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A recent case has demonstrated the importance of borrowers seeking proper legal advice on the terms of bank facility agreements, according to a leading corporate lawyer. “Whilst it is possible in certain circumstances for banks to be under an implied duty to advise their customers, the legal thresholds for imposing such a duty are high. Banks are under no general duty to give impartial advice to customers on the terms of their products, even if they market themselves as a trusted adviser.”
Mr Round continues, “the High Court case of Finch and another v Lloyds TSB Bank plc and others concerned a ten year term loan with a fixed interest rate to fund a hotel purchase. Under the terms of the facility agreement, the bank reserved the right to charge break costs on the prepayment of the loan. The costs turned out to be significant as they included the cost of breaking certain hedging agreements which the bank had put in place to safeguard against fluctuations in interest rates on the funds it borrowed.”
According to Mr Round, “the bank’s publicity material had referred to it as a trusted adviser to its customers. The question was whether such language, together with the apparently close relationship between the customer and the bank’s representatives, resulted in a duty of care. The court, however, found that the bank had assumed no express contractual duty to provide impartial advice to the customer, and that there were no grounds for imposing a wider duty of care under general law. Had the bank been under a duty to advise, it would have been required to provide such advice with reasonable care and skill. The language used in the bank’s advertising strategy did not, however, imply the assumption of a duty, particularly as the customer had significant business experience and was advised by solicitors and finance brokers.”
Mr Round concludes, “the decision will be welcomed by lenders who would have been surprised to find that a duty of care to their customers had arisen solely through an enthusiastic marketing campaign. It does, however, emphasise the importance of reviewing carefully the terms of often lengthy secured facility agreements, seeking professional advice on the fine print and taking the time to read that advice.”