Barness & Ors v Ingenious Media Ltd & Ors

A bank’s agreement to lend for a particular investment, including where the loan is packaged with that investment, does not ordinarily create an advisory duty or justify implying suitability terms into the loan or banking contracts. An assumption-of-responsibility claim requires communication conveying responsibility to the claimant and reliance causing loss. A close commercial relationship with an independent financial adviser does not make the adviser part of the bank’s business, or establish agency, absent authorisation, holding out, or an underlying duty to advise. Claims lacking a pleaded contractual foundation, relevant reliance, or a sustainable basis for vicarious liability may be struck out or summarily determined.

The claimants were investors in Ingenious tax schemes who had borrowed from Coutts & Co or National Westminster Bank plc to fund their investments. They brought lender claims alleging implied contractual suitability duties, concurrent or assumption-of-responsibility duties in tort, and vicarious liability for advice given by Formation Asset Management Ltd, their independent financial adviser.

The Banks applied to strike out the claims or obtain summary judgment. The central issues were whether the pleaded relationships supported implied suitability terms or an advisory duty, whether the Banks had assumed responsibility despite Formation’s advice, and whether Formation acted as the Banks’ agent or as part of their business.

1. Contractual claims. The pleaded facts established particular loan, current-account and, in one case, mortgage contracts, but no pleaded basis for an overarching or umbrella contract involving private banking and wealth-management services. The packaging of loans with Ingenious investments, even if agreed or acquiesced in by the Banks, did not logically establish such a contract.
2. The suitability terms could not be implied into the particular loan or current-account contracts. Such terms were not necessary to give the contracts business efficacy, did not go without saying, and were inconsistent with the ordinary position that a lending bank does not advise on the prudence of the transaction financed. The reasoning in Green v The Royal Bank of Scotland plc [2013] EWCA Civ 1197 applied: selling or funding a product is distinct from advising on its risks.
3. In relation to Mr Murphy’s mortgage, it was arguable that Coutts owed a duty of care after making a personal recommendation. However, no reliance on that recommendation, or resulting causative loss, was pleaded. That claim therefore disclosed no reasonable grounds.
4. Tortious duties. The concurrent contractual-duty claim failed with the contractual claim. An assumption of responsibility required communication crossing the line between bank and claimant and reliance on that responsibility. The principle in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 was applicable. Richards v Hughes [2004] EWCA Civ 266 and White v Jones [1995] 2 AC 207 concerned extension of an existing duty to an intended beneficiary and did not establish a duty where none otherwise existed.
5. Vicarious liability. Applying the approach in Cox v Ministry of Justice [2016] UKSC 10, Formation’s advice was part of its own independent IFA business, not an integral part of the Banks’ business activities assigned for their benefit. The close commercial relationship, packaged lending, commissions, reliance on Formation’s financial information, and involvement in repayment were insufficient. Traditional agency analysis led to the same result: there was no sufficient case that Formation advised while representing the Banks.
6. The contractual and tortious claims were struck out under Civil Procedure Rules 1998 r 3.4(2)(a). Summary judgment was granted on the vicarious-liability claims under r 24.2. The court was satisfied that there was no real prospect of success and no compelling reason for a trial.

Not stated in the judgment. This was a first-instance application in the High Court (Chancery Division).