Commercial lender owes no duty of care to borrowers to disclose lending policies
Deslauriers v Guardian Asset Management Limited [09.11.17]
In Deslauriers v Guardian Asset Management Limited [09.11.2017] (on appeal from the Court of Appeal of Trinidad & Tobago), the Board of the Judicial Committee of the Privy Council (the Board) considered whether the respondent, an asset management company, was under a duty of care to advise the appellants of its lending limits when entering into a loan transaction for property development, and whether the respondent’s failure to do so constituted misrepresentation.
It will come as a relief to lenders that the Board found that the respondent had no duty to the appellants to disclose its lending policies or applicable regulatory constraints and that there had been no misrepresentation.
The dispute arose out of a TT$18.6 million loan transaction between Guardian Asset Management (GAM) and two individual property developers, Mr. and Mrs. Deslauriers (the Deslauriers), involved in the “Hevron Heights” development of residential apartments in Trinidad. In April 2009, the Deslauriers defaulted on their repayment obligations and GAM sued for repayment and interest. The Deslauriers did not dispute the loan or its non-payment but denied liability on the basis that GAM had failed to provide additional funding to finance the later phases of the development. In denying the Deslauriers’ application for additional funding, GAM stated that an additional loan would exceed its lending limits (which the Deslauriers alleged had not been disclosed to them previously). The Deslauriers counterclaimed for their loss of profits of TT$24 million as a result.
The Deslauriers argued that:
- GAM’s failure to disclose its lending policies prior to entering into the loan transaction constituted a misrepresentation
- GAM was under a duty of care to advise the Deslauriers of its lending policies and that its failure to do so amounted to a negligent misstatement.
GAM was successful in the High Court of Trinidad & Tobago, and again in the Court of Appeal. The Deslauriers sought to appeal against both the judgment of and an enforcement order made against one of the Deslauriers’ properties.
The Board dismissed both appeals.
The Board held that the High Court’s finding of fact that there had been no discussion between the parties regarding future funding by GAM was fatal. If the Deslauriers had not raised the possibility of applying for additional loans for the rest of the development prior to entering into the loan transaction, “then the lending limits which affected [GAM] were simply irrelevant” and the failure to disclose them could not amount to a misrepresentation.
Further, the board found no evidence that the Deslauriers’ loss was caused by GAM’s failure to disclose its lending policies.
The Board applied the principles in Hedley Byrne stating that the existence of a duty of care depends on the relationship between the parties giving rise to an assumption of responsibility by GAM to give professional advice to the Deslauriers. In this case, the Board stressed that the relationship between GAM and the Deslauriers was one between a commercial lender and highly experienced commercial borrowers, not one of adviser and client:
“It would be a very unusual relationship of that kind which gave rise to a duty on the part of the lender to advise the borrower about its internal lending policies or approaches to applications for loans, still less to any external influences, regulatory or otherwise, which applied to it. It would be extremely difficult to envisage such a duty arising even if it had been the fact that the borrowers indicated from the beginning that they hoped to borrow more in the future.”
The Privy Council’s decision will be of great interest to commercial lenders and borrowers, particularly in offshore jurisdictions compelled to follow the Privy Council. The Board has confirmed in no uncertain terms that there is no duty of care on a commercial lender to disclose its lending policies or information about its regulatory constraints when engaging in commercial loan transactions with borrowers, even where the borrowers have expressed an intention to apply for further funding in the future.