National Commercial Bank (Jamaica) Ltd v Hew
| Jurisdiction | UK Non-devolved |
| Judge | Lord Millett |
| Judgment Date | 30 June 2003 |
| Neutral Citation | [2003] UKPC 51 |
| Court | Privy Council |
| Docket Number | Appeal No. 65 of 2002 |
| Date | 30 June 2003 |
[2003] UKPC 51
Present at the hearing:-
Lord Nicholls of Birkenhead
Lord Steyn
Lord Hope of Craighead
Lord Millett
Lord Rodger of Earlsferry
Privy Council
[Delivered by Lord Millett]
This appeal arises out of two actions which were brought in May 1996 and which were tried together. In the actions the appellant National Commercial Bank (Jamaica) Limited ("the Bank") claimed to recover from the respondents Mr Stephen Hew ("Mr Hew") and his son Mr Raymond Hew a sum of $32,527,952.98 due on an overdraft facility together with interest at 54% per annum from 3rd May 1996 until payment. By 31st March 2000, a few days before the trial began, the sum due had reached $137,522,513.65. (All references to dollars are references to Jamaican dollars.)
Mr Raymond Hew denied liability. Mr Hew admitted that he had borrowed money from the Bank, but in one of the actions he claimed and in the other he counterclaimed for damages for negligence and breach of fiduciary duty. He alleged that, if successful, his claim would extinguish any indebtedness of his to the Bank.
The case was opened on behalf of Mr Hew as it had been pleaded, that is to say as a claim for damages. As the trial proceeded, however, it became transmuted into a claim that the transaction of loan ought to be set aside on the ground of undue influence. The trial judge (Reid J) rejected Mr Hew's pleaded claim to damages for negligence but upheld his claim to have the transaction set aside on the ground of undue influence. He dismissed the Bank's claim and gave judgment for Mr Hew for $18,882,005.26, representing repayments which he had made to the Bank over the period of the overdraft. This made it unnecessary for him to deal with Mr Raymond Hew's position, and he contented himself with rehearsing the contending arguments.
The Bank appealed. In a unanimous judgment the Court of Appeal dismissed the appeal and affirmed the judge's order. They upheld the judge's finding of undue influence and reversed his finding in favour of the Bank on the issue of negligence. They expressed no view on Mr Raymond Hew's position.
The Bank has appealed to the Board, joining both Mr Hew and Mr Raymond Hew as respondents. Mr Hew has since died, and his executors have been substituted in his place.
The Facts.
The facts are set out in detail in the judgments below. Their Lordships consider that it is sufficient for them to give a general outline of the facts and condescend to detail only where this is necessary for the purposes of the appeal.
When he obtained the overdraft facility in 1989 Mr Hew was 74 years old. He was a businessman of many years' experience and a builder in a small way of business. He owned two parcels of registered land totalling 140 acres at Ironshore, St. James, a prime residential area near Montego Bay, and a further 6 acres of registered land at Glendevon, St. James. He also owned 5 acres of unregistered land at Barrett Town, St. James, for which he had a subdivision plan prepared by a land surveyor dividing it into 29 lots. He had also had the Ironshore lands subdivided and sold off some of the lots. He owned tractors and used them to carry out infrastructure work on his lands and on land of others.
Mr Hew was a long standing customer of the Bank's Montego Bay branch. He testified that he developed a close and cordial personal relationship with the branch manager Mr McFarlane and with Mr Cobham who succeeded him as branch manager in 1984. Mr Hew told Mr Cobham that he had long harboured a dream of borrowing £1 million. At the rate of exchange current at the time this represented over $9 million. Mr Cobham told Mr Hew that borrowing had to be for a stated purpose. In September 1989 Mr Cobham approved an overdraft facility of $3 million, of which $2 million was for property development and $1 million was to provide a guarantee to prospective purchasers who wished to withdraw and asked for the return of their deposits.
In a facility letter to Mr Hew dated 14th September 1989 Mr Cobham set out a number of conditions which were to be satisfied before funds could be drawn down. One condition was that the facility was to be in the joint names of Mr Hew and one of his sons. Mr Hew designated Mr Raymond Hew for this purpose. Other conditions were consistent only with the purpose of the loan being land development. This was not, however, spelled out explicitly, nor was the land at Barrett Town mentioned in the letter. Mr Cobham denied that it was a condition of the facility that the money should be used only for the Barrett Town development. However, Mr Hew's evidence, which was accepted by both Courts below, was that Mr Cobham insisted that the money be used for Barrett Town; and it seems to have been treated as a condition of the facility that the money should be used for the development of the land at Barrett Town and no other purpose. Interest was chargeable on the overdraft at 20% over prime rate together with additional interest in the event of default.
According to Mr Hew's evidence, he did not think that it was a good idea to develop the land at Barrett Town, and would have preferred to develop his land at Ironshore instead. But, he said, he told Mr Cobham that he would build wherever Mr Cobham told him because "he just wanted the money".
In the course of conversations leading to the approval of the facility Mr Hew discussed the cost of the necessary infrastructure work with Mr Cobham. They also discussed the structure of the loan, and it was at Mr Cobham's suggestion that it was split into two parts, one for the development itself and one to guarantee repayment of their deposits to purchasers who might withdraw, possibly because the registered title had not become available.
Even before 1989 Mr Hew had enjoyed an overdraft facility with the Bank, secured by mortgages over the land at Ironshore and Glendevon. These were now stamped to cover the new arrangements. At the date when the new facility was formally approved Mr Hew's account was already overdrawn by $1 million. By April 1990 the overdraft had reached $2 million and by the end of 1991 it reached $3 million. No money had been paid into the account, and in July 1992, when the overdraft reached $6 million, Mr Cobham refused to allow any further drawings. By this time only two houses were complete and three others were partly built. No roads had been constructed, only one one-inch pipe was connected to the water supply on the main road half a mile distant, and no electricity was yet available. No houses had been sold and no deposits had been taken. Mr Hew was doing the work himself in order to keep costs down. He later made some repayments, but they were insufficient to keep the interest down and the amount due continued to increase. In 1995 the Bank demanded repayment. This was not forthcoming and the proceedings followed.
Negligence.
The legal context in which this question falls to be decided is well established. In Banbury v Bank of Montreal [1918] AC 626 Lord Finlay LC said at p 654:
"While it is not part of the ordinary business of a banker to give advice to customers as to investments generally, it appears to me to be clear that there may be occasions when advice may be given by a banker as such and in the course of his business … If he undertakes to advise, he must exercise reasonable care and skill in giving the advice. He is under no obligation to advise, but if he takes upon himself to do so, he will incur liability if he does so negligently."
In relation to a failure to advise a customer, Warne & Elliot Banking Litigation (1999) states at p 28:
"A banker cannot be liable for failing to advise a customer if he owes the customer no duty to do so. Generally speaking, banks do not owe their customers a duty to advise them on the wisdom of commercial projects for the purpose of which the bank is asked to lend them money. If the bank is to be placed under such a duty, there must be a request from the customer, accepted by the bank, under which the advice is to be given."
It is, therefore, not sufficient to render the Bank liable to Mr Hew in negligence that Mr Cobham knew or ought to have known that the development of Barrett Town with the borrowed funds was not a viable proposition. It must be shown either that Mr Cobham advised that the project was viable, or that he assumed an obligation to advise as to its viability and failed to advise that it was not. Their Lordships have examined the transcripts of the trial with care, and have failed to find any evidence to support any such finding.
Mr Hew's primary case on negligence was that it was on Mr Cobham's advice that he applied the drawings to the development of the land at Barrett Town rather than elsewhere, and that this advice was negligent. The Bank failed to conduct a feasibility study or to obtain (or insist that Mr Hew obtained and provided the Bank with) a cash flow projection and estimates of the cost of putting in the infrastructure and carrying out the subsequent building work. It was, moreover, foreseeable that the funds would be fully utilised before any revenue could be earned. The project was a foolhardy one and became a commercial disaster.
Mr Hew also claimed that it was negligent of the Bank to have advanced him the money by way of overdraft instead of a fixed term loan, which would have attracted lower rates of interest.
The judge dismissed the claim on the ground that Mr Hew never expressly or impliedly authorised the Bank to conduct a feasibility study. He did not expressly deal with the allegation that the Bank was negligent in advancing the money by way of...
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