High Court Dismisses IRHP Mis-selling And Unlawful Means Conspiracy Claims Against Bank

• Published date: 12 May 2022
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Services, M&A/Private Equity, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Herbert Smith Freehills
• Author: Ceri Morgan, Nihar Lovell and Katie-Scarlett Wetherall

The High Court has dismissed claims brought by a business against a bank alleging the mis-selling of interest rate hedging products (IRHPs) and an unlawful means conspiracy regarding the transfer of the business to the bank's internal restructuring unit: CJ And LK Perks Partnership & Ors v Natwest Markets plc [2022] EWHC 726 (Comm).

This decision continues the trend of past IRHP mis-selling decisions, in which the court has refused to impose additional obligations on banks that were providing general dealing services on an execution-only basis (see blog posts here). It highlights the difficulty for customers in bringing mis-selling claims in circumstances where the bank has: (i) provided sufficient information in relation to a particular financial product; and (ii) clearly stated it is not providing advice on a transaction.

In the present case, the court was satisfied that the bank had not breached its duties towards the customer. The bank had provided full explanations of the costs and risks involved with each of the IRHPs. The bank had underlined in the contractual and non-contractual documentation that it was not assuming a duty to provide advice to the customer in relation to the IRHPs. The court also found that the defaults on loan repayments and the likelihood of the customer's insolvency were genuine and compelling reasons for the bank's decision for the transfer of the customer's business to its restructuring group.

We consider the decision in more detail below.

Background

In 1999, the defendant bank (the Bank) provided finance to a Scottish legal partnership (the Partnership) and two companies (together, the Claimants) for (i) the expansion of a chain of chiropractic clinics across Scotland and North-East England, and (ii) the acquisition of commercial property. In 2007, the facilities were consolidated into a '2m variable interest rate loan. One of the conditions of the loan required that the Partnership enter into an IRHP (the 2007 swap). This would provide the Partnership with protection from any increase in interest rates. However, the Partnership would not be able to benefit from any decrease in interest rates, as there would be a corresponding increase in the payments due to the Bank under the swap.

Between 2008 and 2009 interest rates fell rapidly to reach a low of 0.5% in March 2009, placing the Partnership in a less advantageous position than it would have been if its only commitment had been to pay a floating rate under the loan. Following a cashflow crisis, in 2009 the existing loan was restructured into a new package, under which the Partnership entered into a new IRHP with costs for...