Stephenson Harwood LLP - Finance litigation update - December 2020
FINANCE LITIGATION UPDATE – DECEMBER 2020 3 A non-private person (essentially, a corporate entity) on the other hand cannot bring a claim against a bank on the basis that the bank has breached an FCA rule and instead would need to found a financial mis-selling claim in common law (and establish that the bank owed it a common law duty of care) or alternatively under section 2(1) of the Misrepresentation Act 1967 (see further below). The courts have held that there is no common law duty of care that mirrors the content of the FCA's Conduct of Business Rules. Various arguments have been run by claimants over the years to try to persuade the courts that they should be able to use an alleged breach by a bank of an FCA rule as the basis for a private action for compensation. These attempts have failed. Accordingly, on the basis of the law as it stands, there is almost no prospect of a non-private person founding a financial mis-selling claim on an alleged breach of an FCA rule. On the other hand, if the claimant is a private person then there is much more scope for such a claim. 4. Can the claimant establish that an advisory relationship existed and/or that the bank had told it something that was untrue or misleading? Putting to one side a possible claim for breach of statutory duty discussed above, broadly speaking, there are two ways in which a financial mis-selling claim can be advanced. Whether or not one or both of these routes is available to a claimant will depend on the facts of the case. The first route is a claim for negligent advice. The second, is a claim that the bank communicated something to the claimant in the lead up to the contract being signed that was untrue or misleading. This second route could proceed as a claim for misrepresentation and/or negligent mis-statement and/or negligent mis-information. Accordingly, consider the following: 4.1 Route one - negligent advice: Did the bank act as an advisor to the claimant (as opposed to simply a counterparty or a salesman) and assume a legal duty to provide advice carefully? In this regard, the court has said that recommending a product is enough to constitute "giving advice" and thus give rise to the common law duty of care not to advise negligently. However, a bank is not necessarily recommending a product simply because it is providing information about that product. Simply presenting various products to the customer and discussing advantages and disadvantages does not (without more) amount to recommending or advising. 4.2 Basis clause: Is there a "basis clause" in the relevant contract which delimits the primary obligations of the bank and provides that the bank was not acting as an advisor to the claimant and/or was not providing advice? These clauses are extremely common, particularly in standard form banking documentation, and are likely to be fatal to a claimant establishing that the bank owed it a duty of care to provide advice carefully. 4.3 Route two - misrepresentation and/or negligent mis-statement and/or negligent mis-information: Can the claimant point to a statement that was made by the bank in the course of selling the financial product that was untrue and/or to some information that was volunteered by the bank that was not accurate or that was misleading? 4.4 Is there a “no reliance” clause in the relevant contract which provides that the claimant has not relied on any communication by the bank? These clauses are also extremely common and make it much more difficult to establish a route two claim. The courts are likely to class this type of clause as an exclusion clause which means that it will not be enforceable unless it satisfies the requirement of reasonableness in the Unfair Contract Terms Act 1977. However, this is not a particularly stringent test and in cases involving the sale of complex financial products to sophisticated investors, there is no reason to think that it would not be satisfied. Conclusion If, having considered the points in the initial check list, it looks as though a prospective claimant could get over these key hurdles, then the case is likely to have the basic features that would enable it to get off the ground. This does not necessarily mean it would succeed at trial as there are many more requirements to be met in order to make out the claim, many of which require significant factual and expert evidence. What it does mean is that the prospective or intimated claim is likely to be pleadable and have good prospects of surviving an application for summary judgment. In such circumstances, whether looking at the prospective claim from the perspective of the claimant or defendant, it would be worth giving more detailed consideration to the evidence and whether the claimant could also establish breach of duty, causation and loss.