Crestsign Limited v National Westminster Bank Plc & Anor

The claimant sued in negligence and for misrepresentation in relation to an interest rate swap sold by the defendants as a condition of refinancing. The court accepted that the bank representative in substance gave a recommendation and that the recommendation was negligent in that the swap was unsuitable in the circumstances. However the banks had deployed clear written "basis"/disclaimer clauses and terms of business which, read in context, negated any assumption of responsibility and excluded an advisory relationship. The judge held that those clauses did not operate as ineffective exclusion clauses for the purposes of liability: they were basis clauses and excluded the existence of an advisory duty, so the negligent recommendation was not actionable. The court also held that, on the facts, the information actually given about the products (including a warning that break costs could be "substantial") was not misleading and did not breach the narrower duty not to misstate.

This was a first instance negligence and misrepresentation claim brought by Crestsign, a small property investment company, arising from refinancing discussions in 2008. Crestsign refinanced its loans with NatWest and, as a condition of sanction, was required to take an interest rate management (IRM) product. RBS (GBM) introduced and explained derivative options (swaps, collars, caps and variants). Mr Gillard of RBS presented a 10 year swap structure which Crestsign accepted. When base rates fell dramatically the swap proved highly unfavourable and break costs to exit were large. Crestsign alleged negligent advice as to suitability, negligent misstatements and remedies under the Misrepresentation Act 1967.

Nature of the claim / relief sought: damages for negligent advice and negligent misstatement and relief under the Misrepresentation Act 1967 arising from alleged mis‑selling of an interest rate swap.

Issues framed by the court:

• Whether the banks owed a common law duty to use reasonable skill and care in giving advice / making recommendations about suitability of the swap (assumption of responsibility).
• If such a duty existed, whether it was breached by recommending the swap (suitability of the product and failure to explain alternatives such as a cap).
• Whether the banks owed a duty when providing information short of advice (the scope of a duty not to misstate / duties to explain).
• Whether any duty was excluded by contractual "basis"/disclaimer clauses and, if they were exclusion clauses, whether they satisfied statutory reasonableness requirements.
• Causation and measure of loss if liability arose.

Court’s reasoning and conclusions (concise):

• The judge found that, objectively, Mr Gillard did cross the line into giving recommendations and that those recommendations were negligent and that the swap was unsuitable. He also found that the claimant did not understand key features such as the separateness of the swap and loan and the mismatch of durations.
• However, before or at conclusion the banks provided a Risk Management Paper, Terms of Business and Standalone Derivatives Terms which, read in context, were effective basis/disclaimer clauses negating any advisory relationship by excluding reliance on the bank for advice. The court treated those clauses as basis clauses rather than exclusion clauses and held they prevented the assumption of responsibility required for a Hedley Byrne duty.
• The court held that a narrower duty not to make misleading statements did exist. Applying the facts, the judge found the information actually provided about the products (including the warning that break costs may be "substantial" and the explicit notes about separateness and differing durations) was not misleading and did not breach that duty.
• As a result Crestsign’s claim failed: although negligent advice had in substance been given, the disclaimers negated any actionable duty and the information duty was not breached.

The claim is dismissed. Although the defendant's representative gave recommendations which the court found negligent and the swap unsuitable, the banks had validly disclaimed an advisory relationship by clear basis/terms of business and related documents; therefore no actionable assumption of responsibility arose. The narrower duty not to misstate was accepted but, applying the facts, the information supplied was not misleading and no breach of that duty was made out.