Basis Clauses – An Unfair Relationship?

The High Court has rejected a claim by borrowers against a bank under s140A and 140B of the Consumer Credit Act 1974 ("CCA") alleging that there was an unfair relationship arising from (inter alia) the terms of loan agreements, which agreements included 'basis clauses'. The decision is the first reported case to consider the efficacy of basis clauses in this context, but is also of broader interest in relation to the steps that banks can take to ensure that basis clauses are enforceable and therefore ultimately offer the intended protection.

Background

The claimants (C) were two British couples resident in Spain. In 2005/6 they each borrowed substantial sums from the defendant bank (D), to fund investments in an attempt to mitigate Spanish inheritance tax. Each couple received advice on the investments from an IFA (whom C do not appear to have sued). The loans were secured against the investments themselves and C's Spanish properties.

The loan agreements contained a number of 'basis clauses' purporting to set out the basis upon which C and D were doing business, for example:

Clauses making clear that D was acting as finance provider only and was not giving advice and that independent advice should be sought by C; and Clauses providing that the loan agreement was the entire agreement between the parties, that D had not made any pre-contractual representations to C and that C had not relied on any such representations. The investments underperformed and, in 2016, C brought proceedings against D under s140A and 140B of the CCA, alleging that there was an unfair relationship between C and D arising from: (i) misrepresentations and/or a breach a duty on D to advise; and/or (ii) the terms of the loan itself. C sought the removal of their indebtedness and discharge of the security.

Decision

The burden in an unfair relationship claim is on D to disprove the allegation that there was an unfair relationship. The Judge held that D had done so for, amongst others, the following reasons:

The bank had not given any advice (still less false advice) and had not assumed any duty to provide advice. Nor had it made any actionable misrepresentations. "Sales pitches" given by representatives of D constituted marketing rather than advice. Both couples had paid for and received advice from an IFA. C were contractually estopped by the basis clauses from claiming D had a duty to advise or that they had relied on advice/misrepresentations. Even if the basis...