Interest Rate Swap scandal speculation is rife

Some say it could be as big as the PPI scandal. We doubt that as many people will be affected, but the amount of money involved could exceed the figures in the PPI cases. The true extent of the problem is unlikely to become known until a definitive court decision has been delivered, though there are already signs of people coming forward in numbers to challenge the banks on interest rate swap products.

In 2010 things weren’t looking too rosy for consumers when the Court made an unhelpful decision in the case of Titan Steel Wheels Ltd –v- The Royal Bank of Scotland plc [2010] EWHC 211 (Comm). In that case, Titan brought proceedings against RBS for losses arising out of the alleged mis-selling of two derivative products in June and September 2007. There were a number of issues that had to be considered by the court including whether the Bank’s terms and conditions of business were unfair (as they claimed that the Bank was not giving “advice” in relation to interest rate swap products) and whether Titan was a “private person” as defined by the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001.

In a 27-page judgment, the Court came to the conclusion that Titan was a large pan-European company with regular sales being made within the Eurozone and that they had entered into these derivatives to make a profit. Further, the company had “sophisticated” financial staff who were not “ingénue(s) in the field of financial products”. The Court also declared that RBS had not acted in the role of an adviser and its terms and conditions were not unfair.

It was the latter part of the judgement that caused most of the problems for borrowers as on the face of it, most will wish to allege that they acted on the Bank’s advice. This point was tested again in the recent case of Grant Estates Ltd (in liquidations) –v- The Royal Bank of Scotland plc [2012] COSH 133. This is a Scottish case so will not have direct relevance in England & Wales, but its outcome will have an impact. One of the main arguments by Grant Estates was that if RBS was to hide behind the warranties of its terms and conditions of business, it follows that the contract must have been one for advice. Unfortunately, in a judgment handed down on 21st August 2012, the claim was dismissed on the basis that Grant Estates had knowingly entered into the contract with the warranties and were therefore subject to them. It is understood though that Grant Estates are appealing the decision.

Despite these initial setbacks, it’s not all doom and gloom for consumers wishing to bring an interest rate swap claim. There have been a number of successful cases brought against the banks for mis-selling IRS scheme. Indeed, one went to trial in Leeds Mercantile Court last year and in between the conclusion of the trial and the time for handing down the judgment, the parties settled. Frustratingly, we do not know the terms of the settlement as the parties are bound by a confidentiality agreement. However, the fact that settlement was reached is encouraging and a further indication that the banks appear to accept that interest rate swap cases do present them with a serious problem.

Further impetus has come from the Financial Ombudsman Service (‘FOS’).

On 25th October 2012, the FOS reversed two of its rulings on hedging products. Previously, the FOS was known to make rulings in favour of the banks. In fact, in mid-2012, a statement was made which showed that approximately 90% of the FOS’s rulings went in favour of the banks, despite the fact that both the FOS and the banks agreed that there had been mis-selling. The FOS’s reversal of these two rulings has therefore been welcomed by solicitors dealing with interest rate swap litigation.

There are also indications that the courts’ approach is changing. At a pre-trial hearing on 29th October 2012 in the case of Guardian Care Homes –v- Barclays Bank plc, an attempt was made by Barclays to get the case adjourned pending the outcome of its own FSA review process. The Court slapped down the application and the subsequent objections raised by Barclays. It stated categorically that the claim would go to trial and during the process, Barclays is to disclose potentially embarrassing information about what had been going on. This matter is set for trial sometime in the latter part of 2013, but given what the Court has ordered and the fact that the FOS is starting to support smaller consumers in their quest for redress, we think it could well settle.

Whilst interest rate swap claims may have got off to a slow start, it looks like the tide is finally turning in favour of the consumer.

If you have suffered loss as a result of a mis-sold interest rate swap or similar product then give our FREE interest rate swap legal helpline a call on 0808 139 1595 and speak to a specialist solicitor.

Or email [email protected]

Leave a Reply