Thornbridge Ltd v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | Her Honour Judge Moulder |
| Judgment Date | 27 November 2015 |
| Neutral Citation | [2015] EWHC 3430 (QB) |
| Docket Number | Case No: A40MA156 |
| Court | Queen's Bench Division |
| Date | 27 November 2015 |
[2015] EWHC 3430 (QB)
Her Honour Judge Moulder
(sitting as a Judge of the High Court)
Case No: A40MA156
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
MERCANTILE COURT
Richard Coleman QC and Steven McGarry (instructed by Aticus Law, Solicitors) for the Claimant
Andrew Mitchell QC and David Murray (instructed by Matthew Arnold and Baldwin, Solicitors) for the Defendant
Hearing dates: 2–6 November 2015
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.
In this matter the claimant, Thornbridge Limited, seeks damages for losses which it alleges it suffered as a result of entering into an interest rate swap with Barclays Bank PLC in 2008. The claimant alleges that the defendant was negligent and/or in breach of contract and/or in breach of statutory duty in respect of information and advice given to the claimant in relation to the swap.
Background and Chronology
The claimant was a private limited company. The directors were James Harrison and his wife, Emma Harrison but James Harrison was principally responsible for its management. The claimant was a property investment business. In March 2008 the claimant sought a loan from the defendant to purchase a property known as "Queens House" in Sheffield. The property was at the time let to an entity known as Capita but there was only 12 months left on the lease and the intention was that the property would be let to A4E, a company specialising in the retraining of the unemployed with several government contracts which was founded by Emma Harrison who was both a director and owner.
Discussions took place with representatives of Barclays over the loan and the level of security that would be required including the cover that the rental income could provide. It was estimated that the annual rental value at £665,000 would provide 111% rental cover.
The loan agreement was entered into on 16 April 2008 (the "Loan"). The material terms of the Loan were that it was for an amount of £5,652,000, a term of 15 years and an interest rate calculated by reference to Barclays' base rate plus a margin of 1.5% payable quarterly (p205). The monthly instalments on the Loan were stated in the loan offer letter to be £50,069.75 comprising capital and interest payable in 180 monthly instalments from the drawdown date of the loan.
It was a condition of the loan stated in the offer letter that before the loan was drawn down the claimant " shall either execute an interest rate hedge acceptable to the Bank which shall limit the aggregate interest cost of the Borrower in respect of at least 100 per cent of the Loan for a minimum period of 5 years or alternatively the interest rate is to be on a fixed basis for the first five years on the whole amount of the borrowing."
It was anticipated that the lease with A4E would provide the income to service the loan.
The relationship manager for Barclays, Mr Marsh put Mr Harrison in touch with Barclays Capital, the investment banking division of Barclays to discuss interest rate hedging. Several discussions took place over the telephone between Mr Burgess of Barclays Capital and Mr Harrison notably on 9 May, 21 May and 29 May 2008. There were also email exchanges on 9 May and on 21 May. A presentation entitled "Interest Rate Risk Management Strategy" was sent by Mr Burgess to Mr Harrison with the email of 9 May. During these discussions Mr Burgess told Mr Harrison that if the claimant entered into a fixed rate interest rate swap at the rate of 5.68% (the then prevailing swap rate) it would be paying £51,388 per month irrespective of how rates moved.
Following these discussions on 30 May 2008 the claimant entered into a swap agreement with the defendant: the agreement was made orally over the telephone in a conversation between Mr Harrison and Mr Tuesley of Barclays Capital and the parties then entered into a written swap confirmation dated 9 June 2008 which incorporated the 1992 ISDA master agreement.
The material terms were that the swap had an effective date of 30 May 2008 and a termination date of 30 May 2013. The initial notional amount was £5,652,000 (the same as the loan) which then reduced monthly as set out in the schedule attached to the swap agreement. Under the swap agreement Barclays paid to the claimant on 30 th of each month an amount calculated by reference to the weighted average of the base rate for that month and the claimant paid to Barclays a fixed amount each month calculated at the rate of 5.65% per annum (a slight reduction from the rate of 5.68% discussed on the phone call). Both the fixed and floating payments were calculated by applying the relevant interest rate to the relevant (declining) notional amount set out in the swap schedule for the relevant period. (p379)
The payments under the loan and swap commenced in July 2008. Barclays' base rate reflects the Bank of England base rate. (It is common ground that Barclays base rate was aligned with the Bank of England base rate; the precise timing of changes to the Barclays base rate following a change to the Bank of England rate is unclear but of no relevance to the issues in this case). In 2008 there were a number of reductions in the Bank of England base rate. Even before the loan was drawn down, on 10 April 2008 there was a reduction from 5.25% to 5.00%.
Further reductions followed:
October to 4.5%,
November to 3%
December to 2%
January 2009 to 1.5%
February to 1%
March to 0.5%
From July through to November, the monthly payments under the loan agreement continued to be paid by the claimant in the amount of £50,069.75 but the swap payments due from the claimant to Barclays increased as the net amount increased. In other words although the swap amount payable by the claimant was fixed, as the floating amount payable by Barclays reduced with the falling base rate, the difference between the fixed amount payable by the claimant and the floating rate payment payable by Barclays increased.
The amounts debited were as follows: –
| Date | Loan | Swap | Total | Base rate |
| 2 July | £50,069 .75 | £3120 .22 | £53,189.97 | 5 |
| 30 July | - | £3008 .52 | ||
| 4 August | £50,069.75 | £53,078.27 | ||
| 29 August | £2997.02 | |||
| 2 September | £50,069 .75 | £53,066.77 | ||
| 30 September | £3184.49 | |||
| 2 October | £50,069 .75 | £53,254.24 | ||
| 30 October | £4652.71 | 4.5 (wef 8.10) | ||
| 3 November | £50,069 .75 | £54,722.46 | ||
| 30 November | £10,081.92 | 3%(wef 6.11) | ||
| 2 December | £59,069.75 (amended to £40,856.53) | £50,938.45 | ||
| 30 December | £16,767.38 | 2% (wef 4.12) | ||
| 2 January | £40,856.53 | £57,623.91 | ||
| 30 January | £18,718.04 | 1.5% (wef 8.1) |
I note that counsel for the claimant in his written submissions sought to provide monthly totals by combining the payment under the swap at the start of the month with the loan payment at the end of the month. Whilst I accept the submission that the combined loan and swap payments were more than the figure indicated by Mr Burgess on 29 May 2008, namely £51,388, in my view the correct approach to the monthly totals is to take the linked payments and these are the payments falling in the case of the swap at the very end of the month and for the loan at the start of the following month as these represent the linked amounts.
In January 2009 Mr Harrison complained to Barclays about the increase in the claimant's monthly payments. He was told that it was due to Barclays not making adjustments to the loan interest payments following the base rate falls and that as a result the excess of the monthly payments over the interest due had been allocated to principal repayments.
On 26 January 2009 Mr Harrison made a formal complaint to Mr Marsh:
" Having taken out a policy that was insisted on by the bank to protect my company and the bank's position I simply do not understand how this situation has been allowed to develop – the total cost of the mortgage now exceeds income expectations detailed in leases…"
In response to the complaint Barclays then made adjustments to the account, by crediting to the claimant's current account an amount of principal of £23,575.69 effectively allowing the claimant to redraw that amount of the loan which had been repaid through the monthly overpayments and fixed the standing order payments to be made by the claimant at £51,292.85.
Between June and October 2009 the claimant requested a restructuring of the swap but was quoted an indicative breakage cost of £565,000 (p454). Given the size of the breakage costs, the claimant did not want to pay the breakage costs and the swap continued to maturity.
The claim
The claim in this case has been amended and restated over the months leading up to trial up to and including the application (largely rejected) to amend the pleaded case on the first day of the trial. The result is a lengthy pleading which is repetitive in parts and from which it is not easy to determine the precise case now alleged. Against that background it seems to me that the claim as set out in the Re-Re-Amended Particulars of Claim is in summary as follows: the claimant alleges breach of Hedley Byrne advisory and information duties in that the defendant failed to advise the purchase of a suitable product and/or failed to take reasonable care to ensure information was not misstated by actual misstatement, omission or partial omission.
There are three grounds on which the claimant alleges the defendant failed to ensure the derivative product was suitable: the warnings as to break costs...
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