Mis-selling Update: Crestsign v Natwest & RBS

Financial services cases, including those concerning mis-selling, remain in focus - Crestsign Limited v Natwest & RBS [2014] EWHC 3043 (Ch) ("Crestsign") being the most recent example.

Pared back to its simplest form, Crestsign was a negligence claim in which the claimant alleged loss suffered by reason of advice given and statements made by Natwest/RBS (Banks) in relation to an interest rate hedging product (IRHP). At its core, the allegation was that the Banks had mis-sold the IRHP.

Despite the finding in favour of the Banks, the case reinforces the challenges faced by financial institutions when selling financial products.

Yet, the decision also serves as a useful roadmap to claimants when it comes to the hurdles they may have to overcome when making out a mis-selling claim.

Disclaiming Responsibility

The claimant argued that the Banks had a common law duty to use reasonable skill and care when providing advice and/or making recommendations about whether the IRHP was suitable.

However, certain basis clauses in the Banks' documents expressed that the relationship was not advisory and it was for Crestsign to make its own assessment of the suitability of the IRHP.

The Court's application of the basis clauses successfully narrowed the scope of the Banks' common law duties, in that the Banks disclaimed responsibility and did not owe a duty to use reasonable skill and care in giving advice to Crestsign about the IRHP.

However, and importantly, had those basis clauses not been incorporated into the Banks documents the Court would have held there was disparity in terms of knowledge/expertise between the Banks and Crestsign. It was therefore reasonable to expect that Crestsign would rely on the Banks' skill/judgment before committing to the product - giving rise to a duty of care where there is an 'assumption of responsibility'.

Breach of Duty

Despite this initial finding the Court helpfully went on to consider whether the Banks had breached their duty of care by giving negligent advice. In particular, it found that the product offered to Crestsign was unsuitable. The Court would have otherwise found the Banks to be in breach.

'Wider' Duty

The Court also considered whether the Banks owed a 'wider' duty to ensure the information provided was 'accurate and fit for purpose' - a duty over and above the common law duty not to misstate.

Again, the Court reinforced that the scope of the duty is dependent on the particular circumstances of the case.

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