Green & Anor v The Royal Bank of Scotland Plc

A regulatory rule and its statutory remedy do not, without more, create a concurrent common-law duty of care with the same content. A duty to advise depends on the relationship and on an assumption of responsibility. It does not arise merely because a firm sells or executes a regulated financial product.

The Hedley Byrne duty requires care in statements made where reliance on skill and judgment is contemplated. It does not impose a free-standing duty to provide further information unless its absence makes a statement misleading. Regulatory duties requiring communications to be clear and fair, or requiring a customer to understand risks, may therefore exceed that common-law information duty. If an advisory duty is undertaken, its standard may be informed by regulatory rules.

The appellants, experienced property businessmen, entered into a ten-year interest-rate swap with the respondent bank to hedge variable-rate borrowing. When interest rates fell after 2008, early termination of the swap involved a substantial break cost.

They alleged that the bank had inadequately explained the possible magnitude of break costs. Their statutory claim under section 150 of the Financial Services and Markets Act 2000 had been abandoned as time-barred. At trial, His Honour Judge Waksman QC found that the bank had neither advised on the swap nor assumed an advisory duty, and dismissed the claim: [2012] EWHC 3661 (QB).

The appeal concerned whether the Conduct of Business Rules nonetheless created a concurrent common-law duty requiring the bank to ensure that the appellants understood the transaction’s risks.

1. Appeal dismissed. The court upheld the finding that the bank had not undertaken an advisory role and had given no advice. It had not crossed the line between supplying information about, and selling, a product and advising on its merits.

2. The duty derived from Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465 required reasonable care in statements made in circumstances of assumed responsibility. It did not impose a general duty to supply information unless the omission made a statement misleading. The requirements in COB 2.1.3R that communications be clear, fair and not misleading, and in COB 5.4.3R that reasonable steps be taken to ensure understanding of risks, went beyond that common-law information duty.

3. Where a firm has assumed an advisory duty, regulatory rules may inform the reasonable skill and care expected of the adviser. That proposition did not assist the appellants because the judge’s unchallenged findings excluded any advisory relationship.

4. Section 150 of the Financial Services and Markets Act 2000 expressly supplied a private remedy for a qualifying contravention of the COB Rules. The existence of that statutory remedy did not justify imposing an independent and co-extensive common-law duty. The analysis in X (Minors) v Bedfordshire County Council [1995] 2 AC 633 showed that a statutory duty may be relevant where a common-law relationship exists, but does not itself generate an identical common-law duty.

5. COB 5.4.3R applied to execution-only arrangements as well as to personal recommendations. It therefore gave no indication that an advisory common-law duty had been assumed. As the appeal failed on that ground, the court expressed no view on whether either COB rule had been contravened.

• Court of Appeal (Civil Division). Dismissed the appeal in [2013] EWCA Civ 1197.

• High Court of Justice, Manchester District Registry. His Honour Judge Waksman QC dismissed the claim, holding that the bank had not given advice or assumed an advisory duty: [2012] EWHC 3661 (QB).