Civil Fraud Quarterly Round-Up: Q1 2021
In a recent blog, Interest rate swaps: Potential Causes of Action in Misselling Claims, we detailed the recent case of Green v Royal Bank of Scotland Plc (commonly referred to as the Green and Rowley case), a case involving Mr Rowley, a hotelier and property developer, and his business partner Mr Green, a residential lettings agent, and their claim against RBS for an interest rate swap agreement which was sold to them in 2005. The Claimants alleged that the Swap had been missold and that RBS were in breach of its common law duty of care in providing negligent advice and making negligent statements in relation to the Swap, particularly regarding the costs of terminating or exiting the Swap.
The Judge at first instance, Mr Justice Waksman, found that this was "a highly fact sensitive case" and that how a Court would rule in each case would turn on its own facts, but in a lengthy judgment, he gave detailed reasons why he preferred RBS's evidence to that of the Claimants. In rejecting the Claimants’ claims regarding the provision of information by the Bank, the Judge concluded that the Hedley Byrne test did not give rise to a duty to give information unless without it the statement made would be misleading, and in relation to the claim that RBS had actually given advice to the Claimants, he held that whilst there was undoubtedly an element of recommendation, there was no advice given and no assumption of an advisory duty of care. In fact, the Judge also found in his judgment that even if a duty of care had arisen on the facts, there would still have been no breach.
The Claimants appealed and the appeal was heard at the end of July 2013, with the Court of Appeal comprising Lord Justice Richards, Lord Justice Tomlinson and Lady Justice Hallett delivering judgment on 9 October 2013. In delivering the leading judgment, Lord Justice Tomlinson rejected the proposition that where a Bank undertakes a regulated activity, and failed to comply with its statutorily imposed obligation (in this case, the duty under Conduct of Business Rule 5.4.3 to take reasonable steps to ensure the Claimants understood the nature of the transaction), a duty of care arises at common law not to misstate which runs concurrently with the COB Rules. Lord Justice Tomlinson considered that these arguments were misconceived and noted that Parliament had already provided a remedy for private persons for a breach of statutory duty under section 150 of the Financial Services and Markets Act 200 and there was nothing that justified expanding this by the “independent imposition of a duty of care at common law to advise as to the nature of the risks inherent in the regulated transaction”.
In essence, the Court of Appeal were effectively rejecting what it described as an invitation by the Claimants to “drive a coach and horses through the intention of Parliament to confer a private law cause of action upon a limited class” by expanding the category of individuals who could bring a claim for the breach of the COB Rules. Having done so, the Court of Appeal declined to rule on the second ground of appeal, namely whether the High Court’s factual findings as to the adequacy of RBS’ warnings regarding break costs were incorrect, as it was not necessary for them to do so.
The decision comes as no surprise in what remains the first and only retail interest rate hedging misselling case thus far to make it to the Court of Appeal, and will only encourage the Banks in defending such claim. Whilst Mr Justice Waksman at first instance had highlighted the fact sensitive nature of the case, this may prove a valuable precedent for the Banks fighting the deluge of recent claims regarding the misselling of interest rate Swaps.
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