Privy Council limits lenders’ duty to disclose

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A recent Privy Council case will be of interest to building societies and other mortgage lenders, as well as borrowers and legal advisers. It persuasively limits lenders’ duties to disclose information to experienced borrowers.  Richard Sandford explains.

The case

In Deslauriers v Guardian Asset Management [1] the lender loaned money to the borrower to finance a property development.  When the borrower defaulted and the lender brought recovery and enforcement proceedings, the borrower alleged that it had been unable to complete the development and had suffered loss when the lender failed to advance a subsequent loan.  The lender had refused the subsequent loan application on the basis that it would exceed its lending limits.  The borrower argued that in failing to disclose its lending limits prior to completion of the first loan, or in discussions thereafter when it made clear to the lender its additional borrowing needs, the lender had misrepresented and/or had breached a tortious duty of care to avoid misrepresentation.

The decision

Misrepresentation claims are concerned with representations which induce a party to enter a contract, and which therefore occur before the contract is completed. In fact, there had been no discussion about any possible subsequent lending prior to completion of the loan in this case, and so the misrepresentation claim failed.

If there had been any tortious duty of care, however, that would be a continuing duty which could potentially found a claim when the borrower made clear to the lender in ongoing discussions that it required further funding. The Privy Council considered the leading case of Hedley Byrne & Co Ltd v Heller & Partners [2] and concluded that whether the lender owed a duty depended on whether it had assumed a duty for giving professional advice to the borrower.  As the relationship here was an arm’s length relationship between two experienced and commercial parties (as opposed to a relationship of adviser and client), there was no duty on the lender to disclose its lending limits to the borrower.  Refusing the breach of duty claim, the Privy Council made the following observations, which are likely to be of wide application and interest:

  • It would very unusual for a lender/borrower/non-adviser relationship to give rise to a duty on the lender to disclose to the borrower its internal lending policies or approaches to applications for loans – still less any external influences, regulatory or otherwise, which applied to it; and
  • In such a scenario, in particular where the parties are experienced and commercial and each seeking to further its own interests, it would be extremely difficult to envisage such a duty arising – even if a borrower had indicated its potential future borrowing needs from the outset.

WM Comment

Whilst Privy Council decisions are not binding on English courts, they do nevertheless carry great persuasive value. It is likely that this decision will therefore be welcomed by building societies and other lenders for its restrictive approach to the imposition of a duty on lenders to disclose information to borrowers where there has been no assumption of any professional duty to advise (in particular where each party is commercially sophisticated).  The case may be relevant in loan enforcement cases such as this one, or to combat claimants’ attempts to expand lenders’ duties to provide information in mis-selling claims and the like.


[1] [2017] UKPC 34
[2] [1964] A.C. 465 and see our related article.