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LEXLAW Litigation Solicitors & Barristers
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LEXLAW is a leading City of London Law Firm.
LEXLAW is a leading City of London Law Firm.

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Green & Rowley v The Royal Bank of Scotland: Appeal Dismissed

In a hearing that, after months of anticipation and an intervention by the FCA, proved in the end to something of a damp squib, the appeal in Green & Rowley was quickly determined by the Court of Appeal earlier today and dismissed. Importantly no harm seems to have been done to other businesses with swaps mis-selling claims.

A3/2013/0138 Green & Anr v The Royal Bank of Scotland
The appeal was from the decision of HHJ Waksman QC sitting in the Mercantile Court in Manchester (Queen’s Bench Division (Commercial)). The appeal was heard by the following Lord Justices of the Court of Appeal: Lord Justice RICHARDS, Lady Justice HALLETT and Lord Justice TOMLINSON.

Those following financial services litigation cases against banks in the area of interest rate hedging mis-selling will be well aware of this case and the intervention by the Financial Conduct Authority (FCA) into the appeal. The FCA we understand took the opportunity in a skeleton argument drafted by Nicholas Peacock QC to explain its regulatory framework of rules and its interpretation of them to the Court of Appeal. As we stated in an earlier post, we consider the FCA’s comments will have been helpful to the Appellants but were most unlikely to be determinative in this appeal.

Understanding why the Appeal was Dismissed
We consider the appeal was dismissed because of two principal factors.

Firstly and historically (i.e. prior to the lower court determination), the claimants decided to abandon the section 150 FSMA claim as they (probably) believed it was time barred by operation of the Limitation Act. This was a mistaken concession because in fact certain of the conduct of business rules arguably create duties that run right up to the trade execution call. This highlights the need to instruct expert swaps mis-selling lawyers to prepare, present and argue your case.

Secondly the Court of Appeal were effectively being asked to decide that there was a concurrent advisory duty under common law to comply with the regulatory rules in the face of a decision of fact by HHJ Waksman QC that there was no advice in this particular case.

URGENT: Time Bar in Swaps Mis-selling Claims
This case  illustrates the importance of calculating the correct limitation dates that apply to each element of the claim. Expert swaps lawyers would assess the case at the outset when it matters the most and then advise on an appropriate litigation or FCA Review strategy. The issue of limitation is not as simple as six years from the date of the trade telephone call as many believe.

Clearly it is vital to instruct a specialist law firm dealing with swaps mis-selling claims from the outset. Those businesses with mis-sold swaps should see a solicitor promptly as given many swaps were sold in the period of 2005 to 2008 the issue of time bar is effecting and limiting the legal rights of hundreds of cases every week at present. It costs little to protect a legal claim compared to a small fortune if the opportunity to pursue legal rights are lost.

Those businesses who believe they were mis-sold a swap but that do not protect their legal claims will be left utterly reliant on the bank’s own review of whether they mis-sold the IRHP.

Bank Review of IRHP Sales: Fact Find Interview?

Firstly you, as a bank customer, must confirm you would like to opt in to the review of past sales of interest rate hedging products (IRHP) (depending in some cases on the type of IRHP). This is the process which was privately agreed in June 2012 between the major banks (RBS, Barclays, HSBC and Lloyds) and the Financial Conduct Authority (FCA) (formerly the Financial Service Authority (FSA)).

Once this ‘opt-in’ is done your bank will invite you to participate in an oral fact-find.

The purpose of this discussion is said to be “in order to give customers an opportunity to provide a complete and detailed account of the derivative sales experience” however the derivative sale often took place several years ago and you may have little detailed recollection of events and conversations.

It is paramount to note that your recollection will be a critical factor when it comes to the bank deciding what “fair and reasonable” redress to offer.

Any lack of recollection is not helped by the usual refusal of the bank to provide you the full set of bank records which the bank and the reviewer has full access to.  It is disappointing to say the least that the bank have retained telephone recordings and can listen to them and produce transcripts but often will not release them to customers directly and promptly. The banks will routinely refuse Data Protection Act subject access requests and often legal pre-action disclosure applications are necessary to obtain as much information as possible and level the playing field.

“FSA Review” Meetings / Telephone Calls

The banks prefer to conduct face to face recorded meetings or several lengthy recorded telephone calls. One of the primary dangers is that in some cases the banks seem to operate these as interrogations with the client being repeatedly asked the same question in a multitude of different ways, which may be designed to elicit a response which would avoid or reduce the eventual redress.

Those asking the questions are often senior City litigation lawyers instructed by the bank and acting for the bank (not the FSA/FCA) and who have been carefully trained to ask questions with a view to achieving their client’s (the bank’s) aims. While you can have a legal representative present, we would not necessarily be able to prevent you from making an unguarded comment, which might then subsequently be used against you in deciding the level (if any) of redress and also in any legal proceedings.

It is crucial to note that all fact find interviews and the bank’s documentation may be referred to in any complaint or litigation as these discussions are not without prejudice. Every case is unique and there is an argument that nothing paints the picture of mis-selling better than to hear it straight from the small business owner who was clearly unsophisticated yet has been sold the most complex derivatives product.  However we normally advise against a face to face meeting unless the customer is the type of person that is not easily led in discussion, is armed with a full set of information and records, and has a good understanding of the factors and arguments for redress.

Using a Written Statement in the “FCA Review”

In its Report, ‘Interest Rate Hedging Products – Pilot Findings’, the FSA stated that it would encourage all customers to take advantage of the opportunity to engage in the review. Crucially, a customer’s account of the sale in correspondence by way of a written statement is permitted by the review but is generally discouraged by the bank’s review teams and lawyers.

A carefully prepared and considered written statement can provide a great level of detail and completeness in describing the sales experience in a structured form and without any of the dangers of a one sided interview process.

You may wish therefore to submit a written statement, with the assistance of your legal advisers to ensure it contains no comments that can be used to avoid redress or limit legal action.

We set out a basic summary of the areas that a written statement should seek to cover:

Relevant background about your business at the time of the purchase of the interest rate hedging product (“IRHP”), for example, the financial position of the business, your business plans and reasons for the loan;
Your relationship with the bank, for example, how long you have banked with them and the relationship with your banker(s);
Details of the loan including the amount, term and repayment profile;
Details of the sale of the IRHP describing the discussions that took place and the information that was provided to you about the IRHP that you purchased and any other products that you were offered;
Your understanding (at the time of the sale) of the features, benefits and risks of the IRHP and the cost of terminating the IRHP early;
Whether you were required to purchase the IRHP in order to receive the loan and your understanding of the reason(s) for this requirement;
Whether you felt you were being advised to take out the IRHP, together with any statements by the bank or its representatives which may have implied the bank was acting in an advisory capacity;
Your knowledge and understanding of IRHP at the time of the sale and the factors that influenced your decision to enter into the IRHP; and
Post sale issues and the impact of the IRHP on you and your business.
Instructing Specialist Mis-sold Swap / “FCA Review” Lawyers
It is important for small businesses not to assume they will get redress through some form of automatic process because of the breach of regulatory rules by their bank and action by the regulator. This is not what is happening; instead customers who were mis-sold must effectively put forward a claim to be considered under a framework of  rules known in detail only by the bank and the regulator.

It is important to note the banks have employed and retained large defence teams made up of hundreds of (internal and external) solicitors, barristers, derivatives sales people and forensic accountants to represent them and therefore it is sensible to consider the review as a process in which you must also be represented.

Solicitors can carefully manage the entire review process and specialist “FSA Review” lawyers can also, for example, assist you in preparing what effectively is a witness statement. This is not an easy or straightforward task. The information to be presented must be put forward in a clear structured and forceful manner. We have a legal team made up of leading financial services litigation solicitors and barristers; we pride ourselves on our ability to closely manage and concisely present our clients’ interests.

Our swaps lawyers are well versed in not only writing detailed statements but have critical expert knowledge of the method of mis-selling, the relevant regulatory, statutory and common law and legal principles which you must assert to be considered in determining redress, the rules around the regulation of financial instruments and consequently the correct customer sales process which often did not occur.

In addition we understand what pitfalls in your evidence the banks are seeking to capitalise on to avoid or reduce the financial compensation owed to the 40,000 victims of swaps mis-selling.

Using Derivatives & Accounting Experts in the “FCA Review”

We regularly instruct the leading derivatives and forensic accountant experts in litigation and the FCA Review process. We do this in order to ensure (i) we maximise the likelihood of a finding that the bank is liable to give real redress and (ii) that the compensation is as much as is legally appropriate in accordance with established law.

Since this is an FCA mandated regulatory review, it may be that in your case we consider you need the assistance of an FCA authorised derivative expert. Such an expert is authorised to advise on the suitability and appropriateness of the IRHP provided to you, together with information about the extent to which the bank’s sales process complied the conduct of business rules.  We can instruct the expert to calculate the profits generated by the Bank in selling you the IRHP which is often the fundamental motive for the whole IRHP sale in the first place. The expert can also suggest what OTC derivatives may have been more appropriate (if relevant) and can then also calculate the prices /rates of the alternative products that should have been provided to you, which will then help to assess your direct loss.

Finally, in some cases we would advise the instruction of a qualified forensic accountant to substantiate / analyse your consequential losses. These are losses which result from the mis-sale of the IRHP, beyond the direct cost, such as additional finance costs, forced sale of properties and inability to pursue planned business opportunities.  A clear provision for this has been provided within the FCA Review scheme, on the same basis as such losses would be allowed in a legal case. While you may consider losses of this sort to clearly be a consequence of the IRHP, the assistance of a qualified expert may be very helpful in order for these claims to be taken seriously by the bank’s review team.
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