The latest from the Court of Appeal
The Court of Appeal has rejected an argument that RBS was subject to a common law duty not to mis-state which was analogous to RBS’ statutory duties (or to use the Court of Appeal’s words co-extensive with statutory duties). This decision will be welcomed by banks as it ensures that the category of parties capable of bringing claims based on what was the Financial Services Authority’s Conduct of Business rules (the COB Rules) is not widened beyond ‘private person’.
In December 2012, HHJ Waksman QC produced his judgment in the matter of Green and Rowley v Royal Bank of Scotland PLC. The well considered judgment ran to some 125 paragraphs and is not fully considered in this blog. In essence, Messrs Green and Rowley claimed that RBS had mis-sold them an interest rate swap. The legal basis for their claim was that the bank was in breach of its common law duties. Particularly:
- it was claimed that RBS was guilty of negligent mis-statement in a number of respects (the information claim); and
- it was alleged that RBS gave negligent advice about the swap (the advice claim).
Ultimately, Green and Rowley did not include a claim against the bank for a breach of statutory duty (under s.150 of the Financial Services and Markets Act 2000) as it was accepted that any claims in this regard would be time-barred. However, Green and Rowley did argue that the FSA’s COB Rules should be borne in mind when considering the bank’s common law duty not to mis-state and in this regard there were a number of breaches of the COB Rules. Particularly, it was alleged that Green and Rowley had not been properly informed of the potential break costs of the swap. The judge dismissed Green and Rowley’s claim in its entirety.
It is beyond the scope of this blog to consider the first instance judgment in detail. That said, it is prudent to note that the judgment is highly fact specific and that whilst it may be encouraging to lenders who have sold interest rate hedging products, too much reliance should not be placed on it. It is worth noting:
- Mr Green was an estate agent and a residential lettings agent. Mr Rowley was a hotelier and a property developer. The judge was of the view that Green and Rowley were experienced businessmen;
- the judge also considered that the swap was ‘very straightforward’ and that Green and Rowley would have had no difficulty in understanding it. It was not a complicated derivative product; and
- before Green and Rowley executed the swap, they were provided with a terms letter. This terms letter confirmed that RBS would provide Green and Rowley with dealing services on an execution only basis and that the bank would not provide Green and Rowley with advice on the merits of the particular transaction. This contributed to the failure of the advice claim.
Green and Rowley’s appeal focussed on narrow issues. The judge had found that no ‘recommendation or advice for the Swap’ was given at a meeting with RBS before it was executed. He also found that the bank did not assume an advisory duty of care. These issues were not appealed.
The primary issue considered in the appeal was Green and Rowley’s contention that compliance with the COB Rules required the bank to not only warn that break costs associated with the swap could be substantial but also to explain clearly and fairly the true potential magnitude of those costs. As noted above a breach of statutory duty claim was not progressed by Green and Rowley rather, they sought to persuade the court that there exists at common law, duties of care co-extensive with those prescribed by the COB Rules. Essentially this was an endeavour to bypass the limitation issues in bringing a claim for breach of statutory duty and if successful could mean that whilst non private-persons could not bring an action for breach of COB Rules, they would be able to bring an action for say, negligence, which could be considered in light of the COB Rules.
Whilst it was accepted that COB Rule 2.1.3 (the duty to take reasonable steps not to mislead) was comprised within the existing common law, other duties provided for by the COB Rules are not (for example the duty to take reasonable steps to communicate clearly or fairly or the duty to take reasonable steps to ensure that a counter-party to a transaction understands its nature). In his appeal judgment, Lord Justice Tomlinson confirmed that the appellants’ argument was ‘misconceived’.
It was held that the court’s analysis of the law ‘does not support the notion that the mere existence of a statutory duty of itself brings about the creation of a co-extensive common law duty’. The appeal was dismissed.