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Published 4 July 2016
In Finch and another v Lloyds TSB Bank Plc and others, the High Court has found against the borrowers' interpretation of the significance of a lender's marketing strategy and its process for working with the customer in the lead up to the agreement of a loan.
In January 2008, the borrowers entered into a loan agreement with the bank, under whose terms the borrowers agreed to become liable for the break costs incurred by the lender in the event of early re-payment of the loan. These included the bank's costs of breaking a swap agreement entered into by the bank as a hedge. The claimants argued that this was an onerous clause and that the bank had been obliged to draw this to their attention, prior to the loan being agreed.
The question before the court was whether the bank had a duty to advise the borrowers. This was said to have arisen because of the nature of the relationship which evolved between the bank and its customers, as well as between their respective personnel, over the course of a lengthy negotiation process. In addition, the bank had described itself in marketing material as a "trusted advisor" as opposed to merely a provider of finance. Furthermore, the claimants claimed that the lender's description of the loan agreement as "tailored" to its needs was a negligent misrepresentation on the part of the bank, because the terms of the loan agreement were not entirely in the borrowers' favour.
The borrowers were advised on the transaction by brokers and solicitors.
Generally, there is no duty upon a lender to provide their customers with advice where they have not contracted to do so, albeit that, if they do provide advice, they must do so with reasonable care and skill. On the facts of the case, the court found that the bank had not entered into a contract to provide advice and that the description of itself as a "trusted advisor" was merely part of its marketing strategy, rather than a contractual promise. The close working relationship which arose between the bank's and the borrowers' respective employees did not override the fact that the commercial interests of the two organisations were diametrically opposed. This was obvious and was known to the employees in question.
The court also found that the bank did not have a duty not contained in an explicit or implicit contract (i.e. in tort) to provide the borrowers with advice. To impose a duty on the bank to have given advice that was contrary to its commercial interests would be to extend the duty on banks beyond that which previous cases have imposed. The judge said that "the circumstances would have to be exceptional before it could safely be concluded that a bank that is pitching for the business of a potential customer came under a duty to give advice in relation to the product that it was offering". In particular, the Court found, the circumstances would have to be especially unusual where, as in the present case, brokers and solicitors were engaged to advise the borrowers.
On the question of whether the term "tailored" was a misrepresentation, the court found that it was not. This expression could only mean that, within the constraints of its own internal requirements, the bank would provide the terms most suitable to the needs of its customer, and certainly not that it would subordinate its own commercial interests to those of the borrowers.
This case again shows how difficult it is for borrowers to succeed in cases where it is claimed that a bank was obliged to advise them about the terms of a loan. This will particularly be so in cases where the borrower has been advised independently on the agreement.
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