Green and Rowley v Royal Bank of Scotland [2013] EWCA Civ 1197
In October 2013 the Court of Appeal made yet another finding in favour of a bank following a claim by a disgruntled customer for mis-selling. This time the claim focused on the sale of an interest rate swap as a form of hedge against the customers’ existing loan with the bank. The judgment, which upheld the first instance decision of Mr Justice Waksman, will no doubt give banks further confidence when faced with litigation from unhappy customers.
Background
Mr Green and Mr Rowley carried on business together in partnership. The partners were property developers who had a good, well established relationship with RBS.
On 25 May 2005, following a meeting between Mr Green, Mr Rowley and two senior representatives of RBS, the business partners entered into an interest rate swap with an agreed interest rate of 4.83%. The swap was to act as a hedge against their existing loan.
Mr Green and Mr Rowley initially benefited from the swap. However, in 2008, the global financial crisis resulted in the partners not doing so well out of the arrangement.
In 2009 Mr Green and Mr Rowley decided to try to revise the swap. They made enquiries with the bank as to the costs of terminating the swap early and they were shocked to discover that the break cost was a fairly hefty £138,650. (Interestingly their reasons for revising the terms of the swap were not based upon concern as to the substantial amounts that they were being required to pay following the 2008 financial crisis. They requested that the swap be revised simply because they were restructuring their partnership).
Realising that they would have to pay £138,650 to be released from their obligations, Mr Green and Mr Rowley alleged that the bank were guilty of mis-selling by virtue of the fact that they had been advised during their May 2005 meeting that the costs of breaking the swap were “modest’” and “affordable”. They alleged that the bank had a duty to warn them about the break costs and to explain this to them in a way that was clear, fair and not misleading (in accordance with COB Rule 2.1.3).
No claim was issued against the bank until 25 May 2011 (six years later). The claim focused on two things: (i) an allegation that the bank negligently mis-stated the nature and costs of the break clause (the Information Claim) and (ii) an allegation that the bank had not simply provided information on the swap but had actually gone so far as to say that the swap was a good idea and that they should enter into it (the Advice Claim).
Mr Green and Mr Rowley initially made a claim under s150 of the Financial Services and Markets Act 2000. S150 of FSMA gives private persons a cause of action where a bank has contravened the COB Rules by, for example, not explaining the terms of a swap in a way that was clear, fair and not misleading (COB Rule 2.1.3). However, at first instance they abandoned that claim by conceding (it appears incorrectly) that the claim under S150 of FSMA was time barred. Instead they sought to rely on a common law claim for breach of the banks obligations under COB Rule 2.1.3 and 5.4.3.
The Court rejected both claims. In relation to the Advice Claim, customers may not easily see the distinction between providing information and providing advice. Nevertheless, the court was clear; the fact that the relative advantages and disadvantages of the swap were discussed did not mean that the swap was recommended.
In respect of the Information Claim, Green and Rowley argued that the common law (Hedley Byrne) duty of care included the contents of the COB Rules 2.1.3 and 5.4.3. This was rejected; whilst the common law duty encompasses a duty not to mislead, the duties to take reasonable steps to communicate clearly and fairly are much wider. Equally the duty under COB Rule 5.4.3 to take reasonable steps to ensure that the customer understands the nature of its risks was held to be well outside any common law duty not to mis-state.
It was held by the Court of Appeal that the existence of a potential claim under S150 of FSMA 2000 for breach of the COB Rules does not mean that a separate, parallel common law duty arises for a breach of those rules when S150 has not been pleaded. It was also held that the bank did not provide advisory services to the customers as there was no contemporaneous evidence to support this assertion.
Implications
This decision falls in line with judgments to date which see the Courts rejecting mis-selling claims. Mr Green and Mr Rowley could not convince the Court at first instance nor on appeal that the bank had given advice rather than just providing information. The lack of any form of contemporaneous evidence to support their allegation that advice had been given during their May 2005 meeting was particularly unhelpful. The bank, on the other hand, did have some contemporaneous evidence to support their position that they were simply providing information. On balance it could not be said that the bank gave advice.
Of course, Green and Rowley’s claim was highly fact sensitive focusing for the most part, on what was or was not said at the May 2005 meeting but they faced an uphill struggle with no S150 claim and no evidence of the bank providing advisory services.
This case does not establish any new law. However, it does re-affirm the Courts approach to dealing with cases of this nature. A couple of points to note first, bank customers continue to struggle to cross the line between proving the bank provided information and proving that it provided advice. The distinction may be blurred to customers, but to the Courts it is hard edged. The failure of the Information Claim confirms that bank customers with so called Interest Rate Hedging Products are likely to get a better outcome form the FCA Review than from the Courts.
Gibson & Co.
February 2014