Individuals and businesses who have been affected by the potential mis-selling of interest rate swap arrangements have been waiting for some basic principles to be established by the Courts. So far, despite many complaints, very few cases have resulted in
litigation. Where there has been litigation, the cases have settled and are subject to strict confidentiality provisions. We all therefore await with interest the outcome of the case of Grant Estates v RBS which was recently heard by the Scottish Courts. (The
case ran from Tuesday 29 May to Friday 1 June 2012 and was heard by Lord Hodge).
This case involved a small property developer, Grant Estates, that was pushed into administration in early 2011 after being hit with a £135,000 bill for an interest rate swap that protected the borrower from interest rates rising, and was highly profitable
for the banks should they fall. The agreement was signed with RBS on the same day in December 2007 that the Bank of England began to lower interest rates. Grant Estates argued that the agreement was an unfair term of contract.
Although we are still awaiting the judgment some of the key representations made by both parties have been disclosed. On behalf of the Bank, Alistair Clark QC submitted that the Relationship Managers of RBS were acting purely as salesmen and as such did
not take responsibility for opinions given. As a result, it was argued that statements made by the RBS were "salesmanship" and not "advice", thus resulting in a "non advisory relationship" being established. This would mean that the Conduct of Business Sourcebook
Rules set out by the bank and the FSA would not apply.
Mr Clark went on to argue that the Market and Financial Instrument Directive 2004 which forms part of European Legislation and is intended to regulate the banks behaviour, was not directly applicable to businesses. It was argued that although the Directive
provides individuals with a remedy where there has been a breach of the FSA Rules, this does not mean that the same remedy should be available to limited companies.
Mr Iain Mitchell QC on behalf of Grant Estates submitted that it was not possible for the Bank to hide behind warranties and disclaimers and argued that this was clearly a contract of advice.
The bank is claiming that the product was "requested by the customer" and no advice was given. Given the complexity of the financial products involved, it is difficult to see how the banks will be able to demonstrate that the products were requested by the
customer. In our experience, the situation was often quite the reverse, with the bank insisting on the customer taking the product.
Judgment is awaited and we will provide a full analysis once judgment has been given.
Another case of relevance here is a case brought by Midlands Manufacturing firm, Titan Steel Wheels v RBS. In this case the High Court ruled that the banks duty of care was limited when the two parties were of "equal bargaining strength". Arguments that
the contract was unfair, failed. However, the nature of the interest rate swap agreements and their complexity is such that it will be difficult to establish that the parties had equalling bargaining power. This is even more the case when many businesses were
given no alternative other than to agree to the interest rate swaps.
The more complex products were often more profitable for the banks and thus were being pushed by their salesman. This was the case, even though many other products may have been cheaper and/or more appropriate for the customer.
For further information as to how you can ensure that your complaint is dealt with by the bank as a priority, please contact Alison Loveday on 0161 833 9211 or by email to
For more information on this issue, visit the Interest Rate Swap
The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice. No responsibility for this article’s accuracy or correctness is assumed by Berg or any of its partners or employees.
Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.