Recent Decision On Interest Swap Mis-Selling Claim Made In Favour Of Bank

In a recent decision (Thornbridge Limited v Barclays Bank Plc [2015] EWHC 3430(QB)), the High Court, following the judgement in Springwell, held that a bank did not assume an advisory duty in agreeing an interest rate swap and will look at all the evidence of the relationship between the parties to determine whether an advisory relationship exists

Background

Thornbridge Limited (the "Claimant") was a property investment company. In March 2008 the Claimant sought a loan from the Defendant; Barclays Bank Plc. The loan agreement was entered into on 16 April 2008. It was a condition of the loan that the Claimant either entered into an interest rate hedge or accepted a fixed interest rate. Discussions took place between the parties to discuss interest rate hedging. Interest rate hedging is a common feature of real estate finance loans as it reduces the risk to borrowers of being unable to pay interest on the loan. This is because they are normally made on a floating basis referenced to LIBOR.

Following these discussions, on 30 May 2008 the Claimant entered into an interest rate swap agreement (the "Swap") with the Defendant. The Swap was intended to protect the Claimant against interest rate rises. However, in 2008 there were a number of reductions in the Bank of England base rate, to which payments under the Swap were linked. As a result, the Swap payments due from the Claimant increased significantly. After making a series of complaints, the Claimant requested a restructuring of the Swap. The Claimant did not want to pay the high breakage costs associated with the restructuring so allowed the Swap to continue to maturity. As a result, the Claimant issued a claim against the Defendant.

The Claim

The Claimant claimed damages from the Defendant for losses arising from alleged negligence, breach of contract and breach of statutory duty. The Claimant alleged that the Defendant failed to advise as to the purchase of a suitable product, failed to provide adequate information regarding break costs (for instance, failing to give examples of the break costs when interest rates were low) and/or failed to take reasonable care to ensure information was not misstated.

Judgement

It was for the court to determine, (i) whether the Defendant had assumed an advisory duty; (ii) whether, if the relationship was advisory, the Claimant was prevented from asserting such a relationship by the terms of the Swap agreement i.e. due to the "Non-Reliance" clause in the...