Update On Recent Summary Judgment For Barclays In Interest Rate Swap Litigation

(1) Mark Thomas Raymond Bailey; and (2) MTR Bailey Trading Limited v. Barclays Bank plc [2014] EWHC 2882 (QB)

Summary

In a recent hearing in the Cardiff Mercantile Court, His Honour Judge Keyser QC (the Judge) considered various arguments advanced in relation to an interest rate swap.

Many of the points argued will be familiar to those who take an interest in swaps litigation, and the Judge's conclusions on the key points are summarised in this note. Those points include: the proper interpretation of COBS 9 and COBS 10 and the distinction between suitability and appropriateness; the entitlement of companies to bring claims for breach of COBS rules; and the effect which the regulatory regime may have on contractual obligations. Some of the claims advanced appear to be at the margins of the arguable in relation to this type of case. They were unsurprisingly rejected by the Judge and are not considered here.

The transactions in dispute

The facts of this case are unusual in some respects. The first claimant, Mr Bailey, borrowed some £1.26 million from Barclays in 2007, with a variable rate of interest, for the purchase of business premises occupied by the second claimant, a company wholly owned by Mr Bailey (the Company).

The judgment records (and the Bank does not appear to have disputed for the purposes of its application for summary judgment) that Mr Bailey's relationship manager at the Bank (who was not approved to give investment advice) told him that interest rates would go "through the roof" and suggested that he consider some form of interest rate hedging product. A presentation describing three hedging products was provided to Mr Bailey by another of the Bank's employees (who did have approval to provide investment advice). Mr Bailey then had a meeting with both these individuals during which the same advice and recommendations were repeated, and it was recommended that Mr Bailey enter specifically into an interest rate swap.

He did so on 4 May 2007. Economically, the Swap did not perform well for Mr Bailey and his evidence stated that he had made a series of complaints about it from 2009 onwards.

Crucially, in 2011 Mr Bailey wanted to transfer some properties from his own portfolio to the second claimant (the Company), for tax planning purposes. The Bank's position was that, unless the Swap was also transferred, Mr Bailey would have to pay substantial break costs to terminate it. The Swap was therefore novated from Mr Bailey to the Company in March 2011.

The Bank classified the Company as a retail client. The Bank's terms of business (the Terms) stated that it would not provide advice in relation to any transaction between it and the Company. This point was also explicitly made in the covering letter accompanying the Terms. The Swap confirmation contained the usual representations and warranties, including that no advice from...