Financial newspapers

A new hope for swap claims

Clare O’Sullivan, solicitor in our Financial Services Litigation team and John Virgo of Guildhall Chambers, counsel instructed by Suremime Limited comment on the recent Suremime Limited v Barclays Bank PLC judgment.

It may come as a surprise to learn that a court has been asked to confirm that the banks owed their customers a duty to take reasonable care when conducting a review of their own sales processes. The judge in Suremime Limited v Barclays Bank PLC considered the bank’s conduct when undertaking the Financial Conduct Authority’s (“FCA”) required review of the sale of an interest rate hedging product (“IRHP”) to its customer and held that it was possible to hold the bank liable in negligence, if it failed to conduct the review properly.

The claimant, Suremime Limited, had already issued court proceedings against Barclays claiming its structured collar was mis-sold in 2008. Suremime was later included in the FCA review scheme which was designed to provide compensation to those who had been mis-sold IRHPs without the need to pursue court proceedings.

Barclays concluded during the review that, had the potential risks been explained, at the point of sale, Suremime would have entered into an interest rate swap rather than a structured collar. Suremime disagreed with Barclays’ decision, in particular, that it would have entered into any swap had it understood the risks.

Shortly after receiving Barclays’ decision, the Treasury Select Committee released internal documentation which set out the terms, as agreed by the FCA, of the review scheme. In reliance on these documents, Suremime argued that Barclays owed it a duty to exercise reasonable care and skill when completing the review.

Barclays argued that that it did not owe a customer a duty of care when conducting the review. Its duty was only to the FCA, with which they had the agreement.

Suremime sought permission from the court to include (in its original claim) an allegation of negligence against Barclays for its failures when conducting the review scheme. At the hearing Barclays asked the Judge, His Honour Judge Havelock – Allan QC, not to allow such a claim as it had “no real prospect of success”. The Judge did not share that view and stated that it was “more than merely arguable” that Barclays did owe a duty of care to the customer when carrying out the review, and for this reason the issue should be decided at trial. Permission was granted for the claim to proceed.

This may seem an obvious conclusion, but the legal effect of this finding is that it opens the court door to customers to make a claim against their bank if it failed to take reasonable care when reviewing the sale of their IRHP. Companies which had decided not to pursue a claim as a result of the harsh decision in Crestsign v RBS (see below) ought to reconsider their decision in light of the Suremime judgment.

In Crestsign, despite the judge finding that the swap had been mis-sold, the claim failed as Crestsign had signed RBS’s terms of business confirming that that no advice would be given. In a difficult judgment the judge held that where companies sign terms and conditions of business, they are bound by the contractual terms.

Suremime gives companies a new hope and an opportunity to circumvent sophisticated disclaimers excluding liability for mis-selling. Following Suremime, customers are potentially able to bring a claim against their bank for failure to award the appropriate levels of redress. These issues are not affected by the disclaimers imposed by the banks and the unhelpful Crestsign judgment has little bearing on these claims.

His Honour Judge Havelock – Allan QC also sympathised with customers who have put their faith into the review scheme and had taken no action to protect their limitation position. As a result of time passing customers are generally unable to pursue claims through the courts after six years from the date the swap was entered into. Suremime provides a second bite for those customers who have not received adequate redress but would ordinarily not now be permitted to pursue court proceedings. It seems customers now potentially have until at least 28 June 2018 to bring a claim through the courts for failures within the review.

This issue has not yet been tested at trial and the Suremime judgement is likely to be appealed. Erring on the side of caution, customers should seek legal advice to take steps to protect their limitation position.

IRHP mis-selling claims have been a hot topic for the last five years or so and it seems that litigation in this area is set to continue. There are a number of cases involving IRHPs currently progressing through the courts and the banks continue to defend them. We expect exciting times ahead with regards to these claims.

For further information please contact Clare O’Sullivan.

We also have a companion-piece to this article: ‘A review of the interest rate swap review‘ by John Mackinnon.