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Court of Appeal: no duty of care in interest rate hedging product review

In the linked appeals CGL Group Ltd v Royal Bank of Scotland plc, Bartles v Barclays Bank plc and WW Property Investments Ltd v National Westminster Bank plc [2017] EWCA Civ 1073, the Court of Appeal held that the respondent banks did not owe a duty of care to the Appellants when conducting a review into whether interest rate hedging products had been mis-sold to the Appellants.

In June 2012, the regulator (now the Financial Conduct Authority) made an agreement with the respondents and a number of other banks that each bank would review its sales of interest rate hedging products to “non-sophisticated customers” and provide appropriate redress where necessary.

Each of the three cases on appeal had a slightly difference procedural history but the substantive issue before the Court of Appeal was the same: did the respondent banks owe the Appellants a duty of care to conduct the review with reasonable care and skill? In  Suremime Limited v Barclays Bank plc [2015] EWHC 2277 (QB), the High Court had held that such a duty did arise but that decision was subject to significant criticism and a number of subsequent cases in the High Court (including the three conjoined cases in this appeal) had distinguished or otherwise refused to follow Suremime); it therefore fell to the Court of Appeal to resolve the uncertainty.

Lord Justice Beatson (with whom Lords Justice McFarlane and Lewison agreed) considered in detail the case law on when a duty of care can be said to arise. Referencing the decision of Lord Justice Longmore in Playboy Club London Ltd v  Banca Nazionale del Lavoro SpA [2016] EWCA Civ 457, Lord Justice Beatson noted that it had become customary to consider three “tests” or approaches to the question which usually produce the same result and can be used as a cross check on each other, namely:

  • the assumption of responsibility test;
  • the tripartite test in Caparo Industries v Dickman [1990] 2 AC 605;
  • whether the addition to the existing categories of duty would be incremental rather than indefinable.

Lord Justice Beatson applied this approach to the current cases and held:

“In this case, I consider that the factors relied on in the authorities to which I have referred, taken together and in the round rather than applied in a linear fashion, mean that assumption of responsibility is not the most appropriate test. While no single factor is determinative, in my judgment, cumulatively they clearly point away from a duty of care. That is confirmed by cross-checking with the other tests, in particular the threefold test. I turn to those factors. [paragraph 82]

The first is the regulatory context. I consider that this clearly weighs against imposition of a duty of care in these cases. It would be unusual for the common law to impose a common law duty on a statutory regulatory framework… [paragraph 83]

… I consider that the overall regulatory regime is a clear pointer against the imposition of a duty of care, and suggests that to recognise a common law duty of care in the present case would circumvent the intention of Parliament. The FCA has a wide range of powers as regulator, including to make or require a section 404 scheme or restitution under section 384. It was the deliberate intention of Parliament that only the FCA was to have the power to require the banks to comply with these schemes, and that no individual customer could enforce them or sue for breach… [paragraph 87]

I turn to the second factor; the dealings between the parties and the context of those dealings… Although the decisions of the banks to conduct the Reviews were, in a sense, in Lord Walker’s words “conscious, considered and deliberate”, the reason they agreed to do so is an important factor in assessing whether they assumed a duty of care to the appellants. It is relevant that the banks’ agreement to undertake the Reviews was in See above at [32] – [34] (CGL); [47] – [49] (Mr and Mrs Bartels) and [54] (WW). practical terms thrust on them by the FCA rather than truly voluntary, and this is a pointer against the recognition of a duty of care. The recognition of a duty in the circumstances of these cases is tantamount to saying that the banks assumed a duty to do what they had agreed with the FCA…. [paragraph 92]

The role of the independent reviewer, the “skilled person” appointed pursuant to the power in section 166 of FSMA (see [17] above), is also relevant to determining whether there is a duty of care. In the letters to the appellants, it was emphasised that the Review by each bank would be scrutinized by the independent reviewer appointed under the FCA’s powers. It is therefore difficult to argue that the banks “assumed responsibility” when they expressly indicated that an independent skilled person would be examining the decisions. As the independent reviewer could not have owed a duty of care to the customers, it would be surprising if the bank owed a duty, where it had less control than the independent reviewer over the conduct of the Review… [paragraph 93]

I turn to the three-fold and incremental tests. The analysis of the relationship between the banks and the appellants as “akin to contract” has to be assessed in the light of the fact that the situation is a “tri-part situation” where the banks owe contractual duties to the FCA and, as Lord Jauncey stated in Smith v Eric S Bush (see [74] above) there is generally no room for either a contract or an analogous tortious duty. The nature of the Review and the limitations on the remedies available to customers who are not private persons under the regulatory system or (see below) whose claims are time-barred are, in my judgment, factors that mean that it is not “fair, just and reasonable” to impose a duty of care on the banks. Nor is there a lacuna which justice requires should incrementally be filled by a duty of care. [paragraph 94]

…I accept the submission on behalf of the banks that imposing a duty would mean that the banks, having assumed voluntary duties to the FCA to consider complaints about the selling of interest rate hedging products which would otherwise be time-barred under the Limitation Act 1980 , had thereby re-started the limitation clock from the date of the Review. [paragraph 95]

In considering whether to recognise a duty of care in these circumstances, it is also important to take into account that the appellants’ complaints are not about the provision of banking services. They are complaints about how the banks dealt with their complaints about banking services. It is possible to imagine a number of similar customer complaints schemes which are designed to confer benefits and which have some formality and structure. The imposition of a duty of care in respect of a complaint system could therefore have far-reaching consequences and, in my judgment, it would not be fair, just and reasonable to do so in the circumstances of these cases. [paragraph 100]

The Court of Appeal’s decision (which effectively consigns the Suremime duty to history) is obviously of great importance in respect of litigation involving the mis-sale of interest rate hedging products but it also has a wider impact across all statutory and voluntary complaints schemes.