Mark Thomas Raymond Bailey and Another v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | H.H. Judge Keyser |
| Judgment Date | 27 August 2014 |
| Neutral Citation | [2014] EWHC 2882 (QB) |
| Docket Number | Claim No: 3CF40003 |
| Court | Queen's Bench Division |
| Date | 27 August 2014 |
[2014] EWHC 2882 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CARDIFF DISTRICT REGISTRY
MERCANTILE COURT
Cardiff Civil Justice Centre
2 Park Street
Cardiff, CF10 1ET
His Honour Judge Keyser QC
sitting as a Judge of the High Court
Claim No: 3CF40003
David Berkley QC and Steven McGarry (instructed by Anthony Jeremy & May) for the Claimant
Richard Hanke (instructed by Simmons & Simmons LLP) for the Defendant
Hearing dates: 5 and 6 August 2014
H.H. Judge Keyser Q.C.:
Introduction
This is my judgment upon two distinct but related applications: first, the defendant's application, by application notice dated 21 March 2014, for an order to strike out parts of the particulars of claim or, in the alternative, for summary judgment; second, the claimants' application, by application notice dated 6 June 2014, for permission to amend the particulars of claim.
Before discussing the issues that arise on the applications, I shall describe briefly the background to the proceedings and something of the procedural history of the case. In doing so, I shall refer to the parties as follows: the first claimant, as Mr Bailey; the second claimant, as the Company; the defendant, as the Bank. As I shall explain later in this judgment, it is expected that the parties will shortly file a proposed consent order for the disposal of Mr Bailey's claim; the parties invite me to consider the two applications only as they concern the Bank and the Company, and I shall do so.
The factual background
Mr Bailey is a businessman. Over the years he has conducted his business by means of several limited companies, one of which is the Company. Mr Bailey and the companies were customers of the Bank, with which they had borrowings. For several years the Bank's Relationship Manager with responsibility for the accounts held by Mr Bailey and his companies was Mr Mark Standley. I shall summarise the main parts of the factual case put forward by the claimants; not all of it is accepted and some of it is disputed.
Mr Bailey and Mr Standley enjoyed a good social as well as professional relationship and were friends. In 2006 Mr Bailey began to discuss with Mr Standley the possibility of borrowing money from the Bank for the purpose of funding the purchase of premises at which one of his companies carried on business. At the same time Mr Bailey was expressing concern about the costs, in interest and charges, of the business overdraft on one of the companies' accounts. In that context, in late 2006 and early 2007 Mr Standley did several relevant things on behalf of the Bank. He agreed in principle to lend Mr Bailey £1.26 million for the purchase of the business premises. He suggested that the existing overdraft borrowings be converted into a loan to Mr Bailey for a fixed term at a lower rate of interest. He warned Mr Bailey that interest rates would rise sharply: they were "going to go through the roof". And he recommended to Mr Bailey that he protect himself against future rises of interest rates by entering into a rate swap agreement. Mr Bailey was not familiar with such hedging products, but after Mr Standley had given him some explanation he understood that the proposed swap agreement would be a kind of insurance policy against future rises in the interest rate.
On 1 February 2007 Mr Standley visited Mr Bailey at his office, bringing with him a "Customer Agreement", which at his request Mr Bailey signed "to get the ball rolling with the Swap Agreement". Also on that occasion, Mr Bailey spoke by telephone for the first time to another employee of the Bank, Mr Paul Shaftoe. Mr Shaftoe was an investment adviser approved by the Financial Services Authority under Part III of the Financial Services and Markets Act 2000 ( FSMA) for the purpose of the specified controlled function of giving investment advice. Mr Standley was not so approved. After the telephone conversation, Mr Shaftoe sent to Mr Bailey a document ("the February 2007 Presentation"), which described three products relating to interest rate management: an interest rate swap; a cancellable interest rate swap; and an interest rate cap.
In April 2007 Mr Bailey took a Treasury Loan from the Bank for £1.26 million at a marginal rate of 1.1% over base rate, repayable over ten years. The loan agreement gave Mr Bailey the right to request the Bank to quote a fixed interest rate for a fixed period. Also in April, the Bank sent to Mr Bailey an offer, addressed to the Company, for an overdraft facility of £650,000 at a marginal rate of 1.75% over base rate. When Mr Bailey queried why the offer was made to the Company and not to him, and why it was for an overdraft and not for a loan as had been discussed, Mr Standley told him that the Bank would make him a personal loan of £650,000, provided he entered into an interest rate swap agreement for a notional figure of £2 million, which would cover both the Treasury Loan and the further loan. Mr Standley repeated his earlier advice that interest rates were going to rise and assured him that the swap agreement would provide protection against such rises.
Accordingly on 1 May 2007 a meeting took place between Mr Bailey, Mr Standley and Mr Shaftoe. Mr Standley repeated the advice and recommendations he had given previously. Mr Shaftoe did not dissent from anything that Mr Standley said; he positively agreed with his prediction regarding rises of the interest rate and predicted that there would be a long period of sustained increases in interest rates. He specifically recommended that Mr Bailey take the first of the three products mentioned in the February 2007 Presentation, namely, the interest rate swap. On 4 May 2007 Mr Bailey entered into the Swap: it was for a notional amount of £2 million, non-amortising, at a fixed rate of 5.64% for a fixed term of 10 years.
Mr Bailey makes a number of complaints about the suitability of the Swap and the manner in which he was sold it; I refer to some of these more specifically below. Here I may mention two specific points. First, he says that it was disastrous, because it tied him into the transaction at a time when, far from "going through the roof", interest rates were reducing to historically low levels, with the result that he was paying large amounts of money each month to the Bank. The tie-in was achieved by the provision in the Swap agreement of liability for payment of breakage charges if the agreement were terminated prematurely. Second, the notional amount for the purpose of the Swap was far in excess of his actual borrowings—he was, in effect, paying interest on non-existent debts—because the loan for £650,000 was not made to him until January 2009. (I ought to mention that the Bank's case is that discussions about a loan for £650,000 did not commence until late 2008 and that the notional figure in the Swap was selected at the specific request of Mr Bailey.) It is Mr Bailey's case that from 2009 onwards he made "one complaint after another", first to Mr Standley and then to his successor, Mr McHale, concerning the high cost to him of the Swap agreement.
In 2010 Mr Bailey took advice from Deloitte LLP in connection with the proposed restructuring of his borrowings for tax-management purposes, which was to involve the transfer of properties from his personal portfolio to the Company. In January 2011 representatives of the Bank met with Mr Bailey and representatives of Deloitte. In his witness statement dated 4 March 2014 Mr Bailey says this concerning that meeting:
"Mr McHale pointed out that the Agreement with the Bank for the loan had to be with the same borrower under the Rate Swap Agreement, and so made it clear that the Bank could not transfer the loan to the Company unless the Company also took over the Rate Swap Agreement. The only alternative, he said, was for me to break the Swap Agreement, but that this would involve me in paying a large breakage fee. I certainly did not want the Rate Swap Agreement to be transferred to [the Company], and I did not ask for this to be done. I wanted to end it altogether."
Thereafter the Bank told Mr Bailey that the breakage fees payable if he broke the Swap Agreement would be $560,000, but that he could avoid that liability by novating the Swap Agreement to the Company. "On receiving that information, it was clear to me that I had no choice but to agree to the novation of the agreement, and I told Mr McHale that the rate swap agreement would be signed by the Company because I had no choice."
Under cover of a letter dated 17 March 2011, which was headed "Classification as a Retail Client and Terms of Business—Response Required", the Bank provided to the Company its Terms of Business for Retail Clients ("Retail Client Agreement"), to which I shall refer below. On 4 April 2011 "the Swap was novated by being transferred from [Mr Bailey] to [the Company] in order to avoid substantial break costs, which would otherwise have arisen from early termination of the Swap" (particulars of claim, paragraph 65). On 12 April 2011 the Bank issued two documents: a Rate Swap Confirmation, and a Novation Confirmation. Mr Bailey signed both of those documents, on his own behalf and on behalf of the Company, on 14 April 2011. Thereafter the Company has been subject to the Swap on terms identical to those to which Mr Bailey was formerly subject.
The existing particulars of claim
Against that general background, I may summarise in broad terms the case that is advanced in the particulars of claim in their present form.
1) Mr Bailey is a "private customer" within the meaning of the FSA's Conduct of Business Sourcebook Rules ("COBS Rules": cf. paragraph 21 below) and, as a "private person" within the terms of the Financial Services and Markets Act 2000...
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