Court Of Appeal Holds That Banks Do Not Owe A Duty Of Care In IRHP Redress Scheme

In spring 2016, we examined the range of interest rate hedging product ("IRHP") misselling claims that were working their way through the courts following on from the redress scheme agreed between the banks and the Financial Conduct Authority ("FCA"). In this update, we revisit this IHRP litigation following a recent decision by the Court of Appeal around whether a duty of care is owed by those operating such a redress scheme. Had the claimants been successful in their arguments, it would have allowed them to re-open their claims against financial institutions, despite the fact that the underlying allegations of negligence were statute barred.

Background

In 2012, nine banks agreed to review their sales of IRHPs made to non-sophisticated customers since 2001. Once affected customers had been identified, their participation in the redress scheme depended on the type of product purchased. Those who had purchased structured collars were automatically included within the redress scheme, whereas those who had purchased cap products had to have proactively complained to their banks to be included. Purchasers of all other types of IRHPs would be invited to optin if assessed as non-sophisticated.

By the end of 2015, the redress scheme appeared to have been a success on paper with 92% of offers having been accepted, but this was only half the story. Some customers were aggrieved as they were left with little choice but to participate in the redress scheme as their legal claims would have been time-barred or they were not eligible to go to FOS given their size and others complained that the compensation was inadequate, or they were offered alternative hedging products instead, or otherwise excluded from the process on technicalities. A number of claims against the banks then followed by those dissatisfied by the redress received with claimants deploying various arguments, including that the banks owed them a duty of care in conducting the redress scheme.

Claimants in such actions had something of a bumpy ride, with some finding a way through and others meeting a dead end. There were also some potentially conflicting decisions with the High Court in Suremime Limited v Barclays Bank plc (2015) granting permission to amend the Particulars of Claim to plead that the defendant bank directly owed its customers a common law duty of care in connection with the conduct of the redress scheme. However, the Court in CGL Group Limited v Royal Bank of Scotland...