In or around April 2008, Michael Gatt (“M”) and Carol Gatt (“C”) applied to the Bank of Scotland to re-mortgage their multi-million pound home. The finance was required to fund the Gatts’ longstanding property-development business.
The Bank of Scotland refused to make a loan advance to the Gatts as a consequence of M’s poor credit rating. At the time of the Gatts’ application, the principal credit reference agencies (the “CRAs”) stated on M’s credit reports that his current account with Barclays Bank Plc (“Barclays”) was “delinquent” because he had a credit limit of just £1,500, yet he had an overdraft of some £260,000. The account in question was in fact a joint account in both M and C’s names (the “Joint Account”) (though the credit reports did not say so).
The Gatts insisted that the borrowing was well known to, and authorised by, Barclays, and it was therefore untrue for Barclays to imply to the CRAs (and anyone to whom those CRAs supplied information, i.e. the Bank of Scotland) that the Gatts had substantial unauthorised borrowings. The Gatts case was that Barclays’ ‘false statement’ had the foreseeable consequence of the Gatts being unable to raise the finance required to fund their property business, which in turn led to its collapse, the loss of their home (and other assets) and to M’s bankruptcy.
In the course of the bankruptcy proceedings, Barclays purchased M’s claim in this action from his Trustee and then dropped it. C therefore continued as the sole Claimant. C pursued the claim against Barclays on three fronts: breach of contract; negligence; and, defamation.
Barclays counter-claimed against C for her personal liability for the overdraft on the Joint Account.
Breach of contract
The Court considered the breach of contract element of this claim by considering what the position would have been had M still been a party to the action. The rationale for this was that the standard terms and conditions of the Joint Account only applied to M and therefore any claim by C in contract must be weaker.
Under the standard terms and conditions of the Joint Account, M had consented to the disclosure of his credit information to the CRAs. The Court recognised that there might be a contractual claim against Barclays for breach of an implied contractual term if Barclays disclosed information about M that was in fact false and damaging. In this instance, the ‘false statement’ would be that the overdraft limit on the Joint Account at the material time was £1,500, which, when taken in conjunction with the fact that the sum borrowed was £250,000, gave rise to a damaging inference.
Was it wrong for Barclays to indicate to the CRAs that the authorised overdraft limit on the Joint Account was £1,500?
The Gatts’ position was that an overdraft of £250,000 was authorised (informally but sufficiently) by a combination of representations made by Barclays’ Relationship Manager that all was well and that Barclays failed to treat the borrowing above £1,500 as unauthorised (i.e. Barclays did not demand repayment).
The Court concluded that an overdraft of £250,000 was not authorised. Barclays had never agreed to a higher limit. The fact that M had been in discussions with Barclays’ Relationship Manager was the reason the Joint Account was being treated as “delinquent” rather than in “default”. This was the information that Barclays provided to the CRAs and it was true information falling within the permitted categories for disclosure under the standard terms and conditions of the Joint Account. M could not have succeeded in a claim for breach of contract in respect of the publication of this information to the CRAs. In light of the above, C’s claim in contract was bound to fail.
The Court recognised that, given the importance of credit rating in the modern world, a bank owed its customer a duty analogous to that which a former employer owes to a future employer when giving an employment reference.
Did Barclays owe a duty of care to C in respect of a credit reference which only appeared on M’s credit report?
The Court stated that a bank would not normally owe a duty of care to the spouse of a person in respect of whom the bank provided a credit reference to a CRA. However, the Court considered the facts that, whilst C was not specifically mentioned on the credit report, she was a joint holder of the Joint Account, and, she was a co-director of the property development business which was highly dependent on M’s credit rating. The Court concluded that Barclays owed a duty in negligence to C in respect of the credit reference which appeared on M’s credit report.
However, Barclays did not fall below the standard of reasonable care in relation to the credit reference as the information was true and not misleading, was disclosed with M’s consent and was disclosed pursuant to Barclays’ data sharing obligations (more specifically described below). C’s claim in negligence also failed.
The Court accepted that it would be defamatory to say that a person has a delinquent or unauthorised overdraft, especially if it is to the tune of £250,000 on a £1,500 limit. The inference would be that that person had shown serious irresponsibility in financial matters by overdrawing money from his bank in grave excess of the limits it had allowed.
Whilst the credit reference was clearly defamatory of M (subject to the various defamation defences), it would be more difficult for C to establish that the credit reference complained of identified her as the subject of the defamatory statement and that it was defamatory in meaning at all. In any event, this issue proved to be academic as the defence of common law qualified privilege was deemed to be applicable to C’s defamation action, and would also have been applicable had M’s claim continued.
Barclays’ successful defence: Common law qualified privilege
It is well established that common law qualified privilege will apply to non-malicious communications between people who share a legitimate, common and corresponding interest in the subject-matter of the communications provided that it is in the public interest for such a privilege to be recognised.
The Court placed great weight on the “special relationship” between a large number of financial institutions which have agreed to share certain categories of customer performance data with one another, through the “medium” of CRAs, the essential principle of such a special relationship being that of reciprocity.
The Court concluded that, in the modern world, it is plainly in the public interest that such authoritative credit information can be obtained and relied upon by banks and other financial institutions. For the above reasons, the defence of common law qualified privilege applied and consequently C’s action in defamation (as M’s would have) failed.
Barclays sought to recover from C her liabilities under the Joint Account on the basis that either signatory to a joint account has the authority of the other to bind them to any transaction on that joint account. In this case, the relevant ‘transaction’ was the making of a large transfer which had the effect of putting the Joint Account into overdraft.
The Court made clear that in the ordinary case, Barclays’ contention was true in that a bank cannot be expected to look behind such transactions, especially into dealing between husband and wife.
Whilst the Court did not consider this to be an ‘ordinary case’ (in the sense that Barclays was actively involved in the transaction by which M’s sole account overdraft was transferred to the Joint Account and had an interest in it since the effect of the transfer was to improve Barclays’ position in respect of the Gatts’ overall debt) the Court concluded that both C and M authorised Barclays to debit the Joint Account to clear the amount of M’s sole account overdraft. C was found to be personally liable to repay Barclays all sums due under the Joint Account. Barclays counterclaim therefore succeeded.
Although this case is fact-specific, it serves as a caution to lenders by highlighting the following:
Standard terms and conditions governing the contractual relationship between a bank and a customer are likely to imply that any confidential information required to be disclosed by a bank to a CRA must be completely true. Should any aspect of the information disclosed be false and result in damage (for example, the customer in question is consequently unable to obtain credit) the disclosure may give rise to a claim.
Banks may owe a duty of care in negligence to the spouse of a person when providing a credit reference; and
It is in the public interest that authoritative credit information can be obtained and relied upon by banks and other financial institutions. As such, the public interest defence of common law qualified privilege is likely to provide a solid defence for banks in defamation actions brought by customers relating to information provided to CRAs.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.