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Published 1 September 2014
In a recent judgment in the Cardiff Mercantile Court, Keyser J has struck out a claim by a corporate claimant for, amongst other things, breach of the Conduct of Business Sourcebook (the "COBS Rules"), applying the law on this issue as stated in the Titan Steel case.
The Claimants in this case were Mark Bailey ("MB") and MTR Bailey Trading Limited (the "Company"). The Company was one of several companies owned by MB. Both MB and the Company were customers of Barclays Bank PLC ("Barclays") and they both entered into various loan agreements with Barclays, at the same time entering into an interest rate swap for a notional figure of £2 million at a fixed interest rate for a fixed term of 10 years (the "Swap"). MB was advised by Barclays that the Swap would act as a kind of insurance policy against future rises in the interest rate. Barclays advised that interest rates were expected to rise sharply in the near future, and the Swap would protect MB and the Company against additional loan costs. In fact, interest rates did not rise. As a result, MB and the Company were, it was argued, tied in to paying a higher interest rate than they would have paid without the Swap.
MB and the Company issued proceedings against Barclays, seeking (i) a declaration under section 27 of the Financial Services and Markets Act 2000 ("FSMA") that the Swap was unenforceable, (ii) rescission of the Swap, and (iii) damages and equitable compensation. MB subsequently settled his claim, effectively leaving the Company as the sole Claimant. Following the hearing of an application by Barclays for summary judgment/strike-out, and of the Company's application to amend its claim, the court dismissed the Company's claim.
The Company's claim for breach of the COBS Rules turned on it being able to show that it was a "private person" (within s.150 (now s.138D) of FSMA and paragraph 3 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (the "FSMA Regs")). These provisions are strict and usually preclude claims from persons who have suffered loss in the course of carrying on business. Applying the earlier judgment in Titan Steel Wheels Ltd v Royal Bank of Scotland  EWHC 211 (Comm), Keyser J held that the Company did not meet the statutory definition of a "private person". The Company could not therefore bring claims founded on breaches of the COBS Rules. Titan Steel was a case in which a manufacturer of steel wheels had entered into currency swap agreements with RBS which it later claimed had been mis-sold. As in this case, the Claimant in Titan Steel argued that it satisfied the definition of "private person", submitting that it used hedging products only for purposes incidental to its manufacturing business and not for trading purposes. It was an argument the court rejected, David Steel J holding that the phrase "carrying on business of any kind" in paragraph 3(1)(b) of the FSMA Regs should properly be construed broadly. Keyser J held that the decision in Titan Steel was directly on point, and moreover that it was good law which had been followed in a number of subsequent decisions.
Further and in general, the Judge held that there was no prospect of the Company showing that Barclays had in fact breached the COBS Rules in any case. In rejecting the Company's other arguments, Keyser J held that the case for breach of fiduciary duty was untenable, given that a bank did not usually stand in a fiduciary relationship with its customers unless there were exceptional circumstances. The Judge also held that the Company's argument that Barclays' representative had made a personal recommendation and had given advice to it, and that he was therefore a third party under s.27 of FSMA carrying on a regulated activity in contravention of the general prohibition, was also plainly wrong.
This decision gives further comfort to banks facing mis-selling claims from corporate claimants founded on regulatory breaches. The case also contains rejections of common arguments brought in swap mis-selling cases, and provides useful guidance of circumstances in which a fiduciary relationship between a bank and its customers will not be found.
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