Following a series of decisions considering similar issues, the High Court has again granted a bank's application to strike out an interest rate hedging product ("IRHP") mis-selling claim on the grounds that it was out of time under the Limitation Act 1980 (the "Act"): Qadir & Hussain v Barclays Bank plc  EWHC 1092 (Comm).
Finding in favour of the bank, the Court held that:
There was no real prospect of the Claimants relying at trial on the three-year extension for negligence actions at section 14A(4)(b) of the Act, because the Claimants must have known the "essence of the claim" more than three years before they brought it: namely, that the IRHPs they acquired were lossmaking and that alternatives were available.
There was no real prospect of the Claimants establishing at trial that the bank made a "clear and unequivocal" representation during its review of IRHPs that it would not rely on its right to assert a limitation defence. Even if the bank's statements did amount to an unambiguous representation, the Court did not accept that the Claimants had relied on it to their detriment.
There are a number of key points to take away from this decision, which will be helpful for financial institutions dealing with IRHP mis-selling claims:
It may be inferred from this decision that, in IRHP mis-selling cases, a claimant's cause of action accrues on the date it is sold the allegedly unsuitable product rather than at some later date when they incur actual financial loss. The primary six-year limitation period should therefore commence on the date the claimant is sold the allegedly unsuitable product.
Time will start running for the purpose of the three-year 'safety net' extension for negligence actions when a claimant knows "the essence of the claim". In a claim about the suitability of IRHPs, this will include knowledge that the swaps are lossmaking and also knowledge that there were other alternatives available.
There is no requirement that a claimant should know that it has a legal complaint for time to start running. If the "essence of the claim" is known, time will not be stopped from running simply because a claimant was not aware of the legal duty which completes their cause of action.
This decision will tend to support arguments that statements made by a bank in the context of its review of IRHPs (or indeed, past sales of any type of product) do not constitute unequivocal representations that the bank will not enforce its legal right to assert a limitation defence. Indeed, cases will be "vanishingly rare" where such an estoppel could be established in the absence of a binding standstill agreement.
The case is discussed in more detail below.
The Claimants lived in Pakistan and each owned a hotel in London. They were both represented by their mutual nephew and attorney, Mr Ramzan. Through Mr Ramzan, the Claimants approached Barclays Bank plc ("the Bank") with a view to refinancing their existing debt with Nationwide Building Society. Mr Qadir, the First Claimant, was also looking to fund the acquisition of an additional hotel.
In March 2008, the Bank gave a presentation to Mr Ramzan outlining different types of IRHPs, including interest rate swaps. During this presentation, the Bank explained the concept of 'break costs' (which could be payable if the Claimants decided to terminate early). In June 2008, the Bank granted three loans to the Claimants. Each of the three loans had express conditions requiring the Claimants to hedge their debt. Consequently, on 29 July 2008, the Claimants entered into three swaps which had the effect of fixing the interest rates on their borrowings at 5.42% or 5.29%, regardless of what happened to the underlying interest rates.
From about October that year, interest rates sharply declined but the Claimants' repayments remained fixed at 5.42% or 5.29%. The Claimants thereafter made a number of complaints about having to pay fixed high rates and enquired about restructuring their lending. The Bank indicated that "significant" break costs would be payable and subsequently provided a number of break cost quotations to the Claimants.
On 29 June 2012, the Financial Services Authority ("FSA") announced that the Bank (and three other banks) had agreed to carry out a review of IRHPs (the "IRHP Review"). The First Claimant accepted redress in respect of one of the swaps, which was found not to have met the sales standards agreed with the FSA. The Claimants terminated the remaining two swaps in 2014, and paid breakage costs of £94,595 each.
On 5 January 2015, the Claimants issued proceedings against the Bank alleging they were mis-sold the two IRHPs for which they did not receive redress through the IRHP Review. The Bank applied to strike out the claim on the basis that the limitation period had expired. It was common ground that the limitation period of six years had elapsed since purchase of the IRHPs. The Bank's application was made on the basis the Claimants could not rely upon the supplementary period provided for by section 14A(4)(b) of the Act. This allows a period of three years from the date when a claimant knew or should have known key facts. The Bank alleged that the Claimants knew all the relevant facts for the purpose of section 14A(4)(b) by 5 January 2012, three years before the claim was commenced. The Claimants submitted that there was an arguable case that they did not have the key knowledge at the critical time, or alternatively that the Defendant was arguably estopped from running a limitation defence.
The Court granted the Bank's application and struck out the Claimants' claim in its entirety. The Court considered separately each of the Claimants' submissions on: (1) the date of requisite knowledge for the purpose of section 14A of the Act and (2) estoppel. We discuss each of these issues further below.
(1) Requisite knowledge under section 14A of the Act
The Court held that the net effect of section 14A of the Act was that it extended time for three years from the date on which the claimant actually or constructively acquired "the knowledge for bringing an action" (section 14A(5)). The Court said that such knowledge included two elements:
(a) material facts about the damage (section 14A(6)(a), as expanded in section 14A(7)); and (b) knowledge that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence (section 14A(8)(a)).
The key issue was whether the Claimants acquired the requisite knowledge three or more years before they brought their claim (i.e. before 5 January 2012), in which case their claim would be time barred. With respect to the first element of knowledge at (a) above, the Court applied the leading authority on the requirements of section 14A: Haward & Fawcetts  1 WLR 682 (HL). The Court agreed with the decision in Haward that the better approach is to treat the first element of knowledge as relating solely to matters of quantum. This meant that the focus of the Court's enquiry was on the second element of knowledge at (b) above: attributability. On the question of attributability, the Court again cited the House of Lords in Haward, which held that it is necessary to ask whether the claimant knows the "factual essence of the claim". This has also been described as "the essential thrust of the case" (Dobbie v Medway Health Authority  1 WLR 1234). In any event, the degree of knowledge required must be enough for the claimant to realise that the damage was capable of being attributable to the defendant and to begin to investigate further.
Both parties sought to draw analogies with different recent mis-selling authority in which limitation has been considered. The Court rejected both authorities as "entirely distinguishable":
- The Bank relied on CGL Group Ltd v Royal Bank of Scotland  EWHC 281 (QB) (see our e-bulletin on this decision) – which was struck out by the High Court on the grounds of limitation. In that case, CGL unsuccessfully argued that it first acquired the requisite knowledge as a result of the FSA's announcement of the IRHP Review on 29 June 2012. The Court distinguished CGL because in that case: (i) mis-selling had been clearly mentioned by the claimant in correspondence before the key date for limitation purposes; and (ii) the claimant had also complained about the advice it received during that period (that claim being based on the bank's failure to provide adequate advice and information).
- In contrast, the Claimants sought to rely on Kays Hotels Limited v Barclays Bank plc  EWHC 1927 (see our e-bulletin on this decision) – in which strike out was refused by the High Court on the grounds of limitation. Kays Hotels concerned a more complex swap carrying the risk that the investor would need to make payments to the Bank if rates dropped below a certain 'floor'. The Bank argued that the essence of the argument was mere knowledge of loss and that the claimant knew or should have known that it had a claim, since it had made payments under the IRHP. However, the Court agreed with the claimant that the essence of the complaint was in fact unsuitability. The claimant had not appreciated the levels of loss being suffered for some time, and still considered that the products could in the long term be beneficial. Accordingly, the Court held that the claimant did not appreciate that the IRHP was unsuitable until after the relevant date for the purpose of limitation.
Having decided that CGL and Kays Hotels provided "no easy short cuts", it was necessary for the Court to consider the essence of the Claimants' complaint, which was accepted by both sides to be the suitability of the IRHPs. The Court found that there were two elements which formed part of the essence of what the Claimants needed to know: (i) that the swaps were lossmaking; and (ii) that there were other alternatives available. On the facts, the Court held that the Claimants had acquired both critical pieces of knowledge before the key date for limitation purposes of 5 January 2012.
As to knowledge that the IRHPs were lossmaking, although the swaps weren't closed out until 2014, the Court held that the Claimants had the requisite knowledge by late 2011 because:
- the Claimants made a number of enquiries over the summer of 2011 about the costs of breakage and the interest rates that would be required to make up for losses to date; and
- it must have been apparent to the Claimants that interest rates were not going to move to well over 5.42% (the higher level of fixed interest under the IRHPs) for a considerable period, which would have been necessary to make the swaps a break even proposition for the Claimants.
The question of alternatives was therefore at the heart of the issue. The Court held that the 'thrust' of the complaint in this context was simply the "knowledge that alternatives existed" and that "the precise alternative was the detail which emerges on the enquiry which starts after the limitation gun has been fired." The Claimants must have known that alternatives were available to them because the Bank presented two other options in its March 2008 presentation: a 'collar' and 'enhanced/structured collar'. The Claimants did not need to know specifically of the 'cap' alternative which they pleaded should have been advised to them.
The Court also rejected the Claimants' submission that it was not until the summer of 2012 that they became aware they had a legal complaint. In doing so, the Court confirmed the position made clear by section 14A(9) of the Act: that there is no requirement that a claimant know that they have a legal complaint. If the essence of the claim is known, time will not be stopped from running simply because the claimant was not aware of the legal duty which completes their cause of action.
Notwithstanding the Court's decision that the claim was time barred, the Claimants sought to argue that the Bank was estopped from asserting a limitation defence because of statements made during the IRHP Review which effectively caused the Claimants "to believe they would have… time to bring any legal action later."
It was not disputed that for this argument to succeed, the Claimants needed to establish that:
(a) the Bank made a "clear and unequivocal" and "unambiguous" representation that it would not enforce its strict legal rights; and (b) that the Claimants relied on that representation to their detriment.
The Claimants based their estoppel argument on three letters sent by the Bank to participants in the IRHP Review. In those letters, the Bank made statements that "There is no need to take any actions now...", that "customers do not need to use a claims management company because the process is straightforward..." and that customers who do not meet the Financial Ombudsman Service's eligibility criteria "will need to consider whether to take action through the courts." Although the Court conceded that the letters could arguably be read in the way the Claimants contended (i.e. as representing that they would have an opportunity to bring legal action after the IRHP Review), the letters did not amount to an unequivocal representation that the Bank would not enforce its strict legal rights to time bar future claims.
In any event, on the particular facts of the case, the Claimants could not establish that they relied on the letters to their detriment because the Claimants' advisor's evidence was that he did not become aware of the limitation issues until after the expiry of the primary limitation period.