Many of our blogs since 2012 have focussed on the tortuous path of claims for the misselling of Interest Rate Swap Agreements (IRSAs), also known as Interest Rate Swap Products (IRHPs) or hedges. See for example: Is Your Swap Claim Time-Barred?
Many clients had little choice but to participate in the FCA Review process, as their legal claims were time-barred, which meant they did not have the alternative option of court proceedings available as a possibility should their Review claim be unsuccessful.
A number of customers were, however, able to raise protective proceedings, or enter into Standstill Agreements to keep their litigation option alive, and some claims were actually litigated. One of the best known of these was the case of Crestsign v RBS, decided in 2014. We reported the outcome of Crestsign at first instance here.
Much of the High Court judgment in Crestsign was strongly critical of RBS, but the judge found the bank had absolved itself of any responsibility by using a 'basis clause’ in its terms and conditions, which precludes any advisory duty:
“In sum, then, the banks did not provide misleading information. They did provide negligent advice but they successfully excluded any duty not to do so. They did not show themselves worthy of the trust Mr Parker placed in them, but unfortunately for Crestsign, the common law provides it with no remedy because the banks successfully disclaimed responsibility for the advice they gave on the suitability of the swap, which was negligent but not actionable. …While the result may seem harsh to some, it is not the role of the common law and this court to act as a regulator. It follows that although I have considerable sympathy for Mr and Mrs Parker, I must dismiss Crestsign’s claim.”
This is akin to a salesman actively recommending a product to a buyer, but including in the sales small print a clause stipulating that the seller bears no advisory responsibility to the buyer. Basis clauses such as the one on which the Bank had relied, and which Crestsignwere seeking to challenge, sometimes known also as 'contractual estoppel’, have only been in existence for the last decade or so but are widely used by banks in loan agreements and other financial instruments such as swaps.
The Crestsign decision was clearly a frustrating not only for the Crestsign directors themselves, but also for all those customers who had been mis-sold IRSAs, and who had hoped to use litigation as an alternative route to justice. The decision made it clear that, even if negligent advice was given, banks can effectively escape liability on the basis of their terms and conditions.
In 2015, it was announced that Crestsign were launching an appeal to the English Appeal Court. This was due to be heard in April 2016. EuroMoney described the fight as “a gripping case that could open the floodgates for more mis-selling claims. It could even bring into question basic terms and conditions of standard banking contracts across all asset classes”.
The appeal had the potential to make or break most mis-selling cases, as the issues raised in Crestsign are to be found in most, misselling claims: similar contractual limitations are found in most standard agreements in order to minimise exposure to liability. For instance, it is market practice to include limitations of a similar nature in the ISDA Master Agreement.
A win for Crestsign in the Court of Appeal was likely to have achieved a successful challenge to basis clauses so favoured by the banks, and to have opened up the floodgates for other similarly affected customers. However, at the beginning of this week, it was announced that the Crestsign case had settled on a confidential basis. Warwick Risk Management, who had been part of the team representing Crestsign, reported on Monday that:
“The precise terms of the settlement are subject to a confidentiality agreement but were described as “satisfactory” by Ian Parker, Director of Crestsign. Our heartfelt congratulations go out to Ian and Gillian Parker, Directors of Crestsign and to their family for the dignified and courageous manner in which they have pursued their fight for justice.”
Reaction on Twitter suggested that overall, the settlement was good news for those claimants locked in court battles with their banks over swaps. The author, journalist and broadcaster Ian Fraser commented that the development was “Good news for Claimants if High Court accepts swap mis-sold #RBS scared of Court of Appeal overturning estoppel”.
The long-term campaigner and active member of the All Party Political Group on Fair Business Banking - Fiona Sheriff said:
“#Crestsign settlement with #RBS further illustrates @TheFCA #IRHP review does not work and shows litigation is the only way”.
The campaigner, known on Twitter as “Derivatives Nick” said:
“Congratulations to #Crestsign for standing firm. http://www.warwickriskmanagement.com/crestsign-case-settled.html…Shame litigation was needed after failure of flawed #FCA review.”
For those customers whose litigation hopes have been kept alive, whether by the raising of protective proceedings, or via Standstill Agreements, the settlement can only be good news. For those customers who were time-barred, and for whom justice in the FCA Review Process was their only hope, the decision may have less impact upon them. However, for customers who did not receive appropriate redress in the FCA Review Scheme, another avenue remains open to them to challenge the FCA Review outcome, thanks to the on-going case of Suremine v Barclays.
In August 2015, the English High Court allowed Suremime Limited’s claim to proceed against Barclays for the bank’s alleged failure to comply with the specifications it had agreed with FCA under the Review Scheme. The High Court decision in Suremime Limited v Barclays Bank Plc  EWHC 2277 (QB) has shown that such a claim may be possible. Although it still remains to be seen whether Suremime are successful at the final hearing (the decision was at "strike-out" stage so no evidence has yet been led), this has been a hugely significant step for those seeking to bring banks to book for the flawed way in which the FCA Review has been carried out. The Suremime decision has demonstrated that if customers can show that their bank acted negligently when carrying out the review, in the sense of not applying the rules agreed with the FCA at the time that the Review was agreed between the FCA and the banks, then it may be possible to recover damages against the bank.
The Suremime decision has opened a door to claims by customers who believe that their bank has not fully complied with the terms of the agreements with the FCA under the Review. The beauty of this new avenue to redress is that the prescriptive period for any such claim would only start to run from the date on which the unsatisfactory Review decision was communicated to the customer. Put another way, these claims will not timebar for 5 years in Scotland from the date of the decision, or 6 years in England. Whilst many mis-selling claims themselves may be time barred due to the swaps having been sold more than 5 years ago in Scotland or 6 years ago in England, any claims against the banks the banks for acting negligently under the Review are still within the prescriptive period given that the Review started during the second half of 2012 and most final decisions were made in 2013 and 2014.
Another very helpful consequence of the Suremime decision is that it may now be possible for Scottish customers to raise such claims in Scotland. Whilst that might not seem a terribly startling concept, the majority of Scottish interest swap customers were prevented from raising proceedings in Scotland for the missale of their swap because swap documentation was written under English law. This meant greatly increased court fees (the court fee for example of raising proceedings in England for a claim worth £300,000 is currently £10,000, whilst the equivalent Scottish fee is £202!), higher cost of representation and the inconvenience of having to litigate at a distance. However, as the wrong with which the bank was charged in Suremime is a negligent failure of a duty of care owed to the customer, it would seem perfectly possible to raise such a case in Scotland as the place of domicile of the bank in question and/or as the place where the harmful event occurred - which would undoubtedly be the case for all FCA Reviews conducted in Scotland.
This might be something any customer who has been through the Review process in Scotland and who is dissatisfied with the outcome – or indeed any professional advisor with clients who have been sold IRHPs - should bear in mind.
If you would like to speak to a member of our Banking Disputes team, contact us now using our online contact form.