The Court considered the following three tests to determine whether the banks owed the customers a duty of care
- The assumption of responsibility test.
- The threefold test in Caparo Industries Plc v Dickman  2 AC 605 – this asks whether (a) the loss was a foreseeable consequence of the defendant’s actions or inactions; (b) the relationship of the parties was sufficiently proximate; and (c) it would be fair, just and reasonable to impose a duty of care on the defendant towards the claimant.
- Incremental additions to the existing categories of duty.
The Court said that these tests can be considered together and, regardless of the test applied, it was important to focus on the circumstances of the case and the relationship between the parties.
The leading judgment was given by Beatson LJ and sets out the following factors which indicated that no duty of care was owed by the banks:
The regulatory context
The Court’s view was that the imposition of a duty of care would “undermine a regulatory scheme which has carefully identified which class of customers are to have remedies for which kind of breach” and this would therefore go against the intention of Parliament as set out in the regulations. The Court noted the FCA’s powers as regulator and that it was the FCA’s responsibility to bring enforcement proceedings if a bank fails to comply with the terms of a review agreement.
The dealings between the parties and the context of those dealings
The appellants sought to rely on communications that “crossed the line” between them and the bank. The Court’s view was that the banks owed a contractual duty to the FCA only (which obliged the banks to allow the appellants to participate in the reviews) and the letters were drafted pursuant to the FCA’s requirements. The reviews were not voluntary, but instead “thrust on them” as an alternative to enforcement action by the FCA. This weighed against there being an assumption of responsibility by the banks. The banks had sought to rely on a clause of the Review Agreement which stated that persons other than the FCA and the relevant bank were to have no right to enforce any term of the Review Agreement. The Court thought that as this clause did not purport to exclude or limit liability for negligence, it was not itself inconsistent with an assumption of responsibility by the banks.
The role of the “skilled person” independent review
It was difficult to argue that the banks assumed responsibility when customers were informed that a skilled person (appointed under section 166 of the Financial Services and Markets Act 2000) would be examining the banks’ decisions. The banks had less control over the conduct of the reviews than the independent reviewer, who did not owe a duty to customers.
The threefold and incremental tests
The Court held it was not “fair, just or reasonable to impose a duty”, given the nature of the reviews and the limitations on remedies available under the regulatory regime. Nor was there a lacuna which justice required should incrementally be filled by a duty of care (as any gap in the remedial framework reflects the considered decision of Parliament).The Court was conscious that imposing a duty of care in respect of a complaint system could have far reaching consequences and would enable two of the appellants to circumvent the limitation period for the original mis-selling claim.
Conflict of interest
The conflict of interest (in that the banks were reviewing their own conduct) also pointed away from imposing a duty of care. The conflict of interest was why the FCA insisted upon the appointment of an independent reviewer.
The terms of the Review Agreement were generally unknown until February 2015 at the earliest. A customer could not have been made worse off by the outcome of the review as it could still have pursued a mis-selling claim independently. Accordingly, the customers did not rely on the reviews.