Swap Mis-selling Claim Struck Out – Bank Wins Again

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Swap Mis-selling Claim Struck Out – Bank Wins Again

Published 28 abril 2016

In the case of WW Property Investments Ltd v National Westminster Bank Plc [2016] EWHC 378 (QB) the Claimant, ("WW") sought to advance a number of seemingly well-trodden, and often rejected arguments as to why NatWest was liable in damages as a result of selling WW a series of interest rate swap agreements. The Court rejected all of WW's arguments and has struck out its claim. 


Between 2004 and 2010 WW borrowed from NatWest and also entered into a series of four interest rate hedging contracts, (collars) and latterly a swap agreement which closed out the earlier collars. The purpose of the hedging contracts was to hedge WW's exposure to interest rate obligations arising from the loan. The hedging agreements were disadvantageous to WW and in 2014, the hedges were considered as part of the Interest Rate Hedging Product Review, initiated at the behest of the FSA, as it then was. Pursuant to the Review, the collars gave rise to redress assessed at over £420,000. However the swap agreement did not attract redress. In respect of the collars, WW entered into a compromise agreement pursuant to which it accepted the monetary redress in full, and final settlement of all claims against NatWest arising under, or in any way connected with the sale of the collars, applicable to any past, present or future claims. 

Notwithstanding the compromise, WW issued proceedings in which it made, in essence, 4 claims:

  • That the collars amounted to contracts for differences, properly characterised as wagers at law, but that the "odds" were stacked in NatWest's favour. NatWest knew this and failed to disclose it to WW, thus NatWest was guilty of "cheating" such that the collars are voidable;
  • That the swap agreement was subject to an implied term that NatWest would not manipulate the LIBOR benchmark;
  • That an entirely separate agreement between NatWest and third parties connected to WW should be rescinded; and
  • That NatWest owed WW a tortious duty of care in connection with the way in which it conducted the Interest Rate Hedging Product Review.

The Court had little difficulty in finding that none of the claims advanced by WW had any real prospect of success. The Court's findings in relation to the Wager Issue and the LIBOR issues are, however, worth dwelling on, although not for any reason which will be helpful to claimants.    

The Wager Issue

WW's argument was that the hedging contracts were contracts for differences which are all wagers at common law. As such, they are subject to implied terms that the chances are equal, and that the parties possess equal ignorance and/or equal knowledge about the odds. NatWest had greater knowledge of the arrangement that WW and more favourable chances. What troubled the Judge in this case was that these were the same arguments that WW's barrister had deployed at least twice in previous cases, and which had been rejected even to the extent of three failed applications for permission to appeal. In those previous cases, the Court had found consistently that claimants had no real prospect of establishing its wager claim, because the swap contract was made for a commercial purpose of hedging the risk of interest rates increasing over the term of the loan and was, thus, not a wager. In rejecting the argument again, the Judge commented that, "I regard this yet further attempt to raise substantially the same arguments as on previous occasions...as pointless, expensive and wasteful litigation to the detriment of the courts time and resources and the needs of other litigants."

The LIBOR Issue

Similar to the Wager Issue, the LIBOR issue has also become a well-trodden argument in connection with hedging contract claims. The argument is along the line that the Bank makes an implied representation that the LIBOR benchmark properly reflects the rate at which a contributing bank can raise cash in the market in accordance with the definition of LIBOR and the BBA's express guidance, and that it would not seek to manipulate the LIBOR benchmark, but that it has done so and had the claimant known this, it would not have entered into the hedging contract that used LIBOR as the reference rate, or alternatively would have used a different reference rate. 

The problem in this case, as the Judge found, was that the argument was "wholly vague and imprecise bordering on what used to be identified as embarrassing or impossible to plead to". These are the hall marks of many of the claims that have been made based on this argument. Regulators the world over have found that banks have manipulated the LIBOR benchmark based predominantly on the recorded conversations that traders and rate submitters have had, but none of them can say with certainty that a particular rate move on a particular day resulted from the actions of one or more of the contributing banks or precisely how that has resulted in anyone incurring a loss. The regulators findings have encouraged claimants to make these claims, but few have really considered how they can link the regulators findings to actual loss they have suffered. Had the claimant known the LIBOR benchmark was unreliable, what would it have done? The answer in many cases is likely to be nothing. In other cases, the answer may be that they'd have asked for a different reference rate, but then the issue arises as to what rate and whether they would have been better or worse off as a result. 


There is now a long line of decided cases on mis-selling claims relating to the sale of interest rate hedging contracts which favour the banks. WW's case highlights the very real difficulties that claimants can get into when the same arguments that have failed in other cases are reeled out again. Claimants may be attracted to novel arguments, but the fact is that those novel arguments are only relied on in the first place because the contractual documentation is unfavourable to them. The Court has now made a number of decisions making it as plain as is possible that these seemingly novel arguments will not find favour with the Court, especially where they are the same novel arguments that have been decided in previous cases and, moreover, where they are poorly pleaded. It is increasingly the case that in the absence of fraudulent conduct, these claims will continue to fail and will continue to provide the banks with helpful precedents and claimants, which if they do not heed these warnings will end up facing not just the prospect of having to pay the bank's costs of those failed claims, but doing so on an indemnity basis.


Jonathan Brogden

Jonathan Brogden

London - Walbrook

+44 (0)20 7894 6290

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