06 April 2017
The High Court has held that, when a commercial customer inquired about fixing the rate on loans the bank had made them, the bank owed them a duty of care to explain the financial implications of fixing the rate. The duty was owed only in response to the customer’s inquiries because the bank subscribed to the voluntary Business Banking Code. It was not a duty to volunteer information if not asked. What was required was an explanation in plain English of what fixing the rate entailed and the consequences.
The facts of the case (Thomas v Tridos Bank) were as follows. The customer had substantial loans from the bank at variable rates of interest. In 2008 they inquired about fixing the rate on their borrowing. After receiving certain information from the bank, both oral and written, they entered into fixed rate loan agreements. After the financial crisis and the general reduction of interest rates, the customer found it increasingly difficult to service the loans, and considered that the bank had misled them about the redemption penalty in particular. The relationship broke down and the customer brought proceedings. The High Court held that the bank had misrepresented the position, and had also breached its "information duty" to give a balanced picture of the consequences of fixing the rate.
There are conflicting first instance decisions as to the duties owed by banks when they are merely providing information about a product, rather than advice. This first instance decision indicates that banks sometimes owe an "intermediate duty" to explain the product, which is higher than their duty not to mislead or misstate.
Gordon Deane at Balfour+Manson has been advising a number of the firm’s clients regarding bank related claims, including those involving interest rate swaps. If you would like to discuss any such matter with Gordon, please contact him on 0131 200 1485 or at firstname.lastname@example.org.