The definition of a 'private person' who can bring a court claim for breach of FCA rules may be extended after a potentially very significant development in the MTR Bailey v Barclays case.
The Court of Appeal has granted MTR Bailey permission on a number of grounds to appeal a High Court decision granting summary judgment to Barclays Bank. Importantly, one of the grounds of appeal will lead the full Court of Appeal to consider the meaning of 'private person' as set out in regulation 3 of the FSMA (Rights of Action) Regulations 2001 for the purposes of s.150 (now s.138D) of FSMA.
The meaning of private person had been considered in Titan Steel and Camerata and was treated as settled law. But counsel for the MTR Bailey submitted that these cases were wrongly decided and their "effect is to rob [s.150/138D FSMA] of its substance". Renewed focus on consumer rights and changing regulatory definitions and attitudes to less sophisticated corporate clients make it a good time to reconsider this important point of law.
By virtue of s.138D claims can be brought against an authorised person for breach of a PRA or FCA rule but only at the suit of a 'private person'. Regulation 3 states that 'private person' means an individual (i.e. a natural person) or any person who is not an individual (i.e. a legal person) unless the loss complained about is suffered "in the course of carrying on business of any kind".
In Titan Steel, the court interpreted regulation 3 broadly to exclude companies which engage in financial transactions even on a one-off basis. In Camerata the court held that even a company which was a consumer for the purposes of the Unfair Contract Terms Act 1977 (UCTA) would not have rights of action under s.150 FSMA (what is now s.138D). This has made it very difficult for any company to bring a claim under s.138D.
MTR Bailey contended that it was a private person within the definition of regulation 3 as it did not enter into the transaction in the course of its business because its business dealt in vehicles and property and not in complex financial products. This was rejected by the High Court on the basis of Titan Steel and Camerata.
MTR Bailey also argued that, even if it had no statutory right of action, it had a cause of action in contract. Its contract with Barclays stated that it was "subject to applicable regulations" which MTR Bailey argued incorporated applicable COBS rules into its contract with Barclays. The High Court judge rejected this contention on the facts, finding that the COBS rules were not incorporated into the contract.
At an oral permission hearing, the Court was persuaded that both issues required the consideration of the Court of Appeal and so allowed the appeal.
This case is one to watch. If the Court of Appeal overturns the meaning of 'private person' as interpreted in Titan Steel and Camerata, this will leave the door open to a wide range of claims under s.138D FSMA that previously could not succeed. Furthermore, even if Titan Steel and Camerata are not overturned, if the Court of Appeal determines that the client agreement incorporated the applicable COBS rules into the contract, thus creating a contractual claim against Barclays, this could result in a number of claims being made against similar institutions.
If this contractual claim does succeed, it is likely to lead financial service providers to review their client agreements to guard against what would essentially be contractual 'quasi-section 138D claims'.