The Court of Appeal today upheld one of the first high court rulings on alleged mis–selling of interest rate swaps.
Tomlinson LJ dismissed an appeal by hotelier and property developer Paul Rowley and his business partner John Green, a residential lettings agent, against a high court ruling last December rejecting their claim that RBS was in breach of its duties of care in selling them an interest rate swap in May 2005 as a form of hedge against their existing loan liabilities to the bank.
He ruled that the bank did not owe Green and Rowley a common law duty of care to take reasonable care to ensure that they understood the nature of the risks involved in entering into the transaction. The decision is likely to be significant to many other cases, with more than 40,000 interest rate swap products sold throughout the UK attached to business loans.
Green and Rowley had alleged that the bank gave negligent advice and was guilty of negligent mis–statements at a meeting in May 2005 with commercial manager Kay Gill and Karen Holdsworth, an area manager specialising in interest rate management products.
They claimed that, were it not for the bank’s breaches of duty in failing to inform them of the additional costs attached to the swap, they would never have entered the swap arrangement. The business partners said that the costs have totalled £400,000 against a £990,000 loan.
However, in what is believed to be one of the first judgments in a case involving allegedly mis–sold interest rate swaps, Judge Waksman rejected their claim that there was any mis–statement about breakage costs and ruled that no actionable advisory duty arose as a result of anything said by Mrs Holdsworth or Mrs Gill at the meeting because “no advice was then given”.
He added that as a result of circumstances including the credit crunch and “the ensuing parlous position of RBS”, it transpired that the protection given by the swap was not complete, and that this situation was “exacerbated by the concomitant financial burden on Green & Rowley of having to pay large sums under the swap at a time when their own income stream was affected as well”.
However, he continued: “But none of that means that the swap was an unsuitable product back in May 2005. Accordingly there is in any event no breach even if there were the requisite advisory duty.”
David Berkley QC had argued on behalf of Green and Rowley that the judge was “plainly wrong” and that the case was typical of mis–selling representations, which left his clients “at the mercy” of RBS on each occasion that their facilities came up for review or repayment dates occurred.
He said that the appeal raised the key issue of whether the bank’s statutory duty to comply with the Conduct of Business rules gave rise to a common law duty of care to customers.
However, dismissing the appeal, Tomlinson LJ said: “I reject the suggestion that the Bank here owed to Messrs Green and Rowley a common law duty of care which involved taking reasonable care to ensure that they understood the nature of the risks involved in entering into the swap transaction. The existence of the action for breach of statutory duty consequent upon contravention of a rule does not compel the finding of such a duty – indeed it rather tells against it.
“Mr Berkley’s further argument that such a cause of action would afford protection to those who, not being a ‘private person’ cannot avail themselves of a cause of action for breach of statutory duty, is an invitation to the court to drive a coach and horses through the intention of Parliament to confer a private law cause of action upon a limited class.”
Lawyers for Rowley and Green had claimed that affected businesses have been paying additional fees that run into hundreds of thousands of pounds to protect against interest rate rises that have not occurred, and face extortionate penalty costs if they break their contracts.
Green and anr v The Royal Bank of Scotland plc Court of Appeal (Richards, Hallett and Tomlinson LJJ) 29 July 2013
David Berkley QC and John Virgo (instructed by Clarke Willmott LLP) for the Appellants
Andrew Mitchell QC (instructed by Dentons UKMEA LLP) for the Respondent
Nicholas Peacock QC and Catherine Addy (instructed by the Financial Conduct Authority) for the FCA
The Court of Appeal today upheld one of the first high court rulings on alleged mis–selling of interest rate swaps. Tomlinson LJ dismissed an appeal by hotelier and property developer Paul Rowley and his business partner John Green, a residential lettings agent, against a high court ruling last December rejecting their claim that RBS was in breach of its duties of care in selling them an interest rate swap in May 2005 as a form of hedge against their existing loan liabilities to the bank. He ruled that the bank did not owe Green and Rowley a common law duty of care to take reasonable care to ensure that they understood the nature of the risks involved in entering into the transaction. The decision is likely to be significant to many other cases, with more than 40,000 interest rate swap products sold throughout the UK attached to business loans. Green and Rowley had alleged that the bank gave negligent advice and was guilty of negligent mis–statements at a meeting in May 2005 with commercial manager Kay Gill and Karen Holdsworth, an area manager specialising in interest rate management products. They claimed that, were it not for the bank’s breaches of duty in failing to inform them of the additional costs attached to the swap, they would never have entered the swap arrangement. The business partners said that the costs have totalled £400,000 against a £990,000 loan. However, in what is believed to be one of the first judgments in a case involving allegedly mis–sold interest rate swaps, Judge Waksman rejected their claim that there was any mis–statement about breakage costs and ruled that no actionable advisory duty arose as a result of anything said by Mrs Holdsworth or Mrs Gill at the meeting because “no advice was then given”. He added that as a result of circumstances including the credit crunch and “the ensuing parlous position of RBS”, it transpired that the protection given by the swap was not complete, and that this situation was “exacerbated by the concomitant financial burden on Green & Rowley of having to pay large sums under the swap at a time when their own income stream was affected as well”. However, he continued: “But none of that means that the swap was an unsuitable product back in May 2005. Accordingly there is in any event no breach even if there were the requisite advisory duty.” David Berkley QC had argued on behalf of Green and Rowley that the judge was “plainly wrong” and that the case was typical of mis–selling representations, which left his clients “at the mercy” of RBS on each occasion that their facilities came up for review or repayment dates occurred. He said that the appeal raised the key issue of whether the bank’s statutory duty to comply with the Conduct of Business rules gave rise to a common law duty of care to customers. However, dismissing the appeal, Tomlinson LJ said: “I reject the suggestion that the Bank here owed to Messrs Green and Rowley a common law duty of care which involved taking reasonable care to ensure that they understood the nature of the risks involved in entering into the swap transaction. The existence of the action for breach of statutory duty consequent upon contravention of a rule does not compel the finding of such a duty – indeed it rather tells against it. “Mr Berkley’s further argument that such a cause of action would afford protection to those who, not being a ‘private person’ cannot avail themselves of a cause of action for breach of statutory duty, is an invitation to the court to drive a coach and horses through the intention of Parliament to confer a private law cause of action upon a limited class.” Lawyers for Rowley and Green had claimed that affected businesses have been paying additional fees that run into hundreds of thousands of pounds to protect against interest rate rises that have not occurred, and face extortionate penalty costs if they break their contracts. Green and anr v The Royal Bank of Scotland plc Court of Appeal (Richards, Hallett and Tomlinson LJJ) 29 July 2013David Berkley QC and John Virgo (instructed by Clarke Willmott LLP) for the AppellantsAndrew Mitchell QC (instructed by Dentons UKMEA LLP) for the RespondentNicholas Peacock QC and Catherine Addy (instructed by the Financial Conduct Authority) for the FCA