Crestsign Ltd v National Westminster Bank Plc & Anor

A bank may give advice or recommendations in substance, even where it does not describe its communications as advice. An assumption of responsibility and a tortious duty of care may nevertheless be excluded by clear contractual basis clauses defining the relationship as non-advisory. Where a bank chooses to explain complex products, it must explain the products selected for presentation fully, accurately and without misleading the customer. That duty does not ordinarily require a comprehensive tutorial, an explanation of products the bank does not wish to sell, or ensuring that the customer understands every implication. Regulatory conduct rules may inform the common-law standard of care, but their duties are not automatically co-terminous with common-law duties.

Crestsign, a property investment company, claimed damages against NatWest and RBS concerning a ten-year interest-rate swap arranged alongside a five-year refinancing facility. It alleged that the banks had negligently advised it to enter into an unsuitable swap and had failed adequately to explain the transaction and its risks.

The court found that the banks’ representative had in substance recommended swap structures and that, absent the contractual documents, the relationship would have involved an assumption of responsibility. The central issues were whether the documents excluded that duty, what information duty arose when the banks explained selected products, and whether that duty was breached.

1. Claim dismissed. The banks successfully excluded any actionable duty of care in relation to advice about the suitability of the swap. The contractual and pre-contractual documents were clear basis clauses defining the relationship as non-advisory. They did not merely exclude liability for advice already given. The Unfair Contract Terms Act 1977 therefore did not apply to them.
2. Objectively, Mr Gillard had crossed the line from providing information into giving recommendations about the suitability of swap structures. Without the documents, the disparity in expertise, the nature of the transaction and the circumstances would have established an assumption of responsibility under Hedley Byrne v Heller & Partners [1964] AC 465. The documents, however, successfully negatived that assumption.
3. The court rejected a free-standing “mezzanine” duty requiring a bank to educate a customer or explain every potentially suitable product. Under Bankers Trust International plc v PT Dharmala Sakti Sejahtera [1996] CLC 518, a bank initially owes no duty to explain a proposed transaction. If it chooses to give an explanation, it must do so fully, accurately and properly, with the scope of the duty depending on the circumstances and the explanation tendered.
4. Here, the duty extended to the products which the bank chose to present and sell. It required accurate, non-misleading explanation of their essential features, and correction of obvious misunderstandings or answers to reasonable questions. It did not require explanation of an interest-rate cap which the bank did not wish to sell, a comprehensive tutorial, or ensuring that Crestsign made an informed decision.
5. The information supplied about the swap structures was adequate and not misleading. The documents identified the separate nature and different durations of the loan and swap, the possibility of paying interest on debt no longer owed, cancellation rights and potentially substantial break costs. A more detailed explanation of break costs would have been required if specifically requested, but no such request was made.
6. The court stated that, had a duty to advise existed, recommending the swap structures would have been negligent because of the ten-year commitment, the mismatch with the five-year loan, the risk of high payments and the impediment to refinancing. This was an alternative finding and did not affect the dismissal.
7. The statutory regulatory regime was relevant to the common-law standard but did not create an equivalent cause of action. The claim failed because the advice duty was effectively disclaimed and the information duty was not breached.