Green & Rowley v RBS 2013
The Court of Appeal has up-held the decision of His Honour Judge Waksman QC in one of the first major cases involving the sale of IRHPs. The judgment at the Court of Appeal is a negative one, but is
on a very narrow point.
What does this mean?
Experienced solicitors in this field hold the sensible view that IRHP cases necessitate the same depth of analysis and tactical commercial acumen that is required in most complex commercial litigation
disputes. Litigation should wherever possible be avoided. For most SMEs the prospect of engaging in a costly, drawn-out court battle with an opponent with deep pockets is naturally unpalatable even with a firm belief in their own case. . This assessment was
fortified by the High Court decision in the Green & Rowley case. The FSA and FCA led review was a beacon of light for businesses decimated by the fall in interest rates, because they continued to pay very high rates of interest under the terms of the IRHPs.
There are many inexperienced solicitors and Claims Management Companies who have informed every client with an IRHP that they have a good case. They have wrongly compared a species of complicated commercial litigation with the factory-driven process of PPI
claims. This is not so, and this judgment reinforces this. Success at Court is far from guaranteed.
Why is this?
The commercial Courts in England & Wales (less so in Scotland) include prominent members of the judiciary who as Barristers used to represent big business and the banks. "Freedom of Contract" is a cornerstone
of English contract law. The Courts are very slow to interfere in a commercial bargain. The Court’s approach is to uphold the terms of a contract, being, supposedly a commercial bargain freely made between businesses. The law deems that if you agree to
enter into a contract, you must fully understand its terms. It makes no difference if you did not understand the contract, because, the Courts will say, you ought to have taken advice before entering into the contract even if you did not. These arguments
apply equally to an IRHP despite its complexity and one-sided benefits to the Bank. Equally, if the IRHP was a condition of lending, a Court is more likely than not going to say that you had the option to move to another bank if you did not like the terms
being offered by your Bank. As such, entry into an IRHP is not in and of itself wrong. Failure by you to read and understand the terms of the IRHP will not in and of itself provide you with a ground for challenge or redress It is therefore vital that all
aspects of the sale are reviewed, especially pertaining to misrepresentation and negligence. Determining if advice was given is critical to any case, as Green & Rowley were found not to have been advised by the Bank.
What does the case mean?
Green & Rowley entered into an interest rate swap. The judges describe it as being very simple in terms and not very difficult to understand ("a very straightforward transaction": Para 11). You pay
a fixed rate for a fixed number of years. Crucially, RBS provided Green & Rowley with a Risk Warning Notice (para 10). It was found as fact that Green & Rowley held the view that rates would fall slightly before rising above the fixed rate of 4.83% in the
swap. The Court found that between entry in 2005 and 2008 Green & Rowley "did well out of the Swap" (para 12). Green & Rowley were shocked when told that the exit fee was payable in 2009 when they sought to refinance the swap and their loans. The appeal
is solely regarding the Bank’s failure to disclose the potential for enormous exit fees, and the Bank’s duty to comply with the Conduct of Business ("COB") rules in regards to fair and not misleading communications.
Paragraph 15 confirms that the claim regarding breach of COB in relation to the Bank’s alleged failure to adequately explain exit fees was not pursued before the High Court because the claim had been
issued too late. The claim had to be brought within six years of the advice being given. Their claim had been issued just shortly before the sixth anniversary of the Swap being traded, being a week or so after the sixth anniversary of advice being given
(notwithstanding that the Court found that at the Presentation meeting no advice was in fact given). This distinction which was fundamental to presenting all aspects of the claim in time had been missed, to the detriment of the Claimants. Time limits in court
procedure are very fixed and unforgiving. Claims with merit are prevented from being heard because they have not been brought in time. This is why Berg is so vocal in telling businesses with hedging products that they must take note of the Limitation Act 1980
and that the claim must be issued before the sixth anniversary of any advice being given. Only specialist legal advisers (i,e Solicitors with financial litigation experience) really understand the workings of the Limitation Act. If your representative has
actually missed your limitation date then there is likely to be a claim in professional negligence representing the "loss of chance" arising out of the failure to otherwise pursue the IRHP claim. It is critical to ascertain precisely when a loss "accrues"-
this is the starting point
The High Court found that no advice or recommendations had been given, and this point, fatal to the case, was not appealed. Paragraph 17 confirms that the Bank has a duty to take care when making statements
because it knew or ought to have known that Green & Rowley would rely upon the Bank’s skill and care. This is an important point. The High Court found that where there is agreement by the Bank to advise the COB rules inform the remit of that advice and how
it is presented.
The question of the appeal then arises. If the Bank has a regulatory duty under COB, does this give rise to a concurrent duty of care when advising? The Court thought not, as had the High Court. The
important aspect of the case is whether advice was intended to be given and whether advice was given. The Court found that the Bank had not stepped over the line from giving information to giving advice. The Court found that Green & Rowley had a statutory
right of action, which was time barred. They did not have a common law right of action, which would crystallise at a later date (in this case upon the trading of the IRHP) and therefore their appeal must fail. All other points of appeal (and we believe there
were two other points) were not heard because they had failed to succeed on appeal point one and points two and three were dependent upon there being a finding of this common law duty.
Will this have an impact upon my claim?
Yes. Unless there is an express relationship between the Bank and its customer that the Bank would and did give advice then the Bank owes no duty to ensure that the summary of information about a product,
such as explaining exit fees in detail, ensures that the customer fully and properly understood all of the risks.
The case may be distinguishable for a number of reasons. However, the Banks will rely upon this judgment and the High Court judgment to say that the Banks had no duty, at all, to explain the dangers
of exit fees. This is quite ironic given that almost all redress offers under the FCA led review are as a consequence of the Banks failing to give full and proper advice regarding exit fees. As it currently stands the Courts will not be required to consider
how the FCA is intending to implement this rule.
We may well yet benefit from a future judgment that alters the landscape in favour of IRHP Claimants but at present there appear to be no cases of importance which are like to generate precedent-value
in the next 12 months, so the best advice is to ensure that each case is thoroughly assessed and prepared by a practitioner specialising in this field, before embarking on the costly and stressful process of litigation. There is no substitute for a full and
frank appraisal of each IRHP case, on which success or failure can turn on their own peculiar facts and legal arguments.
If you wish to discuss your limitation period, or discuss your hedging product (interest rate swap, collar, structured collar or tailored business loan) please contact a member of Berg’s Banking & Financial
regulation team on 0161 833 9211.