Carney & Ors v NM Rothschild & Sons Ltd

Under sections 140A and 140B of the Consumer Credit Act 1974, unfairness concerns the debtor-creditor relationship as a whole and requires a fact-sensitive assessment of all relevant matters. Where advice or misrepresentation is relied on as the source of unfairness, the essential elements of the corresponding cause of action should generally be established, including material reliance where causation is relevant. A lending bank does not generally assume an advisory duty merely because it finances a particular investment. Clear basis clauses may define the parties’ relationship and operate as contractual estoppels, subject to statutory controls and the wider fairness assessment. On the facts, the bank acted as lender, the independent financial adviser advised on the investment, and the contractual clauses were effective and fair. The claims therefore failed.

Two couples brought claims against a bank under sections 140A and 140B of the Consumer Credit Act 1974. The bank had made loans secured by Spanish properties and investments in a capital-guaranteed investment structure. The claimants alleged that the bank had advised them about suitability, investment performance and Spanish inheritance tax, and had made actionable misrepresentations at promotional events and in related documents.

The bank denied giving advice or making actionable representations. It relied on contractual provisions stating that it was acting as finance provider only, that the claimants had independent advisers, and that no reliance was placed on representations outside the contract. The central issues were whether the bank had assumed an advisory role, whether any misrepresentations or unfair terms existed, and whether the relationship was unfair.

1. The claims were dismissed. The bank discharged the burden of showing that the relationships were not unfair under section 140A of the Consumer Credit Act 1974.
2. Section 140A requires a broad, fact-sensitive assessment of the relationship and all relevant matters. Regulatory standards may inform that assessment but are not determinative. The court must distinguish the existence of unfairness from the discretionary question whether to grant relief.
3. Where advice or misrepresentation is relied on under section 140A(1)(c), the essential elements of the analogous cause of action should generally be shown. A material impact on the decision to enter the agreement is required in a case based on advice or misrepresentation. The claimants would have entered the agreements without the alleged statements, so the necessary causative reliance was absent.
4. A lending bank has no general duty to advise on the prudence or suitability of the transaction funded by a loan. Lending for a particular purpose does not itself create an advisory relationship. The practical inquiry is whether the bank gave advice and assumed responsibility for it, including whether reliance was reasonably foreseeable and actually occurred.
5. The bank’s promotional presentation amounted, at most, to a sales pitch and information about its lending product. The independent financial adviser, HW, was responsible for investment advice. The bank did not give material advice, make the pleaded actionable representations, or become responsible for HW’s reports.
6. The basis clauses were contractual estoppels defining the relationship as non-advisory and excluding reliance on representations outside the agreements. Their scope had to be construed in context. They were not exclusion clauses for the purposes of the Unfair Contract Terms Act 1977; alternatively, they were reasonable and did not create an unfair relationship.
7. The general statements about possible Spanish inheritance-tax mitigation were not actionable guarantees and were, on the evidence, substantially accurate. The claimants produced no expert evidence establishing that the structure could not produce any tax saving. The bank’s testing of the investment and collateral was undertaken for lending purposes and did not create an advisory duty.
8. Relief under section 140B, if available, must be proportionate to the nature and degree of unfairness and must not confer a windfall. No relief was appropriate because no unfairness had been established.