defendant bank owed a tortious duty to the claimant to conduct the Review with reasonable skill and care. However, in the subsequent first instance decision in CGL Group Limited v Royal Bank of Scotland  EWHC 281 (QB), the High Court expressly declined to follow Suremime and instead found such duties were unarguable. CGL Group appealed this decision, and the appeal was heard together with the appeals of two other cases in which claims based on such tortious duties had been struck out.
The principal issue before the Court of Appeal was whether it was arguable that the defendant banks owed the alleged tortious duty of care in connection with the Review.
CGL Group: Court of Appeal judgment
In a detailed judgment, the Court of Appeal found that the alleged tortious duty of care was not arguable. The Court's decision was based on the following factors in particular:
The Court considered the above factors under the umbrella of the three classic tests used to determine the existence of a tortious duty of care in respect of economic loss. As has become customary, the Court considered the tests together in the round and used them as cross-checks on each other (see Playboy Club London Ltd v Banca Nazionale del Lavoro SpA  EWCA Civ. 457 (e-bulletin here)). These tests are: (1) "assumption of responsibility"; (2) the three-fold test in Caparo Industries plc v Dickman  2 AC 605 (forseeability, proximity and whether it is "fair, just and reasonable" to impose a duty); and (3) the incremental test (whether the addition to existing categories of duty would be incremental rather than indefinable).
Cameron Developments: background
The claimant entered into an interest rate swap with the defendant bank in March 2010 (the "Swap"). The sale of the Swap was considered as part of the bank's Review. In September 2014, the bank's Review offered the claimant "basic redress", which offered to cancel the Swap (at no cost) and replace it with an interest rate cap and also to refund the difference between the net payments made under the Swap and the payments that the claimant would have made if it had entered into the cap at the outset.
The claimant accepted the basic redress in October 2014. The acceptance form included a full and final settlement of claims connected with the swap, save that claims for "consequential losses" were carved out and not settled (the "Settlement").
In April 2015, the Review rejected the claimant's consequential loss claims. The claimant subsequently issued a claim for these losses, alleging:
1. Mis-selling claims in respect of the original sale in March 2010 (the "Mis-selling Claims").
2. Breach of a tortious duty of care to conduct the Review with reasonable skill and care (the "Tort Claims").
3. Breach of an alleged separate contract, entered into at the time of the Settlement, to assess the consequential loss claims within the Review (the "Contract Claims").
The bank sought summary judgment over the Tort Claims and the Contract Claims on the basis that they had been settled by the terms of the Settlement. The bank accepted that the claimant was entitled to bring the Mis-selling Claims in order to claim consequential losses allegedly incurred as a result of entering the Swap.
Cameron Developments: judgment
The Court found that the Settlement settled both the Tort Claims and Contract Claims and, accordingly, granted summary judgment. Some key factors in the decision were:
These two judgments will be welcomed by financial institutions. The uncertainty caused by the conflicting first instance decisions in Suremime and CGL Group has now been resolved, and any existing claims against banks alleging duties of care in connection with the Review are now at risk of summary judgment. Claimants who had brought Review claims may still be able to pursue mis-selling claims (if they are not time-barred), although this will of course require them to prove breach of duty at the time of the original sale.
Significantly, the Court of Appeal's reasoning is likely to apply to other past business reviews and redress exercises conducted by financial institutions with regulatory oversight by the FCA. In that context (and whilst any review would need to be considered by reference to its individual circumstances), financial institutions are likely to be assisted by the finding that the overall regulatory regime for consumer redress schemes provides a clear pointer against the imposition of a duty of care (even where the Review in this case was not undertaken pursuant to any official statutory power). The appointment of an independent reviewer to oversee a review further weighs against the imposition of a duty of care. This suggests that claimants may find it difficult to establish such tortious duties in connection with other consumer redress exercises overseen by the FCA.