BLACKS SOLICITORS: No duty on banks to advise on onerous loan terms


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As readers of this publication will be aware, in the last few years there have been various articles covering the mis-selling of interest rate hedging products by the high street banks.  Those claims have primarily claimed negligent advice by the banks to their customers.  However, in the recent case of Finch & Another v Lloyds TSB Bank Plc the allegation was different: that the bank had failed to provide advice in the first instance, namely to provide a warning as to the existence of onerous terms within the loan agreement and the effect of those terms.  

The Claimants took out a 10 year fixed rate loan for £11.6m in January 2008.  The loan agreement contained a (typical) clause which required the borrower to pay break costs in the event of early repayment.  The Claimants alleged that it was only when they tried to re-finance in 2009 that they discovered they would have to pay over £1m in respect of those break costs.  

The Court had to decide whether the bank owed either a contractual or tortious duty to advise the claimants and, if it did, whether the bank had breached either duty by failing to advise the claimants of the effect of the early repayment clause.  

The claimants argued that the duty on the bank arose out of the close working relationship between the parties or, alternatively, was implied under Section 13 of the Supply of Goods and Services Act 1982 (which states that services will be provided with reasonable skill or care).

The Court ruled that there was nothing in the contractual documentation to suggest that the bank had agreed to provide advice in connection with the loan agreement and it rejected the argument that a contract to advise on the scope or the effect of the agreement arose out of the closeness of the relationship between the parties.  The Judge held that each party had acted in its own self-interest which was demonstrated by the fact that all the terms of the loan were negotiated between the bank and the claimants’ professional advisers.

The Judge also rejected the argument that the bank had assumed a tortious duty.  He ruled that it had no general duty to advise customers and that there would have to be “exceptional circumstances” before it could safely be concluded that the bank was under a duty to give advice in relation to a product which it was offering.  This was especially the case when the customer had its own professional advisers and the provision of advice by the bank might have been contrary to its own commercial interests.  

Accordingly, the claimants’ claim was dismissed in its entirety.  

This case highlights that the courts are reluctant to imply terms into a contract.  It shows that the relationship banks have with their customers will not automatically turn into an adviser/client relationship unless specific circumstances exist which show that the customer has sought advice which has then been provided by the bank.

If you are currently in dispute with your bank concerning a financial product sold to you then contact Luke Patel on 0113 2279 316 or by email at “LPatel@LawBlacks.com”.

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