Let Down By Representation

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Posted in:Banking and Finance, Business Finance, Corporate and Commercial, Real Estate|April 7, 2014 | Join the mailing list


Since the outset of the recession in 2008 many customers have been affected quite badly by the additional burden of monies being paid out under their interest rate hedging products. Most of these businesses had no warning that these products could be as financially
damaging as they have proven to be.

Many SMEs have approached companies and firms offering representation in this area of law. Berg has consistently warned that representation should only be sought from experienced commercial lawyers. It has become quite clear over the last 14 months that representation
in regards to interest rate hedging products has been filled by numerous qualified commercial solicitors, but has also been filled by many “me too” enterprises that have “jumped on the band wagon” so to speak. When the FSA made its announcement of the review
into the sale of IRHPs many claims management companies saw IRHP issues as being akin to PPI recovery. This has led numerous claims management companies to offer representation.

How has this been damaging?

The central problem with inexperienced enterprises offering representation in regards to IRHP disputes is that the area is complex. In order to correctly and properly advise a client in regards to an IRHP dispute a full working knowledge of the FCA’s Handbook
is essential. This requires a working knowledge in regards to Principles for Business, Conduct of Business Rules, Conduct of Business Sourcebook Rules, APER and, just as important, Treating Customers Fairly rules. Many inexperienced enterprises did not and
still do not understand all of these regulations, having only read COB/COBS. They also are unaware of the case law regarding the litigation history of banking disputes.  So, for example, a claims management company would not be able to advise on economic duress
arguments or unconscionable bargain claims.

This has resulted in businesses attending fact find meetings with their bank under the terms of the FCA led review into the sale of IRHPs without understanding what issues are being reviewed. This means that the SMEs are putting forward a story without understanding
or knowing what issues the FCA review is concentrating on. Additionally, claims management companies may have allowed limitation dates to pass without properly and correctly protecting the client’s legal position, or protecting all of the legal rights.  For
instance, Berg has numerous clients where the only legal right preserved is that relating to the sale of an IRHP, and no other rights have been preserved.

There is now some disquiet amongst reputable law firms that many of these SMEs will not be adequately represented in terms of consequential loss claims. The February 2014 statistics from the FCA demonstrate that few cases are being successful in consequential
loss claims. Without an understanding of the law with regards to consequential loss claims businesses face losing such a claim, which could have devastating financial implications for that business.  Simply submitting an accountants report is not sufficient,
and is likely to lead to a consequential loss claim being rejected.

At the end of the FCA review some businesses have found themselves in the position of having received little or no redress or have found that the bank now requires repayment of suspended swaps payments, or payment under the terms of an alternative product.
Some businesses were reliant on being successful in a consequential loss claim and may now find themselves in a financially precarious position.

There are also issues relating to RBS’s use of GRG and Lloyds customers finding their assets devalued and loan to value covenants breached and/or having had the lending facilities sold to a debt purchaser. Inexperienced claims management companies, accountants
and some inexperienced solicitor, may not have fully and properly advised their clients or be in a position to continue advising their clients.  Clients may now find themselves in position that they may not have been in had they had the assistance of suitably
qualified and experienced solicitor.

This may result in a new wave of litigation in regards to professional negligence claims. Professional negligence claims can be complex and expensive, and should only be undertaken following suitable advice from a suitably qualified and experienced solicitor.
However, if you find that you now in the position that your best interests were not served by an inexperienced business or firm, such as a claims management company, having failed to protect your rights then a professional negligence claim may be worth investigating. 
This is particularly the case where the right to sue the Bank has been lost because the six year limitation period was not protected.  

Berg’s
banking and financial
dispute team can assist you with this. Contact us today on 0161 833 9211.

For more information about any of the above or for practical commercial advice on this or any other aspect of banking and interest rate swaps, please contact
Kalvin Chapman by telephone; 0161 833 9211 or
email.

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