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Part D The Bank as Service Provider, 25 Sources of Bank Liability

From: The Law and Practice of International Banking (2nd Edition)

Charles Proctor

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Regulation of banks — Credit — Swaps

(p. 517) 25  Sources of Bank Liability


25.01  Mention has been made in other parts of this work about the liabilities which a bank may incur in the course of its business. This includes the liabilities of an institution in its roles as a paying or collecting bank.1 Liabilities that may arise in specific contexts—for example, in relation to contaminated land—have been considered in the specific context in which they may arise.2 But those liabilities arise in the ordinary course of the business of a commercial bank as a clearing institution.3

25.02  In contrast, the present chapter examines claims which may be made against banks as a result of loans made to corporate customers, especially where the bank has to intervene in some way to protect its interests in a facility that is becoming impaired. It also considers the position of banks as sellers of sophisticated and complex products, such as collateralized debt obligations, credit default swaps,4 and similar instruments. By their very nature, these instruments will be sold to larger corporate customers with considerable financial resources.5 However, especially against the backdrop of the prevailing financial crisis, some (p. 518) of these instruments have or may result in significant liabilities for buyers. For example, the implications of the so-called ‘credit crunch’ in the context of credit default swaps are obvious. Some corporate buyers may accordingly now be inclined to argue that their treasury or finance departments lacked the detailed knowledge required for a full understanding of these products and that, as a result, reliance was placed on the seller to provide an explanation of the merits of the arrangements.

Liability as a Lender

25.03  It is an unhappy but obvious fact that borrowers will occasionally get into financial difficulty, and that the bank will be faced with potential losses on its loans if a formal, insolvency process supervenes. It will be monitoring the borrower’s facilities and compliance with the financial and other undertakings that are designed for the bank’s protection. In normal cases, the bank will engage with the borrower to see if the facilities can be restructured or other steps can be taken to avert insolvency. For the most part, the bank will be motivated by its own self-interest. It will naturally wish to minimize its possible losses. But banks are also under pressure to support the corporate business sector in the wake of the fallout from the financial crisis.

25.04  In practical terms, the lender is unlikely to incur any liability to the borrower in the context of any such restructuring efforts. The bank will be acting in its own interests in seeking to recover the facility and cannot be said to have assumed any advisory or similar role vis-à-vis the borrower. Thus, for example, if the rescue efforts prove to be fruitless and the bank accelerates the facility in reliance on subsisting events of default, then the bank will simply be exercising its contractual rights and it cannot thereby be regarded as contravening any of its obligations to the borrower.6 Likewise, the disposal of assets charged as security for the loan will not involve any liability on the part of the bank to the borrower, provided that steps have been taken to obtain the best price reasonably available.7

25.05  But, in the context of a potential default, the bank will become closely involved in the affairs of the business. In particular, it may elect to provide funding for certain purposes, but not for others. Through this route, and through the threat of acceleration of the facility, the bank may acquire a significant degree of control over the conduct of the borrower’s business throughout this uncertain period. Assuming that the rescue efforts prove to be unsuccessful, can the bank potentially incur liability to other creditors of the borrower as a result of its actions during the period leading up to the formal insolvency? The point may be especially relevant if the bank has a first ranking security interest over the borrower’s assets, since there is likely to be little left for the body of unsecured creditors—a situation which, obviously, they will not view with great enthusiasm.

25.06  The main area of exposure for the bank in this context lies in section 214 of the Insolvency Act 1986, which deals with the issue of wrongful trading. In essence, a liquidator may apply to court for an order that a person should make a contribution to the company’s assets if (i) the company has gone into insolvent liquidation, (ii) the relevant person knew or ought to have known that there was no reasonable prospect of the company avoiding an insolvent liquidation, and (iii) the relevant person was a director of the company.8 For these purposes, (p. 519) a ‘director’ includes a ‘shadow director’, that is to say, ‘a person in accordance with whose instructions the directors are accustomed to act’.9 It is plain that the ‘shadow director’ rules create a potential conflict of interest because (i) a bank will wish to act in its own interests with respect to the defaulted facility and its enforcement but (ii) a shadow director owes fiduciary duties to the company and is expected to act in its best interests.10

25.07  It may be noted that no contribution order can be made under section 214 of the 1986 Act if the director concerned ‘took every step with a view to minimizing the potential loss to the company’s creditors…as he ought to have taken’.11 However, it is submitted that a bank that becomes a ‘shadow director’ in the run-up to insolvency will find it difficult to rely on this defence. The bank will be seeking to minimize its own losses and—especially where the bank holds a charge over the company’s assets—its interests will differ from those of the general body of creditors. In such a case, an argument to the effect that it was trying to minimize losses for all creditors is likely to met with a degree of scepticism.12

25.08  It follows that, in a rescue situation, the objective of the bank must be to avoid assuming the status of a ‘shadow director’. In the absence of that status, the court simply has no jurisdiction to make an order against the bank under section 214 of the 1986 Act. So, how can the bank achieve that objective? In the light of the definition set out above, the bank must avoid becoming ‘a person in accordance with whose instructions the directors are accustomed to act’.

25.09  In one case, it was held to be arguable that a bank had become a shadow director by requiring the company to execute a debenture in its favour in the run-up to insolvency, but the allegation was dropped at the main hearing.13 There seems, as yet, to be no case in which the lending bank has been held to be a shadow director of the company. Nevertheless, the possibility must be examined.

25.10  In Re Hydrodam (Corby) Ltd (in liquidation)14 it was stated—perhaps a little obviously—that a person could be a shadow director of a company if (i) that person told the directors what to do, (ii) the directors followed those instructions, and (iii) the directors were accustomed to following directions from that source. There is a certain amount of case law that helps to explain the various criteria.15 However, in the specific context of lender liability, it may be sufficient to note the following:

  1. (a)  in Re PFTZM Ltd (in liquidation),16 the activities of the company were funded by a £9.75m loan from Humberclyde Finance Group. When the company notified Humberclyde that it would have insufficient income to cover its interest payments, (p. 520) Humberclyde imposed various requirements. In particular, it required weekly meetings with the borrower’s management, and security was taken over the borrower’s cashflow, with a requirement that it was to be paid through accounts controlled by the bank. It must be said that requirements of this kind are entirely standard precautions that a lender might take when notified of the borrower’s difficulties. As the court noted, Humberclyde was the major creditor and, in that capacity, it had the contractual right to demand repayment if it wished to do so. As the court went on to observe:17 ‘The actions they took, as I see it, were simply directed to trying to rescue what they could out of the company using their undoubted rights as secured creditors. It was submitted to me that it was a prima facie case of shadow directors, but I am bound to say that it is far from obvious.’ In the present writer’s view, this formulation is entirely correct. A lender who exercises his contractual rights—or threatens to exercise them—in order to secure a particular result to protect its own position is doing so in its capacity as a creditor. This must exclude any inference that the bank is acting as a shadow director of the borrower;

  2. (b)  a similar theme was followed by the Court of Appeal in another case, which effectively decided that a person’s status as a director of a holding company did not of itself render the individual liable as a shadow director of its subsidiary. Any instructions he gives to the directors of the subsidiary are given by him in his separate capacity as a director of the parent entity;18

  3. (c)  the decision of the New South Wales Supreme Court in Standard Chartered Bank of Australia Ltd v Antico19 is to similar effect. A lender may impose restraints on the use of its loans, and may require the provision of additional security and the disposal of assets. It takes such steps in its capacity as a lender and, hence, not as a shadow director;20 and

  4. (d)  similarly, in Krtolica v Westpac Banking Corp,21 the bank had granted a number of increases and time extensions to its overdraft facility, before it finally made demand. Again, the bank was found merely to have defended its own interests as a creditor, and had not assumed the position of a shadow director.

25.11  The available case law directly relevant to the position of a bank as a potential ‘shadow director’ is thus relatively sparse. Nevertheless, it seems clear from the above discussion that the legitimate exercise of a lender’s rights under its facility and security documentation is entirely inconsistent with the status of a ‘shadow director’.

Sales of Complex Products

25.12  It is now proposed to turn to a number of cases where banks have sold complex or highly structured financial products to their clients. As will ever be the case, clients who purchase such assets at the right point of the market and sell on the way up will maintain a dignified silence, even if they never really understood the product that was being sold to them. Those who purchased at the wrong point of the cycle will inevitably take a different (p. 521) view, and will seek to recover their losses from the bank as seller or, possibly, in its alleged guise as an adviser.

25.13  It should be said at the outset that many claims of this kind are likely to be highly fact-sensitive. Evidence as to who said what, to whom, under what circumstances, and for what purpose is likely to be crucial, as is the nature of the relationship between the parties and any expert evidence as to prevailing market practice at the relevant time.

25.14  Having said that, it is quite likely that the buyer’s or the customer’s claim will be formulated under a permutation of the following headings:

  1. (a)  a breach of a contractual duty to advise;

  2. (b)  negligent misstatement; or

  3. (c)  breach of fiduciary duty.

25.15  Since these headings were all pleaded in a major, recent case, it may be helpful to use that decision as a backdrop for the present discussion. It will then be possible to consider cases in which the bank is involved as an investment manager or adviser (as opposed to the seller of the product concerned).

The Springwell Navigation Case

Factual Background

25.16  In JP Morgan Chase v Springwell Navigation Corp,22 Springwell was an investment vehicle for a wealthy, Greek ship-owning family. Springwell was essentially used to invest spare cash generated from the shipping business, until such time as it was required for reinvestment in the family’s main business. During the 1990s Springwell, via its relationship with a particular individual at Chase, built up a very substantial portfolio in ‘GKO-linked notes’, a derivative instrument issued by a Chase entity and linked to a Russian investment which suffered huge losses as a result of Russia’s default on its external debt in 1998. Springwell claimed to have suffered additional losses because the investment portfolio was highly leveraged, thus forcing Springwell to sell in a falling market in order to meet margin calls. Springwell thus alleged a breach of contractual and other duties on the part of Chase.

Claims in Contract and Tort

25.17  In the absence of a written contract under which a party agrees to provide investment advice, the court proceeded on the footing that the contractual and tortious questions were likely to be similar. Whether a contract can be implied from the circumstances is likely to depend on whether the alleged investment adviser had in fact assumed a responsibility to advise (see below). The existence of contractual and tortious duties may thus tend to shade into each other.23

(p. 522) 25.18  The original documentation establishing the relationship between Springwell and Chase consisted of an ordinary bank mandate and account opening form. It was plainly impossible to read into those early arrangements any duty to advise Springwell on its investment strategy. Later contracts for the acquisition of specific investments generally stated that Chase had not given advice on the product concerned. Under these circumstances, it was not possible to infer the existence of an implied advisory contract. Apart from anything else, this would be inconsistent with the explicit terms of the materials before the court. On that basis, it becomes necessary to frame the question in tort; had Chase assumed a responsibility to advise Springwell in this way?

25.19  The starting point for liability in tort for economic loss is the well-known decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd,24 as more recently examined and explained in Commissioners for Customs & Excise v Barclays Bank plc.25 A variety of tests may be applied. For example, did the defendant assume an advisory responsibility to the claimant, and did the latter rely on him? Was the loss reasonably foreseeable, and is it fair, just, and reasonable to impose a duty of care in the particular circumstances of the case?26 Ultimately, Springwell relied on the introduction of a particular individual in 1987 as an expert in emerging products to imply an obligation to provide general market or investment advice. That individual was effectively a salesman on behalf of Chase, and the evidence appears to have negated any suggestion that Springwell was intended to rely on him for advice, or that it did in fact do so. He had not been introduced as an adviser, nor was any advisory agreement signed to mark his introduction to the relationship. This conclusion was reinforced by the fact that—to Springwell’s knowledge—the relevant individual specialized in particular types of emerging market products but had no broader, advisory experience.27 Furthermore, the individuals within Springwell were themselves experienced businessmen and investors. They frequently made decisions which went against the ideas proposed by the individual concerned, thus demonstrating that they were not relying on his advice or recommendations. In any event, if an advisory relationship is to arise, there must be some clarity and certainty about the scope and nature of the advice which is to be given.28 This approach is consistent with the broader view that a bank does not generally owe a duty to advise the customer on the merits of any transaction which the customer is to enter into with the bank or (more usually) with a third party with the assistance of funding provided by the bank.29 It is true that a bank will undertake an analysis of the borrower’s proposed transaction, but the bank undertakes that process as part of (p. 523) its credit review and for its own protection. That work cannot therefore create any duty to advise the borrower on the merits of the deal.30 Equally, there can be no obligation on the part of the bank to advise the borrower on the merits of the proposed financing structure. There is, of course, a clear conflict of interest in that respect—the bank will wish to derive the maximum possible revenue from the deal, whilst the borrower will obviously wish to finance his deal at the lowest possible cost. Other case law appears to support this approach to the matter.31 Thus, if a bank requires the prospective borrower to take out particular insurance arrangements as part of the facility, it has no obligation to advise the borrower as to whether the acceptance of that term is in the borrower’s own interests.32 Of course, this general rule may be displaced if, on the particular facts, the bank has expressly or impliedly assumed an advisory obligation.33

25.20  The courts have continued to view mis-selling claims with a degree of scepticism where the claimant is a person of resources and sophistication. Where necessary, suitability of the investment must be assessed for the client,34 but a client of this type may be expected to read and understand the risk warnings without need of further explanation from the bank.35 Whist the Court of Appeal has held that the ‘suitability’ requirements of the COBS Sourcebook applied to the sale of a structured note to a high net worth individual, it found on the particular facts that this obligation had been discharged in relation to the client concerned.36

Contractual Disclaimers

25.21  When Chase and Springwell entered into individual transactions, the documentation stated, in a variety of ways, that Springwell was a sophisticated and experienced investor, had made its own decisions as to the merits of the particular deal and was not relying on any advice or recommendations made by Chase.

25.22  Was there any basis on which Springwell could pursue its claims despite these provisions? The court found that these were not ‘exclusion clauses’ which had to satisfy the ‘reasonableness’ test in section 3 of the Unfair Contract Terms Act 1977,37 since they did not seek to (p. 524) exclude or restrict a liability which Chase would otherwise owe to Springwell. They merely sought to define the nature of the relationship; Chase was providing trading and banking services, but it was not providing investment advisory services. As a result, Chase was entitled to rely on provisions of this kind.38


25.23  Springwell argued that Chase had misrepresented the suitability of the GKO-linked notes for Springwell’s investment purpose, and had also made misrepresentations about the state of the Russian economy. Once again, however, arguments of this kind were effectively precluded by the contractual documentation, which confirmed that Chase was not assuming any formal responsibility for statements of fact or opinion.

Breach of Fiduciary Duty

25.24  The claimant in Springwell also sought to argue that the bank owed a fiduciary or equitable duty to act in the best interests of the client, and that this formed the basis on which an award of damages could be made. But, given that the court had already rejected the contention that an ordinary (non-fiduciary) advisory relationship had come into existence, there was no basis on which any form of fiduciary relationship could be implied.39

25.25  It may be noted that US courts have likewise been reluctant to impose a fiduciary relationship between the bank and its client in the context of a sale of a complex financial product.40

Conclusions on Springwell

25.26  As noted above, mis-selling claims of this kind will always be highly fact-sensitive. But it seems fair to infer from Springwell that—at least when dealing with sophisticated investors—the courts will respect contractual documentation which seeks to define the nature and scope of the relationship and will not seek to impose duties of care or a duty to advise which runs counter to such provisions. The point is of some practical importance, because the contractual provisions discussed in that case are in common use throughout the financial markets.

Other Cases

25.27  Other, recent cases have tended to adopt a broadly similar line. For example, in Peekay Intermark Ltd v Australia and New Zealand Bank Group,41 a trader mistakenly advised his (p. 525) customer that a derivative instrument to be issued by his bank would confer on the customer a proprietary interest in the securities on which such an instrument was based. He also omitted to mention that the customer would have no influence over the enforcement process in the event of a default. However, the correct information was contained in the formal documentation later executed by the customer (albeit without reading it). The terms of the contract thus overrode the effect of any misrepresentation. In any event, having signed the agreement, the customer was estopped from arguing that it had worked on the basis of the incorrect information.42 Furthermore, applying the reasoning in Springwell, a trader is not an investment adviser and the customer could not have relied upon him as such.

25.28  Earlier cases had likewise held that a sophisticated client could not set aside a complex financial product on the basis that the bank had misrepresented its effect, in part because ordinary sales banter should not be regarded as a ‘representation’ in any event.43 Courts in the United States have also tended to the view that statements made in the context of transactions of this kind are more likely simply to describe the product, and are not intended to amount to formal representations on which the client is entitled to rely.44

Advisory and Management Arrangements

25.29  The above discussion has noted cases in which the bank was acting as a seller of a financial product, where the bank and its customer were therefore acting on a principal-to- principal basis.

25.30  As might be expected, the position differs where the bank is acting as an adviser or manager in relation to the client’s own portfolio of investments. In such a case, the bank will plainly owe a duty to act with reasonable care.45 That duty, and the extent of (non-)compliance with it, will be measured by reference to the mandate and objectives which the customer has given to the bank. For example, a bank responsible for the discretionary management of its client’s portfolio and which invests in highly speculative instruments will incur liability to a client who has indicated the importance of preserving his capital and thus looks for a conservative strategy. But, on exactly the same facts, it may not be liable to a client who is investing spare cash which he can afford to lose and has asked the bank to adopt a strategy for high and short term capital growth. The outcome should be the same whether the claim is framed in contract or in tort, because the terms of the bank’s mandate will largely determine the scope of its authority and the scope of its duties.46

(p. 526) 25.31  Of course, whatever cause of action is pleaded, it will be necessary for the client to demonstrate that the relevant breach of contract or duty is causative of his losses—he cannot recover from his investment manager/adviser simply because the market has turned against his own investment strategy. Thus, for example, if the adviser recommends that the client should accept losses in order to facilitate the diversification of the portfolio, then the adviser cannot be liable if the portfolio continues to decline in value after the client has specifically rejected that advice.47 Equally, if the client is himself a sophisticated investor, it may be more difficult for him to demonstrate that he relied on the bank’s advice.48

25.32  An interesting recent decision in the opposite direction is provided by the judgment of the Federal Court of Australia in Wingcarribee Shire Council v Lehman Brothers Australia Ltd (in liquidation).49 An investment adviser was found to have represented that certain structured products were well-secured and tradeable on a secondary market. Neither of these statements were true, and the investment adviser was found to be liable in damages for investing the council’s money in the products concerned. Curiously, the only exclusion or disclaimer clauses seem to have been contained in presentation slides, rather than the agreements themselves, and the court had little difficulty in disregarding these provisions.50 The decision appears in some respects to have been influenced by the fact that the transactions involved taxpayers’ money. The case is, however, different from those discussed earlier, in the sense that (i) the adviser was not also the seller of the products and (ii) leaving aside the validity of the exclusion clauses, the adviser had plainly assumed a duty to advise.


25.33  It seems to follow from the above discussion that a sophisticated client will frequently encounter difficulty in establishing recourse to a bank which has sold him a complex financial product, at least provided that the bank has not specifically misrepresented the position to him and he receives documentation which contains a fair and accurate description of the product before he became committed to the transaction. The same general comment will apply to investment advisory relationships and, even if the bank is found to be in breach of a contractual or other duty, the client may still have to overcome obstacles to demonstrate that such advice was the proximate cause of his loss.


See Chapters 17 and 18 above. Possible liabilities arising in the course of the arrangement of syndicated loans are particular to that market, and have accordingly been considered in Chapter 21 above. It should be appreciated that liabilities of that type are likely to be incurred (if at all) to other members of the syndicate. The present chapter is concerned with potential liabilities to the bank’s direct customer or client.

See the discussion of contaminated land in the context of the bank’s position as mortgagee of such assets, at paras 32.49–32.53 below. Equally, the issues that may arise from the mis-selling of derivative transactions have been considered at paras 23.35–23.39 above.

For an extremely useful work that discusses this area as an independent subject, see Hood, Principles of Lender Liability (Oxford University Press, 2011).

On credit default swaps generally, see paras 22.33–22.35 above.

The present chapter is therefore not concerned with particular rights or remedies which may be available to consumers. That subject is considered at various other points: see, for example, the discussion in Chapter 3 above.

On default and acceleration, see para 20.46 above.

On the obligations of the bank as mortgagee in this situation, see para 32.30 below.

Section 214(1) and (2) of the Insolvency Act 1986.

Section 214(7), read together with s 251, of the Insolvency Act 1986. A person who acts as a professional adviser to the company is not to be regarded as a ‘shadow director’ for these purposes. However, a lender will not usually fall within the ‘professional adviser’ exemption: see Fatupaito v Bates [2001] 3 NZLR 386.

10  For confirmation of the second point, see Vivendi SA Centenary Holdings III Ltd v Richards [2013] EWHC 3006 (Ch).

11  This defence is set out in s 214(4) of the 1986 Act.

12  For a discussion of this defence as it might apply under present circumstances, see Hood, n 3 above, paras 14.50–14.70.

13  Re A Company (No 005009 of 1987), Ex p Copp [1989] BCLC 13; Re M C Bacon Ltd [1990] BCC 78. The cases are considered by Hood, n 3 above, para 14.08.

14  [1994] 2 BCLC 180.

15  See, in particular, the discussion in Hood, n 3 above, paras 14.10–14.27.

16  [1995] 2 BCLC 354.

17  Re PFTZM Ltd, n 16 above, p 367.

18  See Smithton Ltd v Naggar [2014] All ER (D) 118 (Jul); [2014] EWCA Civ 939. The ‘separate entity’ approach also appears to have been accepted by the majority of the Supreme Court in Revenue and Customs Commissioners v Holland [2010] UKSC 51.

19  [1995] NSWSC 31.

20  Although it may be noted that one of the lenders involved in that case was held to be a ‘de facto’ director of one of the borrowers.

21  [2008] NZHC 1 (High Court of New Zealand).

22  [2008] EWHC 1186 (Comm), a decision of Gloster J. It should be emphasized that the evidence and factual background to this case are very complex, and the present section attempts only a brief summary. For a useful discussion, see Ryan and Yong, ‘Springwell—are the English Courts the Venue of Last Resort for Complex Investor Claims?’ (2009) 1 JIBLR 54. For follow-up litigation dealing with the bank’s conduct in the aftermath of the Russian default, see JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1793 (Comm).

23  See Henderson v Merrett Syndicates [1995] 2 AC 145 (HL).

24  [1964] AC 465 (HL). For an early decision allowing in part a claim against a bank in respect of negligent advice, see Royal Trust Co (Trinidad) Ltd v Pampellone [1986] UKPC 50 (PC).

25  [2006] 4 All ER 256 (HL). This case concerns liability in tort for failure to observe the terms of a freezing injunction. The case is accordingly considered in more depth at para 43.34 below.

26  See the discussion in Springwell, n 22 above, at para 48.

27  See para 104 of the judgment.

28  See para 100 of the judgment.

29  See, for example, National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51 (PC). In a recent case, the court adopted the same view in the context of a sale and purchase of a derivatives product, noting that (i) the bank had acted on an ‘execution only’ basis, (ii) the bank owed no duty of care to advise the customer on the suitability of the product, and (iii) to the extent to which the usual disclaimer clause fell within the scope of the Unfair Contract Terms Act 1977, they satisfied the test of reasonableness: see Titan Steel Wheels Ltd v Royal Bank of Scotland plc [2010] 2 Lloyds Rep 92; [2010] EWHC 2111 (Comm). The decision has recently been followed in Bailey v Barclays Bank plc [2014] All ER (D) 151 (Aug); [2014] EWHC 2882 (QB).

30  For an early decision to this effect, see Williams & Glyns Bank Ltd v Barnes [1982] Com LR 205.

31  See, for example, National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51; Murphy v HSBC Bank plc [2004] All ER (D) 211 (Mar); [2004] EWHC 467 (Ch).

32  Frost v James Finlay Bank Ltd [2002] EWCA (Civ) 667 ; [2002] All ER (D) 365 (May). On the particular facts, this may be viewed as a slightly hard case from the borrower’s perspective.

33  For some of the cases in which this has occurred, see Woods v Martins Bank Ltd [1959] 1 QB 55; Cornish v Midland Bank Ltd [1985] 3 All ER 513 (CA); Verity and Spindler v Lloyds Bank plc [1995] CLC 1557 and Rubenstein v HSBC Bank plc [2013] 1 All ER (Comm) 915 (CA), where a member of the bank’s staff erroneously advised the customer that a structured product was equivalent to a bank deposit, and had failed to comply with the terms of the COBS Sourcebook in assessing the suitability of the product for that particular customer. Even if the bank does assume an advisory role, it does not thereby become responsible for the periodic review or updating of that advice: see Fennoscandia Ltd v Clarke [1999] 1 All ER (Comm) 365 (CA). But the cases in which an advisory duty has been found to exist have generally involved financially inexperienced customers where it may have been reasonable to expect them to rely on the bank’s views. As the court noted in Springwell, this is unlikely to arise in relation to a sophisticated client.

34  ie in accordance with the COBS Sourcebook of the FCA Handbook.

35  Al Sulaiman v Credit Suisse Securities (Europe) Ltd [2013] 1 All ER (Comm) 1105; [2013] EWHC 400, and further cases there discussed.

36  See Zaki v Crédit Suisse (UK) Ltd [2013] BCLC 640; [2013] EWCA Civ 14.

37  On this Act, see para 15.42 above.

38  It appears that courts in the United States will adopt a similar approach in upholding provisions of this kind: see, for example, Banco Espirito Santo de Investimento SA v Citibank NA (SDNY, 2nd Cir, 2003).

39  See Springwell, n 22 above, para 573. In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64, the High Court of Australia observed, at para 70, that contractual and fiduciary obligations can subsist within the same relationship. In such a case, however, the contractual relationship enjoys primacy and ‘…the fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction…’. This approach was approved by the Privy Council in Kelly v Cooper [1994] 1 BCLC 395 (PC).

40  See, for example, the court’s refusal to infer such a relationship in Power & Telephone Supply Co v Sun Trust Bank 447 F 3d 923 (6th Cir, 2006).

41  [2006] EWCA Civ 386. For a helpful review of this case, see Gooding, ‘Selling Investment Products to Sophisticated Clients: Reflections on Peekay v ANZ’ (2006) 11 JIBLR 628.

42  The Court of Appeal decision in Peekay on the effect of a disclaimer notice and estoppel has been followed on a number of occasions: see Springwell, n 22 above; Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2011] Bus LR D65; [2010] EWHC 1392 (Comm), already noted in the context of syndicated loans at para 25.27 above; Cassa di Risparimo della Republica di San Marino SpA v Barclays Bank plc [2011] All ER (D) 189 (Mar); [2011] EWHC 484 (Comm), dealing with an alleged misrepresentation in the context of a sale of structured notes; Bank Leumi (UK) plc v Wachner [2011] All ER (D) 278 (Mar); [2011] EWHC 656 (Comm), concerning losses on FX trading facilities; Standard Chartered Bank v Ceylon Petroleum Corp [2012] All ER (D) 317 (Jul); [2011] EWHC 1785 (Comm), on the sale of a derivatives contract and Barclays Bank plc v Svizera Holdings BV [2014] All ER (D) 65 (Apr); [2014] EWHC 1020 (Comm), concerning statements made about available exchange rates.

43  PT Dharmala Sakti Sejahtara v Bankers Trust Co [1996] CLC 518.

44  See, for example, Kwiatkowski v Bear Sterns Co Inc 306 F 2d 1293 (2nd Cir, 2002).

45  This will be an implied term of the advisory/management contract, even if it is not explicitly stated.

46  Of course, it would be open to the customer to argue that the bank had misrepresented the effect of the mandate, but that would be a separate issue.

47  See the situation which arose in Valse Holdings SA v Merrill Lynch International Bank Ltd [2004] All ER (D) 70 (Nov).

48  Valse Holdings, n 47 above.

49  [2012] FCA 1028.

50  See the discussion at paras 725–727 of the judgment.