Grant Estates update
During the last two days of the debate, Mr Iain Mitchell QC for the Grant Estates has had the floor. Yesterday, Mr Mitchell explained that the Pursuer’s submission is that the regulatory regime, correctly construed, prevents RBS from arguing that the contract in question was execution only, as opposed to a contract for advice. Under the Regulatory regime, Mr Mitchell continued, if a bank gives advice, the contract in question becomes a contract for advice, regardless of whether it started off as an execution only contract with numerous warranties and disclaimers. While Lord Hodge was willing to accept that advice is advice, he was reluctant to go further and agree with Mr Mitchell that an execution only contract becomes a contract for advice when advice given by the bank is accepted.
Mr Mitchell also sought to argue that there is a lacuna in the regulatory system. In particular, in circumstances similar to the present case where although technically the bank is giving advice, the contract is still treated to be one of execution only due to disclaimers of liability, Mr Mitchell argued that neither A19.4 (when giving advice there is a duty to recommend the investment services and financial instruments that are suitable for the client) nor A19.5 (in execution only contracts there is a duty to warn the client if the product or service is not appropriate for the client) of MiFID apply. That argument was rejected by Lord Hodge who remained convinced that any contract that is not covered by A19.4, will by default fall under A19.5 protection. For that reason, no lacuna in the court’s opinion existed.
In respect of s150 of Conduct of Business Rules (COBS), the Pursuer submitted that while rights have been awarded, these have not been made actionable. As under the Regulatory scheme businesses are prevented from relying on the protection afforded if the financial product is purchased in the course of business, Mr Mitchell looked in detail at the narrow and wide interpretation of what constitutes “in the course of business”. He submitted that taking out the loan and swap agreement were only incidental to the Pursuer’s business and therefore should not be treated as having taken place in the course of business. Lord Hodge, once again, struggled to follow Mr Mitchell’s reasoning. His Lordship enquired that if the Pursuer is a small property development company that needs to borrow from the bank and fix a favourable interest rate on that loan in order to run its business, how can it be argued that taking out a swap was not integral to the running of the business and consequently done in the course of business. Mr Mitchell thereafter altered his submission by stating that even if that is the case, then the intention of the legislature could not have been to cast such a wide net as to prevent any business taking out a loan from bringing an action against the bank.
The Judge similarly did not appear to be convinced by the Pursuer’s submission that the EU Regime intended businesses to have the right of action against financial institutions for breach of FSA Regulation. Lord Hodge said that if the EU Regime does not require direct actionability and COBS gives effect to that, then it does not matter that complaining to the Ombudsman may not be enough for some businesses, because the EU Regime does not require direct right of action. The Judge asked Mr Mitchell why he should read domestic legislation differently if the EU Regime does not require direct actionability. The Pursuer stuck to the position that it would be taking it too far if one were to say that no business can bring a claim against the banks.
It remains to be seen what the Court’s decision will be.