In December 2015 the High Court handed down its judgment in Thornbridge Limited v Barclays Bank PLC  EWHC 3430 (QB), a swaps mis-selling claim involving an interest rate hedge. The customer lost on all counts. The judgment is helpful for banks facing similar claims in that it demonstrates that, even if there are concerns that a bank may have strayed into the territory of giving advice, the court will consider the relationship as a whole and will distinguish between (a) a salesperson explaining the product they want to sell and (b) an advisor advising on which product to take.
The claimant was a property investment business run by a Mr & Mrs Harrison. In March 2008 Thornbridge sought a loan to purchase a commercial property and Barclays offered a 15 year loan of £5.6m which required the customer to enter into an interest rate hedge.
Mr Burgess of Barclays Capital had several discussions over the phone and by email with Mr Harrison and sent a written presentation setting out the hedging products available. Following these discussions, Thornbridge entered into a 5 year swap at 5.65%. However, when interest rates subsequently fell, Thornbridge paid more for its funding than it claimed it had envisaged.
Thornbridge alleged that:
- the bank advised it to enter the swap
- the advice was negligent as the product was unsuitable
- there was a failure to provide adequate information about break costs and other available products, and
- that if properly advised it would have purchased a cap.
The court looked in detail at the contents of the emails and phone calls and determined that Barclays had not advised or recommended a product. Mr Burgess had not strayed into the role of advisor by giving a view on what might happen to rates in the future; the products were laid out and did not steer Thornbridge towards a swap. Even a response by Mr Burgess that he "was going to suggest that anyway to be honest" did not amount to advice; expressions of opinion had to be viewed in the context of the entire course of dealings. The judge found that this was the expression of a salesman selling his product, not an advisor providing advice.
Mr Harrison had understood the options he was being given and ultimately decided on the appropriate one for his company.
The judge noted that Barclays had not received a fee for any purported advice.
Terms of contract
The decision that Barclays had not given advice would have been enough to dispose of the matter but for completeness the judge considered Barclays' terms. The swap confirmation letter contained a non-reliance clause and the judge held this was a basis clause as it reflected the basis upon which the parties had entered into the swap. Accordingly, even if Thornbridge had been right in asserting that advice had in fact been given, the basis clause would have prevented it from asserting as much.
Helpfully, the court also held that the clause was not subject to UCTA but if it had been, it would not have fallen foul of the reasonableness test. This is the first time that a court has held that a bank's derivatives terms meet the UCTA test and is an improvement on an opposite but obiter finding inCrestsign Ltd v (1) National Westminster Bank PLC (2) The Royal Bank of Scotland  EWHC 3043 Ch (Crestsign).
The judge found that in the absence of an advisory relationship, Barclays did not need to provide full information about the products it was willing to sell so as to enable Thornbridge to take an informed decision on which product to purchase. In her analysis of the law on this point the judge took a narrow approach to Barclays' information duty and in doing so declined to follow the broader analysis of the judge in Crestsign.
The judge went on to hold that Barclays could not be criticised for failing to give different illustrations showing falls in interest rates.
Thornbridge alleged that, if it had been properly advised, it would have opted for a cap and paid the premium. The court, however, found that Mr Harrison was only looking to protect against interest rate rises and would not have opted for a cap. The fact that a cap had the added advantage of not attracting break costs was unlikely to have influenced Thornbridge as a break was not envisaged.
On that basis Thornbridge's claim would have failed on causation as it would have still proceeded with the swap.
The judge also found in favour of Barclays on a number of technical legal points including the incorporation of COBS into the sales contract and rights of action under section 138D FSMA.
How will this impact litigation going forward?
Although the findings are specific to the facts, the judgment contains many positive comments that can be relied on by banks when defending claims. In particular, if there are concerns that a bank has strayed into advice territory and provided views of rate movements, Thornbridge shows that the court will look at the relationship as a whole.
Even if there is a risk that a bank may have advised, it may be able to rely on its basis clauses. Additionally, the judgment shows that the court should subject arguments about suitability and allegations that other products would have been taken to careful scrutiny - claimants cannot base their cases on what they now know from hindsight.