In an important judgment in the case of Suremime Limited v Barclays Bank Plc, High Court Judge HHJ Havelock-Allan QC gave permission for a Claimant in an interest rate hedging product (IRHP) misselling claim to add a claim that Barclays was negligent in conducting the redress scheme it had agreed with the FCA to compensate customers missold IRHPs (“The FCA review scheme”).
The claimant, Suremime, had already issued proceedings claiming missale of the swap sold to it in 2008, and objected to the outcome of the FCA review scheme process. Subsequently, there was publication by the Treasury Select Committee of the documents setting out in detail the terms of the FCA review scheme. Suremime, as a result, applied for permission to amend its case to include allegations that Barclays was negligent in its conduct of the review and that it should have provided better redress under the review. Suremime argued that Barclays owed it a duty of care when carrying out the review to exercise reasonable care and skill to complete the review as required by the FCA. Specifically, the claimant disputed the “replacement product” that the bank decided the company would have entered into if the Bank had complied with the FCA’s rules in the original sale process instead of the complex “structured collar”.
The bank argued that it did not owe a duty of care directly to the customer in carrying out the review because its duty was only to the FCA and that it cannot therefore be liable to its customer if the review failed to meet the standard required by the FCA and came to the wrong conclusion. It asked the judge not to allow these claims to be added because it said they had “no real prospect of success”. The judge did not agree that the claims had “no real prospect of success”. He said that it was “more than merely arguable” that the Bank did owe a duty of care to the customer in carrying out the review and so there was sufficient merit and importance in the argument for it to be fully aired at trial. Therefore, the court granted permission for the claims to proceed.
The judge also acknowledged that many customers who put their faith in the FCA review are now unable to bring claims for the original misselling because court proceedings have become time barred during the review process. The existence of a right to sue for the negligent implementation of the review would be particularly important for those “time barred” customers, providing another compelling reason why the issue should be allowed to proceed to be decided at a full trial.
Many of the customers who participated in the FCA review scheme are unhappy with the outcome and believe that they have been wrongfully refused redress, or that the redress offered is inadequate at both the initial “direct redress” stage and the “consequential loss” stage. Commonly, customers are refused any meaningful compensation on the basis that the bank’s redress calculation is based on replacing a “swap for a swap” because the bank says they would have taken a different but equally expensive or more expensive product even if the sales process had originally been compliant with the FCA’s requirements. Often customers can do nothing further at this stage because they are barred from bringing a claim in court in relation to the original misselling because the limitation period has expired.
The Suremime decision provides some support for potential claims by customers where they can show the bank has been negligent in its conduct of the review, by reference to the scheme documents published by the Treasury Select Committee. Customers who had previously thought that they had come to the “end of the road” and that any court proceedings were time barred should follow this case closely over the next few months. However, as this decision is only a preliminary one simply confirming that the case can go forward to trial to be argued, and not a final determination, claimants should continue to protect their position where still possible to prevent claims about the original misselling becoming time barred. This includes consideration of issuing proceedings within the time limit and extending standstill agreements or stays pending the outcome of the review process or other alternative routes for resolving the dispute.
Even where customers, disappointed by the review, have issued proceedings in time, this decision is still important because it provides another potential route to compensation to try to get around the situation where the bank relies on disclaimers to absolve it of responsibility for misselling. If Suremime’s argument is correct, they would also be able to bring a claim for failure to properly award loss in the review (which is not affected by disclaimers) and recover their losses by that route, even if the banks argument about the disclaimers is correct (which it may or may not be in any individual case). This is not an attempt to circumvent the law in respect of the misselling claim but merely a remedy for those affected by negligence in the banks’ conduct of the FCA review scheme process. It has to be expected, of course, that banks will defend such claims on the basis that their conduct of the review was not negligent and that they have complied with the FCA’s requirements.
A further point of interest is the potential interaction between this case and the case of Holmcroft Properties v Barclays Bank Plc and KPMG where a claimant aggrieved by the alleged failure of the Independent Reviewer, KPMG, to properly fulfil its function in a consequential loss claim made in the review scheme, issued judicial review proceedings against the Independent Reviewer as a means of challenging the decision. See our report here. Despite Barclays intervening in the proceedings between Holmcroft and KPMG to argue vehemently that Holmcroft should not be given permission for a judicial review because other remedies were available, Barclays in the Suremime case argued it was not necessary to allow the claim for negligence to proceed because, if Holmcroft were right, judicial review was the appropriate route.
Considerable litigation therefore seems set to continue over interest rate swaps to test the Banks’ typical position (highlighted in both the cases referred to above) that neither they nor the independent “skilled persons” appointed to review their conduct owe any civil liability or actionable public law duties of care to the customers affected by their alleged wrongdoing because of contractual disclaimers and the structure of the regulatory framework. The Claimant’s appeal in the Crestsign v Natwest and RBS case regarding the scope of the banks’ duties to customers at the time of the original sale and the extent to which disclaimers are effective to absolve it of liability for its actions also remains pending, to be heard by the Court of Appeal in April 2016. There are also numerous misselling cases still going through the Courts where customers were ineligible for the review, some of which also raise issues about LIBOR manipulation including the Rhino v Barclays case and the Property Alliance Group v RBS case. The limitation period for claims for negligence arising from the review is six years, so the banks may not have seen the end of the “swaps issue” for many years to come.