State of Play

In the previous edition of Banking and finance disputes review, we considered Graiseley Properties Ltd & Ors v Barclays Bank plc [2013] EWHC 67 (Comm), in which the Court of Appeal gave permission for claims based on the fixing of LIBOR to proceed to trial in the context of wider claims relating to the mis-selling of interest rate swaps. Graiseley promised a detailed consideration of issues that would be widely relevant for misselling claims, including fraudulent misrepresentation, attribution of knowledge and rescission. However, in April 2014, Graiseley, together with the much less publicised case of Domingos Da Silva Teixeira v Barclays Bank Plc, also involving allegations relating to LIBOR manipulation, were both settled. This leaves one other mis-selling case, Deutsche Bank AG v Unitech Global Ltd, which is on-going.

Meanwhile, the constant presence of mis-selling and index manipulation in the news suggests that these will continue to be a source of litigation. For instance, in July 2014, the Financial Times reported that investors in the Brandeaux Student Accommodation Fund were planning to sue advisers for mis-selling after plans to float the Fund on the stock exchange collapsed (Lawyers prepare case against advisers over Brandeaux,1/7/14). Similar funds have also seen a collapse in asset values. This follows a ban by the Financial Conduct Authority on the promotion of unregulated collective investment schemes to individual nonsophisticated investors imposed from the beginning of 2014.

With regard to index and benchmark manipulation, regulators have also turned their focus from LIBOR to commodity and foreign currency markets. At present, this has led to a number of regulatory investigations. It is possible that mis-selling cases may follow: although these may face significant hurdles in establishing causation.

Limitation Periods

aAnother important driver of mis-selling litigation may be the expiry of the six year limitation period that applies to contractual claims. This may lead to a glut of litigation where claims arise out of events during the financial crisis of 2008.

However, mis-selling claimants might also try to take advantage of the extended limitation period for negligence claims set out in s14A of the Limitation Act 1980, which allows claims within three years of the earliest date when the claimant had ‘the knowledge required for bringing an action for damages in respect of the relevant damage’.

This was the argument successfully employed by the claimants in Kays Hotels Ltd v Barclays Bank Plc [2014] EWHC 1927 (Comm). In 2005, the claimant entered into a loan and an interest rate collar with the bank. The collar lasted ten years and provided that if interest rates remained between 4 and 5.5 per cent, as they did from 2005 to 2007, neither side paid. If interest rates rose above 5.5 per cent, as they did in 2007, the bank would make payments to Kays, whereas if rates fell below 4 per cent, as they did in 2008, Kays would pay the bank. Kays issued a claim in November 2012 alleging that the collar had been mis-sold.

The bank applied to strike out the claim on the basis that the product had been sold more than six years before the claim was issued and was therefore time-barred. Kays accepted that its claims for breach of contract and breach of statutory duty were time barred but in respect of its claim in tort Kays sought to rely on Section 14A Limitation Act 1980.

The trigger for the s14A starting date is not knowledge of the precise details of the alleged negligence or sufficient knowledge to identify conclusively that the defendant’s acts or omissions were the cause of the loss. It is sufficient to have enough knowledge to justify setting about investigating the possibility that the defendant has done something wrong (Haward v Fawcetts [2006] UKHL 9).

With the claim against the bank having been brought in November 2012, Kays argued that it had not had the requisite knowledge to bring an action before November 2009 (thereby bringing it within the extended three year limitation period). Meanwhile, the bank argued that Kays knew or should have known that it had a claim before proceedings were issued since, by that date, it had made payments totalling £36,000 and that the essence of Kays’ case was that it was told that interest rates would rise throughout the life of the product and was given no warning about the risk of payment liabilities.

The court dismissed the bank’s application and held that the test was whether Kays had been alerted to the factual rudiments of its claim, sufficient for it to take advice and put proceedings in train. The determinative moment was when it had reason to begin to investigate. Furthermore, the court viewed the bank’s categorisation of the complaint as being too narrow and considered the claim was not based simply on advice or on interest rates, but was more complex because it dealt with questions of suitability of the collar.

In the circumstances, the mere fact that Kays knew that some interest payments were being made for a period of about a year did not give rise to an unanswerable case that Kays knew or ought to have known sufficient facts to make the requisite investigation for the purposes of Section 14A. Consequently, Kays did have a real prospect of establishing that it could rely on Section 14A and its claim would not be summarily dismissed as bound to fail on limitation grounds.

Kays’ actual or constructive knowledge was fact dependent and required a full consideration of all the circumstances. In particular, this would involve the claimant’s sophistication, what it had been told or not told, what its general state of knowledge was in 2008/2009 and what the more general state of knowledge was at the time, such as the anticipated future trend of interest rates, all of which matters were not appropriate for summary determination.

While this was only an application to strike out rather than a trial, it provides valuable guidance as to the approach the court might take to limitation periods in cases of mis-selling. It appears that, in cases of suitability, as opposed to breach of a particular representation, a greater degree of knowledge will be required to trigger the start of time running under Section 14A.

Summary judgment and conclusion

Kays has one other aspect in common with previous cases such as Graiseley: it was an unsuccessful attempt by the defendant to dispose of the case at a preliminary stage. The hurdle for the claimant in these applications is very low, so it should not be surprising when a case is not struck out or summary judgment is not granted. However, these applications are also trailers for the likely judicial interpretation of key issues in the case, and are therefore much analysed. When cases settle before the main trial, as with Graiseley, they become the only relevant judicial statement. It is a tactical consideration in each particular case whether to apply for summary judgment or to strike out the claim but, where the claim is factually complex, it is unlikely to be susceptible to determination at that stage.

Kays v Barclays illustrates that complex mis-selling cases fall into this category. Questions of suitability, in particular, may be regarded as complex and multi-faceted which may also enable claimants to take advantage of s14A to circumvent the limitation period.