DP Mann & Ors v Coutts & Co.

A bank that describes an account as a client account may make a misleading statement if it knows that the account remains subject to rights of charge or set-off. Whether a duty of care arises in negligent misstatement depends on the purpose and scope of the statement, including the specific transaction and decision for which it was made. A statement intended merely to confirm that a separate account exists does not necessarily attract responsibility for a later decision to renew or confer underwriting authority. Reliance must be a real and substantial part of the decision. Damages must reflect the claimant’s actual loss within the scope of the duty, including relevant trading profits. A claimant’s failure to investigate material warnings may break the chain of causation.

The claimants were Lloyd’s syndicates that had authorised Hilton Malcolm Underwriting Ltd to underwrite insurance. Hilton Malcolm maintained accounts with Coutts, including an account described as a client account. Coutts wrote an undated letter stating that funds credited to the account represented claims and premiums relating to the Lloyd’s syndicates.

The claimants alleged that the letter was misleading because the account was subject to Coutts’ debenture and rights of set-off. They also alleged that Coutts should have informed them of an automatic transfer arrangement, known as the sweeper, under which funds were transferred from the client account to HMU’s general account. The claimants contended that, without the letter, they would not have continued or renewed the underwriting authority and that, if told of the sweeper, they would have terminated it.

The central issues were whether Coutts owed a relevant duty of care, whether any misstatement or non-disclosure caused the claimants’ decisions and loss, and whether the claimed losses were recoverable.

1. Claim dismissed. The claimants abandoned any claim relating to the first binding authority and failed in their claim as subscribers to the second binding authority.
2. Clause 22k required an account operated in the manner of an insurance broking account, but the reference to an IBA did not of itself create a trust. Nor did the description of the account as fiduciary establish an express trust. The agreement did not require HMU to hold underwriting monies on trust.
3. The unqualified description of the account as a client account was potentially misleading. In ordinary usage such a description could suggest that the bank had no right of charge or set-off. However, as between Coutts and HMU, the parties had agreed that the debenture and set-off rights covered the account. Coutts would therefore have been in breach if they had owed a relevant duty of care.
4. No relevant duty of care was owed in respect of the decision to subscribe to the second binding authority. Coutts knew that the letter would be shown to underwriters, but did not know, and could not reasonably have known, that it would be relied on for the specific decision to renew or confer underwriting authority. The letter referred to the existing binding authority and did not concern the later one.
5. The claimants failed to prove reliance. The evidence did not establish that the letter played any real or substantial part in Harvey Bowring’s decisions, either not to terminate the first authority or to subscribe to the second. The alleged continuing reliance in February 1996 was also unreasonable.
6. Coutts owed no duty to disclose the sweeper arrangement. The letter said nothing about future operation of the account and expressly recognised HMU’s complete authority to operate it. In any event, the claimants did not prove that disclosure would have caused termination.
7. Any damages would have had to reflect the claimants’ actual loss caused by the underwriting continuing, including relevant underwriting profits. If the letter had caused loss within the scope of a duty, that loss would have been confined to loss resulting from Coutts’ exercise of its rights of charge or set-off, principally the October 1997 transfer of the account balance.
8. In any event, the claimants’ failure to investigate the warnings in the Whittington reports was unreasonable and broke the chain of causation. They did not prove when their loss was suffered or that it was caused by either complaint.