The High Court has recently considered whether a lender owed a duty of care in contract or tort to advise a borrower of a potentially onerous clause in a loan agreement - and found that it did not.
In Finch v Lloyds TSB Bank PLC, the defendant and a company (B) entered into a 10 year fixed term loan for £11.6 million. The claimant (as assignee of B's cause of action) alleged the defendant had failed to advise B of onerous terms in the loan agreement and, in particular, that it would be liable for the costs associated with repaying the loan early - some £1.5 million. The claimant argued B could not refinance its borrowings without borrowing or paying those additional break costs and, as a result, was unable to refinance at a lower interest rate. This ultimately meant B's business failed and B went into administration. The claimant also alleged the defendant had negligently misrepresented that the loan had been tailored to suit B's needs.
The High Court dismissed the claim. The claimant alleged a breach of the Supply of Goods and Services Act 1982 s13 which implies a term that a supplier will carry out the service with reasonable skill and care. However, the claimant had not pleaded any contract which imposed a duty on the defendant to provide advice. B's and the defendant's commercial interests were diametrically opposed and B had been represented by professional advisors throughout the negotiations. The defendant owed no contractual duty of care to B.
Neither was the defendant under a duty to give disinterested voluntary advice that was or might be contrary to its commercial best interests. The defendant had not been negligent.
The claim for negligent misstatement also failed. B had not told the defendant that it wanted to repay the loan early. The defendant had tailor made the loan to B's requirements as they had been made known to it, but subject to the qualification that it was not required to subordinate its commercial interests to those of B and its investors.
Things to consider
A bank is not under a general legal obligation to provide advice to borrowers, but if it does provide it, it must do so using reasonable care and skill. There would need to be exceptional circumstances for a duty to give voluntary advice to be owed by a bank to a borrower, where the advice relates to terms commercially favourable to the lender and, particularly so, where the borrower has its own legal representation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
