Titan Steel Wheels Ltd v The Royal Bank of Scotland PLC: contractual disclaimers of advisory duties between sophisticated parties upheld in favour of structuring bank – The recent decision of the Commercial Court in Titan Steel Wheels Ltd (“Titan”) v The Royal Bank of Scotland PLC (“RBS”) [2010] EWHC 211 will be welcomed by investment banks engaged in structuring derivative products for clients which suffered losses in the economic downturn. Titan Steel builds on a growing foundation of case law in which the English courts have upheld contractual limitations on a bank’s duty of care agreed between parties of equal bargaining strength.

The Commercial Court was asked to determine as preliminary issues three arguments put forward by Titan in its efforts to circumvent RBS’s contractual disclaimers. Firstly, the Court rejected Titan’s argument that it qualified as a “private person” under relevant regulations so as to benefit from a right of action against RBS for breach of regulatory rules under section 150 of the Financial Services and Markets Act 2000 (“FSMA”). Secondly, the Court rejected Titan’s claims that RBS owed it a common law duty of care in respect of advice about the derivatives transactions and thirdly, with one exception ultimately determined to be reasonable, the Court rejected Titan’s arguments that RBS’s contractual disclaimers were ineffective under the Unfair Contract Terms Act 1977 (“UCTA”).

Key points

1. A corporation will struggle to establish a claim for mis-selling of derivative products on the basis that it has a right of action as a “private person” as defined by the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001, simply because its primary course of business is not a regulated activity or something akin to it.
2. RBS’s terms expressly identified, inter alia, that: RBS was not acting in an advisory or fiduciary capacity; Titan placed no reliance on RBS for advice or recommendations; Titan would seek independent advice in order that it could fully understand the terms, effects and risks of the transactions; and RBS would only accept liability to the extent that losses resulted from gross negligence, wilful default or fraud.
3. The judgment upheld the efficacy of such disclaimers in complex transactions between sophisticated parties, in line with Peekay Intermark v ANZ Banking Group , IFE v Goldman Sachs, Springwell v JP Morgan Chase.
4. ‘Advice’ can take many forms and the trust placed in the commercial expertise of an employee of the structuring bank is no more than a commonplace feature of commercial activities and is insufficient for it to give rise to a higher legal duty.
5. The Court noted that even if all of RBS’s disclaimers had fallen within UCTA, they nevertheless satisfied the test of reasonableness: the parties were of equal bargaining power, the terms are standard in the banking industry, Titan could easily seek advice if desired, and the terms were clear and brought to the attention of Titan.

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