Darby Properties Ltd and Another v Lloyds Bank Plc
| Jurisdiction | England & Wales |
| Judge | Master Matthews |
| Judgment Date | 22 September 2016 |
| Neutral Citation | [2016] EWHC 2494 (Ch) |
| Docket Number | Case No: HC-2015-004293 |
| Court | Chancery Division |
| Date | 22 September 2016 |
[2016] EWHC 2494 (Ch)
Master Matthews
Case No: HC-2015-004293
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Mr. Richard Edwards QC (instructed by Howes Percival) for the Claimants
Mr. Richard Blakeley (instructed by Addleshaw Goddard LLP) for the Defendant
JUDGMENT (As approved)
In this case management conference the question of the admissibility of expert evidence and experts'reports has been argued and I must give a ruling. The matter arises in an action brought by the claimants, Darby Properties Limited and Darby Investments Limited against Lloyds Bank PLC. The claim form was issued on 13 th October 2015.
In broad terms, the claim is for damages for breach of contract and damages for negligence and/or damages and/or other relief for misrepresentation, all arising out of advice, recommendations, explanations and/or information provided by the defendant in connection with certain interest rate derivative products. They are products, in some cases, for a significant term. The main part of the case is that the defendant Bank negligently, and in breach of contract, recommended certain interest rate hedging products in 2009 (intended to replace ones which had been entered into previously) notwithstanding that they were unsuitable for the claimants.
Particulars are given of the unsuitability in paragraph 23 of the particulars of claim:
"Negligently and in breach of its contractual duties to the claimants, the defendant:
(1) Recommended the 2009 IRHPs, notwithstanding that they were unsuitable for the claimants. They were and continue to be unsuitable because:
(i) They exacerbated the harmful pattern referred to in paragraph 11 above.
(ii) Their tenor is far longer than the term of the claimants' loan facilities, and significantly longer even that the claimants' previous IRHPs.
(iii) Their combined notional amounts were equal to (and now exceed) the claimants' combined current indebtedness, even though there was no certainty that the claimants would continue to be indebted in that amount even in the short term, let alone for the duration of the 2009 IRHPs.
(iv) They have inhibited the claimants' ability to refinance, meaning that if the defendant refuses for whatever reason to extend or renew the claimants' loan facilities the claimants may be forced into a default situation with potentially disastrous consequences for their business.
(v) Their long-term nature and inflexibility makes them inherently unsuited to a cyclical business such as the claimants, where the need for loan funding is likely to fluctuate over time rather than remaining static or constantly increasing.
(vi) They have exposed the claimants to very significant contingent liabilities and risks in excess even of the already significant liabilities and risks associated with the claimants' previous IRHPs.
(vii) Although they provided some short term relief from the costs associated with the claimants' existing IRHPs, overall they made a bad situation worse, as demonstrated by the fact that the claimants continue to suffer losses under the 2009 IRHPs in spite of having received full redress for the mis-sale of the IRHPs previously entered into."
Secondly, there is an allegation that the defendants failed to provide any adequate explanation for the risks associated with the interest rate hedging products in 2009. In the particulars it is said that the explanation was inadequate because:
"(i) The defendant failed to point out any of the matters referred to in subparagraph (1) above.
(ii) The defendant failed to disclose the amount of the breakage costs that were blended into the 2009 IRHPs.
(iii) The defendant made generic reference in a fact sheet to the possibility of break costs but said nothing to indicate the potential magnitude of such break costs or to warn the claimants that the potential magnitude of break costs would be increased by entering into the 2009 IRHPs because of their complex structure and extended maturity dates."
Then in paragraph 24 it is pleaded that:
"As a result of the defendant's breaches of duty as pleaded above, the claimants have suffered loss and damage. [In particular it is stated that] the claimants would not have entered into the 2009 IRHPs if the defendant had not recommended them and/or if the defendant had taken reasonable care to explain the risks associated with them."
In paragraph 25 it states that:
"… the claimants are entitled to and claim damages … for breach of contract and/or negligence, in a sum to be assessed by the court by reference to (a) the total amount paid under the 2009 IRHPs, (b) an amount equal to the cost of terminating the 2009 IRHPs at the date of judgment, (c) the cost of paying the increased loan margin referred to in paragraph 17 above, and (d) professional costs."
Then a best estimate is given as at the date of the particulars of £13.133 million.
The defence of the claimants, which is dated 16 th February 2016, makes a number of pleas which are not particularly relevant for the point that I have to determine. What does become clear is that in relation to both paragraph 23(1) and 23(2) there are detailed denials or in some cases admissions of fact but denials of knowledge and of other matters. The terms of paragraph 48 of the defence are that:
"The principal allegation in paragraph 23(1) is that the 2009 IRHPs were unsuitable for the claimants. This is denied. The 2009 IRHPs were suitable for the claimants. The claimants' objective was to achieve a short term reduction in their interest costs. This was reflected inter alia in Mr. Darby's statements in the call of 27 January 2009, and in the Strategy Letter of 2 April 2009. The 2009 IRHPs achieved this objective. They were moreover of a type of product that the claimants (in particular through Mr. Darby) were capable of understanding in the light of their (and/or his) knowledge and experience."
Paragraph 49 of the defence states that:
"Without prejudice to the foregoing denials, as to the subparagraphs of 23(1):
(1) Paragraph 23(1)(i) is denied.
(2) Paragraph 23(1)(ii) is admitted (save that the terms 'far' and 'significantly' are vague and not admitted), but it is denied that this rendered the 2009 IRHPs unsuitable. These were moreover matters explained to the claimants by the Bank and which were obvious.
(3) Paragraph 23(1)(iii) is admitted but it is denied that this rendered the 2009 IRHPs unsuitable. These were in any event matters explained to the claimants and which were obvious. Moreover, it was highly likely that the claimants would continue to be indebted to that or similar amounts as the claimants' business model relied on long-term debt as pleaded in paragraph 2(3) above. In the period under consideration, the claimants' borrowing (with limited fluctuation) increased substantially as pleaded in paragraph 2(3) above.
(4) Paragraph 23(1)(iv) is not admitted.
(5) Paragraph 23(1)(v) is denied. The third and fourth sentences of subparagraph (3) of this paragraph 49 are repeated.
(6) Paragraph 23(1)(vi) is vague such that the Bank is not able to plead to it pending further particularisation of the alleged 'very significant' liabilities and risks to which the claimants refer. Pending such particularisation, no admissions are made as to paragraph 23(1)(vi). It is denied in any event that the matters pleaded in paragraph 23(1)(vi) rendered the 2009 IRHPs unsuitable for the claimants.
(7) As to paragraph 23(1)(vii), it is admitted that the 2009 IRHPs provided short term relief from the costs associated with the claimants' existing arrangements. That was the claimants' objective and they were suitable for that purpose. The remainder of paragraph 23(1)(vii) is denied."
Paragraph 50 of the defence states that:
"Paragraph 23(2) is denied. The 2009 IRHPs were adequately explained such that the claimants understood them. Without prejudice to the foregoing denial, as to the subparagraphs of paragraph 23(2):
(1) Subparagraph 23(2)(i) is denied in its entirety (including insofar as it incorporates paragraph 23(1)). It is further denied that (even if the Bank was under a duty to provide a sufficient explanation of the 2009 IRHPs) the Bank was obliged to explain the matters pleaded in the subparagraphs to paragraph 23(1). Most of the matters there pleaded relate to characteristics of the claimants' business in respect of which the Bank had no duty to advise or provide any explanation and no such duty is pleaded. Without prejudice to the generality of the foregoing denials:
(a) The Bank did explain the length of the 2009 IRHPs and their long-term nature. It went without saying that the length of the 2009 IRHPs was longer than the claimants' then existing loan facilities and previous IRHPs, but this was both (i) explained and (ii) obvious, such that the claimants cannot claim to have been in any (or any reasonable) doubt as to this.
(b) The Bank did explain that the 2009 IRHPs would remain in place if the claimants paid off their outstanding borrowings.
(c) The Bank did adequately explain the liabilities that the claimants would be under in respect of the 2009 IRHPs.
(2) Subparagraphs 23(2)(ii) and (iii) are denied:
(a) The Bank adequately explained that break costs, which were potentially substantial depending on market conditions, would be incurred where IRHP transactions were terminated before running to term.
(b) Mr. Darby confirmed on 11 March 2009 that was 'perfectly aware' of...
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