Mr Clive Richard Davis v Lloyds Bank Plc
| Jurisdiction | England & Wales |
| Judge | Sarah Worthington |
| Judgment Date | 03 July 2020 |
| Neutral Citation | [2020] EWHC 1758 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: FS-2018-000009 |
| Date | 03 July 2020 |
[2020] EWHC 1758 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN ENGLAND AND WALES
BUSINESS LIST (ChD)
FINANCIAL SERVICES AND REGULATORY SUB-LIST (FS)
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Sarah Worthington QC(Hon) sitting as a Deputy High Court Judge
Claim No: FS-2018-000009
David McIlroy and Lloyd Maynard (instructed by Mayo Wynne Baxter Solicitors) for the Claimant
Javan Herberg QC and Simon Pritchard (instructed by Addleshaw Goddard LLP) for the Defendant
Hearing dates: 10, 11 February 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Sarah Worthington QC(Hon)
Sarah Worthington QC(Hon):
The issues
Mr Davis claims to be entitled to bring an action for breach of statutory duty against Lloyds Bank plc. The claim is said to arise out of the conduct by Lloyds Bank plc of a review process that was agreed between the Financial Services Authority and Lloyds Bank plc in June 2012, and later updated in 2013. The review process concerned the mis-selling of certain types of interest rate hedging products to unsophisticated customers on or after 1 December 2001.
Mr Davis was involved in two of these interest rate hedging products. Both were reviewed under this agreed review (“ the Review”). Mr Davis accepted the outcome of the review of the first product, but not the second. It is the review of this second product which is now in dispute.
Mr Davis (“ C”) does not seek damages for mis-selling, which is not pleaded. Instead he seeks substantial damages (c.£30m) for breach by Lloyds Bank plc (“ D”) of its statutory duty, in particular breach of the rules contained in the FCA Handbook, which C suggests also incorporate the detailed processes and practices agreed in June 2012, and later updated in 2013, between the Financial Services Authority and D for the conduct of the Review (in its final version, “ the Review Agreement” or simply “ the Agreement”). This is notwithstanding that the Agreement was confidential to the two parties signing it, and expressly gave no rights to third parties.
Two preliminary issues arise for resolution here. The answers will determine whether a full trial of C's claim should take place. The two issues are set out in full at para [14], but at a fundamental level they concern the extent to which it is possible to build a bridge between the Review processes detailed in the Agreement and the general statutory review processes provided for under the Financial Services and Markets Act 2000 (“ FSMA 2000”), so that the general statutory duties that are actionable by individuals such as C also incorporate within their ambit the terms of the private voluntary Review Agreement between the Financial Services Authority and D.
Outline of the claims leading to the preliminary issues requiring determination
Interest rate hedging products (“ IRHPs”) are products designed to enable borrowers to manage fluctuations in interest rates, and thus reduce the risk of changes in an otherwise variable rate of interest on their loans. These hedging products vary from the relatively simple to the very complex. The Financial Services Authority, as the statutory regulator of the banks, considered that there had been serious failings in the way banks had sold these products to unsophisticated individuals, including small and medium sized businesses.
Rather than entering into enforcement proceedings against the banks, the regulator entered into without prejudice settlement discussions, and, in June 2012, reached agreement with D, as well as with other High Street banks, providing that each bank would review its sales of IRHPs to “non-sophisticated customers” during the period from 1 December 2001 and provide appropriate redress where mis-selling had occurred.
In June 2012, the Financial Services Authority announced the existence of the Review but not its terms. Those remained confidential until February 2015, when they were made public by the Treasury Select Committee.
On 1 April 2013, the Financial Services Authority was renamed the Financial Conduct Authority (“ FCA”), and for simplicity this judgment refers to the regulator throughout as the FCA.
C is an individual who accepted D's invitations to participate in the Review. He and other individuals and entities (variously Mr Watkins, Valleymist Limited, Borncross Limited and Deanweald Limited) had entered into two IRHPs, namely two swaps. The first was entered into in 2002 (“ the 2002 Swap”) and the second in 2005 (“ the 2005 Swap”), together “ the Swaps”. D carried out reviews of the sale of these Swaps and determined that remediation, in the form of redress, was due.
D's redress offer was assessed on the basis of a “tear up” for the 2002 Swap: i.e. on the basis that C would not have entered into any swap arrangement at all had D followed proper processes, and therefore C should not have incurred any of the costs associated with the 2002 Swap. By contrast, the redress offer for the 2005 Swap was assessed on the basis that C would still have entered into a protective IRHP, but one that was structured so as to attract lower costs. C is dissatisfied with the latter determination, insisting, amongst other things, that it too should have been assessed on the basis of a tear up.
C does not seek damages for mis-selling, but instead seeks substantial damages for D's breach of statutory duty. That route to a damages claim requires C to have made a “complaint”, as that term is defined in the relevant regulatory dispute resolution rules of the FCA (“ the DISP rules”). A complaint meeting that definition is labelled here as “ a DISP Complaint”. C alleges he made a DISP Complaint in relation to both Swaps, and specifically in relation to the 2005 Swap. D disagrees. This is “ Issue 1” in the preliminary determinations required to be made here.
Having made such a DISP Complaint about the sale of the Swaps, C says that the DISP rules required D to assess that DISP Complaint in a particular way, and that a specific aspect of that duty was an obligation to assess the complaint in accordance with the terms of the Review Agreement. This is “ Issue 2” in the preliminary determinations required to be made here. If Issue 2 goes against C, then C's alternative claim is simply that D failed to comply with the DISP rules in reaching its assessment of C's DISP Complaint, even if those rules do not incorporate the terms of the Agreement. In either case, C claims that under FSMA 2000 s.138D(2) he is entitled to substantial damages arising from D's breach of statutory duty. All the relevant definitions are set out below.
In its defence, D contends that C's claim is fundamentally flawed because it misunderstands the nature of the Review process. D says that the Review process was not contingent on C making a DISP Complaint: C did not participate in the Review as a complainant, but rather as a result of his accepting an invitation to participate. The terms of the Review were set out in the Agreement between D and the FCA that was expressly confidential and provided that no third party had any right to enforce its terms. D says that the explicit nature and purpose of the Agreement is thus inconsistent with the proposition that its terms were incorporated into D's statutory DISP obligations. Instead, the Review was a process quite separate from the DISP process: it was in the nature of a mediated settlement process leading to an offer of redress which C was free to accept, or he could reject it and pursue his legal rights.
The two issues noted above for preliminary determination emerged by way of an order dated 8 April 2019, in which Deputy Master Rhys directed that there be a trial of two preliminary issues (“ the Preliminary Issues”):
(a) Issue 1: “Did the Claimant make a complaint for the purposes of the rules in the Chapter of the FCA Handbook entitled ‘Dispute Resolution: Complaints’ (“DISP”) in relation to the sale of the interest rate hedging products which are the subject matter of the proceedings?”
(b) Issue 2: “If so, was the Defendant bound by the statutory duties under DISP 1.4.1R to assess the Claimant's purported complaint in accordance with the terms of what had been agreed between the Defendant and the Financial Conduct Authority regarding the Defendant's review process into interest rate hedging products?”
These Preliminary Issues are principally questions of law, but the court also heard evidence from two witnesses: first C, who gave evidence as to the circumstances in which he came to participate in the Review and his early engagement with it; and secondly Mr Thompson, a consultant engaged by D, who gave evidence as to the nature of the Review process. Much of the evidence was not in dispute, it being evident from the primary documentation before the court, but where additional input from the witnesses is relevant it is incorporated into the discussion of Issue 1 below. In that discussion I make reference to the evidence provided by Mr Davis, but not to the evidence provided by Mr Thompson. Although I benefited from Mr Thompson's clear input, the court had before it all the original documentation needed to address the Preliminary Issues, and I have referred directly to that, without needing to rely further on his additional perspectives.
As noted above, if Issue 1 goes against C then there is no need for a trial; if Issue 1 is in C's favour but not Issue 2, then the trial will be on different terms, not including the terms of the Review Agreement.
Legal Background
To fully understand C's claim, it is necessary to understand the tiers of legal...
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Mr Clive Richard Davis v Lloyds Bank Plc
...the bank and the FCA. Her judgment, which contains a fuller account than is necessary for the resolution of this appeal, is at [2020] EWHC 1758 (Ch). Mr Davis now appeals. At the conclusion of the first day of the hearing, we informed the parties that we had not been persuaded that the jud......