CGL Group Ltd v Royal Bank of Scotland

The Court of Appeal dismissed three linked appeals by customers who had opted into a bank-led review agreed with the Financial Services Authority/FCA of historical sales of interest rate hedging products. The court held that no common law duty of care arose out of the banks' conduct of the Review: recognition of such a duty would be inconsistent with the statutory regulatory framework under the Financial Services and Markets Act 2000 (as amended), the architecture of the Review agreement (including the role of an independent reviewer and clause 9 excluding third party enforcement), and limitation considerations. The court applied familiar tests (assumption of responsibility/Hedley Byrne principles; the Caparo threefold test; and the incremental approach) and concluded that those tests, taken together in the factual and regulatory context, pointed against imposing a duty of care in respect of the banks' performance of the Review.

The three linked appeals concerned businesses (CGL, WW Property Investments Ltd, and Gwenllian Court Hotel Ltd as represented by Mr and Mrs Bartels) which had purchased interest rate hedging products as a condition of bank lending and later complained of mis-selling. In June 2012 the regulator (then the Financial Services Authority) negotiated review agreements with a number of banks under which the banks would review sales to non-sophisticated customers and provide redress where mis-selling was found; those reviews were overseen by an independent reviewer and carried out pursuant to powers in the Financial Services and Markets Act 2000 as amended.

The appellants either opted into the Review (CGL and WW) or sought review through the relevant bank (the Bartels). After the banks completed reviews and made determinations or redress offers, the appellants sought to plead tortious claims that the banks had negligently carried out the Review and thereby caused loss by failing to offer appropriate redress. At first instance the judges struck out the claims or refused permission to amend on the basis that the proposed duty of care did not have a real prospect of success. The appeals challenged those refusals.

The Court of Appeal summarised the regulatory framework under FSMA (including sections 138D, 166, 384, 382 and 404 and the FCA Handbook material), described the terms and structure of the Review Agreement (including the independent reviewer, confidentiality and clause 9 excluding third-party enforcement), and set out the factual and procedural background in the three cases.

The court framed the principal legal issue as whether the banks owed a duty of care to customers in carrying out the Review. It analysed the issue using three complementary approaches: (1) assumption of responsibility (Hedley Byrne/Henderson v Merrett); (2) the Caparo threefold test (foreseeability, proximity and whether it is fair, just and reasonable to impose a duty); and (3) the incremental approach. The court emphasised the importance of the regulatory context and Parliament's chosen remedial architecture under FSMA, the role of the independent reviewer, the terms of the Review Agreement (including clause 9), and limitation issues.

The court concluded that, on the facts and viewed within the regulatory framework, no duty of care arose. Key reasons included that imposing such a duty would undermine the statutory regime and permitted remedies under FSMA, the Review was part of a regulator-driven settlement rather than a purely voluntary service to customers, the independent reviewer had a central role, the terms of the agreement excluded third-party enforcement, and allowing the pleaded tort claims would in practice circumvent limitation bars and the established statutory allocation of enforcement and redress functions. Accordingly, the appeals were dismissed.

Appeals dismissed. The Court of Appeal held that no common law duty of care arose from the banks' conduct of the FCA/FSA Review. The regulatory architecture under FSMA (including limits on private causes of action and the role of the independent reviewer), the Review Agreement (including clause 9 excluding third-party enforcement), limitation considerations and the absence of an objective voluntary assumption of responsibility meant that the Hedley Byrne/assumption of responsibility test, the Caparo threefold test and incremental analysis all pointed against the imposition of a duty.

Appeals to the Court of Appeal from three Queen's Bench judgments: (1) HHJ Bird, judgment [2016] EWHC 281 (QB) — refusal of permission to amend CGL's particulars of claim (permission to appeal granted by Floyd LJ 19 April 2016); (2) HHJ Waksman QC, judgment [2016] EWHC 1360 (QB) — strike out of the Bartels' claim and refusal to amend (limited permission to appeal granted by Christopher Clarke LJ 28 October 2016); and (3) HHJ Kaye QC, judgment [2016] EWHC 378 (QB) — strike out of WW's claim and refusal to amend (permission in respect of the swap granted 26 November 2016: [2016] EWCA Civ 1142). The Court of Appeal delivered a single linked judgment: [2017] EWCA Civ 1073.