High Court summarily dismisses alleged LIBOR fraudulent misrepresentation claim on the basis that it is time-barred

The High Court has granted summary judgment in favour of two banks, in connection with an alleged interest rate hedging products (IRHP) mis-selling claim related to LIBOR manipulation, on the basis that it was issued outside the statutory limitation period: Boyse (International) Ltd v NatWest Markets plc and another [2021] EWHC 1387 (Ch). In doing so, the High Court dismissed the claimant’s appeal against the judgment of the Chief Master, considered in our previous blog post: High Court strikes out two IRHP mis-selling claims on the grounds of abuse of process, limitation and underdeveloped allegations of fraud.

The decision is a reassuring one for financial institutions faced with claims issued close to or after the end of the statutory limitation period. The decision provides helpful guidance on when the limitation period will begin to run under the Limitation Act 1980 (the Act) for the purpose of alleged fraudulent misrepresentation claims. In particular, the decision illustrates: (i) the difficulties that may be faced by claimants seeking to rely on the deliberate concealment extension to postpone the limitation period under s.32(1)(a) of the Act; and (ii) the court’s increasing willingness to deal robustly with attempts to extend the limitation period on a summary basis where, traditionally, such cases have been less amenable to strike out or summary determination (see our previous blog posts on limitation issues here).

In the present case, the High Court was satisfied that a reasonably diligent person in the position of the claimant would have been alert to the widely available material about LIBOR at the relevant time and should have been on the lookout for publications such as the Financial Service Authority’s (FSA) (as it was then) Final Notice on LIBOR manipulation in 2013. In the High Court’s view, the Final Notice would have completed the picture required for the claimant to plead a case of fraudulent misrepresentation. Given that more than six years had passed between publication of the Final Notice and the claim being issued in these proceedings, the High Court dismissed the appeal and granted summary judgment in favour of the banks, on the basis that the claim was time-barred.

We consider the decision in more detail below.

Background

The claimant trust company entered into two LIBOR-referenced IRHPs in August 2007 and November 2008 with the defendant banks (the Banks). In 2012, following the then FSA’s announcement that it had identified serious failings in the sale of IRHPs to small and medium-sized businesses by a number of financial institutions, the Banks set up a past business review (PBR) compensation scheme. The claimant was offered a redress payment under the PBR scheme, which it accepted (without prejudice to its right to proceed with a claim for consequential loss). In 2015, the Banks rejected the claimant’s claim for consequential loss under the PBR scheme.

The claimant subsequently issued proceedings against the Banks on 19 February 2019 for: (a) fraudulent misrepresentation/breach of contract for alleged LIBOR manipulation (the LIBOR Claim); and (b) alleged negligent and fraudulent misrepresentations made in relation to the suitability of the IRHPs (the IRHP Misrepresentation Claim).

The Banks applied to the High Court for strike out and/or reverse summary judgment.

Decision of the Chief Master

The Chief Master’s reasoning is summarised in our previous banking litigation blog post.

The Chief Master granted summary judgment in favour of the Banks, finding that the LIBOR Claim was time-barred and that deceit in relation to the IRHP Misrepresentation Claim was not adequately pleaded (refusing the claimant permission to amend).

The claimant appealed against the Chief Master’s decision on the LIBOR Claim, submitting that he was wrong to conclude that it was sufficiently clear that such a claim was barred by the provisions of sections 2 and 32(1) of the Act. The claimant’s case was that the LIBOR Claim was not time-barred on the basis that:

  • Prior to the publication of the Final Notice in relation to LIBOR manipulation (published on 6 February 2013), there was not a sufficient “trigger” for the claimant to investigate the Banks’ LIBOR fraud.
  • The claimant could not have discovered the alleged LIBOR fraud with reasonable diligence on 6 February 2013, and would, in its particular circumstances, have needed to take exceptional measures in order to have done so before 19 February 2013 (the date the claim form was issued).

The claimant did not appeal the strike out of the IRHP Misrepresentation Claim.

High Court decision

The High Court found in favour of the Banks, upholding the Chief Master’s decision to grant summary judgment, for the reasons explained below.

Legal principles relating to limitation periods and discovery of alleged fraud

The High Court in its review of the existing law highlighted the following key principles:

  • Section 2 of the Act provides that an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.
  • Claims for fraudulent misrepresentation are an “action based upon the fraud of the defendant” and so fall within the meaning of section 32(1)(a) of the Act. In such claims, the limitation period does not begin to run until the claimant has “discovered the fraud…or could with reasonable diligence have discovered it”.
  • The claimant will have discovered a fraud when he or she is aware of sufficient material properly to be able to plead it (as per Law Society v Sephton and Co [2004] EWCA Civ 1627).
  • As to what is meant by “reasonable diligence” in section 32(1) of the Act, the question is not whether the claimant should have discovered the fraud sooner but whether they could with reasonable diligence have done so. The burden of proof is, therefore, on the claimant. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take. The test for reasonable diligence is how a person carrying on a business of the relevant kind would act if he or she had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency (as per Paragon Finance plc v DB Thakerar & Co [1998] EWCA Civ 1249 and FII Group Test Claimants v HMRC [2020] UKSC 47).

Application of legal principles on limitation periods and discovery of alleged fraud

The High Court held that the Chief Master was right to reach the conclusion he did on the LIBOR Claim. A reasonably diligent person in the claimant’s position would have discovered the alleged fraud before 19 February 2013 (six years before the claim form was issued), and there was no real prospect of the contrary being successfully argued at trial.

The High Court commented that the Chief Master described the Final Notice as a “trigger” in the sense of this being the point in time from which the limitation period began to run, because the necessary facts to plead a case were available to the claimant from the time of publication of the Final Notice. It followed that further time for investigation was not required. Accordingly, the Chief Master was entitled to conclude that the evidence contained in the Final Notice in relation to LIBOR manipulation would have completed the picture required for the claimant to plead a case of fraudulent misrepresentation.

In the view of the High Court, the Chief Master was entitled to reach the view that a reasonably diligent person in the circumstances of this case would have been alert to the widely available material about LIBOR prior to February 2013 and should have been on the lookout for publications such as the Final Notice. In particular, the High Court referenced the claimant’s pleaded reliance on the Banks’ representations as to LIBOR, the losses the claimant allegedly sustained as a result of the IRHPs, and the widespread publicity about LIBOR as an outdated/discredited benchmark and its alleged manipulation.

The High Court therefore dismissed the claimant’s appeal on the LIBOR Claim, disposing of the proceedings in their entirety.

Ceri Morgan
Ceri Morgan
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Nihar Lovell
Nihar Lovell
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Erica Li
Erica Li
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High Court strikes out claims relating to alleged mis-selling of IRHPs on res judicata and abuse of process grounds

The High Court’s decision in Elite Property Holdings Limited & Anor v Barclays Bank plc [2021] EWHC 772 (Comm) is the latest instalment in a series of claims brought by the same claimant property investment companies against the defendant bank (and others) in relation to alleged mis-sold interest rate hedging products (IRHPs), which were included in the then-FSA (now FCA) past business review undertaken by the bank. The High Court granted the bank’s application to strike out the claim alleging breaches of agreements: (i) in relation to the bank’s assessment of consequential loss suffered by the claimants in respect of their IRHPs and (ii) that the bank would not take enforcement action against the claimants.

The decision is a reassuring one for financial institutions faced with duplicative claims involving the same cause of action, or matters determined in previous proceedings. The decision highlights the High Court’s scope to strike out such claims on the grounds of cause of action estoppel, issue estoppel or abuse of process. It also suggests that claimants may face difficulties in bringing further claims on issues not raised or determined in previous proceedings if, in the court’s view, such issues could or should have been raised then.

In the present case, the High Court was satisfied that the claim involved the same cause of action as was determined against the claimants in the original action or, in the alternative, it raised the same issues previously resolved against the claimants (see our banking litigation blog posts, on the previous decisions by the High Court and the Court of Appeal in related actions brought by the same claimants). Accordingly, the High Court held that the claim was barred by the principle of res judicata. The High Court also observed that: (i) even if it was wrong about the claim being barred by cause of action or issue estoppel, the new claim would fall squarely within the principle in Henderson v Henderson (1843) 3 Hare 100 and/or be an abuse of the court’s process; and (ii)  the claimants’ allegations had no real prospect of success and, if it had been necessary to do so, the court would have granted the bank’s application for summary judgment.

We consider the decision in more detail below.

Background

The claimant property investment companies had entered into a number of IRHPs with the defendant bank (the Bank) between 2006 and 2010. In June 2012, the Bank agreed with the then-FSA (now FCA) to undertake a past business review in relation to the alleged mis-selling of IRHPs (the FCA Review). The claimants’ IRHPs were included in this review. In the context of the FCA Review, the Bank made basic redress offers to the claimants in respect of their IRHPs in June 2014. The claimants rejected the basic redress offers and elected to submit a claim for consequential loss. However, in September 2014, the claimants asked the Bank to pay them the basic redress amounts offered, pending determination of their consequential loss claim. Consequently, the Bank made revised basic redress offers to the claimants. The revised basic redress offers were accepted by the claimants via signed acceptance forms in November 2014 (the 2014 Agreements), which acknowledged that the basic redress payments were in full and final settlement of all claims connected to the IRHPs, but excluding any claims for consequential loss.

Subsequently, in 2015, the claimants rejected the Bank’s consequential loss decision and instead commenced litigation against the Bank (the Original Action). The majority of the claimants’ case was struck-out by the High Court. The Court of Appeal refused to grant permission to appeal (see our banking litigation blog post for further details on the background to this claim and the Court of Appeal’s decision). In 2019, the claimants issued a second claim, this time against BDO LLP, alleging that they had sustained loss and damage due to an unlawful means conspiracy in which the Bank and BDO conspired to mislead KPMG into allowing the Bank to foreclose on the underlying loan of one of the claimant companies when in fact there were no exceptional circumstances justifying that course of action. The High Court struck out the second action on the basis that it was a collateral attack on the Court of Appeal’s findings in the Original Action and it was an abuse of process (see our banking litigation blog post for further details on the background to this claim and the High Court’s decision).

The present decision is in connection with a third claim brought by the claimants, this time against the Bank, alleging breach of: (i) the 2014 Agreements in relation to the Bank’s assessment of consequential loss suffered by the claimants as a result of the IRHPs (the Consequential Loss Claim); and (ii) an oral agreement, claimed to have been made on 24 June 2013, that the Bank would not take any enforcement action against the claimants (the Oral Agreement Claim).

The Bank applied to the High Court to strike out the claimants’ latest claims on the grounds that they were an attempt to re-litigate matters that were (or could and should have been) raised against the Bank in the Original Action and were therefore res judicata and/or an abuse of process. In the alternative, the Bank applied for summary judgment on the grounds that the claims had no real prospect of success. The Bank argued that the Consequential Loss Claim involved the same cause of action that was determined against the claimants in the Original Action by the High Court and the Court of Appeal, or in the alternative, that the claims raised identical issues to those that have already been resolved against the claimants. The Bank also argued that the Oral Agreement Claim was barred by issue estoppel, or in the alternative fell squarely within the Henderson v Henderson principle since the point that the claimants now sought to raise was directly relevant in the conspiracy claims that were made in the Original Action concerning the lawfulness of enforcement action.

Decision

The High Court found in favour of the Bank, striking out the claimants’ Consequential Loss Claim and the Oral Agreement Claim for the reasons explained below.

Res judicata and abuse of process principles

The High Court noted that the principles relating to res judicata and abuse of process were reviewed in Virgin Atlantic Airways Ltd v Zodiac Seals UK Ltd [2013] UKSC 46 and more recently in Test Claimants in the FII Litigation v HMRC [2020] UKSC 47. The High Court then highlighted the following key principles:

  • Cause of action estoppel. Once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”. The discovery of a new factual matter which could not have been found out by reasonable diligence for use in the earlier proceedings does not, according to the law of England, permit the latter to be re-opened, and cause of action estoppel also extends to points which have might have been but were not raised and decided in the earlier proceedings for the purpose of establishing or negativing the existence of a cause of action (as per Arnold v National Westminster Bank Plc [1991] 2 AC 93 and Virgin Atlantic).
  • Definition of cause of action. A cause of action was defined in Co-operative Group Ltd v Birse Developments Ltd [2013] EWCA Civ 474 as follows: “In the quest for what constitutes as a ‘new’ cause of action, i.e. a cause of action different to that already asserted, it is the essential factual allegations upon which the original and the proposed new or different claims are reliant which must be compared”. Unnecessary or inessential allegations or facts must be ignored.
  • Issue estoppel. Where the cause of action is not the same in the later action as it was in the earlier one, some issue which is necessarily common to both was decided on the earlier occasion and is binding on the parties, this is “issue estoppel”. Issue estoppel extends to cover not only the case where a particular point has been raised and specifically determined in the earlier proceedings, but also where in the subsequent proceedings it is sought to raise a point which might have been but was not raised earlier in relation to an issue that has already been finally determined (as per Arnold v National Westminster Bank Plc).
  • Henderson v Henderson principle. A party is precluded from raising in subsequent proceedings matters which were not, but could and should have been raised in earlier proceedings. The High Court noted that the correct approach to the Henderson principle was considered by the House of Lords in Johnson v Gore Wood & Co [2000] UKHL 65 where the court said:
    1. The underlying public interest is that there should be finality in litigation and a party should not be twice vexed in the same matter.
    2. The bringing of a claim or the raising of a defence may, without more, amount to an abuse if the court is satisfied (the onus being on the party alleging abuse) that it should have been raised in the earlier proceedings if it was to be raised at all.
    3. A claim may be abuse where it amounts to a collateral attack on the outcome of prior litigation, either between the same parties or with a third party.
    4. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings, it should have been, so as to render the raising of it in later proceedings necessarily abusive. The court should carry out a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all of the facts of the case, focusing attention on the critical question whether, in all the circumstances, a party is misusing or abusing the court’s process by seeking to raise an issue which could have been raised before.
    5. The private and public interests which are served by the Henderson principle are distinct and either or both may be engaged.
  • Abusive proceedings. There is a more general rule against abusive proceedings. The court has an inherent power to prevent misuse of its procedure where the process would be manifestly unfair to a party, or would otherwise bring the administration of justice into disrepute among right-thinking people (as per Hunter v Chief Constable of the West Midlands Police [1981] UK HL 13).

Application of res judicata and abuse of process principles

Consequential Loss Claim

The High Court agreed with the Bank that the Consequential Loss Claim involved the same cause of action as was determined against the claimants in the Original Action, or in the alternative, it raised the same issues which had already been resolved against the claimants, and it was therefore barred by the principle of res judicata. There were four reasons for this:

  1. Both claims were for the alleged breach of the same contract and all the documents relied on in this claim were before the courts in the Original Action. Whilst there now appeared to be a different spin being put on the interpretation of the documents as to the material points of the contract, the fact remained that the same material was before the courts in the Original Action.
  2. Both claims were premised on the Bank having assumed an obligation to deal fairly and reasonably with the claimants’ consequential loss claim. Whilst not identically framed, there were effectively the same allegations of an obligation on the Bank to act fairly and reasonably in accordance with established legal principles in relation to the assessment and payment of the claim for consequential loss.
  3. The alleged breach of contract was the same i.e. a failure to do the assessment correctly resulting in the rejection of the claimants’ consequential loss claim. The allegation in the Original Action was not limited to the failure to assess in accordance with the terms of the FCA Review or the Bank’s agreement with the FCA but was broader, including a failure to assess in accordance with general legal principles and pay ‘fair and reasonable’ redress. The same was now being alleged again. However, it was determined against the claimants in the Original Action that the Bank had agreed to carry out the FCA Review in any particular way or pay redress in any particular form.
  4. The same loss was claimed in both actions i.e. damages for breach of the 2014 Agreements.

The High Court also said that even if it was wrong about the Consequential Loss Claim being barred by cause of action or issue estoppel, it would conclude that such a claim would fall squarely within the Henderson v Henderson principle and/or be an abuse of the court’s process as it was, at most, a different way of putting the same claim as brought in the Original Action.

Accordingly, the High Court struck out the claimants’ Consequential Loss Claim.

Oral Agreement Claim

The High Court agreed with the Bank that the Oral Agreement Claim was barred by issue estoppel as the issue of the lawfulness of enforcement action was live and determined by HHJ Waksman QC in the Original Action. Although the issue was not determined on an appeal to the Court of Appeal in the Original Action, the High Court said that in its view this did not prevent an issue estoppel from arising.

The High Court then said in the present case, the order of HHJ Waksman QC in the Original Action remained in full force and effect (the appeal having been dismissed) and that his decision continued to be fundamental to the disposal of the case. In the High Court’s view, there was also no injustice to the claimants because they could have sought to appeal against the decision of the appeal court which had gone against them.

The High Court also commented that even if had been wrong as to whether the decision of HHJ Waksman QC amounted to issue estoppel, in its view if the claimants wished to run the Oral Agreement Claim, they could and should have done so in the Original Action. Accordingly the attempt to run it in this claim contravened the Henderson v Henderson principle.

Accordingly, the High Court struck out the Oral Agreement Claim.

Summary Judgment

The High Court also commented that had it been necessary to do so, it would have in any event have concluded that both the Consequential Loss Claim and Oral Agreement Claim had no real prospect of success and granted summary judgment.

Ceri Morgan
Ceri Morgan
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Nihar Lovell
Nihar Lovell
Professional Support Lawyer
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Mannat Sabhikhi
Mannat Sabhikhi
Associate
+44 20 7466 2859

Financial product mis-selling claims against banks: the increasing willingness of the English courts to strike out allegations of fraud in “appropriate” cases

Herbert Smith Freehills LLP have published an article in Butterworths Journal of International Banking and Financial Law on the increasing willingness of the English courts to deal with opportunistic claims against banks (and other third parties) involving allegations of fraud without the need for a full trial, in “appropriate” cases.

Traditionally, in a financial product mis-selling context, claims against financial institutions involving allegations of fraud, LIBOR manipulation and unlawful means conspiracy have not been amenable to strike out or summary determination. However, the recent decisions in Boyse (International) Limited v Natwest Markets plc & The Royal Bank of Scotland Plc [2020] EWHC 1264 (Ch) and Elite Properties and Ors v BDO LLP [2020] EWHC 1937 (Comm) represent useful additions to the body of English court judgments arising out of financial product mis-selling allegations, which are likely to be of broader interest to financial institutions. In both cases, allegations of fraud were made against the defendant entity, and in both cases, the court struck out the claim/granted reverse summary judgment, finding that these were cases in which it was “appropriate” to deal with the claims without the need for a full trial. The decisions, taken together, could be viewed as an encouragement by the courts for financial institutions to seek to dispose of mis-selling claims at an early stage of the litigation proceedings.

In our article, we examine the lessons learned from Boyse and Elite as to when it will be “appropriate” to strike out/summarily determine mis-selling fraud claims, and the impact of these decisions upon the litigation tactics of defendant financial institutions facing such claims.

This article can be found here: Financial product mis-selling claims against banks: the increasing willingness of the English courts to strike out allegations of fraud in “appropriate” cases. This article first appeared in the January 2021 edition of JIBFL.

John Corrie
John Corrie
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Ceri Morgan
Ceri Morgan
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Nihar Lovell
Nihar Lovell
Professional Support Lawyer
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Nic Patmore
Nic Patmore
Senior Associate
+44 20 7466 2298

High Court considers First Tower judgment in the context of no-advice clauses and confirms UCTA does not apply

The High Court has dismissed the latest interest rate hedging product (IRHP) mis-selling claim to reach trial in Fine Care Homes Limited v National Westminster Bank plc & Anor [2020] EWHC 3233 (Ch).

The judgment will be welcomed by financial institutions for its general approach to claims alleging that a bank negligently advised its customer as to the suitability of a particular financial product (whether an IRHP or otherwise). While there are some aspects of the decision which hinge on the unsophisticated nature of this particular claimant, the touchstone of when it can be said that a bank owes a common law duty to advise, the content of that duty and what a claimant must prove to demonstrate that the advisory duty (if owed) has been breached, will be of relevance to similar claims faced by banks in relation to other products or services.

The aspect of the judgment likely to be of greatest and widest importance to the financial services sector, is the court’s analysis of how the doctrine of contractual estoppel should be applied in these types of mis-selling cases.

The question in this case was whether the bank was entitled to rely on its contractual terms as giving rise to a contractual estoppel, so that no duty of care to advise the customer as to the suitability of the IRHP arose. In good news for banks, the court determined that clauses stating that the bank was providing general dealing services on an execution-only basis and was not providing advice on the merits of a particular transaction (precisely the sort of clauses which are typically relied upon to trigger a contractual estoppel), were not subject to the requirement of reasonableness in the Unfair Contract Terms Act 1977 (UCTA) when relied upon in the context of a breach of advisory duty claim.

This may appear an unsurprising outcome, given the Court of Appeal’s decision Springwell Navigation Corpn v JP Morgan Chase Bank [2010] EWCA Civ 1221. However, certain obiter comments by Leggatt LJ in First Tower Trustees v CDS [2019] 1 WLR 637 could be read as conflicting with Springwell in relation to the effect of so-called no-advice clauses and the application of UCTA in relation to them.

In the present case, the court emphasised the clear distinction made in First Tower between, on the one hand, a clause that defines the party’s primary rights and obligations (such as a no-advice clause), and on the other, a clause stating that there has been no reliance on a representation (a “non-reliance” clause). It said that the Court of Appeal’s decision in First Tower was limited to the effect of non-reliance clauses given the nature of the clause at issue in that case. First Tower confirmed that where the effect of a non-reliance clause is to exclude liability for misrepresentation which would otherwise exist in the absence of the clause, section 3 of the Misrepresentation Act 1967 will be engaged and the clause will be subject to the UCTA reasonableness test. In contrast, the clauses at issue here were not non-reliance clauses, but rather clauses that set out the nature of the obligations of the bank, and therefore were not subject to section 2 of UCTA.

Contractual estoppel has regularly been relied upon by banks defending mis-selling claims to frame the obligations which they owe to customers, particularly in circumstances where claimants have sought to argue that, notwithstanding the clear terms of the contracts upon which the transactions were entered into, the banks took on advisory duties in the sale of financial products which turned out to perform poorly. The decision in Fine Care Homes will therefore be welcomed by financial institutions, particularly against the backdrop of the First Tower decision. While in many circumstances, no-advice clauses would be likely to meet the requirements of reasonableness under UCTA in any event (as was the outcome in the present case), removing a hurdle that must be cleared in order to rely on such clauses is clearly preferable from the bank’s perspective, adding certainty to the relationship.

Background

In 2006, the claimant (Fine Care Homes Limited) took out a loan with the Royal Bank of Scotland (the Bank) to finance the acquisition of a site in Harlow on which it intended to build a care home (the land loan). The claimant also intended to borrow further funds from the Bank to finance the development of the site (the development loan), although ultimately the parties were unable to reach agreement on the terms of the development loan.

In 2007, the claimant took out an IRHP with the Bank, as a condition of the anticipated development loan. The IRHP was a structured collar with a term of five years, extendable by two years at the option of the Bank (which was duly exercised).

In 2012, the IRHP was assessed by the Bank’s past business review (PBR) compensation scheme (which had been agreed with the then-Financial Services Authority (FSA)) to have been mis-sold. In 2014, the claimant was offered a redress payment by the Bank’s PBR.

The claimant did not to accept the offer under the PBR and pursued the following civil claims against the Bank at trial:

  1. Negligent advice claim: A claim that the Bank negligently advised the claimant as to the suitability of the IRHP, in particular by failing to tell the claimant that the IRHP would impede its capacity to borrow, or that novation of the IRHP might not be straightforward / might require security.
  2. Negligent mis-statement / misrepresentation claim: A claim that the information provided by the Bank regarding the IRHP contained negligent mis-statements or misrepresentations in the same two respects as the negligent advice claim.
  3. Contractual duty claim: A claim that the Bank was subject to an implied contractual duty under section 13 of the Supply of Goods and Services Act 1982 to exercise reasonable skill and care when giving advice and making recommendations, which was breached in the same two respects as the negligent advice claim.

Decision

The court held that all of the claims against the Bank failed, each of which is considered further below.

1. Negligent advice claim

The court’s analysis of the negligent advice claim was divided into three broad questions: (i) did the Bank owe a duty of care to advise the claimant as to the suitability of the IRHP; (ii) could the Bank rely upon a contractual estoppel to the effect that the relationship did not give rise to an advisory duty; (iii) if there was an advisory duty in this case, was it breached by the Bank in the two specific respects alleged by the claimant?

(i) Did the Bank owe a duty of care?

It was common ground that the sale of the IRHP was ostensibly made on a non-advisory rather than advisory basis, but the claimant alleged that the facts nevertheless gave rise to an advisory relationship in which a personal recommendation was expressly or implicitly made. In this regard, the claimant relied on the salesperson at the Bank being held out as being an “expert” (as an approved person under FSMA); that he advised the claimant to buy the particular IRHP and that the Bank therefore assumed a duty of care which required it to ensure that the IRHP was indeed suitable.

As to whether the Bank owed an advisory duty on the facts of this particular case, the court referred in particular to two substantive trial decisions considering a claim for breach of an advisory duty in the context of selling an IRHP: Property Alliance Group v RBS [2018] 1 WLR 3529 and LEA v RBS [2018] EWHC 1387 (Ch). The court highlighted the following key points from these cases:

  • A bank negotiating and contracting with another party owes in the first instance no duty to explain the nature or effect of the proposed arrangement to the other party.
  • As a point of general principle, an assumption of responsibility by a defendant may give rise to duty of care, although this will depend on the particular facts (applying Hedley Byrne v Heller [1964] AC 465).
  • In the context of a bank selling financial products, in “some exceptional cases” the circumstances of the case might mean that the bank owed a duty to provide its customer with an explanation of the nature and effect of a particular transaction.
  • There are a number of principles emerging from the cases as to the way in which the court should approach this fact-sensitive question. In particular, the court must analyse the dealings between the bank and the customer in a “pragmatic and commercially sensible way” to determine whether the bank has crossed the line which separates the activity of giving information about and selling a product, and the activity of giving advice.
  • However, there is no “continuous spectrum of duty, stretching from not misleading, at one end, to full advice, at the other end”. Rather, the question should be the responsibility assumed in the particular factual context, as regards the particular transaction in dispute.
  • Assessing whether the facts give rise to a duty of care is an objective test.

On the facts, the court did not consider that this was to the sort of “exceptional case” where the bank assumed an advisory duty towards its customer. The court highlighted the following factual points in particular, which are likely to be of broader relevance to mis-selling disputes of this nature:

  • The court noted that it is quite obviously not the case that in every case in which an IRHP is sold by an approved person (as it will inevitably be) a duty of care arises to ensure the suitability of the product.
  • The claimant was unable to point to anything at all in the exchanges between the Bank and the claimant which contained advice to buy the IRHP. The court rejected the claimant’s argument that the Bank’s presentation of the benefits of IRHP products in general could amount to advice to buy any specific product. Referring to the decision in Parmar v Barclays Bank [2018] EWHC 1027 (Ch), the court confirmed that if a recommendation is to give rise to an advised sale, it must be made in respect of a particular product and not IRHPs in general. Although Parmar was decided in the context of a statutory claim under s.138D FSMA, the court found that the principle applied equally to a mis-selling claim of this type (see our blog post on the Parmar decision).

Accordingly, the court found that the Bank did not owe an advisory duty in relation to the sale of the IRHP.

In reaching this conclusion, the court rejected any suggestion that the rules and guidance set out in the FSA/FCA Handbook could create a tortious duty of care where one did not exist on the basis of the common law principles (applying Green & Rowley v RBS [2013] EWCA Civ 1197). The relevant context in Green & Rowley was whether the (then-applicable) Conduct of Business rules and guidance (COB) could create a concurrent tortious duty of care, but the court in this case extended the same reasoning to the Statements of Principle and Code of Practice for Approved Persons (APER). The court stated that APER code could not carry any greater weight in relation to the content of the common law duties of care than the COB rules.

(ii) Could the Bank rely upon a contractual estoppel?

The court found that the Bank was entitled to rely on its contractual terms as confirming that the relationship between the Bank and the claimant did not give rise to a duty of care to advise the claimant as to the suitability of the IRHP, and that the claimant was estopped from arguing to the contrary by those contractual terms.

The terms of business included the following material clauses:

“3.2 We will provide you with general dealing services on an execution-only basis in relation to…contracts for differences…

3.3 We will not provide you with advice on the merits of a particular transaction or the composition of any account…You should obtain your own independent financial, legal and tax advice. Opinions, research or analysis expressed or published by us or our affiliates are for your information only and do not amount to advice, an assurance or a guarantee. The content is based on information that we believe to be reliable but we do not represent that it is accurate or complete…”

The court rejected the claimant’s argument that these clauses were subject to the requirement of reasonableness under UCTA.

In reaching this conclusion, the court referred to the decision in First Tower Trustees v CDS [2019] 1 WLR 637, which considered the effect of a “non-reliance” clause (a clause providing that the parties did not enter into the agreement in reliance on a statement or representation made by the other contracting party). First Tower confirmed that, where the effect of a non-reliance clause is to exclude liability for misrepresentation which would otherwise exist in the absence of the clause, section 3 of the Misrepresentation Act will be engaged and the clause will be subject to the UCTA reasonableness test.

However, the court in Fine Care Homes found that clauses 3.2 and 3.3 in the present case were different from non-reliance clauses, being clauses that set out the nature of the obligations of the Bank. The court highlighted that the judgments of both Lewison LJ and Leggatt LJ in First Tower, clearly distinguished between a clause that defines the party’s primary rights and obligations, and a clause stating that there has been no reliance on a representation. In respect of the former, First Tower provided the following articulation of the position:

“Thus terms which simply define the basis upon which services will be rendered and confirm the basis upon which parties are transacting business are not subject to section 2 of [the 1977 Act]. Otherwise, every contract which contains contractual terms defining the extent of each party’s obligations would have to satisfy the requirement of reasonableness.”

In First Tower, Lewison LJ had gone on to refer to Thornbridge v Barclays Bank [2015] EWHC 3430 (a swaps case) which considered a clause stating that the buyer was not relying on any communication “as investment advice or as a recommendation to enter into” the transaction. In First Tower, Lewison LJ explained that this clause defined the party’s primary rights and obligations, and was not a clause stating that there had been no reliance on a representation.

Applying this reasoning to the present case, the court found that clauses 3.2 and 3.3 (stating that the Bank was providing general dealing services on an execution-only basis and was not providing advice on the merits of a particular transaction), were primary obligation clauses that were not subject to the requirement of reasonableness in UCTA (or, by parity of reasoning, COB 5.2.3 and 5.2.4).

Had UCTA applied, the court said that it would in any event have found the clauses reasonable, noting that some of the claimant’s objections effectively asserted that it could never be reasonable for a bank selling an IRHP to a private customer to specify that it was doing so on a non-advisory basis – which the court did not accept.

(iii) If an advisory duty was owed, was it breached by the Bank?

Although it was not necessary for the court to consider the specific breaches of duty alleged by the claimant (given its findings above), the court proceeded to do so for the sake of completeness.

The court applied Green & Rowley, confirming that the content of the advisory duty (if owed) “might” be informed by the COB that applied at the time of the sale (here COB 2.1.3R and COB 5.4.3R) and the APER code. However, the claimant did not in fact identify any specific respect in which the FCA framework had a material impact on the claimant’s case.

By the time of the trial, the claimant’s case was narrowed to two quite specific allegations concerning what it should have been told by the Bank in relation to two key issues: (1) that the Bank negligently failed to explain to the claimant that the Bank’s internal credit limit utilisation (CLU) figure for the IRHP, would affect the claimant’s ability to refinance existing borrowings / borrow further sums (from the Bank or another lender); and (2) that the Bank should have warned the claimant that novation of the IRHP might require external security to be provided.

The arguments on these allegations were fact-specific, and ultimately the court found that there was no evidence to support them.

2. Negligent mis-statement / misrepresentation claim and contractual claim

The claims on these alternative grounds also failed, given the court’s finding that what the Bank told the claimants was correct, in respect of the two complaints identified.

Consistent with the position found in Green & Rowley, the court noted that the content of the Bank’s common law duty in relation to the accuracy of its statements was not informed by the content of the COB rules or APER code (in contrast with the advisory duty, where the content of the duty might be informed by the FCA framework).

Accordingly, the claim was dismissed.

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High Court strikes out two IRHP mis-selling claims on the grounds of abuse of process, limitation and underdeveloped allegations of fraud

The High Court has dismissed two IRHP mis-selling claims by claimant investors against various defendant banks for losses alleged to have been suffered as a result of fraudulent misrepresentation or a unlawful means conspiracy: Boyse (International) Limited v Natwest Markets Plc and The Royal Bank of Scotland Plc [2020] EWHC 1264 (Ch); and Elite Properties and Ors v BDO LLP [2020] EWHC 1937 (Comm).

These decisions will be of broader interest to financial institutions as they show that the courts are willing (in appropriate cases) to deal with opportunistic claims alleging fraud on a strike out or summary judgment basis. Traditionally, such cases have been less amenable to a strike out or summary determination.

The decisions confirm that cases involving fraud: (a) need to meet a high bar in order for their pleadings to be satisfactory; (b) may be struck out on the basis of limitation if there is a clear and compelling case that the claimants had the requisite knowledge to bring such claims prior to the expiry of the relevant limitation period; and (c) which attempt to run a collateral attack on previous court findings will be struck out for abuse of process.

Boyse (International) Limited v Natwest Markets Plc and The Royal Bank of Scotland Plc [2020] EWHC 1264 (Ch)

Background

The claimant trust company entered into two interest rate hedging products (IRHPs) in August 2007 and November 2008 with the defendant banks (together, the Banks). In 2012, the IRHPs were deemed by the Financial Services Authority (as it was then) (FSA) to have been mis-sold. In 2014, the claimant was offered a redress payment by the Banks as part of its past business review compensation scheme (PBR), which it accepted. In 2015, the Banks rejected the claimant’s claim for consequential loss in their PBR.

The claimant subsequently brought a damages claim in 2019 against the Banks for: (a) fraudulent misrepresentation/breach of contract (for LIBOR manipulation) (the LIBOR Claim); and (b) negligent and fraudulent misrepresentation made in relation to the suitability of the IRHPs (the IRHP Misrepresentation Claim).

The Banks applied to strike out and/or obtain summary judgment on the claim, and the claimant cross-applied to amend its Particulars of Claim (POC).

Decision

The court granted the Banks summary judgment and struck out the claim in its entirety, and dismissed the claimant’s application for permission to amend its POC.

In reaching its decision, the court considered two issues:

  • whether to strike out or grant summary judgment on the claimant’s LIBOR Claim on the ground that it was time-barred; and
  • whether the undeveloped fraud part of the IRHP Misrepresentation Claim met the minimum pleading requirements for such a claim.

Issue 1: Was the LIBOR Claim time-barred?

The Claim Form was issued on 19 February 2019, which (the Banks argued) was more than six years after the claimant could with reasonable diligence have discovered the alleged fraud relating to LIBOR manipulation referred to in the FSA’s Final Notice (published on 6 February 2013), and related publicity.

The claimant argued that the LIBOR Claim was not time barred on the basis that:

  • The knowledge of Mr and Mrs Sharma (the two principals of the claimant) should not be attributed to the claimant for the purpose of s.32(1) of the Limitation Act 1980 (the Act), as they were not directors and the focus should be on the claimant’s knowledge. It was also suggested that the directors of the claimant could not reasonably have been expected to read, or read about, the Final Notice or to have known about the LIBOR scandal from reports in the press.
  • The 13 day gap between the date of the Final Notice and the date on which, six years later, the claimant’s Claim Form was issued, could be bridged by the need for the claimant to get expert advice on the published information to transform that information to relevant knowledge for the purpose of starting the clock under s.32 of the Act.

The court rejected both arguments and held that the claimant’s LIBOR Claim was time barred. It gave two key reasons for its decision:

  • It was impossible for the purposes of s.32(1) of the Act to treat Mr and Mrs Sharma as mere agents of the claimant and not attribute their knowledge to it. The claimant’s relationship with the Banks was formed and developed on the basis of Mr and Mrs Sharma’s dealings with them. Through those dealings, Mr and Mrs Sharma had been made aware of LIBOR and its purpose, they had dealt with the Banks in relation to the IRHPs and the alleged express LIBOR representation was made to Mrs Sharma. In the court’s view, there was no distinction between the knowledge of the directors of the claimant and Mr and Mrs Sharma.
  • Whilst accepting that for the purpose of time running that there had to be some appreciation of what the knowledge meant, the court stated that a person who has the relevant knowledge does not need to know how to plead express and implied representations which are later said to have been made dishonestly. The language in the Final Notice which addressed the FSA’s findings in relation to LIBOR was not technical and could have been understood by any person of reasonable sophistication. The claimant did not need to have developed its case or obtained advice before time started to run. The claimant’s LIBOR fraud case would have been apparent from the Final Notice and other findings. The claimant was aware that the IRHPs used LIBOR and that something had gone wrong from the widespread publicity given to the findings of the manipulation of LIBOR. In the court’s view, a “reasonably diligent person” in the claimant’s shoes would have been alert to the widespread publicity about LIBOR before 6 February 2013. The Final Notice was a trigger that started time running.

Issue 2: Was deceit in relation to the IRHP Misrepresentation Claim adequately pleaded?

In its draft POC, the claimant had included some limited references that hinted towards development of the deceit aspect of the IRHP Misrepresentation Claim. The Banks’ position was that this part of the claim was inadequately pleaded and did not meet the minimum requirements for a case on fraud.

The court agreed with the Banks: adequate particulars had not been given that the Banks knew the alleged IRHP suitability representation was false (and the claimant did not adequately identify the individuals at the Banks who it was alleged had such knowledge). The court noted the requirements of pleading a deceit case as set out in JSC Bank Moscow v Kekhman and others [2015] EWHC 3073 (Comm) and commented that in this case there was no distinct pleading of primary facts from which fraud could be inferred, nothing which “tilts the balance in the direction of fraud”, and no reason to believe that the claimant (given a further opportunity) could cure these defects.

Appeal

The claimant has filed an appeal against the court’s findings.

Elite Properties and Ors v BDO LLP [2020] EWHC 1937 (Comm)

Background

Two of the claimant companies entered into a number of IRHPs with a bank between 2006 and 2010. Subsequently, it was deemed that the bank had mis-sold those IRHPs and the relevant claimant companies became entitled to redress under a PBR agreed between the bank and the FSA in 2012. As part of the PBR, the bank agreed with the FSA an undertaking, that, absent exceptional circumstances, it would not foreclose on existing lending facilities without giving prior notice and issuing a final redress determination (the Undertaking). The bank also agreed with the FSA to appoint KPMG to the role of the “skilled person”, i.e. to act as an independent reviewer and oversee the PBR. Part of this role involved KPMG overseeing the bank’s compliance with the Undertaking; in practice, this entailed KPMG reviewing escalation requests from the bank and confirming whether “exceptional circumstances” existed which permitted the bank to foreclose on lending facilities, notwithstanding the mis-sale of the IRHPs.

In mid-2013, the bank wrote to two of the claimant companies stating that it had determined that both were unsophisticated customers for the purpose of the sale of the IRHPs and that under the PBR they were entitled to a redress payment (but the amount had yet to be determined and was not paid until late 2014). In late 2013, the bank submitted an escalation request seeking KPMG’s approval that “exceptional circumstances” existed that would permit the bank to appoint receivers over two of the claimant companies’ assets. KPMG allowed the bank to foreclose on the loan of one of the claimant companies, appointing BDO as receivers over various assets in September 2013.

The claimant companies subsequently brought a claim against BDO, alleging that they had sustained loss and damage due to an unlawful means conspiracy in which the bank and BDO conspired to mislead KPMG into allowing the bank to foreclose when in fact there were no exceptional circumstances justifying that course of action (the New Claim).

BDO applied to strike out or obtain summary judgment on the New Claim on the basis that:

  • it was an abuse of process in that it re-ran allegations which had been made by two of the claimant companies in a previous claim against the bank (see our previous blog post for further details on the background to this claim and the Court of Appeal’s decision) (the Original Claim);
  • it constituted a “collateral attack” on findings made by HHJ Waksman and the Court of Appeal in the Original Claim against the bank, which was an abuse of process; and
  • there were no reasonable grounds for bringing the claim or it had no reasonable prospect of success.

Decision

The court struck out the New Claim, holding that it was “quite clearly” (and indeed a “paradigm” case of) a collateral attack on the Court of Appeal’s findings and an abuse of process. It alleged the same conspiracy as in the Original Claim, where findings had been made that there was no reasonable prospect of the Original Claimants establishing that conspiracy.

The court highlighted that Hunter v Chief Constable of the West Midlands Police [1982] A.C. 529 underlined that it was an abuse of process to initiate:

proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending (claimant) which had been made by another court of competent jurisdiction in previous proceedings in which the intending (claimant) had full opportunity of contesting the decision in the court in which it was made.

Additionally, the court noted that  Panton & Anor v Vale of White Horse District Counsel & Anor [2020] EWHC 167 (Ch) emphasised that the fact a previous claim had been struck out, rather than having the issues decided at trial, was no bar to a second trial being struck out as an abuse of process.

Finally, the court found that the alleged new evidence, and further particulars on further unlawful acts relied upon in the New Claim did not establish the existence of a conspiracy between BDO and the bank to mislead KPMG into permitting the bank to foreclose.

Interestingly, the court also commented obiter that it would have granted reverse summary judgment on the New Claim, had it not struck it out, on the basis that the claim had no reasonable prospect of success.

John Corrie
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Court of Appeal finds ISDA jurisdiction clause trumps competing clause in related contract

The Court of Appeal’s judgment in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA provides further assurance that jurisdiction clauses within standard form ISDA documentation will not readily be displaced by contrary jurisdiction clauses in related contracts. The Court of Appeal gave effect to an English jurisdiction clause in an ISDA Master Agreement over an apparently competing Italian jurisdiction clause in a related financing agreement, despite a provision in the Schedule to the ISDA Master Agreement stating that, in the event of conflict, the financing agreement would prevail. The first instance decision of the Commercial Court was upheld (see our banking litigation e-bulletin).

Key to the Court of Appeal’s decision was its conclusion that there was no conflict between the jurisdiction clauses, which were found to govern different legal relationships and were therefore complementary, rather than conflicting. The Court emphasised that factual overlap, between potential claims under the ISDA Master Agreement and a related financing agreement, did not alter the legal reality that claims under the two agreements related to separate legal relationships.

The Court of Appeal’s decision is not unexpected, as it is in line with the recent Court of Appeal decision in Deutsche Bank AG v Comune Di Savona [2018] EWCA Civ 1740 (see our banking litigation e-bulletin) – which expressly approved the first instance decision in the present case. However, it will be welcomed as further evidence of the English court’s emphasis on construing commercial contracts, and in particular standard form ISDA documentation, in order to achieve market certainty and predictability.

Following the recent publication of French and Irish ISDA Master Agreements in light of Brexit, the court’s emphasis on predictability may serve as a timely reminder of the advantages of selecting English jurisdiction for ISDA Master Agreements.

Background

In 2008, a syndicate of banks led by the claimant, BNP Paribas S.A. (the “Bank“), entered into a loan agreement (the “Financing Agreement“) with the defendant, Trattamento Rifiuti Metropolitani S.p.A (“TRM“), an Italian public-private partnership, to fund the building of an energy plant. The Financing Agreement included an obligation for TRM to enter into an interest rate swap with the Bank to hedge the interest rate risks associated with the loan (the “Hedging Requirement“).

In 2010, pursuant to the obligation in the Financing Agreement, the parties executed a 1992 form ISDA Master Agreement (the “ISDA Agreement“) and an interest rate swap.

The Financing Agreement included an exclusive jurisdiction clause in favour of the Italian court. The ISDA Agreement contained an exclusive jurisdiction clause in favour of the English court. A clause in the Schedule to the ISDA Agreement stated that, in case of conflict between the terms of the ISDA Agreement and those of the Financing Agreement, the latter should “prevail as appropriate” (the “Conflicts Clause“).

In 2016, the Bank issued proceedings in the English Commercial Court against TRM seeking declarations of non-liability “in connection with a financial transaction pursuant to which [TRM] entered into interest rate hedging arrangements with the [Bank]“. In 2017, TRM sued the Bank before the Italian court and then issued an application in the Commercial Court to challenge its jurisdiction.

Commercial Court decision

The Commercial Court dismissed TRM’s application challenging jurisdiction. Applying Article 25(1) of the Recast Brussels Regulation, under which parties may agree to refer disputes to the court of a Member State, the Commercial Court found that the Bank had much the better of the argument that the dispute fell within the English jurisdiction clause of the ISDA Agreement. Of particular relevance are the Commercial Court’s findings that:

  1. There was no conflict between the two jurisdiction clauses. They could readily bear the interpretation that one concerned disputes relating to the Financing Agreement and the other concerned disputes relating to the ISDA Agreement. As there was no conflict, the Conflicts Clause in the Financing Agreement was not engaged.
  2. The parties’ decision to use ISDA documents was a “powerful point of context” which signalled that the parties wanted to achieve “consistency and certainty” in the interpretation of the contract. The use of ISDA documentation by commercial parties shows that they are “even less likely to intend that provisions in that documentation may have one meaning in one context and another meaning in another context“.

Grounds of appeal

The claimant appealed on the following principal grounds:

  1. The judge was wrong to conclude that there was no conflict between the jurisdiction clauses in the Financing Agreement and the ISDA Agreement. The Conflicts Clause therefore should have been engaged.
  2. In any event, the dispute arose in connection with the parties’ legal relationship set out in the Financing Agreement.

Court of Appeal decision

The Court of Appeal dismissed the appeal on all grounds. The key aspects of the judgment which are likely to be of broader interest (particularly in relation to whether apparently competing jurisdiction clauses are, in fact, in conflict with one another) are considered further below.

Guidance on competing jurisdiction clauses

The Court of Appeal set out useful guidance on how to interpret apparently competing jurisdiction clauses in related contracts:

  1. The starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract. There is therefore a presumption that each clause deals exclusively with its own subject matter and that they do not overlap, provided the language and surrounding circumstances allow. The most obvious subject matter of a generally worded jurisdiction clause will be the legal relationship created by the contract.
  2. It is unlikely that sensible business people would intend that similar claims should be subject to inconsistent jurisdiction clauses. However, if the language or surrounding circumstances make clear that a dispute falls within both clauses, the presumption that the clauses deal with separate legal relationships can be displaced.
  3. A broad, purposive and commercially minded approach to construction should be taken which interprets jurisdiction clauses in the context of the overall scheme of the agreements.

Do the jurisdiction clauses conflict?

Applying this approach to the present case, the Court of Appeal held that the natural interpretation of the two jurisdiction clauses was that the clause in the Financing Agreement governed claims relating to the background lending relationship set out in that agreement, and the clause in the ISDA Agreement governed claims relating to the specific interest rate swap relationship set out in that agreement. The Court of Appeal noted that this conclusion was strongly supported by the decision in Savona.

TRM sought to distinguish Savona on a number of bases, including by relying on the Conflicts Clause. With respect to the Conflicts Clause, the Court of Appeal held that the two juridisction clauses governed different legal relationships and were therefore complementary, rather than conflicting. Accordingly, the first instance judge was correct to find that the Conflicts Clause was not engaged.

Overlapping legal relationships

TRM also sought to distinguish Savona on the basis that the inclusion of the Hedging Requirement in the Financing Agreement meant that there was overlap between the legal relationships under the Financing Agreement and ISDA Agreement. It claimed that, as a result, the dispute fell within the legal relationship under the Financing Agreement. However, the Court of Appeal firmly rejected this argument:

  • The Court of Appeal distinguished between factual and legal overlap. TRM alleged that there was overlap between the two agreements, as certain claims regarding the sale of the swap could be brought under both the Financing Agreement (for breach of the Hedging Requirement) and the ISDA Agreement. However, the Court of Appeal held that factual overlap between potential claims under the Financing Agreement and the ISDA Agreement did not alter the legal reality that claims under the two agreements related to separate legal relationships.
  • TRM’s approach would lead to fragmentation of jurisdiction, whereby different terms within the ISDA Agreement would be subject to different jurisdiction clauses in separate contracts. The Court of Appeal considered this to be undesirable and that it was generally unlikely to be the intention of sensible commercial parties.

Declarations sought

Having rejected TRM’s attempts to distinguish Savona, the Court of Appeal proceeded to consider the specific declarations of non-liability sought by the Bank. Subject to the amendment of one of the declarations, the Court found that all of the declarations sought fell within the jurisdiction clause of the ISDA Agreement.

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Court of Appeal emphasises the need to plead conspiracy claims in full

In a recent decision arising out of long-running litigation relating to alleged mis-selling of interest rate hedging products (“IRHPs“), the Court of Appeal has upheld the High Court’s refusal to allow the claimants to pursue claims in unlawful means conspiracy: Elite Property Holdings Ltd & Anor v Barclays Bank plc [2019] EWCA Civ 204. We considered the High Court decision in an earlier banking litigation e-bulletin.

While this decision did not involve new law, it serves as a reminder of the difficulties of bringing a claim based on conspiracy and, in particular, that it is not sufficient simply to plead a claim and hope something turns up in disclosure. The claimant must be able to plead full particulars of all elements of the claim at the outset. Further, as the case makes clear, release clauses in settlements may be construed widely and it is important to be clear as to precisely what claims (if any) are intended to survive the settlement. Both elements of the decision are likely to be welcomed by financial institutions.

The effect of the present judgment is finally to dispose of these proceedings (subject to any attempted appeal to the Supreme Court). The majority of the claimants’ claims relating to the sale of their IRHPs were previously struck out by the High Court (see our e-bulletin), in relation to which the Court of Appeal refused permission to appeal last year (see our e-bulletin). In its strike out judgment, the High Court had ordered the claimants to particularise properly their claims for conspiracy, giving the claim a potential lifeline, but the Court of Appeal has now refused permission to amend to include such claims, bringing this long-running dispute to an end.

Background

The detailed background is set out in our earlier e-bulletin, but in summary, following earlier decisions to strike-out parts of their claim, the claimants sought permission to amend their claim to add claims relating to unlawful interference and conspiracy with a predominant intention to injure, and conspiracy to use unlawful means. In particular, they sought to allege that the defendant bank (the “Bank“) combined with BDO to enable the Bank to foreclose the claimants’ loan facility (in connection with which the IRHPs were entered into) in breach of an undertaking given by the Bank.

The application to amend was dismissed by the High Court, whose judgment also dealt with other issues. The appeal in this case was concerned with the High Court’s decision to refuse permission to amend in relation to the claim for conspiracy to use unlawful means.

Decision

The Court of Appeal upheld the High Court’s decision. It agreed that, for the amendments to be allowed, the claimants needed to show that they had a real as opposed to fanciful prospect of success which was more than merely arguable and carried some degree of conviction: ED&F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472.

The 2014 Release

The Bank argued it had made a redress offer concerned with the sale of the IRHPs (excluding consequential loss) which the claimants had accepted on 29 November 2014 (the “2014 Release“) and which settled any claims, including tortious claims for unlawful means conspiracy.

The claimants sought to argue that the 2014 Release did not, on its proper construction, include claims in unlawful means conspiracy. However, the Court of Appeal considered that, based on the drafting of the relevant agreement, the definition of “Claims” in the 2014 Release was extremely wide and was sufficient to include all claims of unlawful means conspiracy. As a result, it dismissed the appeal because the only claim in the amended pleading which was now pursued could have no real prospect of success.

Elements of unlawful means conspiracy

Although the appeal had been disposed of based on the 2014 Release, the Court of Appeal went on to consider the appeal against the High Court’s decision to refuse permission to amend on the grounds that the essential elements of the tort of conspiracy had not been pleaded.

The Court of Appeal confirmed the basic elements of the tort of conspiracy summarised by Morgan J in Digicel (St Lucia) Ltd v Cable & Wireless plc [2010] EWHC 774 (Ch):

“The necessary ingredients of the conspiracy alleged are: (1) there must be a combination; (2) the combination must be to use unlawful means; (3) there must be an intention to injure a claimant by the use of those unlawful means; and (4) the use of the unlawful means must cause a claimant to suffer loss or damage as a result.”

The claimants accepted that they needed to show that BDO and the Bank had combined to do something unlawful, and that they had simply pleaded an inference that there must have been a combination, rather than setting out a detailed pleading. However, the claimants submitted that pending disclosure it was not possible for them to plead more and that it was legitimate for an inference to be drawn.

The Court of Appeal held that this was not sufficient; it was necessary for each element of the conspiracy to be properly pleaded in full. Therefore the proposed amendments were defective and permission should be refused.

John Corrie
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Commercial Court rejects EURIBOR implied representations

The Commercial Court has dismissed claims that a bank made implied representations as to EURIBOR rate-setting in the context of selling an interest rate swap: Marme Inversiones 2007 SL v NatWest Markets plc & Ors [2019] EWHC 366 (Comm).

This is the second civil court trial judgment considering IBOR manipulation, the first being Property Alliance Group Ltd v Royal Bank of Scotland [2018] 1 WLR 3529 in which the claim relating to LIBOR manipulation was also dismissed (see our banking litigation e-bulletin). Together, these decisions are a reminder of the difficulties of proving allegations that IBOR-setting banks made implied representations when selling IBOR-linked products. The combined effect of these judgments suggests:

  • The requirement to identify specific conduct which led to the implied representation being made is important (and should not be underestimated). In the context of these transactions, a bank simply entering into an IBOR-linked swap is unlikely to justify the implication of any representation wider than the limited representation formulated by the Court of Appeal in PAG (see below).
  • Implied representations must be certain and obvious: if there is “elasticity of possible meaning“, this will indicate the absence of an implication.
  • The broader and more complex the alleged representations, the more active and specific the conduct must be to give rise to the implication.
  • Proving reliance on any representations which are implied will be fact-specific and onerous.
  • Falsity must be specifically proven: it is not sufficient to draw inferences on the basis of conduct relating to other benchmarks (such as an IBOR in a different currency) or indeed findings of the regulator.

In PAG, the Court of Appeal held that the bank made the narrow implied representation (at the time of entering into the swaps) that it was not itself seeking to manipulate GBP LIBOR and did not intend to do so in the future (however the claimants could not prove that the representation was false). In this case, the court’s view was that a similar narrow representation in relation to EURIBOR could theoretically have been implied, but this implied representation was not alleged, and was not shown to be false in any event.

Background

The proceedings arose out of interest rate swaps set by reference to EURIBOR, entered into between Marme Inversiones 2007 SL (“Marme“) and the defendant banks (the “Banks“). The Banks sought various declarations that they had lawfully terminated the swaps and that Marme owed them €710 million plus interest.

Marme sought rescission of the swaps ab initio and/or damages of up to €996 million on the basis that one of the Banks (RBS plc, “RBS“) negligently/fraudulently made representations regarding the integrity of the process of setting EURIBOR (on its own account and as agent for the other Banks) and that Marme relied upon those representations when entering into the swaps. Marme did not contend that the representations were made expressly, but that they should be implied from the circumstances and RBS’s conduct.

Decisions

The court found in favour of the Banks. It granted the declarations sought and held that the alleged representations did not fall to be implied.

The court distilled the following principles from existing authorities considering implied representations:

  1. It is possible for a representation to be made expressly or impliedly through words or conduct. For a representation to be implied, silence or mere assumption is not usually enough as there is no general duty of disclosure. It is necessary to view the words or conduct objectively to determine whether an implied representation has been made. The natural assumptions of the reasonable representee will be helpful in assessing whether an implied representation has been made through the conduct of the representor.
  2. Whether or not a representation is implied is ultimately a question of fact to be determined in the circumstances of the particular case: see also Deutsche Bank AG v Unitech Global Ltd [2013] EWCA Civ 1372.
  3. More may be required, in terms of words or conduct, to prove an implied representation which is wide in meaning or complex.
  4. It is less likely that a representation that is vague, uncertain or ambiguous would be objectively understood to have been made from words or conduct.

With these principles in mind, the court considered the representations alleged in the instant proceedings, identifying a number of (legal and factual) difficulties with the case alleged by Marme. The key points which are likely to be of broader interest are summarised below.

  • Marme alleged that in the light of PAG, at least some of the alleged representations in this case should be treated as having been “plainly” made by RBS. The court found that in truth PAG provided no support at all for Marme’s case. In PAG, the claimants similarly sought rescission of swap agreements and/or damages on the basis of (among other things) alleged implied fraudulent representations. The Court of Appeal in PAG found that the representations as pleaded could not be implied, but decided that a different implied representation would be justified:

In the present case there were lengthy discussions between PAG and RBS before the swaps were concluded as set out by the judge in the earlier part of her judgment. … RBS was undoubtedly proposing the swap transactions with their reference to LIBOR as transactions which PAG could and should consider as fulfilment of the obligations contained in the loan contracts. In these circumstances we are satisfied that RBS did make some representations to the effect that RBS itself was not manipulating and did not intend to manipulate LIBOR. Such a comparatively elementary representation would probably be inferred from a mere proposal of the swap transaction but we need not go as far as that on the facts of this case in the light of the lengthy previous discussions.

  • Marme submitted that, in the same way as PAG, the representations in this case should be inferred from a mere proposal of the swaps. However, the court observed that the representations in this case were not the same as the (narrow) implied representations reformulated by the Court of Appeal in PAG.
  • The court held that the implied representations were not supported by any other authority, in particular Deutsche Bank v Unitech offered no support. The court emphasised that although the Court of Appeal in Deutsche Bank v Unitech granted permission to amend to include pleas of implied representations about LIBOR, it would be wrong to regard what was decided as having too great a significance (given the appeal related to an interlocutory application to amend statements of claim and merely found that the points advanced were arguable).
  • Importantly, the court was concerned that if Marme’s case on implication was to succeed, it would inevitably involve a ‘watering down’ of the requirement that specific conduct be identified from which any alleged representation is said to arise. It said Marme could identify no conduct other than RBS entering into (and allegedly proposing) the swaps to justify the implication of any representation wider than the limited representation formulated by the Court of Appeal PAG. In the court’s view, this was an “intractable difficulty” for Marme.
  • The court also considered the decision in Geest v Fyffes [1991] 1 All ER (Comm) 672. The court in that case had set out a “helpful test” for evaluating the representor’s conduct in cases of implied representations, which is: to consider whether a reasonable representee would naturally assume that the true state of facts did not exist and that, if it did, he would necessarily have been informed of it. The Court of Appeal in PAG agreed this test was helpful, but it warned that this should not water down the requirement that there must be clear words or clear conduct of the representor from which the relevant representation can be implied. Here, the court said that invocation of the “helpful test” in Geest was not enough by itself – Marme could not merely rely on an internal assumption on its part that RBS failed to correct.
  • The court was concerned about the distinct lack of certainty (and associated lack of obviousness) as to what was entailed in the alleged representations. It said there was the same “elasticity of possible meaning” which had operated against the implication in Raiffeisen Zentralbank Osterreich AG v RBS [2010] EWHC 1392 (Comm).
  • The court accepted that passive conduct may sometimes be sufficient for the implication of a representation. However, it said the broader and more complex the alleged representations, the more active and specific the conduct must be to give rise to the implication.
  • In the court’s view, RBS’s conduct in going along with the swaps was sufficient for the implication of a much narrower representation: namely that RBS was not itself manipulating, and did not intend to manipulate or attempt to manipulate, EURIBOR. However, that implied representation was not put forward by Marme in the action. The court said that this was probably because Marme recognised that it would be “in no position to establish falsity“.

The court therefore rejected the implication of the representations alleged by Marme, the action failed and the court held that the banks were entitled to the declaratory relief sought. In case it was wrong in these conclusions, the court went on to consider questions of falsity and reliance, but this was on an obiter basis given its primary conclusions.

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Court of Appeal finds ISDA jurisdiction clause trumps ‘theoretically competing’ clause in separate agreement governing wider relationship

Consistent with recent authority, the Court of Appeal has given primacy to an English jurisdiction clause in an ISDA Master Agreement (overturning the first instance decision that had declined to do so), in circumstances where there was a “theoretically competing” jurisdiction clause in a separate agreement governing the wider relationship: Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740.

The appellate decision contributes to market certainty in respect of contracting parties’ choice of jurisdiction and therefore represents good news for derivative market participants. The Court of Appeal commented that it would have been “startling” if the bank’s claims for declaratory relief falling squarely under the relevant swap contracts could not be brought in the forum selected by the parties in the ISDA Master Agreement.

The approach taken by the Court of Appeal focused on determining the “particular legal relationship” to which the dispute related for the purpose of Article 25 of the Recast Brussels Regulation, which deals with jurisdiction agreements. In circumstances where there were two contracts (with theoretically competing jurisdiction clauses), it held that there was a distinction to be drawn between a generic wider relationship on the one hand, and a specific interest rate swap relationship governed by the ISDA Master Agreement on the other. It concluded in general terms that disputes relating to the swap transactions were therefore governed by the jurisdiction clause in the ISDA Master Agreement.

While it may be expected that disputes relating to a specific transaction should be governed by the contract for that transaction, the position had been undermined by the High Court decision in the instant case (which considered a number of points of Italian law and the effect of the declarations sought by the bank on any potential claims in Italy). The Court of Appeal noted that while each case should be considered on its own terms, it agreed in principle with the approach in the recent case of BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2018] EWHC 1670 (Comm): which focused on the question of whether the English Court had jurisdiction under the relevant agreements, rather than to trying to predict whether the declarations sought, if made, would act as defences in another jurisdiction (read our banking litigation e-bulletin). Given that there had been conflicting first instance decisions on this issue, it is helpful to have this clarification from the Court of Appeal.

Background

In this case, the court considered “two theoretically competing jurisdiction clauses“. The clauses, in favour of the Italian and English courts respectively, were included in: (i) a written agreement dated 22 March 2007 between Deutsche Bank AG (the “Bank“) and Comune di Savona (“Savona“) (referred to as the “Convention“); and (ii) a 1992 multicurrency ISDA Master Agreement dated 6 June 2007 agreed between the same parties. In June 2007 the Bank and Savona executed swap confirmations, subject to the terms of the Master Agreement, by which the Bank and Savona entered into two interest rate swap transactions.

Years after the conclusion of the swaps, the validity of the transactions came under some scrutiny in Italy. In June 2016 this prompted the Bank to apply to the English Commercial Court seeking twelve declarations (in most cases) carefully tracking the wording of the Master Agreement. Savona challenged the jurisdiction of the English court in relation to five of the declarations sought, arguing that they fell to be determined in the Court of Milan and under Italian law, in accordance with the Convention.

High Court Decision

At first instance, the High Court allowed Savona’s challenge to the jurisdiction of the English court in respect of the five declarations and dismissed the Bank’s claims.

The High Court referred to Article 25 of the Recast Brussels Regulation, which provides that parties may agree to refer disputes in connection with a “particular legal relationship” to the court of a Member State. The High Court proceeded to consider the proper interpretation of the jurisdiction clauses, distinguishing the Bank’s role as an adviser under the Convention, from the Bank’s position “simply as a counterparty” under the swaps. The High Court concluded that the dispute was essentially concerned with the Bank’s role as an adviser, and more naturally fell within the Italian jurisdiction clause than the English jurisdiction clause.

Court of Appeal Decision

The Court of Appeal overturned this decision, finding that all twelve declarations sought fell within the English jurisdiction clause in the ISDA Master Agreement.

In reaching its conclusion, the Court of Appeal drew a distinction between the generic relationship between the Bank and Savona, which was governed by the Convention, and the specific derivative transactions entered into between the Bank and Savona, which were governed by the ISDA Master Agreement. It commented that this was a more natural and reasonable demarcation than the High Court’s distinction between “advice” on the one hand and being a “counterparty” on the other.

The Court of Appeal noted that:

  • While the Convention required the Bank to provide Savona with its expertise as to how to manage its debt, any transaction or agreement proposed by the Bank for this purpose and accepted by Savona would be the subject matter of a separate contract.
  • If a separate contract was proposed and approved, the relationship agreed in that contract would be the “particular legal relationship” envisaged by Article 25. Any proceedings “relating” to that contract would then be a dispute in connection with the particular relationship for the purposes of Article 25.
  • Consistent with this, the interest rate swap relationship was set out in the swap contracts incorporating the ISDA Master Agreement.
  • The existence of the entire agreement clause in the ISDA Master Agreement was a strong confirmation that the swap contracts were indeed separate contracts and any dispute relating to them was to come within the jurisdiction clause of those contracts.

In the Court of Appeal’s view, it would have been “startling” if the Bank’s claims falling squarely under the swap contracts could not be brought in the forum selected by the parties through the jurisdiction clause under those agreements, namely that contained in the ISDA Master Agreement. It said that a conclusion to that effect would have been highly damaging to market certainty.

Having found that disputes relating to the swaps were therefore to be determined by the English courts, the only question for the Court of Appeal was whether the particular declarations sought arose from disputes relating to the swaps. The Court of Appeal found, on reviewing the text of the declarations sought, that they did.

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Court of Appeal holds no real prospect of success for claim alleging contractual obligations owed by a bank to its customers in the conduct of FCA review

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
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