The drop in interest rates which accompanied the economic downturn in 2008 left many borrowers who had taken interest rate hedging products confronted with much higher than expected payments to lenders. This has in turn prompted a plethora of cases brought against banks in which the borrowers have claimed to have been negligently mis-sold interest rate products.
So far, the claims have generally been unsuccessfully. In one of the first cases, Rubinstein v HSBC Bank Plc , the court drew the key distinction in mis-selling cases between information and advice, a distinction later followed in Green and Rowley v The Royal Bank of Scotland plc , where it was held that the branch manager had recommended that the claimants look at an interest rate protection product but had not suggested or advised on specific ones.
Another important decision in the mis-selling cases was Titan Steel Wheels v The Royal Bank of Scotland plc . In that case, the High Court focused on the terms of business agreed between the parties, the wording of which made clear that RBS were providing “an execution only service with no advisory services”. The contractual disclaimer of any duty of care precluded the existence of any such duty.
Titan had also sought to rely upon section 150 (now section 138D) of the Financial Services and Markets Act 2000 (FSMA). This provides that a “private person” who suffers loss as a result of a contravention of a COBS rule by an authorised person has an actionable claim (subject to certain defences). The court concluded that Titan was not a “private person” for the purposes of section 150 as the swaps in question formed part of a regular chain of transactions of a substantial value and scale, which were a necessary part of Titan’s trading and which were therefore integral to its business.
The “private person” issue arose in the recent High Court decision of Bailey v Barclays Bank . The claimants sought to argue that the finding in Titan that a company could be a “private person” only if it did not suffer the loss in the course of carrying out “business of any kind” was wrong. The court rejected that argument, refusing to give a wide interpretation to the exclusion of companies acting in the course of their business from the definition of private persons.
In Bailey, the claimants also invoked section 127 of the FSMA. This provides that an agreement entered into by an authorised person in consequence of something done by an unauthorised person is unenforceable as against the other party. This type of allegation is quite common in swaps mis-selling cases where the claimant customer has usually had dealings with at least two different individuals at the bank – a specialist, who is authorised to sell investment products, and the relationship manager, who isn’t. However, the court gave this argument short shrift, explaining that even when giving investment advice and information on products the relationship manager is doing so in his or her capacity as an employee of the bank – which, of course, is authorised – and not as an independent third party.
This case, the latest in the succession of mis-selling cases, shows how hard it is for corporate claimants to succeed in a swaps mis-selling case.
  EWHC 2304
  EWHC 3661 (QB)
  EWHC 211
  EWHC 2882