Judge in Financial List dismisses application to strike out parts of misselling and LIBOR manipulation claim
Published 27 May 2016
Diane & Michael Hockin/Lonwest v Royal Bank of Scotland plc and National Westminster Bank plc [2016 EWHC 925 (Ch)]
Royal Bank of Scotland plc and National Westminster Bank plc (together "the Bank"), issued an application to strike out parts of a Claim, issued against it by Diane and Michael Hockin and Lonwest Limited (collectively the Claimants"). The Claimants issued an application seeking permission to amend the Particulars of Claim, and both applications were heard together before Mrs Justice Asplin in April 2016.
In 2008, the Bank extended a £55m loan facility to London & West Country Estates Limited ("LWE") ("the Facility") which LWE was required to repay in 3 years with interest referable to LIBOR. LWE also entered into 10 year bank callable interest rate swap ("the Swap"), a hedge having been a pre-condition of the Facility. The lending agreement was in standard form.
LWE, which owned and managed a number of commercial business parks in Somerset and Devon, was ultimatley wholly owned by Mr & Mrs Hockin. In October 2009, LWE was placed into the Bank's Global Restructuring Group ("GRG") and the Facility was later assigned to a third party, Isobel, (a joint venture between the Bank and a private equity group) at a substantial discount in March 2014. Subsequently Isobel placed LWE into administration and the various causes of action against the Bank, said to be enjoyed by it, were assigned to the Claimants. LWE has since gone into liquidation.
In the agreed Case Summary, the Claimants case comprised four components:
- Advisory Claim: In respect of which it is alleged that the Bank owed a duty of care to advise properly in relation to the Swap;
- Swap Representation Claim: In respect of which the Claimants contend that the Swap was induced by misrepresentations made to LWE;
- LIBOR Claim: In respect of which the Claimants allege that the Bank impliedly made representations about LIBOR, which were untrue and known to be untrue without belief in their truth, or recklessly as to their truth or, alternatively, had breached the implied term;
- GRG Claim: In which it is alleged that the Bank, particularly GRG, acted in breach of an implied term to act in good faith in its performance of the terms of the Facility.
The Claimants allege that as a result of these alleged breaches of duty, LWE was forced into administration and suffered loss and damage. The Bank denies the claim.
The Bank's application sought to strike out the GRG Claim in its original form, which, for the most part, turned on whether the Claimants can rely on an alleged implied duty of good faith on the part of the Bank. The Claimants contended that any objection on the part of the Bank had been overtaken by the proposed amendments to the Particulars of Claim. The Claimants also sought to add additional claims against the Bank, including an unlawful means conspiracy and further allegations of deceit and/or negligent misrepresentation.
One of the grounds of the Bank's strike out application was that the GRG Claim was unarguable in law, because no duty of good faith could be implied into the relevant sub clause in the Facility, and that a duty of good faith could only be implied into a contractual right that involved exercising a discretion which the Claimants had failed to identify.
The Bank therefore claimed that the GRG Claim should be struck out on three grounds, and that permission to amend should be refused for the same reasons:
The Claimants had no standing to bring any further claims because:
- The rights assigned to them did not extend to matters relating to the Facility but the Swap;
- The GRG Claim was unarguable in law; and
- There was no proper basis for the claim which was an abuse of process.
Mrs Justice Asplin considered the wording of the Deed of Assignment to be extremely wide, and she could not say it was unarguable, or even not reasonably arguable that no duty of good faith could be implied when looking at the factual matrix. There was insufficient information available to the court at the hearing to enable it to decide whether a duty of good faith could be implied into the Facility and that this was a matter for trial. At that time the court would be able to look into the proper construction of the documents. Accordingly the Judge did not consider that permission to amend should be refused, subject to certain refinements of those proposed amendments, and rejected the Bank's submissions that the proposed amendments rendered the Pleading "prolix, unclear and lacking in particularity".
Although the hearing of the strike out application was largely decided on its facts, the case, which is currently listed for trial in January 2017, is of considerable interest in that it involves the issue of misselling of interest rate swaps and LIBOR manipulation on the part of the Bank.
We will monitor developments in the case closely particularly as we understand this claim represents the "tip of the iceberg" of similar cases involving GBP LIBOR manipulation in relation to which the Bank denies misconduct, whilst admitting misconduct in relation to the Swiss Franc and the Japanese Yen.