The Leeds Mercantile Court has given summary judgment for the banks in another swap mis-selling claim brought by a property developer: Nextia Properties Limited v National Westminster Bank plc and The Royal Bank of Scotland plc [2013] EWHC 3167 (QB). In doing so, the court found that it was not a misrepresentation to state that interest rate swaps carry no premium.


Nextia Properties Limited (Nextia) is a property development company that brought proceedings against its banks (the Bank) for the alleged mis-sale of an interest rate swap purchased in March 2008 (the Swap). The Swap had a notional value of £2,000,000, a term of five years and fixed Nextia's interest rate at 5.25 per cent.

From 2007 onwards the Claimant entered into a number of loan agreements with the Bank.  Due to the nature of Nextia's business the loans typically had short maturities – often one year or less.

Nextia sought further lending in early 2008 and its total borrowing with the Bank amounted to £2,000,000. At this stage Nextia decided to enter into an interest rate management product. The Swap was traded on 13 March 2008.

In the course of the discussions that led up to the trading of the Swap, the Bank showed a number of interest rate management products to Nextia, namely a Base Rate swap, a Base Rate collar and a Base Rate cap. The Bank informed Nextia the collar and the cap would allow it to benefit if Base Rate fell (unlike the Swap). However, these products, unlike a swap, would require an up-front payment.

After the Swap was traded Nextia continued to acquire property and borrow further sums from the Bank on a relatively short-term basis. Occasionally the loans were extended or rolled over. The margin over the Bank's Base Rate had varied between 2008 and 2010 – sometimes it was Base Rate plus 1.75 per cent, on other loans it was Base Rate plus 3.5 per cent. In September 2010 the Bank asked that Nextia pay a rate of Base Rate plus 4.5 per cent.

By August 2012, Nextia had repaid all of its loans with the Bank. According to Nextia the repayments occurred following a demand made by the Bank. The Bank asserted that, in fact, the loans were repaid because Nextia refused to accept the terms on which the Bank was prepared to lend.

Nextia sold the majority of its portfolio of properties and claimed that its losses were in excess of £2,000,000 as a result of the sales.

Payments continued to be made under the Swap until they were suspended by agreement in January 2013.

Nextia brought proceedings against the Bank in December 2012. The Bank applied for summary judgment, alternatively for the claim to be struck out.

Nextia's arguments

The Bank misrepresented that the Swap had no fee, cost or premium

Nextia did not pay an up-front fee for entering into the Swap. 

Nextia alleged the Bank's descriptions of the Swap as "zero premium" and as "lower cost" than a collar or a cap were misrepresentations. Nextia submitted the "undisclosed profit" the Bank made from the Swap (i.e. the positive day one mark to market value (MTM) of the Swap) amounted to a fee or premium. Nextia alleged that the fact the Bank did not inform Nextia it was making  a profit on the Swap also amounted to a breach of contract.

The judge stated he found such a construction to be "fanciful and unrealistic". He said that it could not be inferred from the documentation or the conversations that took place that Nextia would have understood premium to mean anything other than an up-front fee that would have been payable had it entered into a collar or a cap. Furthermore, there was no term in the contractual documentation signed by the parties that prohibited the Bank from agreeing the Swap at a rate which gave it a positive MTM.

The Bank misrepresented the Swap would reduce risk from interest rate fluctuations

Nextia also argued that the Bank made a misrepresentation by allegedly describing the Swap as providing "protection" against fluctuating interest rates. Again, Nextia also stated this was a breach of contract.

The judge found the Bank did not make the alleged representation. The judge stated that, even if such a representation had been made, Nextia would not have been entitled to rely on it because of the disclaimers in the various contractual and other documents prepared by the Bank. The judge also noted there was no express term in the documentation stating the Bank had to provide a swap that reduced the risk from interest fluctuations, and none could be implied.

The Bank breached its duty to disclose the MTM of the Swap

Nextia argued the Swap was an aleatory contract (i.e. a contract that is dependant on a future uncertain event). In essence, according to Nextia, the Swap was actually a bet on interest rates and, as such, there were additional duties of fairness and disclosure. The Bank was, therefore, under a duty to disclose what the MTM of the Swap was at the Swap's inception.

The Bank argued that the general rule is that contractual parties are not bound to disclose material facts to each other save in a limited number of exceptional cases (contracts for insurance being the main exception).  Swaps are not one of the exceptional categories of contract and, therefore, there was no duty on the Bank to disclose the MTM. Furthermore, the Swap was not a wager and, even if it were, there is no additional obligation of fairness in relation to wagers.

The judge agreed with the Bank on each of the above points and stated that he did not feel Nextia's argument had any real prospect of success at trial.

Breach of statutory duty

Nextia alleged the Bank breached the Conduct of Business Sourcebook rules (COBS) in a number of respects, including by failing to communicate the risks of the Swap clearly and fairly. The judge, following Titan Steel Wheels v The Royal Bank of Scotland plc [2010] EWHC 211 (Comm), agreed with the Bank that Nextia was not entitled to bring a claim for breach of COBS as it was a company that carried on business.

The Bank breached its duty to match the Swap's maturity to Nextia's loans

As with the above allegations, the judge stated there was no term in the Swap contract that stated the Bank would provide Nextia with a swap that matched the maturity of its loans. It was made quite clear to Nextia the Swap was independent of any other contract, including the loans.

The judge refused Nextia's permission to appeal. Nextia has applied to the Court of Appeal for permission to appeal.


Claimants often allege that descriptions of products as "zero premium" or "lower cost" are misrepresentations on the basis that the MTM was a "premium" or "cost". While each case will depend on its own facts, this case is a helpful precedent which shows the court will be slow to accept these kinds of statements by banks are misrepresentations.

The court's approach to the disclaimers in the Bank's documentation and contracts is also helpful.  It suggests that, even with relatively small businesses, such disclaimers can be effective to prevent a duty of care arising and to prevent claims in misrepresentation being made.

Finally, the court followed cases such as Titan Steel Wheels in relation to alleged breaches of regulatory rules and the body of case law in support of this continues to grow.