CGL Group Ltd & Ors v The Royal Bank of Scotland Plc & National Westminster Bank Plc & Ors (Rev. 1)

A bank does not assume a common law duty of care to a business customer merely by reviewing a financial product sale under a redress arrangement agreed with its regulator. Whether a duty exists must be assessed from the parties’ dealings and their entire legal, factual and regulatory context.

A duty is unlikely where it would circumvent statutory restrictions on private actions, revive time-barred mis-selling claims, conflict with the bank’s own interests, or duplicate a process controlled by the regulator and an independent reviewer. Participation in a review also supplies no relevant reliance where the customer neither changes position nor relinquishes existing rights. The assumption-of-responsibility, threefold and incremental approaches are complementary cross-checks and should not be applied in isolation.

Three linked appeals concerned interest rate hedging products which the appellant businesses, or a company associated with two appellants, had bought as conditions of bank lending. After identifying serious sales failings, the Financial Conduct Authority agreed with participating banks that they would review sales to non-sophisticated customers and provide appropriate redress where mis-selling had occurred.

The High Court judges struck out the underlying claims or refused proposed amendments alleging that the banks had negligently conducted the reviews: [2016] EWHC 281 (QB), [2016] EWHC 1360 (QB) and [2016] EWHC 378 (QB). The principal common issue was whether the review agreement, the banks’ communications with customers and participation in the process gave rise to a common law duty to conduct the reviews with reasonable care and skill.

1. The appeals were dismissed unanimously. The respondent banks did not owe the alleged duty of care when conducting the regulatory reviews. The factors relevant to assumption of responsibility, considered cumulatively and cross-checked against the Caparo threefold test and the incremental approach, clearly pointed away from a duty.

2. The statutory and regulatory context was a powerful consideration. Under section 138D of the Financial Services and Markets Act 2000, Parliament had prescribed which regulatory breaches were actionable and by whom. Recognising a common law duty to corporate customers would circumvent that architecture, including restrictions on actions concerning complaint handling and redress. The review was not independent of the regulatory scheme: it resulted from settlement with the regulator as an alternative to enforcement proceedings.

3. The banks’ letters did not objectively communicate a voluntary assumption of responsibility to customers. They explained that the process had been agreed with the regulator, would apply regulatory criteria and would be scrutinised by an independent reviewer appointed under section 166. The review agreement imposed obligations on the banks towards the regulator. Clause 9 excluded third-party enforcement of its terms. Although that clause did not itself exclude negligence liability, the contractual structure and the independent reviewer’s controlling role militated against a tortious duty.

4. The proposed duty was neither fair, just and reasonable nor a permissible incremental development. In two appeals it would substantially recast time-barred mis-selling allegations and restart limitation from the review. The absence of a remedy for persons outside the statutory class was a deliberate statutory limit, not a lacuna of the kind addressed in White v Jones.

5. The necessary reliance was also absent. Participation in the review did not cause the appellants to act differently, abandon existing claims or become worse off. A conflict existed because each bank was assessing its own regulatory compliance and potential liability for redress. Imposing duties upon structured customer-complaint schemes could have far-reaching consequences.

1. Court of Appeal (Civil Division): The three linked appeals were dismissed by Beatson, Lewison and McFarlane LJJ: [2017] EWCA Civ 1073.
2. High Court, Queen’s Bench Division: HHJ Bird refused CGL permission to amend after striking out its mis-selling claim on limitation grounds: [2016] EWHC 281 (QB).
3. High Court, Queen’s Bench Division: HHJ Waksman QC struck out the Bartels’ claim and refused permission to amend or join the company: [2016] EWHC 1360 (QB).
4. High Court, Queen’s Bench Division: HHJ Kaye QC struck out WW’s claim and refused permission to amend: [2016] EWHC 378 (QB).