Mr Clive Richard Davis v Lloyds Bank Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Phillips,Lord Justice Warby |
| Judgment Date | 16 April 2021 |
| Neutral Citation | [2021] EWCA Civ 557 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2020/1184 |
| Date | 16 April 2021 |
[2021] EWCA Civ 557
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
FINANCIAL SERVICES AND REGULATORY SUB-LIST
Sarah Worthington QC (Hon) sitting as a Deputy High Court Judge
FS-2018-000009
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Phillips
and
Lord Justice Warby
Case No: A3/2020/1184
David McIlory & Lloyd Maynard (instructed by Mayo Wynne Baxter LLP) for the Appellants
Javan Herberg QC & Simon Pritchard (instructed by Addleshaw Goddard LLP) for the Respondents
Hearing dates: 30 th and 31 st March 2021
Approved Judgment
Introduction and issues
Mr Davis bought two interest rate swaps in 2002 and 2005 respectively from Lloyds Bank plc (“the bank”). He participated in a review process under an arrangement made between the bank and the Financial Conduct Authority. As a result of the review the bank offered him compensation in respect of both financial products. Mr Davis accepted the basic redress offer in relation to the 2002 swap; but not in relation to the 2005 swap. He says that he is entitled to bring an action for breach of statutory duty against the bank in relation to the swaps. The alleged breach is not the original alleged mis-selling of the interest swaps; but relates to the bank's conduct of the review process.
The obligations on which he relies are obligations contained in a Chapter of the FCA Handbook entitled “Dispute Resolution: Complaints”. Those obligations come into operation following the making of a complaint (as defined).
That claim led to the formulation of two preliminary issues. They were:
i) 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?”
ii) 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?”
Mr Davis needed to succeed on the first of those issues if his underlying claim was to progress to a full trial. If he succeeded on that issue, but failed on the second, then the scope of any trial would be more limited. The trial of those preliminary issues came before Dame Sarah Worthington DBE QC (Hon), sitting as a judge of the Chancery Division. She decided both issues against Mr Davis. In her judgment she held that Mr Davis had not made a complaint sufficient to trigger the DISP rules; and that even if he had, those rules did not require the bank to deal with the complaint in accordance with the review procedure agreed between 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 judge was wrong on the first issue; with the consequence that we did not need to hear argument on the second issue, and that the appeal would be dismissed. We said that we would give reasons in due course. These are my reasons for joining in that decision.
Factual background
Mr Davis and Mr Watkins were the ultimate beneficial owners of property in the City of London, legal title to which was held by Valleymist Ltd. In 2002 they entered into a loan agreement with the bank for £8 million. A few days later they entered into a 10-year interest rate swap with the bank. In 2003 Mr Davis bought out Mr Watkins' interest; and in January 2005 Valleymist was replaced by Deanweald Ltd as holder of the legal title. On 26 January 2005 the 2002 interest rate swap was broken, with break costs of £177,000-odd. Those break costs were embedded in a new swap; which was for an 18-year term. Apparently this is called “blend and extend” in the jargon. The loan was refinanced at the same time. Payments were made until January 2010 but payments due in April 2010 were not. Mr Davis says that this was because of difficulties with the tenant of part of the property. The bank made a formal demand for payment in June 2010; and appointed LPA receivers. In July 2010 the bank terminated the 2005 swap. The break costs were £1.4 million-odd which were debited to Deanweald's account. In 2011 the receivers sold the property; and the net proceeds of sale were credited to Deanweald's account. There is a dispute about the state of the account following those debits and credits.
Regulation
Financial services are regulated by the Financial Services and Markets Act 2000 (“ FSMA”) as amended; and regulations made pursuant to powers conferred in it. The relevant regulator in this case is the Financial Conduct Authority (previously called the Financial Services Authority “FCA”). The FCA has power to make rules: FSMA s 137A. The relevant rules are contained in the FCA Handbook. Among the rules contained in the FCA Handbook are the Rules on Dispute Resolution and Complaint Handling (“DISP”). If there is a breach of the rules, then in principle a private person may bring an action for breach of statutory duty; unless the rule in question has been specified as being one to which that principle does not apply: FSMA s138D. The definition of a “private person” was left to subordinate legislation; and the definition is to be found in regulation 3 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001. It is common ground that Mr Davis is a private person as defined. It is not a pre-condition to bringing an action that the claimant has made a complaint (as defined); but the usual statutory provisions about limitation periods apply.
The FCA has wide powers to require the provision of information and documents reasonably required in connection with its exercise of functions conferred on it by or under the Act: FSMA section 165. It also has power to require a skilled person to provide it with a report on any matter about which the FCA has required or could require in exercise of its power to require information or documents: FSMA section 166.
Section 384 of FSMA enables the FCA to require a provider of financial services to make redress where that person has contravened a relevant requirement; and has either profited from the contravention, or has caused another person to suffer loss. That power is a power to require a provider of financial services, in accordance with such arrangements as the FCA considers appropriate, to pay to the appropriate person or distribute among the appropriate persons such amount as appears to the FCA to be just, having regard to various factors.
Part XVI of FSMA provided for the establishment of an ombudsman scheme, which is called “the Financial Ombudsman Service” (“FOS”). Its purpose was to have certain disputes resolved quickly and with minimum formality by an independent person: FSMA s 225. The extent of FOS's jurisdiction is contained in rules made by the FCA. In relation to FOS's compulsory jurisdiction, rules are limited to regulated activities. It is not usually possible to bring a dispute before FOS unless the customer has first made a complaint (as defined). But the review agreement did provide for this possibility.
Section 404 of FSMA enables the FCA to require a provider of financial services to set up a consumer redress scheme. It provides:
“(1) This section applies if— (a) it appears to the Authority that there may have been a widespread or regular failure by relevant firms to comply with requirements applicable to the carrying on by them of any activity; (b) it appears to it that, as a result, consumers have suffered (or may suffer) loss or damage in respect of which, if they brought legal proceedings, a remedy or relief would be available in the proceedings; and (c) it considers that it is desirable to make rules for the purpose of securing that redress is made to the consumers in respect of the failure (having regard to other ways in which consumers may obtain redress). …
(4) A ‘consumer redress scheme’ is a scheme under which the firm is required to take one or more of the following steps in relation to the activity.
(5) The firm must first investigate whether, on or after the specified date, it has failed to comply with the requirements mentioned in subsection (1)(a) that are applicable to the carrying on by it of the activity.
(6) The next step is for the firm to determine whether the failure has caused (or may cause) loss or damage to consumers.
(7) If the firm determines that the failure has caused (or may cause) loss or damage to consumers, it must then— (a) determine what the redress should be in respect of the failure; and (b) make the redress to the consumers.”
The agreement between the bank and the FCA
Following widespread concern about the possibility that sophisticated financial products might have been mis-sold to consumers, the regulator carried out an investigation. As a result of the investigation, it identified serious failings in the sale of such products. It therefore entered into review agreements with a number of banks, including Lloyds. Those agreements provided that each bank would review its sales of interest rate...
To continue reading
Request your trial