The Grey Area Explained; Banks and the Intermediate Duty
The case of Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465 (‘Hedley Byrne’) sets out the primary duty on financial institutions to take reasonable care not to misstate any facts on which the customer might be expected to rely. However recent case law suggests that banks have a greater duty than just a duty to take reasonable steps not to mislead.
In Crestsign Ltd v National Westminster Bank  EWHC 3043 (Ch) (‘Crestsign’), the Judge, Timothy Kerr QC, accepted that when giving information about the financial product, the bank owed a duty to fully explain and to satisfy itself that the Claimant understood every aspect of the product. He clarified that this was not a duty to educate, but rather an intermediate duty which is less onerous than the duty in an advisory relationship, but more onerous than the Hedley Byrne duty not to misstate.
Most recently, the case of Thomas –v- Tridon Bank NV  EWHC 314 (QB)(‘Thomas’) His Honour Judge Havelock-Allan QC followed Crestsign holding that an “intermediate duty” existed. Whilst His Honour recognised that advice was not offered to the Claimants; the Defendant had advertised that it subscribed to the Business Banking Code and had therefore assumed responsibility for adhering to the principles in that Code.
Importantly, one of the requirements set out in the Banking Code is that if a bank is asked about a product, it would give a balanced view of the product with an explanation of its financial implications. In this case, the Claimants had enquired as to fixing the rate on their lending products, and the Defendant had failed to adequately explain the consequences of the ten year fix as well as how the early repayment charge and redemption penalty would apply.
His Honour Judge Havelock-Allan QC found that if the Defendant had given a balanced explanation of the product and its financial implications, the Claimants would likely have asked for a fixed rate for only two years. In this regard, the Bank was held liable to the Claimants for breaching this intermediate duty.
With this in mind, customers banking with financial institutions should be comforted by this additional duty set out in common law, particularly where their bank has subscribed to the Banking Code. Whilst the Banking Code is a voluntary code having no contractual force between the bank and its customer, the intermediate duty set out in Crestsign provides a direct recourse for a customer who has suffered loss as a result of their Bank breaching this Code.