On 30 July the Bristol Mercantile Court produced a judgment with potentially far-reaching effects for those businesses caught up in the mis-sale of interest rate hedging products (IRHPs) and the Financial Conduct Authority (FCA)-instigated review (the review) into the same.
The judgment in Suremime Ltd v Barclays offers some hope for businesses left dissatisfied with the way their claim has been handled, and with the redress they received (or did not receive, as the case may be), particularly in circumstances where recourse to the courts has become barred by the Limitation Act 1980.
Upon publication, in February 2015, of the previously undisclosed agreement between the FCA and Barclays, Suremime, a holiday park operator, sought to amend its claim against Barclays for the mis-sale of an IRHP to include the following arguments.
1. In consequence of Barclays’ offer to Suremime to conduct a review of the sale of the IRHP, and Suremime’s agreement to have the product reviewed, a contract was created between the two parties pursuant to which a duty was owed by the bank to Suremime to conduct the review in accordance with the agreement between the FCA and Barclays.
2. Barclays owed Suremime a tortious duty of care to exercise reasonable care and skill in conducting the review as the FCA required.
3. A tortious duty was owed by Barclays to Suremime as a ‘disappointed beneficiary’ of the review agreement between Barclays and the FCA. In White v Jones a duty was imposed upon a solicitor whose failure to carry out a testator’s instructions to include certain beneficiaries in a will had led to those beneficiaries not benefiting. Suremime sought to argue that the same duty should be imposed upon Barclays here, by analogy.
Barclays resisted Suremime’s application to amend on the basis that the proposed new claims stood no realistic prospect of success.
The judge, HHJ Havelock-Allan QC, rejected the proposed amendment based on contract law (argument 1) for lack of consideration. However, he was persuaded that the claimant’s proposed claims in tort (arguments 2 and 3) had a realistic prospect of success.
He found that it was arguable that in agreeing to provide redress in accordance with the specification for the conduct of the review Barclays owed Suremime a duty of care in tort.
He stated: ‘The fact that there may be public law remedies with which to challenge the way in which the FCA review has been implemented is not necessarily a bar to a private law duty of care being owed. In any case it has yet to be decided whether public law remedies are available. If they are not, the case for implying a duty on the banks towards customers whose swaps sales are being reviewed is arguably stronger.
‘Nor, in my judgment, is the fact that the claimant can sue for the original mis-selling a sufficient answer to the proposed new claims in tort. The FCA review was intended to provide a route to fair and reasonable compensation without customers having to sue for mis-selling.
‘Those who stayed their hand and have not sued for the mis-sale in the hope of deriving a satisfactory result from the FCA review process, but now allege that the specification of the FCA review has not been faithfully applied, may be left without any remedy if they did not agree a standstill or moratorium with the bank which sold the swap and the mis-selling claim has since become statute-barred.
‘While that is not this case, it is a relevant consideration because it is part of the wider landscape in which the court will have to assess whether the banks should owe a duty of care to customers in their conduct of the FCA review.’
The judge held that it was ‘more than merely arguable’ that such a duty was owed, and that he could not be confident that all the relevant facts were known at this early stage of the claimant’s action. Accordingly, the addition to the claimant’s case was allowed.
The judge was helped in his decision by consideration of the fact that many claimants may have trusted in the review to provide them with redress, to the extent that they did not issue proceedings within the time-limit prescribed by statute.
The Suremime judgment is a potentially important development for claimants with IRHP claims which it was thought were at the end of the road. Here is why:
- Such claimants may now be able to bring a claim in tort against their bank for failure to carry out the review in accordance with the terms of the agreement reached between that bank and the FCA.
- Further, the judge has indicated (obiter) that ‘private persons’ may have a statutory cause of action against the bank for breaching the FCA’s dispute resolution rules, particularly DISP 1.4.1 R in relation to its conduct of the review process.
- In addition, the limitation period for claims in respect of the way in which the review was carried out would run from the point at which the bank breached its obligations under the agreement with the FCA. Therefore, claimants whose other claims were time-barred might now have a new weapon to deploy against their bank.
This judgment is another step in the small yet palpable recent shift in the attitude of the courts towards a more favourable legal environment for companies wishing to bring claims against banks regarding mis-sold financial products or investments.
Elsewhere in this area, doubts are being cast over the controversial bar to limited companies being ‘private persons’ who can claim against a financial institution for breach of its statutory duties, namely the obligations imposed on that institution by the FCA’s Conduct of Business rules. In MTR Bailey Trading Ltd v Barclays Bank Plc, the judge held that the argument that case law asserting the bar for limited companies was wrongly decided merited consideration by the Court of Appeal, and that it has a real prospect of success.
In a similar vein, there are also moves afoot to consider, and possibly expand upon, what actually constitutes a statutory breach for which compensation will be payable.
The Law Commission has considered the possible extension of a statutory claim to include breach of the FCA Principles and found such a change could be implemented. This would, for example, allow counterparties/investors to sue for loss caused by behaviour which resulted from a conflict of interest by a particular bank.
There has also been a shift in judicial attitude, if not yet in law, in relation to the operation of the doctrine of contractual estoppel in the context of non-reliance clauses, which has thus far created an effective bar to many mis-selling claims. In Crestsign Ltd v RBS, the claimant has recently been granted permission to appeal on several points, one of which is whether boilerplate non-reliance clauses should be subject to the Unfair Contract Terms Act 1977 reasonableness test.
Although there is certainly no guarantee that the principle will be overturned in its application to IRHP mis-selling claims, a lord justice of appeal has ruled that the grounds relied upon by Crestsign have ‘a reasonable prospect of success’. So this signifies at least a glance in the right direction.
The developments set out above ought to provide claimants with claims against banks some encouragement.
Charles Enderby Smith, Carter-Ruck