As we enter 2013, interest rate swap specialist solicitor Emma Slade finds cause for hope in the latest judgement to be delivered by the courts.
The judgment in the long awaited case of Green & Bowley –v- Royal Bank of Scotland [2012] EWHC 3661 was finally handed down by HHJ Waksman QC on Friday 21st December 2012.
At first glance the judgment appears to ring the death knell for future Interest Rate Swap mis-selling claims against banks as His Honour found in favour of the bank. However, on a careful examination of the 27 page, 125 paragraph judgment, it may not be as bad as people think.
Mr Rowley is a hotelier and occasional property developer and in 2001, he joined forces with Mr Green to develop a few properties. Over the years, they took out various borrowings with RBS until their total liability by mid-2005 was £1.5m. On 19th May 2005, they had a meeting with two members of staff at RBS to discuss their level of borrowing. The possibility of converting the borrowings to a simple Swap was discussed along with other alternative products like Caps and Interest Rate Collars.
In a simple Interest Rate Swap, the Swap itself is a different loan instrument to the original – although it runs alongside it. The value of the Swap can be any figure and for any period of time. Although the variable rate Loan that Green & Rawley had taken out was for £1.5m over 15 years, the Swap instrument was for £1.5m over ten years. Once this is established, a fixed rate is set up: in this instance, 4.83%. The way the Swap worked in their case is that whilst the rate on the Loan varied, if the rate was over and above 4.83%, the bank would pay the difference back to Green & Rowley; so whilst the loan repayments increased, Green & Rowley would get that back. At the same time though, if the rate fell below 4.83%, whilst the Loan rate would fall, Green & Rowley paid the difference to the bank. It is, to all intents and purposes, “the same as converting the variable rate loan to a fixed rate loan with all the potential advantages and disadvantages that has.”
After the meeting, Green & Rowley signed up to the Swap deal within a matter of days and agreed at the hearing that at first, it was to their advantage. However, when the base rate fell to a historic low, they found that the product became more expensive. On trying to get out of it, they discovered that the breakage costs were in excess of £130,000.
In May 2011, six years after the original meeting, Green & Rowley issued proceedings and on 21st December 2012, the Court came to the conclusion that RBS had not mis-sold the IRS to them. Although Green & Rowley put forward two arguments namely that they had been provided with poor information by the bank and secondly, that the information given amounted to Advice and thus tantamount to a mis-statement, HHJ Waksman QC soundly dismissed all aspects of the claim.
So is this the end of IRS mis-selling claims?
Put simply, no.
Why?
- The main reason this interest rate swap claim failed is that it was a very fact-specific claim; the Judge in fact described it himself as “highly fact specific”. A great deal revolved around the original meeting on 19th May 2005. What was repeatedly highlighted by His Honour was that many customers do not keep any notes of their meetings whereas the banks do tend to keep manuscript documents. All Green & Rowley could put forward were their witness statements which the Court said “ha[d] been hampered by the lengthy lapse of time”. The bank on the other hand produced diagrams and a typed note of the meeting made at the time. In those circumstances, HHJ Waksman QC said that the contemporaneous evidence was to be preferred.
- Secondly, this particular Swap was fairly straightforward and easy to understand, whereas many others tend to be more complicated. In addition, many complicated Swaps are sold to what the FSA call “unsophisticated customers”. In this instance, Green & Rowley were described as “intelligent and experienced businessmen”, that they were not pressurised, “nor do I believe that either of them was confused… they would have had no difficulty in understanding it.”
- Part of the claim was also time-barred which meant the Claimant’s legal team was not able to rely on s150 FSMA which would have been the strongest part of their claim. Instead, they had to rely on Common Law arguments to make their point which did not fit neatly into the scenario.
- Many of the IRS claims revolve around the fact that the bank has provided the Client with “Advice” about the product rather than a mere recommendation. There is a very fine line between these two concepts but in this instance, the compelling evidence of the two RBS employees coupled with the vague nature of Green & Rowley’s recollection, meant that the Court concluded ‘Advice’ had not been given, ergo there was no breach of duty of care. Interestingly, HHJ Waksman QC did make clear that if Advice had been given, then the outcome could have been different.
- Finally, one other issue raised by the Defendant’s legal team in potential defence: they pointed to various exclusion clauses in their documentation which they argued gave them a defence to any claim for poor Advice. His Honour was not prepared to be drawn into this argument on the grounds that the Advice argument had already failed. As such, we still await judicial decision on this point.
All in all therefore, whilst the case was a resounding success for the result is not as prejudicial to interest rate swap mis-selling victims as initially thought. There is still room for a claim to be made.
If you would like to find out more about the interest rate swap mis-selling scandal and claiming redress call Emma Slade on 0333 888 0403 or email her at [email protected]
