Farol Holdings Ltd v Clydesdale Bank Plc
Jurisdiction | England & Wales |
Judge | Mr Justice Zacaroli |
Judgment Date | 19 March 2024 |
Neutral Citation | [2024] EWHC 593 (Ch) |
Court | Chancery Division |
Docket Number | Case No: BL-2019-000866 |
[2024] EWHC 593 (Ch)
THE HONOURABLE Mr Justice Zacaroli
Case No: BL-2019-000866
Claim No. BL-2020-001989
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Rolls Building
7 Rolls Building
Fetter Lane
London EC4A 1NL
Andrew Onslow KC, Lisa Lacob, Liisa Lahti and Emma Hughes (instructed by Fladgate LLP) for the Claimants
Bankim Thanki KC, Ian Wilson KC and Richard Hanke (instructed by DLA Piper UK LLP) for the First Defendant
Patrick Goodall KC, Natasha Bennett and Francesca Ruddy (instructed by Herbert Smith Freehills LLP) for the Second Defendant
Hearing dates: 9, 10, 11, 12, 16, 17, 18, 19, 23, 24, 25, 26, 27, 30, 31 October 2023, 1, 2, 6, 7, 8, 9, 13, 14, 15, 16, 20, 21, 22, 23, 27, 28, November 2023, 14, 15, 18, 19, 20 & 21 December 2023
A1 | The parties | §1–6 |
A2 | The nature of the claims in outline | §7–26 |
A3 | Summary of conclusions | §27–31 |
B | Break cost claims | §32 |
B1 | Outline facts relating to each claimant | §32–56 |
B2 | The corresponding NAB Hedges | §57 |
B2(a) | The legally binding nature of the CNHs | §59–93 |
B2(b) | Construction of the Standard Conditions | §94–195 |
B2(c) | Construction of the Janhill LMA | §196–204 |
B3 | The claims in misrepresentation | §205 |
B3(a) | Misrepresentation: the law | §206–227 |
B3(b) | Certain issues common to the claims in misrepresentation | §228–237 |
B3(c) | Dishonesty | §238–279 |
B3(d) | Issues specific to Farol's claim | §280–309 |
B3(e) | Issues specific to Janhill's claim | §310–337 |
B3(f) | Issues specific to Uglow's claim | §338–342 |
B3(g) | Issues specific to Gaston's claim | §343–347 |
B4(a) | Unjust enrichment | §349–368 |
B4(b) | Breach of contract | §369–373 |
C | Fixed rate representations | §374 |
C1(a) | The objective question common to all the claims | §379–402 |
C1(b) | Four further preliminary matters common to all the claims | §403–421 |
C2 | Farol's claim | §422–492 |
C3 | Janhill's claim | §493–539 |
C4 | Uglow's claim | §540–587 |
C5 | Deceit and the fixed rate representations | §588 |
C5(a) | Matters common to the claims in deceit | §589–619 |
C5(b) | Farol's claim in deceit | §620–633 |
C5(c) | Janhill's claim in deceit | §634–654 |
C5(d) | Uglow's claim in deceit | §655–675 |
D | Limitation | §676 |
D1 | Extension of time period: legal principles | §680–705 |
D2 | Limitation — Farol | §706–715 |
D3 | Limitation — Janhill | §716–739 |
D4 | Limitation — Uglow | §740–743 |
D5 | Limitation — Gaston | §744–750 |
E | Unfair relationship | §751–815 |
F | Conclusion | §816–817 |
Appendix | Allegations of deceit against Mr Thorburn, Mr Pickard, Mr Storey and Mr Golding | App.§1–110 |
A1. The parties
These are claims by four small or medium-sized enterprises (“SMEs”) arising out of fixed interest rate loans made to them between 2002 and 2010 by the first defendant, Clydesdale Bank PLC (“CB”).
CB is a bank registered in Scotland, which traded under the name ‘Clydesdale Bank’ in Scotland and many parts of England, and under the name ‘Yorkshire Bank’ in Yorkshire.
Until February 2016, CB was a wholly owned subsidiary of the second defendant, National Australia Bank Limited (“NAB”), and was part of the NAB group of companies. I will refer to the defendants, together, as the “Banks”.
The first three claimants are parties to one action. The first claimant, Farol Holdings Limited (“Farol”), is the parent company of Farol Limited which carries on business as a wholesale supplier of agricultural machinery, equipment and supplies, from its head office in Milton Common, Oxfordshire. The second claimant, Janhill Limited (“Janhill”), is a property investment company based in Macclesfield. The third claimant, Mr and Mrs TPW Uglow (“Uglow”), is a partnership which carries on dairy farming activities in Cornwall.
The fourth claimant, Ivor Gaston & Son (“Gaston”), is a partnership which carries on cattle and pig farming activities in Scotland and has brought a second action that has been tried together with the first action.
In excess of 900 other claimants, mostly represented by the same firm of solicitors representing the four claimants in these two actions, have commenced proceedings seeking materially similar relief to that sought in these two actions. Those other claims have been stayed by agreement, awaiting the result of these two actions.
A2. The nature of the claims in outline
The claims all relate to a product marketed and sold by CB between about 1999 and 2012, called a “Tailored Business Loan” (“TBL”). This was a product that NAB had been successfully selling in Australia for some time before 1999. TBLs took various forms, including variable rate loans, fixed rate loans and a variety of more complex structures involving collars, caps and floors. This case is concerned with only one of them, a fixed rate TBL (“FRTBL”), where the loan was made for a set period (subject to a right of early repayment) for a fixed rate of interest throughout that period.
TBLs were not regulated products. They nevertheless required a level of know-how and expertise on the part of the bank selling them. Moreover, a bank that enters into fixed rate loans exposes itself to an interest rate risk. To manage that risk, it requires capital, systems and specialist staff including interest rate traders.
CB's staff did not, whereas NAB's staff did, have the requisite expertise. Accordingly, NAB's employees were closely involved in marketing and selling TBLs to CB's customers. The process was a joint one involving the customer's relationship manager at CB and representatives of NAB's “Treasury Solutions” department. The Treasury Solutions staff had access to market data, to enable them to provide quotes for the purpose of pricing FRTBLs, and worked alongside interest rate traders at NAB.
CB did not at the time have the capability to manage the interest rate risk inherent in FRTBLs, so it transferred, at inception of each FRTBL, the entirety of that risk to NAB. NAB then managed the risk assumed under the FRTBLs as part of the management of interest rate risk across its business on a macro- or portfolio-wide basis.
The transfer of risk was effected, in relation to each FRTBL, by way of a back-to-back corresponding hedge transaction between CB and NAB (the “corresponding NAB hedge”, or “CNH”), which exactly mirrored the terms of the relevant FRTBL in terms of (notional) amount, interest rate and repayment terms. CB was the fixed rate payer, and NAB the floating rate payer.
For the customer, the benefit of a FRTBL was that it provided certainty as to the amount of interest it would have to pay over the life of the loan. It was protected from interest rate rises. If interest rates fell, on the other hand, it would continue to be burdened with above market rates of interest for the remainder of the term of the loan.
As a result of the global financial crisis in 2008, interest rates fell dramatically, and stayed low for many years. Each of the claimants wished, for varying reasons, to refinance their FRTBLs and ended up repaying the capital amount of the loan early. They did so pursuant to a clause in the standard terms and conditions governing their loan (the “Standard Conditions”), which permitted them to repay early on terms (broadly) that they paid CB an amount equal to any loss, cost or liability incurred or suffered by it as a result of that early repayment. The amounts the claimants were required to pay are referred to as “break costs”.
Upon termination of a FRTBL, the CNH was also terminated. In relation to each of the claimants, this resulted in a payment becoming due from CB to NAB in an amount equal to NAB's loss under the CNH, calculated as the net present value (“NPV”) of the difference between the interest payable by CB to NAB at the fixed rate for the remainder of the term, and the estimated amount of interest NAB would have been due to pay CB at the floating rate for the remainder of the term. This sum was calculated by NAB's traders. CB then typically charged the same amount to the customer as break costs under the FRTBL.
This was the way break costs were calculated and charged to Farol, Uglow and Gaston. By the time that Janhill refinanced its FRTBLs, the FRTBLs had been assigned from CB to NAB, under a transaction dated 5 October 2012, called the “Morph Transaction”, pursuant to which all of CB's commercial real estate lending business was transferred to NAB. There was accordingly no longer a CNH in place (although there was a purely internal swap within NAB on the same terms). The break costs charged to Janhill were nevertheless calculated in materially the same way, as the NPV of the difference between interest due at the fixed rate under the FRTBLs and interest at prevailing rates for the remainder of the term (on the basis that this was the return NAB could expect to make on the repaid capital sum over that period).
The claims in these actions fall into two parts. The first part relates to the break costs charged by CB to the claimants (the “break costs claims”). The second relates to the fixed element in the rate of interest charged under the FRTBLs (the “fixed rate claims”).
The break costs claims
At the heart of the break costs claims is the claimants' contention that CB was not entitled to charge break costs in the way that it did. The claimants initially contended that CB was not entitled to charge break costs by reference to the amount it paid under...
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