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Court of Appeal grant permission to appeal based on LIBOR and Negligent IRHP Review arguments

The Court of Appeal has allowed WW Property Investments Ltd to appeal against NatWest over mis-sold interest rate derivatives and the negligent conduct of the IRHP review. This landmark decision challenges banks’ redress offers and recognition of consequential losses, encouraging affected customers and SME victims to seek legal advice for potential claims. The ruling could impact limitation periods and existing non-advisory defenses employed by banks, with major implications for financial services litigation and previous IRHP Review outcomes.

The Court of Appeal, the highest court within the Senior Courts of England and Wales, has granted permission to appeal to the Claimant in WW Property Investments Ltd v National Westminster Bank Plc [2016] EWCA Civ 1142 (29 November 2016). The case represents welcome news for those customers that were mis-sold interest rate derivatives and have been short-changed by inadequate offers of IRHP Review redress and consequential loss offers from major banks such as RBS, NatWest, Barclays and Lloyds. Such customers should take legal advice on financial services litigation promptly in order to potentially benefit from this decision.

LIBOR Manipulation & Negligent Conduct of the FCA IRHP Review

The Court of Appeal heard an application by WW Property Investments Limited to appeal from a decision of HH Judge Roger Kaye QC on 1 March 2016 whereby he struck out the entirety of its claim against National Westminster Bank plc (NatWest) and refused it permission to add a new claim. While the Court of Appeal agreed with the judge at first instance that the appellant had no real prospect of persuading the court that collar and swap agreements were wagers, the Lord Justices of Appeal granted permission to appeal because they considered arguments around LIBOR manipulation and the negligent conduct of the IRHP review scheme to be arguable. In granting permission to appeal, the learned Lord Justices of Appeal opined favourably as to the arguability of:

  1. the existence of an implied term that the bank would not manipulate LIBOR;
  2. the existence of an implied representation that the bank had not in the past and would not in the future manipulate LIBOR; and
  3. the bank being potentially liable for negligent conduct of the FCA-agreed IRHP Review scheme (per the judgment in Suremime v Barclays Bank plc)

High Court Litigation: WW Property Investments v NatWest Bank

The customer had borrowed money from the bank and had entered into four interest rate hedging derivatives contracts. The first three derivatives were collars and the fourth was a swap. NatWest / RBS carried out an Interest Rate Hedging Product Review agreed with the FCA.

The collars were categorised as category A products resulting in automatic provision of some redress. The customer accepted offers in respect of the collars for basic redress but its claim for consequential losses was rejected by the bank (as is often the case).

The swap was categorised as a category B product and on assessment the bank determined that no redress was due. As a consequence, the customer brought claims against NatWest seeking further redress and the bank applied to strike out a proposed amendment to the claims.

The lower court judge found that the claims in respect of the collars had all been compromised by the binding settlement agreements and that its claim for consequential losses had been rejected so that claims could only be maintained in relation to the swap agreement.

The lower court judge rejected the argument that the collars and the swap were wagering contracts which were invalid due to unequal knowledge. He further found that the customer’s claim that the bank manipulated LIBOR was incoherent and refused to permit the claimant to amend to plead that the bank had assumed a duty of care to carry out the Review scheme diligently again on the basis that the pleadings were incomprehensible.

Claiming Consequential Losses in Court after the IRHP Review

Whether the claims in respect of the collars had been compromised by reason of the acceptance of basic redress in the IRHP Review was not as clear-cut as the lower court judge envisaged.

The bank’s outcome determination and offer letter stated that the customer was entitled to claim for consequential losses incurred as a result of the Review and that if the bank determined that the customer was entitled to consequential losses it would pay them separately.

It did not say that such a determination was conclusive or that there could be no further claim. It was arguable with a realistic prospect of success that the words of the compromise did not have the effect relied on.

15. Whilst I see the force of that contention, it does not seem that matters are as clear-cut as that. The exception from the compromise is that it is subject to “the qualifications in the tax and consequential loss sections of the offer letter of 15 August 2014 permitting” WW “to claim for Consequential Losses you have incurred as result of the IRHP”. The letter indicates that it is open to WW to make such a claim and that, if NatWest determined that WW was entitled to additional redress for Consequential Loss it will pay this amount separately. But it does not say that any such determination will be conclusive; or that, if NatWest does not make such a determination, there can be no further claim. I regard it as arguable with a realistic prospect of success that the words of the compromise do not have the effect relied on and that if NatWest wanted to exclude any such claim following an adverse determination by itself it needed to have used clearer words than it did.

Lord Justice Christopher Clarke

Court of Appeal Judgment in Summary (per LJ Clarke:)

71. I would regard it as arguable that it was an implied term of the swap that NatWest would not manipulate the GBP Libor rates used to calculate obligations under it i.e. one month GBP Libor; but not that it would not do so in relation to some rate that had nothing to do with the obligations under the Swap or that it had not done so in the past in relation to any LIBOR rates. I also regard as arguable in the light of Graiseley Properties Limited v Barclays Bank PLC [2013] EWCA Civ 1372 Deutsche Bank v Unitech that there was an implied representation that NatWest had not in the past and did not intend in the future to manipulate any LIBOR rates.

77. WW sought by amendment to introduce a claim, in paragraph 13.1, that NatWest assumed a duty of care towards WW to carry out the Review diligently, and to take proper account of all the evidence affecting WW’s entitlement to redress as provided for by the terms of the Review, taking account of NatWest’s compliance with the Sales Standards i.e. what it should do when it sold a hedging product. A number of specific breaches are pleaded at paragraph 16. These asserted a failure on the part of NatWest to consider adequately or at all evidence as to its own breaches of its Sale Standards. The losses alleged to follow are set out in para 18 and include all payments under the Swap plus substantial consequential losses.

78. There is in my view a reasonable prospect of establishing that NatWest owed WW a duty of care of the type relied on and this court has recently given permission to appeal against the contrary decision of Judge Bird in CGL Group Ltd v Royal Bank of Scotland [2016] EWHC 281.

86. Consideration should be given to listing this appeal to be heard with CGL Group Ltd v Royal Bank of Scotland [2016] EWHC 281.

Impact of the Court of Appeal IRHP Permission Judgment

It is noted that these arguments extend the period for limitation of many swaps mis-selling claims allowing those that may otherwise be time-barred to consider legal proceedings. Furthermore, those customers that have rejected redress in the IRHP Review scheme may well consider bringing action for negligent conduct of the review.

Any eventual decision is likely to adversely affect some major banks that operated an IRHP Review into their past sales of interest rate hedging products. RBS and NatWest are likely to be most affected given their redress outcomes that many RBS customers perceived to be inadequate. Barclays Bank have also determined some of their IRHP reviews in an illogical manner, in particular in our case of Pinn Medical Centre v Barclays (which was recently reported in the Sunday Times under the headline of “Barclays sued for £4m by GPs”).

Though Barclays Bank finally accepted, via the FCA-approved compensation scheme, that it had mis-sold the [27-year, £4.5m notional rollercoaster] swap, it went on to state that it believed the doctors would have taken the product regardless and for that reason, has so far refused to offer redress to them.

Vedanta Hedging – on Pinn v Barclays litigation case

The learned Lord Justices recognised the importance of allowing SME victims of bank mis-selling who are dissatisfied with Review offers to consider taking legal action. The types of IRHP Review cases affected are those with the following outcome determinations:

  • mis-selling admissions by the bank but no redress offered at all
  • mis-selling admissions but alternative product leads to negative redress outcome
  • swap for swap offers minimising redress
  • collar for collar offers (such as those offered in Chaudhry v RBS)
  • long term caps which reduce redress (see 4 December 2014 parliamentary debate on the FCA redress scheme in particular at Hansard 4 Dec 2014 : Columns 480 and 481).
  • unreasonable consequential loss refusals

Negligent conduct of the review is a private law cause of action, first set out in the case of Suremime v Barclays (a case we understand to have settled). Major banks have argued against such a remedy but the Court of Appeal have approved it as arguable. This remedy is likely to be attractive to claimants as it can become part of an overall mis-selling claim, in which the bank has often already made admissions of wrongdoing in the IRHP Review scheme.

Furthermore, this particular cause of action would not be subjected to the banks’ usual contractual estoppel defence, in which they seek to rely on standard non-advisory and non-reliance clauses to prevent claimants from alleging that banks provided advice (even though they did provide advice).

In relation to the importance placed by banks on their non-advisory and non-reliance clauses, please see the judgment of Tim Kerr QC in Crestsign v National Westminster Bank PLC & the Royal Bank of Scotland PLC (which went to appeal to the Court of Appeal but was settled by the wrongdoer banks before the appeal could be heard).

This decision also avoids the limitation or time-bar hurdles that face most swaps mis-selling claims where the derivatives product in question was sold over six years ago (although such obstacles are not necessarily insurmountable, as demonstrated in the case of Kays Hotel Limited v. Barclays Bank PLC).

Any similarly affected SMEs should obtain legal advice in respect of their own IRHP review outcome decisions as soon as possible.

LEXLAW have conducted and settled substantially more derivatives litigation than any other law firm in England & Wales and are the leading law firm acting against banks in derivatives mis-selling claims.