High Court considers entitlement of investment firm to terminate Bitcoin trading account due to alleged money laundering concerns

The High Court has found in favour of a claimant investor in a dispute arising from the termination of her Bitcoin trading account with an online trading platform and concurrent cancellation of open trades (as a result of an alleged money laundering risk): Ang v Reliantco Investments Ltd [2020] EWHC 3242 (Comm). Although the claim relates to an account used to trade Bitcoin futures, the decision will be of broader interest to financial institutions, given the potential application to other types of trading accounts and accounts more generally.

The judgment is noteworthy for the court’s analysis of the defendant’s contractual termination rights in relation to the account and open trades. While the Customer Agreement provided the defendant with the right to terminate the account, the court found that the defendant remained under an obligation to return money deposited in the account (which was held under a Quistclose trust). As to the related open trades, the court found that the defendant only had a contractual right to close out the trades rather than to cancel them (or alternatively, the court said that the same result would be required under the Consumer Rights Act 2015 (the Act), as the investor was a “consumer” for the purposes of the Act).

The decision illustrates the risks for financial institutions seeking to terminate relationships with their customers, particularly in circumstances where there are money laundering or other regulatory compliance concerns. Often accounts may need to be closed without notice (as per N v The Royal Bank of Scotland plc [2019] EWHC 1770; see our banking litigation blog post). Claims against banks by customers in this type of scenario can be significant, and not limited to claims for money deposited in the account, extending to gains on outstanding trades and the loss of future investment returns but for the termination of the account. In the present case, the court found that the claimant was entitled to recover the loss on her investment returns, as it was deemed to be within the reasonable contemplation of the parties when they contracted that, if the defendant failed to repay the claimant sums which she had invested, she might lose the opportunity of investing in similar products.

In order to manage the litigation risks, it may be prudent for financial institutions to review the relevant contractual documentation associated with trading accounts to ensure that it: (i) allows for termination of the account in the relevant circumstances at the absolute discretion of the bank; and (ii) confers an appropriate contractual right to deal with any deposits and open trades. This is particularly the case where the customer is a consumer for the purposes of s.62 of the Act, as there will be a risk that any term in the contract consequently deemed unfair will not be binding on the customer.


In early 2017, the claimant individual opened an account with an online trading platform (UFX), owned by the defendant investment firm. Through this account, the claimant traded in Bitcoin futures. The claimant’s husband (a specialist computer scientist and researcher with cybersecurity and blockchain expertise, and alleged inventor of Bitcoin) also opened accounts on UFX; however, these were blocked when the defendant identified though its compliance checks that he had previously been accused of fraud in 2015.

The claimant made substantial profits trading Bitcoin futures, which were then withdrawn from the UFX account. In late 2017, the defendant terminated the claimant’s UFX account and cancelled all related open transactions, apparently as a result of an alleged money laundering risk.

The claimant subsequently brought a claim alleging that the defendant did so wrongfully and seeking to recover: (i) the remaining funds in the account; (ii) the increase in the value of her open Bitcoin positions; and (iii) the sums from her proposed reinvestment of those funds.

The defendant sought to resist the claim primarily on the basis that the account had actually been operated by the claimant’s husband rather than the claimant and the claimant had provided inaccurate information to the defendant in her “Source of Wealth” documentation.


The claim succeeded and the key issues decided by the court were as follows.

Issue 1: Entitlement of defendant to terminate UFX account

The defendant argued that it was entitled to terminate the UFX account because: (i) there was a breach of certain clauses of the Customer Agreement relating to access to the UFX account – there had been misrepresentations during the course of the existence of the claimant’s account; and (ii) the claimant had made misrepresentations in her “Source of Wealth” form and documents – this constituted a breach of a warranty the claimant had given as to the accuracy of information she had given to the defendant.

The court held that the defendant was contractually entitled to terminate the UFX account on the basis that the claimant’s husband did have some access to the account, which must have involved breaches of the Customer Agreement.

However, the court found that the statements made by the claimant in the “Source of Wealth” documentation were not untrue or inaccurate. The court said that the alleged misrepresentations in relation to: (i) the “Source of Wealth” form was not pre-contractual and could not have induced the making of the Customer Agreement; and (ii) access to the UFX account failed on the facts – the UFX account did not belong to and was not solely or predominantly operated by the claimant’s husband.

Issue 2: Sums deposited in the UFX account

The defendant accepted that there was the equivalent of a Quistclose trust in respect of these amounts and that it did have an obligation to return them.

The court held that even if there was no Quistclose trust, the defendant was obliged to return the amounts in any case pursuant to the terms and conditions (incorporated into the Customer Agreement between the claimant and the defendant) and that there was no suggestion that any amount needed to be withheld from those amounts in respect of future liabilities.

Issue 3: Unrealised gains on the claimant’s open Bitcoin positions

The court highlighted that the terms of the Customer Agreement obliged the defendant to close out (rather than “cancel”) the open positions, realise the unrealised gain on the Bitcoin futures and pay the balance to the claimant.

However, the court added that if this construction of the Customer Agreement was wrong and the defendant did have discretion to “annul or cancel” open positions, then the relevant clauses would be unfair, as they would cause a significant imbalance in the parties’ rights and obligations to the detriment of the consumer, contrary to the requirement of good faith. In the court’s view such clauses would have the effect of permitting the defendant to deprive the claimant of what might be very significant gains for trivial breaches. The clauses therefore would not be binding on the claimant by reason of s.62 of the Act.

Issue 4: Loss of investment returns

The claimant argued that she was entitled to claim what she would have earned had the monies to which she was entitled been paid to her upon the termination of her account.

The court held that the claimant was entitled to succeed on this aspect of her claim as the defendant had breached the Customer Agreement by not closing the open positions, realising the gain and paying the balance to the claimant. In the court’s view, remoteness of damage was not an issue as it was plainly within the reasonable contemplation of the parties when they contracted that if the defendant failed to pay the claimant sums which she had invested in (and/or made from investing in) Bitcoin futures, she might lose the amount which she might gain from investing in similar products.

Ceri Morgan

Ceri Morgan
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Nihar Lovell
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Claire Nicholas

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Shaping the boundaries of collective redress in Germany – a glimpse of the future under an EU representative action regime?

A recent judgment handed down by Germany’s highest civil court will be of interest to financial institutions concerned about so-called class action tourism. In a decision that will help shape the boundaries of collective redress in Germany, the German court has dismissed a claim brought against a financial institution under the Model Declaratory Action procedure.

This procedure was introduced in November 2018 in the aftermath of the diesel NOx revelations in Germany and allows an action to be brought against a business by a so-called “qualified entity” on behalf of a group of at least 50 consumers. In the present case, the court held that the plaintiff could not act as a qualified entity because it was not predominantly active in the field of advising and informing consumers.

For more information see this article by Tilmann Hertel on our global class actions hub.

High Court takes view in test case on breach of statutory duty under s.138D FSMA, in the context of repeat borrowings and an alleged breach of CONC

The High Court has recently considered a test case under s.138D of the Financial Services and Markets Act 2000 (FSMA), in the context of alleged breaches of statutory obligations under the Consumer Credit Sourcebook (CONC) for failing to take repeat borrowing into consideration when making lending decisions: Kerrigan v Elevate Credit International Limited (t/a Sunny) (in administration) [2020] EWHC 2169 (Comm). The court also considered a claim for an order under s.140B of the Consumer Credit Act 1974 (CCA) on the basis that the relationship between the lender and the borrower was unfair to the borrower.

The decision relates to claims against a payday lender, in which a group of sample claims (reflecting a wider group of claimants) were tried together. The court determined finally the allegations against the lender for breach of CONC, and although no final conclusions were reached in respect of individual claims under s.138D FSMA or s.140B CCA, the court provided some helpful guidance as to the merits of the arguments. The issues considered will be of interest to lenders and financial institutions more generally.

In summary, the High Court held that the lender’s failure to take repeat borrowing into consideration when making its lending decisions resulted in a breach of its obligations under CONC 5.2, in particular, the obligation that a creditworthiness assessment consider both the potential for the commitments under the credit agreement to adversely impact the customer’s financial situation and the ability of the customer to make repayments as they fall due.

On the key question as to whether breach of statutory duty under CONC was actionable under s.138D FSMA, the court emphasised that a borrower must show that damage was caused, both in fact and as a matter of law, by the lender’s breach of duty. The court reflected that it may be harder for a borrower to prove causation in circumstances where it may be said that – following a robust creditworthiness assessment – the borrower would likely have applied elsewhere to a third party lender able to extend the credit.

The court also provided guidance on the s.140B CCA claim, noting that the court will have regard to compliance with the CONC rules, which articulate the consumer protection objective. However, although important, a breach of the rules will not be the only factor considered when assessing fairness. In particular, where a borrower is dishonest in the information they provide as part of the loan application, to the extent it has a direct effect on the existence of the creditor-debtor relationship, this may undermine any claim by the borrower that the relationship was unfair.

For a more detailed discussion of the decision, please see our FSR blog post.

High Court says bank need not comply with numerous and repetitive DSARs which were being used for a collateral purpose

The High Court has dismissed a Part 8 claim against a bank for allegedly failing to provide an adequate response to the claimant’s Data Subject Access Requests (DSARs). This is a noteworthy decision for financial institutions, particularly those with a strong retail customer base, as it highlights the robust approach that the court is willing to take where it suspects the tactical deployment of DSARs against the institution: Lees v Lloyds Bank plc [2020] EWHC 2249 (Ch).

The claimant alleged, among other things, that the bank had failed to provide adequate responses to various DSARs, contrary to the Data Protection Act 2018 (DPA 2018) and the General Data Protection Regulation (EU) 2016/679 (GDPR). The court found that the bank had adequately responded, but gave some strongly-worded obiter commentary on the court’s discretion to refuse an order, even where the claimant can demonstrate that the bank has failed to provide data in accordance with the legislation. In the court’s view, there were good reasons for declining to exercise its discretion in favour of the claimant in this case (even if the bank had failed to provide a proper response), including that: the DSARs issued were numerous and repetitive (which was abusive), the real purpose of the DSARs was to obtain documents rather than personal data, and there was a collateral purpose underpinning the requests (namely, to use the documents in separate litigation with the bank).

In financial mis-selling cases, DSARs are often used by claimants as a tool to obtain documents from a financial institution in advance of the issue of proceedings or during litigation to build their case. DSARs can be made in addition to pre-action and standard disclosure under the CPR, and will often seek to widen the scope of documents that could be obtained via traditional disclosure routes. This can create significant workstreams for the bank, which are time-consuming and costly. The present decision provides some helpful guidance as to when it may be appropriate for banks to resist “nuisance” DSARs. It is unclear whether the conclusion in this case would take precedence over the UK privacy regulator’s guidance with respect to DSARs, which has previously been that they should be “motive blind”, but has more recently suggested that there is no obligation to comply with DSARs that are “manifestly unfounded”.

Finally, a significant practical difficulty for financial institutions, is that DSARs can be received by a number of internal teams within the financial institution, either at intervals or all at once. This decision is an important reminder of the need for centralised monitoring of DSARs.


The claimant individual entered into buy to let mortgages in respect of three properties with the defendant bank between 2010 and 2015. The claimant submitted a number of DSARs to the bank between 2017 and 2019 alongside claims in the County Court and High Court concerning the alleged securitisation of the relevant mortgages in an attempt to prevent possession proceedings by the bank in relation to the properties (which were all held to be totally without merit). The bank responded to all the DSARs it received from the claimant.

The claimant subsequently issued a claim alleging, amongst other things, that the bank had failed to provide data contrary to the DPA 2018 and GDPR.


The court held that the bank had provided adequate responses to the claimant’s DSARs and was not in breach of its obligation to provide data. Given the DSARs under consideration, the court concluded that the DPA 1998 was the legislation in force at the relevant time and this provided data subjects with rights of access to personal data to similar to those under the GDPR. However, given that the subject access rights under the DPA 1998 were essentially the same as those now provided for under the GDPR (and the DPA 2018), it seems likely that the court’s conclusion would have been similar if the case had been considered under the current legislation.

The court commented that even if the claimant could show there was a failure by the bank to provide a proper response to one or more of the DSARs, the court had a discretion as to whether or not to make an order.

In this case, in the court’s view, there were good reasons for declining to exercise the discretion to make an order in favour of the claimant in light of:

  • The issue of numerous and repetitive DSARs which were abusive.
  • The real purpose of the DSARs being to obtain documents rather than personal data.
  • There being a collateral purpose that lay behind the requests which was to obtain assistance in preventing the bank bringing claims for possession.
  • The fact that the data sought would be of no benefit to the claimant.
  • The fact that the possession claims had been the subject of final determinations in the County Court from which all available avenues of appeal had been exhausted. It was improper for the claimant to mount a collateral attack on these orders by issuing this claim.

The court therefore dismissed the claim as in its view it was totally without merit.

Interaction with Information Commissioner’s Office (ICO) guidance

It is worth noting here that the UK privacy regulator’s guidance with respect to DSARs has previously been that they should be “motive blind” and any collateral purpose should not impact whether or not a controller is required to comply.

The latest draft guidance from the ICO refers to DSARs potentially being “manifestly unfounded” (with therefore no obligation to comply) when: (i) the individual clearly has no intention to exercise their right of access (for example an individual makes a request, but then offers to withdraw it in return for some form of benefit from the organisation); or (ii) the request is malicious in intent and is being used to harass an organisation with no real purposes other than to cause disruption.

However, the court’s comments seem to extend this position and it is unclear whether the decision in this case would therefore take precedence over the regulatory guidance – something which would undoubtedly be welcomed by controller organisations.

Julian Copeman

Julian Copeman
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Miriam Everett

Miriam Everett
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Ceri Morgan

Ceri Morgan
Professional Support Consultant
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Nihar Lovell

Nihar Lovell
Senior Associate
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Commercial Court gives guidance on definition of ‘consumer’ under Recast Brussels Regulation in cryptocurrency futures trading case

An individual investor, with substantial means and more knowledge and experience than the average person, may still be considered a ‘consumer’ for the purposes of Article 17 of Regulation (EU) No 1215/2012 on jurisdiction and enforcement of judgments in civil and commercial matters (“Recast Brussels Regulation“), even when contracting to trade a specialised product such as cryptocurrency futures.

The recent Commercial Court decision in Ramona Ang v Reliantco Investments Limited [2019] EWHC 879 (Comm) has confirmed the purposive test to be applied when considering whether an individual investor is a consumer under the Recast Brussels Regulation. While this decision arguably gives a generous interpretation as to who is a consumer under Article 17, it does provide some helpful clarification for financial institutions contracting with retail clients. In particular:

  1. The court held that the key question when assessing if an individual investor is a consumer is the purpose for which the investment was entered into. Specifically, whether the individual entered into the contract for a purpose which can be regarded as being outside his or her trade or profession. While the circumstances of the individual and the nature of the investment activity (including the use of intermediaries/advisers) will be considered, the court emphasised that these factors will not be determinative of the issue.
  2. This decision is a good example of how each case will be fact-specific and will turn on whether the individual is considered to be contracting for a non-business purpose. In this instance, the court held that despite the specialised nature of the products themselves, a wealthy individual committing substantial capital to speculative transactions in the hope of making investment gains was a consumer for the purposes of Article 17 of the Recast Brussels Regulation. It disagreed with the suggestion from other EU Member State courts that such activity must necessarily be a business activity, i.e. cannot ever be a consumer activity.
  3. In cases where a person does meet the ‘consumer’ test, if they have nonetheless given the other party the impression that they are contracting for business purposes, they will not be able to rely upon Article 17. (However, that was not the case here).
  4. This case is a reminder that if an individual investor meets the criteria under Article 17 of the Recast Brussels Regulation and brings a claim in the courts of their choice as a consumer under Article 18, this may trump an exclusive jurisdiction clause under Article 25 (unless certain exceptions apply, such as agreeing the exclusive jurisdiction clause after the dispute has arisen).

It is worth noting that the Court of Justice of the European Union (“CJEU“) has recently published an Advocate General (“AG“) opinion in a similar case, concerning a preliminary ruling on whether a natural person who engages in trade on the currency exchange market is to be regarded as a consumer within the meaning of Article 17: Jana Petruchová v FIBO Group Holdings Limited Case C 208/18. The AG opinion is largely consistent with the decision of the High Court in this case, save that it goes further by stating that no account should be taken of the circumstances of the individual and the nature/pattern of their investment (whereas in the instant case, the High Court said such factors would be considered, but would not be determinative – see the first point above).


The claimant (an individual of substantial means) invested in Bitcoin futures, on a leveraged basis, through an online trading platform (UFX), owned by the defendant. The claimant had no education or training in cryptocurrency investment or trading and was not employed at the time, but she played a part in looking after the family’s wealth and assisting her husband, a computer scientist with cybersecurity and blockchain expertise, who has identified himself publicly as being “Satoshi Nakamoto”, the online pseudonym associated with the investor of Bitcoin.

During the account opening process on the UFX platform, the claimant provided certain information about herself, including that she was self-employed, familiar with investment products including currencies and was a frequent trader (75+ trades). She was provided with and accepted the defendant’s terms and conditions.

The defendant terminated the claimant’s UFX account, the claimant alleged that the defendant did so wrongfully and brought a claim in the English High Court for compensation for the loss of her open Bitcoin positions. In response, the defendant challenged the jurisdiction of the English High Court, by reference to an exclusive jurisdiction clause in favour of the courts of Cyprus in the terms and conditions (and relying upon Article 25 of the Recast Brussels Regulation).


The claimant argued that the exclusive jurisdiction clause in the defendant’s terms and conditions was ineffective, either because she was a consumer within Section 4 of the Recast Brussels Regulation or because the clause was not incorporated into her UFX customer agreement in such a way to satisfy the requirements of Article 25 of the Recast Brussels Regulation.

The High Court held that the claimant was a consumer within Article 17 of the Recast Brussels Regulation, on the basis that she was contracting with the defendant for a purpose outside her trade or profession. As a result, she was permitted under Article 18 of the same regulation to continue her claim in the High Court and the defendant’s challenge to the jurisdiction was dismissed. The court’s decision in relation to Article 17 is discussed further below.

Test to be applied to an individual under Article 17 of the Recast Brussels Regulation

Article 17 of the Recast Brussels Regulation applies to contracts “concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession“. The court noted that the concept of ‘consumer’ had been considered a number of times by the ECJ/CJEU and had an autonomous meaning under EU law, which was independent of national law.

The defendant contended that the ECJ/CJEU had ‘glossed’ the definition of consumer, relying in particular upon the ECJ’s statement in Benincasa [1997] ETMR 447 that “only contracts concluded for the purpose of satisfying an individual’s own needs in terms of private consumption” were protected by the consumer rule under Article 17. The High Court rejected this contention, however, following the approach taken by Longmore J in Standard Bank London Ltd v Apostolakis [2002] CLC 933 and holding that this reference to “private consumption” was not a new or different test to the one under the Recast Brussels Regulation. The court reaffirmed that there were “end user” and “private individual” elements inherent in the notion of a consumer, but that an individual acting for gain could nonetheless meet the test.

In doing so, the court made the following key observations:

  • The court confirmed that the issue as to whether an individual investor is a consumer will be fact-specific in any given case. It emphasised that the question of purpose is the question to be asked, and must be considered upon all of the evidence available to the court and not to any one part of that evidence in isolation.
  • It agreed with the decision in AMT Futures Limited v Marzillier [2015] 2 WLR 187that any assessment of whether an individual investor is a consumer is “likely to be heavily dependent on the circumstances of each individual and the nature and pattern of investment“. However, it emphasised that these factors cannot determine the issue, as to do so would be to effectively replace the non-business purpose test set by the Recast Brussels Regulation.
  • It disagreed with the conclusion reached by the Greek courts in both Standard Bank of London v Apostolakis [2003] I L Pr 29 and R Ghandour v Arab Bank (Switzerland) [2008] I L Pr 35 that “the purchase of moveable property for the purpose of resale for profit and its subsequent actual resale…” was intrinsically commercial, so that engaging in such trading was necessarily a business activity and not a consumer activity.

Application of the test

Applying the purposive test as set out in the Recast Brussels Regulation, the court’s view was that the claimant had contracted with the defendant for a non-business purpose. It is worth noting that the court reached this conclusion despite finding that the claimant had over-stated the extent of her prior trading experience. Given that such over-statement did not go as far as creating the impression that the claimant was opening an account for a business purpose, it did not affect the court’s overall conclusion.

Donny Surtani

Donny Surtani
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Ceri Morgan

Ceri Morgan
Professional Support Lawyer
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Phoebe Jervis

Phoebe Jervis
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Do we need a new duty of care in financial services?

On 17 July 2018, the FCA published a paper on its Approach to Consumers (the Approach), accompanied by a discussion paper DP18/5 (the DP) on the possible introduction of a new duty of care and other alternative approaches (a New Duty).
The Approach sets the FCA’s vision for well-functioning markets that work for consumers, and builds on the November 2017 consultation on its Future Approach to Consumers. The aim is to provide greater transparency on when and how the FCA will act to protect consumers, its policy positions on key issues, and its strategy for ensuring that it advances its consumer protection objective with the greatest impact.
The key question raised by the November 2017 consultation, one of immediate interest to firms and other stakeholders, was whether there was a need to introduce a New Duty.
Some stakeholders suggested that the current regulatory framework was insufficient, was not applied effectively to prevent harm to consumers and did not provide appropriate levels of protection. Some thought the introduction of a New Duty could foster long term cultural change within firms and avoid conflicts of interest. Others by contrast felt that existing FCA rules and common and statute law, complemented by the Senior Managers & Certification Regime collectively represent in practice the same requirements on firms as a duty of care.
The FCA’s objective is therefore to open broader discussion on the merits of a New Duty and understand what outcomes a New Duty may achieve to enhance behaviours in the financial services sector.
To that end, the FCA seeks views on:
  • whether there is a gap in the existing legal and regulatory framework, or the way the FCA regulates, that could be addressed by introducing a New Duty;
  • whether change is desirable and if so, the form it should take;
  • what a New Duty for financial services firms might do to enhance positive behaviour and conduct from firms in the financial services market, and incentivise good consumer outcomes;
  • how the New Duty might increase the FCA’s effectiveness in preventing and tackling harm and achieving good outcomes for consumers;
  • whether breaches of a New Duty or of the FCA’s Principles for Businesses should give rise to a private right of action for damages in court; and
  • whether a New Duty would be more effective in preventing harm (by, for example, enhancing good conduct and culture within firms) and therefore lead to less reliance on redress.
The DP deliberately leaves open for discussion the nature of any duty, i.e. whether it would be more akin to a ‘duty of care’ or to a fiduciary duty, the former being more of a positive obligation than the latter which is, largely, a prohibition (e.g. a firm must not put its own interests above those of the client).

Assessment of the current legal and regulatory framework

The DP reviews the current legal and regulatory framework and notes that it could be said that the current Principles for Businesses (Principles), amplified by detailed rules, address many of the issues cited for introducing the New Duty.

The FCA identifies the following as the most relevant Principles:

  • Principle 2 – a firm must conduct its business with due skill, care and diligence
  • Principle 6 – a firm must pay due regard to the interests of its customers and treat them fairly
  • Principle 7 – a firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading
  • Principle 8 – a firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client, and
  • Principle 9 – a firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.

The FCA also points to the client’s ‘best interests’ rule, whilst highlighting that there is no equivalent rule applicable to accepting of deposits and carrying out contracts of insurance, and obligations on firms to take reasonable care in undertaking certain activities.

These are supplemented by the Consumer Rights Act 2015 (the CRA), which implies a term requiring those providing services to consumers to act with reasonable care and skill, and the FCA’s power to enforce breaches of certain consumer protection laws (including the CRA).

The FCA has also concurrent competition powers to investigate and intervene in respect of markets where competition may not be working well, and to enforce against breaches of the competition law prohibitions.

Finally, the FCA is extending its Senior Managers and Certification Regime (SM&CR) to all FSMA authorised firms: this will impose on most employees of financial services firms five conduct rules, including in particular the requirement to act with due care, skill and diligence, and to pay due regard to the interests of customers and treat them fairly. The FCA believes these additional obligations on individuals could help address some of the key cultural and governance concerns which underlie calls for a New Duty.

Proposals for the New Duty

As well as seeking views on the merits, practicalities and consequences of introducing a New Duty, the FCA will consider a range of possible alternatives to address stakeholders’ concerns:

  1. making a rule introducing a New Duty, through the use of FSMA rule-making powers. This approach would require clarification through the issue of guidance and consideration as to how it would sit within the regime, and in particular its relationship to the Principles.
  2. by the introduction of a statutory duty (through a change in primary legislation in Parliament) and supplemented by FCA rules and guidance. A statutory duty would have greater status than the Principles, going further than the requirements of s1C(2)(e) FSMA¹.
  3. the extension of the client’s best interest rule. This would only apply to regulated activities and may require some amendment to some of the Principles.
  4. enhancements to the Principles through the introduction of detailed new rules or guidance, for example through the guidance expected to be published next year on the identification and treatment of vulnerable customers.

Consumer outcomes and redress

While being clear that the best consumer outcome is to prevent harm from occurring in the first place, the FCA addresses the mechanisms available to a consumer when seeking redress when things go wrong.

It is in that regard, the FCA raises what will no doubt be a controversial question as to whether a breach of a New Duty or of the Principles should give rise to private right of damages. The latter reopening a debate had in the context of a 1998 consultation that originally introduced the Principles.

Any extension of private rights of action in respect of breach of the Principles would need to be considered in conjunction with the FCA’s recent discussion of a proposed extension of Principle 5 to unregulated activities, which the FCA may revisit in the future. Such an extension of Principle 5, together with the recognition of a range of industry codes relating to unregulated activities, would assume a wholly different complexion if private rights of action were also added to the mix.


The call for duty of care in financial services regulation is not a new one and, as well as having been a priority for the Financial Services Consumer Panel for some time, was considered by the Parliamentary Commission on Banking Standards as well as the Law Commission.

It is not clear from the DP that there is in fact an obvious gap in the existing legal and regulatory framework to be filled – that itself being an open question in the DP. That is, rationally, the fundamental starting point – proceeding to discuss the nature or form of a New Duty, including the potential for the Principles to be actionable, is premature before the underlying problem or gap is properly identified. Clearly there continue to be conduct issues in the market that need to be addressed but rushing to introduce new rules or guidance is not necessarily the best answer.


¹ In meeting its objective of securing appropriate degree of protection for consumers the FCA is currently required by s1C(2)(e) FSMA to have regard to “the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the degree of risk involved in relation to the investment or other transaction and the capabilities of the consumers in question”

Jenny Stainsby

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Karen Anderson

Karen Anderson
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Jon Ford

Jon Ford
Senior Associate
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High Court rejects unfair relationship claim concerning allegations of breach of an advisory duty, misrepresentation and efficacy of basis clauses

Carney & Ors v NM Rothschild & Sons Limited [2018] EWHC 958 (Comm) is a recent case where the High Court rejected claims of an unfair relationship arising between a lender and two borrowers under s.140A of the Consumer Credit Act 1974 (the “Act“).

This decision will be of interest to financial institutions which (unusually) bear the reverse-burden of proving that a relationship is not unfair under the Act. The decision shows the forensic approach the courts will take to assess whether the particular relationship is unfair, which involves consideration of the elements of the causes of action which are alleged to have contributed to the unfairness. It highlights the numerous and specific elements of an unfair relationship claim which may be challenged by a lender. It also adds further weight to the growing body of case law which illustrates the difficulties claimants face in trying to establish the existence of an advisory relationship in an ordinary financial institution – customer relationship (see our recent banking litigation e-bulletin).

This was the first case (so far as the court was aware) to consider the efficacy of so-called “basis clauses” (under which parties agree the basis of their relationship, typically about whether it is advised/non-advised) in relation to an unfair relationship claim. The court gave guidance as to how clauses of this kind should be assessed under the unfair relationship provisions by reference to other regimes (such as the Unfair Contract Terms Act 1977, “UCTA“). The court noted that the assessment under the Act was not the same as that which would be conducted under other such regimes because of the “different and wider exercise” set out in the unfair relationship provisions of the Act. However, it said that a clause found to fall outside of the UCTA regime (i.e. a true basis clause) should have “much less” impact on the issue of the unfair relationship under the Act than an exclusion clause which is held to be unreasonable under UCTA.

The court’s approach to basis clauses will be of particular interest to institutions and finance lawyers alike, as it supports the status quo, namely that such clauses can form the basis for a contractual estoppel which can be useful in negating the existence of various duties. Those drafting such clauses should take some comfort from the court’s guidance that basis clauses falling outside of UCTA are less likely to fall foul of the unfair relationship regime under the Act. The decision therefore closes a further avenue to claimants bringing such claims.


The claimants (the “Borrowers“) were two couples of British expatriates resident in Spain. They entered into loan agreements (the “Loan Agreements“) with NM Rothschild & Sons Limited (the “Bank“).

The purpose of the loans was to advance funds to the Borrowers for the purpose of investing in a fund. The underlying investment was in notes issued by Barclays Bank plc (the “Issuer“) which in turn represented investments into three highly rated funds. The Issuer gave a capital guarantee on the notes so that at maturity, the Borrowers would receive approximately 100% of the capital invested in order to repay the loans. The purpose of the scheme was to avoid adverse tax consequences which could arise if the Spanish version of inheritance tax (“ISD“) applied to the Borrowers’ properties. Other lenders had, prior to the Bank’s involvement, expressed an interest in providing loans in connection with the scheme but did not participate. The loans to the Borrowers were secured by these investments and unencumbered properties in Spain.

The constituent parts of the scheme, being the notes and the loans were separate. An independent financial adviser, Henry Woods Investment Management (the “IFA“), was responsible for promoting the scheme to investors. There was a dispute (see below) about the nature and extent of the role of the Bank in its dealings with the Borrowers prior to the making of the Loan Agreements and the investment.

There was a relatively complex fee structure which, insofar as is relevant, meant that the fund charged an 8% fee (paid out of the loan monies), of which 4% went to the IFA. The only fee charged by the Bank was a 0.5% set-up fee in relation to the loans; the Bank made its money on the spread of interest rates.

The investments underperformed. In part, the High Court commented that this appeared to have been caused by the financial crisis of 2007-2008, and due to a desire on the part of the Issuer to deal with the investments conservatively so as to ensure that it would not have to use its own funds to repay the guaranteed amount. There were various related proceedings in Spain.


The sole cause of action advanced by the Borrowers was pursuant to s.140A and s.140B of the Act. Specifically, the Borrowers alleged that an unfair relationship arose between them and the Bank in relation to the Loan Agreements. The principal relief sought was the cancellation of the existing indebtedness owed to the Bank and the discharge of the related security. As part of that unfair relationship claim, the Borrowers alleged that incorrect advice was given as to the suitability of the scheme and misrepresentations made by (or on behalf of) the Bank to the Borrowers in relation to the scheme and its efficacy in relation to tax.

The Bank denied the entirety of the claim brought against it, although it accepted that it owed a duty not to mislead or misrepresent, and that it was subject to the regime under the Act. The Bank denied that any advice was given or any actionable representations were made (and if they were made, denied that they were wrong or false). The Bank relied on various clauses in the Loan Agreements defining the scope of its relationship with the Borrowers (which it said was not in any sense advisory), the absence of any representations made by the Bank and the absence of any reliance by the Borrowers. These same basis clauses were relied on by the Borrowers as factors (among others) which they alleged showed the relationship was unfair.

Law on unfair relationships

The substantive claim (i.e. whether incorrect advice was given or misrepresentations made, making the relationship unfair) fell to be considered under s.140A(1)(c) of the Act because it concerned things done or not done by the Bank prior to the making of the Loan Agreements. Claims as to whether the nature of the clauses of the Loan Agreements themselves (i.e. the basis clauses) contributed to the unfairness, fell to be considered under s.140A(1)(a) of the Act. Section 140B provides for the type of relief available where an unfair relationship claim has been made out.

The court completed a detailed review of the relevant legal principles in relation to unfair relationship claims, the key aspects of which are listed below.

  1. The court relied on Lord Sumption’s leading judgment in Plevin v Paragon [2014] UKSC 61 on the effect of s.140A of the Act in determining that the court’s role, in assessing the relationship between the parties, was in fact “more than an exercise of discretion” and would require a “large amount of forensic judgment“.
  2. The court noted that the advice and misrepresentation elements of the unfair relationship claim could have been separate causes of action in themselves. Significantly, the court therefore proceeded on the basis that the “same elements as are required by the cause of action should be shown when such matters are raised as constituting an unfair relationship. Otherwise, there is a danger that the analysis of their significance or otherwise becomes blurred and uncertain“. However, the court noted that the burden of proof was on the creditor to prove that the relationship was not unfair.
  3. On causation, if the debtor would have entered into the relevant agreement in any event, the court said this “must surely count against a finding of unfair relationship“.
  4. The fact that there has been no breach of a relevant regulatory rule may be “highly relevant” but was “not determinative” in the court’s view. By contrast, if the conduct on the part of the creditor would have amounted to breach of such a rule, but the rule did not apply, that “can be relevant“. The court concluded that it could consider the conduct of an agent in this respect too.
  5. The court noted that (so far as it was aware) this was the first case in which the efficacy of basis clauses in relation to an unfair relationship claim had been tested. The court stated that the assessment of the unfairness or otherwise of basis clauses was not the same exercise as that which would be conducted under UCTA, the Misrepresentation Act 1967 or the Unfair Terms in Consumer Contracts Regulations 1999 (“UTCCR“). This was because of the “different and wider exercise” set out in the unfair relationship provisions of the Act. As such, a term may not be unfair under the UTCCR, but still give rise to an unfair relationship, although the court noted in the present case that it did not matter much which unfairness or unreasonableness regime was relied upon. However, the court said that as a matter of “common sense“, a clause which is found to fall outside of the UCTA regime (i.e. a basis clause) should have “much less” impact on the issue of the unfair relationship than an exclusion clause which is found to be unreasonable under UCTA.


In the context of assessing whether there was any unfair relationship, the court considered each element of the advice and misrepresentation causes of action in turn.

Breach of advisory duty

The court addressed two questions on this issue: whether the Bank actually gave advice; and if in doing so, it assumed the role of an adviser:

  • First, the court concluded that overall the Bank “did not give any material advice“. The reality of the Borrowers’ evidence at trial was to the effect that the Bank’s representative had made misrepresentations as part of a sales pitch, rather than giving negligent advice.
  • Second, the court commented that it was “quite impossible” to see how the Bank had assumed an advisory role. The Loan Agreements and an article included in the IFA’s newsletter (setting out details of the scheme) clearly pointed to the fact that the Bank had not. Moreover, the court commented that “importantly” there was already the IFA whose job it was to advise on the scheme and specifically the investment. The Borrowers’ attempts to downplay the significance of the role played by the IFA were rejected. The Bank did not receive any commission for any advice, whereas the IFA received 4%.

Consequently, while accepting that someone could have more than one adviser, the court found there was no basis for that finding in the present case. The court also found that the relevant clauses of the Loan Agreements made clear that the Bank was acting as lender only and not assuming an advisory role, which had the effect of negating the existence of any advisory duty (if there was one).

The question then arose as to whether the clauses were susceptible to judicial control, for which the court said a useful starting point was to consider whether such clauses would be regarded as exclusion clauses for the purpose of UCTA and s.3 of the Misrepresentation Act 1967. The court set out a number of factors for determining this. The court considered the question was multifaceted and that none of the factors was necessarily determinative. With these factors in mind, the court found that the clauses in question were basis clauses and not exclusion clauses and therefore (in keeping with other recent decisions) not susceptible to judicial control under UCTA, on the basis that:

  • The language was not expressly that of exclusion of liability.
  • There were other clear indications that this was not an advisory relationship. In particular: (a) the IFA’s article in its newsletter; and (b) the terms of certain confidential reports produced by the IFA for (and signed by) the Borrowers, stating that the IFA was acting as adviser and the fact that the Bank did not provide investment, tax or legal advice.
  • The clauses could not sensibly be described as artificial or “rewriting history”; rather they affirmed it.
  • The clauses were not to be found within a mass of standard terms as one might see in a typical consumer contract.

Even if the relevant clauses were exclusion clauses, the court concluded that they were “manifestly reasonable“. The court highlighted that the question in the instant case was unfairness rather than reasonableness, but held that – on the facts – the analysis and the result should be the same. In particular, the court stated that the clauses were a proportionate and legitimate attempt by the Bank to limit its exposure to a wider role for sound commercial reasons.

Consequently the court concluded that there was no “advice-based element of unfairness“.


The court forensically analysed whether each of the 49 alleged representations had been made by the Bank. The court concluded that the alleged representations had either not been made (by the Bank, at least) or were – to the extent that they were made – not false. Even if the misrepresentations had been made by the Bank, the court concluded that the evidence suggested the claims would have failed on causation and the court expressed doubt as to whether the alleged representations had been relied upon.

The court went on to consider the effect of clauses in the Loan Agreements which stated that no representations had been made. Taking a similar approach as it did in relation to the advice claim; the court found that these clauses were basis clauses which established a contractual estoppel. Citing Crestsign Ltd v National Westminster Bank Plc [2014] EWHC 3043 (Ch), the court noted that these clauses served the “the useful function of removing a grey area as to what might or might not be a representation, [which] is very apposite here where many of the alleged representations were given orally in a quasi-social setting and where differences of emphasis could make all the difference“.

Again, the court considered that the clauses in question would be found to be reasonable for the purpose of UCTA even if they were found to be exclusion clauses. If the clauses were reasonable for the purpose of UCTA, then there was no reason to suggest that they would be unfair for the purpose of s.140A of the Act.

Unfairness on other grounds

The Borrowers also relied on a number of other (unspecified) clauses which were said to be unfair and other points of unfairness. The court rejected all such arguments. In particular, the court considered the Borrowers’ argument to the effect that, even if there was no positive misrepresentation by the Bank, it failed to warn the Borrowers of certain risks. For example, the Borrowers said that the Bank had not warned against the risk that the investment returns might not cover the interest due. However, there was no advisory duty on the Bank (in contrast with the IFA) and there was no “mezzanine” duty. This element therefore did not lead to any unfairness.


Accordingly, the court considered that the Borrower had clearly satisfied the burden of showing that there was no unfair relationship and the claims failed.


The decision will be welcomed by financial institutions which, unusually, have the burden of proof in unfair relationship claims. There is now clear guidance on the approach that the courts will take in such cases. The decision also follows a number of other recent mis-selling cases that cumulatively illustrate the difficulty for claimants that allege, in ordinary lender-borrower relationships, that financial institutions owed an advisory duty in relation to the product or scheme in question. Moreover, this is another case in which basis clauses have been found to be effective in negating the existence of an advisory duty of care.


John Corrie

John Corrie
+44 20 7466 2763

Ceri Morgan

Ceri Morgan
Professional Support Lawyer
+44 20 7466 2948

Nic Patmore

Nic Patmore
+44 20 7466 2298

Broker breached fiduciary duty by not disclosing sum of commission received

The Court of Appeal has held that a credit broker was in a fiduciary relationship with borrowers, with the consequence that the broker breached its fiduciary duty when it failed to inform the borrowers of the size of commission it received from the loan and PPI providers involved. As a result, the credit provider had to account to the borrowers for those commissions.

The court found that the duty had been breached despite the existence of both: 1) clear statements in the contractual documentation to the effect that the broker was providing information only and not advice; and 2) disclosure of the fact that the credit broker was likely to receive commission for the sale.

It should be noted that the Court of Appeal commented that this case was a “very unsuitable vehicle” by which to resolve the issues of principle involved due to the fact that the defendant (which was in liquidation) was unrepresented.

McWilliam v Norton Finance (UK) Ltd (t/a Norton Finance (In Liquidation)) [2015] EWCA Civ 186 


Norton Finance UK Limited (“Norton”) offered credit broker services. The McWilliams, who had a history of debt problems, used Norton’s service to obtain a consumer loan in the sum of £25,500 to consolidate their credit card debt and to fund the building of a conservatory. The McWilliams also took out payment protection insurance (“PPI”), which together with the ‘broker fee’ of £750 and ‘completion fee’ of £500, which was payable to Norton by the McWilliams, brought the total amount borrowed to £30,495. Of this total, £5,610.25 represented fees and commission, while 62.6% of the £3475 PPI premium constituted commissions.

The leading judgment, with which the rest of the Court agreed, was given by Tomlinson LJ. The Court found that, despite no express contractual term to that effect, on the facts a contract of agency existed between the parties (following the recent Plevin v Paragon Personal Finance Limited (Appellant) [2014] UKSC 61 (“Plevin“) decision). In so doing, the Court overturned the first instance judge’s finding on this point.

However, this was not conclusive as to the question of whether there was a fiduciary relationship. Tomlinson LJ considered that the relevant question was “whether Norton was acting in a capacity which involved the repose of trust and confidence” and that a critical factor in this determination was the financial sophistication or otherwise of the borrowers. In this respect, the Court found that although the McWilliams were not classed as “non-status borrowers” – which is a term applied to borrowers with impaired or low credit ratings who would find it difficult to obtain credit from traditional sources – the McWilliams were nonetheless “not financial sophisticates“. Rather, “they were people of relatively modest means with a history of credit problems. They were vulnerable, in that they had debt which was for them substantial in respect of which they needed assistance in finding a loan to ease the burden of servicing that debt and to put them in a position where they could carry out an improvement to their home“.

Quoting from the Arklow Investments Limited v Maclean [2000] 1 WLR 594 and Bristol and West Building Society v Mothew [1998] Ch 1 decisions, the Court found that the present case constituted a paradigm instance of a fiduciary relationship. As a result, Norton’s duty to its client and its own interest could not be allowed to conflict and nor could it profit from its position without its clients’ informed consent.

When Mrs McWilliams spoke with an employee of Norton, she was informed that Norton did not provide advice, only information. Additionally, Norton’s Keyfacts document stated that it was an information only sale. However, Norton’s Group Compliance Manager gave evidence to the effect that Norton delivered its brokerage service by obtaining certain relevant information from the borrowers, inputting it into a computer program which generated matching loan options and then informing the applicant about the loan with the most competitive rate. On this basis, Tomlinson LJ concluded that Norton had, at the very least implicitly, told the McWilliams that the terms offered by the relevant lending company “were the most competitive to which they had access“. While Tomlinson LJ acknowledged that this did not amount to a recommendation of suitability in the regulatory sense of the concept employed by the FCA, he considered that it was an indication that “what was being offered was the best possible deal“. As a result, the Court considered that the Hurstanger Limited v Wilson[2007] 1 WLR 2351 (“Hurstanger”) decision provided relevant authority. In this respect, the Court overturned the first instance judge’s finding that Hurstanger ought to be distinguished “on the basis that Norton offered no advice or recommendation“. Instead, the Court considered that there was no indication that the broker in Hurstanger had “offered any advice or recommendation that went beyond that which was effectively given here by Norton“. The Court also considered that whether or not the broker provided advice was not a critical feature in determining whether a fiduciary duty had been assumed.

The Court then turned to the question of whether the borrowers’ informed consent to the broker receiving commission had been obtained. The application form which Mrs McWilliams had completed included an acknowledgment that Norton would receive and could retain commission. Additionally, Norton had sent the McWilliams a copy of the standard form FISA Borrower Information Guide, which stated that brokers were likely to receive commission from lending companies. However, Norton did not inform the McWilliams of the actual quantum of any of the commission payments it received. Applying Hurstanger, the Court held that the provision of information as to the size of the commission payments was necessary in order to “bring home” the potential conflict to the borrowers. It followed that the borrowers’ informed consent had not been given and the Court ordered that the commission sums received by Norton (together with interest) were to be paid to the McWilliams.


While it is difficult to say that the outcome in this case was not just, it appears likely that the decision will be restricted to its own facts, not least because of the Court’s comments regarding its unsuitability as a vehicle for considering the relevant points of principle.

If the decision does have any wider applicability beyond its own facts, it would appear to only be in circumstances where:

  • there is a contract of agency (express or implied);
  • the borrowers are vulnerable and financially unsophisticated retail customers;
  • they are relying on the agent to the extent that they are vulnerable to any disloyalty by that agent to them; and
  • the agent has not obtained their informed consent to the specific amount of commission which is received.

The requirement that, for informed consent to be obtained, the quantum of any commission payments must be disclosed to the prospective borrowers resembles the finding in the Plevin decision. In that case, the Supreme Court found that, although the FCA’s Insurance Conduct of Business Rules (“ICOB”) had not required disclosure of the size of commission payments, failure to do so where these were particularly high had fallen foul of the ‘fairness’ requirement under the Consumer Credit Act 1974 (“CCA”). It is interesting to note that in reaching the decision in Plevin, the Supreme Court overruled a decision of Tomlinson LJ in Harrison v Black Horse Ltd [2012] Lloyd’s Rep IR 521, to the effect that the fact ICOB did not require disclosure of the size of any commission paid was decisive and so no conflict of interest had arisen.

The fiduciary duties identified in this case create a greater level of protection for consumers under equitable principles than is currently provided for by the FCA with respect to consumer credit regulation. Whilst the FCA implemented new rules on 2 January 2015 controlling the upfront fees that credit brokers can charge retail customers, and the FCA’s Consumer Credit Rules (CONC) provide that the existence of commission must be disclosed by credit brokers (CONC 4.5.3), they do not require the amount of commission to be disclosed unless the customer asks for that information. Furthermore, Tomlinson LJ acknowledged that the implicit representation by Norton that what was being offered was the best deal fell short of being advice in the regulatory sense. That this could amount to regulated advice is not envisaged by CONC.

Rupert Lewis

Rupert Lewis
+44 20 7466 2517

Sarah Thomas

Sarah Thomas
Senior Associate
+44 20 7466 2098

Michaela Kidd-Widdowson

Michaela Kidd-Widdowson
+44 20 7466 2670