The property developer obtained finance from the Bank. In 2008 the finance totalled around £2,555,000 comprising of term loans, a business loan and a development overdraft. The Bank suggested to the Developer that the whole lending portfolio be restructured. The developer claimed that representatives of the Bank told him, incorrectly, during a meeting in August 2009 that if he repaid the development overdraft he would be in default of the terms of the term loans and business loan and that a restructuring of the entire lending portfolio was required in order to avoid a default. The developer believed this to be true and acted in reliance on this statement in renewing the development overdraft.
After restructuring the Developer was charged various fees and had to pay increased interest on the development overdraft. He claimed that the Bank was in breach of a duty of care not to make statements which were inaccurate or misleading and, where he had a longstanding relationship with the Bank that was built on trust and confidence, they were also in breach of a duty to correct the misrepresentation.
The Bank sought to have the action dismissed and argued that (1) there was no duty of care owed by them to the Developer, and (2) the Developer’s claim had prescribed (meaning that more than 5 years had passed between the date the Developer suffered the loss and the time the claim was raised.
The case was dismissed on the grounds that it had been raised too late in the day - more than 5 years having passed since the date of the renewal of the development overdraft before the claim against the bank was raised. The background to that isn't particularly interesting and what is of note from the case is the other arguments which were advanced by the Developer and what the court had to say about those.
Duty of Care
The Developer claimed that the Bank owed him a duty of care, which they'd breached, not to make statements which were inaccurate or misleading. He argued that it was reasonably foreseeable that those statements would be likely to induce him to enter into the contract.
The Bank argued that in a situation where the Bank was not acting as a financial adviser, and where the documents signed by the Developer contained advice to seek independent legal advice, no such responsibility had been assumed, could be identified or could lead to reasonable reliance, and it could not be fair, just and reasonable to impose a duty of care.
The Sheriff found that, in the circumstances and based on the facts put forward by the Developer, the Bank could owe a duty of care to the Developer but that whether there were reasons to limit or exclude the duty was a matter to be decided at an evidential hearing. It was commented, however, that the Developer ‘relies on representations about a contract which in fact he must have had in his possession and could read for himself, that he was advised to take legal advice, and that he apparently took no action.’
Duty to correct
The Developer’s position was that the Bank could have corrected the mis-statement (that repaying the development overdraft would be a default, so a full restructure was required) but chose not to do so. He argued that the Bank was in breach of that duty, and that he had suffered a loss as a result. The Sheriff didn’t accept that there was a duty to correct a misrepresentation in circumstances as set out as if there were such a duty it would mean that such claims could never be time-barred, because once a misrepresentation was made there would be a continuing duty to put it right so a claim based in misrepresentation would enjoy entirely different treatment in terms of the rules on prescription from any other claim based in negligence.
The Sheriff commented that in claiming that there was a ‘duty to correct’, the Developer was trying to circumvent the rules on prescription as ‘while a misrepresentation may have a continuing effect, and may be relied upon in relation to several contracts, it cannot found an endless series of claims.’ The Developer was not entitled to create a ‘new duty which is parasitic on the original duty, and which is endless.’