Court strikes out parts of swap claim against bank

In a recent decision in the Commercial Court, parts of a £81m claim against a bank relating to interest rate swaps have been struck out.

Background

Bank of Scotland ("BOS") began lending money to the Claimant ("Ventra") in 1997. Between 2004-2008, BOS made 10 loan facilities available to Ventra. Ventra and BOS entered into a number of interest rate swaps in relation to those facilities including three in June 2005, February 2007 and February 2008 respectively. Ventra and BOS subsequently replaced the three swaps with four replacement swaps entered into between October 2008 and February 2009 ("the Replacement Swaps"). Ventra alleges that it was induced to enter into the Replacement Swaps as a result of negligent and fraudulent misrepresentations, negligent misstatements and negligent failure to provide an adequate explanation of the nature and effect of the products.

Application

BOS made an application to strike out parts of the Claim dealing with negligent misrepresentations. Ventra's Claim proceeds on the basis that it was induced to enter into the Replacement Swaps on the false bases that:

  • there was significant value in the original swaps that could only be accessed if Ventra embedded that value in the Replacement Swaps; and/or

  • BOS was unwilling to accept a proposal from Ventra to increase its funding but that the prospects of BOS agreeing to this increase would be improved if Ventra entered into the Replacement Swaps.

Ventra claims that in fact:

  • none of the original swaps had any embedded value to Ventra; and

  • BOS had no intention, contrary to indications to the contrary, of approving an increase in Ventra's lending.

BOS sought to strike out parts of Ventra's Particulars of Claim that advanced, so it was argued, irrelevant allegations about the effect of the global financial crisis on BOS, BOS's acquisition of Lloyds Banking Group, the involvement of Government in effecting rescue measures for the banking sector and measures taken to remove assets from Lloyds' balance sheet. BOS argued that these allegations were irrelevant to the question of whether alleged representations had been made to Ventra and the falsity or otherwise of any such representations, and indeed to the other heads of claim. Further, dealing with these allegations would impose a heavy costs burden on BOS at each stage of the proceedings for no purpose.

Decision

In what is a complete, albeit interim, victory for BOS, Deputy Judge Cockerill QC has now struck out the offending passages. Cockerill DJ held that the passages which were subject of the application were either irrelevant, incomplete or in breach of the rules. In particular, the judge held that parts of the Particulars of Claim alleging the adoption by BOS of a "Liquidation Policy", linked to the operations of an internal Business Support Unit, were not relevant to the issues in the case, namely whether BOS made false representations which have caused Ventra to suffer loss.

Conclusion

While this decision represents only an interim victory for BOS, this is a welcome decision for the banking sector insofar as it reasserts the principle that claims must be pleaded precisely, and by reference to known facts, and not speculatively or by means of a scatter-gun approach. Part of BOS's motive in bringing its application was to prevent Ventra from pursuing contentious factual pleadings as a "stalking horse" designed to attract disclosure that might reveal further, currently unknown, heads of claim to Ventra. That risk has now been decisively removed.