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High Court case on the “intermediate duty”

In Thomas v Triodos Bank NV [2017] EWHC 314 (QB) the High Court has again considered the extent of a bank’s duty to its customers.

The Claimants, who had become customers of the Defendant in 2006, moved their borrowing from variable rate products to fixed rate products in June 2008. The rates were fixed for ten years and, in the event that the Claimants wanted to exit the products early, both an early repayment charge and a “redemption penalty” would apply.

Following the collapse in the Bank of England base rate in late 2008 and early 2009, the Claimants found themselves tied into products with far higher interest rates than the prevailing market rates. The Claimants alleged that this had an adverse affect on their business and sued the Defendant for failing to explain the financial consequences of the fix and misrepresentation.

His Honour Judge Havelock-Allan QC found that the Defendant had not offered advice to the Claimants (it was a non advised sale). Nevertheless, it was agreed that a Hedley-Byrne duty arose: the Defendant was under an obligation to take reasonable care not to misstate any facts upon which the Claimants could be expected to rely. The issue was whether or not the Bank owed the Claimants any greater duty than that.

His Honour Judge Havelock-Allann QC, followed Crestsign Ltd v National Westminster Bank plc [2014] EWHC 3043 (Ch), holding that an “intermediate duty” existed; the Defendant had advertised that it subscribed to the Business Banking Code and had assumed responsibility for adhering to the principles in that Code.  One requirement of those Code was that if a bank was asked about a product, it would give a balanced view of the product with an explanation of its financial implications. Following the Claimants’ enquiry about fixing the rate on their lending products the Defendant failed to adequately explain the consequences of the ten year fix and failed to adequately explain how the early repayment charge and “redemption penalty” would apply. The Judge found that if the Defendant had given a balanced explanation of the product and its financial implications, Claimants would likely have asked for a fixed rate for only two years. Accordingly, the Bank was liable to the Claimants.