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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Boyse (International) Ltd v Natwest Markets Plc & Anor [2020] EWHC 1264 (Ch) (27 May 2020) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2020/1264.html Cite as: [2020] EWHC 1264 (Ch) |
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
BUSINESS LIST (ChD)
London EC4A 1NL |
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B e f o r e :
____________________
| BOYSE (INTERNATIONAL) LIMITED |
Claimant |
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| - and - |
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| NATWEST MARKETS PLC THE ROYAL BANK OF SCOTLAND PLC |
Defendants |
____________________
Laura John (instructed by DLA Piper UK LLP) for the Defendants
Hearing date: 11 March 2020
____________________
Crown Copyright ©
Chief Master Marsh:
(1) An application by the Bank dated 4 October 2019 to strike out the entirety of Boyse's case pursuant to CPR 3.4(2)(a), (b) and (c).
(2) An application by Boyse dated 24 January 2020 seeking permission to amend its particulars of claim.
(3) An application by the Bank dated 10 March 2020 applying to amend the application notice dated 4 October 2019 to include an application for summary judgment under CPR 24.2 and waiver of the notice requirement under CPR PD 24 paragraph 2.
(1) The court should assume that the facts pleaded by Boyse in its draft amended claim are true.
(2) The claim as it is set out in the draft amended particulars of claim is to be treated as Boyse's claim, albeit that permission to amend has not been granted and the application for permission to amend is opposed.
(3) The test the court should adopt under CPR 3.4(2)(a) is whether the claim is bound to fail.
(1) Where a statement of case is found to be defective, the court should consider whether the defect may be cured by amendment and, if it might be, the court should not strike it out without first giving the party concerned an opportunity to amend it; Soo Kim v Park [2011] EWHC 1781 [38]-[41].
(2) The principle that derives from the decision of the Court of Appeal in Partco v Wragg [2002] EWCA Civ 594 that the court should consider carefully before dealing summarily with single issues if the claim will in any event, go to trial. If the Bank is right, the claim will not proceed to trial and therefore Partco does not assist Boyse.
Background
(1) Boyse entered a loan facility with the Bank in 2004 to enable it to acquire a property at 22 Stephenson Way London SW1 2HD for £4 million. The facility was for £3.5 million. The relevant interest rate was referenced to the Bank's base lending rate.
(2) In August 2007 Boyse purchased a property at 79 Fortress Road London NW5 1AG for £3.5 million and concluded a further facility agreement with the Bank for £6.5 million that refinanced the earlier facility. The Bank proposed that interest on the facility should be 1% over LIBOR. Mr Sharma objected and requested that the floating interest rate should be Base Rate. This was agreed to by the Bank.
(3) The 2007 facility contained a condition that the Bank would not be obliged to make the loan until Boyse had entered into an IRHP that was acceptable to the Bank.
(4) On 10 August 2007 Boyse concluded a Swap with the Bank with a notional value of £6.5 million at fixed rate of 6.23%. The Bank agreed to pay Boyse a floating rate of 3 month BBA GBP LIBOR.
(5) On 27 November 2008 Boyse concluded an amortising interest rate Collar with the Bank that involved Boyse purchasing an interest rate cap from the Bank at the rate of 5.5% and selling an interest rate floor to the Bank at 3.2%. The Bank agreed to pay Boyse a floating rate of 3 month BBA GBP LIBOR.
(1) Boyse was forced to sell both properties as a result of the cost of the IRHPs and their effect on its cash flow and profitability. Stephenson Way was sold for £5,052,000 on 25 February 2011 and Fortress Road for £1,693,000 on 17 January 2012. In both cases it is said the sales were at a significant undervalue.
(2) On 29 June 2012 the Financial Services Authority (FSA) announced that it had identified serious failings in the sale of IRHPs to small and medium sized businesses by a number of financial institutions including the Bank.
(3) On 6 February 2013 the FSA issued a Final Notice detailing a fine imposed on the Bank for misconduct in relation to JPY, CHF and USD LIBOR (but not GBP LIBOR). Similar findings were published by other regulators including the US Department of Justice and the Commodities Futures Trading Commission. The findings received widespread publicity in the mainstream and financial press.
(4) The FSA undertook a review of the sales of IRHP products and on 10 October 2014 the Bank offered Boyse redress of £1,482,462.55 which amounted to repayment of sums paid by Boyse to the Bank under the IRHPs but did not include any consequential loss. The offer was made without admission of liability. The offer was accepted by Boyse on 15 October 2014.
(5) In mid-2015, in further correspondence with the Bank, Boyse's claim for consequential loss was rejected. The last letter in this sequence of exchanges took place on 26 August 2015.
(6) On 17 December 2018, Boyse's solicitors, Withers LLP, sent a lengthy letter of claim.
(7) The Bank's solicitors, DLA Piper UK LLP, replied on 11 January 2019 rejecting the claim.
(8) Boyse's claim form was issued on 19 February 2019. The date of issue was just outside a 6 year limitation period if the date of the Final Notice issued on 6 February 2013 is taken as the starting point for the limitation period.
The claim
"10.1 At all relevant times, Boyse was entirely reliant upon the Bank's advice as to the appropriate level and terms of Facilities and the IRHPs. Boyse concluded the 2007 Facility, the SWAP and the Collar on the basis that the IRHPs were related and collateral to the 2007 Facility and that the IRHPs were suitable for Boyse's business and financial needs and that Boyse could afford the costs of the IRHPs from within its existing and future cash flow.
10.2 In the premises, the Bank represented to Boyse that the IRHPs were suitable for Boyse's needs. Further, the Bank impliedly represented that it had reasonable grounds for making those statements, that it acted in good faith in making them and that it honestly believed and intended them to be true. This representation will be referred to hereinafter as the "IRHP representation".
"The IRHP representation referred to in paragraph 10 above was false. In particular, the IRHPs were not suitable for Boyse's needs."
"LIBOR as an independent and benchmark interest rate in accordance with the BBA definition of LIBOR was the appropriate interest rate for the relevant facilities and IRHPs in preference to, for example, the Bank's own base rate"
"In the premises (and in particular when the Bank advised and/or insisted upon the use of LIBOR rather than the Bank's base rate) the Bank impliedly represented to Boyse inter alia as follows ("the LIBOR representations"):(1) That on any given date up to and including the date of the Facilities and the IRHPs, LIBOR represented the interest rate as defined by the BBA (and the Bank had no reason to believe that on any given date LIBOR represented, or might in the future represent anything else) being the average rate at which an individual contributor bank could borrow funds by asking for and accepting inter-bank offers in reasonable market size just prior to 11 a.m. on that date.(2) That the Bank had not, on any given date up to and including the date of the Facilities and the IRHPs, made false or misleading LIBOR submissions to the BBA or indulged in the practice of attempting to manipulate LIBOR (for example so that in fact it represented a rate arrived at by reference to the Bank's or other panel bank's trading positions).(3) That the Bank did not intend in the future to act as set out in (1) and/or (2) above."
"In relation to the LIBOR representations set out above, these were false. In particular,
(1) LIBOR did not represent the rate as defined by the BBA and the Bank did not believe that it did.
(2) At the date of the Facilities and IRHPs, false submissions in relation to LIBOR had been made.
(3) Those making the false submissions intended to continue acting as (1) and (2) above."
"For example, on 9 March 2012, Reuters described LIBOR as "a system many now regard as outdated and discredited"."
"The IRHP representations and the LIBOR representations were all false. The Bank had no reasonable grounds for making the statements. They were made either: (1) intentionally/ recklessly; or (2) without due care."
"In making the false representations and in advising Boyse to enter into the IRHPs which were unsuitable products for the needs of Boyse, the Bank was in breach of its contractual and/or tortious duty of care to advise Boyse."
(1) They included claims in negligence and negligent misrepresentation despite the claim form having been amended to remove those claims from the ambit of the proceedings. A claim for breach of statutory duty in relation to the COBS is also included despite the deletion of the breach of statutory duty claim from the claim form.
(2) The claim in deceit relating to the IRHP representations was put forward in a very general way.
(3) There was an almost complete failure to identify dishonesty and the plea of dishonesty in paragraph 12.3 was equivocal because it included, as an alternative, a failure to take due care.
"For the reasons set out above the Bank was also in breach of the LIBOR implied terms set out in paragraph 8.1 above (and each of them)."
IRHP claim
"12.3B.1 Paragraph 7A.1 above is repeated."
LIBOR Fixing
"RBS' breaches of Principle 5 were extremely serious. Its misconduct gave rise to a risk that the published JPY, CHF and USD LIBOR rates would be manipulated and undermined the integrity of those rates. RBS' misconduct could have caused harm to institutional counterparties and other market participants. Where RBS, alone or acting in concert with panel Banks and Broker Firms, sought to influence Panel Banks' LIBOR submissions, the risk that LIBOR would be manipulated increased materially."
(1) At paragraph 4.3 of the particulars of claim Boyse pleads: "At all relevant times, Mr and Mrs Sharma and, through them Boyse, were aware of LIBOR and its supposed and proper purpose as an independent benchmark interest rate and were aware in general terms as to the way in which LIBOR was set and the involvement of the Bank in that process." This is followed by what is said to be an "illustrative example" namely an email from Mr Sharma to the Bank dated 11 July 2007 querying whether the 2007 Facility should be set by reference to base rate rather than LIBOR.
(2) At paragraph 12.2.2(2) of the particulars of claim Boyse relies on the "considerable adverse press comment and widespread concern" about the reliability of reported LIBOR rates and goes on to instance as one example of this concern a report by Reuters on 9 March 2012 describing LIBOR as "a system many now regard as outdated and discredited." This was some 11 months before the Final Notice was published.
(3) The particulars of claim do not distinguish between LIBOR currencies. The allegations about LIBOR fixing are made generically. The point is reinforced in Mr Wass' statement at paragraph 42 where in defining the LIBOR fraud he does not distinguish between LIBOR currencies. It follows that the Final Notice that dealt with three currencies, but not sterling, may be notice of the LIBOR fraud that is relied on.
(4) Boyse had been forced to sell its two investment properties in February 2011 and January 2012 due to the high costs it incurred to the Bank.
Boyse's case on limitation
"17 LIMITATION
17.1 On 21 October 2013, Boyse was invited to participate an FCA-agreed review of the sales of IRHPs, including the SWAP and the Collar. The Bank informed Boyse that if the Bank "did not meet all of our regulatory requirements, you may be entitled to redress". It was not until 10 October 2014 that the Bank provided Boyse with the outcome of the review, which contained the conclusion that the IRHPs had not complied with the standards agreed with the FCA, and that it would be fair and reasonable to cancel the IRHPs and replace them with a vanilla cap.
17.2. On 6 February 2013 the FSA, DOJ and CFTC published their LIBOR fixing findings.
17.3. It was not until around May 2017 that Boyse became actually aware of the Bank's LIBOR deceit. Further, Boyse could not with reasonable diligence have discovered the Bank's LIBOR deceit for a reasonable period after 6 February 2013, being at the very least two weeks after the publication of the LIBOR fixing findings. Pursuant to s.32 Limitation Act 1980, Boyse's claims in respect of the Bank's LIBOR deceit have therefore been brought in time.
17.3.1. Similarly, it was not until 10 October 2014 that Boyse was actually aware of the essence of its claim in relation to IRHP deceit: that the IRHPs were not suitable for Boyse, and that the Bank must have deliberately missold and misrepresented the IRHPs to Boyse. Further, Boyse could not with reasonable diligence have discovered the Bank's IRHP deceit for a reasonable period after 21 October 2013, at the earliest.
17.4. In the event that a plea to the contrary is contained in the Defence, Boyse will advance further particulars, if required, in the Reply."
Law relating to pleading deceit and fraud
" in order to prove fraud, in respect of each Relevant Individual PAG must establish: he knew that the LIBOR Representations were being made; he knew that the LIBOR Representations were being understood in the sense alleged, and thereby relied upon, by PAG; that it was intended that the LIBOR Representations be understood in that sense; and that he knew that the LIBOR Representations were false."
(1) A mere assertion of fraud will never suffice.
(2) The claimant must address each element of the cause of action.
(3) The claimant must plead the full particulars of any allegation of fraud and where any inference of fraud is alleged the facts on the basis of which the inference is alleged must be pleaded in full CPR PD16 para. 8.2(1).
(4) It does not suffice to provide particulars of fraud that are equally consistent with negligence. There must be something which tilts the balance and justifies an inference of fraud as opposed to merely negligence: see JSC Bank Moscow v Kekhman at [20].
Law relating to section 32
(1) Discovery of the alleged fraud means knowledge of the "essential facts constituting the alleged fraud" is required Cunningham v Ellis [2018] EWHC 3188 Comm at [87] per Teare J. The test for discovery of the fraud was put slightly differently by Waller LJ (with whom Moore-Bick and Moses LJJ agreed) in Barnstable Boat Co Ltd v Jones [2008] EWCA Civ 727 [34] as being knowledge of the precise deceit which the claimant alleges has been perpetrated on him. However, I do not see there is a difference of substance between these two formulations as long as it is borne in mind that knowledge of fraud in a general sense is not enough to start the limitation period running: see Allison v Horner [2014] EWCA Civ 117 at [14] per Aikens LJ.
(2) As to the meaning of reasonable diligence:
"The question is not whether the claimants should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take In the course of argument May LJ observed that reasonable diligence must be measured against some standard, but that the six-year limitation period did not provide the relevant standard. He suggested that the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and was motivated by a reasonable but not excessive sense of urgency. I respectfully agree."
Millett LJ in Paragon Finance v Thakerar [1999] 1 All ER 400 at 418
(3) An assumption is made for the purposes of assessing what the claimant could have discovered with reasonable diligence that the claimant desires to discover whether or not there has been a fraud: Law Society v Sephton [2004] EWCA Civ 1627 at [116] per Neuberger LJ.
(4) The context may be relevant to what the claimant could with reasonable diligence have discovered but the alleged or actual naivety or inexperience of a claimant are not relevant factors: see Hussain v Mukhtar [2016] EWHC 424 (QB) at [43].
(5) " knowledge of the deceit alleged on the part of a claimant's agent will be insufficient to start the limitation period running under section 32(1). Similarly, the fact that the claimant's agent could with reasonable diligence have discovered the alleged deceit does not start the limitation period running.": per Aikens LJ in Allison v Horner at [15]
"Another way to make the same point might be that the 'assumption' referred to by Neuberger LJ is an assumption on the part of the draftsman of section 32(1), because the concept of reasonable diligence only makes sense if there has been something to put the claimant on notice of the need to investigate whether there has been a fraud, concealment or mistake (as the case may be".
" the drafters of s.32(1) were assuming that there would in fact be something which (objectively) had put the claimant on notice as to the need to investigate, to which the statutory reasonable diligence requirement would then attach (and which involved an assumption that the claimant desired to investigate the matter as to which it was or ought to have been put on enquiry)."
"There will be many claims when it will be objectively apparent that "something has gone wrong" where the claimant has lost property, failed to receive something it expected to receive, or suffered injury of some kind which event ought itself to prompt the claimant to ask "why" and investigate accordingly."
(1) I am faced with two conflicting approaches by first instance High Court judges and it open for me to adopt the approach which I consider best reflects the authorities.
(2) The analysis of Foxton J follows from a detailed consideration of the authorities.
(3) I consider, respectfully, that the view he expresses is firmly based on the approach indicated by Henderson LJ in Gresport Finance v Battaglia.
CPR 3.4(2)(a) and CPR 24.2
LIBOR claim
(1) LIBOR was not an independent and benchmark rate (paragraph 11.2.1);
(2) LIBOR did not represent the interest rate as defined by the BBA (paragraph 11.3.1(1)); and
(3) the Bank had made false or misleading submissions to the BBA or attempted to manipulate LIBOR (paragraph 11.3.1(2)).
(1) The claimant's business was the management of two commercial properties and "at that time" retained a professional property agent, managed by professional trustees in Gibraltar and had a bookkeeper. Mr and Mrs Sharma made recommendations to Boyse.
(2) The property agents who managed the two properties would have had no knowledge of Boyse's financial dealings or any reason to monitor the financial press[4] for news about LIBOR manipulation by RBS. A similar observation is made about the trustee and the bookkeeper.
(3) Mr and Mrs Sharma did not follow the financial press although Mr Sharma knew what LIBOR was.
(4) He says; " there was nobody within the Claimant's organisation who could reasonably have been expected to read or look out for the FCA, DoJ and CFTC findings when they were published or in the following two weeks."
(5) Boyse had no reason to suspect that the Bank had been involved in dishonest activities.
(6) "In the context of this business, it would therefore have required exceptional measures which the Claimant could not reasonably have been expected to take for the Claimant to have discovered the FCA, DoJ and CFTC findings " for a reasonable period after 6 February 2013 and this reasonable period was at least two weeks.
(1) They were not directors of Boyse.
(2) They trusted the Bank.
(3) They would have had to follow and/or monitor the financial press and this would have involved them taking exceptional measures.
IRHP claim
(1) At 10.2 Boyse said there was a representation about suitability.
(2) At 12.1 the representation was said to be false. No particulars of falsity were given.
(3) At 12.3 it was said the IRHP representations were false and that Bank had no reasonable grounds for making the statements and then: "They were made either: (1) intentionally/recklessly; or (2) without due care."
"As the Bank and/or its servants, agents or employees and in particular David Macmillan knew, or ought to have known or were reckless (given, in particular, their knowledge of both the Claimant and its business, and the nature of the IRHPs) the IRHPs were not suitable for the Claimant ".
Conclusions
5A. BACKGROUND TO THE SALE OF THE IRHPS
5A.1 Between around May and August 2007 the Bank acting through those individuals detailed at paragraph 3.2.6 above and principally through David Macmillan and Chris McHale - proposed and promoted selected complex interest rate hedging products, in particular interest rate swaps and collars, to Boyse in (inter alia) emails, presentations and telephone calls. The Bank further pressured Boyse to fix the interest rate payable under the 2007 Facility. Relying upon this advice, and as a result of the Bank's pressure, Boyse agreed to enter into the IRHPs as set out below.
5A.4 By way of examples only of the Bank's representations in relation to LIBOR and the suitability of the IRHPs, and prior to entry into the SWAP:
5A.4.1 On 31 May 2007 at 12:40 David Macmillan of RBS emailed Mr Sharma explaining the current LIBOR rates (and thereby implying that LIBOR was a genuinely set rate determined by economic forces), stating that "Current 3 month LIBOR = 5.81% [ ] Please be aware that these are current market levels and therefore are liable to move higher or lower as you move towards completion". Mr McMillan, having compared the two approaches, endorsed a hedged solution and implying that it was suitable for Boyse, stating "Given the tightness of the rental cover in the first year, the discounted idea may look favourable albeit at the expense of higher rates in the back end 4 years"; Mr Sharma responded at 13:30 stating inter alia that "I will be guided by you guys" and asking about "any penalties if we [re]pay a lump sum in say year 2 by £500k to reduce amount borrowed for example". Mr Macmillan replied stating, inter alia, that he would explain how this worked at their next meeting;
5A.4.2 Similarly, on 14 June 2007, David Macmillan stated in relation to swap rates (and thereby LIBOR) pricing, and thereby suggesting that LIBOR was a genuinely set rate determined by economic forces: "Current 5 year fixing = 6.28%. Rates continue to move higher but they will hopefully start to correct lower again";
5A.4.3 On 18 June 2007, Mr Sharma emailed David Macmillan seeking a swap rate of less than 6% if possible. Mr Marmillan replied stating in relation to swap rates (and thereby in relation to LIBOR), and thus implying that LIBOR was a genuinely set rate determined by economic forces: "sadly not where the money market is currently... around 6.27% for 5 years. Fingers crossed that the levels start to move lower.";
5A.4.4 On 16 July 2007 David Macmillan emailed Mr Sharma stating in relation to swap rates (and thereby LIBOR) pricing, and thereby suggesting that LIBOR was a genuinely set rate determined by economic forces: "update for you as we move towards completion next week. Current 5 year swap = 6.38% + lending margin". Similarly, on 19 July 2007 David Macmillan emailed Mr Sharma about "the swap profile that we are going to use for your transaction" stating that the current fixed rate was 6.38% plus margin and that "hopefully this rate continues to move a lower over the next few days";
5A.4.5 On 30 July 2007, Chris Ashcroft of the Bank emailed Mr Sharma with an RBS market commentary on swap rates (and thereby LIBOR), and thereby suggested that LIBOR was a genuinely set rate determined by economic forces. Inter alia, the commentary stated that "The momentum behind GBP/USD remained negative during the final hours of US trade on Friday [ ] The credit market story could drag gilt yields lower across the curve, but questions will be asked about the sustainability of the fall in swap rates given the rapid worsening in perceived credit quality. We believe that sooner or later we will see swap rates start to increase again, since the underlying fundamental picture (higher inflation and strong global growth) means the MPC are likely to continue to tighten the monetary stance. For this week though there may still be enough momentum left to drive swap rates down a further 5-6 basis points" [emphasis in original];
5A.4.6 Similarly, a "Sterling Strategy" paper authored by RBS and dated 30 July 2007 was sent to Mr Sharma, and included commentary on swap rates (and thereby LIBOR), and LIBOR itself, and thereby suggested that LIBOR was a genuinely set rate determined by economic forces. Inter alia, the commentary referred to the relationship between rates and economic events: for instance "UK interest rates have dropped across the swap curve. The deepening crisis in global credit markets has prompted a flight-to-quality into safe havens, including government bonds. Whilst swap spreads have widened, this has been more than compensated for by the drop in gilt yields." The commentary included graphs providing forecasts of Sterling, Dollar, Yen and Euro 3-month LIBOR. Further, the document included a table comparing and providing forecasts in respect of Sterling LIBOR and swap rates, by reference to UK Base Rate (and similarly in respect of Dollar and Euro LIBOR) and a table of forthcoming key economic events that could impact upon rates;
5A.4.7 Prior to entry into the SWAP, in around late July or early August 2007, David Macmillan advised Mr Sharma via telephone that the SWAP was "the best thing for them [i.e. Boyse]".
5A.5 The Bank made further representations to Boyse about the suitability of the IRHPs, and about LIBOR, prior to Boyse's entry into the Collar. By way of examples only:
5A.5.1 Prior to the entry into the Collar, the Bank had still not properly explained to Boyse how the SWAP, and in particular how the costs of exiting it, worked: on 22 January 2008, Mr Sharma emailed David Macmillan stating that "as interest rates are coming down can we make some money by getting out of the 5 year swap?". In subsequent correspondence, Mr Macmillan explained that it would cost Boyse in the region of £360,000 to exit the SWAP, that "the point of the fixing was to make sure the funding could sustain itself in a rate rising environment" and that "it is likely that rate will move up and down over the life of the funding". On 11 February 2008, Mr Sharma stated that he would "be guided by you guys because I was not happy about the hedge in the first place especially as I already had a loan on Stephenson way at variable rates";
5A.5.2 On 12 February 2008 David Macmillan emailed Mr Sharma, reminding him that the Bank had required Boyse to take interest rate hedging and providing an explanation of LIBOR and a forecast as to LIBOR movements, thereby suggested that LIBOR was a genuinely set rate determined by economic forces: "Base Rate has dropped to 5.25% but 3 Month LIBOR which is the floating wholesale interest rate is still at 5.61875%. It is the bank's current view that we will see another 0.25% cut in base rate over the next few months although with UK factory input inflation released yesterday at 19.1% and output inflation was registered at 5.7% [ ] multiple rate cuts are not a certainty [ ]". He continued, in relation to break costs under the SWAP "Please be assured that there is no money being made here by the bank due to rates dropping and Boyse having a fixed rate in place. Simply put, RBS purchased the fixed rate from the wholesale money markets at the time of the transaction completing. The break cost represents the cost to RBS to unwind the fixed rate hedge that it has on with the money market"; [emphasis added]
7 THE IRHP REVIEW
7.1 In 2013, the Bank entered into a Review Agreement, as did other banks, with the FSA whereby the Bank agreed to carry out an interest rate hedging product review ("the Review") involving an independent firm of reviewing accountants. Amongst other things, the Review considered whether IRHPs were suitable for customers such as Boyse, whether the Bank had complied with requisite "Sales Standards" (as agreed with the FSA) and regulatory requirements, whether customers were provided with sufficient information to enable them to understand the features and risks of particular IRHPs, and whether the sale of an IRHP was a legitimate condition of lending.
7.1A The Sales Standards (which will be relied upon in full by Boyse) included requirements that the Bank:
(1) Provide customers with clear, fair and not misleading information about the features, benefits and risks of IRHPs, including break costs;
(2) Take reasonable steps to ensure that personal recommendations were suitable for customers;
(3) Ensure that any IRHP did not exceed the term or value of any lending arrangement without a legitimate reason, and that if it had, the potential consequences thereof had been disclosed to the customer in comprehensible, fair, clear and not misleading way.
7.2.1 In relation to the Collar that in accordance with those standards "the fair and reasonable redress is to cancel the product"
with "a full refund of payments by [Boyse] including early exist costs less any amounts paid to [Boyse]"
7.2.2 In relation to the SWAP that "the sale may not have fully complied with the standards agreed with the FCA" and that "it is reasonable to conclude that redress is owed to you" and
"as [the SWAP] was terminated early, subject to your agreement our offer is to refund the difference between the net payments made on the original IRHP and those that [Boyse] would have made had [Boyse] purchased a vanilla cap"
7.2A The Review determined that Boyse was a non-sophisticated customer, and concluded inter alia and by implication that the IRHPs sold by the Bank were not appropriate for Boyse and that an "appropriate" alternative IRHP would have been a Cap, as set out in further detail at paragraph 12.1A below. The Review further found that:
The explanation provided to you in respect of the features, benefits or risks of alternative products did not comply with the standards agreed with the FCA. Had the features, benefits and risks of alternative products been explained to you in accordance with the standards agreed with the FC, we concluded that you would have chosen a vanilla cap [ ] Potential early exit costs associated with your IRHP were not explained to you in accordance with the standards agreed with the FCA.
7.3 As a result, the Bank offered the sum of £1,482,462.55 in settlement which Boyse subsequently accepted on 15 October 2014 without prejudice to its entitlement to further consequential losses ("the Review Settlement"). For the avoidance of doubt, the Review Settlement did not include consequential losses, claims involving intentional/reckless misrepresentation or claims relating to LIBOR as more particularly set out herein.
7A. THE SUITABILITY OF THE IRHPS
7A.1 As the Bank and/or its servants, agents or employees and in particular David Macmillan - knew, ought to have known or were reckless (given, in particular, their knowledge of both the Claimant and its business, and the nature of the IRHPs) the IRHPs were not suitable for the Claimant in that inter alia and pending permission for expert evidence:
7A.1.1 The IRHPs had the potential to result in Boyse breaching the Gross Rental Income : Income covenant as detailed at paragraph 5.4 above;
7A.1.2 The IRHPs, being linked to LIBOR, failed to match the rate of interest payable under the 2007 Facility (being linked the Bank's Base Rate) and thereby increased rather than reduced Boyse's exposure to interest rate fluctuations, and created an interest basis risk for Boyse;
7A.1.3 The IRHPs imposed upon Boyse which the Bank did not disclose or explain a contingent liability exposure ("CLU") of around £204,000 on the first day of the Swap being sold, and similarly around £518,000 in respect of the Collar;
7A.1.4 The IRHPs necessarily prevented Boyse from participating in and benefiting from falling interest rates;
7A.2 The FCA Review concluded that an "appropriate" alternative IRHP (in contradistinction to the inappropriate IRHPs sold by the Bank) would have been a 5 year vanilla Cap with a cap rate of 7.51%, pending permission for expert evidence. The best particulars that Boyse can currently advance as to suitable alternative hedging is that a Cap (at a rate of 7.51% until 10 February 2009 (i.e. the original maturity date)) would have been appropriate instead of the Swap; such a Cap would have cost Boyse around £1,000. As for the collar, an appropriate alternative would have been a 3.5 year Cap at 5.50%., which would have cost Boyse around £43,000.
Note 1 The heading to paragraph uses the plural (representations) whereas the heading and the text in paragraph refers to representation (singular). [Back] Note 2 Mr Wass points to what he describes as the Knowledge/Disclosure Gap at [22]-[23] in his witness statement. [Back] Note 3 See the authorities discussed by Stuart-Smith J in Portland Stone Firms Ltd v Barclays Bank plc [2018] EWHC 2341 (QB) at [27]-[28]. [Back] Note 4 It is clear that the publicity about LIBOR manipulation was much wider than just the financial press. [Back]
