The Court of Appeal has refused the claimants permission to appeal in the most recent interest rate hedging product (“IRHP“) mis-selling claim to come before the appellate courts: Elite Property Holdings & Anor v Barclays Bank plc [2018] EWCA Civ 1688.

The Court of Appeal considered the High Court’s decision to refuse the claimants permission to make two key (but contentious) amendments to the particulars of claim. Agreeing with the High Court, it held that neither claim had a reasonable prospect of success and refused to grant the claimants permission to appeal. The proposed amendments concerned the following claims:

  1. A claim that the bank owed a contractual obligation to its customers in relation to the conduct of the bank’s past business review into the sale of IRHPs agreed with the FCA (then FSA). The Court of Appeal noted that the bank was obliged to carry out the review pursuant to its obligation to the FCA, and the agreement between the bank and the FCA expressly excluded any rights of third parties under the Contract Rights of Third Parties Act 1999 (“CRTPA“). Further, there was no consideration provided by the customers in relation to any alleged contract.
  2. A claim brought in circumstances where one IRHP was restructured into another IRHP (and a settlement agreement was entered into in relation to the first IRHP). The proposed amended particulars of claim alleged that losses under the first product were “repackaged and continued” or “carried over and continued” under the second. The Court of Appeal found that there was no causative link between the mis-selling of the second IRHP and the losses pleaded.

The decision is a welcome one for institutions, confirming that claimants will face significant legal obstacles if they seek to bring claims of the type outlined above. In particular, the decision is consistent with the prior decisions of the Court of Appeal in CGL Group Limited & Ors v The Royal Bank of Scotland plc[2017] EWCA Civ 1073 and of the High Court in Marsden v Barclays Bank plc[2016] EWHC 1601 (QB) (which considered and rejected the notion of tortious duties owed by financial institutions to customers in carrying out their FCA reviews).

The result of this decision is that the instant proceedings will be brought to an end; save for a final appeal in relation to the High Court’s separate refusal permit an amendment of the particulars of claim to include conspiracy allegations. Permission to appeal in that regard has been allowed by the Court of Appeal, but the appeal itself has not yet been listed.

Background

For a detailed background to this decision, read our banking litigation e-bulletin on the High Court decision.

In summary, Barclays Bank plc (the “Bank“) provided loan facilities to the two appellant companies and the appellants entered into three structured collars with the Bank. Subsequently, the appellants raised concerns about the structured collars. This led to a settlement agreement concerning the structured collars being concluded by all parties in 2010 (the “2010 Agreement“) and the structured collars were terminated, with the break costs being financed by further loans from the Bank. The refinanced loans were hedged by the appellants entering into three interest rate swaps.

In June 2012, in common with several other banks, the Bank agreed with the FCA to undertake a past business review in relation to its sales of IRHPs to small and medium-sized enterprises (the “FCA review“). That undertaking expressly excluded third parties’ ability to rely on the terms of the undertaking.

The outcome of the FCA review was that the two appellant companies were offered redress by the Bank. Following negotiations in September 2014, in November 2014, the appellants agreed to receive basic redress payments in full and final settlement of all claims connected to the IRHPs, but excluding any claims for consequential loss (the “2014 Agreement“).

Following a review of the evidence submitted by the appellants, the Bank rejected their claims for consequential loss. The appellants then issued proceedings to recover the consequential losses in November 2015. The Bank applied to strike out the majority of the appellants’ claims, which the appellants sought to meet by a cross application to amend the particulars of claim.

High Court Decision

For a detailed explanation of the High Court decision, please read our banking litigation e-bulletin. By way of summary, the key parts of that judgment insofar as relevant to the appeal:

  • Advisory claims – structured collars: The High Court struck out all mis-selling claims in relation to the structured collars, which it held were barred by the 2010 Agreement. The appellants did not seek to appeal this finding.
  • Advisory claims – swaps: The High Court also struck out the mis-selling claims in respect of the swaps, on the basis that the loss pleaded was said to be attributable to or caused by breaches of duty owed in respect of the structured collars alone. It refused leave to amend the particulars of claim to include a pleading that the losses incurred under the structured collars were “repackaged” by virtue of the appellants’ entry into the swaps and accordingly continued after the swaps were sold. The appellants described these as “legacy losses“, and argued that they were attributable to the Bank’s alleged breach of duty when selling the swaps.
  • Claims in relation to the FCA review: The High Court struck out the claim that the Bank owed and breached a tortious duty of care to the appellants in carrying out the FCA review, resulting in losses to the appellants. This was on the basis that any such claim was compromised by both the 2010 Agreement (in relation to the structured collars) and the 2014 Agreement (in relation to the structured collars and swaps).

The High Court refused permission to amend the particulars of claim, to include a contractual claim mirroring the tortious claims in relation to the FCA review above – on the basis that the Bank assumed such contractual obligations when the appellants accepted basic redress under the 2014 Agreement.

Grounds of Appeal

The appellants appealed the High Court’s decision on two grounds:

  • Advisory claims – swaps: The appellants appealed the finding that there was no reasonable prospect of success in relation to the swaps claim, asserting that the High Court had wrongly concluded that the appellants’ pleaded case in relation to the “legacy losses” arising from the swaps did not link breach of duty and loss.
  • Claims in relation to the FCA review: The appellants appealed the High Court’s refusal to permit them to amend the particulars of claim to plead that the acceptance of basic redress under the 2014 Agreement gave rise to a contractual relationship in relation to the Bank’s conduct of the FCA review.

The appellants had also initially sought to appeal the finding that there was no reasonable prospect of arguing that the Bank owed the appellants a tortious duty of care in relation to the conduct of the FCA review akin to the contractual duty. However, before the permission hearing, following CGL Group Ltd v Royal Bank of Scotland Plc[2017] EWCA Civ 1073, the appellants abandoned that ground of appeal.

Court of Appeal Decision

The Court of Appeal refused permission to appeal on both grounds.

(1) Advisory claims – swaps

The Court of Appeal assessed the original particulars of claim and was satisfied that the High Court was correct when it concluded that the losses claimed were only pleaded as having been caused by the appellants’ entry into the structured collars rather than the subsequent swaps.

The Court considered that the proposed amendments did not improve the appellants’ position. The proposed new paragraph in the particulars of claim suggested that the losses caused by the structured collars were “repackaged and continued” or “carried over…and continued” following the appellants’ entry into the swaps. The Court of Appeal was satisfied that while the losses may have occurred after the appellants’ entry into the swaps, “the cause of the relevant loss was the entering of the mis-sold structured collars“.

Accordingly, the Court of Appeal refused permission to appeal on this ground, finding that the High Court was right to refuse permission to amend the particulars of claim in relation to the swaps mis-selling claim. Given that the High Court struck out the swaps mis-selling claim as it was originally pleaded, the result is that these claims cannot now be pursued by the appellants.

(2) Claims in relation to the FCA review

The Court of Appeal held that the appellants’ claim that the Bank came under a contractual obligation to them in relation to the conduct of the FCA review (when they accepted basic redress under the 2014 Agreement) was unsustainable. Having heard argument from the Bank in Suremime Limited v Barclays Bank [2015] EWHC 2277 (QB), as well as Marshall v Barclays Bank [2015] EWHC 2000 (QB) and Marsden, the Court of Appeal concluded that there was “…plainly no such contract in June 2014 for all the reasons given by judges who decided the earlier cases” which the Court of Appeal described as having been “correctly decided on this issue“.

In support of this finding, the Court of Appeal relied on the following key factors in particular:

  • The Bank was obliged to carry out the review pursuant to its obligation to the FCA under the FCA undertaking that it had previously given.
  • The agreement between the Bank and the FCA expressly excluded any rights of third parties.
  • There was no consideration provided by the appellants in relation to any alleged contract at that time (as had been noted in Suremime).
  • The position had not changed in September or November 2014 (i.e. when the appellants entered into the 2014 Agreement); the suggestion that the Bank came under an additional contractual obligation to the appellants, mid-way through the FCA review, was nonsensical.
  • The only relevant contract was the 2014 Agreement, which was, in substance, a compromise agreement in relation to which the Bank had not assumed any additional obligations (such as obligations to carry out the FCA review with reasonable skill and care) in relation to the conduct of the FCA review.

Moreover, the Court of Appeal expressly endorsed the reasoning of Beatson LJ in CGL. This focused on the nature of the FCA review and the limitations of the remedies available to non-private persons under the relevant regulatory regime whose claims are time barred. Although CGL considered the imposition of a tortious duty of care, the Court of Appeal in the instant case commented that Beatson LJ’s reasoning was “…inconsistent with there being any basis for a claim in contract either, absent some clear expression of intention by the bank to assume a contractual obligation“. The fact that the imposition of a contractual obligation would cut across the regulatory regime seemed to the Court of Appeal to “strongly militate against there being a contract of the kind alleged by the appellants“; the only contract the Bank had entered into in relation to the FCA review was with the FCA.

Accordingly, the Court of Appeal refused permission to appeal on this ground also. The effect is that the appellants will not be able to pursue any claims relating to the Bank’s conduct of the FCA review, given that the High Court struck out the claim based on the existence of a tortious duty and refused permission to amend the particulars of claim to plead the existence of a contractual obligation.

Conclusion

This is another welcome decision for financial institutions given the clarity that the Court of Appeal has now given on two occasions in relation to claims relating to alleged contractual obligations or duties of care owed by financial institutions in relation to their conduct of FCA past business reviews.

John Corrie
John Corrie
Partner
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Ceri Morgan
Ceri Morgan
Professional Support Lawyer
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Nic Patmore
Nic Patmore
Associate
+44 20 7466 2298