Summary
The court held that a bank may calculate break costs for early repayment of a fixed-rate loan by valuing the lost future interest stream against the return available on the repaid funds. An actual crystallised loss in the external market is unnecessary. A corresponding hedge between companies in the same group may create binding obligations and provide a reasonable proxy for that loss.
Statements giving a customer the amount of break costs payable may represent that the amount is contractually due where the bank alone knows the calculation. However, separating a lending Margin from a Fixed Rate does not, without more, represent that the Fixed Rate is a pure market rate or contains no additional bank income. The non-disclosure of such income did not make these commercial credit relationships unfair under the Consumer Credit Act 1974.
Factual background
Four SMEs brought two conjoined actions against Clydesdale Bank PLC and National Australia Bank Limited. The claims arose from fixed-rate Tailored Business Loans entered into between 2002 and 2010 and later repaid early.
The claimants challenged the contractual basis for break costs, the corresponding hedges between the Banks, representations about the amounts payable, and the inclusion of additional income within the Fixed Rate. They also advanced claims in deceit, negligent misrepresentation, unjust enrichment, breach of contract and, for two claimants, an unfair relationship under the Consumer Credit Act 1974. The central issues were whether the Banks were entitled to calculate break costs by reference to net present value, whether the alleged representations were made and relied upon, and whether non-disclosure of additional income rendered the relationships unfair.
Held
The court dismissed all the claims.
- CB and NAB had made an overarching agreement under which each fixed-rate loan would generate a corresponding hedge. The agreement created binding obligations, including an obligation to pay a close-out amount when the relevant loan was terminated. The purpose of transferring interest-rate risk required the hedge to terminate with the loan, and CB’s obligation to NAB was independent of whether the customer paid the break costs.
- Clause 8.2 of the Standard Conditions covered the present loss of the contractual right to receive fixed-rate interest for the remaining term. The loss could be valued by comparing the net present value of the fixed-rate cash flows with the value of interest obtainable at prevailing rates. The clause did not require a specific, crystallised loss caused by action in the external market. The CNH was a Hedging Arrangement and its termination payment was a reasonable proxy for CB’s loss. The same broad construction applied to the Janhill LMA.
- Where the Banks alone knew how break costs were calculated, an indication of the amount payable represented that the amount was contractually due. The claims nevertheless failed because the break-cost representations were true on the court’s construction, and the claimants could not establish the necessary loss or causation on their alternative cases.
- The alleged Fixed Rate Representations were not objectively made. The separation of Margin and Fixed Rate, references to market prices and booking calls with Treasury Solutions showed only the rate CB was prepared to offer for the product. They did not represent that the Fixed Rate was a pure external market rate or contained no additional income. The claims in deceit also failed because the alleged representors did not knowingly or recklessly make false representations.
- For Uglow and Gaston, the non-disclosure of additional income did not create an unfair relationship under the Consumer Credit Act 1974. They were commercial borrowers with advisers, access to competing fixed-rate products and information enabling them to assess the overall rate. The additional income was a relatively small part of the transaction and did not approach the degree of unfairness identified in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61.
- The court made alternative findings on limitation and unjust enrichment. It left open the proposed implied contractual obligation to provide accurate break-cost indications.
The court’s approach to earlier authorities
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Key cases cited
The 30 most senior of 38 authorities cited.
- Smith and another v Royal Bank of Scotland plc [2023] UKSC 34
- Jones v Birmingham City Council and another [2023] UKSC 27
- Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2
- Test Claimants in the Franked Investment Income Group Litigation v Commissioners for Her Majesty’s Revenue and Customs [2021] UKSC 31
- Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29
- Test Claimants in the Franked Investment Income Group Litigation and others v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 47
- The Commissioners for Her Majesty’s Revenue and Customs v The Investment Trust Companies [2017] UKSC 29
- Bunge SA v Nidera BV [2015] UKSC 43
- Arnold v Britton and others [2015] UKSC 36
- Plevin v Paragon Personal Finance Limited [2014] UKSC 61
- Futter and another v The Commissioners for Her Majesty's Revenue and Customs [2013] UKSC 26
- Golden Strait Corporation (Appellants)v.Nippon Yusen Kubishka Kaisha (Respondents) [2007] UKHL 12
- Vadim Don Benyatov v Credit Suisse (Securities) Europe Ltd [2023] EWCA Civ 140
- Gemalto Holding BV & Ors. v Infineon Technologies AG & Ors. [2022] EWCA Civ 782
- SK Shipping Europe Limited v Capital VLCC 3 Corp [2022] EWCA Civ 231
- OT Computers Ltd v Infineon Technologies Ag & Anor [2021] EWCA Civ 501
- Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2018] EWCA Civ 355
- Burrows Investments Ltd v Ward Homes Ltd [2017] EWCA Civ 1577
- Spice Girls Limited v Aprilia World Service BV [2002] EWCA Civ 15
- Paragon Finance Plc v D B Thakerar & Co (A Firm); Thimbleby & Co v Paragon Finance Plc [1998] EWCA Civ 1249
- The Duke of Sussex & Ors v MGN Limited [2023] EWHC 3217 (Ch)
- Loreley Financing (Jersey) No 30 Limited v Credit Suisse Securities (Europe) Limited & Ors [2023] EWHC 2759 (Comm)
- Banca Intesa Sanpaolo Spa & Anor. v Comune Di Venezia [2022] EWHC 2586 (Comm)
- Leeds City Council & Ors v Barclays Bank Plc & Anor [2021] EWHC 363 (Comm)
- Crossley v Volkswagen AG [2021] EWHC 3444 (QB)
- SK Shipping Europe Plc v Capital Vlcc 3 Corp & Anor [2020] EWHC 3448 (Comm)
- Vald. Nielsen Holding A/S Newwatch Ltd v Baldorino & Ors [2019] EWHC 1926 (Comm)
- Carney & Ors v NM Rothschild & Sons Ltd [2018] EWHC 958 (Comm)
- Marathon Asset Management LLP & Anor v Seddon & Ors [2017] EWHC 300 (Comm)
- Deutsche Bank (Suisse) SA v Khan & Ors [2013] EWHC 482 (Comm)
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Cases citing this case
6 later cases · 3 positive · 2 neutral · 1 negative
Most senior citing decisions:
- Black Horse Limited v Stuart Angel & Ors [2026] EWCA Civ 831 applied
- Jinxin Inc v Marco Auletta & Ors [2026] EWHC 765 (Comm) considered
- Super Fast Trading Limited v The Governor and Company of the Bank of Ireland & Anor [2025] EWHC 871 (Comm) not followed
- Macdonald Hotels Limited & Anor v Bank of Scotland PLC [2025] EWHC 32 (Comm)
- Allianz Funds Multi-Strategy Trust & Ors v Barclays Plc [2024] EWHC 2710 (Ch)
- Advanced Multi-Technology for Medical Industry & Ors v Uniserve Limited [2024] EWHC 1725 (Ch)
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