London Executive Aviation Ltd v The Royal Bank of Scotland Plc

A bank selling an interest-rate derivative does not assume an advisory duty merely because it explains products, discusses market conditions, or negotiates terms by reference to the customer’s objectives. The court must identify the actual statements relied on and assess them in their full commercial context. Even where advice is given, proximity and assumption of responsibility must be established before a duty of care arises. A broader duty to explain information may exist on the advisory spectrum, but it is fact-dependent and does not require every salesman to provide a complete suitability assessment. Regulatory rules do not automatically enlarge the common-law duty. Misrepresentation must be assessed objectively, including any alleged implied representation arising from an omission.

London Executive Aviation Ltd operated a private aircraft charter business and borrowed from Lombard North Central plc, an RBS group company. It entered into a dual-rate swap and an extendable value collar after discussions with Dominic Brindley, an employee of the Defendant, The Royal Bank of Scotland plc.

LEA alleged negligent advice, inadequate explanations, deceit, negligent misrepresentation and statutory misrepresentation. It claimed that the products were unsuitable, that the risks of falling interest rates and break costs were inadequately explained, and that the Bank should have disclosed its internal credit line utilisation. The Defendant denied liability and argued that NatWest, rather than the Defendant, was the contractual counterparty.

The central issues were whether advice or a wider information duty arose, whether any actionable misrepresentation was made, and which RBS group entity contracted with LEA.

1. Advice claim. The court dismissed the claim. The claimant must identify an actual written or oral statement which, properly construed in context, amounts to advice. A holistic assessment of the dealings is appropriate, but the overall impression created by a large body of material cannot replace proof of words constituting advice. The explanations, comparisons, market views and negotiated product features did not cross the line from selling and providing information into advice.
2. Even if advice had been given, that would not by itself establish a duty of care. The court must assess proximity and assumption of responsibility, including the customer’s sophistication, the absence of an advisory agreement, the availability of other advice, and the indicia of an advisory relationship. LEA’s dealings, particularly through Mrs Margetson-Rushmore, showed that it could assess and negotiate the products for itself.
3. Mezzanine duty. A duty to explain the nature and effect of a transaction may exist on the advisory spectrum, but it is fact-dependent and wider than a duty merely not to misstate. It does not impose an automatic obligation on a salesman to give a complete suitability assessment whenever information is supplied. The Bank had adequately explained the consequences of falling rates, callability, over-hedging and break costs. Its description of the ISDA agreement was inaccurate, but it did not affect LEA’s decision.
4. Regulatory rules did not create a co-extensive common-law duty. LEA was not a private person entitled to sue under section 138D of the Financial Services and Markets Act 2000.
5. Misrepresentation. The alleged implied representation that the risk of a higher balloon payment exceeded the risk under the hedges was not established. The statements about the balloon payment did not imply anything about possible break costs. There was no sufficient evidence of reliance, falsity or inducement, and the court rejected allegations of dishonesty.
6. Counterparty. Applying an objective approach, the Confirmations and related contractual documents established that NatWest was the counterparty, not the Defendant. The court left open whether an employee of one group company acts for the contracting group company in pre-contractual dealings. The issue did not affect the result because the claims failed on the facts.
7. The claims were dismissed.