CGL Group Ltd and Others v The Royal Bank of Scotland Plc & National Westminster Bank Plc and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Beatson,Lord Justice Lewison,Lord Justice McFarlane |
| Judgment Date | 24 July 2017 |
| Neutral Citation | [2017] EWCA Civ 1073 |
| Docket Number | Cases Nos: A3/2016/0731 & A3/2016/2706 & A3/2016/1438 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 July 2017 |
[2017] EWCA Civ 1073
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
(1) HHJ Bird, (2) HHJ Waksman QC, (3) HHJ Kaye QC
(1) [2016] EWHC 281 (QB), (2) [2016] EWHC 1360 (QB), (3) [2016] EWHC 378 (QB)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice McFarlane
Lord Justice Lewison
and
Lord Justice Beatson
Cases Nos: A3/2016/0731 & A3/2016/2706 & A3/2016/1438
Richard Edwards QC, Steven McGarry(instructed by Myerson Solicitors LLP) for CGL Group Limited,
Nicholas Vineall QC, James Hatt(directly instructed) for Mr and Mrs Bartels,
Julian Roberts (instructed by Duffy Fowler Gabbi Solicitors LLP) for WW Property Investments Limited
Andrew Mitchell QC, Tamara Oppenheimer(instructed by Dentons UKMEA LLP) for the Royal Bank of Scotland plc in the CGL appeal and National Westminster Bank plc in the WW appeal,
Patrick Goodall QC, Ian Bergson(instructed by Dentons UKMEA LLP) for Barclays Bank plc,
Andrew Mitchell QC, Adam Sher(instructed by Dentons UKMEA LLP) for the National Westminster Bank plc
Hearing dates: 20 – 21 June 2017
Approved Judgment
I. Overview:
The three linked appeals before the court concern interest rate hedging products that the appellants were required to buy as a condition of loans made to them by the respondent banks. The principal issue is whether reviews conducted pursuant to an agreement between the banks and their statutory regulator as part of a settlement to avoid enforcement proceedings by the regulator, which considered that there have been "serious failings" in the way the banks sold these products to small and medium sized businesses, gave rise to a duty of care by the banks to those businesses to carry out those reviews with reasonable care and skill.
The regulator in this case is now called the Financial Conduct Authority ("FCA"). Because of its concerns, it was considering whether to exercise its enforcement powers under the regulatory system contained in the Financial Services and Markets Act 2000, as amended by the Financial Services and Markets Act 2012 (" FSMA"). It entered into without prejudice settlement discussions with various banks including the respondents, and, in June 2012, made an agreement with the respondents and some other banks that each would review its sales of interest rate hedging products from 1 December 2001 to "non-sophisticated customers" and provide appropriate redress where mis-selling had occurred. On 29 June 2012, it announced the existence of the review ("the Review"), but not its terms which remained confidential until February 2015.
Interest rate hedging products are products designed to enable a borrower customer to manage fluctuations in interest rates and thus reduce the risk of changes in an otherwise variable rate of interest in their loans. There are many types of hedging products, and they vary from the relatively simple to the very complex. In the context of these appeals, it suffices to refer to three of the four broad categories identified by the FCA. "Swaps" enable borrowers to fix their interest rate. The bank and the borrower agree to exchange interest payments relating to a pre-arranged amount. "Collars" and "structured collars" enable borrowers to limit interest rate fluctuations to within a specified range. Under a "structured collar", if the reference interest rate falls below the bottom of the range, the interest rate payable by the borrower may increase above the bottom of the range. The effect of the collars is that if the bank's base rate for each calculation period exceeds a certain amount it will pay the borrower, but if the rate drops below a certain level the borrower will pay it. In both swaps and collars, the borrower gives up the right to benefit from any fall in market rate in return for the certainty of either a specified fixed rate (the swap) or a range of rates (the collar). The appellants in these cases were thus either unable to benefit from the significant fall in interest rates in 2008 and 2009, when the Bank of England sought to stimulate the economy, or faced significant increases in financing costs.
The claims made by the three appellants are described below. All three maintained that the banks had mis-sold them the hedging products they bought. One also claimed from the outset that the banks owed it a duty of care arising out of the Review. In the case of one of the appellants, the mis-selling claims ultimately failed on limitation grounds. In the case of another the claims were struck out on substantive grounds. In the third case while the mis-selling claim may have been within time under section 14A of the Limitation Act 1908, the claim had not been brought by the proper claimant, and the judge refused to permit joinder because the requirements of CPR Rule 19.5 were not satisfied. In the two cases which had not pleaded from the outset that the banks owed them a duty of care arising out of the Review, after the mis-selling claims had been struck out, applications were made for permission to amend the particulars of claim to enable such claims.
The appeals before the court are against these decisions. On the principal issue, at this stage it suffices to say that the reason the judges refused permission to amend was that the amendments would not pass the summary judgment test. In broad terms, this was for two reasons. First, a duty of care to conduct the Review with reasonable skill and care would be substantially inconsistent with the elaborate regulatory regime contained in FSMA. 1 Secondly, the other tests for determining whether a common law duty of care should be imposed were not satisfied. The judges below did not follow the decision in Suremime Ltd v Barclays Bank plc [2015] EWHC 2277 (QB) in which HHJ Havelock-Allan QC permitted an amendment to plead negligence by the bank in conducting the Review in similar circumstances.
The appellant in the first appeal is CGL Group Limited ("CGL"). Its claim relates to a collar and a swap it bought from the respondents, The Royal Bank of Scotland plc and National Westminster Bank plc in July 2006 and April 2007. The respondents were treated as a single respondent, which I shall refer to as "RBS". CGL appeals against the order of HHJ Bird dated 12 January 2016, following his judgment of the same date, 2 refusing it permission to amend its particulars of claim to plead a claim in negligence based on the bank's Review and under the principle in White v Jones [1995] 2 AC 207. Permission to appeal was granted by Floyd LJ in an order dated 19 April 2016.
The appellants in the second appeal are Mr and Mrs Bartels. Their claim related to a swap Barclays Bank plc ("Barclays") sold in 2006 to Gwenllian Court Hotel Ltd, a company which they set up to run a hotel business, the purchase of which was principally funded by borrowing from Barclays. They appeal against the order of HHJ Waksman QC dated 6 June 2016, following his judgment dated 19 May 2016, 3 striking out their claim against Barclays and refusing them permission to amend the particulars of claim. Limited permission to appeal was granted by Christopher Clarke LJ in an order dated 28 October 2016.
The appellant in the third appeal is WW Property Investments Ltd ("WW"). Its claim relates to three structured collars and a swap it bought from the respondents, National Westminster Bank plc ("NatWest") between 2004 and 2010. It appeals against parts of the order of HHJ Kaye QC dated 26 April 2016, following his judgment dated 1 March 2016, 4 striking out its claim against NatWest and refusing it permission to amend its Particulars of Claim. Permission to appeal in respect of the swap was
granted on 26 November 2016 following an oral hearing before Briggs and Christopher Clarke LJJ on 1 November 2016: [2016] EWCA Civ. 1142.In the cases of Mr and Mrs Bartels and WW, as well as the principal issue of duty of care, there are also questions of breach of duty. Moreover, the way the claims that a duty of care arose from the review conducted by the banks are put on behalf of the appellants differs in the ways explained later in this judgment.
By an order dated 13 January 2017, Christopher Clarke LJ directed that these three appeals be linked on the basis that each of them raises the question of whether the relevant bank owed the relevant claimant a duty of care in carrying out the Review. Before us CGL was represented by Mr Richard Edwards QC and Mr Steven McGarry; Mr and Mrs Bartels by Mr Nicholas Vineall QC and Mr James Hatt; and WW by Mr Julian Roberts. RBS and NatWest were represented by Mr Andrew Mitchell QC, and, in CGL's appeal, Ms Tamara Oppenheimer, and, in WW's appeal, Mr Adam Sher. Barclays were represented by Mr Patrick Goodall QC and Mr Ian Bergson. I wish to acknowledge the thoroughness and care with which the respective arguments were advanced on behalf of all parties. I also reiterate the observation of my Lord, Lord Justice McFarlane, at the conclusion of the hearing that particular commendation is due to Mr Hatt, who took up the case from the Bar Pro Bono Unit at a time when Mr and Mrs Bartels were not represented in what are for them extremely important proceedings.
The remainder of this judgment is organised as follows. Part II provides a summary of the regulatory structure established under FSMA. Part III summarises the material provisions of the Review agreement made between certain banks and the FCA. Parts IV to VI respectively summarise the factual and procedural background in the three appeals, the decisions of the courts below on the matters material to the...
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