Two duties that are often confused
A leisure beach, an interest rate swap and a bill for €168,900
An entrepreneur who ran a leisure beach financed the acquisition with two loans of €650,000 and €425,000 from ABN AMRO, at a variable rate based on Euribor. To hedge the interest rate risk he entered into an interest rate swap. When he sold his business in 2012 and repaid the credit early, the bank charged him the swap's negative market value — €168,900.
The entrepreneur claimed that sum back. He argued that he had been mistaken: the bank had insufficiently informed him about how the swap worked and its risks, in particular the risk that early termination produces a substantial negative value. The Court of Appeal agreed — partly because there was an advisory relationship between the parties, the bank should have warned him "in unmistakable terms", and general, standardised documentation did not achieve that.
The duty to disclose and the duty to warn are independent norms
The Supreme Court set that judgment aside. Not because the bank was blameless, but because the Court of Appeal had conflated two things. The duty to disclose — the breach of which can support a plea of mistake (Section 6:228(1)(b) DCC) — must be distinguished from the duty to warn arising from the special duty of care of a professional provider of risky financial products. That duty to warn serves to protect against the client's own rashness or lack of insight, and can reach further than the duty to disclose. And both are separate again from any duty to advise flowing from an advisory relationship (Section 7:401 DCC).
For the duty to disclose, the starting point is that general product information is sufficient, provided a client who makes a reasonable effort can obtain, in good time, insight into the essential features and risks — such as the risk of a substantial negative value on early termination. That is a lighter standard than the intrusive, individually tailored warning the Court of Appeal had required. By colouring the duty to disclose with the heavier duty of care, the Court of Appeal had set the bar for Section 6:228 DCC too high.
The Supreme Court built on two earlier judgments: De Treek/Dexia, on the duty to warn in securities leasing and the residual-debt risk, and the ABN AMRO interest-derivative judgment. The nuance: the information the bank obtains through its duty of care or advisory relationship may indeed weigh in the scope of the duty to disclose — for instance if it shows that the client has less knowledge or experience than the bank may normally expect. But that is different from simply equating the two norms.
What does this mean for entrepreneurs and banks?
For the client: the mere fact that the bank provided only general brochures is not automatically enough for a successful plea of mistake — if the essential risks were apparent from those documents, the duty to disclose was met. The stronger card often lies with the duty to warn: that independent duty-of-care norm can, especially for a complex product, a non-expert client and an advisory relationship, require an intrusive, personal warning. Anyone bringing a claim against a bank should keep the two grounds sharply apart and choose the right one. For the bank the mirror image applies: standard documentation can cover the duty to disclose, but does not rule out a further-reaching duty to warn under the duty of care — precisely for risky products and inexperienced clients.
Frequently asked questions
What is the difference between a bank's duty to disclose and its duty to warn?
The duty to disclose requires the bank to make clear the essential features and risks of a product; its breach can support a plea of mistake. The duty to warn flows from the special duty of care and requires the bank to warn a non-expert client intrusively about the risks. The latter norm can reach further.
Is general product information enough to satisfy the duty to disclose?
In principle yes, provided a client who makes a reasonable effort can obtain in good time insight into the essential features and risks, such as the risk of a negative value on early termination. What the bank knows about the client through its duty of care or advisory relationship may, however, sharpen that standard.
Can an advisory relationship increase the bank's duties?
Yes. Where an advisory relationship exists, the bank is subject to a duty of care that may require it to investigate the client and to warn intrusively. The information it obtains in doing so may weigh in the scope of the duty to disclose — but the norms remain independent and may not be equated.
Cited case law
Supreme Court: ECLI:NL:HR:2009:BH2815 (De Treek/Dexia) · ECLI:NL:HR:2019:1046 (ABN AMRO interest derivative) · ECLI:NL:HR:2019:1499 (Recreatiestrand)
See also
- Banking duty of care
- Interest rate derivative, mistake and the bank's duty of care: the Supreme Court corrects the Amsterdam Court of Appeal
- Termination of the ING banking relationship: no summary proceedings where the business banks elsewhere
- Commercial Litigation — commercial and financial disputes