Finch & Anor v Lloyds TSB Bank Plc & Ors

A bank is generally under no duty to provide advice about a proposed lending product. A duty may arise where advice is given, or exceptionally where the relationship and surrounding circumstances establish an assumption of responsibility. The existence of a broker and professional legal advisers, arm’s-length negotiation, conflicting commercial interests and the fact that the relationship was still prospective weighed strongly against such a duty. A representation that lending terms would be tailored means tailored to notified requirements, subject to the bank’s commercial interests; it does not promise terms subordinating those interests. Written acknowledgements in guarantees may exclude reliance on collateral or unwritten arrangements.

The claimants, assignees of causes of action formerly vested in Bredbury Hall Ltd, brought the Bank Claim against Lloyds TSB Bank Plc concerning a loan used to acquire a hotel business. They alleged that the bank had failed to advise about break costs under clause 6.10 of the loan agreement, had negligently represented that the product was tailored to their needs, and had promised further finance.

Promontoria Holding 87 BV, as assignee of guarantees given to the bank, brought the Guarantee Claim against the investors. The guarantee defendants relied on the alleged misrepresentations, an alleged promise that the guarantees would be released when the loan-to-value ratio fell below 70 per cent, and estoppel. The central issues were whether the bank owed an advisory duty, whether any representation or funding commitment was actionable, and whether the guarantees remained enforceable.

1. The Bank Claim was dismissed. The pleaded contractual case under the Supply of Goods and Services Act 1982 failed. Sections 12 and 13 presuppose a relevant contract under which the supplier agreed to provide a service. The claimants had neither pleaded nor proved a contract requiring the bank to provide advice. Section 13 could not convert an alleged failure to give advice into a breach of a term requiring reasonable care and skill in advice that was actually provided.
2. At common law, no advisory contract arose. The parties’ interests were opposed, the investors were represented by a broker and solicitors, and the loan terms were negotiated at arm’s length. No offer, acceptance or legally sufficient consideration for an advisory obligation was identified.
3. In tort, a bank is generally under no duty to advise. If it gives advice or an explanation, it must do so with reasonable care and skill. Whether responsibility has been assumed depends on the relevant duty-of-care tests and the whole context. A duty to give unsolicited, disinterested advice contrary to the bank’s commercial interests would require exceptional circumstances. The marketing phrase “trusted adviser” did not alter the relationship.
4. The alleged representation that the loan would be tailored to the borrowers’ needs meant that the bank would take account of requirements notified to it, subject to its own commercial judgment. It did not require the bank to subordinate its interests. The misrepresentation claim therefore failed.
5. No binding commitment to provide future finance for deferred consideration was established. The alleged assurance was vague, commercially improbable, unsupported by the contemporaneous documents and inconsistent with the subsequent request for an overdraft.
6. The Guarantee Claim succeeded. Although a representation had been made that the guarantees would be discharged below a 70 per cent loan-to-value ratio, the evidence did not establish that the threshold had been reached or that the bank was obliged to act on the valuation supplied. In any event, the guarantees were affirmed by later conduct.
7. The guarantees acknowledged that no collateral arrangement or reliance on the bank’s statements existed unless recorded and signed. That acknowledgement covered the alleged collateral promise and prevented reliance on the email as an unwritten contractual arrangement or as the basis for estoppel.

First-instance decision. No prior appellate decision is stated in the judgment.