Marz Ltd v Bank of Scotland Plc (includes Costs)

In a bank’s sale of an interest-rate derivative, the contractual allocation of responsibility is central to whether advisory duties arise. Where an ISDA agreement states that the customer acts independently, does not rely on the bank as adviser and accepts the transaction’s risks, those terms may exclude an advisory relationship and related duties, subject to their proper construction and, if applicable, statutory reasonableness.

A bank salesman’s provision of information, opinions or sales material does not itself create a duty to ensure that the customer selects the most suitable product. In the absence of an advisory relationship, the bank is not generally obliged to educate the customer about all alternative products or compare them comprehensively. The claim was dismissed.

Marz borrowed £18.5 million from Bank of Scotland to acquire a catering business. The facility required Marz to hedge at least £12.5 million for at least five years, by an interest-rate swap or cap. Marz entered into a five-year swap, incorporating the novation of an existing swap, and later suffered substantial losses when interest rates fell.

Marz alleged that the bank had contractual and tortious duties to advise on suitability, explain the available products and provide sufficient information for an informed choice. The bank relied on the facility documents, the ISDA Master Agreement and confirmations, including non-reliance and non-advisory provisions. The principal issues were whether those terms governed the relationship, whether any advisory or intermediate information duty arose, whether the terms were subject to the Unfair Contract Terms Act 1977, and whether the alleged failures caused loss.

1. Contractual framework. The ISDA Master Agreement was a comprehensive and subsequent agreement specifically applicable to the swap. Under clause 2.2 of the Terms of Business, it prevailed over inconsistent provisions. Part 5(2), together with the confirmations, established that Marz acted for its own account, made its own decision, understood and accepted the risks, and did not treat the bank as a fiduciary or adviser.
2. No advisory relationship. The court assessed the relationship objectively, having regard to the contractual documents, the parties’ opposing commercial interests, Marz’s experience and its professional advisers. The bank’s sales material, pricing discussions and expressions of potential savings did not amount to a recommendation or assumption of responsibility. Marz did not rely on the bank to select the product most suitable for its interests.
3. No wider information duty. In the absence of an advisory relationship, a salesman who provides information is not generally under a positive duty to explain fully every product, alternative or comparison, or to ensure that the customer makes the safest or least costly choice. The alleged intermediate or mezzanine duty was rejected. Information, explanations, recommendations and suggestions may lie on a continuum, but the relevant duty depends on the responsibility assumed in the particular relationship.
4. Suitability and alleged failures. The swap complied with the agreed hedging condition and provided protection against rising rates and certainty of interest costs. The alternative cap arrangement did not comply with that condition without retrospectively altering the lending bargain. Marz knew that caps were available and understood the principal risks of swaps, including break costs. The alleged failures therefore did not establish breach.
5. Contractual estoppel and UCTA. Part 5(2) was a contractual basis clause defining the relationship, rather than merely a notice excluding liability. The court held that the Unfair Contract Terms Act 1977 did not apply, but alternatively considered the provision reasonable in the circumstances. Springwell Navigation Corp v JP Morgan Chase Bank was binding on contractual estoppel.
6. Disposition and costs. The claim was dismissed. The bank was awarded its costs on the standard basis, with a payment on account of £1.1 million. Indemnity costs were refused. Permission to appeal was granted without limitation because the construction, intermediate-duty and contractual-estoppel issues were fit for appellate consideration.

First-instance judgment in the High Court. Permission to appeal was granted without limitation.