High Court Dismisses Swaps Mis-Selling Case

In a judgment delivered on 20 December 2013, the Commercial Court has dismissed proceedings brought by a borrower and related persons alleging that interest rate swaps had been mis-sold to the borrower by a bank (Parsley Properties Limited, Angel Properties LLC, Clive Holmes and Suzanne Holmes v. Bank of Scotland plc and Michael McAteer (unreported, McGovern J., 20 December 2013)).

BACKGROUND

Under a loan agreement in 2005, Bank of Scotland plc ("the Bank") agreed to advance the sum of STG £4,210,484 to the first Plaintiff, an Isle of Man entity, Parsley Properties Limited ("Parsley"). Parsley was owned by a trust. The loan was for an investment by Parsley in a retail development in the United Kingdom.

The second Plaintiff, a Delaware company, Angel Properties LLC ("Angel") guaranteed Parsley's obligations to the Bank under the loan agreement. On foot of that guarantee, Angel mortgaged to the Bank a property in County Waterford occupied by the third and fourth Plaintiffs ("Mr and Mrs Holmes"), who continued to reside in the property on foot of a caretakers' agreement between them and Angel. Mr and Mrs Holmes were beneficiaries of the trust which owned Parsley.

Parsley subsequently entered into two interest rate swap transactions with a company in the same group as the Bank, HBOS Treasury Services plc ("the swaps") to hedge its liability for interest on foot of the loan agreement.

Parsley defaulted on its obligations under the loan agreement. The Bank made a demand to Angel in early 2012, and subsequently appointed the second Defendant ("the Receiver") as the receiver and manager over the property mortgaged by Angel to the Bank. Mr and Mrs Holmes refused to deliver up vacant possession of that property to the Receiver.

COMMERCIAL COURT CASE

The Plaintiffs commenced High Court proceedings against the Bank and Receiver in July 2013 alleging that the swaps had been mis-sold. They alleged that the guarantee by Angel, and the mortgage, did not extend to cover any liabilities incurred by reason of the swaps. They also challenged the validity of the demand and the appointment of the Receiver. They sought an order restraining the Receiver from removing Mr and Mrs Holmes from the property.

Searches carried out at the time of service of the proceedings revealed that both Parsley and Angel were dissolved at the time the proceedings were commenced. By an application to the Isle of Man courts in November 2013, Parsley's dissolution was declared void.

The...